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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 ..... anation 5 to S. 32 (1) of the Act with effect from 1.04.2002, while calculating deduction under Chapter VIA of the Act? 2. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that depreciation, whether claimed or not, on notional basis is required to be reduced from the profit of eligible industrial undertakings for the purpose of calculating deduction under Chapter VIA of the Act in spite of the fact that the new scheme of depreciation of block of assets does not provide for computation of depreciation on cost of individual asset? 3. Whether, in 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot be thrust upon the assessee in the assessment year 1999-2000. 5. Section 32 of the Act provides for certain deductions being allowed in respect of depreciation. The Supreme Court in Mahendra Mills/Arun Textile 'C'/Humphreys/Glassglow Consultants case (supra) has held that if the revised return is a valid return and the assessee has withdrawn the claim of depreciation, it cannot be granted relying on the original return when the assessment is based on the revised return. It was held that the Assessing Officer cannot grant depreciation allowance when the same is not claimed by the assessee. 6. Subsequently, vide 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any device adopted to reduce or inflate the profits of eligible business has got to be rejected. Thirdly, this Court in the case of Albright Morarji and Pandit Ltd. (supra), Grasim Industries Ltd. (supra) and Asian Cable Corporation Ltd. (supra) has only followed the decisions of the Apex Court in the case of Distributors Baroda (supra). Thus, on analysis of all the decisions referred hereinabove, it is seen that the quantum of deduction allowable 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under two different deduction provisions contained in Chapter VI of the Act, and such deduction would be allowed. In some cases, thus, such total deduction would exceed the income of the business of an assessee. In case of Mandideep Eng. and Pag. Ind. P. Ltd. (supra), the Supreme Court did not permit the Revenue to challenge the judgment of the Madhya Pradesh High Court in view of earlier decisions of different High Courts, which were not questioned. It was in this backdrop that sub-section (9) of section 80IA was introduced with effect from 1st April 1999. In this context, we may peruse more closely the language used in sub-section (9) of section 80IA. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of deduction under other provisions, including section 80HHC, would be restricted. Second implication of sub-section (9) of section 80IA is that under no circumstances, once deduction has been granted under section 80IA, deduction under any other provision combined together would exceed the total amount of profits and gains of eligible business of an undertaking or enterprise. This much is plain, and requires neither any imagination nor any interpretative process. Any other view would amount to obliterating the first part of sub-section (9) of section 80IA, and would, thus, be wholly impermissible to do. We wonder, if the sole intention of the Legislature 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrary contained in any other provision referred to in such non-obstante clause. This, however, could not mean that in absence of a non-obstante clause, even if there is no conflict between the two statutory provisions, the provision restricting the ambit of a benefit must yield in absence of such non-obstante expression. 26. In this context, we have perused the provisions of section 80HHC of the Act. Though previously as held and observed by Madhya Pradesh High Court in J.P Tobacco Products Private Limited (supra), the deduction provisions contained in Chapter VI were seen as independent stand-alone provisions, such views were expressed prior to introduction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified that it was noticed that certain assessees claimed more than hundred per cent deduction of profits and gains of same undertaking, where they were entitled for deduction under more sections than one. It was, therefore, to prevent the tax payers from taking undue advantage of the existing provisions of claiming repeated deductions in respect of the same amount of eligible income, even in cases where it exceeds such eligible profits, inbuilt restrictions under section SOHHC and section 80IA have been provided. This explanation nowhere restricts the scope of sub-section (9) of section 80IA. It only provides that the provision was made because under the existing provisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As noted earlier, if this were so, the second part of sub-section (9) limiting the total deductions to the profit and gain from the eligible business also could not be applied. 33. In case of IPCA Laboratory Ltd. v. Deputy Commissioner of Income-Tax reported in 266 ITR 521 the Supreme Court observed as under: "Section 80AB is also in Chapter VI-A. It starts with the words "where any deduction is required to be made or allowed under any Section of this Chapter". This would include Section 80HHC. Section 80AB further provides that "notwithstanding anything contained in that Section". Thus Section 80AB has been given an overriding effect over all other Sections in Chapter VIA. Section 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 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power but the contention of the assessee is that the same very boiler is being used for supplying the steam to both the turbine which was already in existence and the new one established by the assessee. The claim of the assessee is that the new turbine established by him itself is a new undertaking engaged in the business of generating the power. New turbine itself cannot generate Power until and unless the steam is provided to it through boiler. An undertaking which is eligible for deduction u/s 80IA, in our opinion, must itself be an independent undertaking and should be able to carry out the activities for which it has been established. The new turbine established by the assessee cannot itself 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Apex Court in case of Textile Machinery Corporation Limited, Culcutta vs. The Commissioner of Income Tax, West Bengal reported in 107 ITR 195 to submit that a substantial expansion would qualify for deduction under section 80IA of the Act. 13. On the other hand, learned Senior Standing Counsel Mr. Patel for the Revenue submitted that reliance placed by the assessee on the decision of this Court in case of Jay Chemical Industries Ltd (supra) is misplaced as the facts of the said case is different than that of the case of the assessee. It was submitted that in case of the assessee i.e. Atul Limited, this Court has held in favour of the Revenue which is reported in (2016) 74 Taxmann.com 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he new industrial undertakings are separate and independent production units' in the sense that the commodities produced or the results achieved are commercially tangible products and the undertakings can be carried on separately without complete absorption and losing their identity in the old business, they are not to be treated as being formed by reconstruction of the old business. The business of the assessee is of heavy engineering. The two new undertakings are independently producing articles which may be of aid to the principal business but yet the undertakings are distinct and not reconstruction out of the existing business of the assessee. Use by the assessee of the articles produced in its existing business 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking is not formed by transfer to a new business of machinery or plant previously used for any purpose shall be deemed to have been complied with. Therefore, even considering the fact that the boiler was used for the purpose of obtaining steam to run the new turbine for generation of the power, cost of new turbine is less than twenty percent of the total value, would Condition No. 2 of the conditions prescribed in Clause (ii) shall be deemed to have been complied with in the facts of the case. The total value of the plant and used for the purpose of generating power works out to Rs. 14,56,44,295/- (Rs. 18,27,180/- value of the plant and machinery and Rs. 1,26,42,715/- for turbine new industrial unit) and the value of boiler (pre-existing and pre-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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