COMMISSIONER OF INCOME TAX DEL vs. M/S DEWAN KRAFT SYSTEM P. LTD.

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Commissioner of Income Tax (A). ITA No.186/2006 8. The issue in this case is whether Income Tax Appellate Tribunal is justified in allowing the deduction under Section 80-IA of the Act at Rs.18,03,143/- as against Rs.4,53,398/- allowed by the Assessing Officer for the assessment year 1998-99. The Income Tax Appellate Tribunal, following its order dated 20th January, 2005 in ITA No.758/Del/2001 for the assessment year 1997-98, dismissed the appeal of the Revenue. 9. It has been argued by the learned counsel for the Appellant that as per provision of Section 80-IA of the Act where gross total income of the Assessee includes any profits and gains derived from any eligible business of an industrial undertaking, the whole of the profit of such eligible business is to be allowed as deduction under Section 80-IA of the Act and the interest earned by the Assessee is not a business income but it is an income under the head “income from other sources” and it cannot be treated as business income. 10. Learned counsel for the Appellant in support of its ITA NO.977/2005 & 186/2006 page

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contention has cited decision of Apex court in IPCA Laboratory Ltd. v. Deputy Commissioner of Income Tax (2004) 266 ITR 521 and Commissioner of Income Tax v.Kotagiri Industrial Co-operative Tea Factory Ltd., (1997) 224 ITR 604. 11. On the other hand, it has been argued by learned counsel for the Respondent that the Assessing Officer while computing the income, restricted the deduction at Rs.11,80,952/- being the amount allowable to the extent of business income against the business profit of Rs.20,92,221/- from Kalamb unit. In doing so, the Assessing Officer mixed the profits of Kalamb unit with profits of units at Delhi and Noida and, thus, erroneously restricted the deduction to the extent of business income. This has been done in the total disregard of provision of sub-section 7 of Section 80-IA of the Act. The learned counsel in support of his contention has cited a decision of Andhra Pradesh High Court in C.I.T. v. Vishaka Industries Ltd., (2001) 251 ITR 471. 12. It is an admitted fact that Kalamb Unit is the only unit of the Assessee which is eligible for benefits available ITA NO.977/2005 & 186/2006 page

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under Section 80-IA of the Act during the years under consideration, whereas the other units situated at Delhi and Noida are not eligible for this benefit. It is also not in dispute that profits derived by the Assessee from Kalamb Unit amounted to Rs.20,92,221/- whereas the other units at Delhi and Noida resulted in the loss of Rs.9,11,270/-. Provision of sub-section 7 of Section 80-IA of the Act which is relevant in this case, is reproduced below:- “

(7)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 purpose of determining the quantum of deduction under sub-section (5) 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 of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made.” 13. Perusal of the above provision shows that it is a distinct and separate deeming provision which lays down the special method of computing the profits and gains entitled to deduction under Section 80-IA of the Act. ITA NO.977/2005 & 186/2006 page

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Moreover, this provision is of overriding nature providing specifically that during each of the assessment years in the tax holiday, period in which the Assessee is entitled to deduction under Section 80-IA of the Act, this provision will be applied as if the industrial unit is an independent unit and is the one and only source of income possessed by the Assessee. 14. It is clear that while computing deduction under Section 80-IA of the Income Tax Act, 1961, the profits and gains of Kalamb unit for the purpose of determining the quantum of deduction under Section 80-IA (5) of the Act is to be computed if such eligible business of the said unit is the only source of income of the assessee. The Assessing Officer mixed the profits of the Kalamb unit with the profits of units at Delhi and Noida and, thus, he erroneously restricted the deduction to the extent of business income and this was done by him in total disregard of the provisions of sub-section 7 of Section 80-IA of the Act as mentioned above. 15. Thus, the Kalamb unit being the only unit of the Assessee eligible for deduction under Section 80-IA of the ITA NO.977/2005 & 186/2006 page

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Act is to be treated as an independent unit and the same is to be treated as the only source of income for Assessee for the purpose of computing deduction under Section 80-IA of the Act. The deduction claimed by the Assessee under Section 80-IA of the Act, thus, is in accordance with the said provisions and as such we find that there is no infirmity in the impugned order passed by the Income Tax Appellate Tribunal. 16. The Judgments cited by learned counsel for Appellant are not applicable for the facts of the present case. 17. This being the position, we are of the opinion that there is no substantial question of law that arises for our consideration and we do not find any error in the view that has been taken by the Tribunal in this regard. 18. Consequently, both the appeals are dismissed. V.B. GUPTA, J FEBRUARY 27, 2007 MADAN B. LOKUR, J sb ITA NO.977/2005 & 186/2006 page

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