Commissioner Of Income Taxno v. M/S.c.n.v.textiles Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 25.06.2015 CORAM: THE HONOURABLE MR.JUSTICE R.SUDHAKARandTHE HONOURABLE Ms.JUSTICE K.B.K.VASUKI Tax Case (Appeal) No.333 of 2015& M.P.No.1 of 2015 Commissioner of Income TaxNo.63, Race Course Road,Coimbatore. .. Appellant versus M/s.C.N.V.Textiles Pvt. Ltd.,No.2/1 Avinashi Road,Chinnampalayam,Coimbatore – 641 062. .. Respondent PRAYER: Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 as against the order dated 21.11.2014 made inI..T.A..No.1216/Mds/2014 on the file of the Income Tax AppellateTribunal, Madras 'B' Bench for the assessment year 2010-2011 asagainst the order of the Commissioner of Income Tax (Appeals)IICoimbatore dated 7.1.2014 for the assessment year 2010-11 inPAN.No.AAACC8478M and against the assessment order of the DeputyCommissioner of Income Tax, Company Circle, Tiruppur dated30.11.2012 in PAN.No. . 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 Standing Counsel appearing for the Revenueand perused 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: 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 assessmentyears immediately succeeding the initial assessmentyear. Sub-section (6) deals with computing thededuction under sub-section (1) and it starts with nonobstante clause and also it is a deeming provision. Thefiction created by the undertaking was the only sourceof income during the previous year initially andsubsequent assessment years. Sub-section (6) was thesubject-matter before this court in the above-mentionedunreported judgment, wherein this court had held thatwhile interpreting the above provision, for the purposeof allowing deduction under section 80-I broughtforward losses and unabsorbed depreciation of the new industry need not be taken into consideration once theyhave been set off from other sources of income earlier.In the present case, we are concerned with theprovision of section 80-IA. The said provision wasintroduced by the Finance Act, 1999, with effect fromApril 1, 2000. The provisions of sections 80-I and 80-IA are also more or less identically worded. Sections80-I and 80-IA come in Chapter VI-A of the Income-taxAct. Chapter VI-A deals with deductions to be made incomputing total income. There are two tax incentivescontemplated in Chapter VI-A. One is investmentincentive 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 thatsection, which is included in the gross total income ofthe assessee for the purpose of computing the deductionunder that section, the amount of income of that natureas computed in accordance with the provision of thisAct shall alone be deemed to be the amount of income ofthat nature which is derived or received by theassessee and which is included in the gross totalincome. Section 80AB defines "gross total income" whichmeans the total income has to be computed in accordancewith the Act before making deduction under thisChapter. Heading "B" deals with "deductions in respectof certain payments" which consists of sections 80C to80GGC. Heading "C" deals with "deductions in respect ofcertain incomes", which consists of sections 80H to 80TT. The last heading "D" deals with "otherdeductions" which consists of sections 80U to 80V.Heading "C" is relevant for considering the issue inthese appeals. The relevant provisions that are to beconsidered are sections 80-I, 80-IA and 80-IB. In thecase of Liberty India v. CIT [2009] 317 ITR 218 (SC) ;[2009] 225 CTR (SC) 233 ; [2009] 28 DTR (SC) 73, theapex court considered the scope of sections 80-I, 80-IAand also section 80-IB of the Act, wherein, it has beenheld that Chapter VI-A provides for incentives in theform of tax deductions essentially belong to thecategory 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 hasbeen held 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 eligible businessis the only source of income of the assessee. Section 80-IA reads as follows :"80-IA. (1) Where the gross total income of an assesseeincludes any profits and gains derived by anundertaking or an enterprise from any business referredto in sub-section (4) (such business being hereinafterreferred to as the eligible business) there shall, inaccordance with and subject to the provisions of thissection, be allowed in computing the total income ofthe assessee, a deduction of an amount equal to hundredper cent. of the profits and gains derived from suchbusiness for ten consecutive 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 industrialpark or develops a special economic zone referred to inclause (iii) of sub-section (4) or generates power orcommences 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,operatingandmaintaininganyinfrastructure facility which fulfils all the followingconditions, namely :(a) it is owned by a company registered in India or bya consortium 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 authorityor any other statutory body for (i) developing, or (ii)operating and maintaining, or (iii)developing,operating and 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 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 the assesseeduring the previous year relevant to the initialassessment year and to every subsequent assessment yearup to and including the assessment year for which thedetermination is to be made." (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 the assesseeduring the previous year relevant to the initialassessment year and to every subsequent assessment yearup to and including the assessment year for which thedetermination 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 business referredto in subsection (4), i.e., referred to as the eligiblebusiness, there shall, in accordance with and subjectto the provisions of the section, be allowed, incomputing the total income of the assessee, a deductionof an amount equal to 100 per cent. of the profits andgains derived 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 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 year in 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 meansit overrides 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,during the previous year relevant to the initialassessment year and every subsequent assessment years.When the assessee exercises the option, the only lossesof the years beginning from initial assessment yearalone 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 and findout if there is any loss of earlier years and bringforward notionally even though the same were set offagainst other income of the assessee and the set offagainst the current income of the eligible business.Once the set off is taken place in earlier year againstthe other income of the assessee, the Revenue cannotrework the set off amount and bring it notionally. Afiction created in sub-section does not contemplates tobring set off amount notionally. The fiction is createdonly for the limited purpose and the same cannot beextended beyond 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 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 the scopeof 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 of thiscourt cited supra. In the case of CIT v. Mewar Oil andGeneral Mills Ltd. (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 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 the Tribunaland challenged before us, there was no error much lessany error apparent on the face of the record whichcould be rectified. That question would have beengermane only if there would have been carry forward ofunabsorbed depreciation and unabsorbed developmentrebate or any other unabsorbed losses of the previousyear arising out of the priority industry and whetherit was required to be set off against the income of thecurrent year. 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. 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 the present 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 the currentyear and, therefore, recomputation of income for thepurpose of computing permissible deduction undersection 80-I for the new industrial undertaking was notrequired 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. 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 relied heavilyon the Memorandum explaining the provisions in theFinance (No. 2) Bill, 1980, [1980] 123 ITR (St.) 154 tosupport 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 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 profitsof 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 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 ofthe Tribunal and answer all the questions in favour ofthe appellant/assessee and against the Revenue in Tax Case 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 the above Tax Case (Appeal), thereby confirm the orderpassed by the Tribunal. 11. In view of the above, the questions of law raised in thisappeal are answered against the Revenue and in favour of theassessee. The above Tax Case (Appeal) stands dismissed. No costs.Consequently, M.P.No.1 of 2015 is closed. sl https://hcservices.ecourts.gov.in/hcservices/ To 1. The Assistant RegistrarIncome Tax Appellate Tribunal, Madras 'B' Bench. 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 the above Tax Case (Appeal), thereby confirm the orderpassed by the Tribunal. 11. In view of the above, the questions of law raised in thisappeal are answered against the Revenue and in favour of theassessee. The above Tax Case (Appeal) stands dismissed. No costs.Consequently, M.P.No.1 of 2015 is closed. sl https://hcservices.ecourts.gov.in/hcservices/ To 1. The Assistant RegistrarIncome Tax Appellate Tribunal, Madras 'B' Bench. 2. The Commissioner of Income taxNo.63 Race Course RoadCoimbatore3.The Commissioner of Income Tax(Appeals) IICoimbatore4. The Deputy Commissioner of Income tax Company CircleTiruppurTax Case (Appeal) No.333 of 2015& M.P.No.1 of 2015SVI (CO)kk 2/7