TMI Blog2021 (4) TMI 1237X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion that the intention of the legislature was to give the narrowest possible construction to deduction admissible under this sub-section. It is not necessary for us to deal with this submission in view of the findings recorded above. For the aforementioned reasons, the Appeal is dismissed qua the issue of the extent of deduction under Section 80-IA of the Act. - Civil Appeal No. 1327 of 2021 Civil Appeal No. 1328 of 2021 Civil Appeal No. 1329 of 2021 Civil Appeal No. 2537 of 2016 Civil Appeal No. 1408 of 2021 Civil Appeal No. 1508 of 2021 Civil Appeal No. 1509 of 2021 - - - Dated:- 28-4-2021 - L. NAGESWARA RAO And VINEET SARAN , JJ. For the Appellant : Mrs. Anil Katiyar, AOR For the Respondent : Mr. E. C. Agrawala , AOR JUDGMENT L. NAGESWARA RAO, J. For the sake of convenience, we are referring to the facts of Civil Appeal No.1328 of 2021. Civil Appeal No. 1328 of 2021 1. By an order of assessment dated 31.01.2005, the Assessing Officer restricted the eligible deduction under Section 80-IA of the Income Tax Act, 1961 (hereinafter the Act ) to the extent of business income only. On 23.03.2006, the Commissioner of Income-Tax (Appeal)-I (he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing deduction under Section 80-IA of the Act, along with other deductions available to the Assessee, to the extent of gross total income and restricted the deduction allowed under Section 80-IA at ₹ 354,00,75,084/-, by limiting the aggregate of deductions under Sections 80-IA and 80-IB of the Act to business income of the Assessee. 4. The Assessing Officer rejected the contention of the Assessee that Section 80AB of the Act is not applicable. It was held that Section 80AB of the Act makes it clear that for the purposes of deduction in respect of certain incomes, deduction had to be given on the income of the nature specified in the relevant section and allowed against income of that nature alone. The Assessing Officer elaborated on this point by stating that income from business alone had to be considered for allowing any deduction computed on income from business and using the same analogy, deduction computed on income from other sources should be allowable against income from other sources only. As the deduction under Section 80-IA of the Act pertains to profits and gains from a business undertaking, the deduction is allowable only against income from busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, which deals with deduction in respect of certain inter-corporate dividends, was allowable on the gross amount of the dividends received. It was decided to undo the decision of this Court as it was contrary to the legislative intent, which was that deduction under Section 80M was to be allowed on the dividend income as computed under the Act, i.e., on the net income after deduction of admissible expenses. The Appellate Authority proceeded to hold that Section 80AB places a ceiling on the quantum of deductions in respect of incomes contained in Part-C of Chapter VI-A. Such deductions are to be computed on the net eligible income, which will be deemed to be included in the gross total income. The Appellate Authority observed that Section 80AB is limited to determining the quantum of deductible income included in the gross total income. Following a decision of the Income Tax Appellate Tribunal, Mumbai dated 25.04.2003 in Royal Cushion Vinyl Products Ltd. v. Dy. Commissioner of Income Tax, Mumbai (ITA No. 770/MUM/98), the Appellate Authority set aside the order of the Assessing Officer on this count. The Appellate Authority directed the Assessing Officer not to restrict the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible business as the only source of income of the Assessee. Sub-section (5), therefore, is concerned with computation of the deduction, which is at a stage prior to allowing the deduction so computed. He submitted that there is no dispute that the computation of deduction is only from the eligible business. The claim of the Assessee, as accepted by the Appellate Authority, is that there is no restriction on taking into account income from any other source while allowing the deduction computed under Section 80-IA, subject to the aggregate of all deductions under Chapter VI-A not exceeding the gross total income . He relied upon judgments of this Court in CIT (Central), Madras v. Canara Workshops (P) Ltd., Kodialball, Mangalore (1986) 3 SCC 538 and Synco Industries (supra) to argue that sub-section (5) of Section 80-IA of the Act does not restrict permissible deduction under sub-section (1) to be allowed against business income only. The learned Senior Counsel for the Assessee relied upon the judgment of the Bombay High Court in Commissioner of Income-tax v. Tridoss Laboratories Ltd. [2010] 328 ITR 448 (Bombay) to argue that the Appeal should not be allowed. 9. The con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect only to computation of deduction on the basis of net income . 10. Sub-section (1) and sub-section (5) of Section 80-IA which are relevant for these Appeals are as under: 80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.- (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 in sub-section (4) (such business being hereinafter referred to as the eligible business), 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. * * * * (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r contention of the Revenue is that sub-section (5) of Section 80-IA refers to computation of quantum of deduction being limited from eligible business by taking it as the only source of income. It is contended that the language of sub-section (5) makes it clear that deduction contemplated in sub-section (1) is only with respect to the income from eligible business which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the business income . On the other hand, it is the case of the Assessee that sub-section (5) pertains only to determination of the quantum of deduction under sub-section (1) by treating the eligible business as the only source of income. It was submitted by Mr. Vohra, learned Senior Counsel, that the final computation of deduction under Section 80-IA for the assessment year 2002-03 as accepted by the Assessing Officer, was arrived at by taking into account the profits from the eligible business as the only source of income . He submitted that, however, sub-section (5) is a step antecedent to the treatment to be given to the deduction under subsection (1) and is not concerned with the extent to which the computed deduction be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to arrive at the total income of the assessee. The Assessee also relied on the judgment of this Court in Canara Workshops (P) Ltd., Kodialball, Mangalore (supra) to emphasize the purpose of sub-section (5) of Section 80-IA. In this case, the question that arose for consideration before this Court related to computation of the profits for the purpose of deduction under Section 80-E, as it then existed, after setting off the loss incurred by the assessee in the manufacture of alloy steels. Section 80-E of the Act, as it then existed, permitted deductions in respect of profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. It was argued on behalf of the Revenue that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels. This Court was not in agreement with the submissions made by the Revenue. It was held that the profits and gains by an industry entitled to benefit under Section 80-E c ..... 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