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2020 (3) TMI 234 - HC - Income TaxDeduction u/s 80IA - Applicability of section 79 - No positive profit available for deduction after considering the losses of the previous years to be set off against the income of the current year - change in the share holding of the assessee company, as a result of which the provisions of section 79 was made applicable and the accumulated losses from the assessment years 1997-1998 to 2001-2002 lapsed - HELD THAT - It is clear that the burden is on the Revenue to establish that any change in the shareholding was not effected with a view to avoiding or reducing any tax liability. As the Assessing Officer has not gone into this aspect at the time of assessment, at this stage, it would not be appropriate to consider the issue as to whether the shareholding was genuine or not for the purpose of computation of quantum under section 80IA( 1) for the year under consideration. Similarly in the decision in the case of Ganga Corporation Asbestos Pvt Ltd 2014 (5) TMI 153 - ALLAHABAD HIGH COURT issue whether business of the assessee had remained the same or whether there was cause of unity of control and common management. Such a issue is not arising from the facts of the case, reliance placed by the Revenue for the alternative submission is not required to be considered. When there is no issue of any strict or otherwise literal construction of the provisions of the Act, the application of section 80IA( 5) of the Act to deny the effect of provisions of section 79 of the Act cannot be sustained as per the Scheme of the Act,1961. When the loss of earlier years have already lapsed, then the same cannot be notionally carried forward and set off against the profit and gains of the assessee's business for the year under consideration in computing the quantum of deduction under section 80IA( 1) of the Act, 1961. The provision of section 80IA( 5) cannot be invoked to ignore the provisions of section 79 by virtue of which the business loss of the assessee prior to year 2001-2002 has already lapsed. Assessing Officer, CIT(Appeals) and the Tribunal were therefore, not justified in applying section 80IA( 5) of the Act so as to ignore the losses which have already lapsed by operation of section 79 - Appeals are allowed.
Issues Involved:
1. Applicability of Section 79 of the Income Tax Act, 1961 for calculating deduction under Section 80IA. 2. Interpretation of Section 80IA(5) in relation to Section 79. 3. Determination of "initial assessment year" for the purpose of Section 80IA. 4. Computation of gross total income and its impact on deductions under Chapter VIA. Issue-wise Detailed Analysis: 1. Applicability of Section 79 for Calculating Deduction under Section 80IA: The core issue was whether the Income Tax Appellate Tribunal (ITAT) was justified in holding that the appellant was not entitled to deduction under Section 80IA due to the non-applicability of Section 79 for calculating such deduction. The appellant, a telecommunication service provider, had a change in shareholding in the previous years, leading to the application of Section 79, which resulted in the lapse of accumulated losses from assessment years 1997-1998 to 2001-2002. 2. Interpretation of Section 80IA(5) in Relation to Section 79: The Tribunal held that the unabsorbed losses and depreciation from earlier years must be considered for determining the quantum of deduction under Section 80IA(1), even if these losses were set off against profits from other sources. The Tribunal's interpretation was based on the non obstante clause in Section 80IA(5), which overrides other provisions, including Section 79. The Tribunal relied on precedents like ACIT v. Goldmines Shares and Finance Pvt. Ltd., IPCA Laboratories Ltd. v. DCIT, and Additional CIT v. Ashok Alco Chem Limited. 3. Determination of "Initial Assessment Year" for Section 80IA: The appellant argued that the initial assessment year for claiming deduction under Section 80IA was 2005-2006, as clarified by the Central Board of Direct Taxes (CBDT) Circular No. 1/2016. The Tribunal, however, did not accept this argument, leading to the appellant's contention that losses prior to 2001-2002 should not be considered for deduction computation. 4. Computation of Gross Total Income and Impact on Deductions: The Revenue argued that the non obstante clause of Section 80IA(5) overrides Section 79, and hence, two separate calculations of profit and gains are necessary: one for aggregate total income under Chapter VI and another for computing deductions under Chapter VIA. The Revenue relied on decisions like Synco Industries Ltd. v. Assessing Officer, IPCA Laboratories Limited, and others to support their argument. Analysis: Applicability of Section 79: The Court analyzed the provisions of the Income Tax Act, including Sections 2(45), 66, 72, 79, 80A, 80AB, 80B(5), and 80IA. It concluded that Section 79, which deals with the carry forward and set off of losses in case of a change in shareholding, starts with a non obstante clause, indicating its overriding effect within Chapter VI. Interpretation of Section 80IA(5): The Court noted that Section 80IA(5) requires computation of profits and gains of eligible business on a standalone basis, ignoring other provisions of the Act. However, it does not explicitly state that losses lapsed under Section 79 should be considered again for deduction purposes. Determination of Initial Assessment Year: The Court accepted the appellant's argument that the initial assessment year was 2005-2006, as per CBDT Circular No. 1/2016, and therefore, the losses prior to 2001-2002 should not be considered for deduction computation. Computation of Gross Total Income: The Court found that the Revenue's interpretation of separate calculations for total income and deductions was contrary to the legislative intent. It emphasized that the gross total income should be computed after setting off carry forward losses, and if the resultant income is positive, deductions under Chapter VIA can be claimed. Conclusion: The Court held that the Assessing Officer, CIT(Appeals), and the Tribunal were not justified in applying Section 80IA(5) to ignore the provisions of Section 79. The losses that had already lapsed under Section 79 should not be notionally carried forward for computing the quantum of deduction under Section 80IA(1). The appeals were allowed, and the impugned orders of the Tribunal were set aside. The substantial question was answered in favor of the assessee and against the Revenue.
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