2008 (11) TMI 347 - HC - Income Tax

Claim of deduction under section 80-I Set off The assessee had two units, M and G. After setting off the losses of Rs. 21,42,843 of M unit for the year of 1992-93 the assessee has the profit of Rs. 24,05,210 from M unit for the assessment year 1992-93, assessee claim the deduction under section 80-I of the Income Tax Act. In this case Patna High Court held that the Tribunal was justified in holding that the loss of the Mirza (M) unit for the assessment year 1992-93, which was taken into account in calculating the income of the assessee of the same year, was rightly carried forward for set off against the profit of the assessment year 1993-94 for the purposes of deduction under section 80-I of the Act. The appeal is dismissed. Decision in favor of revenue against the assessee.

Summary

Issues:
1. Interpretation of Section 80-I of the Income-tax Act for deduction eligibility.
2. Treatment of unit losses in different assessment years for tax holiday claim.

Issue 1: Interpretation of Section 80-I of the Income-tax Act for deduction eligibility

The case involved a company engaged in manufacturing railway sleepers with units in different states. The company claimed a deduction under section 80-I of the Income-tax Act for profits from one of its units. The Assessing Officer initially denied the deduction, stating that the business loss from a previous assessment year should be set off against the current year's income. The Commissioner of Income-tax (Appeals) disagreed, allowing the deduction under section 80-I. The Tribunal, however, reversed this decision, stating that the loss from the previous year should be carried forward for set off against the current year's profit. The High Court analyzed section 80-I(6) of the Act, which provides a special mode of computation for deduction eligibility. The court held that the loss from the Mirza unit had to be considered for determining the deduction under section 80-I, as each unit's taxable income should be treated independently. Therefore, the Tribunal's decision to carry forward the loss for set off against the current year's profit was justified.

Issue 2: Treatment of unit losses in different assessment years for tax holiday claim

The key contention in this issue was whether the loss from the Mirza unit in the assessment year 1992-93, which was set off against the income of the same year, could be notionally carried forward for set off against the profit of the assessment year 1993-94 for the purposes of relief under section 80-I. The appellant argued that once the loss had been set off, it could not be carried forward for deduction purposes. On the other hand, the Revenue contended that the loss had to be carried forward notionally for determining the deduction under section 80-I. The High Court referred to section 80-I(6) of the Act, which mandates treating each unit's income independently for deduction computation. The court held that the loss from the Mirza unit had to be considered for deduction calculation, supporting the Revenue's stance that the loss should be carried forward for set off against the current year's profit. Therefore, the Tribunal's decision in this regard was upheld, dismissing the appeal.

This detailed analysis of the judgment highlights the interpretation of section 80-I of the Income-tax Act and the treatment of unit losses in different assessment years for tax holiday claims. The court's decision was based on a thorough examination of the relevant legal provisions and upheld the Tribunal's ruling in favor of the Revenue.