TaxTMI 
TaxTMI 
2010 (5) TMI 557
X X X X Extracts X X X X
X X X X Extracts X X X X
....nding wires, besides installing windmill in Tamilnadu. The issue, in brief, is that during the relevant period for the assessment year 2005-06, the assessee had put up a windmill for power generation at Metrathy of Coimbatore District at a cost of Rs. 98.4 lakhs and claimed depreciation of Rs. 39.36 lakhs which was negated by the Assessing Officer on the ground that the windmill was not installed during the said assessment year. 3.1 During the assessment year under dispute, the assessee had filed a revised statement of income, claiming income from business at Rs. 60,00,829 from which, deducted Rs. 73,20,339 towards loss/depreciation from windmill operation. However, the Assessing Officer took a stand that as per section 80-IA(5) of the Act the profits and gains from manufacture of super enamelled copper winding wires was not eligible business activity. Taking cue from the finding of the Hon'ble High Court of Madras in the case of CIT v. M.K. Raju Consultants (P.) Ltd. [1999] 239 ITR 2321, the Assessing Officer took a view that the non-taxable income under section 80-IA cannot be set off against non-eligible business income and, thus, the loss/depreciation of Rs. 73.2 lakhs from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... eligible business while determining the profits eligible for deduction under section 80-IA. In the case of the present appellant the generation of power through windmill only is the eligible business, the profits and gains of which are allowable deductions under section 80-IA(5), after the depreciation loss of Rs. 73,20,339 is fully absorbed. Therefore, the claim of the appellant for setting off the income/loss derived from power generation business through windmill of Rs. 73,20,339 as per the revised computation against the profits of the other business activity of mfg. of copper wires is in contravention to the specific provisions of section 80-IA(5) of the Act, hence, claim is not justified. It is also relevant to mention that since the specific provisions of section 80-IA(5) have overriding affect, the other provisions of law including section 70 on set-off of unabsorbed depreciation/business loss relied upon by the appellant is not attracted in the case of the appellant. The contention of the appellant that the only eligible business profits are to the tune of Rs. 5,51,755 as against the depreciation available on windmill of Rs. 78,72,091 therefore, there remains no income pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce, it was submitted that (i) the Assessing Officer had grossly erred in not allowing to set-off of unabsorbed depreciation on windmill of Rs. 73.20 lakhs against the income from manufacturing business, that the CIT(A) also erred in confirming the disallowance without appreciating the facts; (ii) the CIT(A) had erred in not allowing to set-off of the unabsorbed depreciation on windmill from the non-eligible (under section 80-IA) business profit amounting to Rs. 73.20 lakhs; and (iii) the authorities below have not properly appreciated the facts of the case that - (i) that unabsorbed depreciation on windmill (eligible business) for deduction under section 80-IA is set-off against ineligible business income during the same year; and (ii) that the assessee has not claimed deduction under section 80-IA as there was no positive income pertaining to windmill activity. It was, therefore, pleaded that the disallowance of Rs. 73,20,339 requires to be deleted. 5.1 On the other hand, the ld. D.R. came up with a spirited argument that the ld. CIT(A) had, in fact, given an elaborate finding coupled with the backing of the relevant provisions of the Act to ju....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lfils all the following conditions namely:- ** ** ** (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; ** ** ** (iv) an undertaking which,- (a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2010;" 6.3 Thus, it is abundantly clear that the profits and gains derived from eligible business referred to in sub-section (4) of section 80-IA are eligible for deduction under section 80-IA(1). It was a fact that the assessee was carrying on two different distinctive businesses, namely, (i) manufacture of copper wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lly accepted principle that the deeming provision of a particular section cannot be breathed into another section. Therefore, the deeming provision contained in section 80-IA(5) cannot override the section 70(1) of the Act. CIT(A)'s observation on this regard that the specific provisions of section 80-IA(5) have overriding effect is not acceptable. In the given case, the assessee incurs loss after claiming eligible depreciation. Hence section 80-IA becomes insignificant, since there is no profit from which this deduction can be claimed. At this stage, section 70(i) comes to the rescue of the assessee, whereby he is entitled to set-off the losses from one source against income from another source under the same head of income. However, once a set off is allowed under section 70(1) from the income on another source under the same head, another deduction on the same count is not permissible i.e., during the subsequent years if the assessee makes surplus profits after claiming eligible allowances and is entitled to claim deduction under section 80-IA, the earlier benefit given under other sections of the Act should be taken into account before granting deduction under section 80-IA. We....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reciation on windmill business as per Income-tax Act at Rs. 78,72,094. The assessee has generated income from windmill business for Rs. 5,51,755. Thus, the loss on account of windmill business amounts to Rs. 73,20,339. Since there is a loss for the previous year, deduction under section 80-IA does not arise. However, as per section 70(1), the assessee is eligible to set off this loss of Rs. 73,20,339 (5,51,755 - 78,72,094) from another source under the same head of income. However, during the subsequent assessment year, this loss has to be notionally carried forward under the same source and set-off before claiming deduction under section 80-IA of the Act. Accordingly, we hereby direct the Assessing Officer to set off the loss of the assessee on windmill operations from the other source under the same head of income. 7. Before parting with the issue, we would like to point out that we have carefully perused the ruling of the Hon'ble High Court of Madras referred supra on which the Assessing Officer has placed strong reliance to drive home his point. The Hon'ble Court had, after duly deliberating the issue briefly, observed thus - "In the case of the assessee, the fee that ....