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2020 (3) TMI 234

..... rs 19971998 to 20012002 lapsed - HELD THAT:- It is clear that the burden is on the Revenue to establish that any change in the shareholding was not effected with a view to avoiding or reducing any tax liability. As the Assessing Officer has not gone into this aspect at the time of assessment, at this stage, it would not be appropriate to consider the issue as to whether the shareholding was genuine or not for the purpose of computation of quantum under section 80IA( 1) for the year under consideration. Similarly in the decision in the case of Ganga Corporation Asbestos Pvt Ltd [2014 (5) TMI 153 - ALLAHABAD HIGH COURT] issue whether business of the assessee had remained the same or whether there was cause of unity of control and common management. Such a issue is not arising from the facts of the case, reliance placed by the Revenue for the alternative submission is not required to be considered. When there is no issue of any strict or otherwise literal construction of the provisions of the Act, the application of section 80IA( 5) of the Act to deny the effect of provisions of section 79 of the Act cannot be sustained as per the Scheme of the Act,1961. When the loss of earlier years .....

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..... . During the previous year relevant to the assessment year 20012002, there was a change in the share holding of the assessee company, as a result of which the provisions of section 79 of the Income Tax Act, 1961 ( the Act, 1961 for short) was made applicable and the accumulated losses from the assessment years 19971998 to 20012002 lapsed. 5.1) The assessee earned profit during the assessment year 2005-2006 and it being a telecommunication service provider was eligible for 100% deduction under section 80IA of the Act, 1961 in respect of the profits derived from the telecommunication services. The assessee therefore, made a claim for deduction under section 80IA of the Act, 1961 for the first time for the assessment year 2005-2006. 5.2) The assessee filed its return of income for the assessment year 2005-2006 declaring total income at Rs. Nil. The assessee company computed the gross total income after reducing its carry forward losses and unabsorbed depreciation after the assessment year 20012002. The assessee company did not claim the losses prior to 20012002 during which the change in the share holding took place by applying the provision of section 79 of the Act, 1961. Therefore, .....

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..... assessment order and dismissed the appeal. 5.7) The assessee therefore, preferred Appeal before the Tribunal. The Tribunal after considering the provisions of section 80IA( 5) of the Act, 1961 held that the unabsorbed losses and the unabsorbed depreciation relating to the earlier years and relating to the eligible undertaking are to be taken into account in determining the quantum of deduction under section 80IA( 1) of the Act, 1961 even though those might actually have been set off against the profits of the assessee from other sources. It was held that the provisions of section 80IA( 5) of the Act, 1961 starting with the non obstante clause would override the provisions of the Act, 1961 and therefore, for the purpose of computation of deduction under section 80IA of the Act, 1961, no effect to section 79 of the Act can be given. The Tribunal therefore, concurred with the findings arrived at by the Assessing Officer and the CIT(Appeals) and dismissed the appeal filed by the assessee on this issue. The Tribunal relied on the decision of a Special Bench of the Ahmedabad Tribunal in the case of ACIT v. Goldmines Shares and Finance Pvt. Ltd reported in 2008 TIOL 220 ITAT/ AHM( SB), de .....

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..... e contended that as per the provisions of section 80IA( 1), the deduction is to be given from the gross total income as per the computation under section 80A and 80AB of the Act. Therefore, the gross total income has to be the same for the purpose of computation of deduction available under section 80IA of the Act, 1961 and under section 80AB of the Act. 6.3) It was submitted that the computation of gross total income under the provisions of the Act, 1961 cannot be different than the purpose of computation of deduction under section 80IA of the Act. 6.4) It was submitted that the non obstante clause of section 80IA( 5) provides for considering the profit and gains of eligible business on standalone basis. In the facts of this case, it is not in dispute that the assessee had only one business i.e telecommunication services for the assessment year under consideration. Therefore, applicability of section 80IA( 5) of the Act is only for the purpose of computation of profit and gains of the eligible business of telecommunication services to which the provisions of subsection( 1) of section 80IA of the Act applies. It was submitted that the provisions of section 80IA( 5) cannot be interp .....

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..... VIA pertains to the deduction to be made in computing the total income. 7.3) It was therefore, submitted that in order to compute the deduction available under section 80IA( 1) of the Act, 1961, the non obstante clause in section 80IA( 5) would override the non obstante clause contained in section 79 of the Act. Having regard to the difference in the two non obstante clauses, it was submitted that as per section 80IA( 5), the source of income should only be the eligible business, whereas section 79 would operate to calculate the aggregate total income as per ChapterVI of the Act, 1961. Therefore, according to Mr. Bhatt, there would be two different calculations of the profit and gains of eligible business i.e one for the purpose of calculating the aggregate total income under Chapter VI and the other calculation would be for the purpose of computing deduction under section 80IA of the Act read with Section 80IA( 5) of the Act, 1961. 7.4) In support of the above submissions, the learned Senior Counsel placed reliance on the following decisions : i) Synco Industries Ltd. v. Assessing Officer, IncomeTax, Mumbai reported in 2008 (299) ITR 444. ii) IPCA Laboratories Limited v. Deputy C .....

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..... nd set off of business losses.- 72.(1) Where for any assessment year, the net result of the computation under the head ―Profits and gains of business or profession is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on:] Section 79 reads as under : 79.Carry forward and set off of losses in the case of certain companies.-Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public .....

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..... r : [80AB. Deductions to be made with reference to the income included in the gross total income. Where any deduction is required to be made or allowed under any section 3*** included in this Chapter under the heading C. -Deductions in respect of certain incomes 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 assessee and which is included in his gross total income.] Section 80B(5) reads as under : 80B(5) gross total income means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter. Section 80IA( 1) (2) and (5) reads as under : 80IA( 1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to .....

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..... ause (a) of section 79 of the Act, 1961. iii) Section 66 which falls under Chapter VI and Section 80A which falls under Chapter VIA pertain to the computation of 'total income' of the assessee. Section 66 provides that in computing the total income of an assessee, there shall be included all income on which no income tax is payable under Chapter VII. Chapter VI also provides for setoff and carry forward of losses and the mechanism for claim of setoff of losses. Whereas Chapter VIA provides for the deduction to be made in computing total income. Section 80A provides that in computing the total income of an assessee, there shall be deduction specified in section 80C to 80U from the gross total income, in accordance with and subject to the provisions of Chapter VIA. iv) As per Section 80B(5) of the Act, 1961, the 'Gross total income' means the 'total income' computed in accordance with the provisions of the Act before making any deduction under Chapter VIA meaning thereby that the assessee is required to calculate the total income computed in accordance with the provisions of the Act, 1961 to arrive at the gross total income prior to deduction under Chapter VIA .....

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..... ction 80IA of the Act from the profit and gains of eligible business and such loss would be deducted from the profit and gains at the time of computation of quantum of deduction under section 80IA( 1) of the Act, 1961. However, in the facts of present case, the profit of the assessee for the year under consideration is only from the eligible business of the assessee and therefore, the profit and gains of the business for the purpose of determining the quantum of deduction under subsection (1) of section 80IA of the Act, 1961 is to be computed applying the provisions of the Act, 1961. 10. In order to apply the provisions of the Act, 1961, first 'gross total income' is to be computed. In order to compute 'gross total income' for the year under consideration, it is to be verified whether the assessee is entitled to any carry forward or set off of the business losses of the previous year or not which is available at the beginning of the year. For the purpose of computing 'gross total income' in the facts of the case, it is not in dispute that after the carry forward loss is set off, there was positive income prior to deduction under Chapter VI A of the Act, 1961 .....

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..... vident and therefore Section 72 has to be applied before the total income of an assessee is determined i.e., before the deductions under Chapter VIA are allowed. In Commissioner of IncomeTax v. Midda Ram (1984) Vol.19 Taxman Pg. 23 again the Madras High Court has taken the view that having regard to the provisions of Section 80A and 80B, before making any deduction under Chapter VIA the total income of the assessee is to be computed in accordance with the provisions of the Act and such total income will have to be taken as gross total income from which the deduction under Chapter VIA has to be allowed. In the said case the gross total income so computed after set off of unabsorbed depreciation was 'Nil'. It was, therefore, held that there was no positive figure from which the deduction under Chapter VIA could be allowed. In Commissioner of IncomeTax, West BengalII, Calcutta v. Bengal Assam Steamship Company Ltd. (1985) 155 ITR 26 the Calcutta High Court has held that deduction under Section 80L and 80M of the Act are to be allowed after setting off of losses under Section 71 and 72 because Section 80A(2) limits the aggregate of the deduction allowable to the amount of the g .....

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..... s total income as given in Clause 5 of Section 80B it is held in the said decision that in the case of a company, total income computed is in accordance with the provisions of the Act before making any deduction under Chapter VIA: what is laid down as principle is that Section 80A(2) limits the aggregate of the deductions allowable to the amount of the gross total income of the assessee and therefore deductions allowance cannot result in any negative figure or loss and therefore where the gross total income is 'Nil' or net loss in the relevant year the assessee will not be entitled to any relief under Section 80I. In Commissioner of Income Tax v. Sundaravel Match Industries (P) Ltd. (2000) 245 ITR 605 the Madras High Court has held that losses should be set off against the profits of the industrial undertaking before granting the deduction under Section 80HH of the IncomeTax Act, 1961, in view of the specific provisions found in Section 80AB. In Commissioner of IncomeTax v. Nima Specific Family Trust (2001) 248 ITR 29 the Bombay High Court has taken the view that the legislature has introduced Section 80A(2) and Section 80A(5) in order to put a ceiling on the claim for dedu .....

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..... al deduction under Sections 80HH and 80I should not exceed the gross total income of the assessee. In Commissioner of Income Tax and Another v. R.P.G. Telecoms Ltd. (2007) 292 ITR 355 the Karnataka High Court has held that Section 80AB of the IncomeTax Act, 1961, would override all other Sections for the purpose of deduction under Chapter VIA of the Act and while calculating the gross total income of the company, one has to adjust the losses from one priority unit against the profits of the other priority unit and if the resultant gross total income is 'Nil' then the assessee cannot claim deduction under Chapter VIA. 11. The above discussion makes it very evident that predominant majority of the High Courts have taken the view that while working out gross total income of the assessee the losses suffered have to be adjusted and if the gross total income of the assessee is 'Nil' the assessee will not be entitled to deduction under Chapter VIA of the Act. It is well settled that where the predominant majority of the High Courts have taken certain view on the interpretation of certain provisions, the Supreme Court would lean in favour of the predominant view. Therefore, .....

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..... here was a common control and common management of the same Board of Directors carrying on both the activities in two different years. 12. Applying the tests to the facts found by the Tribunal, it can be seen that the Tribunal has recorded that the assessee had common management and common control of business. That there was no difference in the business carried on by the assessee in two different accounting periods considering the unity of control. Nothing has been pointed out on behalf of the applicant-revenue to even suggest that these findings of fact recorded by the Tribunal are not correct, except for making a faint effort that the Tribunal had not found that there was common place of business. As can be seen from facts on record the decision in the case of B.R. Ltd. (supra) had been pressed into service on behalf of the assessee even before the Commissioner (Appeals) as well as the Tribunal. None of the authorities have been invited to render any such finding. Therefore, at this stage, it is not possible to raise a presumption that the place of business was not common, nor is it necessary to send the matter back for this limited purpose, considering the period which has elap .....

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..... isfied that the change in shareholding was not effected with a view to avoiding or reducing the tax liability. Therefore, in this view of the matter, the view taken by the Tribunal appears to be justified. Hence, this reference is answered against the Revenue and in favour of the assessee. The reference is answered accordingly. 19. From the above dictum, it is clear that the burden is on the Revenue to establish that any change in the shareholding was not effected with a view to avoiding or reducing any tax liability. As the Assessing Officer has not gone into this aspect at the time of assessment, at this stage, it would not be appropriate to consider the issue as to whether the shareholding was genuine or not for the purpose of computation of quantum under section 80IA( 1) for the year under consideration. Similarly in the decision in the case of Ganga Corporation Asbestos Pvt Ltd (supra), the Division Bench of the Allahabad High Court considered the issue whether business of the assessee had remained the same or whether there was cause of unity of control and common management. Such a issue is not arising from the facts of the case, reliance placed by the Revenue for the alterna .....

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..... on 64(2) by Amending Act of 1979 with effect from 1980. Therefore, it was urged that legislative intent was clear and it was not possible to hold otherwise. 42. On the other hand on behalf of the assessee it was contended that it would often result in extreme anomaly and hardship, for instance in the example noticed before. It was further stressed on behalf of the revenue that equity has no place in interpreting fiscal legislation. 43. We need not, for the purpose of the instant case, express any opinion whether circulars in the instant case should be construed as contemporaneous exposition of the Legislative intent. The question was discussed exhaustively in the case of Desh Bandhu Gupta and Co. and Others. v. Delhi Stock Exchange Association Ltd. [1979] 4 S.C.C. 565 (AIR 1979 SC 1049) 44. Our attention was also drawn to the decision in the case of Manickam and Co. v. The State of Tamil Nadu 39 S.T.C. 12 at page 18 as well as Craies on Statute Law (Sixth Edn.) page 147. 21. Thus, the Apex Court held that if strict literal construction leads to an absurd result i.e result not intended to be served by the object of the legislation, then if other construction is possible, such constr .....

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