ORDER

Hari Om Maratha, J.M. :

This appeal of the assessee for asst. yr. 2006-07 is directed against the order of the learned CIT(A)-I, Coimbtore, dt. 1st May, 2009.

2. The facts of the case, in brief, are that the assessee firm is engaged in the business of manufacture of automobile components and windmill power generation and filed its return of income for asst. yr. 2006-07 on 31st Oct., 2006, declaring total income of Rs. 70,67,640 after claiming deduction of Rs. 62,49,568 under s. 80-IA of the IT Act, 1961 (hereinafter referred to as 'the Act' for short). The assessment order was passed on 23rd Dec, 2008 at a total income of Rs. 1,33,17,210 as against the returned income of Rs. 70,67,640. For arriving at the above figure, the AO had disallowed deduction of Rs. 62,49,568 on the reasoning that the requisite conditions of s. 80-IA(5) are not fulfilled. In arriving at the above conclusion, it has been observed by the AO that the deduction under s. 80-IA would be computed with reference to profits of the eligible unit unaffected by losses suffered in other units. That the loss suffered by the eligible unit would not be set off against profits of other units/other business/other incomes in the initial year of assessment or subsequent years and the losses of the eligible unit when remained to be adjusted against that very source it is to be carried forward to the subsequent year(s) and is to be set off in the succeeding year(s) and on the remaining profit alone the deduction would be available. It was also observed that when there was no loss(es) of the eligible unit, carried forward, in view of having been set off against profits of that very source, the losses of the earlier years, though already absorbed against other sources, are once again to be notionally brought forward and set off against profits of the eligible unit to compute eligible deduction and that this deduction is limited to gross total income. He has treated each windmill as a separate unit. Alter holding as above, the AO has denied the assessee's claim under s. 80-IA of the Act and has added the same to its total income. The learned CIT(A) has also taken almost similar lines of reasonings for dismissing assessee's claim under s. 80-IA by relying on the decision of Asstt CIT v. Goldmine Shares & Finance ( P) Ltd. [2008] 116 TTJ (Ahd)(SB) 705 : [2008] 9 DTR (Ahd)(SB)(Trib) 282 : [2008] 302 1TR 208 (Ahd)(SB)(AT) and ignoring the decision of Chennai Bench of the Tribunal in the case of Mohan Breweries & Distilleries Ltd. v. Asstt. CIT order dt. 31st Oct., 2009 in ITA No. 1077/Mad/2007.

3. Before us, it was pleaded polemically that the decision of the Special Bench in the case of Goldmine Shares (supra) only spells out the law as laid down in s. 80-IA in conjunction with s. 80-IA(5), but it has not touched the other important feature of this important claim of deduction which gives option to the assessee to claim this deduction for 10 years out of 15 years. It was argued that the Act nowhere defines the term 'initial year' of such a claim and that the 'initial year' will have very valid bearing on the entire computation to be made under these sections. It was submitted that the Chennai Bench has clearly defined that the assessee has option to opt for that initial year and the deduction in question shall have relevance to that initial year only. Per contra, the learned Departmental Representative has heavily relied on the orders of authorities below and the Special Bench decision referred to as above.

4. After considering the legal position as emerging from the provisions and precedents relevant to the issue in question, we are of the opinion that the computation procedure as has been elaborated by the learned CIT(A) may be correct but he has not addressed the plea of the assessee with regard to the contention that the assessee can opt for the year of deduction for any 10 consecutive years out of 15 years taken from the first year in which the enterprise develops and begins to operate in any infrastructure activity and it does not mandate that first of 10 consecutive assessment years should be always the first year of set up of enterprise. We find that the Chennai Bench has clearly held, that the initial assessment year could not be the year in which it commenced its operations and in the instant case, the initial assessment year was the year in which the assessee had chosen to claim deduction under s. 80-IA. We are of the opinion that the Special Bench decision does not overrule or come in the way of the ruling laid down by Chennai 'B' Bench in the case of. Mohan Breweries & Distilleries Ltd. (supra)..The Tribunal has clearly held that the provisions of s. 80-IA(5) treating it as a separate sole source of income could not be applied to a year prior to the year in which the assessee opted to claim relief under s. 80-IA for the first time., It has been further held that the depreciation and carry forward loss relief to the unit which claims deduction under s. 80-IA cannot be notionally carried forward and set off against the income from the year in which the assessee; started claiming deduction under s. 80-IA, and hence, there was no question of setting off notionally carried forward unabsorbed depreciation or loss of earlier years against assessee's profits and the assessee would be entitled to claim deduction under s. 80-IA on the current year's profit. In the case of Goldmine (supra), it has been held that it is mandatory for the profits from eligible business to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been set off against income in earlier years. What the Chennai Bench has held is not contrary to the Special Bench decision but it is simply supplementary of the same because the issue whether the term 'initial year' is relevant was not before the, Special Bench. The question referred to the Special Bench reads as under :

"Whether in view of the provisions of s. 80-IA(5) of the IT Act, 1961,. the profit from the eligible business for the purpose of deduction under s. 80-IA of the Act has to be computed after deduction pf the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years."

5. Before discussing the outcome of the Special Bench decision, we would like to narrate the law of deduction as laid down in s. 80-IA in conjunction with s. 80-IA(5) of the Act. The scheme of the IT Act, 1961 as contained in its various chapters is that Chapter II details the basis of charge of income-tax. In Chapter III certain incomes are defined which do not form part of income. In Chapter IV elaborate method of computation of total income from different sources of income and the sources of income include—incomes from salary, from house property, from profits and gains of business or profession, from capital gains and from other sources. In Chapter V, incomes of other persons, how and when is to be 'included in assessee's hands is described. Chapters VI and VI-A are important as they provide for the mode of aggregation of income and set off or carry forward of loss and provide for deduction to be made in computing total income. We are concerned with Chapter VI-A, especially its portion C, which deals with deduction in respect of certain incomes. Sec. 80-IA is the section which deals with deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. Sec. 80-IA reads as under :

"80-IA Deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.—

(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-s. (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years."

(2) The deduction specified in sub-s. (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park [or develops (***) a special economic zone referred to in cl. (iii) of sub-s. (4)] or generates power or commences transmission or distribution of power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines or lays and begins to operate a cross-country natural gas distribution network :

Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in cl. (a) or cl. (b ) or cl. (c) of the Explanation to cl. (i) of sub-s. (4), the provisions of this sub-section shall have effect as if for the words 'fifteen years', the words 'twenty years' had been substituted.

(2A) Notwithstanding anything contained in sub-s. (1) or sub-s. (2), the deduction in computing the total income of an undertaking providing telecommunication services, specified in cl. (ii) of sub-s. (4), shall be hundred per cent of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub-s. (2) and thereafter, thirty per cent of such profits and gains for further five assessment years.

(3) This section applies to an undertaking referred to in cl. (ii ) or cl. (iv) or cl. (vi) of sub-s. (4) which fulfils 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 undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as. is referred to in s. 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 :

Provided that nothing contained in this sub-section shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in cl. (7) of s. 2 of the Electricity Act, 2003 (36 of 2003), whether or not such transfer is in pursuance of the splitting up or reconstruction or reorganisation of the Board under Part XIII of that Act.

Explanation …………..

Explanation 2.—

(4) This section applies to—

(i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :

(a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;
(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for ( i) developing or ( ii) operating and maintaining or ( iii) developing, operating and maintaining a new infrastructure facility;
(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995 :

Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.

Explanation..........

Provided that in a case where an undertaking develops an industrial park on or after the 1st day of April, 1999 or a special economic zone on or after the 1st day of April, 2001 and transfers the operation and maintenance of such industrial park or such special economic zone, as the case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub-s. (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking :

Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates an industrial park, the provisions of this clause shall have effect as if for the figures, letters and words 31st day of March, 2006', the figures, letters and words '31st day of March, (2011)' had been substituted;

(iv) an undertaking which,—

(a) 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 1st day of April, 1993 and ending on the 31st day of March, 2011;
(b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, 2011 :
Provided that the deduction under this section to an undertaking under sub-cl. ( b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution;
(c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 2011.

Explanation ………….

(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-s. (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section 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."

6. In nutshell, in computing the total income of the assessee, derived from profits and gains from an eligible business, which are detailed in sub-s. (4), 100 per cent deduction is allowed for ten consecutive assessment years. Sub-s. (2) of s. 80-IA gives option to the assessee to choose the 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing' telecommunication service or develops an industrial parks..... etc. By way of a proviso, this fifteen years has been extended to 20 years in respect of certain business, Likewise sub-s. (2A) restricts this deduction in respect of undertakings providing telecommunication services. Sec. 80-IA(3) imposes certain restrictions whereunder, this deduction is not allowed to undertakings if it is formed by splitting up or reconstruction of an already existing business but reconstruction, re-establishment or revival of the business subject to s. 33B have been excluded, etc., etc. with which we are not concerned for deciding the present appeal. But we are concerned mainly with s. 80-IA(5). Sub-s. (5.) of s. 80-IA qualifies deduction of sub-s. (1) of s. 80A with a non obstante clause and overrides every other provision in this Act providing mechanism by way of assumption that for determining the quantum of deduction for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, it would be deemed 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 assessment year upto and including the assessment year for which the determination is to be made.

7. The above provisions are very clear, plain and direct in meaning. But only difficulty is cast by the term 'initial year' which has nowhere been defined in the Act, yet by sub-s. (2) it is obvious that it is referring to the option vested in the assessee to choose any 10 years out of 15 or 20 years, period provided, as the case may be. The year from which option has been exercised is to be treated as the initial assessment year, but after that the 10 years have in continuity. The findings as given by the Special Bench can be summarized as under :

"A deeming provision is intended to enlarge or curtail the meaning of a particular word which includes or excludes matters which otherwise may or may not fall within the provision; it should therefore, be extended to the consequences and incidents which shall inevitably follow.—East End Dwellings Co. Ltd v. Finsbury Borough Council [1952] AC 109 : [1951] All ER 587 (HL) followed.

In view of the specific provisions of s. 80-IA(5) of the IT Act, 1961 the profits from the eligible business for the purpose of determination of the quantum of deduction under s. 80-IA of the Act have to be computed after deduction of the notional brought forward losses and depreciation of the eligible business even though they have been set off against other income in earlier years.

The only harmonious construction of s. 80-IA(5), consistent with the object of allowing deduction only to profits and gains of the eligible business, would be that—

(a) the deduction under that section would be computed with reference to profits of the eligible unit, unaffected by losses suffered in other units;
(b) loss suffered by the eligible unit would not be set off against profits of other units/other business/other income in the initial year of assessment or subsequent years of eligible years of assessment.
(c) where losses of the eligible unit remain to be adjusted against that very source they are to be carried forward to subsequent year(s), and set off in the succeeding year(s), and on the balance profit alone would the deduction admissible be computed;
(d) where there are no losses of the eligible unit carried forward (in view of having been set off against profits of that very source), the losses of earlier years, though already absorbed against other sources, are once again to be notionally brought forward and set off against profits of the eligible unit to compute eligible deduction;
(e) the deduction is limited to gross total income.

Sec. 80-IA(l), (5) and other like s. 80-IA(7]/80-I(6) can be studied under five broad sub-heads : first, the deduction under s. 80-IA(l) is of/from the profits and gains included in 'gross total income'; second, the computation of deduction is made under a non obstante s. 80-IA(7)/80-IA(5); third, the profits and gains are computed on a fiction created to the effect that the eligible business is the only source of income; fourth, the fiction is created for the purpose of determining the quantum of deduction; and fifth, the fiction is for all the years eligible for the deduction.

The gross total income is defined in sub-s. (5) of s. 80B to mean the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A of the Act. It follows, therefore, that deductions under Chapter VI-A can be given only if the gross total income is positive and not negative. While computing the total income, the losses carried forward and depreciation have to be adjusted and thereafter the gross total income of the assessee has to be worked out. If the gross total income is found to be a net loss on account of the adjustment of losses of the earlier years or nil, no deduction under this chapter can be allowed. The effect of cl. (5) of s. 80B of the Act is that the gross total income will be arrived at after : (i) making deduction under the appropriate computation provisions; (ii) including the incomes if any, under ss. 60 to 64 in the total income of the individual; (iii) adjusting intra head and/or inter-head losses; and (iv) setting off brought forward unabsorbed losses and unabsorbed depreciation etc.

The non obstante clause in sub-s. (5) means it overrides all the provisions of the Act. Since the profits and gains of a business are determined by allowing all deductions including under s. 32 and set off under the provisions of ss. 70, 71 and 72, it is on the balance that the deduction under Chapter VI-A is allowed. However, by the overriding provision, these sections to the extent provided otherwise in s. 80-IA(5), are not to be taken into consideration.

In s. 80-IA(7) a legal fiction is created by which the eligible business has been treated as the only source of income. In construing this legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate, so, necessarily, all the provisions in the Act in respect of a source of income will apply. As a consequence, the other, sources of income of an assessee would have to be assumed as not existing and consequently, any depreciation or loss cannot be set off against any other source which is assumed to have not been in existence and therefore, the depreciation or the loss of the eligible business which could not be set off against the profits of the eligible business itself has to be carried forward and set off against the profits of the very source of eligible business in the subsequent year. Because of the fiction, even if any set off of eligible business loss was made against other sources of income, it has to be assumed not so set off. 'As if that were the only source of income' means as if there was no other source of income. If that be so the depreciation and loss could not be absorbed, and be set off against any other source or head of income. Losses of the eligible business are to be set off only against the subsequent years' income of the eligible business, even though these were set off against other income of the assessee in that earlier year.

The provision overrides all other provisions of the Act only for computing the profits and gains of the eligible business for determining the quantum of deduction under the section. This restricts the application of the fiction to a specified purpose and therefore, it cannot be extended beyond the object for which the fiction is created. Once that purpose, i.e., determination of the quantum of deduction is over, one has to fall back on the provisions of the Act for computing the total income.

The contention that if the intention was to presume other sources of income as not in existence, ss. 80A(2) and 80B(5) also should be not applicable in restricting the deduction to the total income of the assessee and that these sections can be applicable only when there are other sources of income is not tenable.

The deeming fiction in s. 80-IA(5) of the Act not only provides that profits of the eligible unit have to be considered on a standalone basis and do not require to be adjusted against loss in other unit(s) but also that its own losses are to be assumed as not adjusted against other sources and are carried forward to set off against this source of income alone.

Held, allowing the appeals, that the profit from the eligible business had to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they had been set off against other income in earlier years."

8. There is no confusion or contradictions in so far as the ratio of the above decision is concerned. In the above decision, the actual issue involved in the appeal under reference was not touched at all. Whatever has been held by the Special Bench will apply ditto to the 10 consecutive years starting from the initial year in which the assessee had exercised his option to avail the benefit of s. 80-IA, otherwise sub-s. (2) of s. 80-IA would become otiose. The Chennai Bench has directly dealt with the question which is really involved in this appeal. Hence, sub-s. (5) of s. 80-IA would come into operation only from the year in which the appellant started claiming deduction under s. 80-IA i.e., from the initial year, as we have described earlier, and the depreciation relating to the years prior to the initial assessment year cannot be brought back notionally to be adjusted against the income of the initial or subsequent assessment years. But for the 10 year lag opted by the assessee the ratio of Special Bench would apply verbatim in its letters and spirit. Therefore, we allow this issue in favour of the assessee by following the Special Bench and the Chennai Bench decision.

9. The next issue that each windmill is a separate undertaking is taken vide ground Nos. 6 and 7. This issue is covered in favour of the assessee by the decision of the Chennai Bench in the case of Bennari Amman Sugars in ITA No. 1162/Mad/2008 in which it has been held that each co-generation, plant installed in different years has to be considered as a separate undertaking and the profit/loss cannot be clubbed in order to compute the deduction under s. 80-IA of the Act. The facts of the above decision are exactly similar to the facts of this case. Therefore, by following the above Chennai Bench decision, we set aside the appellate finding and allow ground Nos. 6 and 7 in favour of the assessee.

10. In the result, the appeal of the assessee stands allowed.