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2025 (5) TMI 1599 - SC - Income TaxDeductions u/s 80HHC and 80IA - Split Decision by the Division bench of the Apex Court - Appeals/petitions has been referred to a Bench of three Judges in view of the Order in Assistant Commissioner of Income Tax Bangalore v. Micro Labs Limited 2015 (12) TMI 708 - SUPREME COURT which records difference of opinion between two Hon ble Judges of this Court. HELD THAT - Section 80-HHC provides for a deduction in respect of profits retained for export business. The provision is applicable to a company or a person engaged in business of export out of India of any goods or mercantile to which the Section applies. In computing the total income the assessee is entitled to deduction to the extent of percentage of profits set out in Subsection (1B) of Section 80-HHC. Section 80-IA deals with deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. On plain reading of Sub-section (9) of Section 80-IA if a deduction of profits and gains under Section 80-IA is claimed and allowed the deduction to the extent of such profits and gains in any other provision under the heading C is not allowed. The deduction to the extent allowed under Section 80-IA cannot be allowed under any other provision under heading C . Therefore if deduction to the extent of X is claimed and allowed out of gross total income of Y under Section 80-IA and the assessee wants to claim deduction under any other provision under the heading C though he may be entitled to deduction Y under the said provision he will get deduction under the other provisions to the extent of (Y-X) and in no case total deductions under heading C can exceed the profits and gains of such eligible business of undertaking or enterprise. Sub-section (9) of Section 80-IA on its plain reading does not provide that when a deduction is allowed under Section 80-IA while considering the claim for deduction under any of the provision under heading C the deduction allowed under Section 80-IA should be deducted from the gross total income. The restriction under sub-section (9) of Section 80-IA is not on computing the total gross income. It restricts deduction under any other provision under heading C to the extent of the deduction claimed under Section 80- IA. Bombay High Court in the case of Associated Capsules (P) Ltd. 2011 (1) TMI 787 - BOMBAY HIGH COURT as held that section 80-IA(9) does not affect the computability of deduction under various provisions under heading C of Chapter VI-A but it affects the allowability of deductions computed under various provisions under heading C of Chapter VI-A so that the aggregate deduction under section 80-IA and other provisions under heading C of Chapter VI-A do not exceed 100 per cent. of the profits of the business of the assessee. Section 80-IA(9) has been introduced with a view to prevent the taxpayers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus the object of section 80- IA(9) being not to curtail the deductions computable under various provisions under heading C of Chapter VI-A it is reasonable to hold that section 80-IA(9) affects allowability of deduction and not computation of deduction. Hence we find that the view taken by the Bombay High Court is correct. The interpretation so made to be logical and correct.
The core legal issues considered in this judgment revolve around the interpretation and application of Section 80-IA(9) of the Income Tax Act, 1961 (IT Act), particularly its impact on the allowability of deductions claimed under Section 80-IA and Section 80-HHC (and related provisions under Chapter VI-A, heading 'C'). The principal questions are:
Issue-wise Detailed Analysis 1. Legal Framework and Relevant Provisions The judgment extensively analyzed the relevant provisions of the IT Act, especially:
2. Court's Interpretation and Reasoning The Court emphasized that Section 80-IA(9) restricts the allowability of deductions under other provisions of heading 'C' to the extent of profits and gains already allowed as deduction under Section 80-IA. It does not restrict the computation of deductions under those provisions. In other words, the deductions under Sections 80-IA and 80-HHC (and others under heading 'C') are to be computed independently on the gross total income, but the aggregate deduction allowed cannot exceed the profits and gains of the eligible business. The Court rejected the Revenue's contention that the gross total income for computing deduction under Section 80-HHC should be reduced by the amount already allowed under Section 80-IA. Such a reduction would distort the formula prescribed under Section 80-HHC(3) and lead to anomalous results, as illustrated in the judgment. The Court relied heavily on the decision of the Bombay High Court in Associated Capsules (P) Ltd., which held that Section 80-IA(9) applies at the stage of allowance of deduction and not at the stage of computation, and that the aggregate deduction under Section 80-IA and other provisions under heading 'C' cannot exceed 100% of the profits of the business. Further, the Court approved the reasoning of Dipak Misra, J (as he then was) in the case of Assistant Commissioner of Income Tax, Bangalore v. Micro Labs Limited, which supported the view taken by the Bombay High Court. The judgment clarified that the gross total income remains unchanged for the purpose of computing deductions under Section 80-HHC, even if a deduction under Section 80-IA has been allowed. 3. Key Evidence and Findings The Court examined the factual matrix where the appellant claimed deductions under Sections 80-IA, 80-IB, and 80-HHC. The Revenue disallowed the deductions under Sections 80-IA and 80-HHC on the basis of Section 80-IA(9). The appellant contended that the deductions under these provisions should be computed independently and then aggregated subject to the overall limit. The Court found that the appellant's submissions were consistent with the legislative scheme and the interpretation of the Bombay High Court and the Supreme Court bench in Micro Labs Limited. The Court also noted the circular issued by the Central Board of Direct Taxes (CBDT Circular No. 772 dated December 23, 1998) which explained that Section 80-IA(9) was introduced to prevent repeated deductions on the same eligible income and to ensure that aggregate deductions do not exceed profits and gains. 4. Application of Law to Facts Applying the legal principles, the Court held that:
5. Treatment of Competing Arguments The Court considered and rejected the view taken by the Delhi High Court and Kerala High Court, which had held that Section 80-IA(9) affects computation of deduction under other provisions. The Court found these views inconsistent with the statutory language and legislative intent. The Court also distinguished the decision of the Bombay High Court in Associated Capsules as the correct interpretation. The Court acknowledged the appellant's argument that the legislature intended to allow deductions under multiple provisions of Chapter VI-A, subject to the overall cap imposed by Section 80-IA(9). It found this interpretation aligned with the statutory scheme and the purpose of the provisions. Significant Holdings The Court held:
The Court concluded that the correct approach is to compute deductions under Sections 80-IA and 80-HHC independently on the gross total income, and then allow deductions ensuring that the total deduction under heading 'C' does not exceed the profits and gains of the eligible business. This interpretation preserves the legislative intent to avoid double deductions on the same profits while allowing eligible deductions under multiple provisions.
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