TaxTMI 
TaxTMI 
TaxTMI 
2011 (1) TMI 787
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....red to as "the assessee") is engaged in the business of manufacture of empty hard gelatin capsules and PVDC capsules. For the above business, the assessee has set up four industrial undertakings at Kandivali, Mumbai and two industrial units at Pune. Out of the above industrial undertakings/units, one undertaking at Kandivali, Mumbai and one unit at Pune are eligible for deduction under section 80-IA and section 80HHC of the Income-tax Act, 1961 ("the said Act" for short). 4. In the assessment year in question, i.e., the assessment year 2003-04, the assessee claimed deduction under section 80-IA at 30 per cent. of the profits and gains derived from the business and deduction under section 80HHC at 50 per cent. of the profits derived from the export of goods or merchandise determined on the basis of the formula set out in section 80HHC of the Act. 5. The Assessing Officer in his assessment order passed under section 143(3) of the Act disagreed with the quantum of deduction computed by the assessee under section 80HHC of the Act. According to the Assessing Officer, where deduction under section 80-IA is claimed and allowed, then section 80-IA(9) of the Act requires that the quantum ....
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....esent appeal. 8. Mr. Mistri, learned senior advocate appearing on behalf of the assessee and Dr. K. Shivram, Mr. V. Sridharan, Mr. Jitendra Jain as well as Mr. F. B. Andhyarujina, senior advocate appearing as counsel for the intervenors submitted that in the present case, the restriction imposed by section 80-IA(9) is not applicable at the stage of computation of deduction under section 80HHC(3) but is applicable at the stage of allowing deduction under section 80HHC(1). It is submitted that a plain reading of section 80-IA(9) does not in any way suggest that the deduction allowable under section 80HHC has to be computed by reducing the amount of profits allowed as deduction under section 80-IA. Referring to sections 80HHB(5), 80HHBA (4), 80HHD(7) and 80P(3) of the Act, it is submitted that whenever the Legislature intended that the deduction allowed under one section shall affect the computation of deduction allowable under other section, the Legislature has specifically stated so. For example, in section 80HHB(5), it is provided that notwithstanding anything contained in any other provision under heading C of Chapter VI-A, no part of the consideration or of the income covered un....
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....on record to suggest that on the very same amount of profits on which deduction is allowed under section 80-IA(1), the assessee is claiming deduction under section 80HHC. Therefore, there is no scope for reducing the amount allowed as deduction under section 80-IA from the profits of business while computing deduction under section 80HHC. 11. Counsel for the assessees further submitted that the deduction under section 80-IA is computed on the basis of profits and gains derived by an eligible undertaking, whereas, deduction under section 80HHC is based on the profits and gains derived by an assessee from the export of goods and merchandise, as computed under the head "Profits and gains of the business" of the assessee. Thus, the basis for deduction under sections 80-IA and 80HHC are totally different. Therefore, the restriction imposed under section 80-IA(9) has no relation to the computation of deduction under section 80HHC. 12. Counsel for the assessees further submitted that section 80HHC comprehensively set out the method of computation of deduction and the conditions to be fulfilled for allowing deduction under section 80HHC. In the case of a manufacturer exporter, the deduct....
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....it is argued, that the object of inserting section 80-IA(9) is that where deduction is allowable under section 80-IA(1) and any other provision under heading C of Chapter VI-A, then deduction should be first allowed under section 80-IA and the deduction computed under other sections under heading C of Chapter VIA has to be allowed on the profits reduced by the profits allowed under section 80-IA(1), so that the overall deduction shall not exceed the profits and gains of the business of the eligible undertaking. 16. Alternatively, it is contended that if section 80-IA(9) is held to affect the computation of deduction under section 80HHC, then it needs to be considered that the deduction under section 80HHC is not claimed on the profits on which deduction is claimed under section 80-IA. In the present case, deduction under section 80-IA is on one part of the profits, while deduction under section 80HHC is on the profits derived from exports and thus deduction under sections 80-IA and 80HHC are not allowed on the same profit. In this connection, reliance is placed on a decision of the Calcutta High Court in the case of Woolcombers of India Ltd. v. CIT reported in [1982] 134 ITR 219, ....
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....ed on November 29, 2010. Similar view has also been taken by the Kerala High Court in the case of Olam Exports (India) Limited v. CIT reported in [2009] 184 Taxman 373 ; [2011] 332 ITR 40. In these circumstances, it is submitted that similar view be taken in the matter so that there is consistency or uniformity of decision on the question raised in this appeal. 21. Lastly, it is contended on behalf of the Revenue that section 80-IA(9) affects the whole of section 80HHC and it cannot be said that even though section 80HHC is subject to section 80-IA(9), the manner of computation of deduction under section 80HHC is not affected. It is submitted that the words "profits of business" defined under clause (baa) of the Explanation to section 80HHC would be subject to further restriction contained in section 80-IA(9). It is submitted that the expression "profits of business" under section 80HHC is subject to the restrictions contained in clause (baa) and 80HHC (4B) and the restriction in section 80-IA(9), if the undertaking avails of deduction under section 80-IA. Accordingly, it is submitted that the question raised in this appeal be answered in favour of the Revenue and against the asse....
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.... 80HHC at 50 per cent. of the profits of the business. Further, there is no dispute that the deduction under section 80-IA has to be computed on the total profits derived from the business. However, the dispute is in computing the deduction under section 80HHC in view of the insertion of section 80-IA(9) by the Finance (No. 2) Act, 1998. According to the Revenue, section 80-IA(9) mandates that the deduction under section 80HHC has to be computed not only on the profits of the business as reduced by the amounts specified in clause (baa) and sub-section (4B) of section 80HHC but also by reducing the amount of profits and gains allowed as deduction under section 80-IA(1) of the Act. According to the assessee, even after the introduction of section 80-IA(9), the deduction under section 80HHC has to be computed in the manner specified under section 80HHC on the profits of the business computed under the head "Profits and gains of business or profession" as reduced by the amount set out in clause (baa) of section 80HHC/80HHC(4B), as the case may be, and there is no scope for reducing the profits of business by the amount of profits allowed under section 80-IA(1) of the Act. According to ....
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....vided that the deduction to the extent of profits allowed under section 80-IA(1) shall not be allowed under any other provisions. It obviously means that the deductions that are allowable under other provisions under heading C of Chapter VI-A would be allowed to the extent of profits as reduced by the profits allowed under section 80-IA(1). The second part of section 80-IA(9) does not even remotely refer to the method of computing deduction under other provisions under heading C of Chapter VI-A. Thus, section 80-IA(9) seeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading C of Chapter VI-A of the Act. 31. How to compute deduction allowable under section 80HHC(1) is set out in section 80HHC(3). In the case of a manufacturer-exporter, section 80HHC(3)(a) provides that the deduction under section 80HHC(1) has to be computed as per the formula : Profits of the business X Export turnover Total turnover 32. Clause (baa) in section 80HHC defines the term "profits of the business" for the purposes of section 80HHC to mean the profits of the business as computed under the head "Profits and gains of business or pr....
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....deduction. The word "allowed" is relatable to allowing the deduction that is computed. The word "allowed" cannot be equated with the word "qualify". Since section 80-IA(9) uses the words "shall not be allowed", in our opinion, the section seeks to restrict the allowance of deduction and not the computation of deduction under any other sections under heading C of Chapter VI-A of the Act. 35. Wherever the Legislature intended that the deduction allowed under one section should affect the computation of deduction under other provisions of the Act, the Legislature has expressly used words to that effect. It may be noted that sections 80HHD(7) and 80-IA(9A) (presently 80-IA(9)) were introduced by Finance (No. 2) Act, 1998, with effect from April 1,1999. Section 80HHD (7) provides that the deduction allowed under section 80HHD(1) shall not qualify to that extent for deduction under any other provisions of Chapter VI-A under the heading C, whereas, section 80-IA(9A) provides that the deduction allowed under section 80-IA(1) shall not be allowed under any other provisions of Chapter VI-A under heading C. Similarly, in section 80-IC(5), the words used are that notwithstanding anything cont....
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....herefore, reading section 80-IA(9) in the light of the words used in the section, we have no hesitation in holding that the restriction therein relates to the allowance of deduction and not computation of deduction. 39. Strong reliance was also placed by the counsel for the Revenue on the Special Bench decisions of the Tribunal in the case of Rogini Garments [2007] 294 ITR (AT) 15 (Chennai) and Hindustan Mint and Agro Products P. Ltd. [2009] 315 ITR (AT) 401 (Delhi), which are affirmed by the Delhi High Court in the case of Great Eastern Exports [2011] 332 ITR 14. Reliance is also placed on decision of the Kerala High Court in the case of Olam Exports (India) Ltd. [2011] 332 ITR 40, which supports the case of the Revenue. 40. We find it difficult to subscribe to the views expressed by the Delhi High Court in interpreting the provisions of section 80-IA(9). In that case, in fact, the counsel for the Revenue had argued (see paragraph 38 of the judgment) that section 80-IA(9) applies at the stage of allowing deduction and not at the stage of computing deduction under other provisions under heading C of Chapter VI-A. It was argued that in the matter of grant of deduction, the first s....