TaxTMI 
TaxTMI 
2013 (11) TMI 1282
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.... / losses of its two Units, i.e., Windmill 1 and 2, income from which is otherwise eligible for deduction u/s. 80IA. 2.1 The basis of the Assessing Officer's (A.O.) disallowance, since confirmed by the ld. CIT(A), is section 80-IA(5), which reads as under: "(5) 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." 2.2 The said provision, which begins with a non obstante clause, subject to which, among others, the deduction u/s.80-IA(1) is to be granted, deems the eligible business to be the only source of income for the years up to which the deduction is being claimed thereunder. Accordingly, the p....
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....siness having been set off against the other income of the assessee, could the said allowance or losses be notionally carried forward for set off against the income from the same source for the subsequent years for the purpose of determination of quantum of deduction exigible for those years, these decisions support the assessee's case in-as-much as they clarify that there is no embargo in law to such set off, i.e., against the income from non-eligible business, which the Revenue denies in the instant case. What, if there is no income for the subsequent years from the eligible business, he posited. The assessee would stand to loose either way, so that rather than being beneficial to the assessee, it would operate adversely thereto. In fact, the assessee has not even invoked the option for claim of deduction u/s.80-IA, so that the invocation of s.80-IA(5) by the Revenue is itself misconceived. For all we know, there may be no occasion to claim deduction u/s.80-IA(1) in the subsequent years? The decision by the Bangalore Bench of the Tribunal in the case of Swarnagiri Wire Insulations Pvt. Ltd. vs. ITO (ITA No.200/Bang/2010, dated 21.05.2010) is squarely on the point. 3.2 The ld. ....
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.... that even if the Revenue's contention of the applicability of section 80-IA(5) for the current year is accepted, it would be to no avail or material effect. However, the decision in the case of Swarnagiri Wire Insulations Pvt. Ltd. (supra) has been rendered without reference to the decision by the special bench in the case of Goldmine Shares and Finance (P.) Ltd. (supra), and we observe some inconsistencies between the two. While in the case of Swarnagiri Wire Insulations Pvt. Ltd. (supra), the tribunal, through its example at para 6.6 (read with its findings at paras 6.7 to 6.9) brings out the purport of section 80-IA(5), or its interpretation thereof, the findings in the case of Goldmine Shares and Finance (P.) Ltd. (supra) are listed at para 63 of its order (pg. 253 of the report). We may reproduce the same herein-below to highlight the conflict between the two decisions:- Goldmine Shares and Finance (P.) Ltd. (supra) "63. In our opinion the only harmonious construction of Section 80-IA(5), consistent with the object in allowing deduction only to profits and gains of the eligible business would be that: a. the deduction under that section would be computed with referen....
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....ar), is to be set off under the same source before allowing deduction u/s. 80IA of the Act. Thus, the balance notional loss of Rs.40,000 (1,00,000 - 60,000) will be carried forward to the next previous year. 6.9 In the previous year 2006-07, the profit of eligible business is Rs.1,20,000 and the carry forward of notional loss of Rs.40,000, therefore the deduction u/s. 80IA will be allowed at 100% i.e., on Rs.80,000 (1,20,000 - 40,000). The total income of the assessee for the assessment year 2007-08 will be computed as under: Income from eligible business u/s. 80IA 1,20,000 Income from ineligible business u/s. 80IA 2,00,000 Gross total income 3,20,000 Less: Deduction u/s. 80IA 80,000 Total Income 2,40,000 As would be apparent, while the special bench clearly provides for non set off of the losses/allowance of the eligible business u/s.80-IA against the income from a non eligible business, i.e., validates the set off of such losses only against the income from that very source (refer paras 31, 33 & 63(b)), the very course being adopted by the Revenue in the instant case, the tribunal in the case of Swarnagiri Wire Insulations Pvt. Ltd. (....
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....s would stand to, despite set off against the other income in terms of the regular provisions, be notionally carried forward for the purpose of adjustment against the income of the eligible business for the years subsequent to such set off, the hon'ble high courts have held otherwise, stating that the scope of section 80- IA(5) cannot be extended to include or permit a notional carry forward and set off. In other words, while the tribunal advocates an overriding effect of section 80-IA(5) over the other applicable provisions of the Act, viz. sections 32(2), 70, 71 and 72, even though for the limited purpose set out in the provision itself, the hon'ble courts have held otherwise. Apparently, their view must prevail over that by the tribunal. We are not prepared to accept the assessee's argument that this aspect of the matter, involve as it does, and clearly, the interpretation of section 80-IA(5), has no bearing on the issue at hand, which would even otherwise be apparent from the reading of the said decisions. The matter must, therefore, necessarily engage us more acutely, and we cannot rest by relying on the decision in the case of Swarnagiri Wire Insulations Pvt. Ltd. (supra), or....
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....e (No.2) Act, 1980] "19.4 The new "tax holiday" scheme differs from the existing scheme in the following respects, namely:- (i) ....................... (ii) ....................... (iii) In computing the quantum of "tax holiday" profits in all cases, taxable income derived from the new industrial units, etc., will be determined as if such unit were an independent unit owned by an assessee who does not have any other source of income. In the result, the losses, depreciation and investment allowance of earlier years in respect of the new industrial undertaking, ship or approved hotel will be taken into account in determining the quantum of eduction admissible under the new section 80-I even though they may actually have been set off against the profits of the assessee from other sources." [emphasis supplied] The whole purport and intent of section 80-IA(5), even as explained by the Board vide its said Circular, being relied upon both by the assessee and the Revenue, is towards providing a separate and parallel basis for the aggregation and carry forward of unabsorbed depreciation and/or loss of the eligible business for the purpose of determination of quantum of ....
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....urther, let us consider the losses incurred after such a year, i.e., the first year of determination of deduction u/s. 80IA(1) (treating it as the initial assessment year), the scope of which, though remote, cannot be excluded. The same, going by the assessee's contention before us (refer para 3.1 of this order), would not stand to be considered u/s. 80IA(5) as there is no question of computing deduction u/s. 80-IA(1) for such year. Further, even ignoring the said argument, so that s. 80-IA(5) applies, the question that arises is: What is a rationale in including some losses while disregarding others? In fact, empirically speaking, the unabsorbed depreciation and losses would only be during the initial years over which the charge of depreciation is more and the business is yet to stabilise, so that the possibility of unabsorbed depreciation or losses after the Unit's coming into profits, where the business is successful, returning profits (only where-upon the question of deduction u/s.80-IA(1) would arise), is even otherwise remote. So, however, such losses/allowance, where so, would stand to be carried forward, as much as the loss/allowance incurred prior to the first year of dedu....
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....language employed and the rationale of the provision, as explained, besides being endorsed by the decisions by the tribunal cited and relied upon by the parties before us. 4.4 Further on, section 80-I contains a provision similar to sub-section (5) of s.80-IA, and which bears the identification of the initial assessment year as the year of commencement of operations of the eligible undertaking. Section 80-I is a pre-cursor to both, section 80-IA and s. 80-IB, and thus relevant. In fact, the Circular No. 281 dated 22.09.1980 issued by the Board explaining the said provision, and referred to in their decisions by the hon'ble courts, is only in the context of section 80-I. It also cannot be overlooked that the initial assessment year stood clearly defined by way of an Explanation to section 80-IA as it stood prior to substitution by Finance Act, 1999 w.e.f. 01.04.2000 and, further, could have been easily defined, either per section 80-IA(5) itself or by way of an Explanation to the section, as a first year of determination of deduction u/s.80-IA(1), for which the section itself grants option to the assessee (per section 80- IA(2)). The omission, thus, is deliberate and, further, le....
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....sessment order, and its reply dated 03/12/2009 reported at pg. 3 to 6 of the assessment order). This also conforms with the view expressed by the tribunal in the two cases cited, including by the special bench (supra), which has considered and distinguished the decision by the hon'ble rajasthan high court in Mewar Oil and General Mills Ltd. (supra). The view in this regard as expressed in Velayudhaswamy Spinning Mills (P) Ltd. (supra), though in line with that by the hon'ble rajasthan high court, is not the ratio of the said decision. As would be apparent from its reading, the Revenue had accepted the finding by the ld. CIT(A) as to the initial assessment year, and which was held as having barred it from contesting the same in the assessee's appeal. Our decision, rendered under the substituted provision of s. 80-IA, however, is with reference to its plain language as also legislative intent, which is to be the foundational basis of any interpretative exercise (refer: CIT vs. Baby Marine Exports [2007] 290 ITR 323 (SC)). In support, we further rely on the decision in the case of CIT vs. Thane Electricity Supply Ltd. [1994] 206 ITR 727 (Bom). 4.5 It may be argued that the provisio....
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....s nothing to do with the quantum of deduction per se, which is the stated purpose of s. 80-IA(5). A large Unit and, in fact, a new Unit may take some time to stabilize and start returning profits. The next few years may be consumed in absorbing the accumulated losses or unabsorbed depreciation, so that the period of tax holiday is exhausted, or substantially so, without any of its benefits inuring or being actually availed of. It is with this in mind that the Legislature effectively extended the time period over which the tax holiday could be availed of, so that the beneficial character of the provision is not lost, or to quite an extent, aligning the incentive to the business exigencies, so that it serves its intended purpose and retains the character of an economic incentive, which may otherwise not be the case. However, at the same time, it cannot be lost sight of that the principle guiding the incentive is that the tax shelter is available only to the profits of the eligible undertaking. The Legislature, it may be appreciated, while proposing and/or sanctioning legislation, cannot possibly presume - being even otherwise a matter which would vary from assesse to assessee, existe....
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....urt negated the claim, reversing the order by the tribunal, stating that the same would imply availing exemption from tax against other business (non-eligible) income. The interpretation of a statute has to be meaningful and acceptable, and it cannot be against the intention of the legislation. It is this, as it appears, that also led the special bench of the tribunal in the case of Gold Mine Shares & Finance (P.) Ltd. (supra) to hold that the losses of the eligible business are to be notionally set off against income from the other business. Though we shall come to that aspect of the matter later, the special bench, as noted earlier as well, has also considered the initial assessment year as the year of commencement of operations (refer para 41 of its Order). The two concepts, i.e., 'the tax holiday period', as enumerated in sec. 80IA(2), and the 'stand alone' principle, as incorporated per sec. 80IA(5), seeking to preserve the sanctity of the tax shelter, are separate and distinct, and may not be confused with each other; rather, are to be read and applied harmoniously and purposively. 4.6 In sum, there is firstly nothing in the language of the section to suggest its applic....
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.... the losses/depreciation against positive income from other sources could not be denied. This is as the aggregation prescribed by the section is limited only to quantify the deduction u/s. 80IA(1), and which would only be on the unit turning positive, returning profits. As a corollary, the losses/unabsorbed depreciation would stand to be set off against the other incomes under the regular provisions of the Act. 5.1 The question that next confronts us is: Section 80IA(5) being applicable for the current year, whether the assessee's claim for set off of loss/allowance u/ss. 32(2), 70 and 71, i.e., against other income, admittedly from a non-eligible business/source, sustainable in law? 5.2 Toward this, the assessee has placed reliance on the decisions in the case of Mewar Oil and General Mills Ltd. (supra); Velayudhaswamy Spinning Mills (P.) Ltd. (supra) and Gold Mine Shares & Finance (P.) Ltd. (supra). However, even as noted earlier, the former two, which are on the same footing and in harmony, are in contradiction to Gold Mine Shares & Finance (P.) Ltd. (supra), as also noted by the tribunal in the case of Anil H. Lad vs. Dy. CIT (in ITA No.1262/Bang/2010, vide order dated 07....
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....e to follow the said decisions, and which could not be done selectively, i.e., following for one aspect of the matter and not for the other; the same arising out of the interpretation of the same provision. Coming to the decisions by the tribunal, while that in the case of Swarnagiri Wire Insulations Pvt. Ltd. vs. ITO (supra) is in support of the assessee's case, that by the special bench favours the Revenue; it categorically holding against set off of the positive income from one source against negative income from another. Though the decision in the case of Swarnagiri Wire Insulations Pvt. Ltd. (supra) is in agreement with the view expressed by us (refer para 4.6 supra) and, further, supported by the Board's circular, etc. which is relevant in-as-much as these are useful aides to interpretation, the decision by the special bench would have precedence. 5.3 At this stage, we may refer to the decision in the case of Synco Industries Ltd. vs. AO [2002] 254 ITR 608 (Bom.), which finds reference in the decision in the case of Gold Mine Shares & Finance (P.) Ltd. (supra) (refer paras 14, 26, 42 to 45 thereof). In the facts of that case, the assessee had two businesses, a Chemical ....
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....ows carry forward and set off of unabsorbed business loss. The decision in the case of Synco Industries Ltd. (supra), though rendered in a different fact setting, in our view, effectively answers all the questions arising in respect of the issue under reference in this appeal. Firstly, that section 80-IA(5) (s. 80-I(6) in that case) is a separate provision, which stands co-opted on the statute with a specific purpose, treating the profits from the defined (eligible) source as the only source of income to determine the quantum of deduction that could be allowed under the provision. All the other applicable provisions of the Act, including ss. 32(2) and 72, would apply in the computation of such income. The same, thus, presents a parallel method for arriving at the profits of the eligible business, and is to be given full play. That being the mandate of the section, carry forward and set off of the loss for earlier years from such a source would hold, considering it as the only source of income, in terms of section 72. The same may or may not have been already set off against other income, but that is irrelevant. A deeming provision or a legal fiction, it is even otherwise trite, ....
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....tion of the decision by the hon'ble jurisdictional high court in the case of Synco Industries Ltd. (supra), since affirmed by the apex court. The same is also in conformity with the Board's Circular as well as the notes on clauses and Memoranda explaining the provisions, in respect of which, as afore-noted, no infirmity has been observed or pointed out. In fact, all these decisions have been rendered without reference thereto, and which clearly exhibits, if one was required, the clarity and the absence of any ambiguity in the language employed by the statute. It may appear that sanctioning set off of loss against income from another source in the computation of taxable income, and then again against the future profits from the same source, where it is a specified, priority industry/enterprise, eligible for tax benefit, would amount to a double jeopardy. The argument or apprehension, whichever way one may see it, is false. The whole purport of the provision of sec. 80-IA(5) (s. 80-I(6)), is to confine the tax holiday to the profit of the eligible source alone - nothing more, nothing less. And this is what the application of the said decisions ensures. On the other hand, a loss, even....
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....on u/s. 80-I(1). While the Revenue sought to adjust those losses, denying deduction on the profits of CD on the ground that the GTI was nil; the assessee contended for the said profits to be computed independently and de hors the income of OD. The Revenue's stand was upheld, firstly, by the tribunal, and then successively by the high court and the apex court. How far different are the facts of the said case from the case before the hon'ble delhi high court? The fact of the GTI being nil is a mathematical incident; the moot question is: How is the same to be computed? And the answer, as provided, is: by following the mandate of s. 80B(5), so that the provisions of ss. 32(2), 70, 71 & 72, et. al. are to be given effect to. Surely, if GTI is nil, nothing further is required to be looked into, as there is no question of any deduction under any provision of Chapter VI-A being allowed from a nil GTI. The hon'ble high court distinguished the decision by the apex court on the basis that the GTI in the case before it was not nil. The moot point, however, is not whether GTI was nil, but whether any income of the nature specified in sec. 80-I(1)/80-IA(1) could be said to be included in the GT....
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....tribunal in the case of Swarnagiri Wire Insulations Pvt. Ltd. (supra), including the example cited therein. Firstly, to state that irrespective of the facts of the case, which are bound to vary and exhibit some difference in each case, it is the ratio of the decision, arising from a holistic interpretation of the provision, rendered on the relevant parameters, that ought to obtain. Questions as to, or aspects as the computation of GTI; the years of the deeming qua the only source of income; the impact of the said deeming on the other relevant provisions, viz. ss. 32(2), 70 to 72; the notional carry forward of losses, assuming the said sections would continue to be operative as in the normal course, etc. arise, and require being addressed, when an issue qua the application of s. 80-IA(5), as in the instant case, comes to be considered. It is thus neither possible nor desirable to adopt a segmented and fragmented approach to the matter. No wonder, the tribunal in the cited cases considered the matter holistically, answering questions which do not appear to arise directly before it. Secondly, the treatment, as advocated per paras 6.6 to 6.10 of its order by the tribunal in the case of....
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....income by the A.O. under the head 'income from house property' for AYs 2007-08 & 2008-09 at Rs.13,00,681. The facts in brief are that the assessee did not return any income under the said head in respect of its property situate at Bajaj Bhavan, Nariman Point, Mumbai, the lease of the rent arrangement in respect of which with IDBI Principal Asset Management (which was at a monthly rent of Rs.1,54,843) had expired way back in April, 2004; the same lying vacant. On being show caused in the matter, it was pointed out by the assessee vide its letter dated 18.11.2009 that it's said premises, which had been continuously let out since the year 1997 (up to 23.04.2004), had remained vacant throughout the year as it could not get a reasonable tenant. There was as such no question of bringing a notional amount to tax as annual letting value (of the said property). It was without prejudice further submitted that the annual letting value (ALV) could only be computed in terms of section 23(1)(a) of the Act, so that the standard rent as per the rent control had to be applied in determining the rent at which property may reasonably be expected to be let out from year to year, and which is to be ....
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....nd a suitable tenant, and the property was used for its own purpose, so that there was no question of application of section 23 in the instant case. On being questioned as to any evidence in support of such a claim, as by way of claim for depreciation on the said premises, and of it being made before the authorities below, it was submitted by him that the depreciation had been claimed and allowed, and which is a matter of record. 8.2 The ld. DR, on the other hand, would submit that the decision in the case of Vivek Jain (supra), also relied upon by the tribunal in the assessee's own case for an earlier year (A.Y. 2005-06), comprehensively decides the issue at hand against the assessee. It stands clarified therein that where the property has not been let out at all during the year, there is no question of any vacancy allowance in terms of s. 23(1)(c), which was inserted in the statute only to given protection to the assessee where, on account of vacancy, rent received or receivable of a house property is lower than the amount referred to in section 23(1)(a). The said case law squarely covers the present case. Further, there is no merit in the assessee's claim qua the house proper....
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....ch the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable: Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation.--For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in ....
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....f the concept of vacancy was to be incorporated in the concept of notional letting, the latter would stand defeated and incapable of being applied. 9.4 Finally, it being the admitted position that the property was not let for the relevant year, there is no question of application of section 23(1)(b) and, consequently, section 23(1)(c), and the AV would have to necessarily be determined only with reference to section 23(1)(a). This represents the clear view on the basis of the decisions in the case of Vivek Jain (supra), which being by a higher court would hold. In fact, this also represents the predominant view of the tribunal, as in the case of Ramesh Chand (supra); Indra S. Jain vs. ITO (supra); and Vivek Jain (by the tribunal). As such, what is relevant is the rent for which the property may reasonably be let from year to year. Toward this, the assessee claims an ALV based on the municipal rateable value on the basis that the property under reference is subject to rent control legislation. There is no evidence in this regard. Rather, it is indeed surprising and unexplained as to how a property subject to rent control regulation was let, and for years together, at rent expo....
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....ually realized, but that which could, fairly speaking, be, or the income potential of the property that is brought to tax u/s.23 of the Act as its annual value (AV). The provision of section 23(1)(b) come into play only where the property (or part thereof) is actually let out, and which exceeds the fair rental value u/s.23(1)(a). In fact, the assessee does not dispute this position, advancing its case with reference to its claim for vacancy allowance u/s. 23(1)(c), discussed hereinabove. 9.5 In the instant case, the property was let at a monthly rent of Rs.1,54,843/- (annual rent: Rs.18,58,116/-) continuously from the year 1997 to 2004. What better proof of the same representing its AV could possibly be? There is nothing on record to show or infer that the property, which, as late as April, 2004, yielded a rent to the tune of Rs.18 lakhs p.a., became incapable of fetching as much and, rather, plummeted to about 1% thereof. That is, an erosion in rental capacity by nearly 99%, and almost overnight. The A.O. in the instant case has kept the AV (at Rs.13,00,681/-), i.e., net of standard deduction at 30%, constant for all the years, i.e., up to A.Y. 2008-09, and which we consider as....
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.... period, no disallowance qua the interest expenditure would arise on the basis of the general pool of funds hypothesis. This is so as funds are fungible. Also, a subsequent repayment of borrowings by own capital, for instance, would lead to a substitution of the source of finance, with investments even generally being made for parking or investing surpluses. The matter is factual, and no presumption in this regard could obtain, and which would only be on no evidence being led by the assesse, validating the application of the general pool of funds basis. For A.Y. 2008-09, r. 8D becomes applicable. The same is mandatory. However, in our view, this would only impact the burden of proof on the assessee, which thus becomes more stringent, so that rather than showing existence of sufficient capital, the matter would be required to be examined from the stand-point of utilization of the borrowed interest bearing funds. That is, the asssessee would have to exhibit that no interest cost has, as a matter of fact, been incurred in respect of the said investment, if the prescription of the rule is not to apply. The matter thus hinges on the ability of the assesse to establish its claim/s in thi....
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....); Consolidated Photo & Finvest Ltd. v. Asst. CIT (2006) 281 ITR 394 (Del.); and Multiscreen Media (P.) Ltd. v. Union of India (2010) 324 ITR 54 (Bom.); the last one being rendered by relying and drawing on the decision by the apex court in the case of CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), were cited and relied upon by the ld. CIT(A). Aggrieved, the assesse is in second appeal. 12. We have heard the parties, and perused the material on record as well as the case law cited. The reopening of assessments in the instant case is decidedly before the expiry of a period of four years from the end of the relevant assessment years, so that the first proviso to s.147 is not applicable. The true and full disclosure of all the material facts, which the ld. AR was at pains to show to us, is thus not a relevant consideration. The question of change of opinion, which though would bar reopening of an assessment, would come into play only where there has indeed been an expression or formation of opinion by assessing authority while framing the assessment being subject to reassessment, which we find as conspicuous by its absence. This is as the assessment must show an applicati....