2015 (12) TMI 1602 - HC - Income Tax

Entitlement to deduction under Section 80IA - Held that - In a batch of cases, in CIT Vs. Eastman Exports Global Clothing (P) Ltd. 2015 (1) TMI 830 - MADRAS HIGH COURT this Court had followed the decision rendered in Velayudhaswamy Spinning Mills (P) Ltd. Vs. Assistant Commissioner of Income Tax, 2010 (3) TMI 860 - Madras High Court held that the provisions of section 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which the assessee opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA, cannot be notionally carried forward and set off against the income from the year in which the assessee started claiming deduction under section 80-IA - Decided in favour of the assessee and against the Revenue

Summary

Issues:
- Interpretation of Section 80IA of the Income Tax Act, 1916
- Eligibility of deduction without setting off losses/unabsorbed depreciation
- Determination of initial assessment year for claiming deduction under Section 80IA

Interpretation of Section 80IA:
The case involved the interpretation of Section 80IA of the Income Tax Act, 1916, specifically regarding the eligibility for deduction. The assessee company, engaged in manufacturing and trading, claimed a deduction under Section 80IA for income from its windmill division. The assessing officer disallowed the deduction, stating that no profits were available for deduction in the relevant financial year. The Commissioner of Income Tax (Appeals) allowed the claim, citing a previous court decision. The Tribunal also upheld this decision, leading to the current appeal.

Eligibility of Deduction without Setting Off Losses:
One of the substantial questions of law raised was whether the assessee could claim the deduction under Section 80IA without setting off losses or unabsorbed depreciation from previous years. The Department challenged the Tribunal's decision, arguing that losses and depreciation should be carried forward and set off against current profits. The Tribunal's interpretation of the initial assessment year and the treatment of losses in computing the deduction were key points of contention.

Determination of Initial Assessment Year:
Another issue raised was the determination of the initial assessment year for claiming the deduction under Section 80IA. The Department argued that the year of commencement of eligible business should be considered the initial assessment year. However, the Tribunal's decision allowed the assessee to choose the first year of claim for the deduction. The court, following previous decisions, dismissed the appeal, confirming the Tribunal's order and favoring the assessee.

In conclusion, the High Court of Madras upheld the decisions of the lower authorities, emphasizing consistency with previous court rulings. The court dismissed the appeal filed by the Revenue, confirming the assessee's entitlement to the deduction under Section 80IA. The judgment highlighted the importance of interpreting tax laws in line with established precedents and providing clarity on the eligibility criteria for claiming deductions under the Income Tax Act.