Case Law Details
CIT Vs Roots Multiclean Ltd. (Madras High Court)
It is abundantly clear from sub-section (2) of Section 80IA that an assessee who is eligible to claim deduction u/s 801A has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen ( or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term ‘initial assessment year’ would mean the first year opted for by the assessee for claiming deduction u/s 801A. However,the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.
FULL TEXT OF THE JUDGMENT/ORDER of MADRAS HIGH COURT
This tax case appeal has been filed by the appellant / Revenue, challenging the order dated 07.08.2015 passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Chennai, in I.T.A.No. 323/Mds/2015, relating to the assessment year 2011-12, by raising the following substantial questions of law:-
“1. Whether under the facts and circumstance of the case the Hon’ble Income Tax Appellate Tribunal right in law in holding that assessee is entitled to deduction under section 80IA without setting off the losses / unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee, following the decision of the Jurisdiction High Court in the case of M/s. Velayudhasamy Spinning Mills (340 ITR 477) when the same is pending appeal before the Hon’ble Supreme Court in SLP Civil 1136/2011?
2. Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the initial Assessment year in Section 80IA(5) would only mean the year of claim of deduction under section 80IA and not the year of commencement of eligible business?
3. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee has the option to choose the first / initial assessment year of claim for deduction under section 80-IA?”
2. When the matter was taken into consideration, the learned counsel appearing for the appellant / Revenue fairly submitted that the substantial questions of law involved herein are covered against the Revenue, as per the decision of a Co-ordinate Bench of this Court in Principal Commissioner of Income – tax-3, Coimbatore v. Prabhu Spinning Mills (P) Limited, [2016] 76 taxmann.com 8 (Madras)], wherein it was held as follows:
“3. Even according to the learned Standing Counsel for the Department, this Court has consistently followed the decision in Velayudhaswamy Spinning Mills (P) Ltd. v. Asst.CIT [2012] 340 ITR 477/21 taxmann.com 95 (Mad.), despite the Honourable Supreme Court ordering notice.
4. Interestingly, on the basis of the decision in Velayudhaswamy Spinning Mills (supra), the Central Board of Direct Taxes has issued Circular No.1/2016 dated 15.02.2016 it will be useful to extract the circular in entirety, which is as follows:
Circular No.1/2016
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block, New Delhi, the 15th February, 2016
Subject: Clarification of the term ‘initial assessment year’ in section 80IA (5) of the Income-tax Act, 1961
Section 801A of the Income-tax Act, 1961 (`Act’), as substituted by the Finance Act, 1999 with effect from 01.04.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in subsection (4) of that section) in accordance with the prescribed provisions. Sub-section (2) of Section 801A further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80IA further provides as under:
“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”.
In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term ‘initial assessment year’. It has been represented that some Assessing Officers are interpreting the term ‘initial assessment year’ as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years.
The matter has been examined by the Board. It is abundantly clear from sub-section (2) that an assessee who is eligible to claim deduction u/s 801A has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen ( or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term ‘initial assessment year’ would mean the first year opted for by the assessee for claiming deduction u/s 801A. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.
The Assessing Officers are, therefore, directed to allow deduction u/s 801A in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting ‘initial assessment year’ as mentioned in sub section (5) of that section for which the Standing Counsels/D.R.s be suitably instructed.
The above be brought to the notice of all Assessing Officers concerned.
5. Therefore, admittedly, the second question of law is covered by the above circular. Hence, the appeals deserve to be dismissed.”
3. Following the aforesaid decision, which squarely applies to the facts of the present case, the substantial questions of law raised herein will have to be answered against the appellant/Revenue and in favour of the respondent / assessee. Accordingly, the tax case appeal is dismissed. No costs.
