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TMI Blog2020 (3) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... 65/2009 is treated as the lead appeal. 4. We are called upon to consider the following substantial question of law : "Whether on the facts and in the circumstances of the case, Income Tax Appellate Tribunal was justified in law in holding that the appellant was not entitled to deduction of Rs. 191,59,84,008/under Section 80IA of the Income Tax Act,1961 as for the purpose of calculation of deduction under Section 80IA read with Section 80IA(5) of the Act, provisions of Section 79 of the Act are not applicable?" 5. The appellant Vodafone Essar Gujarat Limited (hereinafter referred to as "the assessee") is a company engaged in the business of providing cellular telecommunication services in the State of Gujarat. The assessee was established in the year 19971998. During the previous year relevant to the assessment year 20012002, there was a change in the share holding of the assessee company, as a result of which the provisions of section 79 of the Income Tax Act, 1961 ("the Act, 1961" for short) was made applicable and the accumulated losses from the assessment years 19971998 to 20012002 lapsed. 5.1) The assessee earned profit during the assessment year 2005-2006 and it being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice contending that there cannot be two computations of the gross total income, i.e. one for determining the quantum for taxable income and the other for claiming of deduction under Chapter VIA of the Act, 1961. It was submitted that by invoking section 80IA( 5), the provisions of section 79 cannot be ignored for computing the deduction under section 80IA of the Act, 1961. 5.5) The Assessing Officer rejected the contention of the assessee and disallowed the claim of the assessee for deduction under section 80IA of the Act, 1961 considering the deduction under section 80IA at Rs. Nil determining the total income of Rs. 191,71,47,056/. 5.6) Being aggrieved by the aforesaid order, the assessee preferred appeal before the CIT(Appeals). CIT (Appeals) confirmed the assessment order and dismissed the appeal. 5.7) The assessee therefore, preferred Appeal before the Tribunal. The Tribunal after considering the provisions of section 80IA( 5) of the Act, 1961 held that the unabsorbed losses and the unabsorbed depreciation relating to the earlier years and relating to the eligible undertaking are to be taken into account in determining the quantum of deduction under section 80IA( 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first time to claim deduction under section 80IA in the assessment year 2005-2006, the same would be the initial assessment year. Accordingly, it was contended that the assessee would be entitled to claim deduction considering the unabsorbed losses or unabsorbed depreciation available to the assessee at the beginning of the year. 6.1) It was therefore, submitted that once the losses prior to the assessment year 20012002 stood lapsed by operation of section 79 of the Act, 1961 on account of the change in the shareholding pattern of the assessee, the authorities and the Tribunal could not have invoked the provision of section 80IA(5) of the Act, 1961 for the purpose of calculation of setoff of losses. The provisions of section 79 are not applicable. 6.2) It was also sought to be contended that as per the provisions of section 80IA( 1), the deduction is to be given from the gross total income as per the computation under section 80A and 80AB of the Act. Therefore, the gross total income has to be the same for the purpose of computation of deduction available under section 80IA of the Act, 1961 and under section 80AB of the Act. 6.3) It was submitted that the computation of gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. According to Mr. Bhatt the year in question is not the initial assessment year but is the third year of claim. It was therefore, submitted that in the absence of any foundational fact emerging from the record, the say of the assessee that the assessment year 2005-2006 is the initial assessment year cannot be accepted. 7.2) On merits of the case, it was submitted that the non obstante clause of section 80IA( 5) would override the non obstante clause of section 79 of the Act, 1961. A fine distinction is sought to be drawn by pointing out that section 80IA( 5) falls under Chapter VIA whereas section 79 falls under Chapter VI of the Act, 1961. The attention of the Court was drawn to point out that Chapter VI pertains to the aggregation of income and set off losses whereas the Chapter VIA pertains to the deduction to be made in computing the total income. 7.3) It was therefore, submitted that in order to compute the deduction available under section 80IA( 1) of the Act, 1961, the non obstante clause in section 80IA( 5) would override the non obstante clause contained in section 79 of the Act. Having regard to the difference in the two non obstante clauses, it was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in 2006( 286) ITR 129 : Analysis : 8. In order to answer the substantial question of law arising as to whether for the purpose of calculation of deduction under section 80IA read with section 80IA( 5) of the Act, provisions of section 79 of the Act are applicable or not, it would be germane to refer to relevant provisions of the Act, 1961. Section 2(45) reads as under : "2(45) "―total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act;" Section 66 reads as under : "CHAPTER VI AGGREGATION OF INCOME AND SET OFF OR CARRY FORWARD OF LOSS Aggregation of income Total income.- 66. In computing the total income of an assessee, there shall be included all income on which no incometax is payable under Chapter VII." • Section 72(1) reads as under : "Carry forward and set off of business losses.- 72.(1) Where for any assessment year, the net result of the computation under the head ―Profits and gains of business or profession is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to the provisions of this Chapter, the deductions specified in section 80C to [80U]. (2)The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee. (3) Where, in computing the total income of an association of persons or a body of individuals, any deduction is admissible under section 80G or section 80GGA [or section 80GGC] or section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80I or section 80IA [or section 80IB] [or section 80IC] [or section 80ID or section 80IE] [ or section 80J] [ or section 80JJ], no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals." Section 80AB reads as under : "[80AB. Deductions to be made with reference to the income included in the gross total income. Where any deduction is required to be made or allowed under any section 3*** included in this Chapter under the heading "C. -Deductions in respect of certain incomes in respect of any incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y subsequent assessment year up to and including the assessment year for which the determination is to be made." 9. Upon analysis of the above provisions, it appears that i) The assessee is required to compute total income from which carry forward and set off of business loss is granted under section 72 of the Act, 1961 ii) Section 79 starts with a non obstante clause "Notwithstanding anything contained in this Chapter" where a change in the shareholding takes place in a previous year in the case of a company not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year. In other words the company shall not carry forward or set off the business losses against the income of the previous year where there is a change in the shareholding of the company subject to the conditions prescribed in clause (a) of section 79 of the Act, 1961. iii) Section 66 which falls under Chapter VI and Section 80A which falls under Chapter VIA pertain to the computation of 'total income' of the assessee. Section 66 provides that in computing the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsection( 1) of section 80IA, the profit and gains of the eligible business shall be computed as if such eligible business were the only source of income of the assessee. It is also stipulated that for this purpose the other provisions of the Act are to be ignored meaning thereby, the profit and gain of the eligible business of the assessee is to be computed on standalone basis only. If the assessee has more than one business and one of such is eligible business for the purpose of deduction under section 80IA( 1) of the Act, 1961, then the profit and gains of such eligible business is required to be computed as if no other business of assessee is in existence. To illustrate, if loss of eligible business is set off against the business income of other business which is not eligible for deduction under section 80IA of the Act, 1961, then such loss which is already setoff is to be considered for the purpose of computation of quantum of deduction under section 80IA of the Act from the profit and gains of eligible business and such loss would be deducted from the profit and gains at the time of computation of quantum of deduction under section 80IA( 1) of the Act, 1961. However, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee was Nil, the assessee was not entitled to deduction under Chapter VIA which includes section 80I. The issue of interplay of sections 72 and 79 of ChapterVI was not before the Apex Court. The Apex Court has held as under : "10. This Court further notices that predominant majority of the High Courts have taken the view that deductions under Chapter VIA of the Act would be available only if the computation of gross total income as per the provisions of the Act after setting off carried forward loss and unabsorbed depreciation of earlier years is not 'Nil'. In Commissioner of Income Tax, Tamil NaduIII, Madras v. Madras Motors (P) Ltd. (1984) 150 ITR 150, after noticing the definition of 'gross total income' the Madras High Court has held that the intention of the Parliament, that the deduction under Chapter VIA is contemplated only after the total income is computed after setting off of the unabsorbed depreciation as per Section 72 is evident and therefore Section 72 has to be applied before the total income of an assessee is determined i.e., before the deductions under Chapter VIA are allowed. In Commissioner of IncomeTax v. Midda Ram (1984) Vol.19 Taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that the relief under Section 80I would not be available if net taxable income determined is 'Nil' after computation of gross total income as per the provisions of the Act, after setting off carried forward loss and unabsorbed depreciation of earlier years. In Orient Paper Mills Ltd. V. Commissioner of Income Tax (1986) 158 I.T.R. 695 the Calcutta High Court has taken the view that deductions under Section 80I cannot exceed gross total income and if gross total income found is 'Nil' or a net loss the assessee is not entitled to deduction under Section 80I of the Act. The principle of law enunciated in the said decision is that Section 80A of the Act lays down certain general principles for the purpose of deductions to be allowed in computing the total income under Section 80C to 80U and such deductions are to be allowed from the gross total income of the assessee in computing the total income. After noticing the definition of the term gross total income as given in Clause 5 of Section 80B it is held in the said decision that in the case of a company, total income computed is in accordance with the provisions of the Act before making any deduction under Chapter V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a view to provide incentive to export houses, if there is a loss then no deduction would be available under Section 80HHC( 1) or (3). What is held is that in arriving at the figure of positive profit both the profits and loss will have to be considered and if the net figure is the positive profit then the assessee will be entitled to a deduction but if the net figure is a loss then the assessee will not be entitled to a deduction. In Commissioner of IncomeTax v. Lucky Laboratories Ltd. (2006) 284 ITR 435 (ALL) it is held that Section 80A (1) of the Act says that in computing the total income of an assessee it shall be allowed from the gross total income in accordance with and subject to the provisions of this Section the deductions specified in Section 80C to 80U whereas subsection 2 of Section 80A says that the aggregate amount of the deductions under this Chapter shall not be in any case exceed the gross total income of the assessee and therefore the total deduction under Sections 80HH and 80I should not exceed the gross total income of the assessee. In Commissioner of Income Tax and Another v. R.P.G. Telecoms Ltd. (2007) 292 ITR 355 the Karnataka High Court has held that Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether new business carried out by the assessee was same as that of the earlier years and whether the assessee would be entitled to carry forward of loss or not. This Court held as under : "11. After stating thus, it is laid down that for the purpose of determining whether the business is the same a fairly adequate test would be whether there was interconnection, interlacing, inter dependence and unity by the existence of common management, common business organisation, common administration, common fund and a common place of business. In the facts of the case before the Apex Court the assessee was originally importing certain articles from abroad which business came to be discontinued and the assessee started exporting articles manufactured in India to different foreign countries. The Apex Court held that the fact that the procedure involved in the two activities was entirely different was not by itself sufficient to establish that the business was not the same. That there was a common control and common management of the same Board of Directors carrying on both the activities in two different years. 12. Applying the tests to the facts found by the Tribunal, it can be seen th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholding was not effected with a view to avoiding or reducing any liability to tax. No such finding has been recorded by the Assessing Officer or by the appellate authority, therefore, the Tribunal has held that in the absence of this finding, there is no reason to deny the benefit of set off of the losses. We are of the opinion that the view taken by the Tribunal is well founded that it was one of the first conditions to deny this benefit clause to record the finding that any change in shareholding was effected with a view to avoiding or reducing any liability to tax. Since there is no positive finding that this change in shareholding was done for the purpose of avoiding or-reducing the tax liability, then in that case, there was no option with the Tribunal, but to permit the set off of the losses during the assessment year 197879. This was permitted obviously that there was no such reason for avoiding or reducing the tax liability. The Tribunal has allowed the setoff on being satisfied that the change in shareholding was not effected with a view to avoiding or reducing the tax liability. Therefore, in this view of the matter, the view taken by the Tribunal appears to be justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard must be 'loss sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that year; provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year'. Therefore, it is required that the business, profession or vocation against profits of which the set off is claimed must be carried on by the assessee in that year. But the problem here is that the business out of whose share income of the wife or minor child is derived is no longer carried on by the assessee himself in the subsequent year in which set off is being claimed. On behalf of the revenue it was emphasised that this requirement is to be strictly followed. Revenue emphasised that the requirement continues irrespective of the clarification of the Board of Revenue by Circular in 1944 and in spite of the addition of Explanation 2 to Section 64(2) by Amending Act of 1979 with effect from 1980. Therefore, it was urged that legislative intent was clear and it was not possible to hold otherwise. 42. On the other hand on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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