2015 (10) TMI 812 - 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 prior judgments and their influence on the current case.
3. Treatment of losses and deductions set off against previous years' income.

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, which the Revenue contested. The High Court examined the relevant provisions of Section 80-IA, including subsections (1), (2), (4), and (5), which outline the conditions and computation methods for claiming deductions. The court emphasized that the deduction is given to the eligible business, defined in subsection (4), and the computation of profits for the eligible business should be as if it were the only source of income for the assessee during the relevant years.

2. Applicability of Prior Judgments and Their Influence on the Current Case:
The court noted that the issue had already been decided in the case of 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 the previous year, they should not be reopened for the purpose of computing current year income under Section 80-I or 80-IA. The court also referenced the Supreme Court decision in Liberty India Vs CIT [2009) 317 ITR 218 (SC)], which clarified that Chapter VI-A provides profit-linked incentives and that sections 80-IB/80-IA are self-contained codes. The court reiterated that the provisions of Section 80-IA should be interpreted consistently with these prior decisions.

3. Treatment of Losses and Deductions Set Off Against Previous Years' Income:
The court examined the treatment of losses and deductions, emphasizing that losses incurred and set off in previous years should not be brought forward and set off against the current year's profits for the purpose of calculating deductions under Section 80-IA. The court cited the decision in CIT v. Mewar Oil and General Mills Ltd. [2004) 271 ITR 311 (Raj)], which supported the view that losses and deductions already set off against previous years' income should not be reopened. The court agreed with this interpretation, stating that the fiction created by subsection (5) of Section 80-IA is limited to the computation of profits and does not extend to bringing forward losses notionally.

Conclusion:
The High Court dismissed the appeal, affirming the Tribunal's order in favor of the assessee. The court held that the assessee is entitled to claim deduction under Section 80-IA, and losses set off in previous years should not be reopened for the purpose of computing current year income. The court's decision was consistent with prior judgments, including Velayudhaswamy Spinning Mills and Liberty India, and reinforced the principle that deductions under Section 80-IA are profit-linked incentives. The questions of law raised in the appeal were answered against the Revenue and in favor of the assessee.

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