Deduction u/s 80-IA can be set off against total income and not restricted to business income – Supreme court judgement

written by Income tax Expert | May 23, 2021

Hon’ble Supreme court in case of Commissioner of Income Tax-I Versus M/s. Reliance Energy Ltd. (Formerly BSES Ltd.) through its M.D Respondent (s) Civil Appeal No. 1327 of 2021 Dt. 28.04.2021 held that deduction available under section 80-IA can be set off against gross total income and cannot be restricted to business income.

Facts of the case:

This Appeal pertains to the assessment year 2002-03 for which the income-tax return was filed by the Assessee on 31.10.2002 declaring the total income as ‘NIL’.

The return was subsequently revised on 06.12.2002 and thereafter, on 30.03.2004.

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.

The Assessee is in the business of generation of power and also deals with purchase and distribution of power.

 

Revenue’s contention:

Assessing Officer 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.

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 VIA of the Act against such ‘gross total income’ was not accepted by the Assessing Officer.

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’.

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’.

He relied upon the judgment of this Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT, followed in Synco Industries Ltd. v. Assessing Officer, Income Tax, Mumbai & Anr. and Pandian Chemicals Ltd. v. Commissioner of Income Tax, Madurai.

 

Assessee’s contention:

Senior Counsel appearing on behalf of the Assessee, argued that Section 80AB of the Act is with reference to computation of deduction on the basis of net income.

He submitted that there is no indication in sub-section (5) of Section 80-IA that the deduction under sub-section (1) is restricted to ‘business income’ only.

On the other hand, according to him, subsection (5) deals with determination of the quantum of deduction by treating eligible business as the only source of income of the Assessee.

He relied upon judgments of this Court in CIT (Central), Madras v. Canara Workshops (P) Ltd., Kodialball, Mangalore and Synco Industries (supra) to argue that sub-section (5) of Section 80-IA of the Act does not restrict permissible deduction under sub-section (1) to be allowed against ‘business income’ only.

Section 80AB was inserted in the year 1981 to get over a judgment of this Court in Cloth Traders (P) Ltd. (supra). The Circular dated 22.09.1980 issued by the CBDT 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.

 

Judgement:

It will be useful to refer to the judgment of this Court relied upon by the Revenue as well as the Assessee. In
Synco Industries (supra), this Court was concerned with Section 80-I of the Act.

It was held in Synco Industries (supra) that for the purpose of calculating the deduction under Section 80-I, loss
sustained in other divisions or units cannot be taken into account as sub-section (6) contemplates that only profits from the industrial undertaking 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.

In the case before us, there is no discussion about Section 80-IA(5) by the Appellate Authority, nor the Tribunal
and the High Court. However, we have 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.

We hold 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’. An attempt was made by the learned Senior Counsel for the Revenue to rely on 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.

It is not necessary for us to deal with this submission in view of the findings recorded above. For the aforementioned reasons, the Appeal is dismissed qua the issue of the extent of deduction under Section 80-IA of the Act.

 

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