Commissioner Of Income Taxno v. M/S. Pioneer Woven Sacks Pvt. Ltd.s.f

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 08.07.2015 THE HONOURABLE MR. JUSTICE R.SUDHAKARANDTHE HONOURABLE MRS. JUSTICE S.VIMALA Commissioner of Income TaxNo.63, Race Course RoadCoimbatore... Appellant - Vs - M/s. Pioneer Woven Sacks Pvt. Ltd.S.F. No.34, Sakthi Co-operativeIndustrial EstateUdumalpet 642 128... Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act,1961 as against the order dated 19.01.2015 made in I.T.A.No.1687/Mds/2014 on the file of the Income Tax Appellate Tribunal,Madras 'A' Bench for the assessment year 2010-2011, against theorder of Commissioner of Income Tax (Appeals)-II, Coimbatore dated27.03.2014 made in IT appeal No.150/12-13 against the order ofDeputy Commissioner of Income Tax, Salary Circle-I, Coimbatore dated1.12.13 and made in PAN/GIR No. . For Respondent : Mr. G.Baskar Mr. G.Baskar, learned counsel takes notice for therespondent/assessee. By consent of both parties, the Tax Case(Appeal) itself is taken for disposal, since the issue involved inthis Tax Case (Appeal) is covered by a decision of this Court. 2. This Tax Case (Appeal) is filed by the Revenue as againstthe order of the Income Tax Appellate Tribunal. The core issueraised in this 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/ 3. Learned counsel appearing for the assessee submitted thatthe issue involved in this appeal has already been decided by thisCourt in the decision reported in (2012) 340 ITR 477 (VelayudhaswamySpinning Mills - Vs - Asst. CIT) and hence the same may be followedin this case also. 4. 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 - Vs - Asst. CIT reportedin (2012) 340 ITR 477, the Revenue preferred appeals before theSupreme Court and the same are pending. 5. Heard learned counsel appearing for the assessee and thelearned Standing Counsel appearing for the Revenue and perused thematerials placed before this Court. 6. In the decision reported in (2012) 340 ITR 477(Velayudhaswamy Spinning Mills - Vs - 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 - Vs - 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 - Vs - Mewar Oil andGeneral Mills Ltd.), and came to the conclusion that once the lossesand other 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. 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 that thebenefit is given to the profits and gains derived fromthe business of the hotel or the business of repairsto ocean-going vessels or other powered craft. Thededuction is allowed to the extent of 20 per cent.from the profits and gains of the assessee. Sub-section (5) gives deduction for the period of sevenassessment years immediately succeeding the initialassessment year. Sub-section (6) deals with computingthe deduction under sub-section (1) and it starts withnon obstante clause and also it is a deemingprovision. The fiction created by the undertaking wasthe only source of income during the previous yearinitially and subsequent assessment years. Sub-section(6) was the subject-matter before this court in theabove-mentioned unreported judgment, wherein thiscourt had held that while interpreting the aboveprovision, for the purpose of allowing deduction under https://hcservices.ecourts.gov.in/hcservices/ section 80-I brought forward losses and unabsorbeddepreciation of the new industry need not be takeninto consideration once they have been set off fromother sources of income earlier. In the present case,we are concerned with the provision of section 80-IA.The said provision was introduced by the Finance Act,1999, with effect from April 1, 2000. The provisionsof sections 80-I and 80-IA are also more or lessidentically worded. Sections 80-I and 80-IA come inChapter VI-A of the Income-tax Act. Chapter VI-A dealswith deductions to be made in computing total income.There are two tax incentives contemplated in ChapterVI-A. One is investment incentive and the other one isprofit-linked investment. Chapter VI-A was introducedby the 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 also containsdefinition. It consists of sections 80A, 80AA, 80AB,80AC and 80B. Section 80AB deals with "Deductions tobe made with reference to the income included in thegross total income", which reads as follows : "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 it clearthat any income of the nature specified in thatsection, which is included in the gross total incomeof the assessee for the purpose of computing thededuction under that section, the amount of income ofthat nature as computed in accordance with theprovision of this Act shall alone be deemed to be theamount of income of that nature which is derived orreceived by the assessee and which is included in thegross total income. Section 80AB defines "gross totalincome" which means the total income has to becomputed in accordance with the Act before makingdeduction under this Chapter. Heading "B" deals with"deductions in respect of certain payments" whichconsists of sections 80C to 80GGC. Heading "C" dealswith "deductions in respect of certain incomes", which https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ 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 consideredthe scope of sections 80-I, 80-IA and also section 80-IB of the Act, wherein, it has been held that ChapterVI-A provides for incentives in the form of taxdeductions essentially belong to the category of"profit-linked incentives". Therefore, when section80-IA/80-IB refers to profits derived from eligiblebusiness, it is not the ownership of that businesswhich attracts the incentives. Further, it has beenheld that sections 80-IB/80-IA are the code bythemselves as they contain both substantive as well asprocedural provisions. The Supreme Court furtherobserved in the said judgment that sub-section (5) ofsection 80-IA provides for manner of computation ofprofits of an eligible business. Accordingly suchprofits are to be computed as if such eligiblebusiness is the 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 derivedby an undertaking or an enterprise from anybusiness referred to in sub-section (4) (suchbusiness being hereinafter referred to as theeligible business) there shall, in accordancewith and subject to the provisions of thissection, be allowed in computing the totalincome of the assessee, a deduction of an amountequal to hundred per cent. of the profits andgains derived from such business for tenconsecutive assessment years. (2) The deduction specified in sub-section (1)may, at the option of the assessee, be claimedby him for any ten consecutive assessment yearsout of fifteen years beginning from the year inwhich the undertaking or the enterprise developsand begins to operate any infrastructurefacility or starts providing telecommunicationservice or develops an industrial park ordevelops a special economic zone referred to inclause (iii) of sub-section (4) or generatespower or commences transmission or distributionor power or undertakes substantial renovationand modernisation of the existing transmissionor distribution lines. (4) This section applies to- (i) any enterprise carrying on the business of(i) developing, or (ii) operating andmaintaining, or (iii) developing, operating andmaintaining any infrastructure facility whichfulfils all the following conditions, namely : (a) it is owned by a company registered inIndia or by a consortium of such companies (orby an authority or a board or a corporation orany other body established or constituted underany Central or State Act) ; (b) it has entered into an agreement with theCentral Government or a State Government or alocal authority or any other statutory body for(i) developing, or (ii) operating andmaintaining, or (iii)developing, operating andmaintaining a new infrastructure facility ; (c) it has started or starts operating andmaintaining the infrastructure facility on orafter the 1st April, 1995. (a) it is owned by a company registered inIndia or by a consortium of such companies (orby an authority or a board or a corporation orany other body established or constituted underany Central or State Act) ; (b) it has entered into an agreement with theCentral Government or a State Government or alocal authority or any other statutory body for(i) developing, or (ii) operating andmaintaining, or (iii)developing, operating andmaintaining a new infrastructure facility ; (c) it has started or starts operating andmaintaining the infrastructure facility on orafter the 1st April, 1995. (5) Notwithstanding anything contained in anyother provision of this Act, the profits andgains of an eligible business to which theprovisions of sub-section (1) apply shall, forthe purposes of determining the quantum ofdeduction under that sub-section for theassessment year immediately succeeding theinitial assessment year or any subsequentassessment year, be computed as if such eligiblebusiness were the only source of income of theassessee during the previous year relevant tothe initial assessment year and to everysubsequent assessment year up to and includingthe assessment year for which the determinationis to be made." From a reading of sub-section (1), it is clear thatit provides that where the gross total income of anassessee includes any profits and gains derived by anundertaking or an enterprise from any businessreferred to in subsection (4), i.e., referred to asthe eligible business, there shall, in accordance withand subject to the provisions of the section, beallowed, in computing the total income of theassessee, a deduction of an amount equal to 100 percent. of the profits and gains derived from suchbusiness for ten consecutive assessment years.Deduction is given to eligible business and the sameis defined in sub-section (4). Sub-section (2)provides option to the assessee to choose 10consecutive assessment years out of 15 years. Optionhas to be exercised, if it is not exercised, thehttps://hcservices.ecourts.gov.in/hcservices/ assessee will not be getting the benefit. Fifteenyears is outer limit and the same is beginning fromthe year in which the undertaking or the enterprisedevelops and begins to operate any infrastructureactivity, etc. Sub-section (5) deals with quantum ofdeduction for an eligible business. The words "initialassessment 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 "beginningfrom the year" referred to in sub-section (2). Theimportant factors are to be noted in sub-section (5)and they are as under : "(1) It starts with a non obstante clausewhich means it overrides all the provisions ofthe Act and other 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." "(1) It starts with a non obstante clausewhich means it overrides all the provisions ofthe Act and other 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 that theeligible business were the only source of income,during the previous year relevant to the initialassessment year and every subsequent assessment years.When the assessee exercises the option, the onlylosses of the years beginning from initial assessmentyear alone are to be brought forward and no losses ofearlier years which were already set off against theincome of the assessee. Looking forward to a period often years 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 were setoff against other income of the assessee and the setoff against the current income of the eligiblebusiness. Once the set off is taken place in earlieryear against the other income of the assessee, theRevenue cannot rework the set off amount and bring itnotionally. A fiction created in sub-section does notcontemplates to bring set off amount notionally. Thefiction is created only for the limited purpose andthe same cannot be extended beyond the purpose forwhich it is created. https://hcservices.ecourts.gov.in/hcservices/ In the present cases, there is no dispute thatlosses incurred by the assessee were already set offand adjusted against the profits of the earlier years.During the relevant assessment year, the assesseeexercised the option under section 80-IA(2). In TaxCase Nos. 909 of 2009 as well as 940 of 2009, theassessment year was 2005-06 and in Tax Case No. 918 of2008 the assessment year was 2004-05. During therelevant period, there were no unabsorbed depreciationor loss of the 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 is thecorresponding provision of sub-section (5) of section80-IA. Both are similarly worded and, therefore, weagree entirely with the Division Bench judgment ofthis court cited supra. In the case of CIT v. MewarOil and 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 contentions whichfollow on the line noticed above, we are of theopinion that on finding the fact that there wasno carry forward losses of 1983-84, which couldbe set off against the income of the currentassessment year 1984-85, the recomputation ofincome from the new industrial undertaking bysetting off the carry forward of unabsorbeddepreciation or depreciation allowance fromprevious year did not simply arise and on thefinding of fact noticed by the Commissioner ofIncome-tax (Appeals), which has not beendisturbed by the Tribunal and challenged beforeus, there was no error much less any errorapparent on the face of the record which couldbe rectified. That question would have beengermane only if there would have been carryforwardof unabsorbed depreciationandunabsorbed development rebate or any otherunabsorbed losses of the previous year arisingout of the priority industry and whether it wasrequired to be set off against the income of thecurrent year. It is not at all required thatlosses or other deductions which have alreadybeen set off against the income of the previousyear should be reopened again for computation ofcurrent income under section 80-I for thepurpose of computing admissible deductionsthereunder. 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 reasonssomewhat different from those which prevailedwith the Tribunal. There being no carry forwardof allowable deductions under the headdepreciation or development rebate which neededto be absorbed against the income of the currentyear and, therefore, recomputation of income forthe purpose of computing permissible deductionunder section 80-I for the new industrialundertaking was not required in the presentcase. 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 that lossesor other deductions which have already been set offagainst the income of the previous year should bereopened again for computation of current income undersection 80-I for the purpose of computing admissibledeductions thereunder. We also agree with the same. Wesee no reason to take a different view. The standing counsel appearing for the Revenue isunable to bring to our notice any relevant material orany compelling reason or any contra judgment of othercourts to take a different view. He only reliedheavily on the Memorandum explaining the provisions inthe Finance (No. 2) Bill, 1980, [1980] 123 ITR (St.)154 to support this case 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 bedetermined as if such units were an independent unitowned by a taxpayer who does not have any other sourceof income. In the result, the losses, depreciation andinvestment allowance of earlier years in respect ofthe new industrial undertaking, ship or approved hotelwill be taken into account in determining the quantumof deduction 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 loss inthe year earlier to the initial assessment yearalready absorbed against the profit of other businesscannot be notionally brought forward and set offagainst the profits of the eligible business as nosuch mandate is provided in section 80-IA(5). https://hcservices.ecourts.gov.in/hcservices/ 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 other businesscannot be notionally brought forward and set offagainst the profits of the eligible business as nosuch mandate is provided in section 80-IA(5). https://hcservices.ecourts.gov.in/hcservices/ Under these circumstances, we set aside the order ofthe Tribunal and answer all the questions in favour ofthe appellant/assessee and against the Revenue in TaxCase Nos. 909 and 940 of 2009 respectively.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, in which,only notice was ordered and were not yet admitted by the SupremeCourt. 9. 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 - Vs - Asst. CIT), there appears to be no distinctionon facts. 10. 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 - Vs - Asst.CIT) held in favour of the assessee and against the Revenue. 11. 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) and, thereby, confirm the order passed by theTribunal. 12. 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.Consequently, connected miscellaneous petition is closed. //True Copy// Sub Assistant Registrar To 1. The Assistant Registrar, Income Tax Appellate TribunalMadras 'A' BenchChennai. 2. The Commissioner of Income Tax, Coimbatore. 3.The Commissioner of Income (Tax, Appeals-II), Coimbatore. 4. The Deputy Commissioner of Income Tax, Salary Circle-I, Coimbatore.+ 1 cc to Mr. T.R. Senthilkumar, Advocate Sr.34547 T.C.A. NO. 459 OF 2015KGK(CO)EU 11.08.15