2015 (6) TMI 463 - HC - Income Tax

Court rules losses from prior years not eligible for deduction under Section 80-IA

Commissioner of Income Tax Versus M/s. Premier Cotton Textiles

Commissioner of Income Tax Versus M/s. Premier Cotton Textiles - TMI Issues Involved:1. Entitlement to claim deduction under Section 80-IA of the Income Tax Act.2. Treatment of losses and deductions set off against income of previous years for computation of current year income under Section 80-IA.Issue-wise Detailed Analysis:1. Entitlement to Claim Deduction under Section 80-IA of the Income Tax Act:The core issue is whether the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. This issue has been previously decided by the court in the case of Velayudhaswamy Spinning Mills V. Asst. CIT (2012) 340 ITR 477, where it was held that the assessee is entitled to the deduction under Section 80-IA. The court relied on the Supreme Court's decision in Liberty India V. CIT (2009) 317 ITR 218, which clarified that Chapter VI-A of the Income Tax Act provides for profit-linked incentives. The court concluded that once losses and other deductions have been set off against the income of previous years, they should not be reopened for the computation of current year income under Section 80-IA.2. Treatment of Losses and Deductions Set Off Against Income of Previous Years:The court examined the specific provisions of Section 80-IA, particularly sub-sections (1), (2), (4), and (5). Sub-section (5) starts with a non obstante clause and is a deeming provision, creating a fiction that the eligible business is the only source of income during the relevant years. The court emphasized that losses of earlier years, which were already set off against other income, should not be brought forward notionally for the purpose of computing deductions under Section 80-IA. This interpretation aligns with the Rajasthan High Court's decision in CIT v. Mewar Oil and General Mills Ltd. (2004) 271 ITR 311, which held that once losses are set off, they should not be reopened for computing current income under Section 80-I.The court reiterated that the eligible business should be treated as the only source of income during the relevant years, and losses from earlier years, already absorbed, should not be brought forward. The court noted that the Revenue could not provide any compelling reason or contrary judgment to dispute this interpretation. The court dismissed the Revenue's reliance on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, stating that it does not mandate bringing forward losses notionally.Conclusion:The court concluded that the assessee's losses from earlier years, which were already set off, should not be brought forward for the purpose of computing deductions under Section 80-IA. The court dismissed the appeal, confirming the Tribunal's order and answering the questions of law in favor of the assessee and against the Revenue. The court noted that appeals filed by the Revenue against the decision in Velayudhaswamy Spinning Mills are pending before the Supreme Court, but no compelling reason was provided to take a different view. The Tax Case (Appeal) was dismissed with no costs.