2015 (1) TMI 526 - HC - Income Tax

Interpretation of Sections 80-HH and 80-I: Deductions allowed independently on gross income.

Commissioner of Income Tax Del-III Versus Unipatch Rubber Ltd.

The High Court held that the assessee is entitled to claim deductions under Section 80-I on the gross income without reducing the deduction allowed under ... Deduction/benefit under Section 80-I - Whether assessee is entitled to deduction/benefit under Section 80-I on the gross income without excluding/reducing deduction allowed under Section 80-HH? - Held that:- Benefits under Section 80-HH and Section 80-I were independent and consequently, there was no question of giving effect to Section 80-HH(9) and thereafter proceeding to bring the balance amount for the purposes of tax or benefit under Section 80-I. The question of law framed in this appeal is answered in terms of the law declared by the Supreme Court in Mandideep Engineering and Packaging Ind. Pvt. Ltd. [2006 (4) TMI 75 - SUPREME Court]. - Decided in favour of assessee. Issues Involved:1. Whether the assessee is entitled to deduction/benefit under Section 80-I on the gross income without excluding/reducing deduction allowed under Section 80-HH.Issue-wise Detailed Analysis:1. Entitlement to Deduction under Section 80-I on Gross Income without Excluding Deduction under Section 80-HH:The primary issue in this case revolves around the interpretation of Sections 80-HH and 80-I of the Income Tax Act, 1961, specifically whether the assessee can claim a deduction under Section 80-I on the gross income without first reducing the deduction allowed under Section 80-HH.The facts of the case indicate that the respondent-assessee filed a return of income for the period 01-01-1988 to 31-03-1989, relevant for the assessment year 1989-90, declaring Rs. 53,93,390/- as income. The assessee manufactured and sold rubber patches for tyres, tubes, uniseals, etc. The Assessing Officer held that the deduction under Section 80-I should be allowed on the balance amount of income after it suffers a deduction under Section 80-HH. This view was affirmed by the Commissioner of Income Tax (Appeals), who opined that both Sections 80-HH and 80-I are independent provisions, and thus, the assessee was entitled to deduction under Section 80-I on the total amount without it having suffered any deduction under Section 80-HH. The Revenue's appeal to the ITAT was unsuccessful, leading to this appeal before the High Court.The Revenue argued that the ITAT and the Commissioner (Appeals) overlooked Section 80-HH(9), which stipulates that before the benefit of Section 80-I can be claimed, the total profits must first be deducted in the manner provided in Section 80-HH. The Revenue's contention was based on the clear language of Section 80-HH(9), which mandates that where the assessee is entitled to deductions under both Sections 80-HH and 80-I, the deduction under Section 80-HH should be applied first.The CIT(A) reasoned that the deductions under Sections 80-I and 80-HH should be based on the gross total income independently of each other, relying on the language of Section 80-I. The ITAT endorsed this opinion, referencing previous decisions that supported the view that deductions under Sections 80-HH and 80-I should be allowed on the gross income without considering other deductions permissible under Chapter 6 of the Act.The High Court reviewed the relevant provisions, including Section 80-HH(1) and Section 80-HH(9), and noted that the question of law had been answered in a series of decisions. The Madhya Pradesh High Court in J.P. Tobacco Products Pvt. Ltd. vs. Commissioner of Income Tax (1998) 229 ITR 123 and several other High Courts had held that the benefits under Sections 80-HH and 80-I are independent, and there was no requirement to give effect to Section 80-HH(9) before applying Section 80-I. This view was ultimately affirmed by the Supreme Court in Joint Commissioner of Income Tax vs. Mandideep Engineering and Packaging Ind. Pvt. Ltd. (2007) 292 ITR (1) SC.In Mandideep Engineering, the Supreme Court noted that the Madhya Pradesh High Court's view that both sections are independent and deductions could be claimed under both Sections 80-HH and 80-I on the gross total income had been accepted by the Department, as no special leave petitions were filed against similar judgments by different High Courts.In conclusion, the High Court, following the Supreme Court's decision in Mandideep Engineering, answered the question of law in favor of the assessee and against the Revenue. The appeal was accordingly dismissed, affirming that the assessee is entitled to claim deductions under Section 80-I on the gross income without reducing the deduction allowed under Section 80-HH.