Deduction u/s 80-IA of the Income Tax Act not limited to head ‘business income’ only. – Supreme Court. Sub section (5) limited to determination of quantum treating ‘eligible business’ as only source of income.
ABCAUS Case Law Citation
ABCAUS 3499 (2021) (04) SC
Important case law relied referred:
Cloth Traders (P) Ltd. vs. Additional CIT (1979) 3 SCC 538
Royal Cushion Vinyl Products Ltd. vs. Dy. Commissioner of Income Tax
Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 2 SCC 644
Synco Industries Ltd. vs. Assessing Officer (2008) 4 SCC 22
Pandian Chemicals Ltd. vs. Commissioner of Income Tax (2003) 5 SCC 590
Commissioner of Income-tax vs. Tridoss Laboratories Ltd [2010] 328 ITR 448 (Bombay)
CIT vs. Canara Workshops (P) Ltd (1986) 3 SCC 538
The question in this case was as to whether the deduction under Section 80-IA of the Income Tax Act, 1961 (the Act) if to be allowed to the extent of ‘business income’ only?
The respondent assessee company was in the business of generation of power and also dealt with purchase and distribution of power.
The assessee filed its return of income declaring the total income as ‘NIL’. The return was subsequently revised two times.
At the time of the assessment proceedings, the assessee submitted a revised computation of income by revising its claim of deduction under Section 80-IA of the Act having admitted that there was an error in calculation of income-tax depreciation.
The Assessing Officer considered the revised claim of the assessee u/s 80-IA and while determining the amount eligible for deduction under Section 80-IA stated in the assessment order that the actual deduction allowable shall be to the extent of ‘income from business’ as per provisions of Section 80AB of the Act.
In other words, inclusion of ‘income from other sources’ 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.
The AO stated that ‘income from business’ alone had to be considered for allowing any deduction computed on ‘income from business’ and using the same analogy, deduction computed on ‘income from other sources’ should be allowable against ‘income from other sources’ only. As the deduction under Section 80-IA of the Act pertains to profits and gains from a business undertaking, the deduction is allowable only against ‘income from business’. It was held by the Assessing Officer that deduction computed under Section80-IA of the Act could not be allowed against any source other than business.
The Assessing Officer also relied upon the words ‘that nature’ and ‘shall alone’ in Section 80AB of the Act to hold that deduction under a relevant section has to be given to the extent of the income from that particular source only on which deduction is available. In the matter before us, this would mean that deduction under Section 80-IA of the Act has to be allowed only to the extent of ‘income from business’.
The CIT(A) directed the Assessing Officer not to restrict the deduction admissible under Section 80-IA of the Act to income under the head ‘business’. The Assessing Officer was further directed to aggregate the deduction under Section 80-IA of the Act with the other deductions available to the assessee and then to allow deductions of such aggregate amount to the extent of ‘gross total income’. The order of the Appellate Authority was affirmed by the Tribunal and the High Court on this issue.
The Revenue submitted that Section 80AB of the Act contemplates deductions in respect of incomes against income of the nature specified in the relevant section. He further submitted that Section 80-IA(5) makes it clear that the determination of quantum of deduction under sub-section (1) of Section 80-IA should be on the basis that the source of income from the eligible business was the only source of income of an assessee and therefore, the deduction so determined should be allowed only against ‘business income’.
It was contended that the phrase ‘derived … from’ in sub-section (1) of Section 80-IA of the Act indicates that the computation of deduction is restricted only to the profits and gains from the eligible business.
The Hon’ble Supreme Court pointed out that CBDT Circular makes it clear that the reason for introduction of Section 80AB of the Act was for the deductions under Part C of Chapter VI-A of the Act to be made on the net income of the eligible business and not on the total profits from the eligible business.
The Hon’ble Supreme Court stated that Section 80A(1) which stipulates that in computation of the ‘total income’ of an assessee, deductions specified in Section 80C to Section 80U of the Act shall be allowed from his ‘gross total income’. Sub-section (2) of Section 80A of the Act provides that the aggregate amount of the deductions under Chapter VI-A shall not exceed the ‘gross total income’ of the Assessee.
The Hon’ble Supreme Court expressed agreement with the Appellate Authority that Section 80AB of the Act which deals with determination of deductions under Part C of Chapter VI-A is with respect only to computation of deduction on the basis of ‘net income’.
The Hon’ble Supreme Court observed that the ‘gross total income’ of the assessee for the relevant assessment year was less than the quantum of deduction determined under Section 80-IA of the Act.
The assessee’s contended that income from all other heads including ‘income from other sources’, in addition to ‘business income’, have to be taken into account for the purpose of allowing the deductions available to the assessee, subject to the ceiling of ‘gross total income’.
The Hon’ble Supreme Court expressed agreement with the view of the Appellate Authority that there is no limitation on deduction admissible under Section 80-IA of the Act to income under the head ‘business’ only.
One of the contention of the Revenue was that sub-section(5) of Section 80-IA refers to computation of quantum of deduction being limited from ‘eligible business’ by taking it as the only source of income. It was contended that the language of sub-section (5) makes it clear that deduction contemplated in sub-section (1) is only with respect to the income from ‘eligible business’ which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the ‘business income’.
The Hon’ble Supreme Court held that the scope of sub-section (5) of Section 80-IA of the Act is limited to 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’ Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to ‘business income’.
As a result, appeal of the Revenue was dismissed.
Download Full Judgment Click Here >>
- Education Cess cannot be allowed as an expenditure in view of later amendment – SC
- Cash deposit cannot be shifted from live person to a deceased just because he was joint holder
- Interest on compensation u/s 28 of Land Acquisition Act, 1894 is taxable – ITAT
- GST Registration cancellation order passed without application of mind quashed
- NSDL latest e-TDS TCS RPU Version 5.1 and FVU 8.6 applicable from 19.04.2024 – Download
