2009 (4) TMI 28 - HC - Income Tax

Interpretation of Section 80HHC for MAT Assessment: Book Profit Basis Upheld

The Madras High Court, in a case involving the interpretation of Section 80HHC of the Income-tax Act, 1961 in the context of MAT assessment, held that the ... Whether Tribunal was right in law in holding that the deduction u/s 80HHC in a case of MAT assessment is to be worked out on the basis of the profit computed under the regular provision of law applicable to the computation of profits and gains of the business or profession - held that the assessing officer was not entitled to alter the profit and loss account prepared by the assessee under the provisions contained in the Companies Act while arriving at the book profit under Section 115JA and the book profit so arrived at should be the basis for taxation and, therefore, the computation under section 80HHC should be limited to the case of profits of eligible category only Issues:Interpretation of Section 80HHC of the Income-tax Act, 1961 in the context of MAT assessment.Analysis:The judgment by the Madras High Court, delivered by Justice K. Raviraja Pandian and Justice M. M. Sundresh, pertained to the interpretation of Section 80HHC of the Income-tax Act, 1961 in the context of MAT assessment. The case involved an assessee company engaged in the manufacture and sale of integrated circuits, claiming a deduction of Rs.2,28,66,239/- under Section 80HHC. However, as the assessee's claim under Section 80HHC was nil, no deduction survived under this section. The matter was taken up on appeal before the Commissioner of Income-tax (Appeals), who allowed the alternative claim of the assessee. Subsequently, the assessee preferred a Cross Appeal before the Income-tax Appellate Tribunal, which held that the deduction under Section 80HHC of MAT assessment should be based on the adjusted book profit rather than the profit computed under the regular provisions of law. The question of law raised was whether the Tribunal was correct in holding that the deduction under Section 80HHC in a case of MAT assessment should be calculated based on the profit computed under the regular provisions of law applicable to the computation of profits and gains of the business or profession.The Court considered the arguments presented by both sides and referred to a Division Bench judgment in the case of Commissioner of Income-tax vs. Rajanikant Schnelder and Associates P.Ltd., where it was held that the assessing officer cannot alter the profit and loss account prepared by the assessee under the Companies Act while determining the book profit under Section 115JA. The Court emphasized that the book profit arrived at should be the basis for taxation, limiting the computation under Section 80HHC to profits of the eligible category only. In support of this conclusion, the Court cited two Supreme Court decisions - Surana Steels P. Ltd. vs. Deputy Commissioner of Income-tax and Apollo Tyres Limited vs. Commissioner of Income Tax. Based on the reasoning provided in these decisions, the Court dismissed the tax case appeals, ruling in favor of the assessee and against the revenue.