Section 80-IA of the act talks about the deduction of “only source of income” rather deduction of “business income” only

Commissioner of income tax Vs. M/s. Reliance Energy Ltd.(Supreme Court of India); Civil Appeal No. 1327 of 2021; 28.04.2021

Issue:

Appeal by the Commissioner of Income Tax before the Supreme Court for restricting the eligible deduction under Section 80-IA of the Income Tax Act, 1961 to the extent of ‘business income’ only.

Facts :

• On 31.10.2002 the assessee filed the income tax returns for assessment year 2002-2003 declaring the total income as “NIL”. The return was revised on 6.12.2002 and followed on 30.03.2004. During the assessment proceedings the assessee submitted a revised figure 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. The assessee revised the deduction claim to Rs. 546,26,01,224/- under section 80-IA of the Income Tax Act.
• The Assessing Officer considered the revised claim of the Assessee under Section 80-IA and determined the amount eligible for deduction under Section 80-IA at Rs. 492,78,60,973/- against the Assessee’s claim of Rs. 546,26,01,224/-.
• The Assessing officer explained 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 enumerated 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.
• The assessing officer rejected the claim of the assessee by restraining overall deduction under Sections 80-IA and 80-IB of the Act to ‘business income’ of the Assessee by stating that ‘income from business’ alone had to be considered for allowing any deduction gauge on ‘income from businesses’, 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’. and deduction gauge on ‘income from other sources’ should be allowable against ‘income from other sources’ only.
• The Assessee submitted the appeal before the Commissioner of Income Tax by stating that deductions so specified under various sections under Chapter VI-A have to be aggregated and allowed against the ‘gross total income’ and restricting the deduction under Section 80-IA of the Act to the extent of ‘business income’ was unjustified.
• Thereafter, the appellate authority directed the assessing officer to aggregate the deduction under Section 80-IA of the Act with the other deductions available to the Assessee and then to allow deductions of such aggregate amount to the extent of ‘gross total income’. The order of the Appellate Authority was affirmed by the Tribunal and the High Court on this issue.

Observations :

Section 80-IA was again interpreted carefully before the court specifically sub section (1) and sub section (5) which are relevant to this case were taken into the account.

Section 80-IA: Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.—

(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 the 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 subsection (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.”

Judgement :

Supreme Court held 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.

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