Though It Is Brought To The Notice Of This Court Thatthe Issue Involved In This Appeal Has Already Been Decided Bythis Court In The Decision Reported In Velayud v. Https://Hcservices.ecourts.gov.in/Hcservices

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE V.RAMASUBRAMANIAN AND THE HONOURABLE MR.JUSTICE N.KIRUBAKARAN The Commissioner of Income Tax, Coimbatore... Appellant VsM/s.Sri Renganathar IndustriesPvt. Ltd., Coimbatore-25.... Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order dated 11.9.2015 passed by the IncomeTax Appellate Tribunal, Madras 'A' Bench, for the assessmentyear 2012-13 made in ITA No.1635/Mds/2015, on the file of theDeputy Commissioner of Income Tax Corporate Circle-2, Coimbatoreorder dated 15/12/2014 in PAN No. ; On the file of theCommissioner of Income TAx (Appeals)-I, Coimbatore dated29/5/2015 in Appeal No.316/14-15 in P.A.No.AADCS0183Q For Appellant : Mr.T.R.Senthilkumar For Respondent : Mr.A.S.Sriraman for Mr/S.Sridhar 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 inholding that the respondent/assessee is entitled to claimdeduction under Section 80-IA of the Income Tax Act. 2. Though it is brought to the notice of this Court thatthe issue involved in this appeal has already been decided bythis Court in the decision reported in Velayudhaswamy SpinningMills Vs Asst. CIT [2012) 340 ITR 477], it is stated by thelearned Standing Counsel appearing for the Revenue that asagainst the decision rendered by this Court in VelayudhaswamySpinning Mills, the Revenue has preferred appeals before theSupreme Court and the same 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 SpinningMills, this Court, while dealing with the benefit under ChapterVIA of the Income Tax Act, placed reliance on the decisionreported in Liberty India Vs CIT [2009) 317 ITR 218 (SC)],wherein the Supreme Court considered the scope of Sections 80I,80IA and 80IB of the Income Tax Act and held that Chapter VI-Aprovides for incentives in the form of tax deductionsessentially belong to the category of "profit-linkedincentives". This Court also placed reliance on the decisionreported in CIT - Vs - Mewar Oil and General Mills Ltd. [2004)271 ITR 311 (Raj)] and came to the conclusion that once thelosses and other deduction have been set off against the incomeof the previous year, it should not be reopened again for thepurpose of computation of current year income under Section 80Ior 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: 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 vesselsor other powered craft. The deduction is allowedto the extent of 20 per cent. from the profitsand gains 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)and it starts with non obstante clause and alsoit is a deeming provision. The fiction createdby the undertaking was the only source of incomeduring the previous year initially andsubsequent assessment years. Sub-section (6) wasthe subject-matter before this court in theabove-mentioned unreported judgment, whereinthis court had held that while interpreting theabove provision, for the purpose of allowingdeduction under section 80-I brought forwardlosses and unabsorbed depreciation of the newindustry need not be taken into considerationonce they have been set off from other sourcesof income earlier. In the present case, we are concerned with the provision of section 80-IA.The said provision was introduced by the FinanceAct, 1999, with effect from April 1, 2000. Theprovisions of sections 80-I and 80-IA are alsomore 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 twotax incentives contemplated in Chapter VI-A. Oneis investment incentive and the other one isprofit-linked investment. Chapter VI-A wasintroduced by the Finance Act, 1965, with effectfrom April 1, 1965, and it consists of fourheadings. They are A, B, C and D. Heading "A" isgeneral and it also contains definition. Itconsists of sections 80A, 80AA, 80AB, 80AC and80B. Section 80AB deals with "Deductions to bemade with reference to the income included inthe gross total income", which reads asfollows : "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 thatsection which is included in the gross totalincome of the assessee, then, notwithstandinganything contained in that section, for thepurpose of computing the deduction under thatsection, the amount of income of that natureas computed in accordance with the provisionsof this Act (before making any deductionunder this Chapter) shall alone be deemed tobe the amount of income of that nature whichis derived or received by the assessee andwhich is 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 grosstotal income. Section 80AB defines "gross totalincome" which means the total income has to be https://hcservices.ecourts.gov.in/hcservices/ 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 grosstotal income. Section 80AB defines "gross totalincome" which means the total income has to be https://hcservices.ecourts.gov.in/hcservices/ computed in accordance with the Act beforemaking deduction under this Chapter. Heading "B"deals with "deductions in respect of certainpayments" which consists of sections 80C to80GGC. Heading "C" deals with "deductions inrespect of certain incomes", which consists ofsections 80H to 80TT. The last heading "D" dealswith "other deductions" which consists ofsections 80U to 80V. Heading "C" is relevant forconsidering the issue in these appeals. Therelevant provisions that are to be consideredare sections 80-I, 80-IA and 80-IB. In the caseof 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 ofsections 80-I, 80-IA and also section 80-IB ofthe Act, wherein, it has been held that ChapterVI-A provides for incentives in the form of taxdeductions essentially belong to the category of"profit-linked incentives". Therefore, whenSection 80-IA/80-IB refers to profits derivedfrom eligible business, it is not the ownershipof that business which attracts the incentives.Further, it has been held that sections 80-IB/80-IA are the code by themselves as theycontain both substantive as well as proceduralprovisions. The Supreme Court further observedin the said judgment that sub-section (5) ofsection 80-IA provides for manner of computationof profits of an eligible business. Accordinglysuch profits are to be computed as if sucheligible business is the only source of incomeof 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)(such business being hereinafter referred to asthe eligible business) there shall, inaccordance with and subject to the provisions ofthis section, be allowed in computing the totalincome of the assessee, a deduction of an amountequal to hundred per cent. of the profits andgains derived from such business for tenconsecutive assessment years. https://hcservices.ecourts.gov.in/hcservices/ (2) The deduction specified in sub-section(1) may, at the option of the assessee, beclaimed by him for any ten consecutiveassessment years out of fifteen years beginningfrom the year in which the undertaking or theenterprise develops and begins to operate anyinfrastructure facility or starts providingtelecommunication service or develops anindustrial park or develops a special economiczone referred to in clause (iii) of sub-section(4) or generates power or commences transmissionor distribution or power or undertakessubstantial renovation and modernisation of theexisting transmission or distribution 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 (orby an authority or a board or a corporation orany other body established or constituted underany Central or State Act) ; (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 (orby an authority or a board or a corporation orany other body established or constituted underany Central or State Act) ; (b) it has entered into an agreement withthe Central Government or a State Government ora local authority or any other statutory bodyfor (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 inany other 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 subsequent https://hcservices.ecourts.gov.in/hcservices/ assessment year, be computed as if such eligiblebusiness were the only source of income of theassessee during the previous year relevant tothe initial assessment year and to everysubsequent assessment year up to and includingthe assessment year for which the determinationis to be made." From a reading of sub-section (1), it isclear that it provides that where the grosstotal income of an assessee includes any profitsand gains derived by an undertaking or anenterprise from any business referred to insubsection (4), i.e., referred to as theeligible business, there shall, in accordancewith and subject to the provisions of thesection, be allowed, in computing the totalincome of the assessee, a deduction of an amountequal to 100 per cent. of the profits and gainsderived 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 theassessee to choose 10 consecutive assessmentyears out of 15 years. Option has to beexercised, if it is not exercised, the assesseewill not be getting the benefit. Fifteen yearsis outer limit and the same is beginning fromthe year in which the undertaking or theenterprise develops and begins to operate anyinfrastructure activity, etc. Sub-section (5)deals with quantum of deduction for an eligiblebusiness. The words "initial assessment year"are used in sub-section (5) and the same is notdefined 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 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 determiningthe quantum of deduction ; https://hcservices.ecourts.gov.in/hcservices/ (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 tothe initial assessment year and every subsequentassessment year." (2) It is for the purpose of determiningthe quantum of deduction ; https://hcservices.ecourts.gov.in/hcservices/ (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 tothe initial assessment year and every subsequentassessment year." From a reading of the above, it is clearthat the eligible business were the only sourceof income, during the previous year relevant tothe initial assessment year and every subsequentassessment years. When the assessee exercisesthe option, the only losses of the yearsbeginning from initial assessment year alone areto be brought forward and no losses of earlieryears which were already set off against theincome of the assessee. Looking forward to aperiod of ten years from the initial assessmentis contemplated. It does not allow the Revenueto look backward and find out if there is anyloss of earlier years and bring forwardnotionally even though the same were set offagainst other income of the assessee and the setoff against the current income of the eligiblebusiness. Once the set off is taken place inearlier year against the other income of theassessee, the Revenue cannot rework the set offamount and bring it notionally. A fictioncreated in sub-section does not contemplates tobring set off amount notionally. The fiction iscreated only for the limited purpose and thesame cannot be extended beyond the purpose forwhich it is created. In the present cases, there is no disputethat losses incurred by the assessee werealready set off and adjusted against the profitsof the earlier years. During the relevantassessment year, the assessee exercised theoption under section 80-IA(2). In Tax Case Nos.909 of 2009 as well as 940 of 2009, the https://hcservices.ecourts.gov.in/hcservices/ assessment year was 2005-06 and in Tax Case No.918 of 2008 the assessment year was 2004-05.During the relevant period, there were nounabsorbed depreciation or loss of the eligibleundertakings and the same were already absorbedin the earlier years. There is a positive profitduring the year. The unreported judgment of thiscourt cited supra considered the scope of sub-section (6) of section 80-I, which is thecorresponding provision of sub-section (5) ofsection 80-IA. Both are similarly worded and,therefore, we agree entirely with the DivisionBench judgment of this court cited supra. In thecase of CIT v. Mewar Oil and General Mills Ltd.(No. 1) [2004] 271 ITR 311 (Raj) ; [2004] 186CTR (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 contentionswhich follow on the line noticed above, weare of the opinion that on finding the factthat there was no carry forward losses of1983-84, which could be set off against theincome of the current assessment year 1984-85, the recomputation 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 factnoticed by the Commissioner of Income-tax(Appeals), which has not been disturbed bythe Tribunal and challenged before us, therewas no error much less any error apparent onthe face of the record which could berectified. That question would have beengermane only if there would have been carryforward of unabsorbed depreciation andunabsorbed development rebate or any otherunabsorbed losses of the previous yeararising out of the priority industry andwhether it was required to be set off againstthe income of the current year. It is not atall required that losses or other deductionswhich have already been set off against theincome of the previous year should bereopened again for computation of currentincome under section 80-I for the purpose ofcomputing admissible deductions thereunder. In view thereof, we are of the opinionthat the Tribunal has not erred in holdingthat there was no rectification possibleunder section 80-I in the present case,albeit, for reasons somewhat different fromthose which prevailed with the Tribunal.There being no carry forward of allowabledeductions under the head depreciation ordevelopment rebate which needed to beabsorbed against the income of the currentyear and, therefore, recomputation of incomefor the purpose of computing permissiblededuction under section 80-I for the newindustrial undertaking was not required inthe 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 orany contra judgment of other courts to take adifferent view. He only relied heavily on theMemorandum 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 quantumof 'tax holiday' profits in all cases, taxableincome derived from the new industrial units,etc., will be determined as if such units werean independent unit owned by a taxpayer who doesnot have any other source of income. In theresult, the losses, depreciation and investmentallowance of earlier years in respect of the new https://hcservices.ecourts.gov.in/hcservices/ industrial undertaking, ship or approved hotelwill be taken into account in determining thequantum of deduction admissible under the newsection 80-I even though they may have been setoff against the profits of the taxpayer fromother sources." We are not agreeing with the counsel forthe Revenue. We are, therefore, of the view thatloss in the year earlier to the initialassessment year already absorbed against theprofit of other business cannot be notionallybrought forward and set off against the profitsof the eligible business as no such mandate isprovided in section 80-IA(5). https://hcservices.ecourts.gov.in/hcservices/ industrial undertaking, ship or approved hotelwill be taken into account in determining thequantum of deduction admissible under the newsection 80-I even though they may have been setoff against the profits of the taxpayer fromother sources." We are not agreeing with the counsel forthe Revenue. We are, therefore, of the view thatloss in the year earlier to the initialassessment year already absorbed against theprofit of other business cannot be notionallybrought forward and set off against the profitsof the eligible business as no such mandate isprovided in section 80-IA(5). Under these circumstances, we set aside theorder of the Tribunal and answer all thequestions in favour of the appellant/assesseeand against the Revenue in Tax Case Nos. 909 and940 of 2009 respectively. Accordingly, tax casesare allowed." 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 yetadmitted by the Supreme Court. 7. The facts in the present case are also identical to theabove-said decision of this Court. The appellant is engaged inthe manufacture of rough and machined castings and valves and ithas claimed the benefit of deduction under Section 80IA of theIncome Tax Act for the assessment year in question and for thesubsequent years as well. Having exercised its option and itslosses have been set off already against other income of thebusiness enterprise, the assessee in this appeal falls withinthe parameters of Section 80IA of the Income Tax Act. Thereappears to be no distinction on facts in relation to thedecision reported in Velayudhaswamy 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 thedecision reported in Velayudhaswamy Spinning Mills, held infavour of the assessee and against the Revenue. https://hcservices.ecourts.gov.in/hcservices/ 9. We, therefore, taking note of the decision rendered bythis Court in Velayudhasamy Spinning Mills and in a batch ofcases in T.C.(A) Nos.408 of 2012, etc. dated 12.1.2015, areinclined to dismiss this Tax Case (Appeal), and, thereby,confirm the order passed by the Tribunal. Accordingly, thequestions of law raised in this appeal are answered against theRevenue and in favour of the assessee. 10. For the reasons afore-stated, this Tax Case (Appeal)stands dismissed. No costs. Sd/- Assistant Registrar(CS II) //True Copy// Sub Assistant RegistrarTo1.The Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai.2.Commissioner of Income Tax (Appeals)-I, Coimbatore.3.Assistant Registrar, Income Tax Appellate Tribunal, IInd Floor, Rajaji Bhavan, Besant Nagar, Chennai-90. 4.The Deputy Commissioner of Income tax Corporate Circle-2, Coimbatore. +1cc to M/S.Sridhar, Advocate, S.R.No.12444+1cc to M/S.T.R.SenthilKumar, Advocate, S.R.No.12967 T.C.A.No.165 of 2016 sns(CO)srg(20/04/2016)