2018 (11) TMI 1659 - HC - Income Tax

Calculation of Section 80HHC Deduction in MAT Assessment Determined by High Court

The High Court held that the deduction under Section 80HHC in a Minimum Alternate Tax (MAT) assessment should be calculated based on adjusted book profits ... Deduction under Section 80HHC/80HHE - adjusted book profits under Section 115JA - computation of deduction for incentives under Chapter VI-A from adjusted book profits - levy of interest under Section 234D and retrospective operation via Explanation 2Deduction under Section 80HHC/80HHE - adjusted book profits under Section 115JA - Deduction under Section 80HHC/80HHE in a case where Section 115JA applies must be worked out on the basis of adjusted book profits under Section 115JA and not on regular income-tax profits. - HELD THAT: - The Tribunal's conclusion that deductions under Chapter VI-A incentives such as Section 80HHC (and by parity Section 80HHE referred to in the Explanation to Section 115JA) must be computed with reference to adjusted book profits under Section 115JA follows the reasoning in the Special Bench authority relied upon by the courts. The Court accepted that where the law (Section 115JA/its Explanation) treats adjusted book profits as the base for further deductions, computation of the Chapter VI-A deduction must proceed from that adjusted book profit figure rather than from profits computed under the regular provisions for business income. The Revenue conceded that this question is answered against it by the decision in Commissioner of Income Tax v. Bhari Information Technology Systems Private Limited . [Paras 4, 5]First substantial question answered against the Revenue; deduction to be worked out from adjusted book profits under Section 115JA.Levy of interest under Section 234D and retrospective operation via Explanation 2 - Interest under Section 234D can be levied for periods prior to 01.06.2003 by virtue of Explanation 2 giving retrospective operation from 01.06.2003. - HELD THAT: - The Court followed its earlier decision in CIT v. M/s.Brakes India Ltd. , which in turn applied the Supreme Court's reasoning in CIT v. Reliance Energy Limited , holding that Explanation 2 (as inserted) operates retrospectively from 01.06.2003 and therefore Section 234D is applicable to pending assessments prior to that date. On that legal basis the Court answered the second substantial question in favour of the Revenue. [Paras 5, 6]Second substantial question answered in favour of the Revenue; Section 234D interest may be levied for periods prior to 01.06.2003 by virtue of the retrospective Explanation.Final Conclusion: The Revenue appeal is partly allowed: the Tribunal's view that Chapter VI-A deductions must be computed from adjusted book profits under Section 115JA is upheld (against the Revenue), whereas the Revenue succeeds on the question of applicability of interest under Section 234D to periods before 01.06.2003 by virtue of the retrospective Explanation; no costs. Issues:1. Interpretation of deduction under Section 80HHC in a case of MAT assessment.2. Levying interest under Section 234-D for the period prior to 01.06.2003.Interpretation of deduction under Section 80HHC in a case of MAT assessment:The High Court examined whether the deduction under Section 80HHC in a case of Minimum Alternate Tax (MAT) assessment should be based on adjusted book profits under Section 115JB of the Income Tax Act, 1961. The Court referred to the case of Commissioner of Income Tax vs. Bhari Information Technology Systems Private Limited, where it was held that the deduction under Section 80HHC needs to be calculated based on adjusted book profits when Section 115JA is applicable. The Court emphasized the distinction between regular income tax profits and adjusted book profits, stating that deductions under Section 80HHC should be computed on the basis of adjusted book profits. The judgment in Bhari Information Technology Systems Private Limited was followed, leading to the conclusion that the deduction under Section 80HHC in a MAT assessment should indeed be worked out based on adjusted book profits.Levying interest under Section 234-D for the period prior to 01.06.2003:The Court also considered the issue of levying interest under Section 234-D of the Income Tax Act for the period before 01.06.2003. In the case of CIT vs. M/s.Brakes India Ltd., it was determined that Section 234D, inserted by the Finance Act, 2003, with effect from 01.06.2003, was applicable to pending assessments before 01.06.2003. The Court referred to the decision of the Supreme Court in CIT v. Reliance Energy Limited, which supported the retrospective application of Section 234D from 01.06.2003. Consequently, the Court ruled in favor of the Revenue, allowing the levying of interest under Section 234-D for the period preceding 01.06.2003.In conclusion, the High Court partially allowed the appeal filed by the Revenue, answering the substantial questions of law in favor of the Revenue based on the interpretations provided in the referenced cases.