Learned Counsel Appearing For The Assessee Submitted Thatthe Issue Involved In This Appeal Has Already Been Decided By Thiscourt In The Decision Reported In (20 v. Asst. Cit) And Hence The Same May Be Followed Inthis Case Also

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE R.SUDHAKARandTHE HONOURABLE MR.JUSTICE R.KARUPPIAH Commissioner of Income TaxCompany Circle, Tirupur.. Appellant Eastman Spinning Mills (P) LimitedNo.16, 17, Kumar Nagar South2[nd] Street, Tirupur – 641 603... Respondent PRAYER: Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 as against the order dated 31.07.2014 made inI..T.A..No.1676/Mds/2014 on the file of the Income Tax AppellateTribunal, Madras 'A' Bench for the assessment year 2010-2011. TCA.22/15: Filed against the order of the Commissioner of Income Tax(Appeals)-II, Coimbatore dt.27.3.14 made in ITA.No.85/12-13, for theAssessment Year-2010-11, against the order of Deputy Commissioner ofIncome Tax, Company Circle, Tiruppur dt.30.11.12 made in PAN/GIRNo. , for the Assessment Year 2010-11. For respondent : Mr.R.Sivaraman (Judgment of the Court was delivered by R.SUDHAKAR,J.)Mr.R.Sivaraman, 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 against theorder of the Income Tax Appellate Tribunal. The core issue raised inthis Tax Case (Appeal) is whether, on the facts and in thecircumstances of the case, the Tribunal is right in law in holding https://hcservices.ecourts.gov.in/hcservices/ that the respondent/assessee in each appeal is entitled to claimdeduction under section 80-IA of the Income Tax Act. 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 V. Asst. CIT) and hence the same may be followed inthis 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 V. Asst. CIT reported in(2012) 340 ITR 477, the Revenue preferred appeals before the SupremeCourt 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 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 the scopeof Section 80I, 80IA and 80IB of the Income Tax Act and held thatChapter VI-A provides for incentives in the form of tax deductionsessentially belong to the category of "profit-linked incentives".This Court also placed reliance on the decision reported in (2004)271 ITR 311 (Raj) (CIT V. Mewar Oil and General Mills Ltd.), and cameto the conclusion that once the losses and other deduction have setoff against the income of the previous year, it should not bereopened again for the purpose of computation of current year incomeunder Section 80I or 80IA of the Income Tax Act and the assesseeshould not be denied the admissible deduction under Section 80IA ofthe 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 repairs toocean-going vessels or other powered craft. The deductionis allowed to the extent of 20 per cent. from the profitsand gains of the assessee. Sub-section (5) givesdeduction for the period of seven assessment yearsimmediately succeeding the initial assessment year. Sub-section (6) deals with computing the deduction under sub-section (1) and it starts with non obstante clause andalso it is a deeming provision. The fiction created bythe undertaking was the only source of income during the previous year initially and subsequent assessment years.Sub-section (6) was the subject-matter before this courtin the above-mentioned unreported judgment, wherein thiscourt had held that while interpreting the aboveprovision, for the purpose of allowing deduction undersection 80-I brought forward losses and unabsorbeddepreciation of the new industry need not be taken intoconsideration once they have been set off from othersources of income earlier. In the present case, we areconcerned with the provision of section 80-IA. The saidprovision was introduced by the Finance Act, 1999, witheffect from April 1, 2000. The provisions of sections 80-I and 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 to bemade in computing total income. There are two taxincentives contemplated in Chapter VI-A. One isinvestment incentive 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 contained inthat section, for the purpose of computing the deductionunder that section, the amount of income of that natureas computed in accordance with the provisions of this Act(before making any deduction under this Chapter) shallalone be deemed to be the amount of income of that naturewhich is derived or received by the assessee and which isincluded in his gross total income." A mere reading of the above provision makes it clear thatany income of the nature specified in that section, whichis included in the gross total income of the assessee forthe purpose of computing the deduction under thatsection, the amount of income of that nature as computedin accordance with the provision of this Act shall alonebe deemed to be the amount of income of that nature whichis derived or received by the assessee and which isincluded in the gross total income. Section 80AB defines"gross total income" which means the total income has to A mere reading of the above provision makes it clear thatany income of the nature specified in that section, whichis included in the gross total income of the assessee forthe purpose of computing the deduction under thatsection, the amount of income of that nature as computedin accordance with the provision of this Act shall alonebe deemed to be the amount of income of that nature whichis derived or received by the assessee and which isincluded in the gross total income. Section 80AB defines"gross total income" which means the total income has to be computed 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" deals with"deductions in respect of certain incomes", whichconsists of sections 80H to 80TT. The last heading "D"deals with "other deductions" which consists of sections80U to 80V. Heading "C" is relevant for considering theissue in these appeals. The relevant provisions that areto be considered are sections 80-I, 80-IA and 80-IB. Inthe case of Liberty India v. CIT [2009] 317 ITR 218(SC) ; [2009] 225 CTR (SC) 233 ; [2009] 28 DTR (SC) 73,the apex court considered the scope of sections 80-I, 80-IA and also section 80-IB of the Act, wherein, it hasbeen held that Chapter VI-A provides for incentives inthe form 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 further observedin the said judgment that sub-section (5) of section 80-IA provides for manner of computation of profits of aneligible business. Accordingly such profits are to becomputed as if such eligible business is the only sourceof 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 an undertakingor an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred toas the eligible business) there shall, in accordance withand subject to the provisions of this section, be allowedin computing the total income of the assessee, adeduction of an amount equal to hundred per cent. of theprofits and gains derived from such business for tenconsecutive assessment years. (2) The deduction specified in sub-section (1) may, atthe option of the assessee, be claimed by him for any tenconsecutive 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 industrial parkor develops a special economic zone referred to in clause(iii) of sub-section (4) or generates power or commencestransmission or distribution or power or undertakes substantial renovation 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 any infrastructurefacility which fulfils all the following conditions,namely : (a) it is owned by a company registered in India or by aconsortium 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 authority orany other statutory body for (i) developing, or (ii)operating and maintaining, or (iii)developing, operatingand maintaining a new infrastructure facility ; (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 any infrastructurefacility which fulfils all the following conditions,namely : (a) it is owned by a company registered in India or by aconsortium 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 authority orany other statutory body for (i) developing, or (ii)operating and maintaining, or (iii)developing, operatingand 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 of determining thequantum of deduction under that sub-section for theassessment year immediately succeeding the initialassessment year or any subsequent assessment year, becomputed as if such eligible business were the onlysource of income of the assessee during the previous yearrelevant to the initial assessment year and to everysubsequent assessment year up to and including theassessment year for which the determination is to bemade." From a reading of sub-section (1), it is clear that itprovides that where the gross total income of an assesseeincludes any profits and gains derived by an undertakingor an enterprise from any business referred to insubsection (4), i.e., referred to as the eligiblebusiness, there shall, in accordance with and subject tothe provisions of the section, be allowed, in computingthe total income of the assessee, a deduction of anamount equal to 100 per cent. of the profits and gainsderived from such business for ten consecutive assessmentyears. Deduction is given to eligible business and thesame is defined in sub-section (4). Sub-section (2)provides option to the assessee to choose 10 consecutiveassessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will notbe getting the benefit. Fifteen years is outer limit andthe same is beginning from the year in which theundertaking or the enterprise develops and begins tooperate any infrastructure activity, etc. Sub-section (5)deals with quantum of deduction for an eligible business.The words "initial assessment year" are used in sub-section (5) and the sameis not defined under the provisions. It is to be notedthat "initial assessment year" employed in sub-section(5) is different from the words "beginning from the year"referred to in sub-section (2). The important factors areto be noted in sub-section (5) and they are as under : "(1) It starts with a non obstante clause which means itoverrides 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." "(1) It starts with a non obstante clause which means itoverrides 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, duringthe previous year relevant to the initial assessment yearand every subsequent assessment years. When the assesseeexercises the option, the only losses of the yearsbeginning from initial assessment year alone are to bebrought forward and no losses of earlier years which werealready set off against the income of the assessee.Looking forward to a period of ten years from the initialassessment is contemplated. It does not allow the Revenueto look backward and find out if there is any loss ofearlier years and bring forward notionally even thoughthe same were set off against other income of theassessee and the set off against the current income ofthe eligible business. Once the set off is taken place inearlier year against the other income of the assessee,the Revenue 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 and the same cannot be extended beyond the purpose for which itis 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. Duringthe relevant assessment year, the assessee exercised theoption under section 80-IA(2). In Tax Case Nos. 909 of2009 as well as 940 of 2009, the assessment year was2005-06 and in Tax Case No. 918 of 2008 the assessmentyear was 2004-05. During the relevant period, there wereno unabsorbed depreciation or loss of the eligibleundertakings and the same were already absorbed in theearlier years. There is a positive profit during theyear. The unreported judgment of this court cited supraconsidered the scope of sub-section (6) of section 80-I,which is the corresponding provision of sub-section (5)of section 80-IA. Both are similarly worded and,therefore, we agree entirely with the Division Benchjudgment of this court cited supra. In the case of CIT v.Mewar Oil and General Mills Ltd. (No. 1) [2004] 271 ITR311 (Raj) ; [2004] 186 CTR (Raj) 141, the Rajasthan HighCourt also considered the scope of section 80-I and heldas follows (page 314 of 271 ITR) : "Having considered the rival contentions which follow onthe line noticed above, we are of the opinion that onfinding the fact that there was no carry forward lossesof 1983-84, which could be set off against the income ofthe current assessment year 1984-85, the recomputation ofincome from the new industrial undertaking by setting offthe carry forward of unabsorbed depreciation ordepreciation allowance from previous year did not simplyarise and on the finding of fact noticed by theCommissioner of Income-tax (Appeals), which has not beendisturbed by the Tribunal and challenged before us, therewas no error much less any error apparent on the face ofthe record which could be rectified. That question wouldhave been germane only if there would have been carryforward of unabsorbed depreciation and unabsorbeddevelopment rebate or any other unabsorbed losses of theprevious year arising out of the priority industry andwhether it was required to be set off against the incomeof the current year. It is not at all required thatlosses or other deductions which have already been setoff against 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 the Tribunalhas not erred in holding that there was no rectification possible under section 80-I in the present case, albeit,for reasons somewhat different from those which prevailedwith the Tribunal. There being no carry forward ofallowable deductions under the head depreciation ordevelopment rebate which needed to be absorbed againstthe income of the current year and, therefore,recomputation of income for the purpose of computingpermissible deduction under section 80-I for the newindustrial undertaking was not required in the presentcase. 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 or otherdeductions which have already been set off against theincome of the previous year should be reopened again forcomputation of current income under section 80-I for thepurpose of computing admissible deductions thereunder. Wealso agree with the same. We see no reason to take adifferent view. The standing counsel appearing for the Revenue is unableto bring to our notice any relevant material or anycompelling reason or any contra judgment of other courtsto take a different view. He only relied heavily on theMemorandum explaining the provisions in the Finance (No.2) Bill, 1980, [1980] 123 ITR (St.) 154 to support thiscase 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. Inthe 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 profits ofthe taxpayer from other sources." We are not agreeing with the counsel for the Revenue. Weare, therefore, of the view that loss in the year earlierto the initial assessment year already absorbed againstthe profit of other business cannot be notionally broughtforward and set off against the profits of the eligiblebusiness as no such mandate is provided in section 80-IA(5). Under these circumstances, we set aside the order of theTribunal and answer all the questions in favour of theappellant/assessee and against the Revenue in Tax CaseNos. 909 and 940 of 2009 respectively. Accordingly, taxcases are allowed. We are not agreeing with the counsel for the Revenue. Weare, therefore, of the view that loss in the year earlierto the initial assessment year already absorbed againstthe profit of other business cannot be notionally broughtforward and set off against the profits of the eligiblebusiness as no such mandate is provided in section 80-IA(5). Under these circumstances, we set aside the order of theTribunal and answer all the questions in favour of theappellant/assessee and against the Revenue in Tax CaseNos. 909 and 940 of 2009 respectively. Accordingly, taxcases are allowed. 8. 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 was ordered and were not yet admitted by the Supreme Court. 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 against otherincome of the business enterprise, the assessee in this appeal fallswithin the parameters of Section 80IA of the Income Tax Act. In thedecision reported in (2012) 340 ITR 477 (Velayudhaswamy SpinningMills V. Asst. CIT), there appears to be no distinction on facts. 10. Again in a batch of cases in T.C.(A)Nos.408 of 2012, byorder dated 12.1.2015, this Court, following the decision reported in(2012) 340 ITR 477 (Velayudhaswamy Spinning Mills V. Asst. CIT) heldin 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), 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, M.P.No.1 of 2015 is also dismissed. Sd/-Assistant RegistrarDated:27.2.15 True Copy Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Madras 'A' Bench.Chennai.Chennai. 2.The Commissioner of Income Tax (Appeals) II, Coimbatore. 3.The Deputy Commissioner of Income Tax, Company Circle, Tiruppur.Tiruppur. +1 cc to Mr.M.Swaminathan, Advocate,SR.9136. jp(co)krd 6/3krd 6/3 Tax Case (Appeal) No.22 of 2015