Mrs. Sujata Manohar, C.J.

1. The Income Tax Appellate Tribunal has referred the following questions of law to this court under section 256(1) of the Income Tax Act, 1961 :

At the instance of the assessee :

"(1) Whether, on the facts and in the circumstances of the case, any part of the amount received by the assessee-company in respect of the U. P. Zamindari Abolition Rehabilitation Grant Bonds represented income chargeable to tax for the assessment years 1972-73 and 1973-74

(2) Whether, on the facts and in the circumstances of the case, any part of the amount received by the assessee-company apart from the actual interest received in respect of 2 1/2 per cent. of the U. P. Zamindari Abolition Compensation Bonds was chargeable to tax for the assessment years 1972-73 and 1973-74

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that relief under section 80J of the Income Tax Act, 1961, is to be restricted to Rs. 90,93,431 and Rs. 29,44,727 for the assessment years 1972-73 and 1973-74 and was not available to the extent of Rs. 1,11,73,180 and Rs. 75,94,038, respectively "

At the instance of the Commissioner of Income Tax Assessment years 1972-73 and 1973-74 :

"(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that in determining the capital of the ships owned by the assessee, the amount of borrowal should not be deducted from the written down value of each such ship

(5) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the salary and perquisites of Shri T. N. Gokuldas, a relative of a director of the assessee-company was covered by the provisions of section 40(c)(i) and not by the provisions of section 40A(5) of the Income Tax Act for computing the disallowance portion of the expenditure

(6) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the exempted portion of the gratuity under section 10(10) read with section 17(3)(ii) of the Income Tax Act, 1961, should not be treated as forming part of the salary of the retiring employees for the purpose of computing the disallowable expenditure under section 40A(5) of the Income Tax Act, 1961

(7) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have followed the provisions of section 17(1)(iii) which specifically refers to gratuity forming part of salary for the purpose of computing disallowable expenditure under section 40A(5) of the Income Tax Act, 1961

Assessment year 1973-74 :

(8) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that relevant deduction should first be allowed under section 80G of the Income Tax Act and then that due under section 80J of the Income Tax Act, thereby upholding the Appellate Assistant Commissioners order

(9) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have restricted relief under section 80J of the Income Tax Act to the extent of available income only having regard to the provisions of section 80G(4) of the Income Tax Act, 1961 "

2. Questions Nos. 1 and 2 are covered by the decision of this court in CIT v. Scindia Workshop Ltd. : [1979]119ITR526(Bom) . Following the same we answer both the questions in the affirmative and in favour of the Revenue.

3. Following the decision of the Supreme Court in Lohia Machines Ltd. v. Union of India : [1985]152ITR308(SC) , question No. 4 is answered in the negative and in favour of the Revenue.

4. Following the decision of this court in CIT v. Hico Products Pvt. Ltd. (No. 1) : [1993]201ITR567(Bom) , question No. 5 is answered in the affirmative and in favour of the assessee.

5. In view of the decision of this court in CIT v. Hindustan Petroleum Corporation Ltd. : [1991] 187 ITR 1 [LQ/BomHC/1990/446] , questions Nos. 6 and 7 are answered in the affirmative and in favour of the assessee.

6. We are now left with questions Nos. 3, 8 and 9 which we shall proceed to deal with. Question No. 3 is raised at the instance of the assessee. It pertains to the assessment years 1972-73 and 1973-74. In the original assessment made by the Income Tax Officer, the Income Tax Officer had computed the business income at Rs. 1,71,40,947 and the relief under section 80J was determined at Rs. 1,30,91,281. Before the Appellate Assistant Commissioner, as a result of the reliefs given by him under section 35B(1)(b), the business income was reduced to Rs. 89,57,570. As a result the Income Tax Officer, while giving effect to the appellate order, held that the relief under section 80J was admissible to the extent of Rs. 90,93,431. Before the Commissioner Income Tax (Appeals), the assessee contended that the relief under section 80J should be calculated on the basis of the gross total income which was admittedly Rs. 1,20,24,739. Instead of deducting development rebate from the business income itself, deduction should be made from the income from all other sources. This would leave larger business income for absorption of relief under section 80J. It was, therefore, contended by the assessee that the development rebate should have been set off first against the income from other sources, then against the profits of the ships not entitled to the benefit under section 80J and lastly against the profits of the ships entitled to the benefit under section 80J. Since this contention was not accepted by the Commissioner of Income Tax (Appeals), the assessee appealed before the Tribunal. The Tribunal agreed with the view taken by the Commissioner of Income Tax (Appeals). It held that the development rebate allowable under section 33 is placed between sections 30 to 43A. The wording of section 33 would also support the interpretation that it is in the nature of an allowance given against the income from business. The fact that unabsorbed development rebate gets set off in the subsequent years against the non-business income as well, would not alter this fact. The unabsorbed depreciation likewise is to be treated as current depreciation and, therefore, it is eligible for set off against the non-business income as well. It cannot, therefore, be argued that depreciation is also not a business deduction. The Tribunal, therefore, dismissed the appeal on this ground. For the assessment year 1973-74 also the position was similar and the Tribunal rejected the assessees contention in that regard.

7. The nature of deductions under Chapter VIA has been considered by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) . The Supreme Court was required to consider the provisions of section 80E. The Supreme Court held that it is first necessary to compute the total income of the assessee in accordance with the other provisions of the. i.e., in accordance with all the provisions except section 80E; Secondly, to ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified industry; and, thirdly, if there be profits and gains so attributable, deduct the percentage fixed thereof from such profits and gains to arrive at the net total income exigible to tax. The Supreme Court emphasised the importance of the words "as computed in accordance with the other provisions of this Act" and held that the computation must be without reference to section 80E. Since, the income was business income, it was required to be computed as per section 29 in accordance with sections 30 to 43A.

8. The ratio of this judgment will apply directly to the present case. Under section 80J where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel to which that section applies, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains as set out therein. "Gross total income" has been defined in section 80B(5) to mean the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter or under section 280-O. Clearly, therefore, for the purposes of section 80J gross total income must be computed without reference to Chapter VIA. If this gross total income includes income from profits and gains of business or profession it will have to be calculated under section 29 and in accordance with the provisions contained in sections 30 to 43A. In view of this ratio laid down in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) , question No. 3 is required to be answered in the affirmative and in favour of the Revenue. We do so.

9. Questions Nos. 8 and 9 which are raised at the instance of the Revenue relate to the assessment year 1973-74. The issue relates to determination of priority between the competing claims of reliefs under section 80J and section 80G. The Department has relied upon the provisions of section 80G(4) in support of its submission that section 80J deduction must be made first before making a deduction under section 80G. The Tribunal did not accept this contention and held that when the income was not enough to absorb both the deductions, the assessee would be entitled to claim a deduction under section 80G first and then under section 80J since the relief under section 80J can be carried forward to subsequent assessment years under certain circumstances. It also held that section 80G(4) merely provides a method of calculating the ceiling of available deduction under section 80G and should not be held as laying down any priorities between the two deductions.

10. We do not agree with this view taken by the Tribunal. Undoubtedly, where two views are possible, the assessee should get the benefit of an interpretation which is favourable to him. But, in our view, section 80G(4) cannot be looked upon merely as laying down the ceiling of deduction under section 80G.

11. Under section 80G, in computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of that section a certain percentage of the amounts paid by the assessee in the previous year as donations which are specified in that section. Sub-section (4) is as follows :

"80G. The deduction under sub-section (1) shall not be allowed in respect of such part of the aggregate of the sums referred to. . . as exceeds ten per cent. of the gross total income (as reduced by any portion thereof on which Income Tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), or two hundred thousand rupees, whichever is less :..........."

(emphasis (Here printed in italics) ours).

12. In order, therefore, to calculate the maximum deduction which is allowed under section 80G(4), it is necessary to ascertain first, the gross total income. This is defined in section 80B(5) as the total income computed in accordance with the provisions of this Act, before making any deduction under Chapter VIA or under section 280-O. Secondly, from this gross total income it is necessary to deduct, inter alia, any amount which the assessee is entitled to deduct under any provision of Chapter VIA other than section 80G. This would include a deduction under section 80J also. The gross total income thus gets reduced. Ten per cent. of this reduced gross total income or two hundred thousand rupees, whichever is less, is the ceiling prescribed. Therefore, to calculate the ceiling, one must first determine the gross total income as reduced, inter alia, by a deduction under section 80J. It is, therefore, necessary to first decide the quantum of deduction under section 80J. Obviously, therefore, the quantum of deduction under section 80J cannot be calculated after reducing the income by deduction under section 80G. Because the quantum of deduction under section 80G is in turn dependent upon the gross total income as reduced by deduction under section 80J. Therefore, while section 80G(4) prescribes the ceiling of deduction under section 80G, it necessarily entails prior calculation of a deduction under any other provisions of Chapter VIA which needs to be deducted from the gross total income before the ceiling under section 80G can be ascertained. By the very nature of the calculation required to be made under section 80G(4), it is, therefore, necessary that all other deductions under Chapter VIA be first ascertained and deducted.

13. If we accept the submission of the assessee that deduction under section 80G should be first granted, then the quantum of this deduction cannot be ascertained without reference to a deduction under section 80J. Therefore, the submission of the assessee that deduction under section 80G should be first granted before allowing deduction under section 80J cannot be accepted. In the premises, question No. 8 is answered in the negative and in favour of the Revenue. Question No. 9 is answered in the affirmative and in favour of the Revenue.

14. There shall be no order as to costs.