The Commissioner Of Income Tax, Coimbatore v. M/S.lakshminarayanan Gaurishankarenterprises Pvt. Ltd., Coimbatore

In the High Court of Judicature at Madras Coram The Honourable Mr.Justice V.RAMASUBRAMANIANandThe Honourable Mr.Justice N.KIRUBAKARAN T.C.A.No.146 of 2016 The Commissioner of Income Tax, Coimbatore...Appellant / Appellant Vs M/s.Lakshminarayanan GaurishankarEnterprises Pvt. Ltd., Coimbatore. ...Respondent / Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order dated 20.7.2015 passed by the IncomeTax Appellate Tribunal, Madras 'D' Bench, for the assessment year2011-12 made in ITA No.1000/Mds/2015 and against the order of theCommissioner of Income Tax (Appeals) I, Coimbatore dated 21.1.2015and in appeal No.439/13-14 and against the order of the JointCommissioner of Income Tax, Range III, Coimbatore dated 31.1.2014in PAN.No. for the Assessment year 2011-12. Judgment was delivered by V.RAMASUBRAMANIAN,J This appeal is filed by the Revenue as against the order ofthe Income Tax Appellate Tribunal. The core issue raised in thisTax 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. 2. Though it is brought to the notice of this Court that theissue involved in this appeal has already been decided by thisCourt in the decision reported in Velayudhaswamy Spinning MillsVs Asst. CIT [2012) 340 ITR 477], it is stated by the learnedStanding Counsel appearing for the Revenue that as against thedecision rendered by this Court in Velayudhaswamy Spinning Mills,the Revenue has preferred appeals before the Supreme Court and thesame are pending. https://hcservices.ecourts.gov.in/hcservices/ 3. Heard learned Standing Counsel appearing for the Revenueand perused 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 ofthe Income Tax Act, placed reliance on the decision reported inLiberty India Vs CIT [2009) 317 ITR 218 (SC)], wherein the SupremeCourt considered the scope of Sections 80I, 80IA and 80IB of theIncome Tax Act and held that Chapter VI-A provides for incentivesin the form of tax deductions essentially belong to the categoryof "profit-linked incentives". This Court also placed reliance onthe decision reported in CIT - Vs - Mewar Oil and General MillsLtd. [2004) 271 ITR 311 (Raj)] and came to the conclusion thatonce the losses and other deduction have been set off against theincome of the previous year, it should not be reopened again forthe purpose of computation of current year income under Section80I or 80IA of the Income Tax Act and the assessee should not bedenied the admissible deduction under Section 80IA of the IncomeTax Act. 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 clearthat the benefit is given to the profits andgains derived from the business of the hotel orthe business of repairs to ocean-going vessels orother powered craft. The deduction is allowed tothe extent of 20 per cent. from the profits andgains of the assessee. Sub-section (5) givesdeduction for the period of seven assessmentyears immediately succeeding the initialassessment year. Sub-section (6) deals withcomputing the deduction under sub-section (1) andit starts with non obstante clause and also it isa deeming provision. The fiction created by theundertaking was the only source of income duringthe previous year initially and subsequentassessment years. Sub-section (6) was thesubject-matter before this court in the above-mentioned unreported judgment, wherein this courthad held that while interpreting the aboveprovision, for the purpose of allowing deductionunder section 80-I brought forward losses andunabsorbed depreciation of the new industry neednot be taken into consideration once they havebeen set off from other sources of incomeearlier. In the present case, we are concernedwith the provision of section 80-IA. The saidprovision was introduced by the Finance Act,1999, with effect from April 1, 2000. Theprovisions of sections 80-I and 80-IA are also more or less identically worded. Sections 80-Iand 80-IA come in Chapter VI-A of the Income-taxAct. 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-linked investment. Chapter VI-A was introduced bythe Finance Act, 1965, with effect from April 1,1965, and it consists of four headings. They areA, B, C and D. Heading "A" is general and it alsocontains definition. It consists of sections 80A,80AA, 80AB, 80AC and 80B. Section 80AB deals with"Deductions to be made with reference to theincome included in the gross total income", whichreads as follows : "Where any deduction is required to be madeor allowed under any section included in thisChapter under the heading 'C-Deductions inrespect of certain incomes' in respect of anyincome of the nature specified in that sectionwhich is included in the gross total income ofthe assessee, then, notwithstanding anythingcontained in that section, for the purpose ofcomputing the deduction under that section,the amount of income of that nature ascomputed in accordance with the provisions ofthis Act (before making any deduction underthis Chapter) shall alone be deemed to be theamount of income of that nature which isderived or received by the assessee and whichis included in his gross total income." A mere reading of the above provision makesit clear that any income of the nature specifiedin that section, which is included in the grosstotal income of the assessee for the purpose ofcomputing the deduction under that section, theamount of income of that nature as computed inaccordance with the provision of this Act shallalone 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"which means the total income has to be computedin accordance with the Act before makingdeduction under this Chapter. Heading "B" dealswith "deductions in respect of certain payments"which consists of sections 80C to 80GGC. Heading"C" deals with "deductions in respect of certainincomes", which consists of sections 80H to 80TT.The last heading "D" deals with "other deductions" which consists of sections 80U to80V. Heading "C" is relevant for considering theissue in these appeals. The relevant provisionsthat 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 courtconsidered the scope of sections 80-I, 80-IA andalso section 80-IB of the Act, wherein, it hasbeen held that Chapter VI-A provides forincentives in the form of tax deductionsessentially belong to the category of "profit-linked incentives". Therefore, when Section 80-IA/80-IB refers to profits derived from eligiblebusiness, it is not the ownership of thatbusiness which attracts the incentives. Further,it has been held that sections 80-IB/80-IA arethe code by themselves as they contain bothsubstantive as well as procedural provisions. TheSupreme Court further observed in the saidjudgment that sub-section (5) of section 80-IAprovides for manner of computation of profits ofan eligible business. Accordingly such profitsare 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 ofan assessee includes any profits and gainsderived by an undertaking or an enterprise fromany business referred to in sub-section (4) (suchbusiness being hereinafter referred to as theeligible business) there shall, in accordancewith and subject to the provisions of thissection, be allowed in computing the total incomeof the assessee, a deduction of an amount equalto hundred per cent. of the profits and gainsderived from such business for ten consecutiveassessment years. (2) The deduction specified in sub-section(1) may, at the option of the assessee, beclaimed by him for any ten consecutive assessmentyears out of fifteen years beginning from theyear in which the undertaking or the enterprisedevelops and begins to operate any infrastructurefacility or starts providing telecommunicationservice or develops an industrial park ordevelops a special economic zone referred to inclause (iii) of sub-section (4) or generatespower or commences transmission or distribution or power or undertakes substantial renovation andmodernisation of the existing transmission ordistribution lines. (4) This section applies to- (i) any enterprise carrying on the businessof (i) developing, or (ii) operating andmaintaining, or (iii) developing, operating andmaintaining any infrastructure facility whichfulfils all the following conditions, namely : (a) it is owned by a company registered inIndia or by a consortium of such companies (or byan authority or a board or a corporation or anyother body established or constituted under anyCentral or State Act) ; (b) it has entered into an agreement with theCentral Government or a State Government or alocal authority or any other statutory body for(i) developing, or (ii) operating andmaintaining, or (iii)developing, operating andmaintaining a new infrastructure facility ;(c) it has started or starts operating andmaintaining the infrastructure facility on orafter the 1st April, 1995.(5) Notwithstanding anything contained in anyother provision of this Act, the profits andgains of an eligible business to which theprovisions of sub-section (1) apply shall, forthe purposes of determining the quantum ofdeduction under that sub-section for theassessment year immediately succeeding theinitial assessment year or any subsequentassessment year, be computed as if such eligiblebusiness were the only source of income of theassessee during the previous year relevant to theinitial assessment year and to every subsequentassessment year up to and including theassessment year for which the determination is tobe made." From a reading of sub-section (1), it isclear that it provides that where the gross totalincome of an assessee includes any profits andgains derived by an undertaking or an enterprisefrom any business referred to in subsection (4),i.e., referred to as the eligible business, thereshall, in accordance with and subject to theprovisions of the section, be allowed, incomputing the total income of the assessee, a deduction of an amount equal to 100 per cent. ofthe profits and gains derived from such businessfor ten consecutive assessment years. Deductionis given to eligible business and the same isdefined in sub-section (4). Sub-section (2)provides option to the assessee to choose 10consecutive assessment years out of 15 years.Option has to be exercised, if it is notexercised, the assessee will not be getting thebenefit. Fifteen years is outer limit and thesame is beginning from the year in which theundertaking or the enterprise develops and beginsto operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction foran eligible business. The words "initialassessment year" are used in sub-section (5) andthe same is not defined under the provisions. Itis to be noted that "initial assessment year"employed in sub-section (5) is different from thewords "beginning from the year" referred to insub-section (2). The important factors are to benoted in sub-section (5) and they are as under : "(1) It starts with a non obstante clausewhich means it overrides all the provisions ofthe Act and other provisions are to be ignored ;(2) It is for the purpose of determining thequantum of deduction ; (3) For the assessment year immediatelysucceeding the initial assessment year ; (4) It is a deeming provision ; (5) Fiction created that the eligiblebusiness is 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 ofincome, during the previous year relevant to theinitial assessment year and every subsequentassessment years. When the assessee exercises theoption, the only losses of the years beginningfrom initial assessment year alone are to bebrought forward and no losses of earlier yearswhich were already set off against the income ofthe assessee. Looking forward to a period of tenyearsfromtheinitialassessmentiscontemplated. It does not allow the Revenue to look backward and find out if there is any lossof earlier years and bring forward notionallyeven though the same were set off against otherincome of the assessee and the set off againstthe current income of the eligible business. Oncethe set off is taken place in earlier yearagainst the other income of the assessee, theRevenue cannot rework the set off amount andbring it notionally. A fiction created in sub-section does not contemplates to bring set offamount notionally. The fiction is created onlyfor the limited purpose and the same cannot beextended beyond the purpose for which it iscreated. look backward and find out if there is any lossof earlier years and bring forward notionallyeven though the same were set off against otherincome of the assessee and the set off againstthe current income of the eligible business. Oncethe set off is taken place in earlier yearagainst the other income of the assessee, theRevenue cannot rework the set off amount andbring it notionally. A fiction created in sub-section does not contemplates to bring set offamount notionally. The fiction is created onlyfor the limited purpose and the same cannot beextended beyond the purpose for which it iscreated. In the present cases, there is no disputethat losses incurred by the assessee were alreadyset off and adjusted against the profits of theearlier years. During the relevant assessmentyear, the assessee exercised the option undersection 80-IA(2). In Tax Case Nos. 909 of 2009 aswell as 940 of 2009, the assessment year was2005-06 and in Tax Case No. 918 of 2008 theassessment year was 2004-05. During the relevantperiod, there were no unabsorbed depreciation orloss of the eligible undertakings and the samewere already absorbed in the earlier years. Thereis a positive profit during the year. Theunreported judgment of this court cited supraconsidered the scope of sub-section (6) ofsection 80-I, which is the correspondingprovision of sub-section (5) of section 80-IA.Both are similarly worded and, therefore, weagree entirely with the Division Bench judgmentof this court cited supra. In the case of CIT v.Mewar Oil and General Mills Ltd. (No. 1) [2004]271 ITR 311 (Raj) ; [2004] 186 CTR (Raj) 141, theRajasthan High Court also considered the scope ofsection 80-I and held as follows (page 314 of 271ITR) : "Having considered the rival contentionswhich follow on the line noticed above, we areof the opinion that on finding the fact thatthere was no carry forward losses of 1983-84,which could be set off against the income ofthe current assessment year 1984-85, therecomputation of income from the newindustrial undertaking by setting off thecarry forward of unabsorbed depreciation ordepreciation allowance from previous year didnot simply arise and on the finding of fact noticed by the Commissioner of Income-tax(Appeals), which has not been disturbed by theTribunal and challenged before us, there wasno error much less any error apparent on theface of the record which could be rectified.That question would have been germane only ifthere would have been carry forward ofunabsorbeddepreciationandunabsorbeddevelopment rebate or any other unabsorbedlosses of the previous year arising out of thepriority industry and whether it was requiredto be set off against the income of thecurrent year. It is not at all required thatlosses or other deductions which have alreadybeen set off against the income of theprevious year should be reopened again forcomputation of current income under section80-I for the purpose of computing admissibledeductions thereunder. In view thereof, we are of the opinionthat the Tribunal has not erred in holdingthat there was no rectification possible undersection 80-I in the present case, albeit, forreasons somewhat different from those whichprevailed with the Tribunal. There being nocarry forward of allowable deductions underthe head depreciation or development rebatewhich needed to be absorbed against the incomeof the current year and, therefore,recomputation of income for the purpose ofcomputing permissible deduction under section80-I for the new industrial undertaking wasnot required in the present case. Accordingly, this appeal fails and ishereby dismissed with no order as to costs." In view thereof, we are of the opinionthat the Tribunal has not erred in holdingthat there was no rectification possible undersection 80-I in the present case, albeit, forreasons somewhat different from those whichprevailed with the Tribunal. There being nocarry forward of allowable deductions underthe head depreciation or development rebatewhich needed to be absorbed against the incomeof the current year and, therefore,recomputation of income for the purpose ofcomputing permissible deduction under section80-I for the new industrial undertaking wasnot required in the present case. Accordingly, this appeal fails and ishereby dismissed with no order as to costs." From a reading of the above, the RajasthanHigh Court held that it is not at all requiredthat losses or other deductions which havealready been set off against the income of theprevious year should be reopened again forcomputation of current income under section 80-Ifor the purpose of computing admissibledeductions thereunder. We also agree with thesame. We see no reason to take a different view. The standing counsel appearing for theRevenue is unable to bring to our notice anyrelevant material or any compelling reason or anycontra judgment of other courts to take adifferent view. He only relied heavily on the Memorandum explaining the provisions in theFinance (No. 2) Bill, 1980, [1980] 123 ITR (St.)154 to support this case and the same reads asfollows : "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 lossin the year earlier to the initial assessmentyear already absorbed against the profit of otherbusiness cannot be notionally brought forward andset off against the profits of the eligiblebusiness as no such mandate is provided insection 80-IA(5). Under these circumstances, we set aside theorder of the Tribunal and answer all thequestions in favour of the appellant/assessee andagainst the Revenue in Tax Case Nos. 909 and 940of 2009 respectively. Accordingly, tax cases areallowed." 6. 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, inwhich, only notice has been ordered and they are not yet admittedby the Supreme Court. 7. The facts in the present case are also identical to theabove-said decision of this Court. The appellant is engaged in thebusiness of yarn and textile brokerage and in the generation ofpower through windmills and it has claimed the benefit ofdeduction under Section 80IA of the Income Tax Act for theassessment year in question and for the subsequent years as well.Having exercised its option and its losses have been set offalready against other income of the business enterprise, theassessee in this appeal falls within the parameters of Section80IA of the Income Tax Act. There appears to be no distinction onfacts in relation to the decision reported in VelayudhaswamySpinning 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 decisionreported in Velayudhaswamy Spinning Mills, held in favour of theassessee and against the Revenue. 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 decisionreported in Velayudhaswamy Spinning Mills, held in favour of theassessee and against the Revenue. 9. We, therefore, taking note of the decision rendered bythis Court in Velayudhasamy Spinning Mills and in a batch of casesin T.C.(A) Nos.408 of 2012, etc. dated 12.1.2015, are inclined todismiss this Tax Case (Appeal), and, thereby, confirm the orderpassed by the Tribunal. Accordingly, the questions of law raisedin this appeal are answered against the Revenue and in favour ofthe assessee. 10. For the reasons afore-stated, this Tax Case (Appeal)stands dismissed. Sd/- Asst.Registrar /true copy/Sub Asst. RegistrarTo1. The Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai.2. The Commissioner of Income Tax (Appeals) ICoimbatore3. The Joint Commissioner of Income TaxRange III, Coimbatore T.C.A.No.146 of 2016KK (CO)kk 7/4