2015 (1) TMI 1072 - HC - Income Tax

Entitlement to deduction under section 80-IA - Reopening of assessment - Held that - In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under section 80-IA(2). From a reading of the above, the Rajasthan High Court in CIT v. Mewar Oil and General Mills Ltd 2003 (10) TMI 12 - RAJASTHAN High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder. Thus all the business undertakings are wind mills and they have claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment years in question and for the subsequent years as well. Having exercised their option and their losses have been set off already against other income of the business enterprise, the assessee in each of the appeal falls within the parameters of Section 80IA of the Income Tax Act. - Decided in favour of assessee.

Issues Involved:
1. Whether the Tribunal was right in law in holding that the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act.

Issue-wise Detailed Analysis:

Core Issue: Entitlement to Deduction under Section 80-IA of the Income Tax Act

The primary issue in these appeals is whether the Tribunal correctly held that the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. The Revenue contended that the Tribunal's decision was erroneous, while the assessee argued that the issue had already been settled by this Court in the case of Velayudhaswamy Spinning Mills V. Asst. CIT (2012) 340 ITR 477.

Precedent Case: Velayudhaswamy Spinning Mills V. Asst. CIT

The Court had previously dealt with a similar issue in Velayudhaswamy Spinning Mills V. Asst. CIT, where it was held that Chapter VI-A of the Income Tax Act provides for "profit-linked incentives." The Court relied on the Supreme Court's decision in Liberty India V. CIT (2009) 317 ITR 218, which clarified that deductions under Sections 80-I, 80-IA, and 80-IB are profit-linked and should be computed as if the eligible business is the only source of income. The Court also referred to CIT V. Mewar Oil and General Mills Ltd. (2004) 271 ITR 311, concluding that once losses and other deductions are set off against the income of the previous year, they should not be reopened for the computation of current year income under Section 80-IA.

Relevant Provisions and Interpretation

Section 80-IA allows a deduction of 100% of the profits and gains derived from eligible business for ten consecutive assessment years, chosen by the assessee out of fifteen years from the commencement of the eligible business. Sub-section (5) of Section 80-IA, which starts with a non obstante clause, mandates that the profits of the eligible business be computed as if it were the only source of income during the initial assessment year and subsequent years.

The Court emphasized that the "initial assessment year" is distinct from the year in which the business begins operation. The fiction created by sub-section (5) is limited to the computation of profits for the eligible business and does not allow for the notional bringing forward of losses that have already been set off in prior years.

Application to Present Cases

In the present cases, the losses incurred by the assessees had already been set off against the profits of earlier years. During the relevant assessment years, the assessees exercised their option under Section 80-IA(2), and there were no unabsorbed depreciation or losses from the eligible undertakings. The Court found that the facts were identical to those in Velayudhaswamy Spinning Mills V. Asst. CIT, and there was no basis to deviate from the established precedent.

Revenue's Argument and Court's Response

The Revenue argued that the Memorandum explaining the Finance (No. 2) Bill, 1980, required the consideration of losses and depreciation from earlier years in computing the deduction under Section 80-IA. However, the Court did not agree with this interpretation, stating that the losses of earlier years, once set off, could not be notionally brought forward for the purpose of Section 80-IA(5).

Conclusion

The Court set aside the Tribunal's order and answered all questions in favor of the assessee and against the Revenue. It confirmed that the assessees were entitled to the deductions under Section 80-IA, as their losses had already been set off in earlier years. The Court dismissed the Revenue's appeals and upheld the Tribunal's decision.

Pending Appeals in Supreme Court

It was noted that the Revenue had filed appeals before the Supreme Court against the decision in Velayudhaswamy Spinning Mills V. Asst. CIT, which were still pending. However, this did not affect the Court's decision in the present cases.

Final Judgment

The Court dismissed all the above Tax Case (Appeals), thereby confirming the order passed by the Tribunal. The questions of law raised were answered against the Revenue and in favor of the assessee.

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