TMI Blog2004 (6) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that the deduction claimed pertain to three units as under and there was no profit in respect of 2nd and 3rd units after adjusting the set-off of brought forward losses of the same: - Acidic Acid Unit, Malad Rs. 13,49,626 - Distillery Unit, Walchandnagar Rs. 6,61,500 - Bio Gas Unit, Walchandnagar Rs. 70,84,833 Rs. 90,95,971" The source of assessee's earning is income from following three industrial units. All of them are eligible for deduction under section 80-IA:- 1. Acidic Acid Unit, Malad 2. Distillery Unit, Walchandnagar 3. Bio Gas Unit, Walchandnagar 5. The Assessing Officer disallowed deduction on units mentioned at Serial Nos. 2 3 on the basis of interpretation of section 80-IA(7). As per Assessing Officer, unless particular industrial unit in a 'tax holiday period' (total number of years for which particular industrial unit is eligible for deduction under section 80-IA) earns profit is not eligible for deduction. Whereas before CIT(A), it is the case of assessee that section 80-IA is non obstante provision, therefore, provisions of sections 32, 70, 71 and 72 are not to be considered while calculating the deduction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80-IA in respect of the eligible units in the past years. Section 80-IA(7) just states that for computing the deduction under section 80-IA(5) in any succeeding year immediately following the initial year, the deduction had to be computed as if the eligible business was the only source of income of the assessee. The stipulation is made notwithstanding anything contained in any other provision of the Act. The appellant has interpreted the provision to mean that for a particular assessment year the losses of other business, unabsorbed depreciation and business losses of the past years have to be ignored while computing deduction under section 80-IA of the Income-tax Act on account of the eligible business. A similar issue had come up before the Supreme Court in the case of Patiala Flour Mills Co. (P.) Ltd. This issue was the allowance of deduction under section 80J of the Income-tax Act. The Assessing Officer in the assessment order has held that as the wording of the provisions under section 80J were different, the case law would not be applicable. In any case, the view of the Assessing Officer is not correct. If the Legislature wanted that the past losses of the eligible bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Flour Mills Co. (P.) Ltd. and contended that the CIT(A) has rightly given the relief of the assessee. He also contended that section 80-IA is beneficial provision, therefore, should be construed liberally. 8. We have carefully considered the rival submissions in the light of material placed before us. Before proceeding further, we may mention that the Assessing Officer while computing profit/loss in respect of two units for which the deduction has been denied for the tax holiday period i.e. consisting initial year upto the end of financial year under consideration computed losses at Rs. 58,77,899 and Rs. 38,90,530 in respect of distillery unit, Walchandnagar and bio-gas unit, Walchandnagar respectively. This calculation has been reproduced in the order of CIT(A) at page 4, which is reproduced below:- "(a) Distillery Unit -------------------------------------------------------- A.Y. 1995-96 A.Y. 1996-97 A.Y. 1997-98 A.Y. 1998-99 -------------------------------------------------------- Profits of the year (-)63,07,607 15,83,799 (-) 74,54,207 63,00,116 Less: B/F Losses Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old storage business for the purpose of applying the provision contained in sub-sections (1) (3) of section 80J, the losses as well as the depreciation allowance and development rebate in respect of that business for the past assessment years should be adjusted against the profit of Rs. 1,51,011, since there was no profit at all from that business in the past assessment years, against which, any part of such losses, depreciation allowances or development rebate should be absorbed. While interpreting section 80J, the Hon'ble Supreme Court observed at pages 646-647 of the report as under:- "Now, it is clear from the language of sub-section (1) of section 80J that the profits or gains of a new industrial undertaking from which deduction of the relevant amount of capital employed during a particular assessment year is allowable under that provision, are the profits or gains includible in the computation of the total income chargeable to tax. Therefore, whatever be the profits or gains of the new industrial undertaking computed for the purpose of arriving at the total income chargeable to tax, would have to be taken to be the profits or gains for applying the provision contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Act in the same manner as they would be in determining the total income chargeable to tax and it must follow a fortiori that if the losses, depreciation allowance and development rebate in respect of the new industrial undertaking for the past assessment years have been fully set off against the profit of the assessee from other business or for the matter of that, against the income of the assessee under any other head by reason of sections 70 and 71 read with sub-section (2) of section 32 and sub-section (2) of section 32A, no part of such losses, depreciation allowance or development rebate would be liable to be adjusted over again in computing the profits or gains of the new industrial undertaking for applying the provision contained in sub-section (1) of section 80J. The same mode of computation must prevail also in applying the provision contained in sub-section (3) of section 80J, because that sub-section provides for setting off the carried forward amount of deficiency of the past assessment years against 'the profits and gains referred to in sub-section (1)' of section 80J as computed after allowing, inter alia, the deduction admissible under that sub-section an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." Section 80-IA was introduced in Income-tax Act with retrospective effect from 1-4-1990. Reading the language of section 80-IA(7) with the underlined observations of Hon'ble Supreme Court, it will be clear that Legislature by introducing sub-section (7) of section 80-IA, has created a legal fiction that for the purpose of applying the provisions contained in that sub-section, the profits or gains of the eligible business shall be computed as if the eligible business were the only business of the assessee right from the initial year and the losses, depreciation allowance or development rebate in respect of such eligible business for the past assessment years were not set off against the profits from other business. Thus, the Legislature has covered the lacuna, as it was in section 80J by creating a legal fiction by introducing sub-section (7) of section 80-IA. This will become more clear from the commentary at pages 3637 and 3638 of Chaturvedi and Pithisaria's, 5th addition (Volume 2), which is reproduced below:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off against the profits of the assessee from other sources. In this view of the situation, we find that the Assessing Officer had rightly denied the deduction under section 80-IA in respect of these units there being a loss in respect of the said unit as computed within the meaning of section 80-IA(7). 10. Now coming to the argument of Learned Authorised Representative of the assessee that section 80-IA is beneficial provision, therefore, it should be construed liberally. In this regard, we may point out that even though liberal interpretation has to be given to such a provision, the interpretation has to be as per the wordings of the section. This principle has laid down by Hon'ble Apex Court in recent case of IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521. The following observations from the said report are relevant:- "12. We are unable to accept the submission of Mr. Dastur. Undoubtedly section 80HHC has been incorporated with a view to providing incentive to export houses. Even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wordings of this section. If the wordings of the section are clear then benefits, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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