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TMI Blog2025 (1) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case, the Income Tax Appellate Tribunal was 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)? 4. Whether, in the facts and circumstances of the case the Income Tax 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? 5. Whether, in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in not allowing deduction u/s.80IA of the Act on the New Power Plant by not treating the same as a new industrial undertaking within the meaning of provisos of S.80IA of the Act? Question Nos. 1 and 2 3. Question Nos. 1 and 2 are regarding claim of depreciation at the discretion of the assessee prior to insertion of Explanation 5 to section 32 (1) of the Act w.e.f. 01.04.2002 and whether such depreciation if not claimed, then notionally required to be reduced from the profit of eligible industrial undertaking for the purpose of calculating deduction under Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Finance Act 2001, section 32 came to be amended by inserting Explanation S whereby it was declared that the provisions of sub-section (1) of section 32 shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. The said amendment has been brought into force with effect from 1st April 2002. 7. The controversy in issue pertains to assessment year 1999-2000, hence, apparently, the provisions of Explanation 5 would not be applicable to the facts of the present case. In the circumstances, once the assessee had validly withdrawn its claim for deduction of depreciation, it was not permissible for Assessing Officer to grant the depreciation taking into account the amended provisions of section 32. 5. In view of the above, 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. 6. Question No. 2 is also required to be re-framed because insofar as claim for granting deduction under Chapter VI-A of the Act, new schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, whether the assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not, 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In plain terms it provides that where any amount of profits and gains of an undertaking or enterprise in case of an assessee is claimed and allowed under section 80IA, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading C. Deductions in respect of certain incomes , and in no case exceed the profits of gains of such eligible business of the undertaking or enterprise. It can thus be seen that sub-section (9) is divided into two clear parts. First part pertains to non-allowability of deduction under any other provision contained in Part-C of Chapter VI to the extent of profits and gains of an enterprise or undertaking with respect to which deduction under section 80IA is claimed and allowed. The second part provides that in any case, such deduction shall not exceed the profits and gains of eligible business of an undertaking or enterprise. If we accept the interpretation of the assessee that only effect of sub-section (9) of section 80IA would be to limit the maximum permissible deduction under section 80HHC to the profits and gains of the eligible business, we would be completely ignoring the first part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature was to limit various deductions to the maximum limit of the profit of the eligible business, why was such long and somewhat complex expression was used in sub-section (9) of section 80IA? The same purpose could have been easily achieved by far briefer and more simple expression of providing maximum limit of deduction, for example, as was done in sub-section (2) of section 80A. We, therefore, refuse to accept the theory that the Legislature has in far more complex and detailed expression desired to bring about the same result, though in plain terms, when the sub-section read as a whole, conveys entirely different connotation. 25. Having said so, we are actually conscious of the fact that sub-section (9) of section 80IA does not contain a non-obstante clause. Two things thus emerge in our understanding of the said provision. First in plain terms when read as a whole sub-section (9) of section 80IA does not limit its effect only to disallowing deduction over and above the profit or gain of an enterprise or undertaking. Second aspect is that such provision does not have a non-obstante clause. What would be the effect of these two forces emerging from sub-section (9) of section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-section (9) of section 80IA and sub-section (13) of section 80B of the Act. In case of Commissioner of Income-Tax Vs. K. Ravindranathan Nair reported in 295 ITR 228 , the Supreme Court observed that, At the outset, we may state that, in the present case, we are dealing with the law as it stood during assessment year 1993-94, At that time Section 80HHC (3) of the IT. Act constituted a Code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a code by itself. 27. Sub-section (9) of section 80IA was aimed at restricting the successive claims of deduction of the same profit or gain under different provisions contained in sub-chapter C of Chapter VI of the Act This provision, therefore, necessarily impacts other deduction provisions including section 80HHC of the Act Nothing contained in section SOHHC suggests that the deduction provided therein was immune from any outside influence or that the provision was impregnable by any other statute or enactment Accepting any such theory would lead to incongruous results. Even the assessee concedes that sub-section (9) of section 80IA would operate as to limiting the comb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns the assessees were claiming double deductions, and in some cases such deduction would exceed hundred per cent of the profits and gains of the same undertaking. The clarification does not provide that sub-section (9) would apply and operate only when such claim exceeds the profits and gains of the undertaking. 31. We are unable to follow the line of logic adopted by the Bombay High Court in case of Associated Capsules P. Ltd. (supra) that section 80IA (9) of the Act in the context of section 80HHC would operate not at the stage of computation but at the stage of allowing the deduction. In plain terms sub-section (9) of section 80IA disentitles an assessee from claiming deduction under any other provision of sub-chapter C to the extent deduction is already claimed and allowed for certain profit or gain of an undertaking or enterprise under section 80IA. Such provision, therefore, would have to be applied at the very stage to assessee's claim for deduction under section 80HHC of the Act is considered. While computing such deduction the effect of sub-section (9) of section 80IA would have to be given. We do not think that in the process we are tinkering with the formula for comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80HHC does not provide that its provisions are to prevail over Section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by Section 80AB. Decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration. 34. In the result, we side with the view of Delhi High Court following by Kerala and Punjab and Haryana High Courts. The question is answered in favour of the Revenue. Tax appeal is allowed. Judgment of the Tribunal is reversed to that extent. Appeal is disposed of accordingly. 10. In view of the above decisions, we answer the questions in favour of the Revenue and against the assessee. Question No.5 11. So far as Question No.5 is concerned, the Tribunal has observed as under: 9. We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. The deduction u/s. 80I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generate the power. The undertaking so that it may generate the power will be complete only when both new turbine and the boiler are installed. The assessee has not installed boiler but it is part of existing undertaking generating the power. This, in our opinion, is merely an expansion of the existing undertaking. If the existing boiler is carved out from the new turbine installed by the assessee, the new turbine claimed to be eligible undertaking itself cannot generate the power. No material or evidence was brought to our knowledge which may prove that the new turbine installed by the assessee can independently generate the power. The assessee is already having the undertaking engaged in the business of generating the power. The assessee in this case has merely added a new turbine to the in undertaking which his capacity to generate the power has increased. This, in our opinion, is merely an expansion of the of the existing undertaking. The new undertaking as is eligible u/s 80IA, in our opinion, must be independent and integrated unit which should be able to carry on the activities or to carry on the business as has been stipulated u/s 80IA independently. It is not the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 255. Reference was also made to the decision of this Court in case of Gujarat Alkalies and Chemicals Ltd vs. Commissioner of Income Tax reported in (2013) 350 ITR 94 . It was submitted that in case of the assessee, the decision held by this Court that the Tribunal did not commit any error in arriving at conclusion that by mere installation of turbine, assessee did not install a new industry since turbine themselves would not be sufficient for power generation without generation of steam. It was therefore, submitted that Question No.5 may be answered in favour of the Revenue and against the assessee. 14. We have considered the rival submissions. The Hon ble Apex Court, in case of Textile Machinery Corporation Ltd.(supra) 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, has held as under: Reconstruction of business involves the idea of substantially the same persons carrying on substantially the same business. It is stated on behalf of the Revenue that the same company in the instant case continues to do the same business of heavy engineering---no matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the concept of expansion are not decisive tests in construing section 15C. The High Court is not right in holding the two undertakings as formed by reconstruction of the existing business of the assessee. 15. Section 80IA (3) reads as under: 80IA:- Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. (1) xxx xxx xxx (2) xxx xxx xxx (3) This section applies to {an [industrial undertaking] referred to in clause (iv) of sub-section (4)} which fulfills all the following conditions, namely- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of an {industrial undertaking} which is formed as a result of the re-establishment, re-construction or revival by the assessee of the business of any such {industrial undertaking] as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation 1. For the purposes of clause (i), any machinery or plant which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-used) is Rs. 14,76,600/- purchased second hand on 09.11.1998. In view of such facts even as per the Explanation-2 to section 80IA (3) there is no breach of the condition on use of the old boiler for obtaining steam to run the turbine for generation of power. Moreover, as per the decision of this Court in case of Principal Commissioner of Income Tax vs. Jay Chemical Industries Ltd. reported in [2020] 120 taxman.com 315 (Gujarat) (supra), the steam is also a power and energy as held as under: 22. The word Power should be understood in common parlance as Energy . Energy can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the steam produced by the assessee can be termed as power and would qualify for the benefits available under section 80IA (4) of the Act. 17. It is true that the question raised before this Court in case of Jay Chemical Industries Ltd (supra) was only for the purpose that vapour would not fall within the meaning of Power and therefore, would not be generation of power to which, the deduction is granted under section 80IA(4). Therefore, this Court has rightly held that as the facts in the said case was different from the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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