Case Law Details
RELEVANT PARAGRAPH
22. In the present case, the dispute relates to the special deduction allowable under Section 80-IA contained in Chapter VI-A. Relevant provisions contained in Chapter VI-A including Section 80-IA (to the extent relevant),read as follows :-
“CHAPTER VI-A
DEDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME
A-General
Deductions to be made in computing total income.
80-A (1)In computing the total income of an assessee ,there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to [80U ].
(2)The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.”
Deduction to be made with reference to the income included in the gross total income.
80AB.Where any deduction is required to be made or allowed under any section [(except section 80M)] included in this Chapter under the heading ” C – Deductions in respect of certain incomes ” in respect of any income of the nature specified in that section which is included in the gross total come of the assessee, then, not with standing anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the
provisions of this Act (before making any deduction under this Chapter)shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.”
Definitions.
80B.In this Chapter-
(1)******
(2)******
(3)******
(4)******
(5)”gross total income ” means the total income computed in accordance with the provisions of this Act, before making any deduction under this
Chapter.
“C.-D ductions in r sp ct of c rtain incom s
………… ……… ……… ……… ……… ……… ……… ……… ……… ……… .
………… ……… ……… ……… ……… ……… ……… ……… ……… ………
Deductions in respect of profits and gains from industrial undertakings, etc., in certain cases:
80-IA (1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a shop or developing, maintaining and operating any infrastructure facility or scientific and industrial research and development or providing telecommunication services whether basic or cellular or operating an industrial park or commercial production of mineral oil in the North Eastern Region (such business being hereinafter referred to as the eligible business),to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in
sub-section (5)and for such number of assessment years as is specified in sub-section (6). (2)to (6)……… ..
(7)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 sub-section (5)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 upto and including the assessment year for which the determination is to be
made.”
(emphasis supplied)
32. The choice or the option available to an assessee to claim or not to claim current depreciation as per the decision of the Apex Court in the case of Mahendra Mills (supra)can be elucidated by an illustration. Suppose an assessee is carrying business in scientific research. That assessee would be entitled to deduction under section 32 (current depreciation on the plant and machinery used for that business)as well as deduction under Section 35(1)(iv)(capital expenditure on the scientific research business).In such a case, it cannot be said that the legislature intended to give double deduction in respect of the same business outgoing and the assessee would have to choose one out of the above two
deductions and cannot claim both the deductions. In these circumstances, the Apex Court in the case of Mahendra Mills (supra)has observed that the assessee has an option to disclaim depreciation and that the consequence of disclaiming depreciation would be that the written down value of the asset would remain the same for the following year. Thus, even according to the Apex Court, disclaiming of depreciation cannot result in enhancement in the quantum of deduction that is allowable under any other provision in the Act.
33. Although it is contended on behalf of the revenue that the decision of the Apex Court in the case of Mahendra Mills (supra)is rendered ineffective by the subsequent amendments, we do not consider it necessary to deal with that argument, because, in our opinion, even assuming that in the year in question the assessee had an option to disclaim current depreciation in computing the total income under Chapter IV of the Act, the question is, whether the quantum of deduction allowable under section 80- IA of the Act is dependent upon the assessee claiming or not claiming current depreciation allowable under the Act ?To illustrate ,suppose in the assessment year in question, the only source of income of the assessee was the business income. Suppose the gross business profit of the assessee in that year was Rs.100/-,and the assessee was entitled to current depreciation under Section 32 at Rs.80/-and 100%deduction under Section 80-IA.Assuming that there were no other claims that were to be allowed to disallowed, then the computation of income, as per the Assessee Gross business profit…… ..Rs.100/ – less
depreciation allowable under the ..
Act (not claimed)…. ……— –
———–
Gross Total Income….Rs. 100/-
less
100%deduction under Section 80-IA….Rs. 100/-
———–
Taxable Income….NI
======
as per the AO
Gross business profit…… ..Rs.100/ –
less
depreciation allowable under the Act….Rs.80/ –
————
Gross Total Income….Rs. 20/-
less
100%deduction under Section 80-IA….Rs. 20/-
———–
Taxable Income….NI
======
Thus, as per the above illustration, where the depreciation is disclaimed by the assessee, the quantum of deduction under Section 80IA comes to Rs.100/-and where depreciation is claimed by the assessee, the deduction under Section 80-IA (as per the above illustration) comes to Rs.
20/-.The question, therefore, to be considered is, whether the quantum of deduction under Section 80IA is dependent upon the assessee claiming or not claiming depreciation ?
35. The question then to be considered is, whether on a plain reading of Section 80IA read with other relevant provisions in Chapter VI-A, can it be said that the quantum of deduction allowable under Section 80IA depends upon the assessee claiming or not claiming current depreciation?
To be specific, the question is, whether the choice, if any, vested in the assessee in claiming or not claiming current depreciation has any bearing in determining the quantum of deduction allowable under Section 80IA of the Act ?
39. In the light of the aforesaid decisions of the Apex Court, it is clear that Section 80IA is a Code by itself and the deduction allowable under Section 80IA is a special deduction which is linked to profits, unlike deductions contained in Chapter IV of the Act which are linked to investments. The deduction under Section 80IA is allowed at a percentage of the business profits computed in the manner specified in that Section and other provisions contained in Chapter VIA. The Apex Court has held that section 80-IA contains both substantive and procedural provisions for computation of the special deduction and any device adopted to reduce or inflate the profits, of eligible business has to be rejected. In the present case, the assessee by not claiming current depreciation seeks to inflate the profit linked incentives provided under Section 80-IA of the Act which is not permissible as per the law laid down by the Apex Court.
42. Thus, in the case of Distributors (Baroda).Ltd. (supra)the Apex Court has held that the deduction under section 80M relating to certain inter-corporate dividends has to be allowed after deducting the interest payable on monies borrowed for earning such dividend income. The Apex Court has also held that section 80M cannot be interpreted in a manner so as to confer additional benefit which would go beyond what is required for saving the amount of dividend from taxation once again in the hands of the assessee. Therefore, even in the case of Distributors Baroda (P)Ltd.(supra) the Apex Court has held that the computation of deduction under VIA cannot be done in a manner which gives additional benefit to the assessee than what is contemplated under Chapter VIA of the Act. Similar view has been taken by the Apex Court in the case of Liberty India (supra)wherein it is held that any device adopted to reduce or inflate the profits of eligible business has got to be rejected in view of the overriding provisions of sub-section 5 of section 80-IB [similar to section 80IA(7)].Therefore, in the light of the aforesaid decisions of the Apex Court, it is clear that the quantum of deduction under section 80-IA would not be dependent upon the assessee claiming or not claiming current depreciation, because, the quantum deduction under section 80-IA has to be computed on the profits determined after deducting all deductions allowable under the Act.
43. The Apex Court in the case of Distributors Baroda (P)Ltd. (supra)has quoted with approval the following passage from the decision of the Apex Court in the case of Cambay Electric Supply Industrial Co. Ltd. V/s.CIT reported in 113 ITR 84 (SC):-
” On reading sub-section (1),it will become clear that three important steps are required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to tax is determined. First, compute the total income of the concerned assessee in accordance with the other provisions of the Act i.e. in accordance with all the provisions except section 80E;secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) ;and, thirdly, if there be profits and gains so attributable, deduct 8%thereof from such profits and gains and then arrive at the net total income exigible to tax.”
Thus, in all the aforesaid decisions of the Apex Court the consistent view taken is that the deduction under Chapter VIA is a special deduction and the quantum of deduction thereunder has to be computed by ascertaining that part of the total income which represents the profits and gains derived by an undertaking after deducting all the deductions allowable under section 30 to 43D of the Act. Therefore, assuming that in the assessment year in question the assessee has an option to disclaim depreciation, the same would not have any bearing on the computation of quantum deduction under section 80-IA of the Act.
44. To summarise, firstly ,the Apex Court decision in the case of Mahendra Mills (supra)cannot be construed to mean that by disclaiming depreciation, the assessee can claim enhanced quantum of deduction under Section 80IA.Secondly, the Apex Court in the case of Distributors (Baroda) .Ltd.(supra) and in the case of Liberty India (supra)has clearly held that the special deduction under Chapter VIA has to be computed on the gross total income determined after deducting all deductions allowable under section 30 to 43D of the Act and any device adopted to reduce or inflate the profits of eligible business has got to be rejected. Thirdly, this Court in the case of Albright Morarji &andit Ltd.(supra), Grasim Industries Ltd.(supra) and Asian Cable Corporation Ltd.(supra)has only followed the decisions of the Apex Court in the case of Distributors Baroda (supra).Thus, on analysis of all the decisions referred hereinabove, it is seen that the quantum of deduction allowable under section 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under section 30 to 43D of the Act. Therefore, whether the assessee has claimed the deductions allowable under Sections 30 to 43D of the Act or not,the quantum of deduction under Section 80IA has to be determined on the total income computed after deducting all deductions allowable under Sections 30 to 43D of the Act.
47. Thus, the common thread passing through the above decisions of the Apex Court as well as the decisions of this Court including the decision in the case of Indian Rayon (supra)is that the deductions under Chapter VI-A are linked to profits and the profits for the purposes of deduction under Chapter VI-A have to be determined after considering all deductions allowable under the Act (except deductions allowable under Chapter VI-A).Therefore, whether the assessee has claimed current depreciation or not has no bearing in determining the quantum of deduction allowable under Section 80IA of the Act and once it is found that disclaiming depreciation is not in the interest of the assessee, the AO was justified in allowing current depreciation to the assessee.
48. For all the aforesaid reasons, we hold that the quantum of deduction under Section 80IA is not dependent upon the assessee claiming or not claiming depreciation, because, under Section 80IA the quantum of deduction has to be determined by computing total income from business after deducting all deductions allowable under Section 30 to 43D of the Act.
49. In the result, we answer the question referred to us set out at para 1 above in the affirmative, that is, for the purposes of deduction under Chapter VIA, the gross total income has to be computed inter alia by deducting the deductions allowable under section 30 to 43D of the Act, including depreciation allowable under section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation.
50. The reference is accordingly disposed of with no order as to costs
