2015 (5) TMI 272 - 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

Issues Involved:

1. Entitlement to claim deduction under Section 80-IA of the Income Tax Act.
2. Applicability of previous court decisions to the current case.
3. The impact of set-off losses on the computation of deductions.
4. The relevance of pending Supreme Court appeals on the matter.
5. The interpretation of "initial assessment year" and its implications.

Issue-wise Detailed Analysis:

1. Entitlement to Claim Deduction Under Section 80-IA:

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 court examined the provisions of Section 80-IA, which allows a deduction of 100% of the profits and gains derived from eligible businesses for ten consecutive assessment years. The court emphasized that the deduction is given to eligible businesses as defined under sub-section (4) and that the assessee has the option to choose any ten consecutive assessment years out of fifteen years from the commencement of the business.

2. Applicability of Previous Court Decisions:

The court referred to its previous decision in Velayudhaswamy Spinning Mills V. Asst. CIT (2012) 340 ITR 477, where it was held that once losses and other deductions have been set off against the income of the previous year, they should not be reopened for the computation of current year income under Section 80-IA. The court also cited the Supreme Court's decision in Liberty India V. CIT (2009) 317 ITR 218, which clarified that Chapter VI-A provides profit-linked incentives and that the ownership of the business does not attract the incentives.

3. Impact of Set-off Losses on Computation of Deductions:

The court reiterated that losses incurred in earlier years, which have already been set off against other income, cannot be notionally brought forward and set off against the profits of the eligible business for the current year. This principle was supported by the Rajasthan High Court's decision in CIT V. Mewar Oil and General Mills Ltd. (2004) 271 ITR 311, which held that losses or deductions already set off should not be reopened for computing current income under Section 80-I.

4. Relevance of Pending Supreme Court Appeals:

The court noted that appeals against its decision in Velayudhaswamy Spinning Mills V. Asst. CIT are pending before the Supreme Court. However, since these appeals have not yet been admitted and only notices have been ordered, the court decided to proceed with the current case based on its established precedent.

5. Interpretation of "Initial Assessment Year" and Its Implications:

The court discussed the interpretation of "initial assessment year" under sub-section (5) of Section 80-IA, emphasizing that it is different from the "beginning from the year" mentioned in sub-section (2). The court clarified that only the losses from the initial assessment year onwards should be considered, and not the losses from earlier years that have already been set off. This interpretation ensures that the fiction created by sub-section (5) is limited to its intended purpose and does not allow the revenue to retrospectively adjust set-off amounts.

Conclusion:

The court concluded that the assessee is entitled to the deduction under Section 80-IA, as their losses had already been set off in earlier years and there were positive profits during the relevant assessment years. The court dismissed the revenue's appeal, confirming the order passed by the Tribunal and answering all questions of law in favor of the assessee. The judgment reinforces the principle that set-off losses from previous years should not be reopened for computing current year deductions under Section 80-IA.

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