Commissioner Of Income Taxno v. M/S.anand Textilesno

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.04.2015 THE HONOURABLE MR.JUSTICE R.SUDHAKARandTHE HONOURABLE Ms.JUSTICE K.B.K.VASUKI Tax Case (Appeal) No.203 of 2015 Commissioner of Income TaxNo.63, Race Course Road,Coimbatore. versus .. Appellant M/s.Anand TextilesNo.527, Avinashi Road,Tirupur - 641 603. .. Respondent PRAYER: Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 as against the order dated 28.10.2014 made inI..T.A..No.2036/Mds/2014 on the file of the Income Tax AppellateTribunal, Madras 'D' Bench for the assessment year 2010-2011. and appeal against the order of the Commissioner of Income Ta(Appeals) II Coimbatore in IT Appeal No.175/13-14 dated 30.4.2014and appeal against the order of the Income Tax Officer, Ward I (4)Tiruppur in PA.GIR.No.AAHFA5867E dated 27.9.2013. This Tax Case (Appeal) is filed by the Revenue as against theorder of the Income Tax Appellate Tribunal. The core issue raisedin 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/ 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 theSupreme Court 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 ofcomputation of current year income under Section 80I or 80IA of theIncome Tax Act and the assessee should not be denied the admissiblededuction under 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 thatthe benefit is given to the profits and gains derivedfrom the business of the hotel or the business ofrepairs to ocean-going vessels or other powered craft.The deduction 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 above provision, for the purpose of allowing deduction undersection 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 or allowedunder any section included in this Chapter under theheading 'C-Deductions in respect of certain incomes'in respect of any income of the nature specified inthat section which is included in the gross totalincome of the assessee, then, notwithstanding anythingcontained in that section, for the purpose ofcomputing the deduction under that section, the amountof income of that nature as computed in accordancewith the provisions of this Act (before making anydeduction under this Chapter) shall alone be deemed tobe the amount of income of that nature which isderived or received by the assessee and which isincluded in his gross total 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 making 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 making deduction 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", whichconsists 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 derived by anundertaking 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, 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 orthe enterprise develops and begins to operate anyinfrastructurefacilityorstartsprovidingtelecommunication service or develops an industrial park or develops a special economic zone referred toin clause (iii) of sub-section (4) or generates poweror 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 anyinfrastructure facility which fulfils all thefollowing conditions, namely : (a) it is owned by a company registered in India or bya consortium of such companies (or by an authority ora board or a corporation or any other body establishedor constituted under any Central or State Act) ; park or develops a special economic zone referred toin clause (iii) of sub-section (4) or generates poweror 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 anyinfrastructure facility which fulfils all thefollowing conditions, namely : (a) it is owned by a company registered in India or bya consortium of such companies (or by an authority ora board or a corporation or any other body establishedor constituted under any Central or State Act) ; (b) it has entered into an agreement with the CentralGovernment or a State Government or a local authorityor any other statutory body for (i) developing, or(ii) operating and maintaining, or (iii)developing,operating and maintaining a new infrastructurefacility ; (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 ofdetermining the quantum of deduction under that sub-section for the assessment year immediately succeedingthe initial 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 to theinitial 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 clear that itprovides 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 the assessee, 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, theassessee 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 "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 "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 clause which meansit overrides all the provisions of the Act and otherprovisions are to be ignored ; (2) It is for the purpose of determining the quantumof deduction ; (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." "(1) It starts with a non obstante clause which meansit overrides all the provisions of the Act and otherprovisions are to be ignored ; (2) It is for the purpose of determining the quantumof deduction ; (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,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 and bring 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. 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 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 which followon the line noticed above, we are of the opinion thaton finding the fact that there was no carry forwardlosses of 1983-84, which could be set off against theincome of the current assessment year 1984-85, therecomputation of income from the new industrialundertaking by setting off the carry forward ofunabsorbed depreciation or depreciation allowance fromprevious year did not simply arise and on the findingof fact noticed by the Commissioner of Income-tax(Appeals), which has not been disturbed by theTribunal and challenged before us, there was no errormuch less any error apparent on the face of the recordwhich could be rectified. That question would havebeen germane only if there would have been carry "Having considered the rival contentions which followon the line noticed above, we are of the opinion thaton finding the fact that there was no carry forwardlosses of 1983-84, which could be set off against theincome of the current assessment year 1984-85, therecomputation of income from the new industrialundertaking by setting off the carry forward ofunabsorbed depreciation or depreciation allowance fromprevious year did not simply arise and on the findingof fact noticed by the Commissioner of Income-tax(Appeals), which has not been disturbed by theTribunal and challenged before us, there was no errormuch less any error apparent on the face of the recordwhich could be rectified. That question would havebeen germane only if there would have been carry forward of unabsorbed depreciation and unabsorbeddevelopment rebate or any other unabsorbed losses ofthe previous year arising out of the priority industryand whether it was required to be set off against theincome of the current year. It is not at all requiredthat losses or other deductions which have alreadybeen set off against the income of the previous yearshould 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 theTribunal has not erred in holding that there was norectification possible under section 80-I in thepresent case, albeit, for reasons somewhat differentfrom those which prevailed with the Tribunal. Therebeing no carry forward of allowable deductions underthe head depreciation or development rebate whichneeded to be absorbed against the income of thecurrent year and, therefore, recomputation of incomefor the purpose of computing permissible deductionunder section 80-I for the new industrial undertakingwas not required in the present 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 orother 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 and investment 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 the Revenue.We are, therefore, of the view that loss in the yearearlier to the initial assessment year alreadyabsorbed against the profit of other business cannotbe notionally 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 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. We are not agreeing with the counsel for the Revenue.We are, therefore, of the view that loss in the yearearlier to the initial assessment year alreadyabsorbed against the profit of other business cannotbe notionally 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 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. 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 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 as well.Having exercised their option and their losses have been set offalready against other income of the business enterprise, theassessee in this appeal falls within the parameters of Section 80IAof the Income Tax Act. In the decision reported in (2012) 340 ITR477 (Velayudhaswamy Spinning Mills V. Asst. CIT), there appears tobe no distinction on facts. 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 bythis Court in the case of Velayudhasamy Spinning Mills (supra) andin a batch of cases in T.C.(A)Nos.408 of 2012, are inclined todismiss this Tax Case (Appeal), thereby confirm the order passed bythe Tribunal. https://hcservices.ecourts.gov.in/hcservices/ 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.Consequently, M.P.No.1 of 2015 is closed. Sd/- Asst.Registrar (CS III) /true copy/ Sub Asst. RegistrarslTo1. The Income Tax Appellate Tribunal, Madras 'D' Bench.2. The Commissioner of Income Tax (Appeals) II, Coimbatore.3. The Deputy Commissioner of Income Tax, Company Circle, Tirupur.1 cc to Mr.T.R. Senthilkumar, Advocate, Sr. 23080Tax Case (Appeal) No.203 of 2015KJI (CO)kk 25/5