2021 (12) TMI 19 - HC - Income Tax

Deduction u/s 80HH and 80I - Tribunal justification in holding that in view of the provisions of Section 80AB the loss sustained by the Generic Division was to be deducted from the profits of Bulk Drugs Division for the purposes of computing deduction - HELD THAT - If one considers Section 80I of the Act it provides for deduction in respect of profits and gains from Industrial undertaking after a certain date etc. It applies to industrial undertaking or a ship or the business of a hotel or business of repairs to ocean going vessels or other powered craft. Section 80IA of the Act provides for deductions in respect of profits and gains from industrial undertaking or enterprises engaged in infrastructure development etc. Section 80HH of the Act provides for deduction in respect of profits and gains from a newly established industrial undertaking or a hotel business in backward area. If we consider the language applied in these three sections, they are identical except that the industry to which it becomes applicable differs. Therefore, even if the judgment of the Apex Court in Reliance Energy Limited 2021 (4) TMI 1237 - SUPREME COURT was in regard to Section 80-IA of the Act, in our view it covers even Sections 80I and 80HH of the Act. In Reliance Energy (supra) the Apex Court had categorically stated that Section 80AB of the Act cannot be read to be curtailing the width of Section 80-IA of the Act. Mr. Pinto submitted that this observation of the Apex Court was in the nature of obiter. It is settled law that even if the observation of the Apex Court is in the nature of obiter, the same will be binding on the High Courts. In view of what is said in Reliance Energy Limited (supra) by the Apex Court we will have to answer the question noted above in negative.

Summary

Issues:
1. Interpretation of Section 80AB of the Income Tax Act, 1961 regarding the set-off of losses against profits for computing deductions under Sections 80HH and 80I.

Analysis:
The High Court of Bombay addressed the issue of whether the Tribunal was correct in holding that the loss of a specific amount sustained by the Generic Division should be deducted from the profits of the Bulk Drugs Division for the purpose of computing deductions under Sections 80HH and 80I of the Income Tax Act, 1961. The appellant argued that the issue was covered by a judgment of the Apex Court in a different case, where a similar provision under Section 80-IA was discussed. The appellant contended that the principles applied in that case should also apply to Sections 80I and 80HH under consideration in the present case.

The respondent, on the other hand, strongly opposed the appeal, supporting the ITAT's conclusion that the losses should be set-off against the profits of the industrial undertaking before granting deductions under Section 80HH, citing the specific provision in Section 80AB of the Act. The respondent relied on a judgment in Commissioner of Income-Tax vs. Sundaravel Match Industries to support their argument that Section 80AB restricts deductions under Sections 80HH and 80I.

The High Court analyzed the provisions of Section 80I, 80IA, and 80HH of the Act, highlighting that they provide deductions for profits and gains from different types of industrial activities. Despite the judgment in the Apex Court case being related to Section 80-IA, the High Court concluded that the principles discussed in that case are applicable to Sections 80I and 80HH as well, given the similarity in language and purpose of these sections.

Referring to the Apex Court's observation in the previous case that Section 80AB should not curtail the width of Section 80-IA, the High Court acknowledged that this observation was in the nature of obiter. However, the High Court emphasized that such observations from the Apex Court, even if obiter, are binding on the High Courts. Consequently, based on the principles laid down in the previous judgment, the High Court answered the substantial question of law in the negative, in favor of the respondent.

Ultimately, the High Court disposed of the appeal with no order as to costs, concluding the matter based on the interpretation of the relevant provisions of the Income Tax Act and the principles established in the previous judgment by the Apex Court.