N. SANTOSH HEGDE J.

BY THE COURT

The judgment of the Delhi High Court in Motilal Pesticides (I) (P) Ltd. vs. CIT 1993 DEL 94 (Del) : TC 25R.237, is assailed before us. It concerns interpretation of s. 80HH of the IT Act, 1961 (for short the "Act"), and pertains to the asst. yrs. 1979-80 and 1980-81. The question of law which the High Court answered in the affirmative and in favour of the Revenue and against the appellant is as under

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to deduction under s. 80HH of the IT Act, 1961, on the gross profit of Rs. 34, 30, 035 (liquid section) but on the net income therefrom, for the asst. yr. 1979-80 " *

The appellant had claimed relief under s. 80HH in respect of its liquid section which had been newly set up in a backward area. It was the contention of the appellant that relief should be allowed on the gross income and not on the net income. Sec. 80HH in relevant part is as under

"80HH. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof." *

In support of its submission in the High Court the appellant placed reliance on a decision of this Court in Cloth Traders (P) Ltd. vs. Addl. CIT 1979 SC 229 (SC) : TC 24R.531. This judgment was delivered on an interpretation of s. 80M of the Act. The relevant part of s. 80M is as under

"80M. (1) Where the gross total income of a domestic company, in any previous year, includes any income by way of dividends from another domestic company, there shall, in accordance with the subject to the provisions of this section, be allowed, in computing the total income of such domestic company, a deduction of an amount equal to, ......" *

Both ss. 80HH and 80M fall in Chapter VI-A relating to deductions to be made in computing total income. It will be seen that the language of ss. 80HH and 80M is the same. It was held in Cloth Traders (P) Ltd.s case (supra) that deduction is to be allowed on the gross total income and not on the net income. But then the decision in Cloth Traders (P) Ltd.s case (supra) was overruled in Distributors (Baroda) (P) Ltd. vs. Union of India 1985 SC 405 (SC) : TC 24R.516. After the decision in Cloth Traders (P) Ltd.s case (supra) two ss. 80AA and 80AB were introduced by the Finance (No. 2) Act, 1980. While s. 80AA was to have retrospective effect w.e.f. 1st April, 1968, s. 80AB was to have operation w.e.f. 1st April, 1981. Sec. 80AA had the effect of effacing the decision of this Court in Cloth Traders (P) Ltd.s case (supra), which had interpreted s. 80M. Sec. 80AB was made applicable to all the sections in Chapter VI-A except s. 80M. In Distributors (Baroda) (P) Ltd.s case (supra), however, this court specifically overturned its earlier decision in Cloth Traders (P) Ltd.s case (supra) and held that deduction is to be allowed only on the net income and not on the gross income. With reference to s. 80AB, this Court said it was merely of a clarificatory nature and the decision of this Court in Distributors (Baroda) (P) Ltd.s case (supra) is thus irrespective of s. 80AB of the Act. The High Court, therefore, relying on the decision of this Court in Distributors (Baroda) (P) Ltd.s case (supra) answered the question in favour of the Revenue and against the assessee

Mr. Ramamurti, learned senior counsel, appearing for the appellant, submitted that even though Cloth Traders (P) Ltd.s case (supra) was overruled in Distributors (Baroda) (P) Ltd.s case (supra), both the cases pertained to s. 80M only and this Court had no occasion to consider the application of s. 80AB with reference to s. 80HH of the Act. He said s. 80AB was specifically introduced w.e.f. 1st April, 1981, and it would have no application to the asst. yrs. 1979-80 and 1980-81 which were involved in the present case. The effect of s. 80AB was now that deduction would have to be made from the net income and not from the gross income. But then, in all fairness, Mr. Ramamurti also referred to another decision of this Court in H. H. Sir Rama Varma vs. CIT 1993 SC 1572 : 1993 SC 1572 (SC) : TC 21R.416, where this Court observed that on a parity of reasoning with s. 80AA as given in Distributors (Baroda) (P) Ltd.s case (supra), it must be held that s. 80AB was enacted to declare the law as it always stood in relation to the deductions to be made in respect of the income specified under the head "C" of Chapter VI-A of the Act. Mr. Ramamurti also referred to a Circular, dt. 10th May, 1982 [Circular No. 341 - Ed.], issued by the CBDT in support of his submission but then this circular has since been withdrawnThat being the position we affirm the judgment of the High Court. There is no merit in these appeals and they are dismissed.