TMI Blog2011 (2) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the contention of the Revenue is unsustainable and the Tribunal has committed no illegality, in respect of cases where it had allowed the appeal. - Decided in favor of assessee. - ITA 674 of 2007 3213 of 2005, 139, 137, 154, 155, 156 of 2007 - - - Dated:- 3-2-2011 - KUMAR N., RAVI MALIMATH, JJ. JUDGMENT N. Kumar J.- 1. These appeals are preferred by the Revenue challenging the order passed by the Tribunal, which has upheld the deductions claimed by the assessees under section 80-IB as well as under section 80HHC. The Tribunal in a few cases did not grant the aforesaid relief and the assessees are in appeal. The question of law involved in all these appeals is one and the same, and, therefore, they are taken up for consideration together and disposed of by this common order. The question of law that arises for consideration is as under : "When the deduction of profits and gains of an undertaking is allowed under section 80-IA, whether such profits and gains has to be deducted before computation of the profits and gains under section 80HHC or after arriving at the profits and gains of business ?" 2. In order to answer the aforesaid question, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income at Rs. 14,59,791. In certain cases the Revenue has granted deduction under sec- tion 80HHC and reduced the same for the purpose of quantifying profits under section 80-IA. 6. The learned counsel appearing for the Revenue did not dispute that the assessee is entitled to the benefit both under section 80-IA as well as sec- tion 80HHC to the extent mentioned in sub-section (9) of section 80-IA. However, it was urged that once a deduction is granted under section 80- IA, to the extent of such profits and gains the deduction given under sec- tion 80-IA should be deducted before the computation of the profits and gains under section 80HHC and not after arriving at the profits and gains under that provision. 7. Chapter VI-A of the Act deals with deductions to be made in computing the total income. Heading "C deals with deductions in respect of certain incomes". Section 80-I deals with deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc., whereas section 80-IB deals with deductions in respect of profits and gains from certain industrial undertakings other than infra- structure development undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness are arrived at under section 80HHC. Sub- section (1) of section 80HHC provides that the assessee resident in India is engaged in the business of export out of India of any goods or merchandise to which the said section applies, in computing the total income of such assessee a deduction to the extent of profits referred to in sub-section (1B) derived by the assessee from the export of such goods or merchandise is allowed. Sub-section (1B) provides the extent of deduction permissible to such assessee. How the deduction allowable under section 80HHC(1) is to be arrived at is set out in section 80HHC(3)(a) which prescribes the for- mula which could be stated as under : Profits of the business X Export turnover = Profts and gains from export business Total turnover 12. This formula is applicable to a manufacturer of goods with which we are concerned. Now, the contention of the Revenue is whatever the assessee is entitled to as deductions under section 80-IA, such profits and gains have to be deducted out of the "profits of the business" in the aforesaid formula, before the computation of "profits and gains of export business" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not make any provision for reduction of the gross total income by the amount of deduction admissible to the assessee under section 80HH. It was only by an amendment of the said section 80J that the pro- vision for reducing the gross total income by the amount of deduction under section 80HH of the Act by the Direct Taxes (Amendment) Act, 1974, with effect from April 1, 1974, was inserted. Section 80-I was inserted in its present form by the Finance (No. 2) Act, 1980, with effect from April 1, 1981, and by the same Finance (No. 2) Act, section 80HH(9) was amended and the words 'section 80-I or' were inserted to make the said provision applicable to section 80-I as well. How- ever, no provision was made in section 80-I to provide for deduction of the gross total income by deduction allowed under section 80HH for the purpose of allowing deduction under section 80-I. It would, thus, be seen that when section 80J already existed in sub-section (9) of section 80HH, an amendment was made in section 80J in the year 1974 but no such provision was made in so far as section 80-I was concerned. This clearly contra-indicates that sub-section (9) of section 80HH by itself meant that deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No. 3036 of 2010 (since reported in [2011] 332 ITR 42 (Bom)) it is held that section 80-IA(9) does not affect the computability of deduction under various provisions under the heading "C" of Chapter VI-A, so that the aggregate deductions under section 80-IA and other provisions under heading "C" of Chapter VI-A did not extend 100 per cent. of the profits of the business of the assessee. In fact, the explanatory notes under the provisions of the Finance (No. 2) Act, 1998, deals with the amendment to section 80HHD and section 80-I to prevent double deduction from the said profit. At paragraph 35 it is stated as under (page 54) : "In these circumstances, in our opinion, the reasonable construc- tion of section 80-IA(9) would be that where deduction is allowed under section 80-IA(1), then the deduction computed under other provisions under heading 'C' of Chapter VI-A has to be restricted to the profits of the business that remains after excluding the profits allowed as deductions under section 80-IA, so that the total deduc- tions allowed under the heading of Chapter VI-A does not exceed the profits of the business." 19. Under the provisions of Chapter VI-A of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various deductions from the profits and gains are allowed to the assessee who have to fulfil certain requirements specified under the relevant section. The total deductions under Chapter VI-A of the Act are restricted to the gross total profits in respect of the assessee as a whole. In the Explanatory Note in Circular No. 772 (see [1999] 235 ITR (St.) 35) it is stated that the object of section 80-IA is not to curtail the deductions obtainable under various provisions under the heading "C.-Deductions in respect of certain incomes." Therefore, section 80-IA(9) affects the allowability of deductions and not computation and deductions. The deduction to which the assessee is entitled to under this provision is to be computed at the time of allowing deductions and not at the time of computing deductions. Therefore, the contention of the Revenue that the profits and gains permitted to be deducted under section 80-IA should be deducted out of the profits of the business and, thereafter, the profits and gains from export business is to be calculated, as otherwise it would amount to double benefit, is contrary to the scheme of the afore- said statutory provisions as well as clause (baa) to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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