2016 (3) TMI 1071 - HC - Income Tax

Claim 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 801A 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 801A. 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. Entitlement to deduction under Section 80IA without setting off losses/unabsorbed depreciation.
2. Interpretation of the term "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: Entitlement to deduction under Section 80IA without setting off losses/unabsorbed depreciation:
The Revenue appealed, questioning the Income Tax Appellate Tribunal's decision allowing the assessee's deduction under Section 80IA without setting off losses/unabsorbed depreciation from the windmill against other business income. This decision was based on the jurisdictional High Court's ruling in a specific case pending appeal before the Supreme Court. The High Court noted that despite the Supreme Court's notice, it consistently followed the precedent. Additionally, the Central Board of Direct Taxes issued Circular No.1/2016 clarifying the term "initial assessment year" under Section 80IA(5), which further supported the Tribunal's decision. Therefore, the High Court dismissed the appeal, indicating that the issue was covered by the circular.

Issue 2: Interpretation of the term "initial assessment year" in Section 80IA(5):
The Circular clarified that the "initial assessment year" referred to in Section 80IA(5) is the year chosen by the assessee to claim deduction under Section 80IA, not necessarily the year of commencement of the eligible business. Assessing Officers were directed to allow deduction in accordance with this clarification, ensuring that the claimed deduction period does not exceed the prescribed slab of fifteen or twenty years. This interpretation aligns with the assessee's option to select the initial year for claiming the deduction, as provided in Section 80IA(2).

Issue 3: Assessee's option to choose the first/initial assessment year for deduction under Section 80IA:
The Tribunal's decision, upheld by the High Court, recognized the assessee's right to choose the first/initial assessment year for claiming deduction under Section 80IA. This choice is in line with the provisions of Section 80IA(2), allowing the assessee to select any ten consecutive assessment years out of fifteen (or twenty) for claiming the deduction, starting from the chosen initial year. The Circular further emphasized that once the initial assessment year is opted for, the assessee can claim the deduction for ten consecutive years from that chosen year, subject to meeting the prescribed conditions.

In conclusion, the High Court dismissed the tax case appeal, highlighting the importance of following established legal precedents and circulars issued by the tax authorities. The judgment emphasized the significance of clarity in interpreting tax laws and the need for consistency in decision-making to avoid unnecessary appeals and ensure the proper application of tax deductions.