2025 (1) TMI 104 - HC - Income Tax

Depreciation whether claimed or not foisted upon the assessee even prior to insertion of Explanation 5 to S. 32 (1) with effect from 1.04.2002 - HELD THAT - Question No. 1 is no more res integra in view of the decision of the Hon ble Apex Court in case of ACIT vs. G.E. Lighting (I.) (P.) Ltd 2023 (6) TMI 1179 - SC ORDER held that Explanation 5 to section 32 (1) would be applicable prospectively w.e.f. 01.04.2002. Therefore, Assessment year 2001-02 would not be covered by the Explanation 5. We therefore, answer Question No. 1 in affirmative i.e. in favour of the assessee and against the Revenue. Depreciation whether claimed or not on notional basis to be reduced from the profit of eligible industrial undertakings for the purpose of calculating deduction under Chapter VIA - HELD THAT - Question No. 2 is covered in favour of the Revenue as per the decision of Plastiblends India Ltd 2017 (10) TMI 423 - SUPREME COURT as held any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme u/s 80-IA which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided u/s 80-IA of the Act which cannot be permitted. Export profits earned and claimed as deductible u/s. 80 HHC includes profits earned by the New Industrial Units (whose profits are eligible for deduction u/s.80IA and 80IB - Whether Appellate Tribunal was right in law in not allowing deduction u/s.80HHC as well as 80IA of the Act on the same gross total income without reducing each other? - HELD THAT - Question Nos. 3 and 4 are also covered in favour of the Revenue in view of the decision of this Court in case of CIT vs. Atul Intermediates 2014 (4) TMI 676 - GUJARAT HIGH COURT and the decision of Micro Labs Ltd 2015 (12) TMI 708 - SUPREME COURT Income Tax Appellate Tribunal was not right in law in confirming that the export profits earned and claimed as deductible u/s. 80 HHC includes profits earned by the New Industrial Units (whose profits are eligible for deduction u/s.80IA and 80IB of the Act. Deduction u/s.80IA of the Act on the New Power Plant - HELD THAT - The Hon ble Apex Court, in case of Textile Machinery Corporation Ltd 1977 (1) TMI 3 - SUPREME COURT while considering the issue regarding entitlement to the exemption claimed under section 15C (2) (i) of the Income Tax Act, 1922, which is peri materia to section 80IA of the Act Tribunal was right in law in not allowing deduction under section 80IA of the Act on the installation of the new turbine by the assessee being a new power plant by not treating the same as new industrial undertaking within the meaning of the proviso of section 80IA of the Act. We therefore, answer the question in favour of the assessee and against the Revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The High Court of Gujarat considered the following core legal questions in the judgment:

• Whether depreciation, whether claimed or not, must be imposed on the assessee prior to the insertion of Explanation 5 to Section 32(1) of the Income Tax Act, 1961, effective from 1.04.2002, for calculating deductions under Chapter VIA of the Act?
• Whether depreciation on a notional basis, whether claimed or not, must be reduced from the profit of eligible industrial undertakings for the purpose of calculating deductions under Chapter VIA of the Act?
• Whether export profits claimed as deductible under Section 80HHC include profits earned by new industrial units eligible for deductions under Sections 80IA and 80IB?
• Whether deductions under Sections 80HHC and 80IA can be claimed on the same gross total income without reducing each other?
• Whether the new power plant qualifies as a new industrial undertaking under Section 80IA, thus allowing deductions?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Imposition of Depreciation Prior to Explanation 5

• Legal Framework: Section 32(1) of the Income Tax Act, 1961, and the insertion of Explanation 5 by the Finance Act 2001, effective from 1.04.2002.
• Court's Interpretation: The court referenced the Supreme Court decision in ACIT vs. G.E. Lighting (I.) (P.) Ltd, which established that Explanation 5 applies prospectively from 1.04.2002.
• Findings: The Tribunal's decision to impose depreciation prior to 1.04.2002 was incorrect.
• Conclusion: The court ruled in favor of the assessee, stating that Explanation 5 does not apply to the assessment year 2001-02.

Issue 2: Notional Depreciation Deduction

• Legal Framework: Chapter VIA of the Income Tax Act and relevant Supreme Court precedents.
• Court's Interpretation: The court relied on the Supreme Court's decision in Plastiblends India Ltd vs. Additional Commissioner of Income Tax, which held that deductions under Chapter VIA must consider all deductions allowable under Sections 30 to 43D.
• Findings: The Tribunal's decision to reduce notional depreciation from profits was upheld.
• Conclusion: The court ruled in favor of the Revenue, requiring notional depreciation to be deducted from eligible profits.

Issue 3: Inclusion of Export Profits

• Legal Framework: Sections 80HHC, 80IA, and 80IB of the Income Tax Act.
• Court's Interpretation: The court referenced the decision in CIT vs. Atul Intermediates, which held that deductions under multiple sections must not exceed the profits of the eligible business.
• Findings: The Tribunal's decision was consistent with the established legal framework.
• Conclusion: The court ruled in favor of the Revenue, confirming that export profits must be appropriately accounted for under each section.

Issue 4: Concurrent Deductions under Sections 80HHC and 80IA

• Legal Framework: Section 80IA(9) of the Income Tax Act.
• Court's Interpretation: The court followed the reasoning in the Atul Intermediates case, which emphasized that deductions under different sections cannot exceed the gross total income.
• Findings: The Tribunal's decision to not allow concurrent deductions was upheld.
• Conclusion: The court ruled in favor of the Revenue, disallowing concurrent deductions on the same gross total income.

Issue 5: New Power Plant as a New Industrial Undertaking

• Legal Framework: Section 80IA(3) of the Income Tax Act and relevant judicial precedents.
• Court's Interpretation: The court considered the Tribunal's findings and previous case law, including the decision in Textile Machinery Corporation Ltd.
• Findings: The Tribunal's decision that the new turbine did not constitute a new industrial undertaking was challenged.
• Conclusion: The court ruled in favor of the assessee, recognizing the new turbine as a new industrial undertaking eligible for deductions.

3. SIGNIFICANT HOLDINGS

Issue 1: "Explanation 5 to section 32 (1) would be applicable prospectively w.e.f. 01.04.2002. Therefore, Assessment year 2001-02 would not be covered by the Explanation 5."

Issue 2: "The quantum of deduction under section 80IA has to be determined on the total income computed after deducting all deductions allowable under sections 30 to 43D of the Act."

Issue 3 and 4: "The quantum of deduction under section 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act."

Issue 5: "The Tribunal was right in law in not allowing deduction under section 80IA of the Act on the installation of the new turbine by the assessee being a new power plant by not treating the same as new industrial undertaking within the meaning of the proviso of section 80IA of the Act."