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2016 (6) TMI 290 - MADRAS HIGH COURT

2016 (6) TMI 290 - MADRAS HIGH COURT - TMI - Entitlement for deduction under section 80IA - interpretation of initial assessment year - Held that:- The business undertaking of the assessee is wind mill power generation/hosiery goods, etc., and it has claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment year in question and for the subsequent years as well. Having exercised its option and its losses have been set off already against other income of the busi .....

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amasubramanian, J. Revenue has come up with the above appeal raising the following substantial questions of law:- "1. Whether, on the facts and in the circumstances of the case and in law, the Honourable Income Tax Appellate Tribunal is correctin law to hold that the assessee is entitled for deduction under section 80IA of Income Tax Act? 2. Whether, for the purpose of section 80IA(5) of the Act, the "initial assessment year" would only mean the year of claim and not the year of c .....

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nt/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. 3. Though it is brought to the notice of this Court that the issue involved in this appeal has already been decided by this Court in the decision reported in Velayudhaswamy Spinning Mills Vs Asst. CIT [2012) 340 ITR 477], it is stated by the learned Standing Counsel appearing for the Revenue that as against the decision rendered by this Court in Velayudhaswamy Spinning Mills, the Revenue has preferred appeals b .....

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nd held that Chapter VI-A provides for incentives in the form of tax deductions essentially belong to the category of "profit-linked incentives". This Court also placed reliance on the decision reported in CIT - Vs - Mewar Oil and General Mills Ltd. [2004) 271 ITR 311 (Raj)] and came to the conclusion that once the losses and other deduction have been set off against the income of the previous year, it should not be reopened again for the purpose of computation of current year income u .....

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wed to the extent of 20 per cent. from the profits and gains of the assessee. Sub-section (5) gives deduction for the period of seven assessment years immediately succeeding the initial assessment year. Sub-section (6) deals with computing the deduction under sub-section (1) and it starts with non obstante clause and also it is a deeming provision. The fiction created by the undertaking was the only source of income during the previous year initially and subsequent assessment years. Sub-section .....

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d by the Finance Act, 1999, with effect from April 1, 2000. The provisions of sections 80-I and 80-IA are also more or less identically worded. Sections 80-I and 80-IA come in Chapter VI-A of the Income-tax Act. Chapter VI-A deals with deductions to be made in computing total income. There are two tax incentives contemplated in Chapter VI-A. One is investment incentive and the other one is profit-linked investment. Chapter VI-A was introduced by the Finance Act, 1965, with effect from April 1, 1 .....

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' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the asse .....

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hich is included in the gross total income. Section 80AB defines "gross total income" which means the total income has to be computed in accordance with the Act before making deduction under this Chapter. Heading "B" deals with "deductions in respect of certain payments" which consists of sections 80C to 80GGC. Heading "C" deals with "deductions in respect of certain incomes", which consists of sections 80H to 80TT. The last heading "D" .....

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es for incentives in the form of tax deductions essentially belong to the category of "profit-linked incentives". Therefore, when Section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. Further, it has been held that sections 80-IB/80-IA are the code by themselves as they contain both substantive as well as procedural provisions. The Supreme Court further observed in the said judgment that sub-section .....

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there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten consecutive assessment years. (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the en .....

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(ii) operating and maintaining, or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely : (a) it is owned by a company registered in India or by a consortium of such companies (or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act) ; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statut .....

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at sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous 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." From a reading of sub-section (1), it is clear that it provides that where the gross total in .....

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s and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for an eligible business .....

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r provisions are to be ignored ; (2) It is for the purpose of determining the quantum of deduction ; (3) For the assessment year immediately succeeding the initial assessment year ; (4) It is a deeming provision ; (5) Fiction created that the eligible business is the only source of income ; and (6) During the previous year relevant to the initial assessment year and every subsequent assessment year." From a reading of the above, it is clear that the eligible business were the only source of .....

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e is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. A fiction created in sub-section does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpo .....

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eriod, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this court cited supra considered the scope of sub-section (6) of section 80-I, which is the corresponding provision of sub-section (5) of section 80-IA. Both are similarly worded and, therefore, we agree entirely with the Division Bench judgment of this court cited supra. In the case of C .....

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come from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the Commissioner of Income-tax (Appeals), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward .....

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r. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under section 80-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissibl .....

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ble deductions thereunder. We also agree with the same. We see no reason to take a different view. The standing counsel appearing for the Revenue is unable to bring to our notice any relevant material or any compelling reason or any contra judgment of other courts to take a different view. He only relied heavily on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, [1980] 123 ITR (St.) 154 to support this case and the same reads as follows : "Clause 30(iii). In comp .....

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on 80-I even though they may have been set off against the profits of the taxpayer from other sources." We are not agreeing with the counsel for the Revenue. We are, therefore, of the view that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5). Under these circumstances, we set aside the o .....

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