2015 (8) TMI 184 - HC - Income Tax

Disallowance of deduction claimed under section 80IA - CIT(A) allowed claim - 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 deduction under Section 80-IA of the Income Tax Act.
2. Application and interpretation of Section 80-IA, specifically sub-section (5).
3. Reopening of set-off losses for computation of current year income under Section 80-IA.

Issue-wise Detailed Analysis:

1. Entitlement to 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 High Court referenced its earlier decision in Velayudhaswamy Spinning Mills v. Asst. CIT, which held that once losses and other deductions have been 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 80-IA. The court reiterated that the assessee should not be denied the admissible deduction under Section 80-IA.

2. Application and Interpretation of Section 80-IA, Specifically Sub-section (5):

The High Court examined the provisions of Section 80-IA, particularly sub-section (5), which deals with the quantum of deduction for an eligible business. The court noted that sub-section (5) starts with a non obstante clause, indicating it overrides other provisions of the Act. It is a deeming provision that creates a fiction that the eligible business is the only source of income during the relevant assessment years. The court emphasized that this fiction is limited to the purpose of determining the quantum of deduction and should not be extended beyond its intended purpose.

3. Reopening of Set-off Losses for Computation of Current Year Income under Section 80-IA:

The court held that losses incurred by the assessee in years prior to the initial assessment year, which were already set off against other income, cannot be notionally brought forward and set off against the profits of the eligible business. The court referenced the Rajasthan High Court's decision in CIT v. Mewar Oil and General Mills Ltd., which supported this interpretation, stating that once losses or deductions have been set off against previous years' income, they should not be reopened for computing current income under Section 80-IA.

Conclusion:

The High Court dismissed the Revenue's appeal, affirming the Tribunal's order in favor of the assessee. It held that the assessee is entitled to claim deduction under Section 80-IA, and losses set off in earlier years cannot be reopened for computation under this section. The court noted that the Revenue's appeal against the Velayudhaswamy Spinning Mills decision is pending before the Supreme Court but has not been admitted. The court confirmed that the facts of the present case are identical to the Velayudhaswamy Spinning Mills case, and there is no distinction on facts.

Final Judgment:

The High Court dismissed the Tax Case (Appeal), answering the questions of law in favor of the assessee and against the Revenue. The order of the Tribunal was confirmed, and no costs were awarded.

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