VODAFONE ESSAR GUJARAT LIMITED vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-8

TAXAP/65/2009HC GujaratGJHC24040840200903 March 2020Author: HONOURABLE MR. JUSTICE J.B.PARDIWALA,HONOURABLE MR. JUSTICE BHARGAV D. KARIA30 pages
AI SummaryAllowed

What were the facts?

The assessee, Vodafone Essar Gujarat Limited, engaged in cellular telecommunication services, experienced a change in shareholding in the previous year relevant to AY 2001-2002, causing accumulated losses from AY 1997-1998 to AY 2001-2002 to lapse under Section 79 of the Income Tax Act, 1961. For AY 2005-2006, the assessee claimed a deduction of Rs. 191,59,84,008 under Section 80IA(4)(ii) on profits derived from its telecommunication services. The Assessing Officer (AO) noted that the assessee had not brought forward losses prior to AY 2001-2002 due to Section 79. The AO proposed disallowing the deduction, arguing that Section 80IA(5) requires computation without applying Section 79. The CIT(Appeals) upheld the AO's order. The Tribunal, relying on a Special Bench decision, also dismissed the assessee's appeal, holding that Section 80IA(5) overrides Section 79 for the purpose of calculating the deduction.

What did the High Court hold?

The High Court held that the Assessing Officer, CIT(Appeals), and the Tribunal were not justified in applying Section 80IA(5) of the Act to ignore losses that had already lapsed by operation of Section 79 of the Act. The Court reasoned that when losses of earlier years have already lapsed under Section 79 due to a change in shareholding, they cannot be notionally carried forward and set off against the profits of the current year for computing the quantum of deduction under Section 80IA(1). The non-obstante clause in Section 80IA(5) cannot be invoked to disregard the effect of Section 79, which had already extinguished those losses. The Court found that the scheme of the Act does not permit such a construction. Therefore, the appeals were allowed, and the impugned orders of the Tribunal were quashed and set aside. The substantial question of law was answered in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the appellant was not entitled to a deduction of Rs. 191,59,84,008 under Section 80IA of the Income Tax Act, 1961, as for the purpose of calculating the deduction under Section 80IA read with Section 80IA(5) of the Act, the provisions of Section 79 of the Act are not applicable? Assessee's Contention: The assessee argued that there cannot be two computations of gross total income – one for taxable income and another for Chapter VI-A deductions. It contended that invoking Section 80IA(5) does not permit ignoring Section 79 for computing the Section 80IA deduction. Revenue's Contention: The revenue contended that for the purpose of calculating the deduction under Section 80IA read with Section 80IA(5), the provisions of Section 79 of the Act cannot be applied, as Section 80IA(5) overrides other provisions of the Act. The revenue also made an alternative submission regarding the interpretation of 'income' versus 'profit' in the context of Section 80IA, but this was not pressed.

Which sections of the Income-tax Act were involved?

Section 80IA,Section 80IA(5),Section 79,Section 80IA(4)(ii),Section 80IA(1)

AI-generated summary — verify with the full judgment below

C/TAXAP/65/2009 CAV JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 65 of 2009 With R/TAX APPEAL NO. 1191 of 2010

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE J.B.PARDIWALA

and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== VODAFONE ESSAR GUJARAT LIMITED Versus ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-8 ========================================================== Appearance: MR SN SOPARKAR SR COUNSEL WITH MR BANDISH SOPARKAR for the Appellant(s) No. 1 MR MANISH BHATT SR COUNSEL WITH MRS MAUNA M BHATT(174) for the Opponent(s) No. 1 ========================================================== CORAM

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