A Division Bench comprising of Justice L. Nageswara Rao and Justice Vineet Saran, at the Supreme Court, has held in the case of Commissioner of Income Tax –I v. M/s Reliance Energy Ltd. (Formerly BSES Ltd.) through its M.D. and other six Civil Appeals, held that the scope of sub-section (5) of Section 80-IA of the Income Tax Act, 1961 is limited to the determination of quantum of deduction under sub-section (1) of section 80-IA of the Act by treating ‘eligible business’ as the ‘only source of income, but Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) of only to ‘business income’.
The controversy, in this case, pertains to the deduction under section 80-IA of the Act being allowed to the extent of ‘business income’ only. The claim of the Assesses that deduction under section 80-IA should be allowed to the extent of ‘gross total income’ was rejected by the Assessing Officer.
Section 80 AB cannot be read to be curtailing the width of section80-IA. It was held in the SC decision of the case – Synco Industries Ltd. v. Assessing Officer, Income Tax, Mumbai & Another –(2008) 4 SCC 22 that for the purpose of calculating the deduction under section 80-I, the loss sustained in other divisions or units cannot be taken into account as sub-section (6) contemplates that only profits from the industrial undertakings shall be taken into account as it was the only source of income.
Further, the Court concluded that section 80-I(6) of the Act dealt with actual computation of deduction, whereas section 80-I(1) of the Act dealt with the treatment to be given to such deductions in order to arrive at the total income of the Assessee.
The Assessee also relied on the SC judgment of the case- Commissioner of Income Tax (Central) Madras v Canara Workshops (P.) Ltd., Kodialball, Mangalore- (1986) 3 SCC 538, to emphasize the purpose of sub-section (5) of section 80-IA. In this case, the question that arose for consideration before the Supreme Court relates to the computation of the profits for the purpose of deduction under section 80-E, as it then existed, after setting off the loss incurred by the assessee in the manufacture of alloy steels.
Section 80-E of the Act, as it then existed permitted deductions in respect of profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture, or production of any one or more articles or things specified in the list In the Fifth Schedule. It was argued on behalf of the Revenue that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels. The SC was not in agreement with the submissions made by the Revenue.
It was held that the profits and gains by an industry entitled to benefit under section 80-E cannot be reduced by the loss suffered by any other industry or industries owned by the Assessee. The SC has noted that in this bunch of cases, there has been no discussion about section 80-IA (5) by the Appellate Authority, nor the Tribunal or the High Court. However, the SC has considered the submissions on behalf of the Revenue, as it has a bearing on the interpretation of sub-section (1) of section 80-IA of the Act.
In one of these Civil Appeals 1328 of 2021, by an order of assessment of January 31, 2005, the Assessing Officer restricted the eligible deduction under section 80-IA to the extent of ‘business income’ only. On March 23, 2006, the Commissioner of Income Tax (Appeal)-I (the appellate Authority) partly allowed the appeal filed by the Assessee and reversed the order of the Assessing Officer on the issue of the extent of deduction under section 80-IA.
Thereafter, the Income-Tax Appellate Tribunal upheld the decision of the Appellate Authority on the issue of deduction under section80-IA. The HC refused to interfere with the Tribunal’s order as far as the issue on deduction under section 80-IA is concerned and this led to these appeals by the Revenue before the Supreme Court. This appeal pertains to the Assessment Year 2002-03 for which the Income Tax Return was filed by the Assessee on October 31, 2002
declaring the total income as “Nil."
The Return was subsequently revised on December 16, 2002, and thereafter on March 30, 2004. At the time of assessment proceedings, the Assessee submitted a revised computation of income by revising its claim of deduction under section 80-IA of the Act.
The assessee is in the business of generation of power and also deals with the purchase and distribution of power. The Assessee-Company generated power from its power unit at Dahanu-Gujarat. In respect of deduction under section 80-IA of the Act, the Assessee was asked to explain, as to why the deduction should not be restricted to business income, as had been the stand of the Revenue for the assessment year 2000-01. The Assessee had revised its claim under section 80-IA of the Act to Rs 546,26,01,224/-, having admitted that there was an error in the calculation of Income Tax depreciation.
The Assessing Officer determined the amount eligible for deduction under S. 80-IA at Rs 492,78,60,973/-against the Assessee’s claim of Rs 546, 26,01,224/-. However, it was noted in the Assessment order that the actual deduction allowable shall be to the extent of ‘income from the business as per the provisions of the Section 80 AB of the Act. The ‘business income’ of the Assessee was computed at Rs 355,74,73,451/-and the ‘gross total income’ at Rs 397,37,70,178/- .
Inclusion of ‘income from other sources' of Rs 41,62,96,727/-in the ‘gross total income ‘ and deduction claimed under Chapter VI-A of the Act against such ‘gross total income’ was not accepted by the Assessing Officer. He had restricted the deduction allowed under section 80-IA at Rs 354,0075,084/-, by limiting the aggregate of deductions under sections 80-IA and 80-IB of the Act to ’business income’ of the Assessee.
The SC has also noted that an attempt was made by the Senior counsel for Revenue to rely upon the phrase ‘derived...from’ in section 80-IA (1) of the Act in respect of his submission that the intention of the legislature was to give the narrowest possible construction to deduction admissible under this sub-section. For the reasons discussed the SC has dismissed the appeal 1328/2021 of the Revenue on the issue of the extent of deduction under section 80-IA of the Act.
All the civil appeals excepting 1509 of 2021 have been disposed of in terms of this judgment. The remaining Civil Appeal 1509 of 2021 has been de-tagged as the questions arising therein do not relate to the issue raised.
Case Details
Name: Commissioner of Income Tax –I v. M/s Reliance Energy Ltd. (Formerly BSES Ltd.) through its M.D. and other six Civil Appeals
Bench: Justice L. Nageswara Rao and Justice Vineet Saran
Date of Decision: April 28, 2021
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