Dismissed

Commissioner of Income Tax v. Bannari Amman Sugars Ltd.

Madras HC13 Jun 2016TCA/397/2016

Case brief

AI extract

What is this about?

The Madras High Court dismissed the revenue's tax appeal regarding the eligibility for deduction under Section 80-IA. The Court held that losses set-off are not to be re-opened and that an assessee can choose the initial assessment year for claiming the deduction, relying on Circular No.1/2016 and precedent.

What did the court decide?

The Tax Case Appeal filed by the Revenue against the Tribunal's order allowing deduction under Section 80-IA was dismissed. No costs to any party.

Commissioner of Income Tax Vs Bannari Amman Sugars Ltd. — Income Tax | Madras HC (2016)

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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Dated: 13/6/2016

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The Honourable Mr.Justice S.Manikumar and

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The Honourable Mr.Justice D.Krishnakumar

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Tax Case Appeal No.397 of 2016

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The Commissioner of Income Tax No.63 Race Course Road Coimbatore.

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Vs M/s.Bannari Amman Sugars Ltd No.1212 Trichy Road Coimbatore 641 018. ...Respondent

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Prayer: Appeal filed under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'B' Bench, Chennai dated 22/7/2015 in ITA No.321/Mds/2015 against the order of the Commissioner of Income Tax (Appeals)-I, Coimbatore, dated 27.11.14, made in Appeal No.477/13-14 against the assessment order of Assistant Commissioner of Income Tx, Company Circle, (2) Coimbatore, dated 31.1.2014.

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Challenge in this Tax Appeal, is to an order passed by the Income Tax Appellate Tribunal in I.T.A.No.321/Mds/2015, dated 20/7/2015, by which, the Tribunal dismissed the appeal preferred by the revenue, against the order of the Commissioner of IncomeTax dated 27/11/2014.

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Revenue has come up with the above appeal, raising the following substantial questions of law:-

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“1. Whether under the facts and circumstance of the case, the Hon'ble Income Tax Appellate Tribunal right in law in holding that assessee is entitled to

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https://hcservices.ecourts.gov.in/hcservices/

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deduction under Section 80 IA 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 jurisdiction High Court in the case of M/s.Velayudhasamy Spinning Mills (340 ITR 477) when the same is pending appeal before Hon'ble Supreme Court in SLP Civil No.33475 of 2012?

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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 80 IA (5) would only mean the year of claim of deduction under Section 80 IA and not the year of commencement of eligible business?

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Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee has the option to choose the first/initial assessment year of claim for deduction under Section 80-IA?”

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When the matter came up for admission, in the light of the Board Circular No.1/2016, dated 15/2/2016, Mr.T.R.Senthil Kumar, learned counsel for the revenue, submitted that the substantial questions of law Nos.2 and 3 are not pressed. His submission is placed on record.

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As regards substantial question of law No.1 is concerned, it is the fair representation of the learned Senior Standing Counsel for Income Tax Department that this Court has been consistently following the decision in M/s.Velayudhaswamy Spinning Mills (P) Ltd., v. Assistant Commissioner of Income-Tax reported in 340 ITR 477. He also submitted that challenge to the same, is pending before the Hon'ble Apex Court in SLP No.334 of 2012.

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Central Board of Direct Taxes has issued Circular No.1/ 2016, dated 15/2/2016 and the same reads as follows:-

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"Circular No. 1 /2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes

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North Block, New Delhi, the 15th February,2016 Subject: Clarification of the term ‘initial

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assessment year' in Section 80IA(5) of the Income Tax Act, 1961

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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 :

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“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”.

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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

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claim deduction out of the applicable slab of fifteen (or twenty) years.

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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.

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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.

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The above be brought to the notice of all Assessing Officers concerned."

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Similar to the facts and circumstances of the case, while adverting to the substantial questions of law raised and after considering the judgment of the Hon'ble Apex Court in Liberty India vs. CIT (2009) 225 CTR (SC) 233 : (2009) 28 DTR (SC) 73 : (2009) 317 ITR 218 (SC) and the judgment of the Rajasthan High Court in CIT vs. Mewar Oil & General Mills Ltd. (2004) 186 CTR (Raj) 141 : (2004) 271 ITR 311 (Raj), a Hon'ble Division Bench of this Court in Velayudhaswamy Spinning Mills Pvt. Ltd.,'s case (stated supra), held that once the losses and other deductions are set off against the income of the assessee in the previous year, it should not be re-opened again, for the

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purpose of computation of current year income, under Section 80I and 80-IA of the Act.

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Velayudhaswamy Spinning Mills Pvt. Ltd.,'s case (stated supra), has been followed in CIT v. R.Yuvaraj reported in [2015] 57 TAXMANN.COM 252 (Madras).

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It is held that though it is contended that SLP filed against the above reported judgment, is pending on the file of the Hon'ble Supreme Court, the effect of the same, would not amount to reversal or erase the dictum.

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Material on record discloses that while confirming the order of the Commissioner of Income-Tax (Appeal), the Income-Tax Appellate Tribunal has rightly held that, “on appeal, the Commissioner of Income-tax(Appeals), following the aforesaid judgment of the Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (supra), allowed the claim of the assessee and concurred that, in case, the Hon'ble Apex Court reverses the decision given by the Madras High Court, in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (supra), and supports contention of the Department, in future, the Assessing Officer, may accordingly take suitable remedial action.” The above view expressed by the appellate authority has been confirmed by the Income-Tax Appellate Tribunal, Chennai.

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Going through the material on record, we are of the view that there are no valid grounds to reverse the abovesaid orders, stated supra. Question of law No.1 raised is answered against the revenue and in favour of the assessee. Since the questions of law Nos.2 and 3 are also covered by the Circular extracted, the instant appeal deserves to be dismissed.

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