2015 (4) TMI 678 - HC - Income Tax

Court rules profits for eligible business under Income Tax Act should not deduct losses set off against other income.

The Court upheld the Tribunal's decision regarding the calculation of profits from the eligible business, considering the deduction of losses set off ... Deduction u/s 80IA - Calculation of the profits from the eligible business - Deduction of losses set off against the profits from other business is to be taken into consideration as held by Tribunal - whether in view of provision of Section 80-IA(5) the profit from the eligible business for the purpose of deduction under Section 80-IB of the Act has to be computed after deduction of notional brought forward losses of eligible business even though they have been allowed to set off against other income in the earlier years as held by Tribunal? - Held that:- The non-obstante clause in sub-section (5) means it over-rides all the provisions of the Act and other provisions are to be ignored. In the absence of non obstante clause, what the judgment of the Madras Court in Velayudhaswamy Spinning Mills P. Ltd. [2010 (3) TMI 860 - Madras High Court] states is the legal position, because of the non obstante clause, the set off amount against other income of the assessee has to be ignored and because of the fiction created in the sub-section notionally, the set losses is to be treated as 'losses being carried forward and after deducting the said losses, the profit prior to business is to be calculated. 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 often 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 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 - Decided in favour of revenue. Issues:1. Calculation of profits from eligible business considering deduction of losses set off against profits from other business.Analysis:The judgment involves an appeal by the assessee against the Tribunal's order, which upheld the lower Authorities' decision regarding the calculation of profits from the eligible business. The lower Authorities held that the deduction of losses set off against profits from other business should be considered. The Tribunal based its decision on a judgment of the Special Bench of the Appellate Tribunal, Ahmedabad in the case of Asstt. CIT v. Goldmine Shares and Finance (P.) Ltd. The assessee's counsel argued against this order, citing a judgment of the High Court of Madras in the case of Velayudhaswamy Spinning Mills (P.) Ltd. v. Asstt. CIT. The substantial question of law in this appeal was whether, under Section 80-IA(5) of the Income Tax Act, profits from the eligible business for deduction under Section 80-IB should be computed after deducting notional brought forward losses, even if they were set off against other income in previous years.The Court considered the judgments of the Special Bench of Ahmedabad and the Madras High Court. The Madras High Court's judgment highlighted the provisions of Section 80-IA(5), emphasizing that the profits and gains of an eligible business should be computed as if such business were the only source of income during relevant assessment years. The Court noted that the non-obstante clause in sub-section (5) overrides all other provisions of the Act, indicating that set off amounts against other income of the assessee should be ignored. The Court concluded that due to the non-obstante clause, the set losses should be treated as losses being carried forward, and profits prior to the business should be calculated accordingly.Ultimately, the Court agreed with the view taken by the Special Bench and upheld the Tribunal's decision. It found no infirmity in the order that warranted interference. Therefore, the substantial question of law was answered in favor of the Revenue and against the assessee.