2015 (3) TMI 455 - HC - Income Tax

Deduction u/s 80 IA on profits of the new eligible industrial unit - Whether ITAT is correct in allowing deduction u/s 80 IA on profits of the new eligible industrial unit without setting off the losses of other unit against the profit of the new industrial undertaking in view of the specific provisions contained to the contrary in Section 80 AB and Section 80B(5) of the Income Tax Act, 1961? - Held that - Assessee could not dispute that in view of the Apex Court's decision in Synco Industries Ltd. vs. Assessing Officer, Income Tax, Mumbai (1975 (2) TMI 86 - SUPREME COURT OF INDIA) and this Court's decision in Commissioner of Income Tax Vs. Arif Industries Ltd. (2010 (3) TMI 857 - Allahabad High Court ) wherein held Section 80A(2) and Section (5) are declaratory in nature. They apply to all the Sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and therefore the non-obstante clause in Section 80-I(6) cannot restrict the operation of Sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier Section 80-I(6) deals with actual computation of deduction whereas Section 80- I(1) deals with the treatment to be given to such deductions in order to arrive at the total income of the assessee and therefore while interpreting Section 80-I(1), which also refers to gross total income one has to read the expression 'gross total income' as defined in Section 80B(5). therefore, this Court is of the opinion that the High Court was justified in holding that the loss from the oil division was required to be adjusted before determining the gross total income and as the gross total income was 'Nil' the assessee was not entitled to claim deduction under Chapter VI-A which includes Section 80-I also The non obstante clause in sub-section (6) of section 80-I refers to only the quantum of deduction, therefore, the gross total income referred to in section 80-I(1) is to be read with section 80B(5) and only then the computation is to be made in the manner provided under the Act - The mandate contained in sections 80A and 80B(5) requires that gross total income should be computed after setting off the brought forward business loss and unabsorbed depreciation, etc. for allowing of the deductions specified under sections 80C to 80U - Decided in favour of Revenue

Summary

Issues:
1. Interpretation of Section 80 IA of the Income Tax Act, 1961 regarding deduction on profits of a new industrial unit.
2. Application of Sections 80A and 80B(5) in determining the eligibility for deduction under Chapter VI-A of the Act.
3. Impact of Apex Court's decision on the interpretation of provisions related to deduction under Chapter VI-A.

Analysis:

Issue 1: Interpretation of Section 80 IA
The case involved a dispute over the deduction claimed under Section 80 IA of the Income Tax Act, 1961 for the assessment year 1995-96. The appellant claimed a deduction based on the profits of a new industrial unit, while the Assessing Officer disagreed and allowed the deduction only on the income from the new unit included in the gross total income. The Commissioner of Income Tax (Appeals) upheld the appellant's claim, emphasizing that the deduction should be calculated based on the profit of the eligible industrial unit. The Tribunal also ruled in favor of the appellant, stating that the ceiling imposed by Sections 80A and 80B(5) did not apply in this case as the resultant figure was positive and only one unit was available for deduction.

Issue 2: Application of Sections 80A and 80B(5)
The Revenue challenged the Tribunal's decision, arguing that the interpretation of the provisions was covered by the Apex Court's decision in a similar case. The Apex Court's decision highlighted the importance of adjusting losses against income before allowing deductions under Chapter VI-A, emphasizing that gross total income must be determined after setting off business losses. The Court clarified that while computing the deduction under Section 80-I(6), only profits should be considered, but Sections 80A(2) and 80B(5) impose a ceiling on the total deduction amount, requiring adjustments for losses against profits. The Court concluded that the Tribunal's decision was not sustainable in light of the Apex Court's ruling.

Issue 3: Impact of Apex Court's Decision
The High Court acknowledged the Apex Court's decision and a similar ruling in another case, Commissioner of Income Tax Vs. Arif Industries Ltd. The counsel for the appellant could not dispute the precedence set by the Apex Court's decision, leading to a conclusion in favor of the Revenue. The Court also referenced a dissenting decision by the Punjab and Haryana High Court, which aligned with the Bombay High Court's judgment confirmed by the Apex Court. Consequently, the High Court set aside the Tribunal's decision and remanded the matter for a fresh order in accordance with the law, ultimately ruling in favor of the Revenue and against the appellant.

This comprehensive analysis of the judgment highlights the key legal issues, interpretations of relevant provisions, and the impact of higher court decisions on the case's outcome.