TaxTMI 
TaxTMI 
2015 (12) TMI 708
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....hu,Adv., Mr. Prabhat K.C.,Adv., M/s. Temple Law Firm,Advs. And Mr. Pramod B. Agarwala,Adv. ORDER ANIL R. DAVE, J. 1. Leave granted in all the Special Leave Petitions. 2. These are several appeals which involve the same issue as in Civil Appeal No.7427 of 2012 and therefore, all the appeals have been heard together at the request of the learned counsel appearing for both the sides but for the purpose of deciding all these appeals, I have considered facts of C.A.No.7427 of 2012, which are as under : 3. Being aggrieved by the judgment delivered in ITA 471 of 2008 dated 11th July, 2011 by the High Court of Karnataka at Bangalore, this appeal has been filed by the Assistant Commissioner of Income Tax, Bangalore. The appellant has been referred to hereinafter as 'the Revenue', whereas the respondent M/s. Micro Labs Ltd. has been referred to as 'the Assessee'. 4. The Assessee was aggrieved by the Order dated 11th January, 2008 passed in ITA No.367/Bang/07 by the Income Tax Appellate Tribunal, Bangalore Bench and had, therefore, approached the High Court of Karnataka at Bangalore. The High Court allowed the appeal and therefore, the Revenue has filed this appeal. 5. Th....
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....e, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this Section. (2) to (12) xxx xxx xxx (13) The provisions contained in sub-Section (5) and sub-Section (7) to (12) of Section 80-IA shall, so far as may be, apply to the eligible business under this Section." "80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. - (1) to (8) xxx xxx xxx (9) Where any amount of profits and gains of an (undertaking) or of an enterprise in the case of an Assessee is claimed and allowed under this Section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading "C.-Deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of (undertaking) or enterprise, as the case may be." "80HHC. Deduction in respect of profits retained for export business.-(1) Where an Assessee, being an Indian company or a person (other than a company) ....
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....According to the case of the Revenue, the Tribunal was right in deciding the case of the Assessee and the High Court committed an error while interpreting the legal provisions of the Sections referred to hereinabove. 10. The learned counsel appearing for the Revenue had submitted that the intention behind enactment of the aforestated three Sections of the Act was to see that no assessee gets deductions twice under the provisions of the aforestated Sections. In nutshell, the submission on behalf of the Revenue was that having once obtained deduction under the provisions of Sections 80-IB or/and 80-IA of the Act, no assessee can then avail deductions under Section 80HHC of the Act in respect of the same profits. It had been specifically stated on behalf of the Revenue that Section 80-IA(9) of the Act had been amended with effect from 1st April, 2000 so as to see that the total deduction does not exceed total profits and gains of the business and in respect of the same profits, deductions under Section 80HHC and Sections 80-IA or 80-IB together cannot be allowed. 11. The learned counsel appearing for the Revenue had read and tried to interpret each of the aforestated Sections an....
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....n under Section 80HHC or any other Section that falls under heading "C" of Chapter VIA of the Act. 16. Now, let us look at the case with which we are concerned. The Assessee in the main appeal is having several industrial units having different activities or different businesses. The Assessee being also in the business of export, had also claimed and was allowed deduction under Section 80HHC. In spite of the fact that the Assessee had claimed deduction in respect of the provisions of Section 80-IB, the Assessee had also claimed deduction under Section 80HHC with respect to the same profits. The Assessing Officer had allowed deductions under Section 80HHC without considering the fact that the Assessee had also claimed and was allowed deduction under the provisions of Section 80-IB. In the aforestated circumstances, the Commissioner of Income-Tax, exercising his power under Section 263 of the Act vide order dated 26th February, 2007, observed that the Assessing Officer was not correct in allowing deductions under Section 80-IB as well as under Section 80HHC and therefore, directed the Assessing Officer to revise the assessment order. 17. The said order passed by the Commissione....
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....essee cannot claim deduction to the extent of such profits and gains under heading 'C' of Chapter VIA of the Act, which, in the present case, was claimed and wrongly allowed to the Assessee. 24. Section 80HHC, which pertains to deduction in respect of profits and gains from export business, is included under heading 'C', of Chapter VIA of the Act. 25. If an assessee claims and is allowed any deduction under Section 80HHC, then to the extent to which deduction has been granted to him under Section 80-IA or/and 80-IB, he cannot be allowed further deduction under Section 80HHC. The language is not only very clear, but is also absolutely unambiguous, as it says : "Where any amount of profits and gains of an (undertaking) or of an enterprise in the case of an Assessee is claimed and allowed under this Section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading "C.-Deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of (undertaking) or enterprise, as the case may be." 26. Admittedly, the Assessing Off....
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....am unable to concur with the view expressed by him. Hence, I pen a separate opinion. 3. In this batch of appeals, the issue that really arose before the different High Courts is : "Whether the Tribunal was justified in holding that section 80-1A(9) of the Income-Tax Act, 1961 mandates that the amount of profits allowed as deduction under section 80-1A(1) of the Act has to be reduced from the profits of the business of the undertaking while computing deduction under any another provisions under heading C in Chapter VI-A of the Income-tax Act, 1961?" 4. Be it stated, I have taken the said question from the judgment of the High Court of Bombay in Associated Capsules Private Limited v. Deputy Commissioner of Income Tax and another [2011] 332 ITR 42 (Bom) and the said judgment has been placed reliance upon by the High Court of Bombay in the appeal arising out of Special Leave Petition (Civil) No. 26002 of 2011. The High Court allowing the appeal of the assessee did not agree with the view of the High Court of Delhi and opined thus:- "We find it difficult to subscribe to the views expressed by the Delhi High Court in interpreting the provisions of section 80-1A(9)....
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....e object of section 80-1A(9) being not to curtail the deductions computable under various provisions under heading C of Chapter VI-A, it is reasonable to hold that section 80-1A(9) affects allowability of deduction and not computation of deduction. To illustrate, if Rs. 100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-1A(1) and the deduction computed as per section 80HHC is Rs. 80, then, in view of section 80-1A(9), the deduction under section 80HHC would be restricted to Rs. 70, so that the aggregate deduction does not exceed the profits of the business." 5. The High Court of Delhi in Great Eastern Exports v. Commissioner of Income-Tax[2011] 332 ITR 14 (Delhi) while interpreting the said provision has applied the test of literal construction and observed:- "We are not in a position to subscribe to the contention of the learned counsel for the assessees that where the Legislature intended to deduct the amount out of some other deduction a different phraseology was used as noticed above. This was sought to be demonstrated by refereeing to sub-section (5) of section 80HHB, sub-section (4) of section 80HHBA ....
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....king provisions of Chapter VIA, the assessee is required to work out the gross total income by applying the provisions upto the stage of Chapter VI. It is in this context that in part A of Chapter VIA under the heading "General" it is postulated in sub-section(1) to Section 80A that an assessee shall be allowed from his gross total income in accordance with and subject to the conditions of this Chapter, the deductions specified in Sections 80C to 80U. As per mandate of sub-section (2) to Section 80A, the aggregate amount of such deductions in Chapter VIA cannot exceed the gross total income of the assessee. Sub-section (3) stipulates that where an assessee is an association of persons or body of individuals to whom specified deductions have been allowed, then no deduction under the specified section shall be allowed in relation to share of such member of association of the persons or body of individuals. 8. Having stated the scheme as is reflective from the Chapter, it is necessary to reproduce Section AB which is relevant. It reads as follows:- "Deductions to be made with reference to the income included in the gross total income. 80AB. Where any deduction is required ....
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....ssee. 10. As I perceive, there is no difficulty to this extent. The difficulties arise when there are overriding provisions, which tend to control a deduction, because deduction has been allowed in another provision. For example, an assessee may be entitled to multiple deductions, such as under Section 80J, which relates to deduction in respect of profits and gains from duly established industrial undertakings or ships or hotel business in certain cases; under Section 80HH which relates to deduction in respect of profits and gains derived from newly established industrial undertakings or hotel business in backward areas; under Section 80HHC which relates to deduction in respect of profits and gains derived from exports outside India of goods and merchandise; under Section 80HHD which relates to deduction herein an assessee is engaged in the business of hotel or tour operator and has earning in convertible foreign exchange, etc. Thus, when an assessee qualifies for deduction under separate sections, which could be on percentage of profits or earnings, controversy can arise. The contours or scope of Chapter VIA in such situations was noticed by this Court in Joint CIT v. Mandideep....
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....hose judgments cannot be permitted to take a contrary view in the present case involving the same point. Accordingly, the civil appeal is dismissed. No costs." 11. For the purpose of clarity, I would note that the Court upheld the view taken by the Madhya Pradesh High Court in J.B. Tobacco Products Private Limited v. CIT (1998) 229 ITR 123, holding that no provision has been made in Section 80I to provide for deduction of the gross total income computed as per the mandate of Section 80AB read with Section 80B(5), towards deduction allowed under Section 80HH for the purpose of allowing deduction under Section 80I. Reference was made to sub-section (9) of Section 80HH as it then existed and was applicable before 1st, April, 1981 as it had made reference only to Section 80J. Thus it was held that sub-section (9) to Section 80HH by itself meant that deduction allowed under Section 80HH was to be reduced from the 'gross total income' for granting benefit under Section 80J. Therefore, benefit under Section 80I was to be granted on 'gross total income' and not on the income reduced by the amount allowed under Section 80HH. Section 80HH and 80I operate independently and the deductions h....
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....ich bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall, - (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods: Provided that the profits computed under clause (a) or clause (b) or claus....
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....s necessary and sufficient evidence to prove that, - (a) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme. Explanation. - For the purposes of this clause, " rate of credit allowable" means the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme calculated in the manner as may be notified by the Central Government: Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent of- (a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or third or the fourth proviso, as the case may be, th....
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....nder Section 80HHC would be less or reduced by the deduction already allowed under Section 80IA. Thus, the gross total income eligible for deduction would not be the gross total income as defined in sub-section (5) to Section 80B read with Section 80B, but would be the gross total income computed under sub-section (5) to Section 80B read with Section 80AB less the deduction under Section 80IA. An example will make position clear. Supposing an assessee has gross total income of Rs. 1,000/- and is entitled to deduction under Sections 80IA and 80HHC and the deduction under Section 80IA is Rs. 300/-, then the gross total income of which deduction under Section 80HHC is to be computed would be Rs. 700/-, and not Rs. 1,000/-. 16. On the other hand, the case of the assessee is that the gross total income would not undergo a change or reduction for the purpose of Section 80HHC. The two deductions will be computed separately, without the deduction allowed under Section 80IA being reduced from the gross total income for computing the deduction under Section 80HHC. The reason being that sub-section (9) to Section 80IA does not affect computation of deduction under Section 80HHC, but postul....
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....n the profits of the business as reduced by the amounts specified in clause (baa) of section 80HHC. Unless, it is specifically provided by the statute, the profits of the business for the purpose of section 80HHC cannot be reduced by any amount save and except the amount specified in clause (baa) of section 80HHC itself. Section 80-IA(9) of the Act does not expressly or impliedly provide that the amount of profits allowed as deduction under Section 80-IA(1) should be reduced from the profits of the business for the purpose of computing deduction under section 80HHC or computing deduction under any other provisions in heading C of Chapter VI-A and, therefore, the contention of the Revenue to that effect cannot be accepted. 33. In the case of a trade-exporter, section 80HHC(3) (b) provides that the deduction under section 80HHC(1) has to be computed on the export turnover reduced by the direct costs and indirect costs attributable to the goods or merchandise exported by the assessee. The argument of the Revenue that under section 80-IA(9) the amount of profits allowed under section 80-IA has to be deducted from the profits of business while computing deduction under section ....
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....in Chapter VI-A or section 10A or section 10B in relation to the profits and gains of the undertaking. Thus, the Legislature has used specific words whenever it intended to affect the computation of deduction. As the words used in section 80-IA(9) relate to allowance and not computation of deduction, it cannot be inferred that section 80-IA(9) is inserted with a view to affect computation of deduction under any other provisions under heading C of Chapter VI-A. 36. It is well established in law that the language of the statute must be read as it is, and the statute must not be read by adding or substituting the words unless it is absolutely necessary to do so. Since section 80-IA(9) uses the words "shall not be allowed", it is not permissible to read section 80-IA(9) by substituting the above words with the words "shall not qualify" or by adding the words "shall not be allowed in computing" the deduction under any other provisions under heading C of Chapter VI-A of the Act. When the plain and simple meaning of section 80-IA(9) can be ascertained from the words used in the section, it would not be proper to construe the section by substituting or adding the words as suggeste....
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.... that the two provisions are required to be read harmoniously, for Section 80-IA(9) should not be treated as a redundant provision as it was introduced for the purpose of achieving a clear objective. Consequently, it has held that the deduction under Section 80HHC cannot be computed without reference to the bar under Section 80IA(9). 20. There is no doubt that Section 80AB and sub-section (9) to Section 80IA have to be harmoniously construed and read together. There cannot be any trace of doubt that the second limb of Section 9 to Section 80IA has been enacted to prevent cascading effect of deductions under Section 80IA and 80HHC. There was already a cap or the upper limit stipulated in sub-section(2) to Section 80IA that the deductions cannot exceed the gross total income of the assessee. However, Section 9 to Section 80IA stipulates that in no case deduction shall exceed profits and gains of such eligible business of undertaking and enterprise. The said provision does not make a reference to the gross total income but it refers to the profits and gains of such eligible business of undertaking and enterprise. Thus read, it cannot be said that the last part of sub-section (9) to....
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....igh Court has rightly pointed out that there is a difference between allowing a deduction and computation of deduction. The two have separate and distinct meanings. Computation of deduction is a stage prior and helps in quantifying the amount, which is eligible for deduction. Sub-section (9) to Section 80IA does not bar or prohibit the deduction allowed under Section 80IA from being included in the gross total income, when deduction under Section 80HHC(3) of the Act is computed. In this context it has been held that the expression "shall not be allowed" cannot be equated with the words "shall not qualify" or "shall not be allowed" in computing deduction. The effect thereof would be that while computing deduction under Section 80HHC, the gross total income would mean the gross total income before allowing any deduction under Section 80IA or other sections of part C of Chapter VIA of the Act. But once the deduction under Section 80HHC has been calculated, it will be allowed, ensuring that the deduction under Section 80HHC and 80IA when aggregated do not exceed profits and gains of such eligible business of undertaking and enterprise. 22. As I find, the legislature has used the exp....
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....figures of profit from business, export turnover and total turnover. The said clause applied to assessee who had turnover and income from business in India as well as from export business. The eligible profits from exports under the clause were computed as a proportion which had reference to the three figures. Reversing the finding of the High Court, it was observed that insofar export business was concerned, the assessee therein had admittedly incurred loses and on the said factual position there was no doubt or debate. However, the assessee relying upon the formula prescribed in clause (b) to Section 80HHC(3) had contended that profits of business as a whole, i.e., profits earned from goods or merchandise within India, which outweighed the loses from exports, should be taken into consideration. Referring to the decisions in IPCA Laboratories Limited v. CIT (2004) 12 SCC 742 and A.M. Moosa v. CIT (2007) 7 SCC 647, the contention was rejected observing that the profits of business should be positive profits and not negative income or losses. It was observed that the formula prescribed in sub-section (3) clause (b) would not come into the picture, where it was an accepted case of th....
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....stoms Act, 1962 2 (52 of 1962): Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression "total turnover" shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of Section 28; (baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by - (1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assesses situate outside India; [1 Inserted by the Finance (No.2 Act, 1991, w.e.f 1-4-1987. 2 Inserted by the Finance (No.2 Act, 1991, w.e.f 1-4-1992"] 28. The expression "profits of the business" as defined in clause (baa) of the Explanation to Section 80HHC of the Act was interpreted by the Court in ACG Associated Capsules Private Limited v. Commissioner of Income Tax, Central-IV, Mumbai (2012) 3 SCC 321, in the....
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....profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head "Profits and Gains of Business or Profession" referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. 17. If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and 1 gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assesses is allowable as an expense in accordance with Sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt of rent or ....