High Court clarifies Section 115JB deductions: emphasis on adjusted book profit vs. assessable income

The High Court addressed the issue of deduction under Clause (iv) of Section 115JB of the I.T. Act, 1961, emphasizing the distinction between "eligibility" and "deductibility" of profits. Referring to a previous Apex Court decision, it held that calculations should be based on adjusted book profit rather than income assessable under a specific head. The Court ruled in favor of the assessee, maintaining the importance of adhering to the conditions for relief under section 80HHC. As a result, the appeal was decided against the revenue, with no order as to costs.

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Issues: Interpretation of deduction under Clause (iv) of Section 115JB of the I.T. Act, 1961.

The High Court considered the substantial question of law regarding the computation of deduction under Clause (iv) of Section 115JB of the I.T. Act, 1961. The issue was whether the Appellate Tribunal erred in holding that the calculations should be based on adjusted book profit rather than income assessable under the head "Profits and gains of business and profession." The Court referred to the decision of the Apex Court in Ajanta Pharma Ltd. v. CIT [2010] 327 ITR 305, which clarified the distinction between the "eligibility" and "deductibility" of profits under section 115JB. The Apex Court emphasized that the relief under section 80HHC should be computed subject to specific conditions, and compliance with these conditions is necessary. The Court concluded that the difference between "eligibility" and "deductibility" of profits must be maintained to ensure the effectiveness of section 115JB as a self-contained code. The revenue could not dispute this position, leading to the answer being in the negative, against the revenue and in favor of the assessee. Consequently, the appeal was disposed of with no order as to costs.

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