The Madras High Court dismissed an appeal by the Income Tax Commissioner regarding Section 80IA deductions. The court held the second substantial question of law was covered by the CBDT Circular No.1/2016 issued following the High Court's decision in Velayudhaswamy Spinning Mills.
The tax case appeal was dismissed. No costs.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 02.3.2016
CORAM :
THE HONOURABLE MR.JUSTICE V.RAMASUBRAMANIAN AND
THE HONOURABLE MR.JUSTICE N.KIRUBAKARAN
TCA.No.189 of 2016
Principal Commissioner of Income
Tax-3, Coimbatore 18 ... Appellant
Vs
Shri.S.D.Rathinasabapathy ... Respondent
APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 9.10.2015 made in I.T.A.No.1737/Mds/2015 on the file of the Income Tax Appellate Tribunal 'C' Bench, Chennai for the assessment year 2012-13, against the Order passed by the Commissioner of Income Tax(Appeals) - 3, Coimbatore made in I.T.Appeal No.575/2014-15, dated 29.05.2015 Assessment Year 2014-15, against Order passed by the Deputy Commissioner of Income Tax, Circle - 1, Tiruppur made in PA.No./GIR No.AC2PG3469J, date of Order 17.02.2015, for the Assessment Year 2012 - 13.
For Appellant : Mr.T.R.Senthilkumar For Respondent : Mr.R.Sivaraman
Judgment was delivered by V.RAMASUBRAMANIAN,J
The Revenue has come up with the above appeal raising the following substantial questions of law :
"(1) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee is entitled to deduction under Section 80IA without setting off the losses/unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee following the decision of the jurisdictional High
Court in the case of M/s.Velayudhaswamy Spinning Mills (340 ITR 477), when the same is pending appeal before the Supreme Court in SLP.Civil No. 1136 of 2011 ? and
(2) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the initial assessment year in Section 80IA(5) would only mean the year of claim of deduction under Section 80IA and not the year of commencement of eligible business ?"
"Circular No. 1 /2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes
North Block,New Delhi,the 15th February, 2016 Subject: Clarification of the term ‘initial assessment year' in Section 80IA(5) of the Income Tax Act, 1961
Section 801A of the Income-tax Act, 1961 (‘Act’), as substituted by Finance Act, 1999 with effect from 1.4.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in Sub-Section (4) of that Section) in accordance with the prescribed provisions. Sub-Section (2) of Section 801A further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in
which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein.SubSection(5)of Section 801A further provides as under :
“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 subsequent assessment year up to and including the assessment year for which the determination is to be made”.
In the above Sub-Section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term ‘initial assessment year’. It has been represented that some Assessing Officers are interpreting the term ‘initial assessment year’ as the year in which the eligible business/manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under Sub-Section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years.
The matter has been examined by the Board. It is abundantly clear from SubSection (2) that an assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten consecutive years beginning from the year in respect of
which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term ‘initial assessment year’ would mean the first year opted for by the assessee for claiming deduction u/s 801A. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.
The Assessing Officers are, therefore, directed to allow deduction u/s 801A in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting ‘initial assessment year’ as mentioned in Sub-Section (5) of that section for which the Standing Counsel/DRs be suitably instructed.
The above be brought to the notice of all Assessing Officers concerned."
Sd/-
Assistant Registrar(CO)
//True Copy//
Sub Assistant Registrar
RS
To
3.The Commissioner of Income Tax(Appeals) - 3,
Coimbatore.
4.The Deputy Commissioner of Income Tax,
Circle - 1, Tiruppur.
+1cc to Mr.R.Sivaraman, Advocate, S.R.No.13316
+1cc to Mr.T.R.Senthilkumar, Advocate, S.R.No.13312
TCA.No.189 of 2016
AK(CO)
CA(07/04/2016)
2 issues framed by the court
Whether the ITAT was right in holding the assessee entitled to deduction under Section 80IA without setting off losses pertaining to the windmill.
Whether the initial assessment year under Section 80IA(5) means the year of claim of deduction rather than the year of commencement of eligible business.
Colour shows how this judgement treated each authority
M/s. Velayudhaswamy Spinning MillsReferred¶15
M/s.Velayudhaswamy Spinning Mills (340 ITR 477)
2 provisions across 1 enactments
Principal Commissioner of Income Tax-3, Coimbatore
Shri.S.D.Rathinasabapathy
V.Ramasubramanian
N.Kirubakaran
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
