2008 (4) TMI 405 - ITAT AHMEDABAD

Interpretation of Statutes - deduction under section 80-IA - deeming fiction in section 80-IA(5) created - Profits And Gains From Industrial Undertaking - Whether in view of the provisions of section 80-IA(5), the profit from the eligible business for the purpose of deduction u//s 80-IA has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years? - Assessee purchased Wind Mills and started producing electricity - receipt of electric power generated through these mills is shown as credited in the P&L A/c -

HELD THAT:- The set off of unabsorbed losses and depreciation are governed by Chapter VI and section 32(2) of the Act. Once in accordance with the said provisions unabsorbed losses/depreciation are set off against any income, under the provisions of the Act there was no provision for notionally carrying forward such absorbed losses. It was so held by the decision of the Supreme Court in Patiala Floor Mills Co. (P.) Ltd. But after insertion in 1980 of the non obstante clause like sub-section (6) in section 80-I and subsequently in sub-section (5) in section 80-IA, it is to be assumed for the purposes of determination of quantum of tax holiday deduction that the eligible business was and is the only source throughout and therefore the question of intra-heads or inter-heads does not arise and consequently one has to assume the unabsorbed depreciation or loss were not set of and have to be notionally bringing forward for setting of the same against the profits of the eligible undertaking for computing deduction under section 80-IA of the Act.

There is also no force in the submission that a plain and simple interpretation of sub-section (5) of section 80-IA of the Act nowhere states that losses of the eligible undertaking shall be notionally carried forward to the subsequent year(s) and adjusted against the profits in subsequent year(s) despite the fact that losses in the earlier years had actually been set off against the profits of the other unit/other income has no force and amounts to ignoring the true import of the fiction.

When a fiction is created one has to assume that putative state of affairs as real. The deeming fiction in section 80-IA(5) of the Act, as stated earlier, not only provides that profits of the eligible unit has to be considered on a stand alone basis and it does not require to be adjusted against loss in other unit(s) but also that its own losses are to be assumed as not adjusted against other sources and are carried forward to set off against this source of income alone.

Though we agree that the origin of the unabsorbed losses/depreciation carried forward in the hands of the assessee to the year in which the deduction under section 80-IA of the Act is to be allowed, must be traced and if the unabsorbed losses/depreciation relates to the eligible undertaking, such unabsorbed losses/depreciation must be set off against the profits of the eligible undertaking for computing such deduction, but such unabsorbed losses are to be found out on the hypothesis that the assessee had the eligible source as the only source of income and the absorbed losses against other sources were not absorbed in absence of any other source assumed to be not in existence because of the fiction.

We have no quarrel in the proposition of law stated by Mr. Vora that the CBDT Circular No. 281 explaining the provisions of the Finance (No. 2) Act, 1980: is not binding on the Bench in view of UCO Bank v. CIT [1999 (5) TMI 3 - SUPREME COURT]; Keshavji Ravji & Co. v. CIT[1990 (2) TMI 1 - SUPREME COURT]; J.K. Synthetics Ltd v. CBDT [1971 (4) TMI 3 - SUPREME COURT]; Commissioner of Customs v. Indian Oil Corpn. Ltd. [2004 (2) TMI 66 - SUPREME COURT], but it is just explaining the law as we have discussed. In any case it is not a simple case of Circular but an Explanation by the Finance Minister in the Memorandum explaining the Budget proposal later incorporated in the Circular.

Section 80-IA(5) of the Act seeks to regard the eligible unit as a separate source of income so as to separately determine the carry forward and set off of losses in the hands of that unit. Such an interpretation is not in our opinion contrary to the scheme of the Act whereby the aggregate profits and losses of all units owned by the assessee are pooled together and taxed in the hands of the assessee, if we keep in mind that the object of the fiction is only for determining the quantum of deduction and nothing beyond and therefore one cannot decry an assumption of multiple assessments for the same assessee owning numerous eligible units, by treating each eligible unit as a separate assessee.

The mandate to carry forward of losses/depreciation notionally has to be read into sub-section (5) of section 80-IA of the Act by very nature of the language therein and the same would not amount to reading words in the provision or ignoring the settled law that no words could be added or subtracted on ground of legislative intendment or otherwise: V.V.S. Sugars v. Government of AP [1999 (4) TMI 519 - SUPREME COURT] (Constitution Bench); Vikrant Tyres Ltd v. First ITO [2001 (2) TMI 129 - SUPREME COURT].

In our opinion the only harmonious construction of section 80-IA(5), consistent with the object in allowing deduction only to profits and gains of the eligible business would be that-

(a) the deduction under that section would be computed with reference to profits of the eligible unit, unaffected by losses suffered in other units;

(b) in case of loss suffered by the eligible unit, such loss would not be set off against profits of other units/other business/other incomes in the initial year of assessment or subsequent years of eligible years of assessments;

(c) where losses of the eligible unit remained to be adjusted against that very source they are to be carried forward to subsequent year(s), and set of in the succeeding year(s), and on the balance profit alone the deduction admissible would be computed;

(d) where there are no losses of the eligible unit carried forward (in view of set off against profits of that very source), it is the mandate of law that the losses of earlier years, though already absorbed against other sources they are once again be notionally brought forward and set off against profits of the eligible unit to compute eligible deduction.

(e) the deduction would be limited to gross total income;

We find that when there is a clear provision of law one cannot resort to the liberal or favourable interpretation by the assumed doubt. It is a trite law that when the language of the text is clear and unambiguous it has to adopt the literal construction and one should not indulge in doing violence to the language and adopting the theories of 'liberal' or 'favourable' construction of the statutory provision. That is the golden rule of interpretation recognized centuries over.

To conclude we answer the question referred in the affirmative, in the favour of the revenue and against the assessee, in the terms that in view of the specific provisions of section 80-IA(5) of the Income-tax Act, 1961, the profit from the eligible business for the purpose of determination of the quantum of deduction under section 80-IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years.

In the result, the revenues appeals are allowed and the point canvassed by the respondent assessee and the intervener is rejected.