M/S R.R.B. CONSULTANTS AND ENGINEERS (P) LIMITED v. DCIT

2. We would clarify that the core issue raised in the present appeal relates to computation of deduction under Section 80-IA of the Income Tax Act, 1961 (Act, for short).

3. The appellant, during the relevant assessment year, had primarily derived income from consultancy and professional services from sale and installation of wind electricity generators. For this purpose, the appellant had entered into an agreement with their principal company and manufacturer, namely, M/s Vestas Danish Wind Technology, A/s, Denmark. The appellant had also erected and commissioned wind mills statedly for demonstration and sale promotion purposes. The power generated from the said erected and commissioned wind generators was sold to Tamil Nadu State Electricity Board and the appellant had earned income of Rs.22,92,245/- from the said sale.

4. The appellant had invoked Section 80-IA of the Act in its return of income and had shown the entire receipt of Rs.22,92,245/- as income from generation of power as exempt under Section 80-IA of the Act.

5. The Income Tax Officer vide assessment order dated 15th February, 1999 noticed that the appellant had net profit from consultancy of over Rs.2.98 crores. Further, the assessee was entitled to depreciation of over Rs.3.24 crores on the wind mills erected and commissioned. Accordingly, this depreciation figure was reduced from income of Rs.22,92,245/- earned from generation of power and as the resultant figure was in negative, it was held that the appellant was not entitled to any deduction under Section 80- IA. The said order records that unabsorbed depreciation over Rs.3.01 crores would be adjusted from other businesses. The said benefit was granted. Accordingly, the net taxable income was computed at Rs.19,64,824/-. The said figure was arrived at after the Assessing Officer had made certain other disallowances in the taxable income, as declared in the profit and loss account.

6. The appellant in the first appeal partly succeeded as the Commissioner of Income Tax (Appeals) held that the depreciation on wind mills was to be first allowed, i.e., reduced from the entire income of the assessee and the balance amount thereafter has to be deducted from the income earned by the assessee from sale of power, for computing benefit under Section 80-IA of the Act. He observed that depreciation was to be allowed under Section 32, which falls under Chapter IV of the Act relating to computation of business income. Further, depreciation was to be allowed against the composite business income, i.e., profits earned by the assessee by way of commission from consultation and sale of wind mills as well as sale of electricity. He held that the wind mills were being used for more than one activity and, therefore, it does not follow that depreciation would be allowed only against income of one activity and not other.

7. Aggrieved, the Revenue preferred an appeal before the tribunal, which as is apparent from the fact that the appellant-assessee has filed the present appeal, has accepted the contention of the Revenue. The Tribunal in the impugned order has held as under:-

8. Learned counsel for the appellant-assessee has drawn our attention to sub-section (7) to Section 80-IA of the Act read with sub-section (5) thereof as applicable to the Assessment Year 1996-97. Counsel for the appellant had also referred to a table relying upon the decision of the Madras High Court in Velayudhaswamy Spinning Mills Private Limited versus Assistant CIT, 2012 (340) ITR 477 (Mad.).

9. We have considered the contention of the appellant-assessee, but in the facts of the present case, which are glaring, do not think we are required to make an in-depth study of and elucidate upon sub-section (7) to Section 80-IA of the Act. The appellant-assessee, as noticed above, had a small income of Rs.22,92,245/- from sale of electricity, which qualifies for deduction under Section 80-IA. However, deduction is not to be allowed on the gross receipts. Expenses incurred and depreciation has to be reduced from the gross receipt, to arrive at the figure on which deduction is to be allowed under Section 80 IA of the Act. Deduction was to be allowed only on the net profits of the said undertaking, which was eligible for deduction under Section 80-IA. It is an accepted and admitted position that the appellant-assessee was entitled to depreciation of over Rs.3.24 crores on the wind mills, which were installed and used for generating electricity and also commission income. Thus, the depreciation, which was to be allowed and given on the wind mills was almost fifteen times the income earned by the appellant-assessee from generation of electricity, which was eligible for deduction under Section 80-IA. This being the position, we do not think the appellant-assessee would be entitled to deduction on the gross receipt without reducing depreciation under Section 80-IA regardless of whatever interpretation they want to place on the provisions of Section 80IA. The view we have taken is in consonance and in conformity with the view expressed by this Court in ITA 579/2007 Dabur India Ltd. versus Commissioner of Income Tax, Delhi that deduction under Section 80-IA is on the net amount earned by the eligible undertaking, i.e., after computing the income of the eligible undertaking in terms of Chapter IV of the Act, which includes Section 32 relating to depreciation. Recent decision of the Supreme Court dated 9th October, 2017 in Civil Appeal No. 238/2012, Plastiblends India Limited versus Additional Commissioner of Income Tax, Mumbai and Another, also takes the same view. In Plastibends India Limited (supra), the Supreme Court observed and held:- "20. After removing the applicability of Mahendra Mills [CIT v. Mahendra Mills, (2000) 3 SCC 615: (2000) 243 ITR 56] on the aforesaid grounds, the High Court proceeded to consider as to whether it can be said that the quantum of deduction allowable under Section 80-IA depends upon the assessees claiming or not claiming current depreciation? The Full Bench went on to answer this question with the observations that it was no longer res integra as the Apex Court had reflected thereupon in Liberty India [Liberty India v. CIT, (2009) 9 SCC 328: (2009) 317 ITR 218] and quoted the following passage from the said judgment in support of its aforesaid remarks: