• Friday, 11 Apr 2025, 12:07:55 pm

Income Tax Act, 1961 – Sections 32(1), 80IA and 80HHC - The assessee filed a tax appeal challenging the ITAT's ruling on multiple issues for AY 2001-02. These included: (i) the applicability of depreciation under Section 32(1), even if not claimed, for deductions under Chapter VI-A; (ii) the interplay between deductions under Sections 80IA and 80HHC; and (iii) eligibility for a deduction under Section 80IA for a new turbine installation, claimed to be a new industrial undertaking - Whether depreciation under Section 32(1), even if not claimed, must be deducted while computing Chapter VI-A deductions prior to the insertion of Explanation 5 in 2002 - Whether export profits deductible under Section 80HHC can include profits of industrial units eligible under Section 80IA, and if deductions under both can be claimed on the same gross total income - Whether the installation of a new turbine qualifies as a new industrial undertaking eligible for deduction under Section 80IA – HELD - The Court, relying on Supreme Court precedents, held that prior to the introduction of Explanation 5 to Section 32(1) (effective from 01.04.2002), depreciation was optional and could be waived. Therefore, depreciation not claimed by the assessee could not be mandatorily deducted for computing Chapter VI-A deductions. This issue was decided in favor of the assessee - The Court held that deductions under Sections 80HHC and 80IA cannot be allowed simultaneously on the same profits. Section 80IA(9) restricts double deductions, and the calculation of export profits must account for deductions already allowed under Section 80IA. This was decided in favor of the Revenue - The Court ruled that the new turbine installation was an expansion of the existing power plant and not an independent industrial undertaking. It relied on the fact that the turbine relied on a pre-existing boiler and could not independently generate power. Therefore, the deduction under Section 80IA was not allowable. This issue was decided in favor of the Revenue - The High Court ruled partially in favor of the assessee on the issue of depreciation under Section 32(1) but upheld the Revenue's position on deductions under Sections 80HHC and 80IA, denying the claim for a new industrial undertaking

 

2024-VIL-250-GUJ-DT

 

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

 

R/TAX APPEAL NO. 1319 of 2008

 

Date: 10.12.2024

 

ATUL LIMITED

 

Vs

 

ASSISTANT COMMISSIONER OF INCOME TAX (OSD)

 

For the Appellant No. 1: MRS SWATI SOPARKAR (870)

For the Opponent No. 1: MR. VARUN K. PATEL (3802)

 

CORAM

HONOURABLE MR. JUSTICE BHARGAV D. KARIA

HONOURABLE MR. JUSTICE D.N. RAY

 

ORAL JUDGMENT

 

(PER: HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

 

1. This Tax Appeal is filed by the appellant-assessee under section 260A of the Income Tax Act,1961 [for short ‘the Act’] arising out of the order of the Income Tax Appellate Tribunal [for short ‘the Tribunal’] in ITA No. 3528/AHD/2004 for A.Y.2001-02.

 

2. This Court [Coram: Hon’ble The Chief Justice Mr. K.S. Radhakrishnan and Hon’ble Mr. Justice Akil Kureshi] by order dated 30.06.2009, admitted the Tax Appeal on the following substantial questions of law:

 

“1. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that depreciation, whether claimed or not, has to be foisted upon the assessee even prior to insertion of Explanation 5 to S.32(1) of the Act with effect from 1.04.2002, while calculating deduction under Chapter VIA of the Act?

 

2. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that depreciation, whether claimed or not, on notional basis is required to be reduced from the profit of eligible industrial undertakings for the purpose of calculating deduction under Chapter VIA of the Act in spite of the fact that the new scheme of depreciation of block of assets does not provide for computation of depreciation on cost of individual asset?

 

3. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming that the export profits earned and claimed as deductible u/s. 80 HHC includes profits earned by the New Industrial Units(whose profits are eligible for deduction u/s.80IA and 80IB of the Act)?

 

4. Whether, in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in not allowing deduction u/s.80HHC as well as 80IA of the Act on the same gross total income without reducing each other?

 

5. Whether, in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in not allowing deduction u/s.80IA of the Act on the New Power Plant by not treating the same as a new industrial undertaking within the meaning of provisos of S.80IA of the Act?”

 

Question Nos.1 and 2

3. Question Nos.1 and 2 are regarding claim of depreciation at the discretion of the assessee prior to insertion of Explanation 5 to section 32(1) of the Act w.e.f. 01.04.2002 and whether such depreciation if not claimed, then notionally required to be reduced from the profit of eligible industrial undertaking for the purpose of calculating deduction under Chapter VI-A of the Act or not. Therefore, question No.1 is re-framed as under:

 

1. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that depreciation, whether claimed or not, has to be foisted upon the assessee even prior to insertion of Explanation 5 to S.32(1) of the Act with effect from 1.04.2002?

 

4. Question No. 1 is no more res integra in view of the decision of the Hon’ble Apex Court in case of reported in 454 ITR 285 wherein the decision of this Court is and held as under:

 

“4. As can be seen from the impugned order of the Tribunal, the Tribunal has recorded that it is not in dispute as the assessee had filed revised return and withdrawn its claim for depreciation of Rs. 15,02,72,234/-. The Tribunal placed reliance upon a decision of the Kerala High Court wherein it was held that Explanation 5 added to section 32(1) by the Finance Act would take effect from 1st April 2002 and subsequent years. That as in the facts of the said case, the assessee had not made a claim or requested for allowance of depreciation, Assessing Officer was not justified in allowing the depreciation for the assessment year 1989-90. The Tribunal also placed reliance upon a decision of the Punjab & Haryana High Court in Beco Engineering Co. Ltd. v. CIT [1984] 18 Taxman 44/148 ITR 478, wherein it was held that the claim for depreciation can be withdrawn by filing revised return. The Tribunal noted that the Jurisdictional High Court in the case of CIT v. Arun Textiles (1991)192 ITR 700 (Guj.), had concurred with the said decision. The Tribunal was, accordingly, of the view that once the assessee has validly withdrawn its claim for deduction of depreciation, the same cannot be thrust upon the assessee in the assessment year 1999- 2000.

 

5. Section 32 of the Act provides for certain deductions being allowed in respect of depreciation. The Supreme Court in Mahendra Mills/Arun Textile 'C’/Humphreys/Glassglow Consultants case (supra) has held that if the revised return is a valid return and the assessee has withdrawn the claim of depreciation, it cannot be granted relying on the original return when the assessment is based on the revised return. It was held that the Assessing Officer cannot grant depreciation allowance when the same is not claimed by the assessee.

 

6. Subsequently, vide Finance Act 2001, section 32 came to be amended by inserting Explanation S whereby it was declared that the provisions of subsection (1) of section 32 shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. The said amendment has been brought into force with effect from 1st April 2002.

 

7. The controversy in issue pertains to assessment year 1999-2000, hence, apparently, the provisions of Explanation 5 would not be applicable to the facts of the present case. In the circumstances, once the assessee had validly withdrawn its claim for deduction of depreciation, it was not permissible for Assessing Officer to grant the depreciation taking into account the amended provisions of section 32.”

 

5. In view of the above, Explanation 5 to section 32(1) would be applicable prospectively w.e.f. 01.04.2002. Therefore, Assessment year 2001-02 would not be covered by the Explanation 5. We therefore, answer Question No.1 in affirmative i.e. in favour of the assessee and against the Revenue.

 

6. Question No.2 is also required to be reframed because insofar as claim for granting deduction under Chapter VI-A of the Act, new scheme of depreciation of block of asset is not relevant. Accordingly, Question No. 2 is re-framed as under:

 

“2. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that depreciation, whether claimed or not, on notional basis is required to be reduced from the profit of eligible industrial undertakings for the purpose of calculating deduction under Chapter VIA of the Act?

 

7. The above re-framed question No.2 is covered in favour of the Revenue as per the decision of the Hon’ble Apex Court in case of Plastiblends India Ltd vs. Additional Commissioner of Income Tax, Mumbai reported in 398 ITR 568 wherein it is held as under:

 

“17) The aforesaid conclusion of the Full Bench is based on the judgments of this Court and there is no reason to disagree with the same, on finding that the judgments of this Court are rightly analysed and ratio thereof is correctly understood and applied. We, thus, entirely agree with the Full Bench judgment of the Bombay High Court in Plastiblends India Limited v. Additional Commissioner of Income-Tax & Ors.15 and the following manner in which the position has been summed up by the High Court:

 

“44. To summarise, firstly, the Apex Court decision in the case of Mahendra Mills (supra) cannot be construed to mean that by disclaiming depreciation, the assessee can claim enhanced quantum of deduction under section 80IA. Secondly, the Apex Court in the case of Distributors (Baroda) P. Ltd. (supra) and in the case of Liberty India (supra) has clearly held that the special deduction under Chapter VIA has to be computed on the gross total income determined after deducting all deductions allowable under sections 30 to 43D of the Act and any device adopted to reduce or inflate the profits of eligible business has got to be rejected. Thirdly, this Court in the case of Albright Morarji and Pandit Ltd. (supra), Grasim Industries Ltd. (supra) and Asian Cable Corporation Ltd. (supra) has only followed the decisions of the Apex Court in the case of Distributors Baroda (supra). Thus, on analysis of all the decisions referred hereinabove, it is seen that the quantum of deduction allowable under section 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act. Therefore, whether the assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not, the quantum of 15 (2009) 318 ITR 352 deduction under section 80IA has to be determined on the total income computed after deducting all deductions allowable under sections 30 to 43D of the Act.”

 

18) As is clear from the arguments advanced by Mr. Pardiwala, main thrust of his argument was predicated on the judgment of this Court in Mahendra Mills, which according to us, cannot be applied while interpreting Section 80-IA of the Act. It may be stated at the cost of the repetition that judgment in Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapter VI-A of the Act. Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Section 80-IA is a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Section 80-IA of the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Section 80-IA of the Act which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided under Section 80-IA of the Act which cannot be permitted.”

 

Question Nos. 3 and 4

8. Question Nos. 3 and 4 are also covered in favour of the Revenue in view of the decision of this Court in case of CIT vs. Atul Intermediates reported in [2015] 373 ITR 68 and the decision of Hon’ble Apex Court in case of Assistant Commissioner of Income Tax, Banglore vs. Micro Labs Ltd reported in [2016] 380 ITR 1 in which, the issue is referred to the Larger Bench.

 

9. This Court in case of Atul Intermediates (supra) has held as under:

 

“24. We have noticed that Chapter VI of the Act pertains to deductions of certain incomes. Part-A thereof contains provisions of general applicability. Under sub-section (2) of section 80A, it is provided that the aggregate amount of deductions under Chapter VI shall not in any case exceed the gross total income of an assessee. However, the reference in this section is to the gross total income of an assessee, and not the business income. The situation, therefore, would arise as is apparent from the decision of Madhya Pradesh High Court in case of J.P Tobacco Products Private Limited (supra) that an assessee may claim full deduction for the same gross profit under two different deduction provisions contained in Chapter VI of the Act, and such deduction would be allowed. In some cases, thus, such total deduction would exceed the income of the business of an assessee. In case of Mandideep Eng. and Pag. Ind. P. Ltd. (supra), the Supreme Court did not permit the Revenue to challenge the judgment of the Madhya Pradesh High Court in view of earlier decisions of different High Courts, which were not questioned. It was in this backdrop that sub-section (9) of section 80IA was introduced with effect from 1st April 1999. In this context, we may peruse more closely the language used in sub-section (9) of section 80IA. In plain terms it provides that where any amount of profits and gains of an undertaking or enterprise in case of an assessee is claimed and allowed under section 80IA, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading ‘C. Deductions in respect of certain incomes’, and in no case exceed the profits of gains of such eligible business of the undertaking or enterprise. It can thus be seen that sub-section (9) is divided into two clear parts. First part pertains to non-allowability of deduction under any other provision contained in PartC of Chapter VI to the extent of profits and gains of an enterprise or undertaking with respect to which deduction under section 80IA is claimed and allowed. The second part provides that in any case, such deduction shall not exceed the profits and gains of eligible business of an undertaking or enterprise. If we accept the interpretation of the assessee that only effect of sub-section (9) of section 80IA would be to limit the maximum permissible deduction under section 80HHC to the profits and gains of the eligible business, we would be completely ignoring the first part of the subsection. In other words, the earlier part of sub-section would be rendered completely redundant, purposeless and otiose. It is well settled that the Legislature cannot be expected to have used words and expressions, which have no meaning or effect. Limiting the scope of application of sub-section(9) of section 80IA only to restricting the claim of deduction under section 80HHC or for that matter under the provisions of sub-chapter C to Chapter VI would amount to giving no effect to the earlier portion of the subsection, which specifically provides for making a disallowance of deduction claimed by the assessee under various provisions contained in sub-chapter C profit or gain of an undertaking or enterprise which has already been claimed and allowed under section 80IA. In case of Aswini Kumar Khose v. Aravinda Bose reported in AIR 1952 SC 369 the Supreme Court observed that it is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application. In case of Rao Shiv Bahadur Singh v. State of Uttar Pradesh reported in AIR 1953 SC 369 the Court observed that it is incumbent on the Court to avoid a construction, if reasonably permissible on the language, which would render a part of statute devoid of any meaning or application. In our understanding, therefore, sub-section (9) of section 80IA has two implications. First part would operate as to denying an assessee's claim of deduction under other provisions of sub-chapter C of Chapter VI when a certain profit or gain has already been granted deduction under section 80IA. Under such situation, to the extent specified in first part of subsection (9), the assessee's claim of deduction under other provisions, including section 80HHC, would be restricted. Second implication of sub-section (9) of section 80IA is that under no circumstances, once deduction has been granted under section 80IA, deduction under any other provision combined together would exceed the total amount of profits and gains of eligible business of an undertaking or enterprise. This much is plain, and requires neither any imagination nor any interpretative process. Any other view would amount to obliterating the first part of sub-section (9) of section 80IA, and would, thus, be wholly impermissible to do. We wonder, if the sole intention of the Legislature was to limit various deductions to the maximum limit of the profit of the eligible business, why was such long and somewhat complex expression was used in sub-section (9) of section 80IA? The same purpose could have been easily achieved by far briefer and more simple expression of providing maximum limit of deduction, for example, as was done in sub-section (2) of section 80A. We, therefore, refuse to accept the theory that the Legislature has in far more complex and detailed expression desired to bring about the same result, though in plain terms, when the sub-section read as a whole, conveys entirely different connotation.

 

25. Having said so, we are actually conscious of the fact that subsection(9) of section 80IA does not contain a non-obstante clause. Two things thus emerge in our understanding of the said provision. First in plain terms when read as a whole subsection (9) of section 80IA does not limit its effect only to disallowing deduction over and above the profit or gain of an enterprise or undertaking. Second aspect is that such provision does not have a non-obstante clause. What would be the effect of these two forces emerging from sub-section (9) of section 80IA needs to be appreciated. In our opinion, the combined effect of these two factors would be that sub-section (9) of section 80IA of the Act would operate as along as there is nothing contrary contained in any other provisions of sub chapter C of Chapter VI. In the present case, our enquiry would be limited to finding out if there is anything contrary provided in section 80HHC of the Act. Thus, if there is any indication of legislative intent to allow the full deduction under section 80HHC of the Act irrespective of the provision contained in sub-section (9) of section 80IA, such legislative intent must prevail. On the other hand, if we find that section 80HHC of the Act is not immune to outside influence, full play of the provision of sub-section (9) of section 80IA must be allowed, even if it means restricting the claim of an assessee for deduction under section 80HHC of the Act in other words, merely because sub-section (9) of section 80IA does not contain non-obstante clause would not by itself mean that it can have no effect on the deduction under section 80HHC of the Act As is well known, the Legislature uses the non-obstante clause typically using expression ‘notwithstanding anything contained in any other provision, Act or law for the time being in force’. Ordinarily, such expression would be equivalent to saying that inspite of the provision of the Act mentioned in non-obstante clause, the enactment following any such provision have full operation. Thus, often times, non-obstante clause is used to override other statutory provisions specified in such a section in specified circumstances. It can thus be seen that a provision containing non-obstante clause would prevail irrespective of anything contrary contained in any other provision referred to in such non-obstante clause. This, however, could not mean that in absence of a non-obstante clause, even if there is no conflict between the two statutory provisions, the provision restricting the ambit of a benefit must yield in absence of such non-obstante expression.

 

26. In this context, we have perused the provisions of section 80HHC of the Act. Though previously as held and observed by Madhya Pradesh High Court in J.P Tobacco Products Private Limited (supra), the deduction provisions contained in Chapter VI were seen as independent stand-alone provisions, such views were expressed prior to introduction of sub-section (9) of section 801A and sub-section (13) of section 80B of the Act. In case of Commissioner of Income-Tax y. K. Ravindranathan Nair reported in 295 ITR 228, the Supreme Court observed that,

 

“At the outset, we may state that, in the present case, we are dealing with the law as it stood during assessment year 1993-94, At that time Section 80HHC(3) of the IT. Act constituted a Code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a code by itself.”

 

27. Sub-section(9) of section 801A was aimed at restricting the successive claims of deduction of the same profit or gain under different provisions contained in sub-chapter C of Chapter VI of the Act This provision, therefore, necessarily impacts other deduction provisions including section 80HHC of the Act Nothing contained in section SOHHC suggests that the deduction provided therein was immune from any outside influence or that the provision was impregnable by any other statute or enactment Accepting any such theory would lead to incongruous results. Even the assessee concedes that subsection (9) of section 801A would operate as to limiting the combined deductions to a maximum of the profits and gains from an eligible business of the undertaking or enterprise. If section 80HHC contained a protective shell making it immune from any outside influence, even this effect of sub-section (9) of section 801A could not be applied. This would completely render the provisions of sub-section (9) of section 8OIA redundant and meaningless.

 

28. It is true, as pointed out by the counsel for the assessee that in different provisions the Legislature has used different language for restricting or limiting the claim of deductions. The use of language in statutory provisions in such complex situations must be peculiar to every situation the Legislature may seeks to meet with. Merely because in some of the provisions certain disallowances are expressed in different language would not by itself mean that sub section (9) of section 80IA was aimed to have restricted and limited scope of application.

 

29. The contention that no such matching provision was made in section 80HHC of the Act would clearly indicate the Legislative intent also, in our opinion, is not a valid argument, Subsection(9) of section 8OIA was enacted to have universal application to all deductions under sub-chapter C of Chapter VI. It was neither possible nor expected of the Legislature to make individual matching provisions in large number of statutory provisions recognizing deductions under various situations. Such provisions are often times made for a limited period, new deductions are introduced from time to time and old deductions withdrawn.

 

30. Reference to the circular No. 772 dated of 23rd December 1998 also would not resolve this controversy. In the said circular, it is merely amplified that it was noticed that certain assessees claimed more than hundred per cent deduction of profits and gains of same undertaking, where they were entitled for deduction under more sections than one. It was, therefore, to prevent the tax payers from taking undue advantage of the existing provisions of claiming repeated deductions in respect of the same amount of eligible income, even in cases where it exceeds such eligible profits, inbuilt restrictions under section SOHHC and section 801A have been provided. This explanation nowhere restricts the scope of subsection(9) of section 801A. It only provides that the provision was made because under the existing provisions the assessees were claiming double deductions, and in some cases such deduction would exceed hundred per cent of the profits and gains of the same undertaking. The clarification does not provide that sub-section(9) would apply and operate only when such claim exceeds the profits and gains of the undertaking.

 

31. We are unable to follow the line of logic adopted by the Bombay High Court in case of Associated Capsules P. Ltd. (supra) that section 801A(9) of the Act in the context of section 80HHC would operate not at the stage of computation but at the stage of allowing the deduction. In plain terms sub-section(9) of section 801A disentitles an assessee from claiming deduction under any other provision of sub-chapter C to the extent deduction is already claimed and allowed for certain profit or gain of an undertaking or enterprise under section 801A. Such provision, therefore, would have to be applied at the very stage to assessee's claim for deduction under section 80HHC of the Act is considered. While computing such deduction the effect of sub-section (9) of section 80IA would have to be given. We do not think that in the process we are tinkering with the formula for computation of eligible profit for deduction under section 80HHC of the Act. We have noticed that different formulae have been provided for manufacturing exporter and trader and in case of an assessee whose exports comprise of both the sources. It is, therefore, at the stage of sub-section (3) of section 80HHC effect of sub-section (9) of section 80IA would apply. It is true that clause (baa) to explanation to section 80HHC defines a term ‘profits of the business’. While working out the business profits as specified therein, in terms of sub-section (9) of section 801A the profit or gain which had already been allowed deduction to the extent mentioned therein would have to be ignored.”

 

32. This interpretation, which we have adopted, would not be disturbed by reference to section 80AB of the Act. The said section only provides that while computing a deduction under any other provisions contained in subchapter C of Chapter VI in respect of any income specified in such section, then, notwithstanding anything contained in that section, for the purpose of computing deduction, the amount of income of that nature as computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature, which is derived or received by the assess, and which is included in his gross total income. The non-obstante expression used in this section is notwithstanding contained in `that section' namely, the section under which the claim of deduction is to be examined. By no means this provision of expression `notwithstanding anything contained in that section' can be used to interpret that section 80HHC of the Act can have no effect of sub-section (9) of section 80IA. As noted earlier, if this were so, the second part of subsection (9) limiting the total deductions to the profit and gain from the eligible business also could not be applied.

 

33. In case of IPCA Laboratory Ltd. v. Deputy Commissioner of Income-Tax reported in 266 ITR 521 the Supreme Court observed as under: “Section 80AB is also in Chapter VI-A. It starts with the words "where any deduction is required to be made or allowed under any Section of this Chapter". This would include Section 80HHC. Section 80AB further provides that "notwithstanding anything contained in that Section". Thus Section 80AB has been given an overriding effect over all other Sections in Chapter VIA. Section 80HHC does not provide that its provisions are to prevail over Section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by Section 80AB. Decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration.” 34. In the result, we side with the view of Delhi High Court following by Kerala and Punjab and Haryana High Courts. The question is answered in favour of the Revenue. Tax appeal is allowed. Judgment of the Tribunal is reversed to that extent. Appeal is disposed of accordingly.”

 

10. In view of the above decisions, we answer the questions in favour of the Revenue and against the assessee.

 

Question No.5

11. So far as Question No.5 is concerned, the Tribunal has observed as under:

 

“9. We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. The deduction u/s. 80IA is available to an assessee where the gross total income of the assessee includes any profits and gains derived by an undertaking or enterprise from any eligible business as referred to in sub-section (4). The deduction shall be allowed an amount equal to 100% of the profits and gains derived from such business for ten consecutive years. As per section e 801A(4) this section applies to any undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the is 1st day of April, 1993 and ending on the 3ist day of March, 2010. Sub-section (3) of section 80lA requires that such undertaking must fulfill the conditions laid down therein. The first condition therein is that the undertaking should not be formed by splitting up, or the reconstruction, of a business already in existence. The second condition states that the undertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation 2 to this sub-section states that where in the case of an undertaking, any machinery or plant of any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or any part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for ‘the purposes of clause (ii) of this subsection, the condition specified therein shall be deemed to have been complied with. This undisputed fact that in this case the assessee has not transferred the existing boiler to the new undertaking for generating the power but the contention of the assessee is that the same very boiler 1s being used for supplying the steam to both the turbine which was already in existence and the new one established by the assessee. The claim of the assessee is that the new turbine established by him itself is a new undertaking engaged in the business of generating the power.New turbine itself cannot generate Power until and unless the steam is provided to it through boiler. An undertaking which is eligible for deduction u/s 801A, in our opinion, must itself be an independent undertaking and should be able to carry out the activities for which it has been established. The new turbine established by the assessee cannot itself generate the power. The undertaking so that it may generate the power will be complete only when both new turbine and the boiler are installed. The assessee has not installed boiler but it is part of existing undertaking generating the power. This, in our opinion, is merely an expansion of the existing undertaking. If the existing boiler is carved out from the new turbine installed by the assessee, the new turbine claimed to be eligible undertaking itself cannot generate the power. No material or evidence was brought to our knowledge which may prove that the new turbine installed by the assessee can independently generate the power. The assessee is already having the undertaking engaged in the business of generating the power. The assessee in this case has merely added a new turbine to the in undertaking which his capacity to generate the power has increased. This, in our opinion, is merely an expansion of the of the existing undertaking. The new undertaking as is eligible u/s 801A, in our opinion, must be independent and integrated unit which should be able to carry on the activities or to carry on the business as has been stipulated u/s 80IA independently. It is not the case of the assessee that the new unit established by the assessee has taken from the existing unit for its exclusive use and generation of power. It is only in the existing unit the assessee has added new turbine which, in our opinion, cannot be regarded to be establishing the new undertaking qualifying for deduction u/s 80IA. We, therefore, do not find any illegality or infirmity in the order of the CIT(A) in denying deduction to the assessee u/s 801A. Thus, Ground Nos.3 and 4 stand dismissed.”

 

12. Learned Senior Advocate Mr. Soparkar relied upon the decisions of this Court in case of Principal Commissioner of Income Tax vs. Jay Chemical Industrial Ltd. reported in [2020] 422 ITR 449 (Guj.) and submitted that the steam generated from the existing boiler would not mean that the new turbine is not a new industrial undertaking. It was submitted that expansion of the power generating facility by the assessee is required to be considered as new undertaking and therefore, the Tribunal was not justified in holding that in absence of of boiler, installation of the new turbine would not be considered as a new undertaking. Alternatively it is submitted that even if boiler is a common use for both old and new turbine, it cannot be said that a new turbine is not an independent industrial undertaking as the turbine is meant for generation of power by use of steam either from the old boiler or the steam can also be purchased from outside. It was further submitted that if the assessee would have used old boiler exclusively for new turbine, then also, industrial undertaking would satisfy the condition of 80IA(3) read with Explanation 2 of the Act. Reliance was also placed on the decision of the Hon’ble Apex Court in case of Textile Machinery Corporation Limited, Culcutta vs. The Commissioner of Income Tax, West Bengal reported in 107 ITR 195 to submit that a substantial expansion would qualify for deduction under section 80IA of the Act.

 

13. On the other hand, learned Senior Standing Counsel Mr. Patel for the Revenue submitted that reliance placed by the assessee on the decision of this Court in case of Jay Chemical Industries Ltd (supra) is misplaced as the facts of the said case is different than that of the case of the assessee. It was submitted that in case of the assessee i.e. Atul Limited, this Court has held in favour of the Revenue which is reported in (2016) 74 Taxmann.com 255. Reference was also made to the decision of this Court in case of Gujarat Alkalies and Chemicals Ltd vs. Commissioner of Income Tax reported in (2013) 350 ITR 94. It was submitted that in case of the assessee, the decision held by this Court that the Tribunal did not commit any error in arriving at conclusion that by mere installation of turbine, assessee did not install a new industry since turbine themselves would not be sufficient for power generation without generation of steam. It was therefore, submitted that Question No.5 may be answered in favour of the Revenue and against the assessee.

 

14. We have considered the rival submissions. The Hon’ble Apex Court, in case of Textile Machinery Corporation Ltd.(supra) while considering the issue regarding entitlement to the exemption claimed under section 15C(2)(i) of the Income Tax Act,1922, which is peri materia to section 80IA of the Act, has held as under:

 

“Reconstruction of business involves the idea of substantially the same persons carrying on substantially the same business. It is stated on behalf of the Revenue that the same company in the instant case continues to do the same business of heavy engineering---no matter certain spare parts necessary as components to completion of the endproduct are now manufactured in the business itself. The fact that the assessee is carrying on the general business of heavy engineering will not prevent him from setting up new industrial undertakings and from claiming benefit under section-15C if that section is otherwise applicable. However, in order to be entitled to the benefit under' section 15C, the following facts have to be established by the assessee. subject always to the time-schedule in the section :--

 

(1) investment of substantial fresh capital in the industrial undertaking set up,

 

(2) employment of requisite labour therein,

 

(3) manufacture or production of articles in the said undertaking,

 

(4) earning of profits clearly attributable to the said new undertaking, and

 

(5) above all, a separate and distinct identity of the industrial unit set up.

 

We may add that there is no bar to an assessee carrying on a particular business to set up a new industrial undertaking on account of which exemption of tax under section 15C may be claimed.

 

The legislature has advisedly refrained from inserting a definition of the word 'reconstruction' in the Act. Indeed, in the infinite variety of instances of restructuring of industry in the course of strides in technology and of other developments, the question has to be left for decision on the peculiar facts of each case.

 

If any undertaking is not formed by reconstruction of the old business that undertaking will not be denied the benefit of section 15C simply because it goes to expand the general business of the assessee on some directions. As in the instant case, once the new industrial undertakings are separate and independent production units' in the sense that the commodities produced or the results achieved are commercially tangible products and the undertakings can be carried on separately without complete absorption and losing their identity in the old business, they are not to be treated as being formed by reconstruction of the old business. The business of the assessee is of heavy engineering. The two new undertakings are independently producing arti- cles which may be of aid to the principal business but yet the undertakings are distinct and not reconstruction out of the existing business of the assessee. Use by the assessee of the articles produced in its existing business or the concept of expansion are not decisive tests in construing section 15C. The High Court is not right in holding the two undertakings as formed by reconstruction of the existing business of the assessee.”

 

15. Section 80IA(3) reads as under:

 

“80IA: - Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

 

(1) xxx xxx xxx

(2) xxx xxx xxx

 

(3) This section applies to {an [industrial undertaking] referred to in clause (iv) of sub-section (4)} which fulfills all the following conditions, namely ~

 

(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:

 

Provided that this condition shall not apply in respect of an {industrial undertaking} which is formed as a result of the reestablishment, re-construction or revival by the assessee of the business of any such {industrial undertaking] as is referred to in section 33B, in the circumstances and within the period specified in that section;

 

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

 

Explanation 1.—For the purposes of clause (i), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely —

 

(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

 

(b) such machinery or plant is imported into India from any country outside India; and

 

(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the assessee.

 

Explanation 2.~Where in the case of an {industrial undertaking}, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.”

 

16. On perusal of the above provision, as it existed at the relevant time, Explanation2, provides that when any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of machinery or plant or part does not exceed twenty percent of the total value of the machinery or plant used in the business, then, for the purpose of clause (ii) of the sub-section (3), the condition specified therein that such new industrial undertaking is not formed by transfer to a new business of machinery or plant previously used for any purpose shall be deemed to have been complied with. Therefore, even considering the fact that the boiler was used for the purpose of obtaining steam to run the new turbine for generation of the power, cost of new turbine is less than twenty percent of the total value, would Condition No.2 of the conditions prescribed in Clause (ii) shall be deemed to have been complied with in the facts of the case. The total value of the plant and used for the purpose of generating power works out to Rs. 14,56,44,295/- (Rs. 18,27,180/- value of the plant and machinery and Rs.1,26,42,715/- for turbine new industrial unit) and the value of boiler (pre-existing and pre-used) is Rs. 14,76,600/- purchased second hand on 09.11.1998. In view of such facts even as per the Explanation-2 to section 80IA(3) there is no breach of the condition on use of the old boiler for obtaining steam to run the turbine for generation of power. Moreover, as per the decision of this Court in case of Principal Commissioner of Income Tax vs. Jay Chemical Industries Ltd. reported in [2020] 120 taxman.com 315 (Gujarat) (supra), the steam is also a power and energy as held as under:

 

“22. The word “Power” should be understood in common parlance as “Energy”. “Energy” can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the “steam” produced by the assessee can be termed as power and would qualify for the benefits available under section 80IA(4) of the Act.”

 

17. It is true that the question raised before this Court in case of Jay Chemical Industries Ltd (supra) was only for the purpose that vapour would not fall within the meaning of ‘Power’ and therefore, would not be generation of power to which, the deduction is granted under section 80IA(4). Therefore, this Court has rightly held that as the facts in the said case was different from the facts of the Atul Limited (supra), ratio was not made applicable in the facts of the case.

 

18. On perusal of the decision of this Court rendered in case of Atul Limited (Supra), it appears that the decision in case of Textile Machinery Corporation Ltd, West Bengal (supra) was not referred to and reference was only made to the decision of Gujarat Alkalies and Chemicals Ltd. Moreover, the said decision was rendered with regard to question of law as to whether Income Tax Tribunal was justified in recalling its judgement regarding on the subsequent decision of the Court in case of Gujarat Alkalies and Chemicals Ltd. on the ground that there was error apparent on the face of the record committed by the Tribunal. Therefore, this Court never called upon to decide the issue as to whether the assessee is eligible to get the deduction under section 80IA on merits. This Court only decided as to whether on the basis of the decision on the case of Gujarat Alkalies & Chemicals Ltd (supra), Tribunal have recalled the order while exercising power of section 254(2) of the Act or not.

 

19. In view of the above foregoing reasons, we are of the opinion that the Tribunal was right in law in not allowing deduction under section 80IA of the Act on the installation of the new turbine by the assessee being a new power plant by not treating the same as new industrial undertaking within the meaning of the proviso of section 80IA of the Act. We therefore, answer the question in favour of the assessee and against the Revenue.

 

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