2019 (1) TMI 1142 - HC - Income Tax

High Court decision on Section 80 IA and 41(1) claims clarified

SOUTH INDIA CORPORATION LTD. Versus ASST. COMMISSIONER, INCOME TAX, ERNAKULAM, COCHIN

The High Court ruled in favor of the assessee regarding the claim under Section 80 IA, determining that the initial year for deduction purposes should be ... Deduction u/s 80IA - entitled to the notional carry forward - Initial assessment year - loss incurred by the assessee on installation of wind mill and absorbed by the other businesses of the assessee - Held that:- The question stands covered in favour of the assessee by virtue of Circular No.1/2016 dated 15.02.2016 issued by the Central Board of Direct Taxes (CBDT). Hence the question of law has to be answered in favour of the assessee and against the Department. The initial year for the purpose of Section 80IA, is the initial assessment year from which the claim of deduction is commenced and the assessee is entitled to the notional carry forward from that particular year. The order of the Tribunal is reversed to that extent. Claim under Section 41(1) - sales tax liability refunded to assessee in the subject assessment year by virtue of a decision of the jurisdictional High Court - assessee claimed that it has to be kept as a contingent liability since an appeal is pending before the Hon'ble Supreme Court - Held that:- Tribunal found that as and when and if the Supreme Court decides against the assessee, the assessee would be able to claim the amount again as expenditure. We find that sufficient safeguards have been made by the Tribunal to that end and we find no reason to interfere with the directions of the Tribunal. The question stands answered against the assessee. Nature of expenditure - expenditure incurred insofar as carrying out repairs of the office of the assessee should be a revenue expenditure or a capital expenditure - Held that:- The expenditure incurred was insofar as making repairs of the office building itself, by using Plaster of Paris. The same having an enduring benefit to the business of the assessee has to be treated as capital expenditure and hence we find no reason to interfere with the order of the Tribunal. The question of law raised is answered in favour of the Revenue and against the assessee. Issues:1. Claim under Section 80 IA for the years 2002-03 and 2003-04.2. Claim under Section 41(1) of the Income Tax Act for the year 2002-03.3. Classification of expenditure on office repairs in 2003-04 as revenue or capital expenditure.Analysis:Claim under Section 80 IA (2002-03 and 2003-04):The primary issue in both appeals was the claim under Section 80 IA of the Act. The assessee had established a windmill in an earlier year and started claiming deductions under Section 80 IA from 2002-03 onwards. The Tribunal determined that the loss incurred on the windmill installation, absorbed by other businesses, should be notionally carried forward from the commencement of the business. However, a Circular No.1/2016 issued by the CBDT clarified that the initial assessment year for claiming deductions under Section 80 IA should be the year opted for by the assessee. The High Court held in favor of the assessee, stating that the initial year for Section 80 IA purposes is the year from which the claim of deduction commences, allowing the notional carry forward from that specific year. The Tribunal's order was reversed on this aspect.Claim under Section 41(1) of the Income Tax Act (2002-03):Another issue in the 2002-03 assessment year was the claim under Section 41(1) of the Income Tax Act. The assessee had paid a sales tax liability in a prior year, which was refunded in the subject year due to a High Court decision. The assessee argued it should be treated as a contingent liability pending a Supreme Court appeal. The Tribunal determined that if the Supreme Court ruled against the assessee, the amount could be claimed again as expenditure. The High Court upheld the Tribunal's decision, stating that adequate safeguards were in place, and there was no reason to interfere. Thus, the question was answered against the assessee.Classification of Expenditure on Office Repairs (2003-04):In the 2003-04 assessment year, the issue was whether the expenditure on office repairs should be classified as revenue or capital expenditure. The repairs involved using Plaster of Paris on the office building, providing an enduring benefit to the business. The High Court agreed with the Tribunal's decision that such expenditure should be treated as capital expenditure due to its lasting benefit to the business. Consequently, the question of law was answered in favor of the Revenue and against the assessee. The appeals were partly allowed with no order as to costs.This comprehensive analysis covers the key issues addressed in the judgment, providing detailed insights into the legal reasoning and outcomes for each matter considered by the High Court.