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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 ..... pter IV contains provision relating to the computation of total income under various heads of income as also the deductions that are allowable under each head, Chapter VI contains provisions relating to the aggregation of income and set off or carry forward of loss. Chapter VI-A of the Act, on the other hand, provides for special deductions that are allowed at such rates that are specified in the respective provisions on the gross total income of the assessee. Keeping in view the aforesaid scheme of these Chapters, the High Court distinguished the judgment of this Court in Mahendra Mills [2000 (3) TMI 3 - SUPREME Court] and held it to be not applicable, when dealing with the cases under Section 80-IA of the Act. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evailed 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 depreciation. As aforesaid, that decision was rendered in the context of assessing business income of an assessee under Chapter IV of the Act which is regulated by Sections 28 to 43D of the Act. Section 32 deals with depreciation and allows the deductions enumerated therein from the profits and gains of business or profession. Section 80-IA of the Act, on the other hand, contains a special provision for assessment of industrial undertakings or enterprises which are engaged in infrastructure development etc. This provision allows certain specific kind of deductions in respect of depreciation. The issue is as to whether claim for deduction on account of depreciation under Section 80-IA is the choice of the assessees or it has to be necessarily taken into consideration while computing the income under this provision. For better understanding of the aforesaid issue, the factual environmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction on this account as well in respect of the same in the sum of ₹ 2,13,89,379/- while computing the profit and gains of business. After reducing the gross total income by the brought forward loss of ₹ 98,47,170/-, he determined the business loss to be carried forward to Assessment Year 1998-99 at ₹ 66,25,587/-. Aggrieved by the said assessment order, the assessee filed the appeal before the Commissioner of Income Tax (Appeals) {CIT(A)} urging that the AO erred in not considering the Tribunal s decision in the assessee s own case for the Assessment Year 1996-97 wherein it had been held that depreciation cannot be thrust on it. The CIT(A) upheld the assessee s submission that claim for depreciation is optional, based on the Tribunal s order in its own case for Assessment Year 1996-97 and hence allowed the appeal. Aggrieved by the appellate order of the CIT(A), the AO filed an appeal before the Tribunal with the plea that CIT(A) erred in directing him to work out business profit and deduction under Section 80-IA of the Act without taking into account the corresponding depreciation amount. The Tribunal reversed the appellate order of the CIT(A) following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that this Court in the aforementioned decisions has held that for computing such special deduction, any device adopted by an assessee to reduce or inflate the profits of such eligible business has to be rejected. The High Court ultimately held that the quantum of deduction eligible under Section 80-IA 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 including depreciation under Section 32. 4) After the Full Bench answered the reference in the aforesaid manner, the appeal of the assessee was disposed of by the Division Bench vide order dated November 03, 2009 following the aforesaid opinion of the Full Bench. This is how the matter has travelled up to this Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Chapter IV dealing with profits and gains from business or profession . Section 29 of the Act, in this behalf, specifically stipulates that income referred to in Section 28 shall be computed in accordance with provisions contained in Sections 30 to 43D. In this hue, he argued, when it comes to claiming depreciation, Section 32 of the Act gets attracted and interpreting this Section, it has been held in Mahendra Mills case that whether to claim depreciation or not is the option of the assessees and it cannot be thrusted upon the assessees. Following passage from the said judgment was relied upon by the learned senior counsel: 40. We do not think that the Gujarat High Court in the case of Gujarat State Warehousing Corpn. [(1976) 104 ITR 1 (Guj)] has taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer 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 for depreciation it has to be allowed in computing the income of the assessee cannot in all circumstances be accepted in view of the bar contained in Section 34. If Section 34 is not satisfied and particulars are not furnished by the assessee his claim for depreciation under Section 32 cannot be allowed. Section 29 is thus to be read with reference to other provisions of the Act. It is not in itself a complete code. 7) He also referred to sub-sections (9) and (10) of Section 80-IA which provide for specific eventualities for the purpose of deductions under the said Section and submitted that insofar as depreciation is concerned, that was not mentioned therein. Thus, according to him, it is these two sub-sections which contained special provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready 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 whereas Chapter IV contains provision relating to the computation of total income under various heads of income as also the deductions that are allowable under each head, Chapter VI contains provisions relating to the aggregation of income and set off or carry forward of loss. Chapter VI-A of the Act, on the other hand, provides for special deductions that are allowed at such rates that are specified in the respective provisions on the gross total income of the assessee. Keeping in view the aforesaid scheme of these Chapters, the High Court distinguished the judgment of this Court in Mahendra Mills and held it to be not applicable, when dealing with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was no longer res integra as the Apex Court had reflected thereupon in the case of Liberty India and quoted the following passage from the said judgment in support of its aforesaid remarks: 13. Before analyzing section 80-IB, as a prefatory note, it needs to be mentioned that the 1961 Act broadly provides for two types of tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of profit linked incentives . Therefore, when section 80-IA/80-IB refers to profits derived from eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tives 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. , reported in (1986) 157 ITR 762]. 15. Continuing our analysis of sections 80-IA/80-IB it may be mentioned that sub-section (13) of section 80-EB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) to section 80-IA, so far as may be, applicable to the eligible business under section 80-IB. Therefore, at the outset, we stated that one needs to read sections 80-1, 80-IA and 80-EB as having a common Scheme. On perusal of sub-section (5) of section 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 same constitute a charge on profit, whereas, deductions under Chapter VI-A are allowed from gross total income chargeable to tax. After discussing the aforesaid three judgments of this Court, the High Court noticed that Section 80-IA is a code by itself and deduction allowable under Section 80-IA is a special deduction which is linked to profits, unlike deductions contained in Chapter IV of the Act which are linked to investment. 17) The aforesaid conclusion of the Full Bench is based on the judgments of this Court and there is no reason to disagree with the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 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 taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Section 80-IA of the Act 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 under Section 80-IA of the Act which cannot be permitted. 19) Having interpreted the provisions of Section 80-IA in the aforesaid manner, it is not necessary to go into the other question, viz., whether Explanation 5 to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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