2016 (11) TMI 331 - HC - Income Tax

Claim of deduction u/s 80IA - initial assessment year - whether the assessee is entitled to deduction under Section 80IA without setting off the losses/unabsorbed depreciation pertaining to the windmill which were set off in the earlier year against other business income of the assessee following the decision of M/s.Velayudhaswamy Spinning Mills (2010 (3) TMI 860 - Madras High Court) - Held that - Interestingly on the basis of the decision in Velayudhaswamy Spinning Mills the Central Board of Direct Taxes has issued Circular No.1/ 2016 dated 15.2.2016 stating that it is abundantly clear from Sub-Section (2) that an assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years out of a slab of fifteen (or twenty) years as prescribed under that Sub-Section. It is hereby clarified that once such initial assessment year has been opted for by the assessee he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence the term initial assessment year would mean the first year opted for by the assessee for claiming deduction u/s 80IA. However the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years as the case may be and the period of claim should be availed in continuity. Allow deduction u/s 801A in accordance with this clarification.

Summary

Issues involved:
1. Interpretation of deduction under Section 80IA without setting off losses/unabsorbed depreciation.
2. Determination of the initial assessment year in Section 80IA(5).
3. Assessee's option to choose the first/initial assessment year for deduction under Section 80IA.

Analysis:

Issue 1: Interpretation of deduction under Section 80IA without setting off losses/unabsorbed depreciation:
The primary question raised in this case was whether the Income Tax Appellate Tribunal was correct in allowing the assessee to claim a deduction under Section 80IA without setting off losses/unabsorbed depreciation related to a windmill. This issue stemmed from a previous decision by the jurisdictional High Court in the case of M/s. Velayudhaswamy Spinning Mills. The Tribunal's decision was challenged due to the pending appeal before the Supreme Court. However, the High Court noted that it consistently followed the decision in the Velayudhaswamy Spinning Mills case, even after the Supreme Court ordered notice. Additionally, the Central Board of Direct Taxes issued Circular No.1/2016, providing clarification on the term 'initial assessment year' in Section 80IA(5), further supporting the Tribunal's decision. The High Court ultimately dismissed the appeal, stating that the issue was covered by the circular.

Issue 2: Determination of the initial assessment year in Section 80IA(5):
The second issue revolved around the interpretation of the term 'initial assessment year' in Section 80IA(5) of the Income Tax Act, 1961. The Circular No.1/2016 issued by the Central Board of Direct Taxes clarified that the initial assessment year is the year chosen by the assessee for claiming deduction under Section 80IA. Assessing Officers were directed to allow the deduction in accordance with this clarification and to ensure that all prescribed conditions were met. The circular emphasized that the assessee has the option to select the initial year for claiming the deduction, subject to the specified slab of fifteen or twenty years. This clarification provided a clear guideline for determining the initial assessment year for deduction under Section 80IA.

Issue 3: Assessee's option to choose the first/initial assessment year for deduction under Section 80IA:
The third issue addressed whether the assessee has the discretion to select the first/initial assessment year for claiming a deduction under Section 80IA. The Circular No.1/2016 emphasized that the assessee indeed has the option to choose the initial assessment year for claiming the deduction for ten consecutive years, within the prescribed slab of fifteen or twenty years. The Circular clarified that once the assessee opts for an initial assessment year, they are entitled to claim the deduction for the specified period, provided all conditions are met. This issue was also resolved in favor of the assessee based on the guidelines provided in the circular.

In conclusion, the High Court dismissed the tax case appeals, citing that the issues raised were covered by the Circular No.1/2016 issued by the Central Board of Direct Taxes. The judgment highlighted the importance of following the prescribed guidelines and clarifications provided by the tax authorities to ensure consistent application of tax laws and deductions.