Income-tax Act, 1961 — S. 70(1), S. 80IA(5). An assessee running two separate undertakings can set off depreciation of the undertaking whose income is eligible for deduction u/s.80IA against business income of the other undertaking whose income is not eli

Swarnagiri Wire Insulations Pvt. Ltd. v. ITO

The assessee had two undertakings — one carrying on the
business of manufacturing of super-enameled copper winding wires and the other
carrying on the business of generation of power through windmills. The profits
of the undertaking generating power through windmills qualified for deduction
u/s.80IA, whereas the profits of the other business of manufacturing
super-enameled copper winding wires did not qualify for deduction u/s.80IA.
During the year under consideration, the assessee filed a revised computation of
income, claimed business income of Rs.60,00,829 from which it deducted
Rs.73,20,339 being loss/depreciation of undertaking generating power. The
Assessing Officer (AO) held that since the profits of the undertaking generating
power through windmill qualify for deduction u/s.80IA the loss/depreciation of
this undertaking cannot be set off against the income of the undertaking whose
profits do not qualify for deduction u/s.80IA. He, accordingly, denied the
set-off claimed by the assessee, but allowed it to carry forward the
loss/depreciation of undertaking generating power to the subsequent assessment
year.

Aggrieved the assessee preferred an appeal to the CIT(A) who
rejected the appeal of the assessee.

Aggrieved the assessee preferred an appeal to the Tribunal.

(1) For the purpose of determining the quantum of deduction
as referred in Ss.(1) to S. 80IA in respect of an eligible business, the
computation will have to be done as if such eligible business was the only
source of income to the assessee in all the relevant years of claim commencing
from the initial assessment year.

(2) S. 80IA is a beneficial Section permitting certain
deductions in respect of certain income under Chapter VIA of the Act. A
provision granting incentive for promotion of economic growth and development in
taxing statutes should be liberally construed and restriction placed on it by
way of exception, should be construed in a reasonable and purposive manner so as
to advance the objects of the provision. It is a generally accepted principle
that the deeming provision of a particular Section cannot be breathed into
another Section. Therefore, the deeming provision contained in S. 80IA(5) cannot
override the S. 70(1) of the Act. The CIT(A)’s observation on this regard that
the specific provision of S. 80IA(5) have overriding effect is not acceptable.

(3) The assessee was entitled, as per provisions of the Act,
to claim depreciation on windmill at Rs.78,72,094 and had generated income from
windmill power generation business of Rs.5,51,755. Thus, the loss on account of
business eligible for deduction u/s.80IA was Rs.73,20,339. Since there was a
loss for the previous year, the question of deduction u/s.80IA did not arise.
The Tribunal held that as per S. 70(1), the assessee is eligible to set off this
loss of Rs.73,20,339 from another source under the same head of income. However,
during the subsequent assessment year, this loss has to be notionally carried
forward under the same source and set off before claiming deduction u/s. 80IA of
the Act.

The Tribunal directed the AO to set off the loss of the
assessee on windmill operations from the other source under the same head of
income. The appeal of the assessee was allowed.