2015 (5) TMI 274 - HC - Income Tax

Entitlement to 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 deduction under Section 80-IA of the Income Tax Act.
2. Applicability of previous court decisions on the current case.
3. Impact of pending appeals before the Supreme Court on the current case.
4. Interpretation of "initial assessment year" and treatment of losses.

Detailed Analysis:

Entitlement to Deduction under Section 80-IA:
The core issue in this Tax Case (Appeal) is whether the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. The court referred to the decision in (2012) 340 ITR 477 (Velayudhaswamy Spinning Mills V. Asst. CIT), which dealt with the benefit under Chapter VIA of the Income Tax Act. The court emphasized that once losses and other deductions have been set off against the income of the previous year, they should not be reopened for the purpose of computation of current year income under Section 80I or 80IA.

Applicability of Previous Court Decisions:
The court placed reliance on the decision reported in (2009) 317 ITR 218 (SC) (Liberty India V. CIT) and (2004) 271 ITR 311 (Raj) (CIT V. Mewar Oil and General Mills Ltd.), which held that Chapter VI-A provides for incentives in the form of tax deductions that are "profit-linked incentives". The court concluded that once losses and other deductions have been set off against the income of the previous year, they should not be reopened again for the purpose of computation of current year income under Section 80I or 80IA.

Impact of Pending Appeals Before the Supreme Court:
The learned Standing Counsel for the Revenue stated that appeals against the decision in Velayudhaswamy Spinning Mills V. Asst. CIT are pending before the Supreme Court. However, the court noted that these appeals are still pending and have not been admitted by the Supreme Court. Therefore, the court decided to follow the existing decision of the High Court.

Interpretation of "Initial Assessment Year" and Treatment of Losses:
The court extracted relevant portions of the decision to clarify that the "initial assessment year" in sub-section (5) of Section 80-IA is different from the "beginning from the year" referred to in sub-section (2). The court emphasized that once losses are set off against the income of the previous year, they cannot be notionally brought forward for the purpose of computing the deduction under Section 80-IA. The court agreed with the judgment in CIT v. Mewar Oil and General Mills Ltd., which held that it is not required to reopen losses or other deductions that have already been set off against the income of the previous year for the purpose of computing current income under Section 80-I.

Conclusion:
The court concluded that the facts of the present case are identical to the decision in Velayudhaswamy Spinning Mills V. Asst. CIT. The assessee's losses had already been set off against other income of the business enterprise, and thus, the assessee falls within the parameters of Section 80IA. The court dismissed the Tax Case (Appeal), confirming the order passed by the Tribunal, and answered the questions of law in favor of the assessee and against the Revenue. Consequently, M.P.No.1 of 2015 was closed.

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