2015 (6) TMI 367 - HC - Income Tax

Entitlement to claim deduction under Section 80-IA - Held that - The business undertaking of the assessee is wind mill power generation/hosiery goods, etc., and it has claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment year in question and for the subsequent years as well. Having exercised its option and its 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. There appears to be no distinction on facts in relation to the decision reported in Velayudhaswamy Spinning Mills case (2010 (3) TMI 860 - Madras High Court). - Decided in favour of the assessee

Issues Involved:
1. Entitlement to claim deduction under section 80-IA of the Income Tax Act.
2. Application of previous court decisions to the current case.
3. Treatment of losses and deductions set off against previous years' income.
4. Interpretation of the "initial assessment year" under section 80-IA(5).

Detailed Analysis:

1. Entitlement to Claim Deduction Under Section 80-IA of the Income Tax Act:
The core issue in this appeal is whether the respondent/assessee is entitled to claim deduction under section 80-IA of the Income Tax Act. The court referred to its previous decision in Velayudhaswamy Spinning Mills V. Asst. CIT (2012) 340 ITR 477, which held that deductions under Chapter VI-A of the Income Tax Act are "profit-linked incentives." The court concluded that once losses and other deductions have been set off against the income of previous years, they should not be reopened for the purpose of computing current year income under Section 80-IA.

2. Application of Previous Court Decisions to the Current Case:
The court relied on the precedent set by Velayudhaswamy Spinning Mills V. Asst. CIT and Liberty India V. CIT (2009) 317 ITR 218 (SC), wherein it was held that Chapter VI-A provides for profit-linked incentives. The court also referenced CIT V. Mewar Oil and General Mills Ltd. (2004) 271 ITR 311 (Raj), which supported the view that once losses have been set off, they should not be reopened for current year computation under Section 80-IA. The court found no compelling reason or contrary judgment to deviate from these precedents.

3. Treatment of Losses and Deductions Set Off Against Previous Years' Income:
The court emphasized that losses incurred and set off in earlier years should not be notionally brought forward and set off against the profits of the eligible business for the current year. The court clarified that the fiction created in Section 80-IA(5) is limited to treating the eligible business as the only source of income for the purpose of computing deductions and does not extend to reopening past set-offs.

4. Interpretation of the "Initial Assessment Year" Under Section 80-IA(5):
The court elaborated on the interpretation of "initial assessment year" in the context of Section 80-IA(5), noting that it is different from the "beginning from the year" referred to in Section 80-IA(2). The court explained that the initial assessment year is the year from which the assessee opts to claim the deduction, and only losses from this year onward are relevant for computation. The court rejected the Revenue's argument that losses from years prior to the initial assessment year should be brought forward and set off against the current year's profits.

Conclusion:
The court dismissed the appeal, confirming the order passed by the Tribunal and holding that the respondent/assessee is entitled to the deduction under Section 80-IA. The court reiterated that once losses are set off in earlier years, they cannot be reopened for current year computation under Section 80-IA. The court also noted that the Revenue's appeals against the Velayudhaswamy Spinning Mills decision are pending before the Supreme Court but have not been admitted yet. The questions of law were answered against the Revenue and in favor of the assessee.

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