2016 (7) TMI 1303 - HC - Income Tax

Interpreting the provisions of section 80IB 80IA (9) and 80HHC read with section 80IA - Whether the deduction under section 80IB and 80HHC should be computed independently and with an only rider that the total deduction should not exceed more than 100% of the eligible profit computed under any of the provisions independently as well as cumulatively ? - Held that - Issue involved in these appeals is covered by the decision of this Court in the case of Commissioner of Income Tax v. Atul Intermediates reported in 2014 (4) TMI 676 - GUJARAT HIGH COURT held that Sub-section (9) of section 80IA was aimed at restricting the successive claims of deduction of the same profit or gain under different provisions contained in sub-chapter C of Chapter VI of the Act - If section 80HHC contained a protective shell making it immune from any outside influence even this effect of sub-section (9) of section 80IA could not be applied - This would completely render the provisions of subsection (9) of section 80IA redundant and meaningless. Sub-section (9) of section 80IA was enacted to have universal application to all deductions under sub-chapter C of Chapter VI - 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. Assessing Officer may give effect to this order only after the decision of the Larger Bench of the Supreme Court in the case referred to it by the decision reported in 2015 (12) TMI 708 - SUPREME COURT . Decided in favour of Revenue.

Summary

Issues Involved:
1. Interpretation of sections 80IB, 80IA(9), and 80HHC of the Income-tax Act, 1961.
2. Whether deductions under sections 80IB and 80HHC should be computed independently with the total deduction not exceeding 100% of the eligible profit.
3. Validity of the Tribunal's reliance on the Special Bench decision in the case of Rohini Garments in light of the Madras High Court decision in SCM Creations.

Detailed Analysis:

1. Interpretation of Sections 80IB, 80IA(9), and 80HHC:
The Tribunal's interpretation of sections 80IB, 80IA(9), and 80HHC was challenged. The court examined the legislative intent and the specific language of subsection (9) of section 80IA. It was noted that this subsection was introduced to prevent assessees from claiming multiple deductions on the same profit, which could exceed the business income of the assessee. The court emphasized that subsection (9) is divided into two parts: the first part disallows deductions under other provisions to the extent profits are claimed under section 80IA, and the second part limits the total deduction to the profits of the eligible business. The court concluded that ignoring the first part would render it redundant, which is against principles of statutory interpretation.

2. Computation of Deductions under Sections 80IB and 80HHC:
The court addressed whether deductions under sections 80IB and 80HHC should be computed independently, provided the total deduction does not exceed 100% of the eligible profit. The court referred to the case of Commissioner of Income Tax v. Atul Intermediates, which clarified that subsection (9) of section 80IA impacts other deduction provisions, including section 80HHC. The court held that the deductions should not be computed independently if it leads to exceeding the total profits and gains of the eligible business. The court stated that subsection (9) must be applied at the stage of computing deductions under section 80HHC, ensuring that the combined deductions do not surpass the total profits of the business.

3. Validity of Tribunal's Reliance on Rohini Garments:
The Tribunal had followed the decision in the case of Rohini Garments, which was contested as not being good law in light of the Madras High Court's decision in SCM Creations. The court agreed with the respondent's counsel that the issue was covered by the decision in Commissioner of Income Tax v. Atul Intermediates. The court observed that the Tribunal's reliance on Rohini Garments was incorrect as it did not align with the legislative intent and the interpretation upheld in previous judgments, including the Supreme Court's stance on similar matters.

Conclusion:
The court disposed of the appeals, ruling in favor of the revenue and against the assessee. The questions of law were decided based on the observations and interpretations provided in the case of Commissioner of Income Tax v. Atul Intermediates. The Assessing Officer was instructed to give effect to this order only after the Supreme Court's decision in the case referred to the Larger Bench. The court's decision ensures that the deductions under sections 80IB and 80HHC are computed in a manner that does not exceed the total profits of the eligible business, adhering to the legislative intent and statutory provisions.