In The Decision Reported In Velayudhaswamy Spinning Mills,This Court, While Dealing With The Benefit Under Chapter Via Of Theincome Tax Act, Placed Reliance On v. For Better Understanding Of The Decision, We Extract Therelevant Portion Of The Decision Of This Court As Such

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 28.9.2015 CORAM THE HONOURABLE MR.JUSTICE V.RAMASUBRAMANIANANDTHE HONOURABLE MR.JUSTICE T.MATHIVANAN Commissioner of Income Tax, Central III, Chennai-34.... Appellant in all the appealsVs M.Thangamaligai Trust, Chennai-17. ... Respondent inTCA.Nos.950 to 954 of 2015 Shri.G.R.Padmanabhan (Individual)... Respondent inTCA.Nos.955 to 959 of 2015 Tax Case Appeals filed under Section 260A of the Income Tax Act,1961 against the common order dated 30.9.2010 passed by the IncomeTax Appellate Tribunal, Madras 'D' Bench, Chennai for the assessmentyears made in ITA Nos.592 to 601/Mds/2010. Against the Order of the Commissioner of Income Tax(Appeals)-II,Chennai - 43, dated 25.01.2010 made in ITA.Nos.155/08-09 and 427 to430/06-07, against the Deputy Commissioner of Income Tax, CentralCircle III(3), Chennai - 34, dated 12.12.2008; made in PANNo.AAATM0655R Assessment Year 2006-07, and against the AssistantCommissioner of Income Tax, Central Circle III(3)(I/C), Chennai - 34dated 27.12.2006 made in PAN Nos. for the Assessment Year2004-05, 2003-04, 2002-03, 2001-02 respectively(in TCA Nos.950 to 954of 2015); and Against the order of the Commissioner of Income Tax(A) - I,Chennai - 34, dated 10.12.2008 made in ITA Nos.195 to 199/06-07;against the Joint Commissioner of Income Tax, Central Circle III(3),Chennai, dated 31.03.2006 made in PAN No. for theAssessment Years 2004-2005, 2003-2004, 2002-2003, 2001-2002, 2000-2001 respectively (in TCA Nos.955 to 959 of 2015). https://hcservices.ecourts.gov.in/hcservices/ For Appellant in all the appeals : Mr.T.R.Senthilkumar For Respondent in all the appeals : Mr.M.P.Senthilkumar COMMON JUDGMENT (Judgment was delivered by V.RAMASUBRAMANIAN,J) These appeals are filed by the Revenue as against the commonorder of the Income Tax Appellate Tribunal. The core issue raised inthese appeals is whether, on the facts and in the circumstances ofthe case, the Tribunal is right in law in holding that therespondents/assessees are entitled to claim deduction under Section80-IA of the Income Tax Act. 2. Though it is brought to the notice of this Court that theissue involved in these appeals has already been decided by thisCourt in the decision reported in Velayudhaswamy Spinning Mills VsAsst. CIT [2012) 340 ITR 477], it is stated by the learned StandingCounsel appearing for the Revenue that as against the decisionrendered by this Court in Velayudhaswamy Spinning Mills, the Revenuehas preferred appeals before the Supreme Court and the same arepending. 3. Heard learned Standing Counsel appearing for the Revenue andperused the materials placed before this Court. 4. In the decision reported in Velayudhaswamy Spinning Mills,this Court, while dealing with the benefit under Chapter VIA of theIncome Tax Act, placed reliance on the decision reported in LibertyIndia Vs CIT [2009) 317 ITR 218 (SC)], wherein the Supreme Courtconsidered the scope of Sections 80I, 80IA and 80IB of the Income TaxAct and held that Chapter VI-A provides for incentives in the form oftax deductions essentially belong to the category of "profit-linkedincentives". This Court also placed reliance on the decision reportedin CIT - Vs - Mewar Oil and General Mills Ltd. [2004) 271 ITR 311(Raj)] and came to the conclusion that once the losses and otherdeduction have been set off against the income of the previous year,it should not be reopened again for the purpose of computation ofcurrent year income under Section 80I or 80IA of the Income Tax Actand the assessee should not be denied the admissible deduction underSection 80IA of the Income Tax Act. 5. For better understanding of the decision, we extract therelevant portion of the decision of this Court as such: 5. 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 poweredcraft. The deduction is allowed to the extent of 20per cent. from the profits and gains of the assessee.Sub-section (5) gives deduction for the period ofseven assessment years immediately succeeding theinitial assessment year. Sub-section (6) deals withcomputing the deduction under sub-section (1) and itstarts with non obstante clause and also it is adeeming provision. The fiction created by theundertaking was the only source of income during theprevious year initially and subsequent assessmentyears. Sub-section (6) was the subject-matter beforethis court in the above-mentioned unreportedjudgment, wherein this court had held that whileinterpreting the above provision, for the purpose ofallowing deduction under section 80-I brought forwardlosses and unabsorbed depreciation of the newindustry need not be taken into consideration oncethey have been set off from other sources of incomeearlier. In the present case, we are concerned withthe provision of section 80-IA. The said provisionwas introduced by the Finance Act, 1999, with effectfrom April 1, 2000. The provisions of sections 80-Iand 80-IA are also more or less identically worded.Sections 80-I and 80-IA come in Chapter VI-A of theIncome-tax Act. Chapter VI-A deals with deductions tobe made in computing 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 by theFinance Act, 1965, with effect from April 1, 1965,and it consists of four headings. They are A, B, Cand 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 this Chapterunder the heading 'C-Deductions in respect ofcertain incomes' in respect of any income of the nature specified in that section which is includedin the gross total income of the assessee, then,notwithstanding anything contained in thatsection, for the purpose of computing thededuction under that section, the amount of incomeof that nature as computed in accordance with theprovisions of this Act (before making anydeduction under this Chapter) shall alone bedeemed to be the amount of income of that naturewhich is derived or received by the assessee andwhich is included in his gross total income." A mere reading of the above provision makes itclear that 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 consists of sections 80H to 80TT. The lastheading "D" deals with "other deductions" whichconsists of sections 80U to 80V. Heading "C" isrelevant for considering the issue in these appeals.The relevant provisions that are to be considered aresections 80-I, 80-IA and 80-IB. In the case ofLiberty India v. CIT [2009] 317 ITR 218 (SC) ; [2009]225 CTR (SC) 233 ; [2009] 28 DTR (SC) 73, the apexcourt considered the scope of sections 80-I, 80-IAand also section 80-IB of the Act, wherein, it hasbeen held that Chapter VI-A provides for incentivesin the form of tax deductions essentially belong tothecategoryof"profit-linkedincentives".Therefore, when Section 80-IA/80-IB refers to profitsderived from eligible business, it is not theownership of that business which attracts theincentives. Further, it has been held that sections80-IB/80-IA are the code by themselves as they contain both substantive as well as proceduralprovisions. The Supreme Court further observed in thesaid judgment that sub-section (5) of section 80-IAprovides for manner of computation of profits of aneligible business. Accordingly such profits are to becomputed as if such eligible business is the onlysource 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, at the option of the assessee, be claimed by himfor any ten consecutive assessment years out offifteen years beginning from the year in which theundertaking or the enterprise develops and begins tooperate any infrastructure facility or startsproviding telecommunication service or develops anindustrial park or develops a special economic zonereferred to in clause (iii) of sub-section (4) orgenerates power or commences transmission ordistribution or power or undertakes substantialrenovation and modernisation of the existingtransmission or distribution lines. (4) This section applies to- (2) The deduction specified in sub-section (1)may, at the option of the assessee, be claimed by himfor any ten consecutive assessment years out offifteen years beginning from the year in which theundertaking or the enterprise develops and begins tooperate any infrastructure facility or startsproviding telecommunication service or develops anindustrial park or develops a special economic zonereferred to in clause (iii) of sub-section (4) orgenerates power or commences transmission ordistribution or power or undertakes substantialrenovation and modernisation of the existingtransmission 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 Indiaor by a consortium of such companies (or by anauthority or a board or a corporation or any otherbody established or constituted under any Central orState Act) ; (b) it has entered into an agreement with the Central Government or a State Government or a localauthority or any other statutory body for (i)developing, or (ii) operating and maintaining, or(iii)developing, operating and maintaining a newinfrastructure facility ; (c) it has started or starts operating andmaintaining the infrastructure facility on or afterthe 1st April, 1995. (5) Notwithstanding anything contained in anyother provision of this Act, the profits and gains ofan eligible 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 immediatelysucceeding the initial assessment year or anysubsequent assessment year, be computed as if sucheligible business were the only source of income ofthe assessee 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 clearthat it provides that where the gross total income ofan assessee includes any profits and gains derived byan undertaking or an enterprise from any businessreferred to in subsection (4), i.e., referred to asthe eligible business, there shall, in accordancewith and 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, 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 the same is not defined under the provisions. It is to be noted that "initial assessment year"employed in sub-section (5) is different from thewords "beginning from the year" referred to in sub-section (2). The important factors are to be noted insub-section (5) and they are as under : "(1) It starts with a non obstante clause whichmeans it overrides all the provisions of the Act andother 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 ; is to be noted that "initial assessment year"employed in sub-section (5) is different from thewords "beginning from the year" referred to in sub-section (2). The important factors are to be noted insub-section (5) and they are as under : "(1) It starts with a non obstante clause whichmeans it overrides all the provisions of the Act andother 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 thatthe eligible business were the only source of income,during the previous year relevant to the initialassessment year and every subsequent assessmentyears. When the assessee exercises the option, theonly losses of the years beginning from initialassessment year alone are to be brought forward andno losses of earlier years which were already set offagainst the income of the assessee. Looking forwardto a period of ten years from the initial assessmentis contemplated. It does not allow the Revenue tolook backward and find out if there is any loss ofearlier years and bring forward notionally eventhough the same were set off against other income ofthe assessee and the set off against the currentincome of the eligible business. Once the set off istaken place in earlier year against the other incomeof the assessee, the Revenue cannot rework the setoff amount and bring it notionally. A fiction createdin sub-section does not contemplates to bring set offamount notionally. The fiction is created only forthe limited purpose and the same cannot be extendedbeyond the purpose for which it is created. In the present cases, there is no dispute thatlosses incurred by the assessee were already set offand adjusted against the profits of the earlieryears. During the relevant assessment year, the assessee exercised the option under section 80-IA(2).In Tax Case Nos. 909 of 2009 as well as 940 of 2009,the assessment year was 2005-06 and in Tax Case No.918 of 2008 the assessment year was 2004-05. Duringthe relevant period, there were no unabsorbeddepreciation or loss of the eligible undertakings andthe same were already absorbed in the earlier years.There is a positive profit during the year. Theunreported judgment of this court cited supraconsidered the scope of sub-section (6) of section80-I, which is the corresponding provision of sub-section (5) of section 80-IA. Both are similarlyworded and, therefore, we agree entirely with theDivision Bench judgment of this court cited supra. Inthe case of CIT v. Mewar Oil and General Mills Ltd.(No. 1) [2004] 271 ITR 311 (Raj) ; [2004] 186 CTR(Raj) 141, the Rajasthan High Court also consideredthe scope of section 80-I and held as follows (page314 of 271 ITR) :"Having considered the rival contentionswhich follow on the line noticed above, we are ofthe opinion that on finding the fact that therewas no carry forward losses of 1983-84, whichcould be 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 been disturbedby the Tribunal and challenged before us, therewas no error much less any error apparent on theface of the record which could be rectified. Thatquestion would have been germane only if therewould have been carry forward of unabsorbeddepreciation and unabsorbed development rebate orany other unabsorbed losses of the previous yeararising out of the priority industry and whetherit was required to be set off against the incomeof the current year. It is not at all requiredthat losses 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 the purpose of computing admissible deductions thereunder.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 reasons somewhatdifferent from those which prevailed with theTribunal. There being no carry forward ofallowable deductions under the head depreciationor development rebate which needed to be absorbedagainst the income of the current year and,therefore, re-computation of income for thepurpose of computing permissible deduction undersection 80-I for the new industrial undertakingwas not required in the present case. Accordingly, this appeal fails and is hereby dismissed 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 incomeunder section 80-I for the purpose of computingadmissible deductions thereunder. We also agree withthe same. We see no reason to take a 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. Heonly relied heavily on the Memorandum explaining theprovisions in the Finance (No. 2) Bill, 1980, [1980]123 ITR (St.) 154 to support this case and the samereads as follows : 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 incomeunder section 80-I for the purpose of computingadmissible deductions thereunder. We also agree withthe same. We see no reason to take a 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. Heonly relied heavily on the Memorandum explaining theprovisions in the Finance (No. 2) Bill, 1980, [1980]123 ITR (St.) 154 to support this case and the samereads as follows : "Clause 30(iii). In computing the quantum of'tax holiday' profits in all cases, taxableincome derived from the new industrial units,etc., will be determined as if such units were anindependent unit owned by a taxpayer who does nothave any other source of income. In the result,the losses, depreciation and investment allowanceof earlier years 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 againstthe profits 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). Under these circumstances, we set aside theorder of the Tribunal and answer all the questions infavour of the appellant/assessee and against theRevenue in Tax Case Nos. 909 and 940 of 2009respectively. Accordingly, tax cases are allowed." 6. It is relevant to note that as against the above-saiddecision rendered by this Court, the Revenue has filed appeals beforethe Supreme Court, which are stated to be pending, in which, onlynotice has been ordered and they are not yet admitted by the SupremeCourt. 7. The facts in the present cases are also identical to theabove-said decision of this Court that the business undertaking ofthe respective assessees is wind mill power generation/hosiery goods,etc., and they claimed the benefit of deduction under Section 80IAof the Income Tax Act for the assessment years in question and forthe subsequent years as well. Having exercised their option andtheir losses have been set off already against other income of thebusiness enterprise, the assessees in these appeals fall within theparameters of Section 80IA of the Income Tax Act. There appears to beno distinction on facts in relation to the decision reported inVelayudhaswamy Spinning Mills. 8. Again in a batch of cases in T.C.(A) Nos.408 of 2012, etc.,by order dated 12.1.2015, this Court, following the decision reportedin Velayudhaswamy Spinning Mills, held in favour of the assessee andagainst the Revenue. 9. We, therefore, taking note of the decision rendered by thisCourt in Velayudhasamy Spinning Mills and in a batch of cases in T.C.(A) Nos.408 of 2012, etc. dated 12.1.2015, are inclined to dismissthese appeals and thereby confirm the common order passed by theTribunal. Accordingly, the questions of law raised in these appealsare answered against the Revenue and in favour of the assessees. 10. For the reasons afore-stated, these appeals stand dismissed.No costs. Sd/- Assistant Registrar(CS II) //True Copy// RS Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai. 2.The Commissioner of Income Tax, Central III, Chennai - 34. 3.The Deputy Commissioner of Income Tax(Appeals)-II, Chennai - 34. 9. We, therefore, taking note of the decision rendered by thisCourt in Velayudhasamy Spinning Mills and in a batch of cases in T.C.(A) Nos.408 of 2012, etc. dated 12.1.2015, are inclined to dismissthese appeals and thereby confirm the common order passed by theTribunal. Accordingly, the questions of law raised in these appealsare answered against the Revenue and in favour of the assessees. 10. For the reasons afore-stated, these appeals stand dismissed.No costs. Sd/- Assistant Registrar(CS II) //True Copy// RS Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai. 2.The Commissioner of Income Tax, Central III, Chennai - 34. 3.The Deputy Commissioner of Income Tax(Appeals)-II, Chennai - 34. 4.The Deputy Commissioner of Income Tax, Central Circle III(3), Chennai - 34. 5.The Assistant Commissioner of Income Tax, Central Circle III(3)(I/C), Chennai - 34. 6.The Commissioner of Income Tax(A)-I, Chennai - 34. 7.The Joint Commissioner of Income Tax, Central Circle III(3), Chennai. +2cc's to Mr.T.R.Senthil Kumar, Advocate, S.R.No.53142 & 53143+2cc's to Mr.Philip George, Advocate, S.R.No.53252 T.C.A.Nos.950 to 959 of 2015CA(CO)CA(14/10/2015) https://hcservices.ecourts.gov.in/hcservices/