2015 (3) TMI 158 - HC - Income Tax

Entitlement to deduction u/s 80IA in respect of the windmill unit denied - Held that - As 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 this appeal falls within the parameters of Section 80IA of the Income Tax Act. In the decision reported in Velayudhaswamy Spinning Mills V. Asst. CIT (2010 (3) TMI 860 - Madras High Court) there appears to be no distinction on facts. Loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5). - Decided in favour of assessee.

Issues Involved:
1. Entitlement to Deduction under Section 80IA of the Income Tax Act for the windmill unit.
2. Application of precedent set by the decision in Velayudhaswamy Spinning Mills V. Asst. CIT.
3. Consideration of losses and deductions set off in previous years for the purpose of current year income computation under Section 80IA.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80IA of the Income Tax Act for the windmill unit:
The primary issue was whether the appellant was entitled to a deduction under Section 80IA of the Income Tax Act for the windmill unit. The court examined the provisions of Section 80IA, which allows a deduction of 100% of the profits and gains derived from eligible businesses for ten consecutive assessment years. The court noted that the provision applies to businesses involved in developing, operating, and maintaining infrastructure facilities, among other activities. The court emphasized that the deduction is profit-linked and not ownership-linked, meaning it focuses on the profits derived from the eligible business.

2. Application of precedent set by the decision in Velayudhaswamy Spinning Mills V. Asst. CIT:
The appellant's counsel argued that the issue had already been decided in favor of the assessee in the case of Velayudhaswamy Spinning Mills V. Asst. CIT, where the court held that once losses and other deductions are set off against the income of the previous year, they should not be reopened for the purpose of computing the current year's income under Section 80IA. The court in the present case agreed with this precedent, noting that the provisions of Sections 80I and 80IA are similarly worded and that the principles established in the Velayudhaswamy case should be applied here.

3. Consideration of losses and deductions set off in previous years for the purpose of current year income computation under Section 80IA:
The court reiterated that losses incurred in earlier years that have already been set off against other income should not be brought forward and set off against the profits of the eligible business for the purpose of computing deductions under Section 80IA. The court cited the Rajasthan High Court's decision in CIT v. Mewar Oil and General Mills Ltd., which supported this view, stating that it is not required to reopen losses or other deductions that have already been set off in previous years. The court concluded that the fiction created by Section 80IA(5) is limited to the purpose of determining the quantum of deduction and does not extend to bringing forward set-off amounts notionally.

Conclusion:
The court set aside the order of the Tribunal and allowed the appeal in favor of the assessee. It held that the assessee is entitled to the deduction under Section 80IA, and losses set off in previous years should not be reopened for the purpose of computing the current year's income. The question of law was answered in favor of the assessee, and the tax case appeal was allowed with no costs.

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