2015 (7) TMI 20 - 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 of the respondent/assessee to claim deduction under Section 80-IA of the Income Tax Act.
2. Setting off losses and deductions against previous years' income for computing current year income under Section 80-IA.

Issue-wise Detailed Analysis:

1. Entitlement of the respondent/assessee to claim deduction under Section 80-IA of the Income Tax Act:

The core issue in this Tax Case (Appeal) is whether the Tribunal was correct in law in holding that the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. The High Court referenced its prior decision in the case of Velayudhaswamy Spinning Mills V. Asst. CIT, reported in (2012) 340 ITR 477, which dealt with similar issues under Chapter VI-A of the Income Tax Act. The court cited the Supreme Court's interpretation in Liberty India V. CIT, (2009) 317 ITR 218 (SC), which clarified that Chapter VI-A provides "profit-linked incentives" through tax deductions. The court concluded that once losses and deductions are set off against previous years' income, they should not be reopened for current year computations under Section 80-IA.

2. Setting off losses and deductions against previous years' income for computing current year income under Section 80-IA:

The court extracted relevant portions from its previous decision to elucidate that the deduction under Section 80-IA is linked to profits and gains derived from eligible businesses, and the computation should consider the eligible business as the only source of income. The court emphasized that losses from earlier years, which have already been set off against other income, should not be notionally brought forward for current year computations. This principle was supported by the Rajasthan High Court's ruling in CIT v. Mewar Oil and General Mills Ltd., (2004) 271 ITR 311, which held that losses set off in previous years should not be reopened for current computations under Section 80-I.

The court noted that the Revenue's counsel could not present any compelling reason or contrary judgment to challenge this view. The court also referenced the Memorandum explaining the Finance (No. 2) Bill, 1980, but did not find it persuasive enough to alter its stance.

Conclusion:

The High Court dismissed the appeal, reaffirming that the assessee is entitled to claim deductions under Section 80-IA and that previous years' losses, once set off, should not be reopened for current year computations. The court confirmed that the Tribunal's order was correct and aligned with the principles established in Velayudhaswamy Spinning Mills and other relevant cases. The questions of law were answered in favor of the assessee and against the Revenue, with the appeal being dismissed without costs.