$ R-4A. * IN HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL No. 57/2005 Date of decision: 27th November, 2017 M/S R.R.B. CONSULTANTS AND ENGINEERS (P) LIMITED ..... Appellant Through Mr. S. Krishnan, Advocate. versus DCIT ..... Respondent Through Mr. Sanjay Kumar, Advocate & Mr. Rahul Chaudhary, Sr. Standing Counsel for Revenue. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MS. JUSTICE PRATHIBA M. SINGH SANJIV KHANNA, J. (ORAL): present appeal by assessee-M/s RRB Consultants and Engineers Private Limited relates to Assessment Year 1996-97 and arises from order of Income Tax Appellate Tribunal (Tribunal, for short) dated 6th August, 2004 in ITA No. 913/Del/2000. present appeal was admitted for hearing vide order dated 23rd January, 2006 on following substantial question of law:- Whether ITAT was, in facts and circumstances of case, right in holding that appellant was not ITA No. 57 /2005 Page 1 of 11 entitled to deduction under Section 80-IA of Income Tax Act, 1961? 2. We would clarify that core issue raised in present appeal relates to computation of deduction under Section 80-IA of Income Tax Act, 1961 (Act, for short). 3. appellant, during relevant assessment year, had primarily derived income from consultancy and professional services from sale and installation of wind electricity generators. For this purpose, appellant had entered into agreement with their principal company and manufacturer, namely, M/s Vestas Danish Wind Technology, A/s, Denmark. appellant had also erected and commissioned wind mills statedly for demonstration and sale promotion purposes. power generated from said erected and commissioned wind generators was sold to Tamil Nadu State Electricity Board and appellant had earned income of Rs.22,92,245/- from said sale. 4. appellant had invoked Section 80-IA of Act in its return of income and had shown entire receipt of Rs.22,92,245/- as income from generation of power as exempt under Section 80-IA of Act. 5. Income Tax Officer vide assessment order dated 15th February, 1999 noticed that appellant had net profit from consultancy of over Rs.2.98 crores. Further, assessee was entitled to depreciation of over Rs.3.24 crores on wind mills erected and commissioned. Accordingly, this depreciation figure was reduced from income of Rs.22,92,245/- earned from generation of power and as resultant figure was in negative, it was ITA No. 57 /2005 Page 2 of 11 held that appellant was not entitled to any deduction under Section 80- IA. said order records that unabsorbed depreciation over Rs.3.01 crores would be adjusted from other businesses. said benefit was granted. Accordingly, net taxable income was computed at Rs.19,64,824/-. said figure was arrived at after Assessing Officer had made certain other disallowances in taxable income, as declared in profit and loss account. 6. appellant in first appeal partly succeeded as Commissioner of Income Tax (Appeals) held that depreciation on wind mills was to be first allowed, i.e., reduced from entire income of assessee and balance amount thereafter has to be deducted from income earned by assessee from sale of power, for computing benefit under Section 80-IA of Act. He observed that depreciation was to be allowed under Section 32, which falls under Chapter IV of Act relating to computation of business income. Further, depreciation was to be allowed against composite business income, i.e., profits earned by assessee by way of commission from consultation and sale of wind mills as well as sale of electricity. He held that wind mills were being used for more than one activity and, therefore, it does not follow that depreciation would be allowed only against income of one activity and not other. 7. Aggrieved, Revenue preferred appeal before tribunal, which as is apparent from fact that appellant-assessee has filed present appeal, has accepted contention of Revenue. Tribunal in impugned order has held as under:- ITA No. 57 /2005 Page 3 of 11 10. perusal of Section 80-IA(1) makes it very clear that deduction is to be allowed on profits and gains of business of generation of power, viz, eligible business. Provisions of Section 80- IA (5) which has non obstante clause even overriding effect of provisions of Section 80-AB mandates that profit of eligible business be computed as if it were only source of income of Assessee. In present case, Assessee maintains single set of books of accounts. order of Assessing Officer is silent on other common expenses. Perusal of profit and loss account, copy of which is placed at page-14 of Assessee s paper book would show that there are other common expenses also. To quote few Audit Fee, for tax matters, rent, rates and taxes etc. gross receipts from power generation is shown in profit and loss account at Rs.22,92,245/-. We shall now confine ourselves to depreciation expenses which was in controversy before revenue authorities. It cannot be disputed that even going by provisions of Section 80-IA(5), that expenditure incurred in earning income from eligible business has to be deducted and only on net income, deduction under Section 80-IA has to be allowed. case of Assessee that Wind Turbines (wind mill) through which it generated and sold electricity was not primarily meant for such purpose and it was primarily meant only for purpose of demonstrating to prospective buyers of power turbines manufactured by Danish Company for which it acted as consultants and for marketing and sales for their products, cannot be ITA No. 57 /2005 Page 4 of 11 accepted. If one were to act as marketing and sales agent for manufacturer of product it is only usual or normal to expect principal to provide necessary infrastructure to carry on activities by agent. There is no reference to any specific agreement between principal and assessee that Assessee would install wind Turbines at their own cost to demonstrate to prospective purchasers of principal s product. It cannot be disputed that wind turbines were used in eligible business. There is no evidence on record to suggest that wind turbines were used in business of providing consultancy service or such use was necessary for business of consultancy service. In any event, use, if any, of these wind turbines in other business of Assessee, viz., consultancy, marketing and sale of wind turbines in our view was only incidental and primary purpose was to generate power. Even going by provisions of Section 80-IA(5), entire depreciation on these machinery has to be deducted from receipts generated from business of generation of power. 11. If we were to accept computation of income for purpose of Section 80-IA as adopted by assessee, then that would amount to allowing deduction on income from business of consultancy, marketing and sales carried on by assessee also. That would be against provisions of Section 80IA(1), which allows deduction only on profits derived from eligible business. This would be against decision of Honourable Supreme Court in case of Pandian Chemicals ITA No. 57 /2005 Page 5 of 11 (supra). decisions relied upon by ld. Counsel for assessee are on point that while allowing deduction of expenses, expenses can not be bifurcated as between exempt income and chargeable income and deduction of expenditure attributable to chargeable income can not alone be allowed. These decisions are not applicable in context of Section 80 IA of Act especially in view of specific provisions of Section 80 IA(5) of Act. We also derive support for our conclusions from decision in case of Indian Rayan Corporation Ltd. Vs. CIT, 281 ITR 98 wherein Hon ble Bombay High Court has held that deduction under Chapter VI-A has to be allowed only on gross total in crossed and therefore one can not exclude depreciation allowance while computing profits derived from newly established undertaking for computing deduction under Chapter VI-A. 12. For reasons given above, we are of view that Assessing Officer was justified in treating depreciation on wind turbines as deduction from income of power generation and on that basis holding that there was no income from eligible business on which deduction under Section 80-IA was to be allowed. CIT(A) in our view erred in accepting computation as adopted by assessee which in our view is against provisions of Sec. 80-IA and law laid down by Honourable Supreme Court in case of Pandian Chemicals (supra). appeal of revenue is allowed and order of CIT(A) is reversed and that of Assessing Officer restored. ITA No. 57 /2005 Page 6 of 11 8. Learned counsel for appellant-assessee has drawn our attention to sub-section (7) to Section 80-IA of Act read with sub-section (5) thereof as applicable to Assessment Year 1996-97. Counsel for appellant had also referred to table relying upon decision of Madras High Court in Velayudhaswamy Spinning Mills Private Limited versus Assistant CIT, 2012 (340) ITR 477 (Mad.). 9. We have considered contention of appellant-assessee, but in facts of present case, which are glaring, do not think we are required to make in-depth study of and elucidate upon sub-section (7) to Section 80-IA of Act. appellant-assessee, as noticed above, had small income of Rs.22,92,245/- from sale of electricity, which qualifies for deduction under Section 80-IA. However, deduction is not to be allowed on gross receipts. Expenses incurred and depreciation has to be reduced from gross receipt, to arrive at figure on which deduction is to be allowed under Section 80 IA of Act. Deduction was to be allowed only on net profits of said undertaking, which was eligible for deduction under Section 80-IA. It is accepted and admitted position that appellant-assessee was entitled to depreciation of over Rs.3.24 crores on wind mills, which were installed and used for generating electricity and also commission income. Thus, depreciation, which was to be allowed and given on wind mills was almost fifteen times income earned by appellant-assessee from generation of electricity, which was eligible for deduction under Section 80-IA. This being position, we do not think appellant-assessee would be entitled to deduction on gross receipt without reducing depreciation under Section 80-IA regardless ITA No. 57 /2005 Page 7 of 11 of whatever interpretation they want to place on provisions of Section 80IA. view we have taken is in consonance and in conformity with view expressed by this Court in ITA 579/2007 Dabur India Ltd. versus Commissioner of Income Tax, Delhi that deduction under Section 80-IA is on net amount earned by eligible undertaking, i.e., after computing income of eligible undertaking in terms of Chapter IV of Act, which includes Section 32 relating to depreciation. Recent decision of Supreme Court dated 9th October, 2017 in Civil Appeal No. 238/2012, Plastiblends India Limited versus Additional Commissioner of Income Tax, Mumbai and Another, also takes same view. In Plastibends India Limited (supra), Supreme Court observed and held:- "20. After removing applicability of Mahendra Mills [CIT v. Mahendra Mills, (2000) 3 SCC 615 : (2000) 243 ITR 56] on aforesaid grounds, High Court proceeded to consider as to whether it can be said that quantum of deduction allowable under Section 80-IA depends upon assessees claiming or not claiming current depreciation? Full Bench went on to answer this question with observations that it was no longer res integra as Apex Court had reflected thereupon in Liberty India [Liberty India v. CIT, (2009) 9 SCC 328 : (2009) 317 ITR 218] and quoted following passage from said judgment in support of its aforesaid remarks: 24. Before analysing Section 80-IB, as prefatory note, it needs to be mentioned that 1961 Act broadly provides for two types of tax incentives, namely, investment-linked incentives and profit-linked incentives. Chapter VI-A which provides for incentives in form of tax deductions essentially belong to category of profit-linked incentives . Therefore, when Sections 80-IA/80-IB refers to profits derived from eligible business, it is not ownership of that business which attracts incentives. What attracts incentives under ITA No. 57 /2005 Page 8 of 11 Sections 80-IA/80-IB is generation of profits (operational profits). XXXXX 27. On analysing Chapter VI-A, we find that Sections 80-IB/80- IA are code by themselves as they contain both substantive as well as procedural provisions. Therefore, we need to examine what these provisions prescribe for computation of profits of eligible business . It is evident that Section 80-IB provides for allowing of deduction in respect of profits and gains derived from eligible business. words derived from are narrower in connotation as compared to words attributable to . In other words, by using expression derived from , Parliament intended to cover sources not beyond first degree. XXXXX 33. On perusal of sub-section (5) of Section 80-IA, it is noticed that it 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. Therefore, devices adopted to reduce or inflate profits of eligible business have got to be rejected in view of overriding provisions of sub-section (5) of Section 80-IA, which are also required to be read into Section 80-IB. We may reiterate that Sections 80-I, 80-IA and 80-IB have common scheme and if so read it is clear that said sections provide for incentives in form of deduction(s) which are linked to profits and not to investment. 34. On analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section (2), would be entitled to deduction under sub-section (1) only to extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section (1) purports to restrict quantum of deduction to specified percentage of profits. This is ITA No. 57 /2005 Page 9 of 11 importance of words derived from industrial undertaking as against profits attributable to industrial undertaking . XXXXX 23. aforesaid conclusion of Full Bench is based on judgments of this Court and there is no reason to disagree with same, on finding that judgments of this Court are rightly analysed and ratio thereof is correctly understood and applied. We, thus, entirely agree with Full Bench judgment of Bombay High Court in Plastiblends India Ltd. v. CIT [Plastiblends India Ltd. v. CIT, (2009) 318 ITR 352] and following manner in which position has been summed up by High Court: 44. To summarise, firstly, Apex Court decision in Mahendra Mills cannot be construed to mean that by disclaiming depreciation, assessee can claim enhanced quantum of deduction under Section 80-IA. Secondly, Apex Court in Distributors (Baroda) (P) Ltd. [Distributors (Baroda) (P) Ltd. v. Union of India, (1986) 1 SCC 43 : 1986 SCC (Tax) 159] and in Liberty India [Liberty India v. CIT, (2009) 9 SCC 328 : (2009) 317 ITR 218] has clearly held that special deduction under Chapter VI-A has to be computed on gross total income determined after deducting all deductions allowable under Sections 30 to 43-D of Act and any device adopted to reduce or inflate profits of eligible business has got to be rejected. Thirdly, this Court in Albright Morarji and Pandit Ltd. [CIT v. Albright Moraji and Pandit Ltd., 1998 SCC OnLine Bom 612 : (1999) 236 ITR 914] , Grasim Industries Ltd. [Grasim Industries Ltd. v. CIT, 2000 SCC OnLine Bom 948 : (2000) 245 ITR 677] and Asian Cable Corpn. Ltd. [CIT v. Asian Cable Corpn. Ltd. (No. 2), 2003 SCC OnLine Bom 1279 : (2003) 262 ITR 537] has only followed decisions of Apex Court in Distributors Baroda[Distributors (Baroda) (P) Ltd. v. Union of India, (1986) 1 SCC 43 : 1986 SCC (Tax) 159] . Thus, on analysis of all decisions referred hereinabove, it is seen that quantum of deduction allowable under Section 80-IA of Act has to be determined by computing gross total income from business, after taking into consideration all deductions ITA No. 57 /2005 Page 10 of 11 allowable under Sections 30 to 43-D of Act. Therefore, whether assessee has claimed deductions allowable under Sections 30 to 43-D of Act or not, quantum of deduction under Section 80-IA has to be determined on total income computed after deducting all deductions allowable under Sections 30 to 43-D of Act. 10. In facts of present case, question of bifurcation of depreciation in view of two lines of business, etc. wanes, as amount of depreciation, even on bifurcation, which would be reduced from gross receipts of undertaking eligible for deduction under section 80IA of Act, would be significantly higher. We do not, therefore, in facts of present case, find any good ground or reason to interfere with impugned order passed by Tribunal. question of law is accordingly, in facts of present case, answered against appellant-assessee and in favour of Revenue. We clarify that if in future year relevant provision requires interpretation, we would interpret same. appeal is dismissed. No order as to costs. SANJIV KHANNA, J. PRATHIBA M. SINGH, J. NOVEMBER 27, 2017 VKR ITA No. 57 /2005 Page 11 of 11 R.R.B. Consultants And Engineers (P) Limited v. DCIT