2014 (3) TMI 1231 - HC - Income Tax

Computation of deduction u/s 80HHC - exclude excise duty from the total turnover while computing deduction - HELD THAT - First question is already decided by this Court in 2014 (3) TMI 934 - GUJARAT HIGH COURT as held against the Revenue and it is held that the learned Tribunal has not committed any error in holding that the excise duty is excise duty is to be excluded for the purpose of computation of deduction u/s. 80HHC. Allowance of deduction u/s 80IB and 80HHC independently - This Court in 2014 (4) TMI 676 - GUJARAT HIGH COURT we may peruse more closely the language used in sub section (9) of section 80IA. In plain terms it provides that where any amount of profits and gains of an undertaking or enterprise in case of an assessee is claimed and allowed under section 80IA, 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 in no case exceed the profits of gains of such eligible business of the undertaking or enterprise. It can thus be seen that sub section (9) is divided into two clear parts. First part pertains to non allowability of deduction under any other provision contained in Part C of Chapter VI to the extent of profits and gains of an enterprise or undertaking with respect to which deduction under section 80IA is claimed and allowed. The second part provides that in any case, such deduction shall not exceed the profits and gains of eligible business of an undertaking or enterprise. If we accept the interpretation of the assessee that only effect of sub section (9) of section 80IA would be to limit the maximum permissible deduction under section 80HHC to the profits and gains of the eligible business, we would be completely ignoring the first part of the sub section. 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. This provision, therefore, necessarily impacts other deduction provisions including section 80HHC of the Act. Nothing contained in section 80HHC suggests that the deduction provided therein was immune from any outside influence or that the provision was impregnable by any other statute or enactment. Accepting any such theory would lead to incongruous results. Even the assessee concedes that sub section (9) of section 80IA would operate as to limiting the combined deductions to a maximum of the profits and gains from an eligible business of the undertaking or enterprise. 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 sub section (9) of section 80IA redundant and meaningless. We are unable to follow the line of logic adopted in case of Associated Capsules P. Ltd. 2011 (1) TMI 787 - BOMBAY HIGH COURT that section 80IA(9) of the Act in the context of section 80HHC would operate not at the stage of computation but at the stage of allowing the deduction. - Decided in favour of revenue.

Summary

Issues Involved:

1. Whether the Appellate Tribunal is right in law and on facts in confirming the order of the CIT (A) in directing the Assessing Officer to exclude excise duty from the total turnover while computing deduction under Section 80HHC of the Act?
2. Whether the Appellate Tribunal is right in law and on facts in confirming the order of the CIT (A) in directing the Assessing Officer to allow deduction under Section 80IB and 80HHC independently?

Issue-wise Detailed Analysis:

1. Exclusion of Excise Duty from Total Turnover under Section 80HHC:

The first issue concerns whether excise duty should be excluded from the total turnover when computing deductions under Section 80HHC of the Income Tax Act. The court referred to its previous decision in Tax Appeal No. 884/2006, where it was established that the issue is no longer res integra and is covered against the Revenue by the Supreme Court's decisions in the cases of Lakshmi Machine Works and Shiva Tex Yarn Ltd. The Supreme Court had observed that the formula under Section 80HHC was intended to exclude items like excise duty and sales tax from the total turnover as they do not involve any element of turnover, being indirect taxes recovered by the assessee on behalf of the government. The court emphasized that tax under the Income Tax Act is on income, profits, and gains, not on gross receipts. Consequently, excise duty and sales tax do not form part of the "total turnover" for the purposes of Section 80HHC, as including them would make the formula unworkable. Therefore, the question was answered in favor of the assessee and against the Revenue.

2. Allowance of Deduction under Sections 80IB and 80HHC Independently:

The second issue revolves around whether deductions under Sections 80IB and 80HHC should be allowed independently. The court examined the implications of Section 80IA(9), which was introduced to prevent double deductions of the same profit under different provisions of Chapter VI-A. The court noted that judicial opinion is divided, with some High Courts allowing full deductions under both sections, while others limit the deductions to the business profits. The court highlighted that Section 80IA(9) is divided into two parts: the first part restricts deductions under other provisions to the extent of profits already claimed under Section 80IA, and the second part ensures that total deductions do not exceed the profits of the eligible business. The court rejected the interpretation that Section 80IA(9) only limits deductions to the profits of the eligible business, emphasizing that it also restricts claims under other provisions. The court concluded that Section 80HHC is not immune to the influence of Section 80IA(9), and the deductions must be restricted accordingly. Thus, the question was answered in favor of the Revenue and against the assessee.

Conclusion:

The tax appeal was partly allowed. The first issue regarding the exclusion of excise duty from the total turnover was decided in favor of the assessee, while the second issue concerning the independent allowance of deductions under Sections 80IB and 80HHC was decided in favor of the Revenue. The appeal was disposed of accordingly.