2015 (4) TMI 844 - HC - Income Tax

Entitlement to claim deduction under Section 80-IA - Held that - The business undertaking of the assessee is wind mill power generation/hosiery goods, etc., and it has claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment year in question and for the subsequent years as well. Having exercised its option and its losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. There appears to be no distinction on facts in relation to the decision reported in Velayudhaswamy Spinning Mills case (2010 (3) TMI 860 - Madras High Court). - Decided in favour of the assessee

Summary

Issues Involved:
1. Entitlement to claim deduction under Section 80-IA of the Income Tax Act.
2. Applicability of previous judicial decisions on the current case.
3. Interpretation of Section 80-IA, especially sub-sections (1), (2), (4), and (5).
4. Treatment of losses and deductions set off in previous years.

Issue-wise Detailed Analysis:

1. Entitlement to Claim Deduction under Section 80-IA of the Income Tax Act:
The core issue in this appeal is whether the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. The Tribunal had ruled in favor of the assessee, allowing the deduction. The High Court examined whether this decision was legally correct.

2. Applicability of Previous Judicial Decisions on the Current Case:
The High Court referenced its earlier decision in Velayudhaswamy Spinning Mills Vs Asst. CIT [2012) 340 ITR 477], where it was held that once losses and other deductions have been set off against the income of previous years, they should not be reopened for the purpose of computing current year income under Section 80-IA. The Revenue's counsel noted that appeals against this decision were pending before the Supreme Court, but the High Court found no compelling reason to deviate from its earlier stance.

3. Interpretation of Section 80-IA, Especially Sub-sections (1), (2), (4), and (5):
The High Court delved into the detailed provisions of Section 80-IA, particularly focusing on sub-sections (1), (2), (4), and (5). It highlighted that:
- Sub-section (1) allows a deduction of 100% of profits and gains derived from eligible business for ten consecutive assessment years.
- Sub-section (2) provides the assessee the option to choose any ten consecutive assessment years out of fifteen years.
- Sub-section (4) defines the eligible business.
- Sub-section (5) emphasizes that the profits and gains of eligible business should be computed as if such business were the only source of income for the assessee during the relevant assessment years.

4. Treatment of Losses and Deductions Set Off in Previous Years:
The High Court reiterated its position from Velayudhaswamy Spinning Mills that losses and deductions set off in previous years should not be brought forward notionally. It cited the Rajasthan High Court's decision in CIT v. Mewar Oil and General Mills Ltd., which held that it is not required to reopen losses or deductions already set off against previous years' income for computing current income under Section 80-IA.

Conclusion:
The High Court dismissed the appeal, confirming the Tribunal's order and ruling in favor of the assessee. It held that the assessee's business undertaking, which had already set off its losses against other income, was entitled to the deduction under Section 80-IA. The Court found no distinction in facts from the Velayudhaswamy Spinning Mills case and saw no reason to take a different view.

Final Judgment:
The Tax Case (Appeal) was dismissed, and the questions of law were answered against the Revenue and in favor of the assessee. The High Court confirmed the Tribunal's order, allowing the deduction under Section 80-IA of the Income Tax Act.