2016 (5) TMI 946 - HC - Income Tax

Entitlement to claim deduction under Section 80-IA - Held that - The assessee is an individual having income from salary, business and other sources and is generating power through windmills and 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 his option and his 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 2010 (3) TMI 860 - Madras High Court . - Decided in favour of the assessee

Summary

Issues Involved:
1. Entitlement to claim deduction under Section 80-IA of the Income Tax Act.
2. Applicability of previous judgments and pending appeals before the Supreme Court.
3. Interpretation of "initial assessment year" and treatment of set-off losses.

Issue-Wise Detailed Analysis:

1. Entitlement to Claim Deduction under Section 80-IA:
The core issue in this appeal is whether the Tribunal was correct in allowing the respondent/assessee to claim deduction under Section 80-IA of the Income Tax Act. The High Court referenced its earlier decision in Velayudhaswamy Spinning Mills Vs Asst. CIT [2012) 340 ITR 477], which had already settled this issue. The Court 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 computation of current year income under Section 80-IA. This principle was further supported by the Supreme Court's ruling in Liberty India Vs CIT [2009) 317 ITR 218 (SC)], which classified Chapter VI-A deductions as "profit-linked incentives."

2. Applicability of Previous Judgments and Pending Appeals:
The Revenue's counsel highlighted that appeals against the Velayudhaswamy Spinning Mills decision were pending before the Supreme Court. However, the High Court noted that these appeals had only reached the notice stage and had not yet been admitted. Therefore, the Court found no compelling reason to deviate from its earlier stance, reaffirming the decision in Velayudhaswamy Spinning Mills.

3. Interpretation of "Initial Assessment Year" and Treatment of Set-Off Losses:
The High Court elaborated on the interpretation of "initial assessment year" under Section 80-IA(5). It emphasized that the term is distinct from "beginning from the year" mentioned in sub-section (2). The Court clarified that the eligible business should be treated as the only source of income during the initial assessment year and subsequent years. Losses or deductions set off in earlier years should not be reopened. This interpretation was consistent with the Rajasthan High Court's ruling in CIT v. Mewar Oil and General Mills Ltd. [2004) 271 ITR 311 (Raj)], which stated that losses already absorbed should not be brought forward notionally for re-computation.

Conclusion:
The High Court concluded that the facts of the present case were identical to those in Velayudhaswamy Spinning Mills. The assessee had already set off his losses against other income and exercised the option under Section 80-IA. Consequently, the Court dismissed the Revenue's appeal, confirming the Tribunal's order and answering the questions of law in favor of the assessee. The Court reiterated that there was no mandate in Section 80-IA(5) to notionally bring forward and set off losses of earlier years that had already been absorbed.

Final Judgment:
The Tax Case (Appeal) was dismissed, and the Tribunal's order was confirmed. The questions of law were answered against the Revenue and in favor of the assessee.