Revenue loses appeal on Section 80IA (of Income Tax Act, 1961) deduction for multiple industrial units

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Case Name

Commissioner of Income Tax Vs. M/s. Banari Amman Sugars Ltd (High Court of Madras)

T.C.A. No. 868 of 2010

Date: 21st June 2021

Key Takeaways

• Individual Unit Treatment: Each industrial unit eligible for Section 80IA (of Income Tax Act, 1961) deduction should be treated separately and independently
• Precedent Power: Courts must follow established Division Bench decisions unless there are compelling reasons to deviate
• Limited Scope: The precedent only applies when dealing with multiple units that are ALL eligible for Chapter VIA deductions, not mixed scenarios
• Revenue Concession: Even the Revenue’s own counsel acknowledged the case was covered by adverse precedent

Issue

The central legal question was: Whether the Income-Tax Appellate Tribunal was right in law in holding that the assessee is entitled to deduction under section 80IA (of Income Tax Act, 1961), even though where a company apart from his regular business and in the business of generation and distribution of power, owning more than one Industrial Undertaking, deduction under Section 80IA (of Income Tax Act, 1961) is to be allowed to a single Industrial Unit not all the units taken together?

Facts

• A company was engaged in regular business plus power generation and distribution
• The company owned multiple industrial undertakings/units
• One specific unit (apparently a 16 MW unit in Karnataka) was eligible for deduction under Section 80IA (of Income Tax Act, 1961)
• The Income Tax Appellate Tribunal allowed the deduction for this single unit
• The Revenue challenged this, arguing that all units should be considered together
• The case came up before the Madras High Court as a tax appeal

Arguments

Revenue’s Position:

• When a company has multiple industrial units, the deduction under Section 80IA (of Income Tax Act, 1961) should consider all units collectively
• Individual unit treatment shouldn’t be allowed when the company operates multiple undertakings

Assessee’s Position:

• Each eligible industrial unit should be treated independently for Section 80IA (of Income Tax Act, 1961) purposes
• The tribunal was correct in allowing deduction for the specific unit without considering other units

Key Legal Precedents

The court heavily relied on these key precedents:

1. Commissioner of Income Tax, Coimbatore v. M/s.Bannari Amman Sugars Ltd. - [2019] 104 Taxmann.com 1 (Madras)
2. Synco Industries Ltd. v. Assessing Officer, Income-Tax, Mumbai - [2008] 168 Taxman 224/299 ITR 444 (SC)

The court specifically noted that Section 80IB(5) (of Income Tax Act, 1961) provides that “in determining the quantum of deduction under section 80IA (of Income Tax Act, 1961), the eligible business shall be treated as the only source of income of the assessee”

Key sections referenced include:

• Section 80IA (of Income Tax Act, 1961) (the main deduction provision)
• Section 80IB(5) (of Income Tax Act, 1961) (treatment of eligible business)
• Section 80A(2) (of Income Tax Act, 1961) and Section 80B(5) (of Income Tax Act, 1961) (ceiling provisions)
• Section 80I(1) (of Income Tax Act, 1961) and Section 80I(6) (of Income Tax Act, 1961) (from the Synco Industries case)

Judgement

The court decided in favor of the assessee and against the Revenue. Here’s the reasoning:

1. Precedent Binding: The Revenue’s own counsel honestly admitted that the substantial question of law was “covered against the revenue” by the Division Bench judgment in the Bannari Amman Sugars case
2. Individual Unit Treatment: The court confirmed that “each unit, including a CPP, has to be seen independently as separate and distinct from each other and as units for the purposes of grant of deduction under section 80IA (of Income Tax Act, 1961)”
3. Limited Application: The precedent specifically deals with cases where multiple units are ALL eligible for Chapter VIA deductions, which didn’t exactly match this case’s facts
4. Final Order: “The question of law is decided against the Revenue and in favour of the assessee. The Tax Case Appeal is dismissed. No costs.”

FAQs

Q1: What does this mean for companies with multiple industrial units?

A: Each eligible industrial unit can be treated separately for Section 80IA (of Income Tax Act, 1961) deduction purposes. You don’t have to lump all units together.

Q2: Why did the Revenue lose so easily?

A: Their own lawyer admitted the case was covered by an adverse precedent from a higher bench. In the legal system, you generally have to follow precedents from higher or coordinate benches.

Q3: Does this apply to all types of multiple unit scenarios?

A: Not necessarily. The precedent specifically dealt with cases where all units were eligible for Chapter VIA deductions. Mixed scenarios might be treated differently.

Q4: What’s the practical impact?

A: Companies can potentially maximize their tax benefits by treating each eligible industrial unit independently rather than having losses from one unit offset profits from another for deduction purposes.

Q5: Can the Revenue appeal this further?

A: The document doesn’t indicate any further appeal, and given that even their own counsel conceded the point, it seems unlikely to succeed at a higher level.

Challenging the order passed in I.T.A.No.1196/Mds/2009 in respect of the Assessment Year 2006-2007 on the file of the Income Tax Appellate Tribunal, Chennai, "C" Bench (for brevity, the Tribunal), the Revenue has filed the above appeal.

2. The above appeal was admitted on the following substantial question of law:

“ Whether on the facts and In the

circumstances of the case, the Income-Tax Appellate

Tribunal was right in law in holding that the assessee

is entitled deduction under section 80IA (of Income Tax Act, 1961),

even though where a company apart from his regular

business and in the business of generation and

distribution of power, owning more than one

Industrial Undertaking, deduction under Section

80IA of the Act is to be allowed to a single Industrial

Unit not all the units taken together?”

3. When the appeal is taken up for hearing, T.R. Senthil Kumar,

learned Senior Standing Counsel appearing for the appellant-revenue

fairly submitted that the substantial question of law arise for

consideration in this appeal is covered against the revenue by a

Judgment of the Division Bench of this Court reported in [2019] 104

Taxmann.com 1 (Madras) [Commissioner of Income Tax, Coimbatore

v. M/s.Bannari Amman Sugars Ltd.] wherein the Hon'ble Division

Bench held as follows:-

" .......... 13. We may, at this juncture, usefully refer

to the provisions of section 80IB(5) (of Income Tax Act, 1961) which

provides that in determining the quantum of deduction

under section 80IA (of Income Tax Act, 1961), the eligible business shall be treated

as 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. There is thus no doubt that each unit, including a

CPP, has to be seen independently as separate and

distinct from each other and as units for the purposes of

grant of deduction under section 80IA (of Income Tax Act, 1961).

14. Coming to the computation itself, reliance is placed by

the Department on a judgment of the Supreme Court in

the case of Synco Industries Ltd. v. Assessing Officer,

Income-Tax, Mumbai [2008] 168 Taxman 224/299 ITR

444 (SC). The Supreme Court was considering the case of

an assessee managing multiple units, some earning a

profit and others, losses. The question before the Bench

was whether the losses suffered by the eligible oil division

ought to be adjusted against the profits of the chemical

division in finalizing the grant of deduction under Section

80I of the Act. After considering the provisions of Section

80I, 80A, 80AB and 80B, the Bench holds as follows:

12. The contention that under Section 80-I(6) (of Income Tax Act, 1961)

the profits derived from one industrial

undertaking cannot be set off against loss

suffered from another and the profit is required

to be computed as if profit making industrial

undertaking was the only source of income, has

no merits. Section 80-I(1) (of Income Tax Act, 1961) lays down that where

the gross total income of the assessee includes

any profits derived from the priority

undertaking/unit/division, then in computing

the total income of the assessee, a deduction

from such profits of an amount equal to 20%

has to be made. Section 80-I(1) (of Income Tax Act, 1961) lays down the

broad parameters indicating circumstances

under which an assessee would be entitled to

claim deduction. On the other hand Section 80 (of Income Tax Act, 1961)-

I (6) deals with determination of the quantum of

deduction. Section 80-I(6) (of Income Tax Act, 1961) lays down the

manner in which the quantum of deduction has

to be worked out. After such computation of the

quantum of deduction, one has to go back to

Section 80-I(1) (of Income Tax Act, 1961) which categorically states that

where the gross total income includes any

profits and gains derived from an industrial

undertaking to which Section 80-I (of Income Tax Act, 1961) applies then

there shall be a deduction from such profits and

gains of an amount equal to 20%. The words

"includes any profits'' used by the legislature in

Section 80-I(1) (of Income Tax Act, 1961) are very important which

indicate that the gross total income of an

assessee shall include profits from a priority

undertaking. While computing the quantum of

deduction under Section 80-I(6) (of Income Tax Act, 1961) the Assessing

Officer, no doubt, has to treat the profits

derived from an industrial undertaking as the

only source of income in order to arrive at the

deduction under Chapter VI-A. However, this

Court finds that the non-obstante clause

appearing in Section 80-I(6) (of Income Tax Act, 1961), is

applicable only to the quantum of deduction,

whereas, the gross total income under Section

80B(5) which is also referred to in Section 80I(1) (of Income Tax Act, 1961)

is required to be computed in the manner

provided under the Act which presupposes that

the gross total income shall be arrived at after

adjusting the losses of the other division against

the profits derived from an industrial

undertaking. If the interpretation as suggested

by the appellant is accepted it would almost

render the provisions of Section 80A(2) (of Income Tax Act, 1961) of the

Act nugatory and therefore the interpretation

canvassed on behalf of the appellant cannot be

accepted. It is true that under Section 80-I(6) (of Income Tax Act, 1961)

for the purpose of calculating the deduction, the

loss sustained in one of the units, cannot be

taken into account because Sub-Section 6 (of Income Tax Act, 1961)

contemplates that only the profits shall be

taken into account as if it was the only source

of income. However, Section 80A(2) (of Income Tax Act, 1961) and Section

80B (5) are declaratory in nature. They apply to

all the Sections falling in Chapter VI-A. They

impose a ceiling on the total amount of

deduction and therefore the non-obstante

clause in Section 80-I(6) (of Income Tax Act, 1961) cannot restrict the

operation of Sections 80A(2) and 80B(5) (of Income Tax Act, 1961) which

operate in different spheres. As observed earlier

Section 80-I(6) (of Income Tax Act, 1961) deals with actual computation of

deduction whereas Section 80 (of Income Tax Act, 1961)- I(1) deals with

the treatment to be given to such deductions in

order to arrive at the total income of the

assessee and therefore while interpreting

Section 80-I(1) (of Income Tax Act, 1961), which also refers to gross total

income one has to read the expression 'gross

total income' as defined in Section 80B(5) (of Income Tax Act, 1961).

Therefore, this Court is of the opinion that the

High Court was justified in holding that the loss

from the oil division was required to be adjusted

before determining the gross total income and

as the gross total income was 'Nil' the assessee

was not entitled to claim deduction under

Chapter VI-A which includes Section 80-I (of Income Tax Act, 1961) also.

15. The conclusion was thus to the effect that where

the assessee deserves profits from multiple units, all

being eligible for deduction under Chapter VIA, the

profits or losses arising from the respective units have

to be considered in totality and only if the resultant

figure were positive, would the assessee be entitled to

its claim. Thus, the judgment considers the interplay

between the income and losses arising from eligible

units alone, all of which are eligible for deduction

under Chapter VIA, and would not apply to the facts

and circumstances of the present case whether the

claim under Section 80I (of Income Tax Act, 1961) was restricted only to the 16

MW unit at Karnataka. Mr.Senthil Kumar, fairly, does

not dispute this position.

16. In the light of the above discussion, the questions

of law are answered in favour of the Assessee and

against the Revenue and the Tax Case (Appeal) is

dismissed. No costs.”

4. Mr.R.Venkatnarayanan, learned counsel appearing for the

respondent also submitted that in view of the Judgment of the Hon'ble

Division Bench of this Court cited supra, the appeal is liable to be

dismissed.

5. Having regard to the submissions made by the learned counsel

on either side, following the ratio laid down by the Hon'ble Division

Bench of this Court in the Judgment reported in [2019] 104

Taxmann.com 1 (Madras) [cited supra], the question of law is

decided against the Revenue and in favour of the assessee. The Tax

Case Appeal is dismissed. No costs.