Commissioner Of Income Taxcompany Circle, Tirupur v. Prayer: Tax Case Appeal Filed Under Section 260A Of The Income Taxact, 1961 As Against The Order Dated 27.08.2014 Made Ini..t.a

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.02.2015 CORAM: THE HONOURABLE MR.JUSTICE R.SUDHAKARandTHE HONOURABLE MR.JUSTICE R.KARUPPIAH Commissioner of Income TaxCompany Circle, Tirupur.. Appellant versus Smt.K.IndiraNo.207/86, KaruvampalayamMangalam RoadTirupur – 641 602.. Respondent PAN AAEFP17557A PRAYER: Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 as against the order dated 27.08.2014 made inI..T.A..No.1637/Mds/2014 on the file of the Income Tax AppellateTribunal, Madras 'B' Bench for the assessment year 2010-2011. against the order dated 27.3.2014 made in ITA.No.78/1-2013 onthe file of Commissioner of Income Tax (Appeals) II, Coimbatorewhich was preferred against the order dated 30.11.2012 made inPAN/GIR.No.AAEP17557A on the file of Deputy Commissioner of Incometax, Company Circle, Tirupur. For appellant : Mr.K.Suresh Kumar Standing Counsel for Income Tax This Tax Case (Appeal) is filed by the Revenue as against theorder of the Income Tax Appellate Tribunal. The core issue raised inthis Tax Case (Appeal) is whether, on the facts and in thecircumstances of the case, the Tribunal is right in law in holdingthat the respondent/assessee is entitled to claim deduction undersection 80-IA of the Income Tax Act. https://hcservices.ecourts.gov.in/hcservices/ 2. The issue involved in this appeal has already been decidedby this Court in the decision reported in (2012) 340 ITR 477(Velayudhaswamy Spinning Mills V. Asst. CIT). 3. It is stated by the learned Standing Counsel appearing forthe Revenue that as against the decision rendered by this Court inthe case of Velayudhaswamy Spinning Mills V. Asst. CIT reported in(2012) 340 ITR 477, the Revenue preferred appeals before the SupremeCourt and the same are pending. 4. Heard learned counsel appearing for the assessee andperused the materials placed before this Court. 5. In the decision reported in (2012) 340 ITR 477(Velayudhaswamy Spinning Mills V. Asst. CIT), this Court, whiledealing with the benefit under Chapter VIA of the Income Tax Act,placed reliance on the decision reported in (2009) 317 ITR 218 (SC)( Liberty India V. CIT), wherein the Supreme Court considered thescope of Section 80I, 80IA and 80IB of the Income Tax Act and heldthat Chapter VI-A provides for incentives in the form of taxdeductions essentially belong to the category of "profit-linkedincentives". This Court also placed reliance on the decisionreported in (2004) 271 ITR 311 (Raj) (CIT V. Mewar Oil and GeneralMills Ltd.), and came to the conclusion that once the losses andother deduction have set off against the income of the previousyear, it should not be reopened again for the purpose of computationof current year income under Section 80I or 80IA of the Income TaxAct and the assessee should not be denied the admissible deductionunder Section 80IA of the Income Tax Act. 6. 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 that thebenefit is given to the profits and gains derived fromthe business of the hotel or the business of repairs toocean-going vessels or other powered craft. Thededuction is allowed to the extent of 20 per cent. fromthe profits and gains of the assessee. Sub-section (5)gives deduction for the period of seven assessment yearsimmediately succeeding the initial assessment year. Sub-section (6) deals with computing the deduction undersub-section (1) and it starts with non obstante clauseand also it is a deeming provision. The fiction createdby the undertaking was the only source of income duringthe previous year initially and subsequent assessmentyears. Sub-section (6) was the subject-matter beforethis court in the above-mentioned unreported judgment,wherein this court had held that while interpreting the above provision, for the purpose of allowing deductionunder section 80-I brought forward losses and unabsorbeddepreciation of the new industry need not be taken intoconsideration once they have been set off from othersources of income earlier. In the present case, we areconcerned with the provision of section 80-IA. The saidprovision was introduced by the Finance Act, 1999, witheffect from April 1, 2000. The provisions of sections80-I and 80-IA are also more or less identically worded.Sections 80-I and 80-IA come in Chapter VI-A of theIncome-tax Act. Chapter VI-A deals with deductions to bemade in computing total income. There are two taxincentives contemplated in Chapter VI-A. One isinvestment incentive and the other one is profit-linkedinvestment. Chapter VI-A was introduced by the FinanceAct, 1965, with effect from April 1, 1965, and itconsists of four headings. They are A, B, C and D.Heading "A" is general and it also contains definition.It consists of sections 80A, 80AA, 80AB, 80AC and 80B.Section 80AB deals with "Deductions to be made withreference to the income included in the gross totalincome", which reads as follows : "Where any deduction is required to be made or allowedunder any section included in this Chapter under theheading 'C-Deductions in respect of certain incomes' inrespect of any income of the nature specified in thatsection which is included in the gross total income ofthe assessee, then, notwithstanding anything containedin that section, for the purpose of computing thededuction under that section, the amount of income ofthat nature as computed in accordance with theprovisions of this Act (before making any deductionunder this Chapter) shall alone be deemed to be theamount of income of that nature which is derived orreceived by the assessee and which is included in hisgross total income." A mere reading of the above provision makes it clearthat any income of the nature specified in that section,which is included in the gross total income of theassessee for the purpose of computing the deductionunder that section, the amount of income of that natureas computed in accordance with the provision of this Actshall alone be deemed to be the amount of income of thatnature which is derived or received by the assessee andwhich is included in the gross total income. Section80AB defines "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 certain payments"which consists of sections 80C to 80GGC. Heading "C"deals with "deductions in respect of certain incomes",which consists of sections 80H to 80TT. The last heading"D" deals with "other deductions" which consists ofsections 80U to 80V. Heading "C" is relevant forconsidering the issue in these appeals. The relevantprovisions that are to be considered are sections 80-I,80-IA and 80-IB. In the 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 thescope of sections 80-I, 80-IA and also section 80-IB ofthe Act, wherein, it has been held that Chapter VI-Aprovides for incentives in the form of tax deductionsessentially belong to the category of "profit-linkedincentives". Therefore, when section 80-IA/80-IB refersto profits derived from eligible business, it is not theownership of that business which attracts theincentives. Further, it has been held that sections 80-IB/80-IA are the code by themselves as they contain bothsubstantive as well as procedural provisions. TheSupreme Court further observed in the said judgment thatsub-section (5) of section 80-IA provides for manner ofcomputation of profits of an eligible business.Accordingly such profits are to be computed as if sucheligible business is the only source of income of theassessee. Section 80-IA reads as follows : Section 80-IA reads as follows : "80-IA. (1) Where the gross total income of an assesseeincludes any profits and gains derived by an undertakingor an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred toas the eligible business) there shall, in accordancewith and subject to the provisions of this section, beallowed in computing the total income of the assessee, adeduction of an amount equal to hundred per cent. of theprofits and gains derived from such business for tenconsecutive assessment years. (2) The deduction specified in sub-section (1) may, atthe option of the assessee, be claimed by him for anyten consecutive assessment years out of fifteen yearsbeginning from the year in which the undertaking or theenterprise develops and begins to operate anyinfrastructurefacilityorstartsprovidingtelecommunication service or develops an industrial parkor develops a special economic zone referred to inclause (iii) of sub-section (4) or generates power or commences transmission or distribution or power orundertakes substantial renovation and modernisation ofthe 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 any infrastructurefacility which fulfils all the following conditions,namely : (a) it is owned by a company registered in India or by aconsortium of such companies (or by an authority or aboard or a corporation or any other body established orconstituted under any Central or State Act) ; (b) it has entered into an agreement with the CentralGovernment or a State Government or a local authority orany other statutory body for (i) developing, or (ii)operating and maintaining, or (iii)developing, operatingand maintaining a new infrastructure facility ; (c) it has started or starts operating and maintainingthe infrastructure facility on or after the 1st April,1995. (5) Notwithstanding anything contained in any otherprovision of this Act, the profits and gains of aneligible business to which the provisions of sub-section(1) apply shall, for the purposes of determining thequantum of deduction under that sub-section for theassessment year immediately succeeding the initialassessment year or any subsequent assessment year, becomputed as if such eligible business were the onlysource of income of the assessee during the previousyear relevant to the initial assessment year and toevery subsequent assessment year up to and including theassessment year for which the determination is to bemade." From a reading of sub-section (1), it is clear that itprovides that where the gross total income of anassessee includes any profits and gains derived by anundertaking or an enterprise from any business referredto in subsection (4), i.e., referred to as the eligiblebusiness, there shall, in accordance with and subject tothe provisions of the section, be allowed, in computingthe total income of the assessee, a deduction of anamount equal to 100 per cent. of the profits and gainsderived from such business for ten consecutiveassessment years. Deduction is given to eligible business and the same is defined in sub-section (4).Sub-section (2) provides option to the assessee tochoose 10 consecutive assessment years out of 15 years.Option has to be exercised, if it is not exercised, theassessee will not be getting the benefit. Fifteen yearsis outer limit and the same is beginning from the yearin which the undertaking or the enterprise develops andbegins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for aneligible business. The words "initial business and the same is defined in sub-section (4).Sub-section (2) provides option to the assessee tochoose 10 consecutive assessment years out of 15 years.Option has to be exercised, if it is not exercised, theassessee will not be getting the benefit. Fifteen yearsis outer limit and the same is beginning from the yearin which the undertaking or the enterprise develops andbegins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for aneligible business. The words "initial assessment year" are used in sub-section (5) and thesame is not defined under the provisions. It is to benoted that "initial assessment year" employed in sub-section (5) is different from the words "beginning fromthe year" referred to in sub-section (2). The importantfactors are to be noted in sub-section (5) and they areas under : "(1) It starts with a non obstante clause which means itoverrides all the provisions of the Act and otherprovisions are to be ignored ; (2) It is for the purpose of determining the quantum ofdeduction ; (3) For the assessment year immediately succeeding theinitial assessment year ; (4) It is a deeming provision ; (5) Fiction created that the eligible business is theonly source of income ; and (6) During the previous year relevant to the initialassessment year and every subsequent assessment year." From a reading of the above, it is clear that theeligible business were the only source of income, duringthe previous year relevant to the initial assessmentyear and every subsequent assessment years. When theassessee exercises the option, the only losses of theyears beginning from initial assessment year alone areto be brought forward and no losses of earlier yearswhich were already set off against the income of theassessee. Looking forward to a period of ten years fromthe initial assessment is contemplated. It does notallow the Revenue to look backward and find out if thereis any loss of earlier years and bring forwardnotionally even though the same were set off againstother income of the assessee and the set off against thecurrent income of the eligible business. Once the setoff is taken place in earlier year against the other income of the assessee, the Revenue cannot rework theset off amount and bring it notionally. A fictioncreated in sub-section does not contemplates to bringset off amount notionally. The fiction is created onlyfor the limited purpose and the same cannot be extendedbeyond the purpose for which it is created. income of the assessee, the Revenue cannot rework theset off amount and bring it notionally. A fictioncreated in sub-section does not contemplates to bringset off amount notionally. The fiction is created onlyfor the limited purpose and the same cannot be extendedbeyond the purpose for which it is created. In the present cases, there is no dispute that lossesincurred by the assessee were already set off andadjusted against the profits of the earlier years.During the relevant assessment year, the assesseeexercised the option under section 80-IA(2). In Tax CaseNos. 909 of 2009 as well as 940 of 2009, the assessmentyear was 2005-06 and in Tax Case No. 918 of 2008 theassessment year was 2004-05. During the relevant period,there were no unabsorbed depreciation or loss of theeligible undertakings and the same were already absorbedin the earlier years. There is a positive profit duringthe year. The unreported judgment of this court citedsupra considered the scope of sub-section (6) of section80-I, which is the corresponding provision of sub-section (5) of section 80-IA. Both are similarly wordedand, therefore, we agree entirely with the DivisionBench judgment of this court cited supra. In the case ofCIT v. Mewar Oil and General Mills Ltd. (No. 1) [2004]271 ITR 311 (Raj) ; [2004] 186 CTR (Raj) 141, theRajasthan High Court also considered the scope ofsection 80-I and held as follows (page 314 of 271 ITR) :"Having considered the rival contentions which follow onthe line noticed above, we are of the opinion that onfinding the fact that there was no carry forward lossesof 1983-84, which could be set off against the income ofthe current assessment year 1984-85, the recomputationof income from the new industrial undertaking by settingoff the carry forward of unabsorbed depreciation ordepreciation allowance from previous year did not simplyarise and on the finding of fact noticed by theCommissioner of Income-tax (Appeals), which has not beendisturbed by the Tribunal and challenged before us,there was no error much less any error apparent on theface of the record which could be rectified. Thatquestion would have been germane only if there wouldhave been carry forward of unabsorbed depreciation andunabsorbed development rebate or any other unabsorbedlosses of the previous year arising out of the priorityindustry and whether it was required to be set offagainst the income of the current year. It is not at allrequired that losses or other deductions which havealready been set off against the income of the previous year should be reopened again for computation of currentincome under section 80-I for the purpose of computingadmissible deductions thereunder. In view thereof, we are of the opinion that the Tribunalhas not erred in holding that there was no rectificationpossible under section 80-I in the present case, albeit,for reasons somewhat different from those whichprevailed with the Tribunal. There being no carryforward of allowable deductions under the headdepreciation or development rebate which needed to beabsorbed against the income of the current year and,therefore, recomputation of income for the purpose ofcomputing permissible deduction under section 80-I forthe new industrial undertaking was not required in thepresent case. Accordingly, this appeal fails and is hereby dismissedwith no order as to costs." From a reading of the above, the Rajasthan High Courtheld that it is not at all required that losses or otherdeductions which have already been set off against theincome of the previous year should be reopened again forcomputation of current income under section 80-I for thepurpose of computing admissible deductions thereunder.We also agree with the same. We see no reason to take adifferent view. Accordingly, this appeal fails and is hereby dismissedwith no order as to costs." From a reading of the above, the Rajasthan High Courtheld that it is not at all required that losses or otherdeductions which have already been set off against theincome of the previous year should be reopened again forcomputation of current income under section 80-I for thepurpose of computing admissible deductions thereunder.We also agree with the same. We see no reason to take adifferent view. The standing counsel appearing for the Revenue is unableto bring to our notice any relevant material or anycompelling reason or any contra judgment of other courtsto take a different view. He only relied heavily on theMemorandum explaining the provisions in the Finance (No.2) Bill, 1980, [1980] 123 ITR (St.) 154 to support thiscase and the same reads as follows : "Clause 30(iii). In computing the quantum of 'taxholiday' profits in all cases, taxable income derivedfrom the new industrial units, etc., will be determinedas if such units were an independent unit owned by ataxpayer who does not have any other source of income.In the result, the losses, depreciation and investmentallowance of earlier years in respect of the newindustrial undertaking, ship or approved hotel will betaken into account in determining the quantum ofdeduction admissible under the new section 80-I eventhough they may have been set off against the profits ofthe taxpayer from other sources." We are not agreeing with the counsel for the Revenue. Weare, therefore, of the view that loss in the year earlier to the initial assessment year already absorbedagainst the profit of other business cannot benotionally brought forward and set off against theprofits of the eligible business as no such mandate isprovided in section 80-IA(5). Under these circumstances, we set aside the order of theTribunal and answer all the questions in favour of theappellant/assessee and against the Revenue in Tax CaseNos. 909 and 940 of 2009 respectively. Accordingly, taxcases are allowed. 7. It is relevant to note that as against the above-saiddecision rendered by this Court, the Revenue has filed appealsbefore the Supreme Court, which are stated to be pending, in which,only notice was ordered and were not yet admitted by the SupremeCourt. 8. The facts in the present case are also identical to theabove-said decision of this Court that all the business undertakingsare wind mills and they have claimed the benefit of deduction underSection 80IA of the Income Tax Act for the assessment years inquestion and for the subsequent years as well. Having exercisedtheir option and their losses have been set off already againstother income of the business enterprise, the assessee in this appealfalls within the parameters of Section 80IA of the Income Tax Act.In the decision reported in (2012) 340 ITR 477 (VelayudhaswamySpinning Mills V. Asst. CIT), there appears to be no distinction onfacts. 9. Again in a batch of cases in T.C.(A)Nos.408 of 2012, byorder dated 12.1.2015, this Court, following the decision reportedin (2012) 340 ITR 477 (Velayudhaswamy Spinning Mills V. Asst. CIT)held in favour of the assessee and against the Revenue. 10. We, therefore, taking note of the decision rendered by thisCourt in the case of Velayudhasamy Spinning Mills (supra) and in abatch of cases in T.C.(A)Nos.408 of 2012, are inclined to dismissthis Tax Case (Appeal), thereby confirm the order passed by theTribunal. 11. In view of the above, the questions of law raised in thisappeal are answered against the Revenue and in favour of theassessee. This Tax Case (Appeal) stands dismissed. No costs. Sd/- Asst.Registrar (CS III ) /true copy/ Sub Asst. Registrar slTo 1. The Income Tax Appellate Tribunal, Madras 'B' Bench.2. The Commissioner of Income tax (Appeals) IICoimbatore3. The Deputy Commissioner of Income TaxCompany Cirlce, Tirupur1 cc to Mr.M. Swaminathan, Advocate, Sr. 9810 10. We, therefore, taking note of the decision rendered by thisCourt in the case of Velayudhasamy Spinning Mills (supra) and in abatch of cases in T.C.(A)Nos.408 of 2012, are inclined to dismissthis Tax Case (Appeal), thereby confirm the order passed by theTribunal. 11. In view of the above, the questions of law raised in thisappeal are answered against the Revenue and in favour of theassessee. This Tax Case (Appeal) stands dismissed. No costs. Sd/- Asst.Registrar (CS III ) /true copy/ Sub Asst. Registrar slTo 1. The Income Tax Appellate Tribunal, Madras 'B' Bench.2. The Commissioner of Income tax (Appeals) IICoimbatore3. The Deputy Commissioner of Income TaxCompany Cirlce, Tirupur1 cc to Mr.M. Swaminathan, Advocate, Sr. 9810 Tax Case (Appeal) No.49 of 2015 VD (CO)kk 11/3