Microlabs Limited V. The Assistant Commissioner of Income-Tax, Circle 12(1)

ITA/194/2011

AI Insights

The case involves M/s. Microlabs Limited appealing against the order of the Income Tax Appellate Tribunal (ITAT), which upheld the decision of the lower authorities regarding the calculation of profits from an eligible business for tax deductions. The primary legal issue was whether the losses from the eligible business, which were set off against other income in earlier years, should be considered when calculating profits for deductions under Section 80-IB of the Income Tax Act in subsequent years. The Tribunal and the High Court referenced judgments from the Special Bench of the Appellate Tribunal and the Madras High Court to support their decisions.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 807619 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 07-07-2014
• Assessment Year: misc
• Other Referred Cases: ACIT Vs. Goldmine Shares and Finance Private Limited, Velayudhaswamy Spinning Mills (P) Ltd. Vs. Assistant Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: S PARTHASARATHI
• Keywords: Eligible Business; Income tax appeal; Notional brought forward losses; Set-off; Substantial questions of law
• Section: 80-IB; 80-IA(5); 260-A

Judgement Text

" ITA 194/2011 1 IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 07TH DAY OF JULY, 2014 PRESENT: THE HON'BLE Mr.JUSTICE N.KUMAR AND THE HON'BLE Mr.JUSTICE B.MANOHAR Income-Tax Appeal No : 194 of 2011 BETWEEN: M/s.MICROLABS LIMITED NO.27, RACE COURSE ROAD, BANGALORE – 560 001. REPRESENTED BY ITS MANAGING DIRECTOR, Sri.DILIP SURANA, AGED ABOUT 44 YEARS, SON OF Sri.GHEWARCHAND SURANA. ...Appellant (By Sri.S.PARTHASARATHI, Adv.) AND: THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 12(1), 14/3, RASTROTHANA BHAVAN, 4TH FLOOR, NRUPATHUNGA ROAD, OPP.RBI, BANGALORE. ...Respondent (By Sri.K.V.ARAVIND, Adv.) ITA 194/2011 2 This Appeal is filed under Section 260-A of I.T.Act, 1961 arising out of order dated 25.02.2011 passed in ITA No.1162/Bang/2009, for the Assessment Year 2005-06, praying that this Court be pleased to formulate the substantial questions of law stated therein and allow the appeal and set aside the orders passed by the ITAT in ITA No.1162/Bang/2009 dated 25.02.2011 (Annexure – ‘A’). This Appeal coming on for Admission, this day, N.KUMAR, J., delivered the following: J U D G M E N T This is an assessee’s appeal against the order passed by the Tribunal, upholding the orders passed by the lower Authorities who have held that in calculating the profits from the eligible business, the deduction of losses set off against the profits from other business is to be taken into consideration. 2. In coming to the said conclusion, the Tribunal relied on the judgment of the Special Bench of the Appellate Tribunal, Ahmedabad in the case of ACIT Vs. Goldmine Shares and Finance Private Limited reported in (2008) 302 ITR (AT) 208. ITA 194/2011 3 3. The learned counsel for the assessee assailing the impugned order contended that after referring to the said Special Bench, the High Court of Madras in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. Assistant Commissioner of Income Tax reported in 231 CTR Madras 368, it is held as under: “Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub- section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.” 4. Therefore, the substantial question of law that arises for our consideration in this appeal is: “Whether in law, the Tribunal is justified in holding that in view of provision of Section 80-IA(5) of the Income Tax Act, the profit from the eligible business for the purpose of ITA 194/2011 4 deduction under Section 80-IB of the Act has to be computed after deduction of notional brought forward losses of eligible business even though they have been allowed to set off against other income in the earlier years?” 5. We have heard the learned counsel for the parties. We have gone through the judgment of the Special Bench of Ahmedabad as well as the judgment of the Madras High Court. In the judgment of the Madras High Court, after setting out Section 80-IA and finding out the requirements of sub-section 5 of Section 80-IA, it has been held as under: 80-IA(5): Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (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 ITA 194/2011 5 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. 6. It is stated that the non-obstante clause in sub-section (5) means it over-rides all the provisions of the Act and other provisions are to be ignored. In the absence of non obstante clause, what the judgment of the Madras Court states is the legal position, because of the non obstante clause, the set off amount against other income of the assessee has to be ignored and because of the fiction created in the sub-section notionally, the set losses is to be treated as “losses being carried forward and after deducting the said losses, the profit prior to business is to be calculated,” i.e., precisely what the Special Bench has stated and the relevant portion of the judgment reads as under: ITA 194/2011 6 “From the reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.” ITA 194/2011 7 7. We are inclined to take the view taken by the Special Bench and therefore, when the Tribunal has followed the said judgment and passed the impugned order, we do not see any infirmity in the order, which calls for interference. Accordingly, the substantial question of law is answered in favour of the Revenue and against the assessee. Sd/- JUDGE Sd/- JUDGE dh* "