Validity : AO had adjusted the loss of one eligible unit against the profits of the other eligible unit and allowed deduction under section 80-IC on the balance amount.

short overview : No netting of profits and losses of the eligible units was to be done for the purpose of calculating the deduction under section 80-IC and each unit for the said purpose had to be treated separately.

AO had adjusted the loss of one eligible unit against the profits of the other eligible unit and allowed deduction under section 80-IC on the balance amount. The CIT(A) upheld the order of the AO.

it is held that  In view of the admitted fact that identical issue already stands decided in favour of the assessee by the ITAT vide their orders passed in the case of M/s. Milestone Gears Pvt. Ltd. and Globe Precision Industries Pvt. Ltd., which decisions had been rendered after considering the judgment of the jurisdictional High Court in the case of Him Teknoforge, and further since the DR had been unable to distinguish the said decisions before this Tribunal, the issue in the present appeals, stands squarely covered by the aforestated orders of the ITAT. Following the same the assessee was entitled to deduction under section 80-IC with respect to the profits earned by it from eligible units, ignoring the losses from other eligible units/undertakings.

Decision: In assessee’s favour.

Followed: M/s. Milestone Gears Pvt. Ltd. v. DCIT in ITA No. 883 to 885/Chd/2017, dt. 6-12-2018 : 2019 TaxPub(DT) 0461 (Chd-Trib), Globe Precision Industries Pvt. Ltd. in ITA No. 871 of 2017, dt. 8-1-2019 : 2019 TaxPub(DT) 0432 (Chd-Trib) and M/s. Him Teknoforge Ltd. in ITA Nos. 1674 & 1675/2017, dt. 13-3-2019

Distinguished: M/s. Him Teknoforge Ltd. v. DCIT, (2013) 256 CTR (HP) 393 : 2013 TaxPub(DT) 0687 (HP-HC)

IN THE ITAT, CHANDIGARH BENCH

SANJAY GARG, J.M. & ANNAPURNA GUPTA, A.M.

Alliance India v. DCIT

ITA Nos. 1451 to 1453/Chd/2016

10 May, 2019

Assessee by: Parikshit Aggarwal, CA.

Revenue by: Chandrakanta, Sr. DR

Per Bench:

All the above appeals have been preferred by the same assessee against the separate orders of the Commissioner (Appeals), Faridabad, (in short ‘CIT(A)’) dated 2-11-2016, 2-11-2016 and 1-11-2016 pertaining to assessment years 2010-11, 2011-12 and 2012-13 respectively, passed under section 250(6) of the Income Tax Act, 1961 (hereinafter referred to as “Act”)

It was common ground that the issue involved in all the appeals was identical, therefore, these were all heard together and are being disposed off by this common, consolidated order for the sake of convenience.

It was pointed out that the sole issue involved in all the appeals related to whether for the purpose of quantification of deduction under section 80-IC of the Act, the profits and losses of the eligible units were to be netted.

2. Drawing our attention to the facts of the case, it was pointed out that the assessee was a manufacturer of soaps carrying out its operations in two units, both of which were eligible for deduction of profits under section 80-IC of the Act. During the impugned assessment year one unit showed profits while the other had shown net loss. The assessing officer had adjusted the loss of one eligible unit against the profits of the other eligible unit and allowed deduction under section 80-IC of the Act on the balance amount. The learned Commissioner (Appeals) upheld the order of the assessing officer following the decision of the Hon’ble Jurisdictional High Court in the case of M/s. Him Teknoforge Ltd. v. DCIT, (2013) 256 CTR (HP) 393 : 2013 TaxPub(DT) 0687 (HP-HC). The assessee has challenged this order of the learned Commissioner (Appeals) before us in the impugned appeals filed.

3. At the outset itself, the learned counsel for assessee pointed out that identical issue has been dealt with by the ITAT Chandigarh Bench in group of appeals in M/s. Milestone Gears Pvt. Ltd. v. DCIT in ITA No. 883 to 885/Chd/2017, dt. 6-12-2018 : 2019 TaxPub(DT) 0461 (Chd-Trib). Copy of the order was placed before us. Our attention was drawn to the findings of the ITAT at paras 12 to 22 of the order as under :–

“12. We have heard the contentions of both the parties carefully and have even carefully gone through the orders of the Hon’ble Jurisdictional High Court in the case of Him Teknoforge Ltd. (supra) which have been heavily relied upon by the Revenue in support of the order of the lower authorities on the proposition that the profits and losses of all the eligible undertakings are to be netted and on the balance of profits the deduction is to be calculated under section 80-IC of the Act.

13. The facts before the Hon’ble Jurisdictional High Court were that the assessee was having separate units, some of which were entitled to benefit in terms of section 80HH and 80-IA of the Act and which were referred to as priority units. In all the cases none of the priority units were running in losses and the Revenue had contended that the losses of the non priority units had also to be taken into consideration for working out the income of priority units for the purpose of calculation of deduction under sections 80HH and 80-IA of the Act. It was the contention of the Revenue that the income whether positive or negative of all the units priority or non priority were to be clubbed together for working out gross total income for the purpose of grant of tax benefits. The contention of the assessee, on the other hand, was that the deduction was to be computed only on the profits and gains derived from industrial undertakings to which the benefit was granted and was not relatable to the gross total income of the assessee but only to the gross income from that particular industrial undertaking.

On going through the order of the Hon’ble High Court in the case of Him Teknoforge Ltd. (supra), we find that the question of law before the Hon’ble Jurisdictional High Court was that whether deductions under section 80HH/80-IA of the Act were allowable on the profits of each unit separately. The Hon’ble High Court after considering the provisions of the Act and various judicial decisions in this regard, held that while calculating the deduction under Chapter VI-A, under which the deductions were allowed, only the profits of priority units, meaning thereby the eligible units, were to be taken into consideration.

14. The Hon’ble High court analyzed the relevant provisions of chapter VI-A, specifically referring to section 80AB included therein and which dealt with deduction to be made with reference to income included in the gross total income. The same is reproduced hereunder for clarity:

“80AB. Deductions to be made with reference to the income included in the gross total income.–Where any deduction is required to be made or allowed under any section [][* * *] included in this Chapter under the heading “C-Deductions in respect of certain incomes” in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.]”

15. Reading the same, the Hon’ble High Court held that there can be no manner of doubt that only income from a priority undertaking is to be taken into consideration while making the deduction and the profits or losses of non priority undertakings are not to be considered. Going further, the Hon’ble High Court held that if there were more than one priority undertaking, the profits and losses of all the priority undertakings had to be clubbed together and deduction was to be calculated on the profits remaining. While laying down this proposition the Hon’ble High Court stated that though the Hon’ble Apex Court in the case of CIT(Civil), Madras v. Canara Workshops Pvt. Ltd. (1986) 161 ITR 120 (SC) : 1986 TaxPub(DT) 1662 (SC) has clearly held that no clubbing of profits and losses of priority undertaking shall to be done for calculating the quantum of eligible deduction, the later decisions of the Hon’ble Apex Court in IPCA Laboratories Ltd. v. DCIT (2004) 266 ITR 521 (SC) : 2004 TaxPub(DT) 1472 (SC), ITO v. Induflex Products Pvt. Ltd. (2006) 280 ITR 1 (SC) : 2006 TaxPub(DT) 1076 (SC) and the decision of the Hon’ble Apex Court in the case of Synco Industries Ltd. v. AO & Anr. (2008) 299 ITR 444 (SC) : 2008 TaxPub(DT) 1775 (SC), diluted the said decision and relying on the later decisions of the Hon’ble Apex Court, the Hon’ble High Court held that the profits and losses of the priority units were to be clubbed and thereafter the deduction calculated. The Hon’ble High Court found that the Hon’ble Apex Court in the said cases, i.e., IPCA Laboratories Ltd. (supra) and Induflex Products Pvt. Ltd. (supra), while dealing with the issue of deduction allowable under section 80HHC, had held that section 80AB had a notwithstanding clause and thus had a overriding effect over all other sections in Chapter VIA, which included section 80HHC also.

The Hon’ble apex court noted in the said decision that section 80HHC did not provide that its provision would prevail over section 80AB or any provisions of the Act. Thus the Hon’ble Apex Court held that the section 80HHC would be ignored by 80AB and, therefore, as per section 80AB of the Act the amount of income eligible for deduction would have to be computed in accordance with the provisions of the Act which meant that the profits and losses of units would have to be set off against each other, since the section providing for set off of losses preceded the Chapter VI-A dealing with deduction under the Act. Following this proposition laid down by the Hon’ble Apex Court in the case of IPCA Laboratories Ltd. (supra) the Hon’ble High Court held that the Hon’ble Apex Court had clearly laid down the law in this regard that section 80AB would prevail over the other sections provided in Chapter VI-A of the Act dealing with the deduction of incomes, and since section 80AB provided for the computation of income eligible for deduction in accordance with the provisions of the Act, the profits and losses of all priority units needed to be set off and in the balance income only deduction was to be calculated.

16. The point to be noted is that the Hon’ble High Court followed the decision of the Hon’ble Apex Court in the case of IPCA Laboratories Ltd. (supra) wherein the Hon’ble Apex Court was seized with the issue of deduction under section 80HHC of the Act and the Hon’ble Apex Court had held that since section 80AB of the Act provided for a notwithstanding clause and there being no such corresponding clause provided for in section 80HHC the provision of section 80AB would override the provisions of section 80HHC of the Act. This is a very important observation of the Hon’ble High Court and it is from this that a distinction can be drawn vis-a-vis deduction claimed under section 80-IC of the Act, which is the fact in the present case. For clarity the relevant provisions of section 80-IA & 80-IC of the Act are being reproduced hereunder :–

“80-IA. [(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years.]”

“(5) 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.”

“80-IC. Special provisions in respect of certain undertakings or enterprises in certain special category States.–(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3).”

“(7) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section.”

17. As per section 80-IC(7), the provisions of section 80-IA(5) have been made applicable to the undertaking or enterprises eligible for deduction under section 80-IC of the Act. And, section 80-IA(5) begins with a notwithstanding clause. Thus when provisions of section 80-IC are read alongwith the provisions of section 80AB of the Act, we find that section 80-IC of the Act clearly provides that its provisions are to prevail over the provisions of section 80AB of the Act which was absent in the case of section 80HHC, as noted by the Hon’ble Apex Court in the case of IPCA Laboratories Ltd. (supra). Therefore, the proposition laid down by the Hon’ble Jurisdictional High Court in the case of Him Teknoforge Ltd. (supra) that the profits and losses of the priority units are to be clubbed for calculating eligible deduction under Chapter VI A having been borrowed from the law laid down by the Hon’ble Apex Court in the case of IPCA Laboratories Ltd. (supra), which is clearly distinguishable from the present case, as pointed out above, the same will not apply to deduction claimed under section 80-IC of the Act. As stated above, the provisions of section 80-IC will prevail over section 80AB of the Act and the deduction will have to be calculated as provided for in section 80-IC(7) of the Act, as per which for the purpose of determining the quantum of deduction the eligible undertaking is to be treated as the only source of income of the assessee during the previous year, thus treating each eligible undertaking or enterprise as a separate unit for the purpose of calculating deduction.

18. Even otherwise as correctly pointed out by the learned Counsel for the assessee, while the decision in the case of Him Teknoforge Ltd. (supra) was rendered in the context of section 80-IA, the assessee in the present case has claimed deduction under section 80-IC and the relevant provisions of two sections which deal with the calculation of quantum of deduction are differently worded in the two sections having an impact of the interpretation of the same.

19. Section 80-IA(5) states that the profits and gains of eligible “business” shall be computed as if such eligible “business” were the only source of income of a during previous years. Thus section 80-IA(5) applies to eligible “business”, the meaning for which can be gathered from section 80-IA(1) wherein business carried out by eligible undertaking have been referred to as eligible business. Section 80-IC, on the other hand, has no reference to business and uses only the work “undertaking or enterprise”. This distinction, in our view, is very critical and important. Literally interpreting the applicability of the provisions of section 80-IA(5) is “business specific” and, therefore, includes all eligible undertakings carrying out eligible business. On the other hand, section 80-IC(7) states that the provisions of section 80-IA(5) would apply to eligible undertaking or enterprises meaning thereby that the word ‘business’ used in section 80-IA(5) is to be substituted with eligible undertaking. Therefore, for the purpose of section 80-IC(7), we agree with the learned counsel for assessee, it is the profits of each eligible undertaking which are to be treated and taken separately as being the only source of the income during the impugned year and allowed deduction thereof as opposed to treating the eligible business of all eligible undertakings under section 80-IA(5) of the Act as being the only source of income for the impugned years as stipulated under section 80-IA(5) of the Act.

20. The first and primary rule of construction is that the intention of the legislature must be found in the words used by the legislature itself. Every word of a statute has to be assumed to have been deliberately and consciously incorporated therein by the legislature and if the language of a statute is clear and explicit, effect must be given to each word. The Hon’ble Apex court has time and again reinforced this rule of interpretation of statutes in its judgments, right from Padmasundara Rao v. State of TN (2002) 255 ITR 147 (SC), Mohammad v. CWT (1997) 224 ITR 672 (SC) : 1997 TaxPub(DT) 1131 (SC) and Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278 (SC) : 2003 TaxPub(DT) 1233 (SC). In view of the same since the words used in section 80-IC categorically state that the provisions of sub section 5 to section 80-IA shall apply to the eligible undertaking or enterprise, they have to be read as such and applied to each undertaking, meaning thereby that the profits of each eligible undertaking has to be treated as if it were the only source of income of the assessee.

21. Further as rightly pointed out by the learned counsel for assessee that if the interpretation given in the case of Him Teknoforge Ltd. (supra) is applied for the purpose of section 80-IC, it would lead to an anomalous situation creating a difficulty for calculating the quantum of deduction, since as rightly pointed out by the learned counsel for assessee, the section provides for different rates of deduction of profits for different years in case of specific undertakings and if netting of profits and losses of all eligible undertakings are resorted to, as laid down in the decision of Him Teknoforge Ltd. (supra), in a situation where the different eligible units are entitled to different rates of deduction of profits, it would be difficult to determine the rate to be applied to the remaining profits since there is no section or provision in the entire Act dealing with such a situation. We therefore, agree with the learned counsel for assessee that the decision in the case of Him Teknoforge Ltd. (supra) having been rendered in the context of section 80-IA does not apply in the present case which deals with deduction under section 80-IC of the Act and since as per section 80-IC it is the profit on each undertaking which is to be treated as separately, the profits and losses of all the eligible undertakings are not to be netted for the purpose of calculating deduction under section 80-IC and are to be taken on a stand alone basis.

22. In view of the above, we direct the assessing officer to allow deduction to the assessee under section 80-IC with respect to the profits earned by the assessee from the eligible undertakings ignoring the losses from other eligible undertakings. Ground of appeal No. 1 raised by the assessee is allowed.”

4. Referring to the same it was pointed out that the ITAT had decided the issue in favour of the assessee holding that no netting of profits and losses of the eligible units was to be done for the purpose of calculating the deduction under section 80-IC of the Act and each unit for the said purpose had to be treated separately.

It was pointed out that the ITAT had considered the judgment of the Hon’ble Jurisdictional High Court in the case of M/s. Him Teknoforge Ltd. (supra) and distinguished the same. It was further pointed out that following the said decision the ITAT had allowed the assessee’s appeals on identical issue in the case of Globe Precision Industries Pvt. Ltd. in ITA No. 871 of 2017, dt. 8-1-2019 : 2019 TaxPub(DT) 0432 (Chd-Trib) and again in the case of M/s. Him Teknoforge Ltd. in ITA Nos. 1674 & 1675/2017, dt. 13-3-2019. Copies of the orders were placed before us.

5. The learned DR fairly conceded that the issue involved in the impugned appeals had been adjudicated in favour of the assessee by the ITAT in the aforesaid cases, though she has heavily relied upon the judgment of the Hon’ble Jurisdictional High Court in the case of M/s. Him Teknoforge Ltd. (supra).

6. We have heard both the parties. In view of the admitted fact that identical issue already stands decided in favour of the assessee by the ITAT vide their orders passed in the case of M/s. Milestone Gears Pvt. Ltd. (supra) and Globe Precision Industries Pvt. Ltd., which decisions had been rendered after considering the judgment of the Hon’ble jurisdictional High Court in the case of Him Teknoforge (supra), and further since the learned DR has been unable to distinguish the said decisions before us, the issue in the present appeals, we hold, stands squarely covered by the aforestated orders of the ITAT. Following the same we hold that the assessee is entitled to deduction under section 80-IC of the Act with respect to the profits earned by it from eligible units, ignoring the losses from other eligible units/undertakings.

7. In the result, all the appeals of the assessee are allowed.