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ASST. COMMR. OF I.T BANGALORE Versus M/s MICRO LABS LTD.

2015 (12) TMI 708 - SUPREME COURT

Split Decision by the Division bench of the Apex Court - Deduction under the provisions of Section 80-IA or/and 80-IB - whether the Assessee is also entitled to the deduction in respect of the profits and gains under the provisions of Section 80HHC of the Act or whether the Assessee is entitled to deductions under the aforestated all the three Sections in respect of the same profits

Hon'ble ANIL R. DAVE, J. held that:- the High Court was in error while permitting the Assessee to get .....

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tion placed by the High Court of Bombay is correct and, accordingly, I dismiss the appeals preferred by the revenue and allow the appeals preferred by the assessees. - Civil Appeal No(s). 7427/2012 With C.A. No. 14295/2015, C.A. No. 14297/2015 to C.A. No. 14320/2015, C.A. No. 14322/2015 to C.A. No. 14347/2015, C.A. No. 7847/2012, C.A. No. 4544/2013, C.A. No. 5341/2013 And C.A. No. 1890/2015 - Dated:- 10-12-2015 - Anil R. Dave And Dipak Misra, JJ For the Petitioner : Mr. Arijit Prasad,Adv., Ms. S .....

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, Mr. Nikhil Nayyar,Adv., Mr. Ravindra Keshavrao Adsure,Adv., Mr. Rustom B. Hathikhanawala,Adv., Mr. Kamal Mohan Gupta,Adv., Mr. Jay Savla,Adv., Ms. Renuka Sahu,Adv., Mr. Prabhat K.C.,Adv., M/s. Temple Law Firm,Advs. And Mr. Pramod B. Agarwala,Adv. ORDER ANIL R. DAVE, J. 1. Leave granted in all the Special Leave Petitions. 2. These are several appeals which involve the same issue as in Civil Appeal No.7427 of 2012 and therefore, all the appeals have been heard together at the request of the lear .....

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to as the Assessee . 4. The Assessee was aggrieved by the Order dated 11th January, 2008 passed in ITA No.367/Bang/07 by the Income Tax Appellate Tribunal, Bangalore Bench and had, therefore, approached the High Court of Karnataka at Bangalore. The High Court allowed the appeal and therefore, the Revenue has filed this appeal. 5. The question which had to be considered by the Tribunal as well as by the High Court was whether, while considering the deduction under the provisions of Section 80-IA .....

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uctions under Sections 80HHC and 80-IB of the Act but the High Court did not agree with the said conclusion arrived at by the Tribunal and decided in favour of the Assessee to the effect that though the Assessee had claimed and was allowed deductions under Section 80HHC of the Act, the Assessee was also entitled to deductions under the provisions of Section 80-IB of the Act in respect of the same profits. 6. Thus, in this appeal what is to be considered is whether the Assessee was entitled to th .....

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ereas a different view has been taken by the High Court of Delhi. 8. For the purpose of better understanding of the issue, relevant extracts of the said Sections of the Act have been reproduced hereinbelow: 80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. - (1) Where the gross total income of an Assessee includes any profits and gains derived from any business referred to in sub-Sections (3) to (11), (11A) a .....

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may be, apply to the eligible business under this Section. 80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. - (1) to (8) xxx xxx xxx (9) Where any amount of profits and gains of an (undertaking) or of an enterprise in the case of an Assessee is claimed and allowed under this Section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of .....

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accordance with and subject to the provisions of this Section, be allowed, in computing the total income of the 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: Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this Section referred to as an Export House or a Trading House, as the case may be), issues a certificate referred .....

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the assessee in respect of such trading goods. (1A) xxx xxx xxx (1B) For the purposes of sub-Sections (1) and (1A), the extent of deduction of the profits shall be an amount equal to - (i) eighty per cent thereof for an assessment year beginning on the 1st day of April, 2001; (ii) seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002; (iii) fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003; (iv) thirty per cent thereof for an .....

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een aggrieved by the way in which the deductions were permitted by the High Court from the same profits and gains of the business to the Assessee under Sections 80HHC and 80-IB of the Act. According to the case of the Revenue, the Tribunal was right in deciding the case of the Assessee and the High Court committed an error while interpreting the legal provisions of the Sections referred to hereinabove. 10. The learned counsel appearing for the Revenue had submitted that the intention behind enac .....

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ad been amended with effect from 1st April, 2000 so as to see that the total deduction does not exceed total profits and gains of the business and in respect of the same profits, deductions under Section 80HHC and Sections 80-IA or 80-IB together cannot be allowed. 11. The learned counsel appearing for the Revenue had read and tried to interpret each of the aforestated Sections and specifically put his emphasis on that part of the Section which prevents the assessee from taking advantage of havi .....

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profits and gains from industrial undertakings or enterprises engaged in the business of infrastructure development. Section 80-IA(9) of the Act specifically provides that when any deduction is claimed and allowed under the provisions of Section 80-IA of the Act, deduction to the extent of such profits and gains cannot be allowed under any other provisions under heading C. - Deductions in respect of certain incomes of the Chapter in which Section 80HHC has been included. Similarly, it had been s .....

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virtue of the provisions of Section 80-IB(13), the provisions applicable to industrial undertakings to whom deductions under Section 80-IA are granted, would also apply to certain extent. By virtue of the aforestated provisions of Section 80-IB(13), provisions of Section 80-IA(9) would also apply to the industrial units who claim benefit of deduction under Section 80-IB of the Act. 15. According to the learned counsel, Section 80-IA(9) is clear to the effect that once a deduction is claimed und .....

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fferent activities or different businesses. The Assessee being also in the business of export, had also claimed and was allowed deduction under Section 80HHC. In spite of the fact that the Assessee had claimed deduction in respect of the provisions of Section 80-IB, the Assessee had also claimed deduction under Section 80HHC with respect to the same profits. The Assessing Officer had allowed deductions under Section 80HHC without considering the fact that the Assessee had also claimed and was al .....

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Assessee before the Tribunal and the Tribunal was pleased to dismiss the appeal and therefore, the Assessee had filed an appeal before the High Court which has been allowed. Being aggrieved, the Revenue has filed this appeal. 18. On the other hand, the learned counsel appearing for the Assessee in Civil Appeal No.7427 of 2012 and other connected appeals had submitted that the view expressed by the High Court is absolutely correct. According to the learned counsel, the statute wants to give deduc .....

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y in the tax law, benefit thereof should be given to the assessee and the High Court of Karnataka and some other High Courts in the country had rightly permitted the assesses to claim deductions under both the Sections. Thus, the counsel appearing for the assesses had supported the reasons given by the High Court and had submitted that the appeals filed by the Revenue deserve dismissal. 20. I have heard the learned counsel and considered the judgments referred to by them and the provisions of th .....

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the export business, he cannot claim deduction of his entire profits and gains under the provisions of Section 80HHC as well as under Section 80-IA or/and Section 80-IB of the Act. 23. Section 80-IA(9) is quite unambiguous, which clearly provides that if an assessee claims any deduction under the provisions of Section 80-IA, then the assessee cannot claim deduction to the extent of such profits and gains under heading C of Chapter VIA of the Act, which, in the present case, was claimed and wrong .....

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s : Where any amount of profits and gains of an (undertaking) or of an enterprise in the case of an Assessee is claimed and allowed under this Section for any assessment year, 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 shall in no case exceed the profits and gains of such eligible business of (undertaking) or enterprise, as the case may be. 26. Admittedly, th .....

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he Commissioner had also been confirmed by the Tribunal. However, the order of the Tribunal, when challenged before the High Court, was quashed and set aside. 27. In the instant case, I also find that the intention of the legislature is very clear to the effect that if an assessee claims any deduction under the provisions of Sections 80-IA or/and 80-IB, he cannot claim deduction to the extent to such profits and gains which had been claimed and allowed under the provisions of Section 80HHC of th .....

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13) provisions of Section 80-IA(9) are also applicable to Section 80-IB. 29. For the aforestated reasons, I am not in agreement with the view expressed by the High Court and therefore, I decide the appeals in favour of the Revenue by holding that the Assessee who had claimed and had been allowed deductions in respect of profits under Section 80-IB, could not have been allowed deductions in respect of the same profits under Section 80HHC of the Act. 30. Other issues, though referred to in the mem .....

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the issue that really arose before the different High Courts is : Whether the Tribunal was justified in holding that section 80-1A(9) of the Income-Tax Act, 1961 mandates that the amount of profits allowed as deduction under section 80-1A(1) of the Act has to be reduced from the profits of the business of the undertaking while computing deduction under any another provisions under heading C in Chapter VI-A of the Income-tax Act, 1961? 4. Be it stated, I have taken the said question from the judg .....

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gh Court in interpreting the provisions of section 80-1A(9). In that case, in fact, the counsel for the Revenue had argued (see para 38 of the judgment) that section 80-1A(9) applies at the stage of allowing deduction and not at the stage of computing deduction under other provisions under heading C of Chapter VI-A. It was argued that in the matter of grant of deduction, the first stage is computation of deduction and the second stage is the allowance of the deduction. Computation of deduction h .....

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evenue that section 80-1A(9) applies at the stage of allowing the deduction and not at the stage of computing the deduction, the Delhi High Court could not have held that section 80-1A(9) seeks to disturb the method of computing the deduction provided under other provisions under heading C of Chapter VI-A of the Act. In these circumstances, we find it difficult to concur with the views expressed by the Delhi High Court in the case of Great Eastern Exports [2011] 332 ITR 14. For the same reason, .....

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not exceed 100 per cent of the profits of the business of the assessee. Our above view is also supported by the Central Board of Direct Taxes Circular No. 772 dated December 23, 1998 ([1999] 235 TR (St.) 35), wherein it is stated that section 80-1A(9) has been introduced with the 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 80-1A(9) being not to curtail .....

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d to ₹ 70, so that the aggregate deduction does not exceed the profits of the business. 5. The High Court of Delhi in Great Eastern Exports v. Commissioner of Income-Tax[2011] 332 ITR 14 (Delhi) while interpreting the said provision has applied the test of literal construction and observed:- We are not in a position to subscribe to the contention of the learned counsel for the assessees that where the Legislature intended to deduct the amount out of some other deduction a different phraseo .....

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ion of which is otherwise manifest, cannot be read by adopting such an insidious approach, by referring to other sections. It is well known that the Legislature adopts different ways and means in order to achieve its goal and there is no justification for insistence on identical language. Likewise, as rightly pointed out by the Special Bench of the Tribunal, the notice and objects of accompanying reasons are only an aid to construction. Such aid to construction is needed when a literal reading o .....

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y of income tax and ambit and scope of total income and certain other matters. Chapter III relates to incomes, which do not form part of the total income at all. Chapter IV relates to computation of total income under different sources, i.e., six sub heads, which have been divided into parts (A) to (F), Chapter V deals with income of other persons, which are to be included in the assessee s total income. Chapter VI postulates aggregation of income from different sources or set off or carry forwa .....

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her words, before reaching the stage of invoking provisions of Chapter VIA, the assessee is required to work out the gross total income by applying the provisions upto the stage of Chapter VI. It is in this context that in part A of Chapter VIA under the heading General it is postulated in sub-section(1) to Section 80A that an assessee shall be allowed from his gross total income in accordance with and subject to the conditions of this Chapter, the deductions specified in Sections 80C to 80U. As .....

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tive from the Chapter, it is necessary to reproduce Section AB which is relevant. It reads as follows:- Deductions to be made with reference to the income included in the gross total income. 80AB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading C.- Deductions in respect of certain incomes in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstan .....

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U for the purpose of computing deduction under the aforesaid section, the amount of income of that nature as computed in accordance with the provisions of the Act before making any deduction, shall alone be deemed to be the income derived or received by the assessee and included in his gross total income. The section, a non-obstante provision, overriding any section in part C and postulates that deduction under each section shall be separately computed in respect of income of that nature, which .....

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Act, before making any deduction under this Chapter; On a conjoint and harmonious reading of Sections 80AB and 80B(5), it is apparent that once gross total income is computed in accordance with the provisions of the Act but before making any deduction under the provisions of Sections 80C to 80U. Gross total income is computed by applying provisions upto Chapter VI, without or before making any deduction under Sections 80C to 80U, but the quantum of income which qualifies for deduction under Sect .....

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gs or ships or hotel business in certain cases; under Section 80HH which relates to deduction in respect of profits and gains derived from newly established industrial undertakings or hotel business in backward areas; under Section 80HHC which relates to deduction in respect of profits and gains derived from exports outside India of goods and merchandise; under Section 80HHD which relates to deduction herein an assessee is engaged in the business of hotel or tour operator and has earning in conv .....

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Act, 1961, are independent of each other and therefore a new industrial unit can claim deductions under both the sections on the gross total income independently or that deduction under section 80-I can be taken on the reduced balance after taking into account the benefit taken under section 80HH. 2. The Madhya Pradesh High Court in J.P. Tobacco Products P. Ltd v. CIT reported in [1998] 299 ITR 123 took the view that both the sections are independent and, therefore, the deductions could be claim .....

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January 12,2001, (see [2001] 247 ITR (St.) 36). This view has been followed repeatedly by different High Courts in a number of cases against which no special leave petitions were filed meaning thereby that the Department has accepted the view taken in these judgments. See CIT v. Nima Specific Family Trust reported in [2001] 248 ITR 29 Bom ; CIT v. Chokshi Contacts P. Ltd. [2001] 251 ITR 587 (Raj); CIT v. Amod Stamping [2005] 274 ITR 176 (Guj); CIT v. Mittal Appliances P. Ltd [2004] 270 ITR 65 (M .....

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High Courts following the view taken by the Madhya Pradesh High Court, we do not find any merit in this appeal. The Department having accepted the view taken in those judgments cannot be permitted to take a contrary view in the present case involving the same point. Accordingly, the civil appeal is dismissed. No costs. 11. For the purpose of clarity, I would note that the Court upheld the view taken by the Madhya Pradesh High Court in J.B. Tobacco Products Private Limited v. CIT (1998) 229 ITR 1 .....

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itself meant that deduction allowed under Section 80HH was to be reduced from the gross total income for granting benefit under Section 80J. Therefore, benefit under Section 80I was to be granted on gross total income and not on the income reduced by the amount allowed under Section 80HH. Section 80HH and 80I operate independently and the deductions have to be allowed independently subject to the condition that total amount of deduction under Chapter VIA cannot exceed the gross total income . I .....

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ion 13 to Section 80IB. These provisions read as under:- 80-IA. (9) Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, 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 shall in no case exceed the profits and gains of such eligible business of unde .....

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C. The controversy arises because the assessees herein are entitled to deduction both under Section 80IA, which is restricted to the stipulated percentage of profits and gains derived from specified business, and under Section 80HHC again stipulated percentage of profits derived from exports of goods and merchandise are entitled for deduction. Section 80HHC specifically prescribes a formula or method for computing the said deduction in sub-section (3), which at present reads as follows:- 80HHC. .....

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urnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall, - (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in r .....

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ot being profits on sale of licence acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assesse: Provided further that in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case .....

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after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, - (a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission S .....

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by the amount which bears to ninety per cent of any sum referred to in clause (iiie) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, - (a) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher t .....

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shall be set off against the amount which bears to ninety per cent of- (a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Ex .....

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over in respect of trading goods; (d) direct costs means costs directly attributable to the trading goods exported out of India including the purchase price of such goods; (e) indirect costs means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover; (f) trading goods means goods which are not manufactured or processed by the assessee. 14. As is manifest, deduction under sub-section (a) is computed by ascertaining eligible .....

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is in the context of Section 80HHC that sub-section (9) to Section 80I has come up for interpretation. There is no dispute that sub-section (9) to Section 80I would be applicable as the assessee would be entitled to deduction under Section 80IA as well as under Section 80HHC. The contention of the Revenue is that the said sub-section mandates that deduction under Section 80HHC has to be computed not only on the profits of business as reduced by the amounts specified in clause (baa) and sub-sect .....

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der sub-section (5) to Section 80B read with Section 80AB less the deduction under Section 80IA. An example will make position clear. Supposing an assessee has gross total income of ₹ 1,000/- and is entitled to deduction under Sections 80IA and 80HHC and the deduction under Section 80IA is ₹ 300/-, then the gross total income of which deduction under Section 80HHC is to be computed would be ₹ 700/-, and not ₹ 1,000/-. 16. On the other hand, the case of the assessee is tha .....

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nder Section 80IA does not exceed the profits of the business. 17. The High Court of Bombay in the case of Associated Capsules Private Ltd (supra) has accepted the contention of the assessee observing and recording the following reasons:- 29. Section 80-IA(9) consists of three parts: First part where any amount of profits and gains of an undertaking/enterprise is claimed and allowed under section 80-IA(1) for any assessment year, then Second part deduction to the extent of profits and gains allo .....

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e extent of profits allowed under section 80-IA(1) shall not be allowed under any other provisions. It obviously means that the deductions that are allowable under other provisions under heading C of Chapter VI-A would be allowed to the extent of profits as reduced by the profits allowed under section 80-IA(1). The second part of section 80-IA(9) does not even remotely refer to the method of computing deduction under other provisions under heading C of Chapter VI-A. Thus, section 80-IA(9) seeks .....

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the profits of the business as computed under the head Profits and gains of business or profession as reduced by the amounts specified therein. Therefore, in the case of a manufacturer-exporter, deduction under section 80HHC(1) is statutorily required to be computed on the profits of the business as reduced by the amounts specified in clause (baa) of section 80HHC. Unless, it is specifically provided by the statute, the profits of the business for the purpose of section 80HHC cannot be reduced .....

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33. In the case of a trade-exporter, section 80HHC(3) (b) provides that the deduction under section 80HHC(1) has to be computed on the export turnover reduced by the direct costs and indirect costs attributable to the goods or merchandise exported by the assessee. The argument of the Revenue that under section 80-IA(9) the amount of profits allowed under section 80-IA has to be deducted from the profits of business while computing deduction under section 80HHC is accepted, then the section beco .....

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e while allowing the deduction computed under section 80HHC(3)(a) of the Act. 34. If the words used in section 80-IA(9) were shall not qualify , then, probably it could be said that the Legislature intended to affect the quantum of deductions computable under other provisions under heading C of Chapter VI-A, because the amount that qualifies for deduction alone forms the basis for computing the deduction. The word qualify is an expression relatable to the computation of deduction. The word allow .....

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visions of the Act, the Legislature has expressly used words to that effect. It may be noted that sections 80HHD(7) and 80-IA(9) (presently 80-IA(9)) were introduced by Finance (No.2) Act, 1988, with effect from April 1, 1999. Section 80HHD (7) provides that the deduction allowed under section 80HHD (1) shall not qualify to that extent for deduction under any other provisions of Chapter VI-A under the heading C, whereas, section 80-IA(9A) provides that the deduction allowed under section 80-IA(1 .....

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the computation of deduction. As the words used in section 80-IA(9) relate to allowance and not computation of deduction, it cannot be inferred that section 80-IA(9) is inserted with a view to affect computation of deduction under any other provisions under heading C of Chapter VI-A. 36. It is well established in law that the language of the statute must be read as it is, and the statute must not be read by adding or substituting the words unless it is absolutely necessary to do so. Since sectio .....

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ggested by the Revenue . 18. Delhi High Court, on the other hand, in Great Eastern Exports v. Commissioner of Income-Tax [2011] 332 ITR 14 (Delhi) has held as under:- 44. The expressions in these provisions are very crucial which are deduction to the extent of such profits and the word and occurring therein. The first expression very clearly signifies that if an assesses is claiming benefit of deduction of a particular amount of profits and gains under section 80-IA, to that extent profits and g .....

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ng two independent objectives delineated above. It cannot be limited to the second objective alone thereby annihilating the first altogether and making it otiose. If we accept the contention of learned counsel for the assesses, it would lead to this result which has to be avoided. 45. Law on interpretation is clear. If the language of the statute is plain and capable of one and only one meaning, that obvious meaning is to be given to the said provision. Rules of interpretation are applied only i .....

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d 80HHA(6) provide for modification or change of manner and mode of computation or preferential treatment of one deduction over the other. These sections have to be read harmoniously. Though Section 80AB starts with the non-obstante clause, the provisions of Section (9A) to Section 80IA would override. The Delhi High Court has accepted the said interpretation and observed that the two provisions are required to be read harmoniously, for Section 80-IA(9) should not be treated as a redundant provi .....

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A and 80HHC. There was already a cap or the upper limit stipulated in sub-section(2) to Section 80IA that the deductions cannot exceed the gross total income of the assessee. However, Section 9 to Section 80IA stipulates that in no case deduction shall exceed profits and gains of such eligible business of undertaking and enterprise. The said provision does not make a reference to the gross total income but it refers to the profits and gains of such eligible business of undertaking and enterprise .....

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ins of business by the deduction allowed under Section 80IA. This aspect is highlighted in Associated Capsules Private Limited (supra) by the High Court of Bombay in the following paragraphs:- 23. As per section 80A(2) in Part A of Chapter VI-A, the aggregate amount of deduction allowed under Chapter VI-A shall not exceed the gross total income. Thus, the overall deduction allowed under Chapter VI-A cannot exceed the gross total income. However, on noticing that several undertakings were availin .....

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1998([1998] 231 ITR (St.) 252) is that it was noticed that certain assessees were claiming more than 100 percent deduction on the profits and gains of the same undertaking, when they were entitled to deductions under more than one section under heading C of Chapter VI-A. With a view to prevent the taxpayer taking undue advantage of the existing provisions of the Act, section 80-IA was amended by the Finance (No.2) Act, 1998, so that the deductions allowed under section 80-IA and various section .....

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nce between allowing a deduction and computation of deduction. The two have separate and distinct meanings. Computation of deduction is a stage prior and helps in quantifying the amount, which is eligible for deduction. Sub-section (9) to Section 80IA does not bar or prohibit the deduction allowed under Section 80IA from being included in the gross total income, when deduction under Section 80HHC(3) of the Act is computed. In this context it has been held that the expression shall not be allowed .....

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not exceed profits and gains of such eligible business of undertaking and enterprise. 22. As I find, the legislature has used the expression shall not qualify in Section 80HHB(5) and 80HHD(7), but the said expression has not been used in sub-section (9) to Section 80IA. The formula prescribed in sub-section (3) to Section 80HHC is a complete code for the purpose of the said computation of eligible profits and gains of business from exports of mercantiles and goods. It has reference to total tur .....

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te Limited (supra) with reference to clause (b) of Section 80HHC(3). Even when I apply clause (a) and calculate eligible deduction under Section 80HHC, it would give an odd and anomalous figure. To illustrate, I would like to expound on the earlier example after recording that the gross total income of ₹ 1,000/- was on assumed total turnover of ₹ 10,000/- which includes export turnover of ₹ 5,000/- and the deduction allowable under Section 80-IA was 30% and the deduction allowa .....

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ofit earned on the total turnover including export turnover and, therefore, would give a somewhat unusual and unacceptable result. There is no logic or rationale for making the calculation in the said impracticable and unintelligible manner. 23. Recently, this Court in Jeyar Consultant and Investment Private Limited v. Commissioner of Income Tax, Madras (2015) 7 SCC 705, dealing with the Assessment Year 1989-90, had examined sub-section (3)(b) to Section 80 HHC as it then existed on the question .....

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y incurred loses and on the said factual position there was no doubt or debate. However, the assessee relying upon the formula prescribed in clause (b) to Section 80HHC(3) had contended that profits of business as a whole, i.e., profits earned from goods or merchandise within India, which outweighed the loses from exports, should be taken into consideration. Referring to the decisions in IPCA Laboratories Limited v. CIT (2004) 12 SCC 742 and A.M. Moosa v. CIT (2007) 7 SCC 647, the contention was .....

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profits which are eligible and on which deduction is to be allowed under Sections 80HHC and 80IA. 25. Two other aspects need to be noticed. In Jeyar Consultant and Investment Private Limited (supra), the Court was dealing with the Assessment Year 1989-90 and sub-section (3) to Section 80HHC as it then existed and was applicable. The said sub-section had underwent substitution by Finance (No.1) Act, 1990 with effect from 1st April, 1991 and then again by Finance (No.2) Act, 1991 with effect from .....

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mputing profits from exports from trading goods and in case of mixed activity of manufacturing and trading. Sub-section(3) to Section 80HHC as enacted by the Finance (No.2) Act, 1991 and further amendments has been quoted in paragraph 15 above. 26. It may be noted that the second, third and fourth provisos to Section 80HHC(3) were inserted by Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1st April, 1998. The fifth proviso was inserted by Taxation Laws (Amendment) Act, 2005 w .....

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e freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 2 (52 of 1962): Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression total turnover shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of Section 28; (baa) profits of the business means the profits of the business as computed under the head Profit .....

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2 Act, 1991, w.e.f 1-4-1992 ] 28. The expression profits of the business as defined in clause (baa) of the Explanation to Section 80HHC of the Act was interpreted by the Court in ACG Associated Capsules Private Limited v. Commissioner of Income Tax, Central-IV, Mumbai (2012) 3 SCC 321, in the following manner:- 11. Before we deal with the contentions of the learned counsel for the parties, we may extract Explanation (baa) to Section 80-HHC of the Act: Explanation.-For the purposes of this sectio .....

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the assessee situate outside India; 12. Explanation (baa) extracted above states that profits of the business means the profits of the business as computed under the head Profits and Gains of Business or Profession as reduced by the receipts of the nature mentioned in clauses (1) and (2) of Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head Profits and Gains of Business or Profession in accordance with the provisions of Sections 28 to 4 .....

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uted under the head Profits and Gains of Business or Profession from which deductions are to be made under clauses (1) and (2) of Explanation (baa). 29. Reliance was placed for the said interpretation on a decision of the Constitution Bench in Distributors (Baroda) (P) Limited v. Union of India (1986) 1 SCC 43, to observe:- 16. Similarly, Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words receipts by wa .....

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ts of business of an assessee as computed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. 17. If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and 1 gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest .....

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