2026 (3) TMI 962 - SCH - Income Tax

Chapter VI-A deduction interaction: 80-HHC computed independently while 80-IA(9) caps aggregate deduction.

Whether deductions under Chapter VI-A interact so that a deduction under one provision reduces entitlement under another is resolved by statutory ... Deductions u/s 80-IA, 80- IB and 80-HHC - independent computation of deductions u/s 80-IA/80-IB and 80-HHC - interpretation of Section 80-IA(9) - two deductions are computed independently - whether after claiming deduction u/s 80-IA or 80-IB, can assessee again claim deduction under Section 80-HHC on the same profits and whether such deduction is to be computed independently or restricted? HELD THAT: - The Court affirmed the view in Associated Capsules [2025 (5) TMI 1599 - SUPREME COURT (LB)] and Micro Labs [2015 (12) TMI 708 - SUPREME COURT ] that sub section (9) of Section 80IA does not alter the formula for computing eligible deduction u/s 80HHC. Section 80-IA(9) restricts the availability not the computation of deduction The deduction under Section 80HHC must be computed on the gross total income as provided by Section 80HHC(3) without first reducing it by the deduction allowed under Section 80IA/80 IB; computation of each deduction is separate. Sub section (9) operates to restrict the availability of deductions in the sense that, when both deductions are allowed, their aggregate cannot exceed the profits and gains of the eligible business, but it does not mandate modification of the statutory computation prescribed in Section 80HHC(3). The appeals of the assessee were allowed on this basis. [Paras 5, 6, 24] Section 80IA(9) restricts the availability of overlapping deductions but does not require computation of Section 80HHC deduction after reducing deduction under Section 80IA; both deductions are computed independently and their aggregate is subject to the cap of profits of the business. Final Conclusion: The Court held that Section 80IA(9) limits only the availability of overlapping deductions - deductions u/s 80IA/80IB and 80HHC are to be computed independently though their aggregate cannot exceed business profits - and allowed the assessee appeals. Issues: (i) Whether under Section 80-IA(9) of the Income-tax Act, 1961, after claiming deduction under Section 80-IA or 80-IB, an assessee can again claim deduction under Section 80-HHC on the same profits and whether such deduction must be computed independently or is to be restricted.Analysis: The issue involves statutory construction of Section 80-IA(9) vis-a -vis Section 80-HHC(3) of the Income-tax Act, 1961 and the interaction between deductions under Part C of Chapter VI-A. Prior authoritative rulings addressing the same question have been considered, including the view approved by a Three Judges Bench that distinguished computation of deduction from allowance of deduction and upheld the Bombay High Court approach in Associated Capsules (P) Ltd. The analysis recognises that Section 80-HHC(3) prescribes a self-contained formula for computing eligible deduction and that treating a deduction under Section 80-IA as reducing the gross total income for computing Section 80-HHC would produce anomalous and impracticable results. The correct construction, as affirmed by precedent, is that deductions under Sections 80-IA/80-IB and Section 80-HHC are computed by their respective statutory provisions and that subsection (9) of Section 80-IA operates to restrict the aggregate allowance so that the combined deductions do not exceed the profits of the eligible business.Conclusion: The deduction under Section 80-HHC is to be computed independently of the deduction under Section 80-IA/80-IB, and subsection (9) of Section 80-IA only restricts the aggregate allowance so that the total of deductions under Sections 80-IA/80-IB and 80-HHC shall not exceed the profits and gains of the eligible business. The appeals filed by the assessee are allowed in accordance with this conclusion.