2014 (4) TMI 676 - HC - Income Tax

Court restricts Section 80HHC deduction to profits already claimed under Section 80IA

The High Court ruled in favor of the Revenue, holding that Section 80IA(9) restricts the deduction under Section 80HHC to the extent of profits already ... Interpretation of section 80IA(9) of the Act – Claim of deduction u/s 80HHC of the Act - Whether the Tribunal is right in holding that the assessee can claim deduction both u/s 80HHC as also u/s 80IA despite the provisions of section 80IA(9) – Held that:- Sub-section (9) of section 80IA was aimed at restricting the successive claims of deduction of the same profit or gain under different provisions contained in sub-chapter C of Chapter VI of the Act - The provision necessarily impacts other deduction provisions including section 80HHC of the Act - Nothing contained in section 80HHC suggests that the deduction provided was immune from any outside influence or that the provision was impregnable by any other statute or enactment - Accepting any such theory would lead to incongruous results - Even the assessee concedes that sub-section (9) of section 80IA would operate as to limiting the combined deductions to a maximum of the profits and gains from an eligible business of the undertaking or enterprise - If section 80HHC contained a protective shell making it immune from any outside influence, even this effect of sub-section (9) of section 80IA could not be applied - This would completely render the provisions of subsection (9) of section 80IA redundant and meaningless. Sub-section (9) of section 80IA was enacted to have universal application to all deductions under sub-chapter C of Chapter VI - It was neither possible nor expected of the Legislature to make individual matching provisions in large number of statutory provisions recognizing deductions under various situations - Such provisions are often times made for a limited period, new deductions are introduced from time to time and old deductions withdrawn - different formulae have been provided for manufacturing exporter and trader and in case of an assessee whose exports comprise of both the sources - at the stage of sub-section (3) of section 80HHC effect of sub-section (9) of section 80IA would apply - clause (baa) to explanation to section 80HHC defines a term 'profits of the business' - While working out the business profits as specified therein, in terms of sub-section (9) of section 80IA the profit or gain which had already been allowed deduction to the extent mentioned therein would have to be ignored. In IPCA Laboratory Ltd. v. Deputy Commissioner of Income-Tax reported in [2004 (3) TMI 9 - SUPREME Court] it has been held that Section 80AB is also in Chapter VI-A - It starts with the words 'where any deduction is required to be made or allowed under any Section of this Chapter' - This would include Section 80HHC - Section 80AB further provides that 'notwithstanding anything contained in that Section' - Thus Section 80AB has been given an overriding effect over all other Sections in Chapter VIA -Section 80HHC does not provide that its provisions are to prevail over Section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by Section 80AB - Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act - If the income has to be computed in accordance with the provisions of the Act, and then not only profits but also losses have to be taken into consideration – Decided in favour of Revenue. Issues Involved:1. Interpretation of Section 80IA(9) of the Income Tax Act, 1961.2. Claim of deduction under Section 80HHC in light of deductions already claimed under Section 80IA.3. Applicability of judicial precedents and CBDT Circular No. 772 dated 23rd December 1998.Detailed Analysis:1. Interpretation of Section 80IA(9):The core issue revolves around the interpretation of sub-section (9) of Section 80IA of the Income Tax Act, 1961. This provision was introduced to prevent double deductions on the same profits under different sections of Chapter VI-A. It states that if any amount of profits and gains of an undertaking is claimed and allowed under Section 80IA, then to the extent of such profits and gains, no deduction shall be allowed under any other provisions of Chapter VI-A under the heading 'C. Deductions in respect of certain incomes.'2. Claim of Deduction under Section 80HHC:The controversy is whether an assessee can claim deduction under Section 80HHC ignoring the deduction already claimed under Section 80IA. The Assessing Officer restricted the deduction under Section 80HHC to the extent of the deduction already allowed under Section 80IA, citing Section 80IA(9). The Commissioner of Income Tax (Appeal) upheld this view, emphasizing that no deduction under any other provision in Chapter VI-A shall be allowed in respect of the profits and gains of the undertaking which are deductible under Section 80IA.3. Applicability of Judicial Precedents and CBDT Circular No. 772:The Tribunal initially ruled in favor of the assessee, relying on the decision in Irfan Sheriff v. ACIT and CBDT Circular No. 772, which explained that the intention behind Section 80IA(9) was to restrict the total deduction to 100% of the eligible business profits. However, the High Court examined various judicial pronouncements, including decisions by the Special Bench of the Tribunal in Rogini Garments and Hind. Mint and Agro Products, and High Courts in Delhi, Kerala, Punjab & Haryana, and Bombay.Judgment Analysis:Interpretation of Section 80IA(9):The High Court concluded that Section 80IA(9) has two clear implications:1. It restricts the deduction under any other provision of Chapter VI-A to the extent of profits and gains already claimed and allowed under Section 80IA.2. It ensures that the total deduction under Section 80IA and other provisions does not exceed the profits and gains of the eligible business.The Court emphasized that ignoring the first part of Section 80IA(9) would render it redundant, which is not permissible. The provision must be read to give full effect to both parts.Claim of Deduction under Section 80HHC:The Court held that the effect of Section 80IA(9) must be given at the stage of computing the deduction under Section 80HHC. This means that the profits already allowed as a deduction under Section 80IA must be excluded while computing the deduction under Section 80HHC. The Court rejected the argument that Section 80IA(9) only limits the total deduction to 100% of the eligible business profits, stating that this would ignore the explicit language of the provision.Applicability of Judicial Precedents and CBDT Circular No. 772:The Court noted that while the CBDT Circular No. 772 explains the purpose of Section 80IA(9), it does not restrict its scope. The Court disagreed with the Bombay High Court's interpretation that Section 80IA(9) operates only at the stage of allowing the deduction and not at the stage of computation. The High Court sided with the views of the Delhi, Kerala, and Punjab & Haryana High Courts, which had given full effect to Section 80IA(9).Conclusion:The High Court ruled in favor of the Revenue, holding that the Tribunal's decision was incorrect. It affirmed that Section 80IA(9) restricts the deduction under Section 80HHC to the extent of profits already claimed under Section 80IA. The appeal was allowed, and the judgment of the Tribunal was reversed.The Court also rejected the request for a certificate of substantial question of law of general importance.