Madras HC Dismisses Department's Appeal on Tax Holiday Deduction Computation u/s 80IA and 80HHC [Read Order]
The Court examined the Tax Case Appeal in light of the settled legal position
The Madras High Court has dismissed a tax appeal filed by the Revenue, holding that losses or depreciation already set off in earlier years cannot be notionally carried forward for the purpose of computing deductions under Section 80IA of the Income Tax Act, 1961.
The Bench further held that deductions under Sections 80IA and 80HHC are to be restricted only at the stage of allowability and not computation.
The appeal was filed by the Commissioner of Income Tax against M/s Ucal Fuel Systems Ltd. for the assessment year 2003-04. The Appellant challenged the order of the Income Tax Appellate Tribunal which had ruled in favour of the assessee on issues relating to deductions under Sections 80IA, 80IB and 80HHC of the Act.
The first question of law concerned whether notional losses or depreciation of years prior to the initial assessment year could be carried forward and set off under Section 80IA(5). The Court noted that this issue was covered by its earlier decision in Velayudhaswamy Spinning Mills (P.) Ltd. v. Assistant Commissioner of Income Tax, wherein it was held that once losses of earlier years had already been absorbed against other income, they could not be brought forward for recomputation.
The Division Bench comprising Justice Dr. Anita Sumanth and Justice Mummineni Sudheer Kumar observed that Section 80IA permits a forward-looking computation from the initial assessment year chosen by the assessee.
It does not authorise the Revenue to reopen losses that had already been set off in earlier years. The Court further noted that the Special Leave Petition filed by the Department against the Velayudhaswamy Spinning Mills ruling had been dismissed by the Supreme Court.
With respect to the second question of law on deductions under Sections 80IB and 80HHC in light of Section 80IA(9), the Court held that the issue was settled by the Supreme Court in Shital Fibers Ltd. v. Commissioner of Income Tax. Relying on the ratio laid down in Associated Capsules (P) Ltd. v. DCIT, the bench reiterated that Section 80IA(9) does not affect the computation of deductions, but only restricts the allowability to ensure that the total deduction does not exceed 100% of the profits.
In view of the settled legal position, the Madras High Court dismissed the Tax Case Appeal filed by the Revenue and upheld the order of the Tribunal.
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