2015 (8) TMI 510 - 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 deduction under Section 80-IA of the Income Tax Act.
2. Treatment of losses and deductions set off against previous years' income for the purpose of computing current year income under Section 80-IA.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80-IA of the Income Tax Act:

The core issue raised 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. This issue has been previously decided by this Court in the case of Velayudhaswamy Spinning Mills - Vs - Asst. CIT, reported in (2012) 340 ITR 477. The Court placed reliance on the Supreme Court's decision in Liberty India - Vs - CIT, which considered the scope of Sections 80I, 80IA, and 80IB of the Income Tax Act and held that Chapter VI-A provides for "profit-linked incentives" in the form of tax deductions. The Court concluded that once the losses and other deductions have been set off against the income of the previous year, they should not be reopened for the purpose of computing the current year income under Section 80I or 80IA, and the assessee should not be denied the admissible deduction under Section 80IA.

2. Treatment of Losses and Deductions Set Off Against Previous Years' Income:

The Court reiterated that the relevant provisions for considering the issue are Sections 80-I, 80-IA, and 80-IB. In the case of Liberty India v. CIT, the Supreme Court held that Chapter VI-A provides for incentives in the form of tax deductions essentially belonging to the category of "profit-linked incentives." The Supreme Court further observed that Sections 80-IB/80-IA are a code by themselves containing both substantive and procedural provisions. Sub-section (5) of Section 80-IA provides for the manner of computation of profits of an eligible business, which should be computed as if such eligible business is the only source of income of the assessee.

The Court extracted the relevant portion of the decision, emphasizing that the eligible business should be considered the only source of income during the previous year relevant to the initial assessment year and every subsequent assessment year. The Court noted that when the assessee exercises the option, only the losses of the years beginning from the initial assessment year should be brought forward, and no losses of earlier years, which were already set off against other sources of income, should be considered. The fiction created by the provision does not allow the Revenue to look backward and bring forward losses notionally.

The Court agreed with the Division Bench judgment in the unreported case and the Rajasthan High Court's decision in CIT v. Mewar Oil and General Mills Ltd., which held that losses or other deductions already set off against the income of the previous year should not be reopened for the purpose of computing current income under Section 80-I.

Conclusion:

The Court concluded that the facts in the present case are identical to the decision in Velayudhaswamy Spinning Mills. All the business undertakings are windmills, and the assessee has claimed the benefit of deduction under Section 80IA for the assessment years in question and subsequent years. The assessee's losses have already been set off against other income of the business enterprise, and they fall within the parameters of Section 80IA. The Court, following the decision in Velayudhaswamy Spinning Mills and a batch of cases in T.C.(A)Nos.408 of 2012, dismissed the Tax Case (Appeal) and confirmed the Tribunal's order. The questions of law raised in the appeal were answered against the Revenue and in favor of the assessee.