2016 (4) TMI 259 - HC - Income Tax

Claim deduction u/s 80IA - initial assessment year - whether the assessee is entitled to deduction under Section 80IA without setting off the losses/unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee following the decision of the jurisdictional High Court in the case of M/s.Velayudhaswamy Spinning Mills (2010 (3) TMI 860 - Madras High Court) - Held that - Interestingly, on the basis of the decision in Velayudhaswamy Spinning Mills, the Central Board of Direct Taxes has issued Circular No.1/ 2016 dated 15.2.2016 stating that it is abundantly clear from Sub-Section (2) that an assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term initial assessment year would mean the first year opted for by the assessee for claiming deduction u/s 801A. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. The Assessing Officers are, therefore, directed to allow deduction u/s 801A in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting initial assessment year as mentioned in Sub-Section (5) of that section for which the Standing Counsel/DRs be suitably instructed.

Summary

Issues:
1. Entitlement to deduction under Section 80IA without setting off losses/unabsorbed depreciation.
2. Interpretation of the term 'initial assessment year' in Section 80IA(5).
3. Option for the assessee to choose the first/initial assessment year for deduction under Section 80IA.

Analysis:
1. The first issue revolves around whether the Income Tax Appellate Tribunal was correct in allowing the assessee to claim deduction under Section 80IA without setting off losses/unabsorbed depreciation from the windmill against other business income, as per the decision in the case of M/s.Velayudhaswamy Spinning Mills. The Tribunal's decision was challenged due to the pendency of the case before the Supreme Court. The High Court noted that despite the Supreme Court ordering notice, the decision in Velayudhaswamy Spinning Mills has been consistently followed by the Court. The Central Board of Direct Taxes also issued a circular clarifying the term 'initial assessment year' in Section 80IA(5), which further supported the Tribunal's decision. Therefore, the High Court upheld the Tribunal's decision on this issue.

2. The second issue concerns the interpretation of the term 'initial assessment year' in Section 80IA(5). The circular issued by the Central Board of Direct Taxes clarified that the initial assessment year is the year chosen by the assessee for claiming deduction under Section 80IA, not necessarily the year of commencement of the eligible business. This clarification aligned with the provisions of Section 80IA(2), which grants the assessee the option to select the initial year for claiming deduction out of a specified slab of years. The High Court found that this interpretation was consistent with the legislative intent and directed Assessing Officers to adhere to this clarification. Therefore, the Tribunal's decision on this issue was upheld.

3. The third issue pertains to whether the assessee has the option to choose the first/initial assessment year for claiming deduction under Section 80IA. The circular issued by the Central Board of Direct Taxes explicitly stated that the assessee has the discretion to select the initial assessment year for claiming deduction under Section 80IA, subject to fulfilling the prescribed conditions. The High Court found that this provision was clear and unambiguous, and upheld the Tribunal's decision in allowing the assessee to exercise this option. Consequently, the appeal was dismissed based on the clarity provided by the circular and the consistent interpretation followed by the Court.

In conclusion, the High Court dismissed the tax case appeal, emphasizing the importance of following established legal interpretations and directives issued by the Central Board of Direct Taxes. The Court also highlighted the need for the Department to seek clarification and settle legal matters definitively, rather than pursuing repeated appeals on settled issues.