IMPORTANT POINT
Scope of sub-section (5) of Section 80-IA of Income Tax Act is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA of Act by treating eligible business as only source of income.

JUDGMENT :

L. NAGESWARA RAO, J.

For the sake of convenience, we are referring to the facts of Civil Appeal No.1328 of 2021.

Civil Appeal No. 1328 of 2021

1. By an order of assessment dated 31.01.2005, the Assessing Officer restricted the eligible deduction under Section 80-IA of the Income Tax Act, 1961 (hereinafter “the Act”) to the extent of ‘business income’ only. On 23.03.2006, the Commissioner of Income-Tax (Appeal)-I (hereinafter “the Appellate Authority”) partly allowed the Appeal filed by the Assessee and reversed the order of the Assessing Officer on the issue of the extent of deduction under Section 80-IA of the Act. The Income Tax Appellate Tribunal (hereinafter “the Tribunal”), upheld the decision of the Appellate Authority on the issue of deduction under Section 80-IA. The High Court refused to interfere with the Tribunal’s order as far as the issue on deduction under Section 80-IA is concerned. Therefore, this Appeal by the Revenue.

2. This Appeal pertains to the assessment year 2002-03 for which the income-tax return was filed by the Assessee on 31.10.2002 declaring the total income as ‘NIL’. The return was subsequently revised on 06.12.2002 and thereafter, on 30.03.2004. At the time of the assessment proceedings, the Assessee submitted a revised computation of income by revising its claim of deduction under Section 80-IA of the Act.

3. The Assessee is in the business of generation of power and also deals with purchase and distribution of power. The Assessee-Company generated power from its power unit located at Dahanu. In respect of deduction under Section 80IA of the Act, the Assessee was asked to explain as to why the deduction should not be restricted to business income, as had been the stand of the Revenue for the assessment year 2000-01. The Assessee had revised its claim under Section 80-IA of the Act to Rs. 546,26,01,224/-, having admitted that there was an error in calculation of income-tax depreciation.

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/-. However, the Assessing Officer stated in the assessment order 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 computed 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 for allowing deduction under Section 80-IA of the Act, along with other deductions available to the Assessee, to the extent of ‘gross total income’ and restricted the deduction allowed under Section 80-IA at Rs.354,00,75,084/-, by limiting the aggregate of deductions under Sections 80-IA and 80-IB of the Act to ‘business income’ of the Assessee.

4. The Assessing Officer rejected the contention of the Assessee that Section 80AB of the Act is not applicable. It was held that Section 80AB of the Act makes it clear that for the purposes of deduction in respect of certain incomes, deduction had to be given on the income of the nature specified in the relevant section and allowed against income of that nature alone. The Assessing Officer elaborated on this point by stating that ‘income from business’ alone had to be considered for allowing any deduction computed on ‘income from business’ and using the same analogy, deduction computed on ‘income from other sources’ should be allowable against ‘income from other sources’ only. 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’. It was held by