Deduction Under Section 80-IA Income Tax Act Not Restricted To 'Business Income' Only: Supreme Court

The Supreme Court held that 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 Act by treating 'eligible business' as the 'only source of income'.

This provision cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to 'business income', the bench comprising Justices L. Nageswara Rao and Vineet Saran observed.

In this case, the Assessing Officer restricted the eligible deduction under Section 80-IA of the Income Tax Act to the extent of 'business income' only. The Commissioner of Income-Tax (Appeal)-I 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 upheld the decision of the Appellate Authority on the issue of deduction under Section 80-IA. The High Court refused to interfere with the Tribunal's order as far as the issue on deduction under Section 80-IA is concerned.  

Before the Apex Court in appeal, the Revenue contended that the Assessing Officer was right in holding that the deduction under Section 80-IA of the Act should be restricted to 'business income' only. On behalf of Assessees, it was contended that there is no indication in sub-section (5) of Section 80-IA that the deduction under sub-section (1) is restricted to 'business income' only.

The court observed that the essential ingredients of Section 80-IA (1) of the Act are: a) the 'gross total income' of an assessee should include profits and gains; b) those profits and gains are derived by an undertaking or an enterprise from a business referred to in subsection (4); c) the assessee is entitled for deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive assessment years; and d) in computing the 'total income' of the Assessee, such deduction shall be allowed.

"The import of Section 80-IA 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 this Appeal, there is no dispute that the deduction quantified under Section 80-IA 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 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 Act to income under the head 'business' only, with which we agree.", the court said.

While dismissing the appeal, the bench observed thus:

"We hold that 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 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'."

Case: Commissioner of Income Tax-I  Vs. Reliance Energy Ltd. [CA 1327 of 2021]
Coram: Justices L. Nageswara Rao and Vineet Saran
Citation: LL 2021 SC 235

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