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TMI Blog2017 (10) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... NO. 12980 OF 2017 For the Appellant : Ms. Vandana Sehgal, AOR, Mr. Rustom B. Hathikhanawala, AOR, Mr. E. C. Agrawala, AOR, Mr. Vijay Kumar, AOR, Ms. Vanita Bhargava, Adv., Mr. Ajay Bhargava, Adv., Ms. Abhisaar Bairagi, Adv., M/s. Khaitan & Co., AOR, Mr. Pratap Venugopal, Adv., Ms. Surekha Raman, Adv., Mr. Anuj Sarma, Adv., Ms. Niharika, Adv., Mr. Aman Shukla, Adv., Ms. Kanika Kalaiyarasan, Adv., M/s. K J John And Co, AOR, Mr. K. R. Sasiprabhu, AOR, Mr. Raghav Shankar, Adv., Mr. Vishnu Sharma, Adv. And Mr. Shibhranshu, Adv., For the Respondent : Mr. Arijit Prasad, Adv., Ms. Anil Katiyar, AOR And Mr. B. V. Balaram Das, AOR JUDGMENT A.K. SIKRI, J. The singular issue which needs to be considered in these appeals pertains to claim of depreciation under Section 80-IA of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). Interpreting the provisions of Section 32 of the Act (which prevailed in the relevant Assessment Years Section 32 was amended by Finance Act, 2001 and Explanation 5 was added to nullify the effect of Mahendra Mills case.) this Court in CIT v. Mahendra Mills (2000) 243 ITR 56 held that it is a choice of an assessee whether to claim or not to claim deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit of Rs. 1,80,85,409/-. This was arrived at after charging depreciation of Rs. 64,98,968/- in accordance with the Companies Act, 1956. The assessee filed its return of income for Assessment Year 1997-98 determining the gross total income at Rs. 2,46,04,962/-. The gross total income included profits and gains derived from business of undertakings I and II at Daman aggregating to Rs. 2,46,04,962/- which profits were eligible for deduction under Section 80-IA of the Act. After reducing the gross total income by the deductions available under Section 80-IA, the total income was computed at Rs. Nil. The AO initiated reassessment proceedings and passed an assessment order under Section 143(3) read with Section 147 computing the gross total income at Rs. 34,15,583/-. Though, the assessee had disclaimed deduction in respect of depreciation, the AO allowed deduction on this account as well in respect of the same in the sum of Rs. 2,13,89,379/- while computing the profit and gains of business. After reducing the gross total income by the brought forward loss of Rs. 98,47,170/-, he determined the business loss to be carried forward to Assessment Year 1998-99 at Rs. 66,25,587/-. Aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the matter was referred to the Full Bench, to resolve the conflict. The Full Bench of the High Court of Bombay has upheld the stand of the Revenue, that, whilst computing a deduction under Chapter VI-A, it was mandatory to grant deduction by way of depreciation. The High Court has proceeded on the basis that the computation of profits and gains for the purposes of Chapter VI-A is different from computation of profits under the head 'profits and gains of business'. It has, therefore, concluded that, even assuming that the assessee had an option to disclaim current depreciation in computing the business income, depreciation had to be reduced for computing the profits eligible for deduction under Section 80-IA of the Act. The High Court concluded that Section 80-IA provides for a special deduction linked with profits and is a code by itself and in so doing relied on the decisions of this Court in the case of Liberty India v. Commissioner of Income Tax (2009) 317 ITR 218, Commissioner of Income Tax v. Williamson Financial Services & Ors. (2008) 297 ITR 17 and Commissioner of Income Tax, Dibrugarh v. Doom Dooma India Ltd. (2009) 310 ITR 392. The High Court proceeded on the basis t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified in sub-section (5) and for such number of assessment years as is specified in sub-section (6)." 6) It is not in dispute that all the assessees in these appeals are those industrial undertakings which fulfil the conditions mentioned in Section 80-IA and, therefore, are entitled to deductions as stipulated in sub-section (5) of the said Section. It is also not in dispute that all the assessees fall in that category of industrial undertakings which are entitled to 100% deduction of the profits and gains derived from such industrial undertakings for the specified number of years. It is also an admitted fact that for the Assessment Years in question, they were entitled to the aforesaid deduction and their assessments were completed under Section 80-IA of the Act. Submission of Mr. Pardiwala, the learned senior counsel for the assessees, was that deduction is to be allowed from 'such profits and gains' and, therefore, in the first instance, profits and gains which are earned by the assessees in the relevant Assessment Year are to be computed. For computation of such profits and gains, one has to go back and apply the provisions from Section 28 onwards contained in Part D of Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me without allowing depreciation allowance. The circular of the Board dated 11-4-1955 is of no help to the Revenue. It imposes merely a duty on the officers of the Department to assist the taxpayers in every reasonable way, particularly, in the matter of claiming and securing relief. The officer is required to do no more than to advise the assessee. It does not place any mandatory duty on the officer to allow depreciation if the assessee does not want to claim that. Provision for claim of depreciation is certainly for the benefit of the assessee. If he does not wish to avail that benefit for some reason, benefit cannot be forced upon him. It is for the assessee to see if the claim of depreciation is to his advantage. Rather, the Income Tax Officer should advise him not to claim depreciation if that course is beneficial to the assessee. That would be in our view the spirit of the circular dated 11-4-1955. Income under the head "Profits and gains of business or profession" is chargeable to income tax under Section 28 and that income under Section 29 is to be computed in accordance with the provisions contained in Sections 30 to 43-A. The argument that since Section 32 provides fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following cases: (i) Commissioner of Income-Tax v. Kerala Electric Lamp Works Ltd. & Anr. (2003) 261 ITR 721, (ii) Commissioner of Income Tax v. Sree Senhavalli Textiles P. Ltd. (2003) 259 ITR 77 and (iii) Shri Ram Nath Jindal and Shri Jaghjiwan Ram v. The Commissioner of Income-Tax, Haryana, Rohtak (2001) 252 ITR 590. He argued that wherever Legislature wanted a particular amendment to be retrospective in nature, it was specifically provided so. 11) Before dealing with the aforesaid submissions, let us first discern the reasons which prevailed with the Full Bench of the Bombay High Court in arriving at the said conclusion. 12) We have already mentioned that Full Bench of the Bombay High Court answered the reference by holding that depreciation had to be reduced for computing the profits eligible for deduction under Section 80-IA of the Act, as it was a complete code in itself. For arriving at the said conclusion, the Full Bench took note of the relevant provisions of Chapter VI-A, particularly, Section 80A, Section 80AB and Section 80B as well as Section 80-IA of the Act. Contrasting the provisions of Chapter VI-A with Chapter IV, the High Court remarked that wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above two deductions and cannot claim both the deductions. In these circumstances, the Apex Court in the case of Mahendra Mills(supra) has observed that the assessee has an option to disclaim depreciation and that the consequence of disclaiming depreciation would be that the written down value of the asset would remain the same for the following year. Thus, even according to the Apex Court, disclaiming of depreciation cannot result in enhancement in the quantum of deduction that is allowable under any other provision in the Act." 13) The High Court also observed that in Mahendra Mills case, this Court neither consider the scope of deduction under Chapter VI-A nor the said decision can be read to mean that by disclaiming current depreciation, the assessees can claim enhanced deduction under any other provisions in the Act. 14) After removing the applicability of Mahendra Mills on the aforesaid grounds, the High Court proceeded to consider as to whether it can be said that the quantum of deduction allowable under Section 80-IA depend upon the assessees claiming or not claiming current depreciation? The Full Bench went on to answer this question with the observations that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using the expression "derived from", Parliament intended to cover sources not beyond the first degree. In the present batch of cases, the controversy which arises for determination is: whether the DEPB credit/Duty drawback receipt comes within the first degree sources? According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cost neutralization), hence, it comes within first degree source as it increases the net profit proportionately. On the other hand, according to the Department, DEPB credit, duty drawback receipt do not come within first degree source as the said incentives flow from Incentive Schemes enacted by the Government of India or from section 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/provisions of the Customs Act. In this connection, Department places heavy reliance on the judgment of this Court in Sterling Food (supra). Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture [see CIT v. Kirloskar Oil Engines Ltd., re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80B(5) of the 1961 Act. Therefore, the very scheme of the 1961 Act is to treat the deductions under Chapter VI-A as deductions only from "gross total income" in order to arrive at the "total income". In other cases falling under section 28 where computation of income falls under the head "Business", allowances are deductible from the income but not from "gross total income". It is, therefore, not possible to accept the contention that section 80HHC is part of the provisions for computation of business income. Section 80 HHC does not have any direct impact on the computation of business income in the manner in which, for example, section 72 affects the computation of business income." 16) The High Court also noted that in Doom Dooma India Ltd., this Court had specifically remarked that Chapter VI-A refers to special deduction. It is a distinct code by itself. It was also held in the said judgment that there was a clear distinction between 'deductions/allowances in Section 30 to 43D' and 'deductions admissible under Chapter VI-A' inasmuch as deductions/ allowances provided in Sections 30 to 43D are allowed in determining gross total income and are not chargeable to tax because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sections 30 to 43D of the Act." 18) As is clear from the arguments advanced by Mr. Pardiwala, main thrust of his argument was predicated on the judgment of this Court in Mahendra Mills, which according to us, cannot be applied while interpreting Section 80-IA of the Act. It may be stated at the cost of the repetition that judgment in Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapter VI-A of the Act. Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Section 80-IA is a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Section 80-IA of the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without tak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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