The Supreme Court, while responding to a reference, ruled that deductions under Sections 80-IA and 80-IB of the Income Tax Act are not required to be reduced from the gross total income before computing deductions under other provisions, such as Section 80-HH for export profits.
The verdict was handed by a bench of Justices Abhay S. Oka, Ahsanuddin Amanullah, and A.G. Masih, following a reference sparked by a split decision in the 2015 case of Assistant Commissioner of Income Tax v. Micro Labs Limited. The primary question was whether deductions under Sections 80-IA/80-IB (for earnings from specific industrial activities) and 80-HHC (for export profits) may be claimed together.
Deductions have been claimed by the appellant u/s 80-HHC (export profits) and Section 80-IA/80-IB (industrial profits). Such claims are been disallowed by the income tax department, arguing that Section 80-IA (9) restricts claiming double advantages on the same profits. Punjab & Haryana High Court said that the appellant needs to approach the Supreme Court.
Justice Anil R. Dave said that the deduction u/s 80-IA should lessen the gross total income before calculating deductions under other provisions (like Section 80-HHC).
Justice Dipak Misra, countering the view of Justice Dave, ruled that Section 80-IA (9) does not revise the calculation of deductions under other provisions, though it merely limits the aggregate deduction to not surpass the eligible profits.
The case was directed to a three-judge bench as of a split decision.
The ruling authored by Justice Oka kept the opinion of Justice Misra, citing that the taxpayer does not need to lessen the section 80-IA deduction before computing the section 80-HHC deduction, i.e., both the deductions could be computed separately.
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“Therefore, 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.”
The court concerning this approved the ruling of the Bombay High Court of Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr. (2011) SCC Online Bombay 27, where the High Court said that:
“we hold 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 assesse.”
The High Court said that:
“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. To illustrate, if Rs.100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80, then, in view of section 80-IA(9), the deduction under section 80HHC would be restricted to Rs. 70, so that the aggregate deduction does not exceed the profits of the business.”
The court, under the above-mentioned observations, replied to the reference thereon.
| Case Title | Shital Fibers Limited vs. Commissioner of Income Tax |
| Diary No(s). | CIVIL APPEAL NO.14318 OF 2015 |
| Supreme Court | Read Order |
