2011 (2) TMI 1210 - HC - Income Tax

Deductions under section 80-IB and under section 80HHC - When the deduction of profits and gains of an undertaking is allowed under section 80-IA, whether such profits and gains has to be deducted before computation of the profits and gains under section 80HHC or after arriving at the profits and gains of business - held that - sections 80HHC and 80-I are independent of each other - Deductions in respect of certain incomes are independent of each other and the assessee is entitled to claim deduction under more than one section, the deduction has to be necessarily in the profits and gains arrived at after making the claims in terms of the aforesaid section. Though the Delhi High Court as well as the Kerala High Court have taken a contrary view of which reliance is placed by the Revenue, in the light of the express provisions contained in sub-section (a) of section 80-IA, clause (baa) to the Explanation to section 80HHC and the explanation in the circular referred to supra and keeping in mind the object with which these provisions are introduced we are of the view that the contention of the Revenue is unsustainable and the Tribunal has committed no illegality, in respect of cases where it had allowed the appeal. - Decided in favor of assessee.

Issues Involved:
1. Whether the deduction of profits under section 80-IA should be made before or after computing the profits under section 80HHC.
2. Jurisdiction of the Commissioner to revise the orders passed by the assessing authority based on a different view.

Issue-wise Detailed Analysis:

1. Deduction of Profits under Section 80-IA and Section 80HHC:

The primary question of law addressed is whether the deduction of profits and gains under section 80-IA should be made before computing the profits under section 80HHC or after arriving at the profits and gains of business. The Tribunal upheld the deductions claimed by the assessees under sections 80-IB and 80HHC, but the Revenue contended that once a deduction is granted under section 80-IA, it should be deducted before the computation of profits and gains under section 80HHC.

Statutory Provisions and Interpretation:

- Section 80-IA(9): This provision states that if profits and gains are claimed and allowed under section 80-IA, such profits and gains shall not be allowed under any other provisions of Chapter VI-A under the heading "C.-Deductions in respect of certain incomes" and shall not exceed the profits and gains of the eligible business.

- Section 80HHC: This section deals with deductions in respect of profits retained for export. The formula for calculating the profits and gains from export business involves the "profits of the business" as defined in the Explanation (baa) to section 80HHC.

Judicial Precedents:

- Mandideep Eng. and Pkg. Ind. P. Ltd. Case: The Supreme Court held that sections 80HH and 80-I are independent of each other, and deductions under both sections can be claimed independently on the gross total income.

- J. P. Tobacco Products P. Ltd. Case: The Madhya Pradesh High Court held that the benefit under section 80-I should be granted on the gross total income and not on the income reduced by the amount allowed under section 80HH.

- Associated Capsules P. Ltd. Case: The Bombay High Court held that section 80-IA(9) restricts the total deductions under Chapter VI-A to the profits of the business but does not affect the computation of deductions under various provisions.

Court's Conclusion:

The court concluded that sections under the heading "C.-Deductions in respect of certain incomes" are independent of each other. Therefore, sections 80HHC and 80-I are independent, and a new industrial unit can claim deductions under both sections on the gross total income independently. The overall claim under both sections is restricted to the total profits and gains of such eligible business from the gross total income. The court rejected the Revenue's contention that the profits and gains permitted to be deducted under section 80-IA should be deducted out of the profits of the business before calculating the profits and gains from export business.

2. Jurisdiction of the Commissioner to Revise Orders:

The court did not delve into the substantial question of the Commissioner's jurisdiction to revise the orders passed by the assessing authority, as the law declared by the court benefitted the assessee regardless.

Final Order:

1. Several appeals (I.T.A. Nos. 3213 of 2005, 139 of 2007, etc.) were dismissed.
2. Other appeals (I.T.A. Nos. 379 of 2008, 704 of 2008, etc.) were allowed, setting aside the Tribunal's order and restoring the order of the Commissioner of Income-tax (Appeals), granting relief to the assessee. The assessing authority was directed to pass consequential orders giving the benefit to the assessees as declared under this judgment wherever necessary.

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