Supreme Court

Commissioner of Income Tax-I vs. Reliance Energy Ltd. through its M.D.

MANU/SC/0330/2021

28.04.2021

Direct Taxation

Deduction under Section 80-IA of IT Act is not restricted to 'Business Income' only

By an order of assessment, the Assessing Officer restricted the eligible deduction under Section 80-IA of the Income Tax Act, 1961 (IT Act) to the extent of ‘business income’ only. On 23rd march, 2006, the Commissioner of Income-Tax (Appeal)-I (“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 (“the Tribunal”), upheld the decision of the Appellate Authority on the issue of deduction under Section 80-IA of IT Act. The High Court refused to interfere with the Tribunal’s order as far as the issue on deduction under Section 80-IA of IT Act is concerned. Therefore, present Appeal is by the Revenue.

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 80- IA 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 import of Section 80-IA of IT Act is that, the ‘total income’ of an assessee is computed by taking into account the allowable deduction of the profits and gains derived from the ‘eligible business’. With respect to the facts of present Appeal, there is no dispute that the deduction quantified under Section 80-IA of IT Act is Rs.492,78,60,973. To make it clear, the said amount represents the net profit made by the Assessee from the ‘eligible business’ covered under sub-section (4), i.e., from the Assessee’s business unit involved in generation of power.

The claim of the Assessee is that in computing its ‘total income’, deductions available to it have to be set-off against the ‘gross total income’, while the Revenue contends that it is only the ‘business income’ which has to be taken into account for the purpose of setting-off the deductions under Sections 80-IA and 80-IB of the Act. To illustrate, the ‘gross total income’ of the Assessee for the assessment year 2002-03 is less than the quantum of deduction determined under Section 80-IA of the IT Act. The Assessee contends that income from all other heads including ‘income from other sources’, in addition to ‘business income’, have to be taken into account for the purpose of allowing the deductions available to the Assessee, subject to the ceiling of ‘gross total income’. The Appellate Authority was of the view that, there is no limitation on deduction admissible under Section 80-IA of the IT Act to income under the head ‘business’ only.

The amount of deduction from the ‘eligible business’ computed under Section 80-IA for the assessment year 2002-03 is Rs. 492,78,60,973. There is no dispute that the said amount represents income from the ‘eligible business’ under Section 80-IA of IT Act and is the only source of income for the purposes of computing deduction under Section 80-IA of IT Act. The question that arises further with reference to allowing the deduction so computed to arrive at the ‘total income’ of the Assessee cannot be determined by resorting to interpretation of sub- section (5).

In the present case, there is no discussion about Section 80-IA(5) of IT Act by the Appellate Authority, nor the Tribunal and the High Court. 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 IT 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’. The Appeal is dismissed qua the issue of the extent of deduction under Section 80-IA of the IT Act.

Tags : Eligible deduction Entitlement Legality

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