COMMISSIONER OF INCOME TAX vs. CHOLA SPINNING MILLS P LTD

Judgt. dt. 30.10.19 in T.C.A.793 & 794/19 CIT v. Chola Spinning Mills P. Ltd. 1/9 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 30.10.2019 CORAM THE HONOURABLE ACTING CHIEF JUSTICE AND THE HON'BLE MR.JUSTICE C.SARAVANAN Tax Case (Appeal) Nos.793 & 794 of 2019 Commissioner of Income Tax Salem. Appellant in both Appeals Vs. M/s.Chola Spinning Mills (P) Ltd., S.F.No.189/1, Komarapalayam Main Road, Elanthakuttai Post, Veppadi, Pallipalayam 638 008. Respondent in TCA 793/19 M/s.Rajaguru Spinning Mills (P) Ltd., 42, Bye Pass Road, Pallipalayam 638 006. Respondent in TCA 794/19 Tax Case Appeals filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, 'C' Bench, Chennai, dated 7.5.2013 made in ITA Nos.211/Mds/2013 & 213/Mds/2013. For Appellant : Mr.M.Swaminathan Senior Standing Counsel assisted by Ms.V.Pushpa, Jr. Standing Counsel For Respondents : Mr.A.S.Sivaraman for Mr.S.Sridhar http://www.judis.nic.in Judgt. dt. 30.10.19 in T.C.A.793 & 794/19 CIT v. Chola Spinning Mills P. Ltd. 2/9 COMMON JUDGMENT (Delivered by Dr.VINEET KOTHARI, ACJ) Learned counsel appearing for both the parties submits that the controversy involved in the present Appeals is covered by a judgment of a Division Bench of this Court in Principal Commissioner of Income Tax-3, Coimbatore v. Prabhu Spinning Mills ((2016) 76 Taxmann.com 8 (Madras)) in which, relying upon the Board's Circular No.1/16 dated 15.12.2016, the Court allowed the Assessee to chose the initial assessment for claiming deduction under Section 80-IA of the Income Tax Ac,t 1961 as per his own option. 2. The question of law suggested in the present case by the Revenue is as under:- “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the decision reported in the case of Velayudhaswamy Spinning Mills, 340 ITR 477 is applicable to the facts of the present case and thereby allowing the deduction on windmill income under Section 80IA?“ 3. The Division Bench of this court in Principal Commissioner of Income Tax-3, Coimbatore v. Prabhu Spinning Mills (P) Ltd. (supra) held as under:- “3. Even according to the learned Standing Counsel for http://www.judis.nic.in Judgt. dt. 30.10.19 in T.C.A.793 & 794/19 CIT v. Chola Spinning Mills P. Ltd. 3/9 the Department, this Court has consistently followed the decision in M/s.Velayudhaswamy Spinning Mills (P) Ltd. v. Assistant commissioner of Income Tax ((2012) 340 ITR 477), despite the Honourable Supreme Court ordering notice. 4. Interestingly, on the basis of the decision in Velayudhaswamy Spinning Mills (supra), the Central Board of Direct Taxes has issued Circular No.1/2016 dated 15.2.2016. It will be useful to extract the circular in entirety, which is as follows : "Circular No.1/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 15th February, 2016 Subject: Clarification of the term 'initial assessment year' in Section 80IA(5) of the Income Tax Act, 1961. Section 801A of the Income-tax Act, 1961 ('Act'), as substituted by Finance Act, 1999 with effect from http://www.judis.nic.in Judgt. dt. 30.10.19 in T.C.A.793 & 794/19 CIT v. Chola Spinning Mills P. Ltd. 4/9 1.4.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in Sub-Section (4) of that Section) in accordance with the prescribed provisions. Sub-Section (2) of Section 80IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-Section (5) of Section 80IA further provides as under : "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 http://www.judis.nic.in Judgt. dt. 30.10.19 in T.C.A.793 & 794/19 CIT v. Chola Spinning Mills P. Ltd. 5/9 source 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." In the above Sub-Section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/manufacturing activity had commenced and are

considering

such

first

year

of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under Sub-Section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from Sub-Section (2) that an http://www.judis.nic.in Judgt. dt. 30.10.19 in T.C.A.793 & 794/19 CIT v. Chola Spinning Mills P. Ltd. 6/9 assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 801A. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. The Assessing Officers are, therefore, directed to allow deduction u/s 80IA in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are http://www.judis.nic.in Judgt. dt. 30.10.19 in T.C.A.793 & 794/19 CIT v. Chola Spinning Mills P. Ltd. 7/9 duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in Sub-Section (5) of that section for which the Standing Counsel/DRs be suitably instructed. The above be brought to the notice of all Assessing Officers concerned." 5. Therefore, admittedly, the second question of law is covered by the above circular. Hence, the appeals deserve to be dismissed. 6. Accordingly, the above tax case appeals are dismissed. No costs." 4. Accordingly, the present Appeals are disposed of on the same terms. No costs. (V.K.,ACJ.)(C.S.N.,J) 30.10.2019 Index : Yes/No Internet : Yes/No ssk. http://www.judis.nic.in Judgt. dt. 30.10.19 in T.C.A.793 & 794/19 CIT v. Chola Spinning Mills P. Ltd. 8/9 To 1. Commissioner of Income Tax Salem. 2. Income Tax Appellate Tribunal, 'C' Bench, Chennai. 3. The Assistant Commissioner of Income Tax, Circle I(1), Salem. 4. M/s.Chola Spinning Mills (P) Ltd., S.F.No.189/1, Komarapalayam Main Road, Elanthakuttai Post, Veppadi, Pallipalayam 638 008. 5. M/s.Rajaguru Spinning Mills (P) Ltd., 42, Bye Pass Road, Pallipalayam 638 006. http://www.judis.nic.in Judgt. dt. 30.10.19 in T.C.A.793 & 794/19 CIT v. Chola Spinning Mills P. Ltd. 9/9 DR.VINEET KOTHARI, ACJ. and C.SARAVANAN, J. ssk. T.C.(A) Nos.793 & 794 of 2019 30.10.2019. http://www.judis.nic.in