2016 (3) TMI 463 - HC - Income Tax

Court clarifies deduction calculation under Section 80HHC, 80IA, and 80AB

The High Court held that deduction under Section 80HHC should be calculated without excluding the profit of the Daman Unit of the assessee, on which 100% ... Deduction under Section 80HHC - whether calculated without excluding the profit of Daman Unit of the assessee on which 100% deduction allowed under Section 80IB as held by ITAT - Held that:- Same question came up for consideration in the case of Commissioner of Income Tax Vs. M/s. Atul Intermediates [2014 (4) TMI 676 - GUJARAT HIGH COURT ] wherein held 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are often times made for a limited period, new deductions are introduced from time to time and old deductions withdrawn - different formulae have been provided for manufacturing exporter and trader and in case of an assessee whose exports comprise of both the sources - at the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:Interpretation of deduction under Section 80HHC without excluding profit of Daman Unit on which 100% deduction allowed under Section 80IB.Analysis:The High Court considered the question of whether the ITAT was correct in holding that deduction under Section 80HHC should be calculated without excluding the profit of the Daman Unit of the assessee, on which 100% deduction was allowed under Section 80IB. The Court referred to a previous case where it was observed that subsection (9) of section 80IA disentitles an assessee from claiming deduction under any other provision to the extent deduction is already claimed and allowed for certain profit or gain of an undertaking or enterprise under section 80IA. The Court emphasized that this provision should be applied at the stage where the claim for deduction under section 80HHC is considered. It was noted that the formula for computation of eligible profit for deduction under section 80HHC should not be tinkered with, and the effect of subsection (9) of section 80IA should be given while computing such deduction.The Court also discussed the interpretation of section 80AB of the Act, which provides that the computation of income has to be in accordance with the provisions of the Act. It was highlighted that section 80AB has an overriding effect over all other sections in Chapter VIA, including section 80HHC. The Court referred to a Supreme Court observation that if the income has to be computed in accordance with the provisions of the Act, both profits and losses have to be taken into consideration. Based on these interpretations, the Court sided with the view of the Delhi High Court followed by Kerala and Punjab and Haryana High Courts, and answered the question in favor of the Revenue.Therefore, the Tax appeal was allowed, and the judgment of the Tribunal was reversed to that extent. The Court disposed of the appeal accordingly, answering the question in favor of the Revenue.