Commissioner Of Income Tax, Race Course, Road, Coimbatore v. M/S.kongoor Textile Process

In the High Court of Judicature at MadrasDated : 20.4.2015 Coram The Honourable Mr.Justice V.RAMASUBRAMANIANandThe Honourable Ms.Justice K.B.K.VASUKI Commissioner of Income Tax, Race Course, Road, Coimbatore....Appellant / Appellant Vs M/s.Kongoor Textile Process, Tirupur....Respondent / Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act,1961 against the order dated 17.10.2014 passed by the Income TaxAppellate Tribunal, Madras 'C' Bench, for the assessment year 2010-2011, made in ITA No.1061/Mds/2014. preferred against the order of the Commissioner of Income TaxAppeals II, Coimbatore dated 17.1.2014 made in ITA.No.136/12-13preferred against the Assessment order of the assistant Commissionerof Income tax, Circle I, Tirupur dated 4.1.2013 made inPAN/GIR.NO.AADFK5062D for the assessment year 2010-2011. For Appellant : Mr.T.R.Senthilkumar Judgment was delivered by V.RAMASUBRAMANIAN,J This appeal is filed by the Revenue as against the order of theIncome Tax Appellate Tribunal. The core issue raised in this Tax Case(Appeal) is whether, on the facts and in the circumstances of thecase, the Tribunal is right in law in holding that therespondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. 2. Though it is brought to the notice of this Court that theissue involved in this appeal has already been decided by this Courtin the decision reported in Velayudhaswamy Spinning Mills Vs Asst.CIT [2012) 340 ITR 477], it is stated by the learned Standing Counselappearing for the Revenue that as against the decision rendered bythis Court in Velayudhaswamy Spinning Mills, the Revenue haspreferred appeals before the Supreme Court and the same are pending. https://hcservices.ecourts.gov.in/hcservices/ 3. Heard learned Standing Counsel appearing for the Revenue andperused the materials placed before this Court. 4. In the decision reported in Velayudhaswamy Spinning Mills,this Court, while dealing with the benefit under Chapter VIA of theIncome Tax Act, placed reliance on the decision reported in LibertyIndia Vs CIT [2009) 317 ITR 218 (SC)], wherein the Supreme Courtconsidered the scope of Sections 80I, 80IA and 80IB of the Income TaxAct and held that Chapter VI-A provides for incentives in the form oftax deductions essentially belong to the category of "profit-linkedincentives". This Court also placed reliance on the decision reportedin CIT - Vs - Mewar Oil and General Mills Ltd. [2004) 271 ITR 311(Raj)] and came to the conclusion that once the losses and otherdeduction have been set off against the income of the previous year,it should not be reopened again for the purpose of computation ofcurrent year income under Section 80I or 80IA of the Income Tax Actand the assessee should not be denied the admissible deduction underSection 80IA of the Income Tax Act. 5. For better understanding of the decision, we extract therelevant portion of the decision of this Court as such:"From a reading of the above, it is clear thatthe benefit is given to the profits and gainsderived from the business of the hotel or thebusiness of repairs to ocean-going vessels or otherpowered craft. The deduction is allowed to theextent of 20 per cent. from the profits and gains ofthe assessee. Sub-section (5) gives deduction forthe period of seven assessment years immediatelysucceeding the initial assessment year. Sub-section(6) deals with computing the deduction under sub-section (1) and it starts with non obstante clauseand also it is a deeming provision. The fictioncreated by the undertaking was the only source ofincome during the previous year initially andsubsequent assessment years. Sub-section (6) was thesubject-matter before this court in the above-mentioned unreported judgment, wherein this courthad held that while interpreting the aboveprovision, for the purpose of allowing deductionunder section 80-I brought forward losses andunabsorbed depreciation of the new industry need notbe taken into consideration once they have been setoff from other sources of income earlier. In thepresent case, we are concerned with the provision ofsection 80-IA. The said provision was introduced bythe Finance Act, 1999, with effect from April 1,2000. The provisions of sections 80-I and 80-IA arealso more or less identically worded. Sections 80-I and 80-IA come in Chapter VI-A of the Income-taxAct. Chapter VI-A deals with deductions to be madein computing total income. There are two taxincentives contemplated in Chapter VI-A. One isinvestment incentive and the other one is profit-linked investment. Chapter VI-A was introduced bythe Finance Act, 1965, with effect from April 1,1965, and it consists of four headings. They are A,B, C and D. Heading "A" is general and it alsocontains definition. It consists of sections 80A,80AA, 80AB, 80AC and 80B. Section 80AB deals with"Deductions to be made with reference to the incomeincluded in the gross total income", which reads asfollows :"Where any deduction is required to be made orallowed under any section included in thisChapter under the heading 'C-Deductions inrespect of certain incomes' in respect of anyincome of the nature specified in that sectionwhich is included in the gross total income ofthe assessee, then, notwithstanding anythingcontained in that section, for the purpose ofcomputing the deduction under that section, theamount of income of that nature as computed inaccordance with the provisions of this Act(before making any deduction under this Chapter)shall alone be deemed to be the amount of incomeof that nature which is derived or received bythe assessee and which is included in his grosstotal income." A mere reading of the above provision makes itclear that any income of the nature specified inthat section, which is included in the gross totalincome of the assessee for the purpose of computingthe deduction under that section, the amount ofincome of that nature as computed in accordance withthe provision of this Act shall alone be deemed tobe the amount of income of that nature which isderived or received by the assessee and which isincluded in the gross total income. Section 80ABdefines "gross total income" which means the totalincome has to be computed in accordance with the Actbefore making deduction under this Chapter. Heading"B" deals with "deductions in respect of certainpayments" which consists of sections 80C to 80GGC.Heading "C" deals with "deductions in respect ofcertain incomes", which consists of sections 80H to80TT. The last heading "D" deals with "other deductions" which consists of sections 80U to 80V.Heading "C" is relevant for considering the issue inthese appeals. The relevant provisions that are tobe considered are sections 80-I, 80-IA and 80-IB. Inthe case of Liberty India v. CIT [2009] 317 ITR 218(SC) ; [2009] 225 CTR (SC) 233 ; [2009] 28 DTR (SC)73, the apex court considered the scope of sections80-I, 80-IA and also section 80-IB of the Act,wherein, it has been held that Chapter VI-A providesfor incentives in the form of tax deductionsessentially belong to the category of "profit-linkedincentives". Therefore, when Section 80-IA/80-IBrefers to profits derived from eligible business, itis not the ownership of that business which attractsthe incentives. Further, it has been held thatsections 80-IB/80-IA are the code by themselves asthey contain both substantive as well as proceduralprovisions. The Supreme Court further observed inthe said judgment that sub-section (5) of section80-IA provides for manner of computation of profitsof an eligible business. Accordingly such profitsare to be computed as if such eligible business isthe only source of income of the assessee. Section 80-IA reads as follows :"80-IA. (1) Where the gross total income of anassessee includes any profits and gains derived byan undertaking or an enterprise from any businessreferred to in sub-section (4) (such business beinghereinafter referred to as the eligible business)there shall, in accordance with and subject to theprovisions of this section, be allowed in computingthe total income of the assessee, a deduction of anamount equal to hundred per cent. of the profits andgains derived from such business for ten consecutiveassessment years. (2) The deduction specified in sub-section (1)may, at the option of the assessee, be claimed byhim for any ten consecutive assessment years out offifteen years beginning from the year in which theundertaking or the enterprise develops and begins tooperate any infrastructure facility or startsproviding telecommunication service or develops anindustrial park or develops a special economic zonereferred to in clause (iii) of sub-section (4) orgenerates power or commences transmission ordistribution or power or undertakes substantialrenovation and modernisation of the existing transmission or distribution lines. (4) This section applies to- (i) any enterprise carrying on the business of(i) developing, or (ii) operating and maintaining,or (iii) developing, operating and maintaining anyinfrastructure facility which fulfils all thefollowing conditions, namely : (a) it is owned by a company registered inIndia or by a consortium of such companies (or by anauthority or a board or a corporation or any otherbody established or constituted under any Central orState Act) ; (b) it has entered into an agreement with theCentral Government or a State Government or a localauthority or any other statutory body for (i)developing, or (ii) operating and maintaining, or(iii)developing, operating and maintaining a newinfrastructure facility ; (c) it has started or starts operating andmaintaining the infrastructure facility on or afterthe 1st April, 1995. (5) Notwithstanding anything contained in anyother provision of this Act, the profits and gainsof an eligible business to which the provisions ofsub-section (1) apply shall, for the purposes ofdetermining the quantum of deduction under that sub-section for the assessment year immediatelysucceeding the initial assessment year or anysubsequent assessment year, be computed as if sucheligible business were the only source of income ofthe assessee during the previous year relevant tothe initial assessment year and to every subsequentassessment year up to and including the assessmentyear for which the determination is to be made." (c) it has started or starts operating andmaintaining the infrastructure facility on or afterthe 1st April, 1995. (5) Notwithstanding anything contained in anyother provision of this Act, the profits and gainsof an eligible business to which the provisions ofsub-section (1) apply shall, for the purposes ofdetermining the quantum of deduction under that sub-section for the assessment year immediatelysucceeding the initial assessment year or anysubsequent assessment year, be computed as if sucheligible business were the only source of income ofthe assessee during the previous year relevant tothe initial assessment year and to every subsequentassessment year up to and including the assessmentyear for which the determination is to be made." From a reading of sub-section (1), it is clearthat it provides that where the gross total incomeof an assessee includes any profits and gainsderived by an undertaking or an enterprise from anybusiness referred to in subsection (4), i.e.,referred to as the eligible business, there shall,in accordance with and subject to the provisions ofthe section, be allowed, in computing the totalincome of the assessee, a deduction of an amountequal to 100 per cent. of the profits and gainsderived from such business for ten consecutive assessment years. Deduction is given to eligiblebusiness and the same is defined in sub-section (4).Sub-section (2) provides option to the assessee tochoose 10 consecutive assessment years out of 15years. Option has to be exercised, if it is notexercised, the assessee will not be getting thebenefit. Fifteen years is outer limit and the sameis beginning from the year in which the undertakingor the enterprise develops and begins to operate anyinfrastructure activity, etc. Sub-section (5) dealswith quantum of deduction for an eligible business.The words "initial assessment year" are used in sub-section (5) and the same is not defined under theprovisions. It is to be noted that "initialassessment year" employed in sub-section (5) isdifferent from the words "beginning from the year"referred to in sub-section (2). The importantfactors are to be noted in sub-section (5) and theyare as under :"(1) It starts with a non obstante clause whichmeans it overrides all the provisions of the Act andother provisions are to be ignored ;(2) It is for the purpose of determining thequantum of deduction ; (3) For the assessment year immediatelysucceeding the initial assessment year ; (4) It is a deeming provision ; (5) Fiction created that the eligible businessis the only source of income ; and (6) During the previous year relevant to theinitial assessment year and every subsequentassessment year." From a reading of the above, it is clear thatthe eligible business were the only source ofincome, during the previous year relevant to theinitial assessment year and every subsequentassessment years. When the assessee exercises theoption, the only losses of the years beginning frominitial assessment year alone are to be broughtforward and no losses of earlier years which werealready set off against the income of the assessee.Looking forward to a period of ten years from theinitial assessment is contemplated. It does notallow the Revenue to look backward and find out ifthere is any loss of earlier years and bring forward notionally even though the same were set off againstother income of the assessee and the set off againstthe current income of the eligible business. Oncethe set off is taken place in earlier year againstthe other income of the assessee, the Revenue cannotrework the set off amount and bring it notionally. Afiction created in sub-section does not contemplatesto bring set off amount notionally. The fiction iscreated only for the limited purpose and the samecannot be extended beyond the purpose for which itis created. notionally even though the same were set off againstother income of the assessee and the set off againstthe current income of the eligible business. Oncethe set off is taken place in earlier year againstthe other income of the assessee, the Revenue cannotrework the set off amount and bring it notionally. Afiction created in sub-section does not contemplatesto bring set off amount notionally. The fiction iscreated only for the limited purpose and the samecannot be extended beyond the purpose for which itis created. In the present cases, there is no dispute thatlosses incurred by the assessee were already set offand adjusted against the profits of the earlieryears. During the relevant assessment year, theassessee exercised the option under section 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of2009, the assessment year was 2005-06 and in TaxCase No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were nounabsorbed depreciation or loss of the eligibleundertakings and the same were already absorbed inthe earlier years. There is a positive profit duringthe year. The unreported judgment of this courtcited supra considered the scope of sub-section (6)of section 80-I, which is the correspondingprovision of sub-section (5) of section 80-IA. Bothare similarly worded and, therefore, we agreeentirely with the Division Bench judgment of thiscourt cited supra. In the case of CIT v. Mewar Oiland General Mills Ltd. (No. 1) [2004] 271 ITR 311(Raj) ; [2004] 186 CTR (Raj) 141, the Rajasthan HighCourt also considered the scope of section 80-I andheld as follows (page 314 of 271 ITR) : "Having considered the rival contentionswhich follow on the line noticed above, we are ofthe opinion that on finding the fact that therewas no carry forward losses of 1983-84, whichcould be set off against the income of thecurrentassessmentyear1984-85,therecomputation of income from the new industrialundertaking by setting off the carry forward ofunabsorbed depreciation or depreciation allowancefrom previous year did not simply arise and onthe finding of fact noticed by the Commissionerof Income-tax (Appeals), which has not beendisturbed by the Tribunal and challenged beforeus, there was no error much less any error apparent on the face of the record which could berectified. That question would have been germaneonly if there would have been carry forward ofunabsorbeddepreciationandunabsorbeddevelopment rebate or any other unabsorbed lossesof the previous year arising out of the priorityindustry and whether it was required to be setoff against the income of the current year. It isnot at all required that losses or otherdeductions which have already been set offagainst the income of the previous year should bereopened again for computation of current incomeunder section 80-I for the purpose of computingadmissible deductions thereunder. In view thereof, we are of the opinion thatthe Tribunal has not erred in holding that therewas no rectification possible under section 80-Iin the present case, albeit, for reasons somewhatdifferent from those which prevailed with theTribunal. There being no carry forward ofallowable deductions under the head depreciationor development rebate which needed to be absorbedagainst the income of the current year and,therefore, recomputation of income for thepurpose of computing permissible deduction undersection 80-I for the new industrial undertakingwas not required in the present case. Accordingly, this appeal fails and is herebydismissed with no order as to costs." In view thereof, we are of the opinion thatthe Tribunal has not erred in holding that therewas no rectification possible under section 80-Iin the present case, albeit, for reasons somewhatdifferent from those which prevailed with theTribunal. There being no carry forward ofallowable deductions under the head depreciationor development rebate which needed to be absorbedagainst the income of the current year and,therefore, recomputation of income for thepurpose of computing permissible deduction undersection 80-I for the new industrial undertakingwas not required in the present case. Accordingly, this appeal fails and is herebydismissed with no order as to costs." From a reading of the above, the Rajasthan HighCourt held that it is not at all required thatlosses or other deductions which have already beenset off against the income of the previous yearshould be reopened again for computation of currentincome under section 80-I for the purpose ofcomputing admissible deductions thereunder. We alsoagree with the same. We see no reason to take adifferent view. The standing counsel appearing for the Revenueis unable to bring to our notice any relevantmaterial or any compelling reason or any contrajudgment of other courts to take a different view.He only relied heavily on the Memorandum explainingthe provisions in the Finance (No. 2) Bill, 1980,[1980] 123 ITR (St.) 154 to support this case andthe same reads as follows : "Clause 30(iii). In computing the quantum of'tax holiday' profits in all cases, taxableincome derived from the new industrial units,etc., will be determined as if such units were anindependent unit owned by a taxpayer who does nothave any other source of income. In the result,the losses, depreciation and investment allowanceof earlier years in respect of the new industrialundertaking, ship or approved hotel will be takeninto account in determining the quantum ofdeduction admissible under the new section 80-Ieven though they may have been set off againstthe profits of the taxpayer from other sources." We are not agreeing with the counsel for theRevenue. We are, therefore, of the view that loss inthe year earlier to the initial assessment yearalready absorbed against the profit of otherbusiness cannot be notionally brought forward andset off against the profits of the eligible businessas no such mandate is provided in section 80-IA(5). Under these circumstances, we set aside theorder of the Tribunal and answer all the questionsin favour of the appellant/assessee and against theRevenue in Tax Case Nos. 909 and 940 of 2009respectively. Accordingly, tax cases are allowed." 6. It is relevant to note that as against the above-saiddecision rendered by this Court, the Revenue has filed appeals beforethe Supreme Court, which are stated to be pending, in which, onlynotice has been ordered and they are not yet admitted by the SupremeCourt. 7. The facts in the present case are also identical to theabove-said decision of this Court that the business undertaking ofthe assessee is wind mill power generation/hosiery goods, etc., andit has claimed the benefit of deduction under Section 80IA of theIncome Tax Act for the assessment year in question and for thesubsequent years as well. Having exercised its option and its losseshave been set off already against other income of the businessenterprise, the assessee in this appeal falls within the parametersof Section 80IA of the Income Tax Act. There appears to be nodistinction on facts in relation to the decision reported inVelayudhaswamy Spinning Mills. 8. Again in a batch of cases in T.C.(A) Nos.408 of 2012, etc.,by order dated 12.1.2015, this Court, following the decision reportedin Velayudhaswamy Spinning Mills, held in favour of the assessee andagainst the Revenue. 8. Again in a batch of cases in T.C.(A) Nos.408 of 2012, etc.,by order dated 12.1.2015, this Court, following the decision reportedin Velayudhaswamy Spinning Mills, held in favour of the assessee andagainst the Revenue. 9. We, therefore, taking note of the decision rendered by thisCourt in Velayudhasamy Spinning Mills and in a batch of cases in T.C.(A) Nos.408 of 2012, etc. dated 12.1.2015, are inclined to dismissthis Tax Case (Appeal), and, thereby, confirm the order passed by theTribunal. Accordingly, the questions of law raised in this appeal areanswered against the Revenue and in favour of the assessee. 10. For the reasons afore-stated, this Tax Case (Appeal) standsdismissed. Sd/- Asst.Registrar (CS IV ) /true copy/Sub Asst. RegistrarTo1. The Income Tax Appellate Tribunal, Madras 'C' Bench.Chennai2. The Commissioner of Income Tax Appeals IICoimbatore3. The Assistant Commissioner of Income Tax Circle I, Tirupur4.The Assistant RegistrarIncome Tax Appellate TribunalBesant Nagar,Chennai-901 cc to Mr.T.R. Senthilkumar, Advocate, S. 21202 T.C.A.No.184 of 2015 MSM (CO)kk 29/4