Commissioner Of Income Taxno v. M/S. Best Corporation Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 08.07.2015 CORAM THE HONOURABLE MR.JUSTICE R.SUDHAKARANDTHE HONOURABLE MRS.JUSTICE S.VIMALA Commissioner of Income TaxNo.63, Race Course RoadCoimbatore. .. Appellant/Petitioner - Vs - M/s. Best Corporation Ltd.No.89/2, Best Industrial EstateAvinashi RoadTirupur – 641 603... Respondent/Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 as against the order dated 10.09.2014 made in I.T.A.No.723/Mds/2014 on the file of the Income Tax AppellateTribunal, Madras 'B' Bench for the assessment year 2010-2011against the order of the Commissioner of Income Tax (Appeals-II), Coimbatore dated 24/12/2013 made in IT A.No.117/13-14 whichwas filed against the order of the Deputy Commissioner of IncomeTax company circle, Tirupur, dated 25/03/2013 made inPA.No.AACCR6828G Assessment year 2010-2011. Mr. R.Kumar, learned counsel takes notice for therespondent/assessee. By consent of both parties, the Tax Case(Appeal) itself is taken for disposal, since the issue involvedin this Tax Case (Appeal) is covered by a decision of this Court. 2. This Tax Case (Appeal) is filed by the Revenue asagainst the order of the Income Tax Appellate Tribunal. The coreissue raised in this Tax Case (Appeal) is whether, on the factshttps://hcservices.ecourts.gov.in/hcservices/ and in the circumstances of the case, the Tribunal is right inlaw in holding that the respondent/assessee is entitled to claimdeduction under section 80-IA of the Income Tax Act. 3. Learned counsel appearing for the assessee submittedthat the issue involved in this appeal has already been decidedby this Court in the decision reported in (2012) 340 ITR 477(Velayudhaswamy Spinning Mills - Vs - Asst. CIT) and hence thesame may be followed in this case also. 4. It is stated by the learned Standing Counsel appearingfor the Revenue that as against the decision rendered by thisCourt in the case of Velayudhaswamy Spinning Mills - Vs - Asst.CIT reported in (2012) 340 ITR 477, the Revenue preferredappeals before the Supreme Court and the same are pending. 5. Heard learned counsel appearing for the assessee andthe learned Standing Counsel appearing for the Revenue andperused the materials placed before this Court. 6. In the decision reported in (2012) 340 ITR 477(Velayudhaswamy Spinning Mills - Vs - Asst. CIT), this Court,while dealing with the benefit under Chapter VIA of the IncomeTax Act, placed reliance on the decision reported in (2009) 317ITR 218 (SC) (Liberty India - Vs - CIT), wherein the SupremeCourt considered the scope of Section 80I, 80IA and 80IB of theIncome Tax Act and held that Chapter VI-A provides forincentives in the form of tax deductions essentially belong tothe category of "profit-linked incentives". This Court alsoplaced reliance on the decision reported in (2004) 271 ITR 311(Raj) (CIT - Vs - Mewar Oil and General Mills Ltd.), and came tothe conclusion that once the losses and other deduction have setoff against the income of the previous year, it should not bereopened again for the purpose of computation of current yearincome under Section 80I or 80IA of the Income Tax Act and theassessee should not be denied the admissible deduction underSection 80IA of the Income Tax Act. 7. 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 orother powered craft. The deduction is allowed tothe extent of 20 per cent. from the profits andgains of the assessee. Sub-section (5) givesdeduction for the period of seven assessment yearsimmediately succeeding the initial assessmentyear. Sub-section (6) deals with computing thededuction under sub-section (1) and it starts with https://hcservices.ecourts.gov.in/hcservices/ 7. 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 orother powered craft. The deduction is allowed tothe extent of 20 per cent. from the profits andgains of the assessee. Sub-section (5) givesdeduction for the period of seven assessment yearsimmediately succeeding the initial assessmentyear. Sub-section (6) deals with computing thededuction under sub-section (1) and it starts with https://hcservices.ecourts.gov.in/hcservices/ non obstante clause and also it is a deemingprovision. The fiction created by the undertakingwas the only source of income during the previousyear initially and subsequent assessment years.Sub-section (6) was the subject-matter before thiscourt in the above-mentioned unreported judgment,wherein this court had held that whileinterpreting the above provision, for the purposeof allowing deduction under section 80-I broughtforward losses and unabsorbed depreciation of thenew industry need not be taken into considerationonce they have been set off from other sources ofincome earlier. In the present case, we areconcerned with the provision of section 80-IA. Thesaid provision was introduced by the Finance Act,1999, with effect from April 1, 2000. Theprovisions of sections 80-I and 80-IA are alsomore or less identically worded. Sections 80-I and80-IA come in Chapter VI-A of the Income-tax Act.Chapter VI-A deals with deductions to be made incomputing 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 areA, 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 theincome included in the gross total income", whichreads as follows :"Where any deduction is required to bemade or allowed under any section includedin this Chapter under the heading 'C-Deductions in respect of certain incomes' inrespect of any income of the naturespecified in that section which is includedin the gross total income of the assessee,then, notwithstanding anything contained inthat section, for the purpose of computingthe deduction under that section, the amountof income of that nature as computed inaccordance with the provisions of this Act(before making any deduction under thisChapter) shall alone be deemed to be theamount of income of that nature which isderived or received by the assessee andwhich is included in his gross totalincome." 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 ofcomputing the deduction under that section, theamount of income of that nature as computed inaccordance with the provision of this Act shallalone be deemed to be the amount of income of thatnature which is derived or received by theassessee and which is included in the gross totalincome. Section 80AB defines "gross total income"which means the total income has to be computed inaccordance with the Act before making deductionunder this Chapter. Heading "B" deals with"deductions in respect of certain payments" whichconsists of sections 80C to 80GGC. Heading "C"deals with "deductions in respect of certainincomes", which consists of sections 80H to 80TT.The last heading "D" deals with "other deductions"which consists of sections 80U to 80V. Heading "C"is relevant for considering the issue in theseappeals. The relevant provisions that are to beconsidered are sections 80-I, 80-IA and 80-IB. Inthe case of Liberty India v. CIT [2009] 317 ITR218 (SC) ; [2009] 225 CTR (SC) 233 ; [2009] 28 DTR(SC) 73, the apex court considered the scope ofsections 80-I, 80-IA and also section 80-IB of theAct, wherein, it has been held that Chapter VI-Aprovides for incentives in the form of taxdeductions essentially belong to the category of"profit-linked incentives". Therefore, whensection 80-IA/80-IB refers to profits derived fromeligible business, it is not the ownership of thatbusiness which attracts the incentives. Further,it has been held that sections 80-IB/80-IA are thecode by themselves as they contain bothsubstantive as well as procedural provisions. TheSupreme Court further observed in the saidjudgment that sub-section (5) of section 80-IAprovides for manner of computation of profits ofan eligible business. Accordingly such profits areto be computed as if such eligible business is theonly source of income of the assessee. Section 80-IA reads as follows : "80-IA. (1) Where the gross total income ofan assessee includes any profits and gainsderived by an undertaking or an enterprisefrom any business referred to in sub-section(4) (such business being hereinafter referredto as the eligible business) there shall, in https://hcservices.ecourts.gov.in/hcservices/ accordance with and subject to the provisionsof this section, be allowed in computing thetotal income of the assessee, a deduction ofan amount equal to hundred per cent. of theprofits and gains derived from such businessfor ten consecutive assessment years. (2) The deduction specified in sub-section(1) may, at the option of the assessee, beclaimed by him for any ten consecutiveassessment years out of fifteen yearsbeginning from the year in which theundertaking or the enterprise develops andbegins to operate any infrastructure facilityor starts providing telecommunication serviceor develops an industrial park or develops aspecial economic zone referred to in clause(iii) of sub-section (4) or generates poweror commences transmission or distribution orpower or undertakes substantial renovationandmodernisationoftheexistingtransmission or distribution lines. (4) This section applies to- (i) any enterprise carrying on the businessof (i) developing, or (ii) operating andmaintaining, or (iii) developing, operatingand maintaining any infrastructure facilitywhich fulfils all the following conditions,namely : (a) it is owned by a company registered inIndia or by a consortium of such companies(or by an authority or a board or acorporation or any other body established orconstituted under any Central or State Act) ; (b) it has entered into an agreement withthe Central Government or a State Governmentor a local authority or any other statutorybody for (i) developing, or (ii) operatingandmaintaining,or(iii)developing,operatingandmaintaininganewinfrastructure facility ; (4) This section applies to- (i) any enterprise carrying on the businessof (i) developing, or (ii) operating andmaintaining, or (iii) developing, operatingand maintaining any infrastructure facilitywhich fulfils all the following conditions,namely : (a) it is owned by a company registered inIndia or by a consortium of such companies(or by an authority or a board or acorporation or any other body established orconstituted under any Central or State Act) ; (b) it has entered into an agreement withthe Central Government or a State Governmentor a local authority or any other statutorybody for (i) developing, or (ii) operatingandmaintaining,or(iii)developing,operatingandmaintaininganewinfrastructure facility ; (c) it has started or starts operating andmaintaining the infrastructure facility on orafter the 1st April, 1995. (5) Notwithstanding anything contained inany other provision of this Act, the profitsand gains of an eligible business to whichthe provisions of sub-section (1) applyshall, for the purposes of determining the https://hcservices.ecourts.gov.in/hcservices/ quantum of deduction under that sub-sectionfor the assessment year immediatelysucceeding the initial assessment year or anysubsequent assessment year, be computed as ifsuch eligible business were the only sourceof income of the assessee during the previousyear relevant to the initial assessment yearand to every subsequent assessment year up toand including the assessment year for whichthe 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 fromany business referred to in subsection (4), i.e.,referred to as the eligible business, there shall,in accordance with and subject to the provisionsof the 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 consecutiveassessment years. Deduction is given to eligiblebusiness and the same is defined in sub-section(4). Sub-section (2) provides option to theassessee to choose 10 consecutive assessment yearsout of 15 years. Option has to be exercised, if itis not exercised, the assessee will not be gettingthe benefit. Fifteen years is outer limit and thesame is beginning from the year in which theundertaking or the enterprise develops and beginsto operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for aneligible business. The words "initial assessmentyear" are used in sub-section (5) and the same isnot defined under the provisions. It is to benoted that "initial assessment year" employed insub-section (5) is different from the words"beginning from the year" referred to in sub-section (2). The important factors are to be notedin sub-section (5) and they are as under :"(1) It starts with a non obstante clausewhich means it overrides all the provisionsof the Act and other provisions are to beignored ; (2) It is for the purpose of determiningthe quantum of deduction ; (3) For the assessment year immediatelysucceeding the initial assessment year ; (4) It is a deeming provision ; https://hcservices.ecourts.gov.in/hcservices/ (5) Fiction created that the eligiblebusiness is the only source of income ; and (6) During the previous year relevant tothe initial assessment year and everysubsequent assessment year." (2) It is for the purpose of determiningthe quantum of deduction ; (3) For the assessment year immediatelysucceeding the initial assessment year ; (4) It is a deeming provision ; https://hcservices.ecourts.gov.in/hcservices/ (5) Fiction created that the eligiblebusiness is the only source of income ; and (6) During the previous year relevant tothe initial assessment year and everysubsequent assessment 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 beginningfrom initial assessment year alone are to bebrought forward and no losses of earlier yearswhich were already set off against the income ofthe assessee. Looking forward to a period of tenyears from the initial assessment is contemplated.It does not allow the Revenue to look backward andfind out if there is any loss of earlier years andbring forward notionally even though the same wereset off against other income of the assessee andthe set off against the current income of theeligible business. Once the set off is taken placein earlier year against the other income of theassessee, the Revenue cannot rework the set offamount and bring it notionally. A fiction createdin sub-section does not contemplates to bring setoff amount notionally. The fiction is created onlyfor the limited purpose and the same cannot beextended beyond the purpose for which it iscreated. In the present cases, there is no dispute thatlosses incurred by the assessee were already setoff and adjusted against the profits of theearlier years. During the relevant assessmentyear, the assessee exercised the option undersection 80-IA(2). In Tax Case Nos. 909 of 2009 aswell as 940 of 2009, the assessment year was 2005-06 and in Tax Case No. 918 of 2008 the assessmentyear was 2004-05. During the relevant period,there were no unabsorbed depreciation or loss ofthe eligible undertakings and the same werealready absorbed in the earlier years. There is apositive profit during the year. The unreportedjudgment of this court cited supra considered thescope of sub-section (6) of section 80-I, which isthe corresponding provision of sub-section (5) ofsection 80-IA. Both are similarly worded and,therefore, we agree entirely with the DivisionBench judgment of this court cited supra. In thecase of CIT v. Mewar Oil and General Mills Ltd. https://hcservices.ecourts.gov.in/hcservices/ (No. 1) [2004] 271 ITR 311 (Raj) ; [2004] 186 CTR(Raj) 141, the Rajasthan High Court alsoconsidered the scope of section 80-I and held asfollows (page 314 of 271 ITR) : https://hcservices.ecourts.gov.in/hcservices/ (No. 1) [2004] 271 ITR 311 (Raj) ; [2004] 186 CTR(Raj) 141, the Rajasthan High Court alsoconsidered the scope of section 80-I and held asfollows (page 314 of 271 ITR) : "Having considered the rival contentionswhich follow on the line noticed above, weare of the opinion that on finding the factthat there was no carry forward losses of1983-84, which could be set off against theincome of the current assessment year 1984-85, the recomputation of income from the newindustrial undertaking by setting off thecarry forward of unabsorbed depreciation ordepreciation allowance from previous yeardid not simply arise and on the finding offact noticed by the Commissioner of Income-tax (Appeals), which has not been disturbedby the Tribunal and challenged before us,there was no error much less any errorapparent on the face of the record whichcould be rectified. That question would havebeen germane only if there would have beencarry forward of unabsorbed depreciation andunabsorbed development rebate or any otherunabsorbed losses of the previous yeararising out of the priority industry andwhether it was required to be set offagainst the income of the current year. Itis not at all required that losses or otherdeductions which have already been set offagainst the income of the previous yearshould be reopened again for computation ofcurrent income under section 80-I for thepurpose of computing admissible deductionsthereunder. In view thereof, we are of the opinionthat the Tribunal has not erred in holdingthat there was no rectification possibleunder section 80-I in the present case,albeit, for reasons somewhat different fromthose which prevailed with the Tribunal.There being no carry forward of allowabledeductions under the head depreciation ordevelopment rebate which needed to beabsorbed against the income of the currentyear and, therefore, recomputation of incomefor the purpose of computing permissiblededuction under section 80-I for the newindustrial undertaking was not required inthe present case. https://hcservices.ecourts.gov.in/hcservices/ Accordingly, this appeal fails and ishereby dismissed 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 ofcurrent income under section 80-I for the purposeof computing admissible deductions thereunder. Wealso agree with the same. We see no reason to takea different 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 Memorandumexplaining the provisions in the Finance (No. 2)Bill, 1980, [1980] 123 ITR (St.) 154 to supportthis case and the same reads as follows : "Clause 30(iii). In computing the quantum of'tax holiday' profits in all cases, taxable incomederived from the new industrial units, etc., willbe determined as if such units were an independentunit owned by a taxpayer who does not have anyother source of income. In the result, the losses,depreciation and investment allowance of earlieryears 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 against theprofits of the taxpayer from other sources." "Clause 30(iii). In computing the quantum of'tax holiday' profits in all cases, taxable incomederived from the new industrial units, etc., willbe determined as if such units were an independentunit owned by a taxpayer who does not have anyother source of income. In the result, the losses,depreciation and investment allowance of earlieryears 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 against theprofits of the taxpayer from other sources." We are not agreeing with the counsel for theRevenue. We are, therefore, of the view that lossin the 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 eligiblebusiness as no such mandate is provided in section80-IA(5). Under these circumstances, we set aside theorder of the Tribunal and answer all the questionsin favour of the appellant/assessee and againstthe Revenue in Tax Case Nos. 909 and 940 of 2009respectively. Accordingly, tax cases are allowed." 8. 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, inwhich, only notice was ordered and were not yet admitted by theSupreme Court. 9. The facts in the present case are also identical to theabove-said decision of this Court that all the businessundertakings are wind mills and they have claimed the benefit ofdeduction under Section 80IA of the Income Tax Act for theassessment years in question and for the subsequent years aswell. Having exercised their option and their losses have beenset off already against other income of the business enterprise,the assessee in this appeal falls within the parameters ofSection 80IA of the Income Tax Act. In the decision reported in(2012) 340 ITR 477 (Velayudhaswamy Spinning Mills - Vs - Asst.CIT), there appears to be no distinction on facts. 10. Again in a batch of cases in T.C.(A)Nos.408 of 2012,by order dated 12.1.2015, this Court, following the decisionreported in (2012) 340 ITR 477 (Velayudhaswamy Spinning Mills -Vs - Asst. CIT) held in favour of the assessee and against theRevenue. 11. We, therefore, taking note of the decision rendered bythis Court in the case of Velayudhasamy Spinning Mills (supra)and in a batch of cases in T.C.(A)Nos.408 of 2012, are inclinedto dismiss this Tax Case (Appeal) and, thereby, confirm theorder passed by the Tribunal. 12. In view of the above, the questions of law raised inthis appeal are answered against the Revenue and in favour ofthe assessee. This Tax Case (Appeal) stands dismissed. Nocosts. Consequently, connected miscellaneous petition is closed. sd/ASSISTANT REGISTRAR(CS-III) /TRUE COPY/ SUB-ASSISTANT REGISTRAR GLN To 1. The Income Tax Appellate TribunalMadras 'B' BenchChennai. https://hcservices.ecourts.gov.in/hcservices/ 2. The Commissioner of Income TaxNo.63, Race Course RoadCoimbatore. 3. The Commissioner of Income Tax (Appeals-II)Coimbatore 4. The Deputy Commissioner of Income Taxcompany circle, Tirupur T.C.A. NO. 441 OF 2015CO-CAJD 28/10/2015