Karnataka High Court
Commissioner Of Income Tax vs Shri. Anil H Lad on 5 February, 2014
Bench: N.Kumar, C.R.Kumaraswamy
:1:
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
Dated this the 5th day of February 2014
Present
THE HON'BLE MR.JUSTICE N.KUMAR
and
THE HON'BLE MR.JUSTICE C.R.KUMARASWAMY
I.T.A. No.176/2011
Between:
1. Commissioner of Income Tax,
Central Revenue Buildings,
Queens Road,
Bangalore-560001.
2. The Deputy Commissioner of
Income Tax, Circle 2(3),
Bangalore. ...Appellants
(By Sri. Y.V.Raviraj, Advocate)
And:
Shri. Anil H.Lad,
Prashant Nivas, Krishnanagar,
Bellary Road, Sandur. ...Respondent
(By Sri. A.Shankar, Advocate)
--------
:2:
This appeal is filed under Section 260A of the
Income-Tax Act, 1961, against the order passed in ITA
NO.1262/BANG/2010 dated 07.01.2011 on the file of
the Income Tax Appellate Tribunal, Bangalore Bench 'A',
Bangalore, partly allowing the appeal filed by an
assessee for the Assessment Year 2008-09.
This appeal coming on for Final Hearing this day,
N.Kumar, J, delivered the following:
JUDGMENT
This appeal is preferred by the Revenue against the order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'A', Bangalore (hereinafter referred to as 'the Tribunal', for short), directing the Assessing Authority to grant deduction to the assessee under Section 80IA of the Income Tax Act (for short 'the Act') for the quantum claimed by the assessee without diluting the same by the notional deduction of earlier loss and depreciation.
2. The assessee is engaged in the business of windmill operations. The said windmill was started in :3: the year 2006. The assessee claimed deduction of Rs.1,97,73,931/- under Section 80IA of the Act being the income derived from the business of wind-mill power generation for the Assessment Year 2008-09. The Assessing Authority while granting the benefit of deduction relying on sub-section (5) of Section 80IA of the Act deducted the said profit and gains from the business in the depreciation/unabsorbed depreciation and carried forward losses in a sum of Rs.36,90,28,139/- and directed carry forward of unabsorbed loss in a sum of Rs.34,92,54,208/- for the subsequent year. Aggrieved by the said setoff, to arrive at the income eligible for deduction under Section 80IA for the relevant Assessment Year, the assessee preferred an appeal to the Commissioner of Income-Tax (Appeals). The Appellate Authority held, the Assessing Officer was justified in denying the deduction of Rs.1,97,72,931/- claimed under Section 80IA of the Act as the losses and depreciation in respect of eligible business for the :4: Assessment Years 2006-07 and 2007-08 has to be setoff notionally against the profits of eligible business as the Assessment Year as per sub-section(5) of Section 80IA of the Act. Thus, he dismissed the appeal. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal relying on the judgment of the Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. Assistant Commissioner of Income Tax reported in (2010) 38 DTR 57, held where the depreciation and loss of earlier assessment years have already been setoff against other business income of those assessment years, there is no need for notionally carrying forward and setoff the same depreciation and loss in computing the quantum of reduction available under Section 80IA of the Act. Following the said judgment, the Tribunal accepted the contention of the assessee and reversed the order of the Commissioner of Income-tax (Appeals) on that point and directed the Assessing Authority to grant deduction to :5: the assessee under Section 80IA of the Act for the quantum claimed by the assessee without diluting the same by the notional deduction of earlier loss and depreciation. Aggrieved by the said order, the Revenue is in appeal.
3. The learned counsel for the Revenue assailing the impugned order of the Tribunal contended in view of sub-section (5) of Section 80IA of the Act, for the purpose of determining the quantum of deduction under sub-section (1) of Section 80IA, the only source of income of the assessee from the eligible business during the previous year relevant to the assessment year is to be taken into consideration and, therefore, the loss and depreciation claimed by the assessee in respect of the said eligible business from the date the business was commenced is to be setoff against the profits earned by the assesee for any relevant previous year and assessment is to be made. Therefore, the Assessing :6: Authority and the Appellate Authority were justified in setting off the profits earned by the assessee against carry forward loss and the Tribunal committed a serious error in interfering with the said orders.
4. Per contra, learned counsel appearing for the assessee submitted sub-section (5) of Section 80IA of the Act has to be read along with sub-section (2) of Section 80IA; if so read, it is clear that the benefit granted to the assessee under sub-section (1) of Section 80IA can be claimed by the assessee for 10 consecutive assessment years out of 15 years beginning from the year under which the business or enterprise develops. Therefore, only when a claim is made for the said benefit in the returns filed by the assessee, from that assessment year consecutively he will be entitled to the said benefit for a period of 10 years. Before putting forth such claim, all the losses and depreciation, which the assessee could claim, has to be setoff against the profits :7: of the assessee from other business source. But, once he putforths such a claim, then from that day onwards the losses and depreciation of the said eligible business is to be taken into consideration for determining the quantum of deduction for the purpose of benefit under Section 80IA of the Act. Therefore, in the instant case, though the business was commenced in 2006-07, the assessee did not claim the benefit for the Assessment Years, 2006-07 and also 2007-08; for the first time, the said claim was made for the Assessment Year 2008-09 and, therefore, the loss and depreciation till such time was setoff against the profit from other source. The Assessing Authority could not have setoff the profit of the eligible business against the said depreciation and losses which were already claimed setoff from other sources. Therefore, the Tribunal was justified in following the judgment of Madras High Court and upholding the claim of the assessee.
:8:
5. The substantial question of law that arises for our consideration in this appeal is as under:
Whether, in the facts and circumstances of the case, the depreciation and losses of the eligible business can be setoff against the profits earned by the eligible business for the period anterior to the claim for deduction putforth under Section 80IA?
6. The Apex Court in the case of Liberty India Vs. Commissioner of Income-Tax reported in [2009] 317 ITR 218(SC) analysing the provisions contained chapter VI-A in which Section 80IA finds a place, has held that Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of profit linked incentives; when Section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under Section :9: 80-IA/80-IB is the generation of profits. The Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-sections (3) to (11A) constitutes a stand-alone item in the matter of computation of profits. That is the reason why the concept of "Segment Reporting" stands introduced in the Indian Accounting Standards (IAS) by the Institute of Chartered Accountants of India (ICAI). Sections 80- IB/80-IA are the Code by themselves as they contain both substantive as well as procedural provisions. Sub- section (13) of Section 80-IB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of Section 80-IA, so far as may be, applicable to the eligible business under Section 80-IB. Sections 80I, 80- IA and 80-IB as having a common Scheme. On perusal of sub-section (5) of Section 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Such profits are to be computed as if such eligible business is the only source of income of : 10 : the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business has got to be rejected in view of the overriding provisions of sub- section (5) of Section 80-IA, which are also required to be read into Section 80-IB. Sections 80I, 80-IA and 80- IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. 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 the extent of profits derived from such industrial undertaking after specified dates. Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking. : 11 :
7. In the background of the aforesaid law enunciated by the Apex Court, when we look at Section 80IA of the Act, it deals with deduction in respect of the profits and gains from industrial undertakings or enterprises engaged in infrastructure, development etc. Section 80IA of the Act provides where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business engaged in infrastructure, development, 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 100% of the profits and gains derived from such business for ten consecutive assessment years, is exempted from payment of tax. That is the incentive given by the Parliament with the avowed object of encouraging the private entrepreneurs investing money in development of infrastructure in the country. This benefit is not a permanent one. Sub-section (2) of : 12 : Section 80IA provides that the said deduction can be claimed by the assessee for any ten consecutive assessment years out of 15 years beginning from the year in which the undertaking or the enterprise develops and begins to operate in infrastructure facility. In other words, an option is given to the assessee to choose ten consecutive years out of 15 years from the date of establishment of the undertaking. Sub-section (5) deals with determination of quantum of deduction. It provides that 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 (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 : 13 : subsequent assessment year up to and including the assessment year for which the determination is to be made.
8. From the aforesaid provisions, it is clear that incentive is given to the assessee which has invested in infrastructure. The said benefit has to be claimed from the eligible business for a period of ten consecutive years. This ten consecutive years is to be decided by the assessee out of 15 years. That 15 years is to be computed from the day the business was set up. Claiming of deduction would arise only when there is a profit earned by the eligible business. Before any profit is earned, the question of determining the quantum of deduction would not arise. Before the assessee starts earning profit, from this eligible business, as he has already made investment and the depreciation of that investment and losses sustained in the said eligible business could be setoff against the profits earned by : 14 : the assessee, if the assessee has other business. Therefore, the "Previous year" as defined under Section 3 of the Act makes it clear for the purpose of this Act, 'previous year' the financial year immediately preceding the assessment year. Proviso to that provisions states that in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year. Therefore, the previous year shall be the period beginning with the date of setting up of the business or profession. But, sub-section 80IA comes into picture only when a claim is putforth for deduction. It is only then the profits earned in the eligible business is to be setoff against the depreciation and losses of the eligible business. If no claim is putforth, there is no question of : 15 : setting off the profits against the losses. If the assessee is carrying on other business, that loss and depreciation incurred by him under the provisions of the Act can be set off against other sources. There is no prohibition. Therefore, once the assessee sets off his profits earned from other source against the depreciation and loss suffered in the eligible business, again the same cannot be set off against the profits derived from the eligible business if and when a claim for deduction is made.
9. The Madras High Court in the aforesaid Velayudhaswamy's case interpreting the very provision held, from a reading of sub-section (1) Section 80-IA, it is clear that it provides that 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) i.e. referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, : 16 : in computing the total income of the assessee, a deduction of an amount equal to 100 per cent of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised. If it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity etc. Sub- section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year"
are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that 'initial assessment year' employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). Sub-section (5) starts with non obstante : 17 : clause which means it overrides all the provisions of the Act and other provisions are to be ignored; for the purpose of determining the quantum of deduction; for the assessment year immediately succeeding the initial assessment year, thereby a fiction is created by introducing a deeming provision and therefore, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the : 18 : current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the 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 the limited purpose and the same cannot be extended beyond the purpose for which it is created.
10. Therefore, keeping in mind the object with which these provisions are introduced, it is clear that an assessee is given the benefit of 100% deduction of the profits and gains from the eligible business. The quantum of deduction is to be calculated when the claim for deduction is made. If before claiming deduction, the loss and depreciation claimed by the assessee even in respect of eligible business is setoff against income of the assessee or other source, the said loss or depreciation is already absolved, it does not : 19 : exist. For the purpose of determining the quantum of deduction under sub-section (5) of Section 80IA, the revenue cannot take into consideration the loss and depreciation which is already setoff against the income of the assessee from other source and compute the profit under Section 80IA. Therefore, the approach of the Tribunal is in accordance with law. The Assessing Authority and the Commissioner committed a serious error in setting off the profit earned by the assessee under Section 80IA against the losses and depreciation of the eligible business which is already setoff from other source before such a claim is putforth. Thus, there is no error committed by the Tribunal in setting aside the order passed by the Assessing Authority as well as the lower Appellate Authority. The substantial question of law is answered in favour of the assessee and against the Revenue.
: 20 :
11. However, in the instant case, both the Assessing Authority and the Appellate Authority proceeded on the basis that the initial claim for deduction is made in the assessment year 2006-07. Factually, if it is correct, then there is no case for interference with the orders passed by the Assessing Authority and lower Appellate Authority. However, the assessee contends that the claim for deduction was putforth for the first time in the Assessment Year 2008-09 and therefore, it is his specific contention that loss and depreciation incurred by the eligible business was setoff against the income of the assessee from other source, therefore, for the first time, when the claim was putforth for the Assessment Year 2008-09, the Assessing Authority was not justified in setting off the profit from eligible business against the said loss and depreciation which had already been set off against the income of the assessee. the learned counsel for the assessee : 21 : produced before us the Returns filed in support of his case. Therefore, as this aspect has not been carefully looked into by either of the Authorities and the finding to be recorded is based on the finding of fact i.e., when the claim was putforth, first the Assessing Authority has to record a finding on this aspect. Then only, the law which we have laid down could be applied. Therefore, we deem it proper to remand the matter back to the Assessing Authority to consider the claim of exemption under Section 80IA of the Act in the light of what we have stated above in interpreting Section 80IA of the Act, and that would meet the ends of justice. Hence, we pass the following:
Order
(i) Appeal is disposed of.
(ii) Though we have upheld the legal
position as set out above, the matter is
: 22 :
remanded to the Assessing Authority to
consider the claim of exemption under
Section 80IA in the light of what we
have stated above.
Sd/-
JUDGE
Sd/-
JUDGE
Kms