2010 (2) TMI 486 - HC - Income Tax

Industrial Undertaking - The expression gross total income as defined by section 80-B(5) for the purpose of Chapter VI-A to mean the total income computed in accordance with the provision of the Act before making any deduction under the Chapter. The expression total income has been defined in section 2(45) to mean the total amount of income referred to in section 5 computed in the manner laid down in the Act. In computing the total income of the assessee there is no basis in the provisions of section 80IA to restrict the expression to total income derived from an eligible business. Held that - Tribunal had noted that the gross total income of the assessee after setting off the losses from all other sources of income was Rs. 14, 57, 200 while the profit of the eligible unit was computed at Rs. 98.43 lakhs. The Tribunal has restricted the deduction to the extent of gross total income namely Rs. 14, 57, 200. The decision of the Tribunal was in accordance with the provisions of act.

Summary

Issues:
1. Interpretation of section 80-IA of the Income-tax Act, 1961 regarding deduction eligibility.
2. Determining the gross total income and its relation to deduction under section 80-IA.
3. Application of legal principles from Synco Industries Ltd. v. Assessing Officer of Income-tax [2002] 254 ITR 608.

Issue 1: Interpretation of section 80-IA of the Income-tax Act, 1961 regarding deduction eligibility:
The Revenue raised questions regarding the computation of profit from an eligible unit under section 80-IA. The primary concern was whether the deduction should be permissible to the assessee under section 80-IA if the income is equivalent to or more than the profit of the eligible unit. The court analyzed the provisions of section 80-IA, emphasizing that the deduction is allowed based on the profits and gains derived from the eligible business for ten consecutive assessment years. The court highlighted that the total income includes all income from any source derived, as per section 5(1) of the Act. It was concluded that there is no basis in the provisions of section 80-IA to restrict the total income to only that derived from an eligible business.

Issue 2: Determining the gross total income and its relation to deduction under section 80-IA:
In this case, the Assessing Officer computed the gross total income of the assessee at Rs. 14,57,200, while the profit of the eligible unit was Rs. 98.43 lakhs. The Tribunal directed that the deduction should be restricted to the extent of the gross total income, as it was less than the eligible profit of the unit. The court referred to the definition of gross total income under section 80B(5) and highlighted that the deduction under section 80-IA is based on profits derived from the eligible business. The court upheld the Tribunal's decision to limit the deduction to the gross total income, in line with the provisions of the Act.

Issue 3: Application of legal principles from Synco Industries Ltd. v. Assessing Officer of Income-tax [2002] 254 ITR 608:
The court referenced the Synco Industries case, where it was established that gross total income should be determined by setting off business losses before allowing deductions under Chapter VI-A. If the resultant income is nil, then the deduction cannot be claimed. In the present case, the Tribunal restricted the deduction to the extent of the gross total income after setting off losses from other sources. This decision was deemed consistent with the Act's provisions. Consequently, the appeal was dismissed as it did not raise any substantial question of law.

Overall, the judgment clarified the interpretation of section 80-IA, emphasized the calculation of gross total income for deduction eligibility, and applied legal principles from relevant precedents to determine the outcome of the case.