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2020 Supreme(Guj) 430
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
J.B. Pardiwala, Bhargav D. Karia, JJ.
Vodafone Essar Gujarat Limited - Appellant
Versus
Assistant Commissioner of Income Tax Circle-8 - Opponent
R/Tax Appeal No. 65 of 2009 With R/Tax Appeal No. 1191 of 2010
Decided On : 03-03-2020
For the Appellants : Mr. Sn Soparkar Sr. Counsel With Mr. Bandish Soparkar
For the Opponent : Mr. Manish Bhatt Sr. Counsel With Mrs. Mauna M Bhatt
Point of Law:
Section 79 of the Income-tax Act clearly lays down the carry forward and set off of losses in the case of certain companies. It is true that both the conditions as mentioned in Section 79(a) and (b) of the Income tax Act are that on the last day of the previous year, the shares of the company carrying not less than fifty one per cent. of the voting power were beneficially held by the persons who beneficially held shares of the company carrying not less than fifty one per cent. of the voting power on the last day of the year or years in which the loss was incurred and Sub clause (b) as it stood at the relevant time was that the Assessing Officer is satisfied that the change in the shareholding was not effected with a view to avoiding or reducing any liability to tax.
Headnote:
Income Tax Act,1961 - Section 80-IA - Appeal is arising from impugned order passed by Income Tax Appellate Tribunal arising from the impugned order - As issues involved in both captioned tax appeals are interconnected those were heard analogously and are being disposed of by this common judgment and order - Income Tax Appellate Tribunal was justified in law in holding that appellant was not entitled to deduction - Appellant Vodafone Gujarat Limited is a company engaged in business of providing cellular telecommunication services in State of Gujarat - Assesses was established in year - During previous year relevant to assessment year there was a change in share holding of assesses company as a result of which provisions - Assesses earned profit during assessment year and it being a telecommunication service provider was eligible for deduction Act in respect of profits derived from telecommunication services - Assessing Officer rejected contention of assesses and disallowed claim of assesses for deduction Act considering deduction - Assesses submitted that Tribunal has confirmed order passed by Assessing Officer and CIT by wrongly applying provisions of Act to interpret that provisions of are not applicable for computation of deduction - Held, if strict literal construction leads to an absurd result not intended to be served by object of legislation then if other construction is possible such construction should be preferred and attempt should be made to prefer construction which results in equity rather than justice -Court case when there is no issue of any strict or otherwise literal construction of provisions of Act application of Act to deny effect of cannot be sustained as per Scheme of Act - When loss of earlier years have already lapsed then same cannot be notionally carried forward and set off against profit and gains of assessor business for year consideration in computing quantum of deduction Act provision of Act cannot be invoked to ignore provisions by virtue of which business loss of assesses prior to year has already lapsed - Assessing Office CIT and Tribunal were therefore not justified in applying Act so as to ignore losses which have already lapsed by operation - Appeal allowed (Para 21)
Facts of the Case:
Appellant Vodafone Essar Gujarat Limited is a company engaged in the business of providing cellular telecommunication services in the State of Gujarat. The assessee was established in the year 1997-1998. During the previous year relevant to the assessment year 2001-2002, there was a change in the share holding of the assessee company, as a result of which the provisions of section 79 of the Income Tax Act, 1961 ("the Act, 1961" for short) was made applicable and the accumulated losses from the assessment years 1997-1998 to 2001-2002 lapsed.
Finding of the Court:
If strict literal construction leads to an absurd result not intended to be served by object of legislation then if other construction is possible such construction should be preferred and attempt should be made to prefer construction which results in equity rather than justice -Court case when there is no issue of any strict or otherwise literal construction of provisions of Act application of Act to deny effect of cannot be sustained as per Scheme of Act - When loss of earlier years have already lapsed then same cannot be notionally carried forward and set off against profit and gains of assessor business for year consideration in computing quantum of deduction Act provision of Act cannot be invoked to ignore provisions by virtue of which business loss of assesses prior to year has already lapsed - Assessing Office CIT and Tribunal were therefore not justified in applying Act so as to ignore losses which have already lapsed by operation.
Result: Appeal allowed
JUDGMENT :
Bhargav D. Karia, J.
1. The Tax Appeal No.65/2009 is arising from the impugned order passed by the Income Tax Appellate Tribunal (“the Tribunal” for short) dated 9th January, 2009 in the ITA No.1369/Ahd/2008 for the assessment year 2005-2006. The Tax Appeal No.1191/2010 is arising from the impugned order passed by the Tribunal dated 27th January, 2009 in the ITA No./1361/Ahd/2009 for the assessment year 2006-2007.
2. As the issues involved in both the captioned tax appeals are interconnected, those were heard analogously and are being disposed of by this common judgment and order.
3. For the sake of convenience, the Tax Appeal No.65/2009 is treated as the lead appeal.
4. We are called upon to consider the following substantial question of law :
“Whether on the facts and in the circumstances of the case, Income Tax Appellate Tribunal was justified in law in holding that the appellant was not entitled to deduction of Rs.191,59,84,008/-under Section 80-IA of the Income Tax Act,1961 as for the purpose of calculation of deduction under Section 80-IA read with Section 80-IA(5) of the Act, provisions of Section 79 of the Act are not applicable?”
5. The appellant Vodafone Essar Gujarat Limited (hereinafter referred to as “the assessee”) is a company engaged in the business of providing cellular telecommunication services in the State of Gujarat. The assessee was established in the year 1997-1998. During the previous year relevant to the assessment year 2001-2002, there was a change in the share holding of the assessee company, as a result of which the provisions of section 79 of the Income Tax Act, 1961 (“the Act, 1961” for short) was made applicable and the accumulated losses from the assessment years 1997-1998 to 2001-2002 lapsed.
(5.1) The assessee earned profit during the assessment year 2005-2006 and it being a telecommunication service provider was eligible for 100% deduction under section 80-IA of the Act, 1961 in respect of the profits derived from the telecommunication services. The assessee therefore, made a claim for deduction under section 80-IA of the Act, 1961 for the first time for the assessment year 2005-2006.
(5.2) The assessee filed its return of income for the assessment year 2005-2006 declaring total income at Rs. Nil. The assessee company computed the gross total income after reducing its carry forward losses and unabsorbed depreciation after the assessment year 2001-2002. The assessee company did not claim the losses prior to 2001-2002 during which the change in the share holding took place by applying the provision of section 79 of the Act, 1961. Therefore, in the return of income after computing the gross total income, in the aforesaid manner, the assessee claimed deduction under section 80-IA of the Act, 1961. The assessee being eligible for deduction of 100% profit from the business of telecommunication services, the whole of the gross total income was claimed as deductible under section 80-IA of the Act, 1961.
(5.3) In the return of income, the appellant assessee has shown total income of Rs.191,59,84,008/and the entire amount was claimed as deduction under section 80-IA( 4)(ii) of the Act, 1961. It was noticed by the Assessing Officer that the assessee has not brought forward the losses prior to the assessment year 2001-2002 as per the provisions of section 79 of the Act, 1961. According to the Assessing Officer, the quantum of deduction available to the assessee under section 80-IA( 4)(ii) of the Act, 1961 is to be computed as per the provisions of section 80-IA( 5) of the Act, 1961 without the application of the provision of section 79 of the Act, 1961.
(5.4) The Assessing Officer therefore, issued a show cause notice dated 22nd December, 2007 calling upon the assessee to show cause as to why the deduction under section 80-IA claimed by the assessee should not be withdrawn as there would not be any positive profit available for deduction after considering the losses of the previous years to be set off ag
