Commissioner of Income-tax, Coimbatore v. M/s. Roots Indistries India Ltd
[Citation -2015-LL-0310-7]

Citation 2015-LL-0310-7
Appellant Name Commissioner of Income-tax, Coimbatore
Respondent Name M/s. Roots Indistries India Ltd.
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 10/03/2015
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags unabsorbed development rebate • new industrial undertaking • unabsorbed depreciation • quantum of deduction • investment allowance • initial assessment • deeming provision • eligible business • source of income
Bot Summary: Sub- section gives deduction for the period of seven assessment years immediately succeeding the initial assessment year. The fiction created by the undertaking was the only source of income during the previous year initially and subsequent assessment years. The deduction specified in sub-section 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 enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause of sub-section or generates power or commences transmission or distribution or power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines. Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section apply shall, for the purposes of determining the quantum of deduction under that 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. The important factors are to be noted in sub-section and they are as under : It starts with a non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored ; It is for the purpose of determining the quantum of deduction ; For the assessment year immediately succeeding the initial assessment year ; It is a deeming provision ; Fiction created that the eligible business is the only source of income ; and 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 income, during the previous year relevant to the initial assessment year and every subsequent assessment years. We are 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).


1 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 10.03.2015 CORAM: HONOURABLE MR. JUSTICE R.SUDHAKAR and HONOURABLE MR. JUSTICE R.KARUPPIAH Tax Case (Appeal) No.70 of 2015 & M.P.No.1 of 2015 Commissioner of Income Tax Coimbatore . Appellant versus M/s. Roots Indistries India Ltd., RKG Industrial Estate, Ganapathy, Coimbatore-641006. Respondent PRAYER: Tax Case Appeal filed under Section 260A of Income Tax Act, 1961 as against order dated 17.07.2014 made in I..T.A..No.1673/Mds/2013 on file of Income Tax Appellate Tribunal, Madras 'B' Bench for assessment year 2010-2011. For appellant : Mr.T.R.Senthil Kumar Standing Counsel for Income Tax For respondent :Mr. S.Sridhar JUDGMENT (Judgment of Court was delivered by R.SUDHAKAR,J.) Mr. S.Sridhar, learned counsel takes notice for respondent/assessee. By consent of both parties, Tax Case 2 (Appeal) itself is taken for disposal, since issue involved in this Tax Case (Appeal) is covered by decision of this Court. 2. This Tax Case (Appeal) is filed by Revenue as against order of Income Tax Appellate Tribunal. core issue raised in this Tax Case (Appeal) is whether, on facts and in circumstances of case, Tribunal is right in law in holding that respondent/assessee in each appeal is entitled to claim deduction under section 80-IA of Income Tax Act. 3. Learned counsel appearing for assessee submitted that issue involved in this appeal has already been decided by this Court in decision reported in (2012) 340 ITR 477 (Velayudhaswamy Spinning Mills V. Asst. CIT) and hence same may be followed in this case also. 4. It is stated by learned Standing Counsel appearing for Revenue that as against decision rendered by this Court in case of Velayudhaswamy Spinning Mills V. Asst. CIT reported in (2012) 340 ITR 477, Revenue preferred appeals before Supreme Court and same are pending. 3 5. Heard learned counsel appearing for assessee and learned Standing Counsel appearing for Revenue and perused materials placed before this Court. 6. In decision reported in (2012) 340 ITR 477 (Velayudhaswamy Spinning Mills V. Asst. CIT), this Court, while dealing with benefit under Chapter VIA of Income Tax Act, placed reliance on decision reported in (2009) 317 ITR 218 (SC) (Liberty India V. CIT), wherein Supreme Court considered scope of Section 80I, 80IA and 80IB of Income Tax Act and held that Chapter VI-A provides for incentives in form of tax deductions essentially belong to category of "profit-linked incentives". This Court also placed reliance on decision reported in (2004) 271 ITR 311 (Raj) (CIT V. Mewar Oil and General Mills Ltd.), and came to conclusion that once losses and other deduction have set off against income of previous year, it should not be reopened again for purpose of computation of current year income under Section 80I or 80IA of Income Tax Act and assessee should not be denied admissible deduction under Section 80IA of Income Tax Act. 4 7. For better understanding of decision, we extract relevant portion of decision of this Court as such: "From reading of above, it is clear that benefit is given to profits and gains derived from business of hotel or business of repairs to ocean-going vessels or other powered craft. deduction is allowed to extent of 20 per cent. from profits and gains of assessee. Sub- section (5) gives deduction for period of seven assessment years immediately succeeding initial assessment year. Sub- section (6) deals with computing deduction under sub- section (1) and it starts with non obstante clause and also it is deeming provision. fiction created by undertaking was only source of income during previous year initially and subsequent assessment years. Sub-section (6) was subject-matter before this court in above-mentioned unreported judgment, wherein this court had held that while interpreting above provision, for purpose of allowing deduction under section 80-I brought forward losses and unabsorbed depreciation of new industry need not be taken into consideration once they have been set off from other sources of income earlier. In present case, we are concerned with provision of section 80-IA. said provision was introduced by Finance Act, 1999, with effect from April 1, 2000. 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 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 other one is profit-linked investment. Chapter VI-A was introduced by Finance Act, 1965, with effect from April 1, 1965, and it consists of four headings. They are A, B, C and D. Heading "A" is general and it also contains definition. It consists of sections 80A, 80AA, 80AB, 80AC and 80B. Section 80AB deals with "Deductions to be made with reference to income included in gross total income", which reads as follows : "Where any deduction is required to be made or allowed under any section included in this Chapter under heading 'C- Deductions in respect of certain incomes' in respect of any income of nature specified in that section which is included in gross total income of assessee, then, notwithstanding anything contained in that section, for purpose of computing deduction under that section, amount of 5 income of that nature as computed in accordance with provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be amount of income of that nature which is derived or received by assessee and which is included in his gross total income." mere reading of above provision makes it clear that any income of nature specified in that section, which is included in gross total income of assessee for purpose of computing deduction under that section, amount of income of that nature as computed in accordance with provision of this Act shall alone be deemed to be amount of income of that nature which is derived or received by assessee and which is included in gross total income. Section 80AB defines "gross total income" which means total income has to be computed in accordance with 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. last heading "D" deals with "other deductions" which consists of sections 80U to 80V. Heading "C" is relevant for considering issue in these appeals. relevant provisions that are to be considered are sections 80-I, 80-IA and 80-IB. In case of Liberty India v. CIT [2009] 317 ITR 218 (SC) ; [2009] 225 CTR (SC) 233 ; [2009] 28 DTR (SC) 73, apex court considered scope of sections 80-I, 80-IA and also section 80-IB of Act, wherein, it has been held that Chapter VI-A provides for incentives in form of tax deductions essentially belong to category of "profit-linked incentives". Therefore, when section 80-IA/80-IB refers to profits derived from eligible business, it is not ownership of that business which attracts incentives. Further, it has been held that sections 80-IB/80-IA are code by themselves as they contain both substantive as well as procedural provisions. Supreme Court further observed in said judgment that sub- section (5) of section 80-IA provides for manner of computation of profits of eligible business. Accordingly such profits are to be computed as if such eligible business is only source of income of assessee. Section 80-IA reads as follows : "80-IA. (1) Where gross total income of assessee includes any profits and gains derived by undertaking or enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as eligible business) there shall, in accordance with and subject to provisions of this section, be allowed in computing total income of assessee, deduction of amount equal to 6 hundred per cent. of profits and gains derived from such business for ten consecutive assessment years. (2) deduction specified in sub-section (1) may, at option of assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from year in which undertaking or enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops industrial park or develops special economic zone referred to in clause (iii) of sub-section (4) or generates power or commences transmission or distribution or power or undertakes substantial renovation and modernisation of existing transmission or distribution lines. (4) This section applies to- (i) any enterprise carrying on business of (i) developing, or (ii) operating and maintaining, or (iii) developing, operating and maintaining any infrastructure facility which fulfils all following conditions, namely : (a) it is owned by company registered in India or by consortium of such companies (or by authority or board or corporation or any other body established or constituted under any Central or State Act) ; (b) it has entered into agreement with Central Government or State Government or local authority or any other statutory body for (i) developing, or (ii) operating and maintaining, or (iii)developing, operating and maintaining new infrastructure facility ; (c) it has started or starts operating and maintaining infrastructure facility on or after 1st April, 1995. (5) Notwithstanding anything contained in any other provision of this Act, profits and gains of eligible business to which provisions of sub-section (1) apply shall, for purposes of determining quantum of deduction under that sub-section for assessment year immediately succeeding initial assessment year or any subsequent assessment year, be computed as if such eligible business were only source of income of assessee during previous year relevant to initial assessment year and to every subsequent assessment year up to and including assessment year for which determination is to be made." From reading of sub-section (1), it is clear that it provides that where gross total income of assessee includes any profits and gains derived by undertaking or enterprise from any business referred to in subsection (4), i.e., referred to 7 as eligible business, there shall, in accordance with and subject to provisions of section, be allowed, in computing total income of assessee, deduction of amount equal to 100 per cent. of profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and same is defined in sub-section (4). Sub-section (2) provides option to assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, assessee will not be getting benefit. Fifteen years is outer limit and same is beginning from year in which undertaking or enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for eligible business. words "initial assessment year" are used in sub-section (5) and same is not defined under provisions. It is to be noted that "initial assessment year" employed in sub-section (5) is different from words "beginning from year" referred to in sub-section (2). important factors are to be noted in sub-section (5) and they are as under : "(1) It starts with non obstante clause which means it overrides all provisions of Act and other provisions are to be ignored ; (2) It is for purpose of determining quantum of deduction ; (3) For assessment year immediately succeeding initial assessment year ; (4) It is deeming provision ; (5) Fiction created that eligible business is only source of income ; and (6) During previous year relevant to initial assessment year and every subsequent assessment year." From reading of above, it is clear that eligible business were only source of income, during previous year relevant to initial assessment year and every subsequent assessment years. When assessee exercises option, only losses of years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against income of assessee. Looking forward to period of ten years from initial assessment is contemplated. It does not allow Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though same were set off against other income of assessee and 8 set off against current income of eligible business. Once set off is taken place in earlier year against other income of assessee, Revenue cannot rework set off amount and bring it notionally. fiction created in sub-section does not contemplates to bring set off amount notionally. fiction is created only for limited purpose and same cannot be extended beyond purpose for which it is created. In present cases, there is no dispute that losses incurred by assessee were already set off and adjusted against profits of earlier years. During relevant assessment year, assessee exercised option under section 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, assessment year was 2005-06 and in Tax Case No. 918 of 2008 assessment year was 2004-05. During relevant period, there were no unabsorbed depreciation or loss of eligible undertakings and same were already absorbed in earlier years. There is positive profit during year. unreported judgment of this court cited supra considered scope of sub- section (6) of section 80-I, which is corresponding provision of sub-section (5) of section 80-IA. Both are similarly worded and, therefore, we agree entirely with Division Bench judgment of this court cited supra. In case of CIT v. Mewar Oil and General Mills Ltd. (No. 1) [2004] 271 ITR 311 (Raj) ; [2004] 186 CTR (Raj) 141, Rajasthan High Court also considered scope of section 80-I and held as follows (page 314 of 271 ITR) : "Having considered rival contentions which follow on line noticed above, we are of opinion that on finding fact that there was no carry forward losses of 1983-84, which could be set off against income of current assessment year 1984-85, recomputation of income from new industrial undertaking by setting off carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on finding of fact noticed by Commissioner of Income-tax (Appeals), which has not been disturbed by Tribunal and challenged before us, there was no error much less any error apparent on face of record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of previous year arising out of priority industry and whether it was required to be set off against income of current year. It is not at all required that losses or other deductions which have already been set off against income of previous year should be reopened again for computation of current income under section 80-I for purpose of computing admissible deductions thereunder. 9 In view thereof, we are of opinion that Tribunal has not erred in holding that there was no rectification possible under section 80-I in present case, albeit, for reasons somewhat different from those which prevailed with Tribunal. There being no carry forward of allowable deductions under head depreciation or development rebate which needed to be absorbed against income of current year and, therefore, recomputation of income for purpose of computing permissible deduction under section 80-I for new industrial undertaking was not required in present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs." From reading of above, Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against income of previous year should be reopened again for computation of current income under section 80-I for purpose of computing admissible deductions thereunder. We also agree with same. We see no reason to take different view. standing counsel appearing for Revenue is unable to bring to our notice any relevant material or any compelling reason or any contra judgment of other courts to take different view. He only relied heavily on Memorandum explaining provisions in Finance (No. 2) Bill, 1980, [1980] 123 ITR (St.) 154 to support this case and same reads as follows : "Clause 30(iii). In computing quantum of 'tax holiday' profits in all cases, taxable income derived from new industrial units, etc., will be determined as if such units were independent unit owned by taxpayer who does not have any other source of income. In result, losses, depreciation and investment allowance of earlier years in respect of new industrial undertaking, ship or approved hotel will be taken into account in determining quantum of deduction admissible under new section 80-I even though they may have been set off against profits of taxpayer from other sources." We are not agreeing with counsel for Revenue. We are, therefore, of view that loss in year earlier to initial assessment year already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business as no such mandate is provided in section 80-IA(5). Under these circumstances, we set aside order of Tribunal and answer all questions in favour of appellant/assessee and against Revenue in Tax Case Nos. 10 909 and 940 of 2009 respectively. Accordingly, tax cases are allowed. 8. It is relevant to note that as against above-said decision rendered by this Court, Revenue has filed appeals before Supreme Court, which are stated to be pending, in which, only notice was ordered and were not yet admitted by Supreme Court. 9. facts in present case are also identical to above- said decision of this Court that all business undertakings are wind mills and they have claimed benefit of deduction under Section 80IA of Income Tax Act for assessment years in question and for subsequent years as well. Having exercised their option and their losses have been set off already against other income of business enterprise, assessee in this appeal falls within parameters of Section 80IA of Income Tax Act. In decision reported in (2012) 340 ITR 477 (Velayudhaswamy Spinning Mills V. Asst. CIT), there appears to be no distinction on facts. 10. Again in batch of cases in T.C.(A)Nos.408 of 2012, by order dated 12.1.2015, this Court, following decision reported in (2012) 340 ITR 477 (Velayudhaswamy Spinning Mills V. Asst. 11 CIT) held in favour of assessee and against Revenue. 11. We, therefore, taking note of decision rendered by this Court in case of Velayudhasamy Spinning Mills (supra) and in batch of cases in T.C.(A)Nos.408 of 2012, are inclined to dismiss this Tax Case (Appeal), thereby confirm order passed by Tribunal. 12. In view of above, questions of law raised in this appeal are answered against Revenue and in favour of assessee. This Tax Case (Appeal) stands dismissed. No costs. Consequently, M.P.No.1 of 2015 is also dismissed. Index: Yes / No (R.S.,J.) (R.K.,J.) Internet: Yes / No 10.03.2015 sl To Income Tax Appellate Tribunal, Madras 'B' Bench. 12 R.SUDHAKAR,J. AND R.KARUPPIAH,J. sl Tax Case (Appeal) No.70 of 2015 & M.P.No.1 of 2015 10.03.2015 Commissioner of Income-tax, Coimbatore v. M/s. Roots Indistries India Ltd
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