2011 (1) TMI 787 - HC - Income Tax

Deduction u/s 80-IA(9) - Whether the amount of profits allowed as deduction under section 80-IA(1) of the Act has to be reduced from the profits of the business of the undertaking while computing deduction under any other provisions under heading C in Chapter VI-A of the Income-tax Act 1961 - according to the Assessing Officer if the assessee is entitled to deduction under sections 80-IA and 80HHC then deduction under section 80-IA(1) has to be computed and allowed on the profits of the business and the deduction allowable under section 80HHC has to be computed on the profits of the business as reduced by the profits allowed as deduction under section 80-IA of the Act - There is no dispute that in the present case the assessee is an under taking entitled to 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 of the business 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 - Held that section 80-IA(9) does not affect the computability of deduction under various provisions under heading C of Chapter VI-A but it affects the allowability of deductions computed under various provisions under heading C of Chapter VI-A so that the aggregate deduction under section 80-IA and other provisions under heading C of Chapter VI-A do not exceed 100 per cent - Central Board of Direct Taxes Circular No. 772 dated December 23 1998 wherein it is stated that section 80-IA(9) has been introduced with a view to prevent the taxpayers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits - Decided in favor of the assessee

Issues Involved:
1. Interpretation of Section 80-IA(9) of the Income-tax Act, 1961.
2. Computation of deductions under Section 80HHC in light of Section 80-IA(9).
3. Allowability vs. Computability of deductions under Chapter VI-A.

Detailed Analysis:

1. Interpretation of Section 80-IA(9) of the Income-tax Act, 1961:

The core issue revolves around whether Section 80-IA(9) mandates that the amount of profits allowed as a deduction under Section 80-IA(1) must be reduced from the profits of the business while computing deductions under any other provisions under heading C in Chapter VI-A of the Income-tax Act, 1961. The court examined the language and intent behind Section 80-IA(9), which consists of three parts:
- First part: Profits and gains claimed and allowed under Section 80-IA(1).
- Second part: Deduction to the extent of profits and gains allowed under Section 80-IA(1) shall not be allowed under any other provisions.
- Third part: In no case shall the deduction allowed exceed the profits and gains of the business of the undertaking.

The court concluded that Section 80-IA(9) seeks to curtail the allowance of deductions and not the computation of deductions under any other provisions under heading C of Chapter VI-A.

2. Computation of Deductions under Section 80HHC in Light of Section 80-IA(9):

The court analyzed whether Section 80-IA(9) affects the computation mechanism of deductions under Section 80HHC. The Revenue argued that the deduction under Section 80HHC should be computed on the profits of the business reduced by the amount of profits allowed under Section 80-IA. However, the court found that Section 80-IA(9) does not expressly or impliedly provide that the amount of profits allowed as a deduction under Section 80-IA(1) should be reduced from the profits of the business for the purpose of computing deduction under Section 80HHC.

The court emphasized that the computation of deduction under Section 80HHC is statutorily required to be done on the profits of the business as reduced by the amounts specified in clause (baa) of Section 80HHC. Therefore, Section 80-IA(9) affects the allowability of the deduction and not the computation of deduction under Section 80HHC.

3. Allowability vs. Computability of Deductions under Chapter VI-A:

The court differentiated between the terms "allowed" and "qualify." The word "allowed" relates to the allowance of the deduction that is computed, whereas "qualify" is an expression relatable to the computation of deduction. The court concluded that since Section 80-IA(9) uses the word "allowed," it restricts the allowance of deduction and not the computation of deduction under any other provisions under heading C of Chapter VI-A.

The court also noted that wherever the Legislature intended that the deduction allowed under one section should affect the computation of deduction under other provisions, it has expressly used words to that effect. For instance, Sections 80HHD(7) and 80-IC(5) explicitly mention the impact on computation. However, Section 80-IA(9) does not use such language, indicating that it does not intend to affect the computation of deductions under other provisions.

Conclusion:

The court held that Section 80-IA(9) does not affect the computability of deduction under various provisions under heading C of Chapter VI-A but affects the allowability of deductions computed under various provisions under heading C of Chapter VI-A, so that the aggregate deduction under Section 80-IA and other provisions under heading C of Chapter VI-A does not exceed 100 percent of the profits of the business of the assessee. The appeal was allowed in favor of the assessee, and the question raised was answered in the negative, i.e., in favor of the assessee and against the Revenue.

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