28 Apr 2121

Deduction under a particular section is permissible only against income under a particular head - Supreme Court of India

Case : Commissioner of Income Tax – 1 v. M/s. Reliance Energy Ltd. (Formerly BSES Ltd. ) through its M.D. Civil Appeal No. 1327 of 2021

Court : Supreme Court of India

Bench : Justice L. Nageswara Rao and Justice Vineet Saran

Decided on : 28 Apr 2121

Relevant Statutes

Sections 80-IA & IB, Section 80- AB and Chapter -VI – A of Income Tax Act, 1961

Brief Facts and Procedural History

1The Assessing Officer restricted the eligible deduction under section 80 -IA of Income Tax Act, 1961.

2. 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 Income Tax Act,1961.

3. The Income Tax Appellate Tribunal upheld the decision of the Appellant Authority on the issue of deduction under section 80 -IA of Income Tax Act, 1961.

4. The Assessee is in the business of generation of power and also deals with purchase and distribution of power.

The Issue of the Case

Whether the deduction to be restricted to business income, as had been the stand of the revenue for the assessment year?

The Observations of the Court

1. The Assessee that the observation of the assessing officer that deduction under particular section is permissible only against income under the particular had was erroneous.

2. The Honourable Supreme Court In the case of Cloth Traders (P) Ltd. v. Additional CIT , Gujarat -I (1979) 3 SCC 538, held that deduction under section 80 M of the Income Tax Act, 1961, which deals with the deduction in respect of certain inter-corporate dividends, was allowable on the gross amount of dividend received . It was decided to undo the decision of this court as it was contrary to the legislative intent which was that deduction under section 80 M  was to be allowed on the dividend income as computed under the Income Tax Act,1961, i.e. on the net income after deduction of admissible expenses.

3. In the case of Royal Cushion Vinyl Products Ltd. v. Dy. Commissioner of Income Tax Mumbai (ITA NO. 770/MUM/98), the Appellant Authority set aside the order of assessing officer on this court. The Appellant Authority directed the Assessing Officer not to restrict the deduction admissible under section 80 -IA of the Income Tax Act, 1961, of income under the head ‘business.’

The Decision held by the Court

1. The Honorable Supreme Court held that the scope of subsection (5) of Section 80 -IA of the Income Tax Act,1961 is limited to a determination of quantum of deduction under subsection (1) of the section 80-IA of Income Tax Act, 1961 by treating 'eligible business’ as the ' only source of income.’

2. The appeal is dismissed qua the issue of the extent of deduction under section 80 -IA of Income Tax Act,1961.

3. Civil Appeal No. 1327 of 2021, Civil Appeal No. 1329 of 2021, Civil Appeal No. 2537 of 2016, Civil Appeal No. 1408 of 2021, and Civil Appeal No. 1508 of 2021, are disposed of in terms of the above judgement.

4. Civil Appeal No. 1509 of 2021 is detagged as the questions arising therein are not related to the aforementioned issue.

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