High Court Of Delhi
CIT vs. Dewan Kraft System (P) Ltd.
Section 80-IA
Asst. Years 1997-98, 1998-99
Madan B. Lokur & V.B. Gupta, JJ.
IT Appeal Nos. 977 of 2005 & 186 of 2006
27th February, 2007
Counsel Appeared
Ms. P.L. Bansal with Vishnu Sharma, for the Appellant : Salil Aggarwal with Prakash Kumar, for the Respondent
JUDGMENT
V.B. Gupta, J. :
By this common judgment two appeals being IT Appeal Nos. 977 of 2005 and 186 of 2006 filed by the Revenue are being disposed of since common question of law is involved.
2. Appeal No. 977 of 2005 arises out of the decision dt. 20th Jan., 2005 passed by the Tribunal for asst. yr. 1997-98, whereas Appeal No. 186 of 2006 pertains to the order dt. 29th March, 2005 for the asst. yr. 1998-99 passed by the Tribunal.
3. The brief facts leading to the filing of these appeals are : IT Appeal No. 977 of 2005
4. The assessee, a private limited company, is engaged in business of fabrication and supply of equipments and technical items. This business is being carried out in units situated at Kalamb, Himachal Pradesh which is a notified backward area. Other business units of the assessee are situated in Delhi and Noida. The profit derived from the Kalamb unit was eligible for deduction under s. 80-IA of the IT Act, 1961 (for short the Act) in the year under consideration, whereas such benefit was not available to the other units of assessee situated in Delhi and Noida. In the return of income for the year under consideration, the assessee declared a gross total income of Rs. 21,91,102 which comprised of profit from Kalamb unit amounting to Rs. 20,92,221, interest and other income amounting to Rs. 10,10,149 and loss from units in Delhi at Rs. 9,11,270. From this gross total income, the assessee claimed a deduction of Rs. 20,92,221 under s. 80-IA of the Act being 100 per cent profit derived from Kalamb unit and, accordingly, total income of Rs. 98,880 was shown in its return.
5. The AO, however, adjusted the loss of Rs. 9,11,270 of Delhi unit against the profit of Rs. 20,92,221 of Kalamb unit and restricted the deduction under s. 80-IA of the Act at Rs. 11,80,952.
6. Being dissatisfied with the decision of the AO, the assessee filed an appeal and the CIT(A) held that the deduction claimed by the assessee under s. 80-IA of the Act at Rs. 20,92,221 to be correct and allowed the same.
7. Aggrieved against the order of CIT(A) the Revenue filed an appeal before the Tribunal, which upheld the order of CIT(A). IT Appeal No. 186 of 2006
8. The issue in this case is whether Tribunal is justified in allowing the deduction under s. 80-IA of the Act at Rs. 18,03,143 as against Rs. 4,53,398 allowed by the AO for the asst. yr. 1998-99. The Tribunal, following its order dt. 20th Jan., 2005 in ITA No. 758/Del/2001 for the asst. yr. 1997-98, dismissed the appeal of the Revenue.
9. It has been argued by the learned counsel for the appellant that as per provision of s. 80-IA of the Act where gross total income of the assessee includes any profits and gains derived from any eligible business of an industrial undertaking, the whole of the profit of such eligible business is to be allowed as deduction under s. 80- IA of the Act and the interest earned by the assessee is not a business income but it is an income under the head “Income from other sources” and it cannot be treated as business income.
10. Learned counsel for the appellant in support of its contention has cited decision of apex Court in IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC) and CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (1997) 139 CTR (SC) 359 : (1997) 224 ITR 604 (SC).
11. On the other hand, it has been argued by learned counsel for the respondent that the AO while computing the income, restricted the deduction at Rs. 11,80,952 being the amount allowable to the extent of business income against the business profit of Rs. 20,92,221 from Kalamb unit. In doing so, the AO mixed the profits of Kalamb unit with profits of units at Delhi and Noida and, thus, erroneously restricted the deduction to the extent of business income. This has been done in total disregard of provisions of sub-s. (7) of s. 80-IA of the Act. The learned counsel in support of his contention has cited a decision of Andhra Pradesh High Court in CIT vs. Vishaka Industries Ltd. (2001) 171 CTR (AP) 300 : (2001) 251 ITR 471 (AP).
12. It is an admitted fact that Kalamb unit is the only unit of the assessee which is eligible for benefits available under s. 80-IA of the Act during the years under consideration, whereas the other units situated at Delhi and Noida are not eligible for this benefit. It is also not in dispute that profits derived by the assessee from Kalamb unit amounted to Rs. 20,92,221 whereas the other units at Delhi and Noida resulted in the loss of Rs. 9,11,270. Provision of sub-s. (7) of s. 80-IA of the Act which is relevant in this case, is reproduced below : “(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-s. (1) apply shall, for the purpose of determining the quantum of deduction under sub-s. (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.”
13. Perusal of the above provision shows that it is a distinct and separate deeming provision which lays down the special method of computing the profits and gains entitled to deduction under s. 80IA of the Act. Moreover, this provision is of overriding nature providing specifically that during each of the assessment years in the tax holiday period in which the assessee is entitled to deduction under s. 80-IA of the Act, this provision will be applied as if the industrial unit is an independent unit and is the one and only source of income possessed by the assessee.
It is clear that while computing deduction under s. 80-IA of the IT Act, 1961, the profits and gains of Kalamb unit for the purpose of determining the quantum of deduction under s. 80-IA(5) of the Act is to be computed if such eligible business of the said unit is the only source of income of the assessee. The AO mixed the profits of the Kalamb unit with the profits of units at Delhi and Noida and, thus, he erroneously restricted the deduction to the extent of business income and this was done by him in total disregard of the provisions of sub-s. (7) of s. 80-IA of the Act as mentioned above. Thus, the Kalamb unit being the only unit of the assessee eligible for deduction under s. 80-IA of the Act is to be treated as an independent unit and the same is to be treated as the only source of income for assessee for the purpose of computing deduction under s. 80-IA of the Act. The deduction claimed by the assessee under s. 80-IA of the Act, thus, is in accordance with the said provisions and as such we find that there is no infirmity in the impugned order passed by the Tribunal.
The judgments cited by learned counsel for appellant are not applicable for the facts of the present case. This being the position, we are of the opinion that there is no substantial question of law that arises for our consideration and we do not find any error in the view that has been taken by the Tribunal in this regard.
Consequently, both the appeals are dismissed.
[Citation : 297 ITR 305]
