Karnataka High Court
M/S Gopalan Enterprises vs The Principal Commissioner on 27 November, 2025
Author: S.R.Krishna Kumar
Bench: S.R.Krishna Kumar
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NC: 2025:KHC:49280
WP No. 14394 of 2022
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 27TH DAY OF NOVEMBER, 2025
BEFORE
THE HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR
WRIT PETITION NO. 14394 OF 2022 (T-IT)
BETWEEN:
1. M/S. GOPALAN ENTERPRISES
NO.5, RICHMOND ROAD,
BANGALORE - 560 025.
REPRESENTED BY ITS AUTHORISED SIGNATORY,
C. GOPALAN,
MANAGING PARTNER
...PETITIONER
(BY SRI. K R PRADEEP, ADVOCATE)
AND:
1. THE PRINCIPAL COMMISSIONER
OF INCOME TAX (CENTRAL)
Digitally signed
C R BUILDING,
by SREEDHARAN
BANGALORE QUEENS ROAD,
SUSHMA
LAKSHMI BANGALORE - 560 001.
Location: High
Court of
Karnataka 2. THE DEPUTY COMMISSIONER
OF INCOME TAX,
CENTRAL CIRCLE -2(3)
C.R.BUILDING,
QUEENS ROAD,
BANGALORE - 560 001.
...RESPONDENTS
(BY SRI. E I SANMATHI, ADVOCATE)
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NC: 2025:KHC:49280
WP No. 14394 of 2022
HC-KAR
THIS W.P. FILED UNDER ARTICLES 226 & 227 OF THE
CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER OF
THE 1ST RESPONDENT DATED 15.03.2021 PASSED UNDER
SECTION 264 OF THE ACT FOR THE ASSESSMENT YEAR 2014-15
ANNEXURE-E AND ETC.,
THIS PETITION, COMING ON FOR ORDERS, THIS DAY,
ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR
ORAL ORDER
In this petition, the petitioner seeks the following reliefs:-
i) Quashing the order of the 1st Respondent dated 15.03.2021 passed under Section 264 of the Act for the assessment year 2014-15 (Annexure E);
ii) issue a Writ of Mandamus or a direction in the nature of Writ of Mandamus directing the 1st Respondent to consider the claim of the Petitioner for the assessment year 2014-15 and pass a fresh order after giving opportunity to the Petitioner;
iii) Pass such other or further orders as this Hon'ble Court deems fit in the facts and circumstances of the case, in the interest of justice and equity.
2. A perusal of the material on record will indicate that in relation to the assessment year 2014-15, the petitioner filed a revision petition under Section 264 of the Income Tax Act -3- NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR challenging the assessment order dated 31.12.2018. Along with the revision petition, the petitioner filed an application seeking condonation of delay of 82 days in filing the revision petition.
3. It is the grievance of the petitioner that after having condoned the delay in filing the revision petition, the respondent No.1 - Revisional Authority had committed an error in dismissing the revision petition on the ground that there was a delay and as such, the impugned order deserves to be set aside and the matter may be remitted back to the respondent No.1 for reconsideration of the revision petition on merits and also in accordance with law. In support of his submissions, learned counsel places reliance upon the following judgments:-
I. CTR ENCYCLOPAEDIA ON INDIAN TAX LAWS [A] COMMISSIONER OF INCOME TAX VS. CANARA WORKSHOPS (P) LTD.
SUPREME COURT OF INDIA R.S. Pathak & Sabyasachi Mukharji, J). Civil Appeal Nos. 1685 & 1686 of 1974 15th July, 1986 (1986) 54 CCH 0428 ISCC (1986) 58 CTR 0108: (1986) 161 ITR 0320: (1986) 27 ΤΑΧΜΑΝ 0262 -4- NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR Legislation Referred to Section 80E Case pertains to Asst. Year 1966-67, 1967-68 Decision in favour of:
Assessee Deduction under s. 80- I-Computation-Assessee carrying on two priority industries, an automobile parts unit and an alloy steel unit-Automobile parts unit earned a profit in the relevant year while the alloy steel unit suffered a loss-For deduction under s. 80E, the loss suffered in the alloy steel unit is not required to be set off against the profits earned from automobile parts unit-Object in enacting s. 80E will be served only on confining this provision to the profits and gains of a single industry-It is not the legislative intent behind the enactment of s. 80E that the profits earned by one industry is diminished because of a loss suffered in another industry owned by the same assessee-Each industry must be considered on its own working only when adjudging its entitlement to the deduction under s. 80E-Benefit not to be determined on the basis of all the priority industries owned by the assessee Held:
The object underlying the enactment of s. 80E and the terms in which it provides relief is that the intention of the Parliament in enacting the provision was to encourage the setting up of industries concerned with the generation or distribution of electrical or any other energy and the construction, manufacture or production of articles or things specified in the list in the Fifth Schedule. The intention goes further. By making a provision for a rebate year after year on -5- NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR the industry making profits and gains during the year, the intention also was to provide an incentive for promoting efficiency in the industry. It is clear that the benefit was directed to the setting up and also the efficient working of the priority industries.
(Para 5) The object in enacting s. 80E is properly served only by confining the application of the provisions of that section to the profits and gains of a single industry. The deduction of 8% is intended to be an index of recognition, that a priority industry has been set up and is functioning efficiently. It was never intended that the merit earned by such industry should be lost or diminished because of a loss suffered by some other industry. It makes no difference that the other industry is also a priority industry. The co-existence of two industries in common ownership was not intended by the Parliament to result in the misfortune of one being visited on the other. The legislative intention was to give to the meritorious its full reward. To construe s. 80E to mean that one must determine the net result of all the priority industries and then apply the benefit of the deduction to the figure so obtained will be to undermine the object of the section. Each industry must be considered on its own working only when adjudging its title to the deduction under s. 80E. It cannot be allowed to suffer because it keeps company with some other industry in the hands of the assessee. To determine the benefit under s. 80E on the basis of the net result of all the industries owned by the assessee would be, moreover, to shift the focus from the industry to the assessee. Therefore, in the application of s. 80E, the profits and gains earned by an industry mentioned in that section cannot be reduced by -6- NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR the loss suffered by any other industry or industries owned by the assessee.
(Para 6) A distinction must be drawn between a case where the loss or unabsorbed depreciation pertains to the same industry whose profits and gains are the subject of relief under s. 80E and a case where the loss or unabsorbed depreciation relate to industries other than the one whose profits and gains constitute the subject of relief.-CIT vs. Belliss & Morcom (1) Ltd. (1982) 26 CTR (Cal) 76: (1982) 136 ITR 481 (Cal): TC25R.434 and CIT vs. Balanoor Tea & Rubber Co. Ltd. (1974) 93 ITR 115 (Mys): TC25R.435 approved;
CIT vs. English Electric Co. Ltd. (1980) 17 CTR (Mad) 312:
(1981) 131 ITR 277 (Mad): TC25R.437 overruled; Decision dt. 21st Feb., 1974 of the Karnataka High Court in Tax Refs.
Nos. 67 & 68 of 1972 affirmed (Para 7) Conclusion:
Where assessee has more than one priority industries, loss in one need not be set off against profits of another for purposes of granting relief under s. 80E. Counsel appeared:
M.K. Banerjee with A. Subhashini & B.B. Ahuja, for the Revenue : G. Sarangan & Mukul Mudgal, for the Assessee PATHAK, J. :
These appeals are directed against the judgment of the Karnataka High Court disposing of two Income-tax References. The question in each Reference, which was answered by the High Court in favour of the assessee and against the Revenue, is whether in computing the profits for the purpose of deduction under section 80E of the Income--7-
NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR tax Act, 1961, the loss incurred by the assessee in the manufacture of alloy steels could not be set off against the profits of the manufacture of automobile ancillaries.
2. The assessee is a public limited company engaged in the manufacture of automobile spares. The products manufactured by it are covered by the list in the Fifth Schedule to the Income-tax Act. During the previous year relevant to the assessment year 1966-67, the assessee commenced another activity, the manufacture of alloy steels, which was also an industry included in the Fifth Schedule. The assessee sustained a loss in the alloy steel industry during the previous years relevant to the assessment years 1966-67 and 1967-68. It claimed a loss in the sum of Rs.15,30,688/- for the assessment year 1966-67.
For the assessment year 1966-67, the assessee disclosed profits from the industry of automobile ancillaries in the following detail :-
Rs.
1. Manufacture of Springs at Mangalore 7,54,107/-
2. Manufacture of Springs at Nagpur 9,61,808/-
3. Manufacture of Hubs and Brake Drums 41,214/-
17,57,129/-
The assessee claimed relief under section 80E at 8 per cent of this amount in the sum of Rs. 1,40,574/-. In the same manner, the assessee claimed relief under section 80E in the sum of Rs. 1,52,483/- for the assessment year 1967-68. The Income-tax Officer declined to grant the relief claimed by the assessee in the two assessment years. He noticed that the assessee had not taken into account the losses incurred in the, alloy steel industry, and he held that the assessee would, be entitled to deduction under section 80E on the profits from the manufacture of automobile parts only -8- NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR after setting off the loss in alloy steel manufacture. After making certain adjustments in the computation of the total income, the Income-Tax Officer gave relief under section 80E in the sum of Rs. 24,896/- for the assessment year 1966-67 and Rs. 1,20,986/- for the assessment year 1967- 68, computing the deduction at 8 per cent on the amount of profits from the manufacture of automobile parts as reduced by the losses from the alloy steel manufacture. An appeal by the assessee was dismissed by the Appellate Assistant Commissioner of Income-tax. But on second appeal, the Income-Tax Appellate Tribunal accepted the contention of the assessee that a deduction was permissible at 8 per cent on the entire profits of the automobile parts industry included in the total income without deducting therefrom the losses in the alloy steel manufacture. It directed the Income Tax Officer to recompute the relief under section 80E.
3. At the instance of the Revenue, the Appellate Tribunal referred the case for each of the two assessment years 1966-67 and 1967-68 to the Karnataka High Court for its opinion on the following question of law:-
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that in computing the profits for the purpose of deduction under section 80E of the Income-tax Act, 1961 the loss incurred in the manufacture of alloy steels should not be set off against the profits of the manufacture of automobile ancillaries?"
The High Court answered the question in the affirmative.
4. To appreciate the merits of the controversy in these appeals it would be as well to set forth at this point the relevant provisions of section 80E of the Income-tax Act as they stood at the time :
-9-NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR "80E. Deduction in respect of profits and gains from specified industries in the case of certain companies -
(1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any 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 and things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent thereof, in computing the total income of the company."
It is not disputed that the assessee is a company to which section 80E applies. The question is whether for the purpose of granting relief under S. 80E the loss suffered by the assessee in the manufacture of alloy steels can be set off against the profits arising, from the manufacture of automobile ancillaries. It is apparent that section 80E provides for the grant of a rebate when computing the total income of company carrying on the business of generating or distributing electricity or other form of power or of constructing, manufacturing, or producing any one or more of the articles and things specified in the list in the Fifth Schedule. Popularly, the list is known as the list of Priority Industries. A perusal of the entries in the list makes it clear that they are concerned with articles and things which are regarded of primary importance in the industrial and economic development of the country. Some of them form part of the industrial and
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR economic base of the country while others enter into the industrial and economic infrastructure considered necessary or desirable for its development. A certain priority has been assigned to the construction, manufacture or production of those articles and things. They find place in section 80E along with the business of generation or distribution of electricity or other forms of power. Nobody can dispute that electrical energy or other form of energy is crucial to industrial and economic development. The nature of articles and things included in the list in the Fifth Schedule possesses the same character. Alloy steels are undoubtedly covered by Entry (1) "Iron and steel (metal), ferro-alloys and special steels", while automobile ancillaries appear clearly by that description in Entry 20 of the list. Both represent separate priority industries.
5. It is obvious from the object underlying the enactment of S. 80E and the terms in which it provides relief that the intention of Parliament in enacting the provision was to encourage the setting up of industries concerned with the generation or distribution of electrical and other energy and the construction, manufacture or production of articles or things specified in the list in the Fifth Schedule. The intention goes further. By making a provision for a rebate year after year on the industry making profits and gains during the year, the intention also was to provide an incentive for promoting efficiency in the industry. It is clear that the benefit was directed to the setting up and also the efficient working of the priority industries. How is the benefit to be worked out? First, it must be a company to which S. 80E applies, that is to say a company which satisfies the
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR requirements of sub-s. (2) of S. 80E. Second, the total income, as computed in accordance with the Income-tax Act, 1961 without taking into regard the provisions of S. 80E, should include profits and gains attributable to the business or the industry mentioned in the section. Third, from the profits and gains attributable to such business or industry a deduction has to be allowed of an amount equal to eight per cent of such profits and gains and effect must be given to this deduction when computing the total income of the company.
6. The assessee in this case carries on two industries, both of which find place in the list in the Fifth Schedule and can, therefore, be described as priority industries. It is urged by the learned Additional Solicitor General, appearing for the Revenue, that on a true application of S. 80E the profit in the industry of automobile ancillaries must be reduced by the loss suffered in the manufacture of alloy steel, and reference has been made to a number of cases to which we shall presently refer. After giving the matter careful consideration we do not find it possible to accept the contention. It seems to us that the object in enacting S. 80E is properly served only by confining the application of the provisions of that section to the profits and gains of a single industry. The deduction of eight per cent is intended to be an index of recognition, that a priority industry has been set up and is functioning efficiently. It was never intended that the merit earned by such industry should be lost or diminished because of a loss suffered by some other industry. It makes no difference that the other industry is also a priority industry. The co-existence of two industries in common ownership was not intended by Parliament to result in the misfortune of one being visited on the other. The legislative
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR intention was to give to the meritorious its full reward. To construe S. 80E to mean that you must determine the net result of all the priority industries and then apply the benefit of the deduction to the figure so obtained will be, in our opinion, to undermine the object of the section. An example will illustrate this. An industry entitled to the benefit of S. 80E could have its profits wholly wiped out on adjustment against a heavy loss suffered by another industry, and thus be totally denied the relief which should have been its due by virtue of its profits. In our opinion, each industry must be considered on its own working only when adjudging its title to the deduction under S. 80E. It cannot be allowed to suffer because it keeps company with some other industry in the hands of the assessee. To determine the benefit under S. 80E on the basis of the net result of all the industries owned by the assessee would be, moreover, to shift the focus from the industry to the assessee. We hold that in the application of S. 80E the profits and gains earned by an industry mentioned in that section cannot be reduced by the loss suffered by any other industry or industries owned, by the assessee.
7. We shall not turn to the cases cited before us. In the view which has found favour with us it is apparent that the Madras High Court erred in holding in Commr. of Income- tax, Tamil Nadu-III v. English Electric Company Ltd., (1981) 131 ITR 277 that in granting relief under S. 80E the adjustment of certain losses in other trading transactions was permissible in determining the quantum of profits and gains attributable to the priority industry claiming relief under that provision. The High Court did not correctly appreciate the law laid down by this Court in Cambay Electric Supply Industrial Co. Ltd. v. Commr. of Income-tax, Gujarat-II,
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR (1978) 113 ITR 84. That was a case where this Court held that, for the purpose of granting relief under S. 80E to an industry, account must be taken when computing the profits and gains attributable to that industry of the balancing charge worked out under sub-s. (2) of S. 41 as well as items of unabsorbed depreciation and any depreciation, development rebate carried forward from earlier years. It appears from the facts of that case that the balancing charge as well as the unabsorbed depreciation and unabsorbed development rebate related to the particular industry itself, The only business carried on by the assessee there was generation, and distribution of electricity at Cambay. The balancing charge arose because during the relevant accounting period the assessee had sold some of its machinery and buildings. The unabsorbed depreciation and development rebate also appear to relate to the same business. There is no indication that any of them related to a business or industry distinct from that whose profits and gains, formed the subject of computation under S. 80E. Our attention has been invited by the Revenue to Distributors (Baroda) P. Ltd. v. Union of India, (1985) 155 ITR 120. That is a case in which the Constitution Bench of this Court was called upon to consider the scope of S. 80M of the Income- tax Act. We do not see how that case is in any way relevant to the case before us. The point before the Court appears to have been whether the income by way of dividends from a domestic company, which fell to be included in the gross total income of the assessee, should be the amount computed in accordance with the provisions of the Act or the full amount received from the paying company. We may refer at this point to Commr. of Income-tax, West Bengal-II vs. Belliss & Morcom (I) Ltd. (1982) 26 CTR (Cal) 76 :
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR (1982) 136 ITR 481 (Cal) : TC25R.434, a decision of the Calcutta High Court to which one of us (Sabyasachi Mukharji, J.) was a party. That decision supports the view taken by us in so far as it lays down that in applying S. 80-I of the Income-tax Act (which replaced S. 80E) it is not permissible to compute the profits of the priority industry, respecting which the relief is claimed, by taking into account the depreciation loss from other industries. No doubt the depreciation loss arose in that case from non-priority industries, but in view of what we have said earlier that should make no difference whatever. We think it unnecessary to refer to other cases on the point. We think it sufficient to indicate that a distinction must be drawn between a case where the loss or unabsorbed depreciation pertains to the same industry whose profits and gains are the subject of relief under S. 80E and a case where the loss or unabsorbed depreciation relate to industries other than the one whose profits and gains constitute the subject of relief.
While concluding we may point out that the Mysore High Court seems, in our opinion, to be perfectly right in holding in Commr. of Income-tax, Mysore v. Balanoor Tea and Rubber Co. Ltd. (1974) 93 ITR 115 (Mys): TC25R.435, that the loss from the plastic business carried on by the assessee could not be deducted from the profits and gains attributable to the tea industry for the purpose of computing the quantum of the profits and gains attributable to the tea industry under S. 80E.
8. In the result, we affirm the answer, returned by the High Court to the question raised in the Income-tax References. The appeals are dismissed with costs."
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR II.
Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION Civil Appeal No. 1327 of 2021 Commissioner of Income Tax-I .... Appellant(s) Versus M/s. Reliance Energy Ltd.
(Formerly BSES Ltd.) through its M.D. ....Respondent (s) WITH 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 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 20211. 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 (hereinafter "the Appellate Authority") partly allowed the Appeal filed by the Assessee and reversed the order of the Assessing Officer
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR on the issue of the extent of deduction under Section 80-IA of the Act. The Income Tax Appellate Tribunal (hereinafter "the Tribunal"), upheld the decision of the Appellate Authority on the issue of deduction under Section 80-IA. The High Court refused to interfere with the Tribunal's order as far as the issue on deduction under Section 80-IA is concerned. Therefore, this Appeal by the Revenue.
2. This Appeal pertains to the assessment year 2002-03 for which the income-tax return was filed by the Assessee on 31.10.2002 declaring the total income as 'NIL'. The return was subsequently revised on 06.12.2002 and thereafter, on 30.03.2004. At the time of the assessment proceedings, the Assessee submitted a revised computation of income by revising its claim of deduction under Section 80-IA of the Act.
3. The Assessee is in the business of generation of power and also deals with purchase and distribution of power. The Assessee-Company generated power from its power unit located at Dahanu. In respect of deduction under Section 80- IA of the Act, the Assessee was asked to explain as to why the deduction should not be restricted to business income, as had been the stand of the Revenue for the assessment year 2000-01. The Assessee had revised its claim under Section 80-IA of the Act to Rs. 546,26,01,224/-, having admitted that there was an error in calculation of income-tax depreciation. The Assessing Officer considered the revised claim of the Assessee under Section 80-IA and determined the amount eligible for deduction under Section 80-IA at Rs. 492,78,60,973/- against the Assessee's claim of Rs. 546,26,01,224/-. However, the Assessing Officer stated in the assessment order that the actual deduction allowable shall be to the extent of 'income from business' as per
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR provisions of Section 80AB of the Act. The 'business income' of the Assessee was computed at Rs.355,74,73,451/- and the 'gross total income' at Rs.397,37,70,178/-. Inclusion of 'income from other sources' of Rs.41,62,96,727/- in the 'gross total income' and deduction claimed under Chapter VIA of the Act against such 'gross total income' was not accepted by the Assessing Officer. The Assessing Officer rejected the claim of the Assessee for allowing 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 Rs.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 business'. It was held by the Assessing Officer that deduction computed under Section 80-IA of the Act could not be allowed against any
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR source other than business. The Assessing Officer also relied upon the words 'that nature' and 'shall alone' in Section 80AB of the Act to hold that deduction under a relevant section has to be given to the extent of the income from that particular source only on which deduction is available. In the matter before us, this would mean that deduction under Section 80- IA of the Act has to be allowed only to the extent of 'income from business'.
5. It was argued by the Assessee before the Appellate Authority that the conclusion of the Assessing Officer on deduction under Section 80-IA of the Act being restricted to 'business income' needs to be set aside. The Assessee contended that the observation of the Assessing Officer that deduction under a particular section is permissible only against income under that particular head was erroneous. Deductions related to various incomes under various sections of Chapter VI-A have to be quantified in accordance with the respective sections. The Assessee urged before the Appellate Authority that the deductions so quantified under various sections under Chapter VI-A have to be aggregated and allowed against the 'gross total income'. Finally, the submission of the Assessee before the Appellate Authority was that restricting the deduction under Section 80-IA of the Act to the extent of 'business income' was unjustified. With reference to Section 80AB, the Assessee contended that the operation of the said section related only to quantification of deduction on the basis of net income.
6. The Appellate Authority partly allowed the Appeal filed by the Assessee by an order dated 23.03.2006 and reversed the finding of the Assessing Officer on the issue of deduction under Section 80-IA of the Act for the reasons
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR stated hereinafter. In respect of Section 80AB of the Act, the Appellate Authority referred to the background of insertion of the said section with effect from 01.04.1981. The Appellate Authority referred to Circular No. 281 dated 22.09.1980 of the Central Board of Direct Taxes (CBDT) wherein the reason for introduction of Section 80AB was explained. The Supreme Court in the case of Cloth Traders (P) Ltd. v. Additional CIT, Gujarat-I 1 held that deduction under Section 80M of 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, 1 (1979) 3 SCC 538 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 deduction admissible under Section 80-IA of the Act to income under the head 'business'. The Assessing Officer was further directed to aggregate the deduction
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR under Section 80-IA of the Act with the other deductions available to the Assessee and then to allow deductions of such aggregate amount to the extent of 'gross total income'. The order of the Appellate Authority was affirmed by the Tribunal and the High Court on this issue. Aggrieved thereby, the Revenue has come in Appeal.
7. The contention on behalf of the Revenue before us is that the Assessing Officer was right in holding that the deduction under Section 80-IA of the Act should be restricted to 'business income' only. Mr. Arijit Prasad, learned Senior Counsel appearing on behalf of the Revenue, submitted that Section 80AB of the Act contemplates deductions in respect of incomes against income of the nature specified in the relevant section. He further submitted that Section 80-IA(5) makes it clear that the determination of quantum of deduction under sub- section (1) of Section 80-IA should be on the basis that the source of income from the eligible business was the only source of income of an assessee and therefore, the deduction so determined should be allowed only against 'business income'. According to him, the phrase 'derived ... from' in sub-section (1) of Section 80-IA of the Act indicates that the computation of deduction is restricted only to the profits and gains from the eligible business. He relied upon the judgment of this Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT 2 , followed in Synco Industries Ltd. v. Assessing Officer, Income Tax, Mumbai & Anr. 3 and Pandian Chemicals Ltd. v. Commissioner of Income Tax, Madurai 4 .
8. In response, the Assessee supported the order passed by the Appellate Authority which was upheld by the Tribunal and the High Court. It is the argument of Mr. Ajay
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR Vohra, learned Senior Counsel appearing on behalf of the Assessee, that Section 80AB of the Act is with reference to computation of deduction on the basis of net income. He submitted that there is no indication in sub-section (5) of Section 80-IA that the deduction under sub-section (1) is restricted to 'business income' only. On the other hand, according to him, subsection (5) deals with determination of the quantum of deduction by treating eligible business as the only source of income of the Assessee. Sub-section (5), therefore, is 2 (1978) 2 SCC 644 3 (2008) 4 SCC 22 4 (2003) 5 SCC 590 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 5 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. 6 to argue that the Appeal should not be allowed.
9. The controversy in this case pertains to the deduction under Section 80-IA of the Act being allowed to the extent of 'business income' only. The claim of the Assessee that
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR deduction under Section 80-IA should be allowed to the 5 (1986) 3 SCC 538 6 [2010] 328 ITR 448 (Bombay) extent of 'gross total income' was rejected by the Assessing Officer. It is relevant to reproduce Section 80AB of the Act which is as follows:
"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 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."
As stated above, Section 80AB was inserted in the year 1981 to get over a judgment of this Court in Cloth Traders (P) Ltd. (supra). The Circular dated 22.09.1980 issued by the CBDT makes it clear that the reason for introduction of Section 80AB of the Act was for the deductions under Part C of Chapter VI-A of the Act to be made on the net income of the eligible business and not on the total profits from the eligible business. A plain reading of Section 80AB of the Act shows that the provision pertains to determination of the
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR quantum of deductible income in the 'gross total income'. Section 80AB cannot be read to be curtailing the width of Section 80-IA. It is relevant to take note of Section 80A(1) which stipulates that in computation of the 'total income' of an assessee, deductions specified in Section 80C to Section 80U of the Act shall be allowed from his 'gross total income'. Sub-section (2) of Section 80A of the Act provides that the aggregate amount of the deductions under Chapter VI-A shall not exceed the 'gross total income' of the Assessee. We are in agreement with the Appellate Authority that Section 80AB of the Act which deals with determination of deductions under Part C of Chapter VI-A is 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
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR 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 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."
11. The essential ingredients of Section 80-IA (1) of the Act are:
a) the 'gross total income' of an assessee should include profits and gains;
b) those profits and gains are derived by an undertaking or an enterprise from a business referred to in subsection (4);
c) the assessee is entitled for deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive assessment years; and
d) in computing the 'total income' of the Assessee, such deduction shall be allowed.
12. The import of Section 80-IA is that the 'total income' of an assessee is computed by taking into account the allowable deduction of the profits and gains derived from the 'eligible business'. With respect to the facts of this Appeal, there is no dispute that the deduction quantified under Section 80-IA is Rs.492,78,60,973/-. To make it clear, the
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR said amount represents the net profit made by the Assessee from the 'eligible business' covered under sub-section (4), i.e., from the Assessee's business unit involved in generation of power. The claim of the Assessee is that in computing its 'total income', deductions available to it have to be set-off against the 'gross total income', while the Revenue contends that it is only the 'business income' which has to be taken into account for the purpose of setting-off the deductions under Sections 80-IA and 80-IB of the Act. To illustrate, the 'gross total income' of the Assessee for the assessment year 2002-03 is less than the quantum of deduction determined under Section 80-IA of the Act. The Assessee contends that income from all other heads including 'income from other sources', in addition to 'business income', have to be taken into account for the purpose of allowing the deductions available to the Assessee, subject to the ceiling of 'gross total income'. The Appellate Authority was of the view that there is no limitation on deduction admissible under Section 80-IA of the Act to income under the head 'business' only, with which we agree.
13. The other 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-
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR 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 allowed. To explain the interplay between sub-section (5) and sub- section (1) of Section 80-IA, it will be useful to refer to the facts of this Appeal. The amount of deduction from the 'eligible business' computed under Section 80-IA for the assessment year 2002-03 is Rs. 492,78,60,973 /-. There is no dispute that the said amount represents income from the 'eligible business' under Section 80-IA and is the only source of income for the purposes of computing deduction under Section 80-IA. The question that arises further with reference to allowing the deduction so computed to arrive at the 'total income' of the Assessee cannot be determined by resorting to interpretation of subsection (5).
14. It will be useful to refer to the judgment of this Court relied upon by the Revenue as well as the Assessee. In Synco Industries (supra), this Court was concerned with Section 80-I of the Act. Section 80-I(6), which is in pari materia to Section 80-IA(5), is as follows:
" 80-I(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under subsection (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years 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."
It was held in Synco Industries (supra) that for the purpose of calculating the deduction under Section 80-I, loss sustained in other divisions or units cannot be taken into account as sub-section (6) contemplates that only profits from the industrial undertaking shall be taken into account as it was the only source of income. Further, the Court concluded that Section 80-I(6) of the Act dealt with actual computation of deduction whereas Section 80-I(1) of the Act dealt with the treatment to be given to such deductions in order 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
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR 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 cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.
15. In the case before us, there is no discussion about Section 80-IA(5) by the Appellate Authority, nor the Tribunal and the High Court. However, we have considered the submissions on behalf of the Revenue as it has a bearing on the interpretation of sub-section (1) of Section 80-IA of the Act. We hold that the scope of sub-section (5) of Section 80- IA of the Act is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA of the Act by treating 'eligible business' as the 'only source of income'. Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to 'business income'. An attempt was made by the learned Senior Counsel for the Revenue to rely on the phrase 'derived ... from' in Section 80-IA (1) of the Act in respect of his submission 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
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR 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. 1329 of 2021, Civil Appeal No. 2537 of 2016, Civil Appeal No. 1408 of 2021 and Civil Appeal No. 1508 of 2021 are disposed of in terms of the above judgment.
Civil Appeal No. 1509 of 2021 is de-tagged as the questions arising therein are not related to the aforementioned issue."
4. Per contra, learned counsel for the respondents submits that there is no merit in the writ petition and the same is liable to be dismissed.
5. As rightly contended by the learned counsel for the petitioner, at paragraph No.2.1 of the impugned order, the respondent No.1 - Revisional Authority has condoned the delay in filing the revision petition. After having done so, the respondent No.1 clearly fell in error in passing and in recording a diametrically opposite finding in the subsequent paragraph No.3.1 and by incorrectly holding that the delay cannot be condoned which is contrary to the earlier finding recorded by him and as such, the impugned order deserves to be set aside and the matter be remitted back to the respondent No.1 for reconsideration of the
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR revision petition afresh on merits and in accordance with law within a stipulated time frame.
6. In the result, I hereby pass the following:-
ORDER
i) The Writ Petition is allowed.
ii) The impugned order dated 15.03.2021 passed by the Principal Commissioner of Income Tax (Central), Bangalore / respondent No.1, passed under Section 264 of the Income Tax Act, for the assessment year 2014-15, is hereby set aside. The delay on the part of the petitioner in filing the revision petition stands condoned.
iii) The matter is remitted back to the respondent No.1 for reconsideration of the revision petition on merits in accordance with law, bearing in mind the aforesaid judgments in the cases of Commissioner of Income Tax v. Canara Workshops (P) Ltd. and Commissioner of Income Tax-I v. M/s. Reliance Energy Ltd. (Formerly BSES Ltd.) through its M.D.
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NC: 2025:KHC:49280 WP No. 14394 of 2022 HC-KAR
iv) Liberty is reserved in favour of the petitioner to file additional pleadings, documents, judgments etc., which shall be considered by the respondent No.1, by providing sufficient and reasonable opportunity to the petitioner and hear him and proceed further in accordance with law.
Sd/-
(S.R.KRISHNA KUMAR) JUDGE Bss List No.: 2 Sl No.: 13