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2007 (3) TMI 288 - AT - Income TaxMAT - Deduction u/s 80HHC - Interpretation Of Statutes - Profits and gains of business or profession - Whether deduction u/s 80HHC is to be worked out on the basis of regular income-tax profit or adjusted book profit in a case where section 115JA is applicable - HELD THAT - Once the law itself has declared that the adjusted book profit is amenable for further deductions on specified grounds in a case where section 80HHC is operational it becomes very clear that the computation for the deduction u/s 80HHC needs to be worked out on the basis of the very same adjusted book profit. The above proposition is manifest in the fact that the deduction u/s 80HHC has been provided in sections 115J 115JA and 115JB themselves instead of making a reference in section 80HHC itself. It is made so because the nexus between the deduction u/s 80HHC and the profit in a MAT regime is between the deduction and the adjusted book profit. While interpreting the provisions of the statute it is not necessary to read down the law unless the context demands to make the provision workable. The expression used in section 115J and the expression used in section 115JB when compared and read together do not give any intention or expound any purpose that section 115JA is different from section 115J and section 115JB is different from section 115JA in the character and purpose of deduction u/s 80HHC in a case of MAT assessment. When the amendments do not bring out any case of such differentiation in their plain interpretation there is no justification to strain the language and imbibe to extra-contextual meaning. The deduction u/s 80HHC in a MAT scheme is from the taxable income which is otherwise the adjusted book profit. If no deduction is available to an assessee the gross total income itself is the taxable income of the assessee. MAT scheme does not provide for deductions. Therefore the interpretation is that the adjusted book profit of a company itself is the gross total income of that assessee-company. The deduction u/s 80HHC is in that way given out of the gross total income in a case falling under MAT. This in turn means that section 80HHC should be computed on the adjusted book profit. Sections 115J 115JA and 115JB come into operation as the regular profits has been substituted by the book profit. Once the substitution is over there is no way to go back to the normal computation process of statutory profit which has already been overwhelmed by sections 115J 115JA and 115JB. This reconciles the alleged incompatibility pointed out by the Revenue that the deduction available to an assessee under Chapter VI-A is subject to section 80AB. Therefore we find that the deduction u/s 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted book profit and not on the basis of the profit computed under the regular provisions of law applicable to the computation of profits and gains of business or profession. As sections 115J 115JA and 115JB deal with the same subject it is indispensable for us to consider the provisions of section not only under section 115JA but also under section 115JB. Further in the case of one of the interveners before us M/s. Bhushan Steel and Strips Ltd. the relevant assessment year is 2003-04 to which section 115JB is applicable. Therefore we make it clear that by discussing the law contained in section 115JB we have not exceeded our brief. In fact we have decided the issue in the light of section 115JA but only thing is that the discussion on section 115JB is an inherent fall out of the case before us. Now the files will go back to the regular Benches which will pass appropriate orders on the basis of the grounds raised in the respective appeals.
Issues Involved:
1. Whether the assessee, while computing book profits under section 115JA of the Income-tax Act, 1961, is entitled to reduce the net profit as per the profit and loss account by the profits eligible for deduction under section 80HHC computed with reference to book profits or regular profits. Detailed Analysis: Issue 1: Computation of Deduction under Section 80HHC in the Context of Section 115JA The Special Bench was constituted to resolve the conflicting views on whether the deduction under section 80HHC should be computed based on the book profit adjusted under section 115JA or the regular taxable profit computed under the normal provisions of the Income-tax Act. Revenue's Argument: 1. Historical Context and Amendments: - Initially, under section 115J, the deduction under section 80HHC was computed with reference to the book profit. However, this provision was operative only for the assessment years 1988-89 to 1990-91. - With the introduction of section 115JA for the assessment years 1997-98 to 2000-01, a significant change was introduced. Explanation (viii) under section 115JA specified that the deduction under section 80HHC should be computed under clause (a), (b), or (c) of sub-section (3) or sub-section (3A) of section 80HHC, indicating a shift to computing the deduction based on regular taxable profits rather than book profits. - Section 115JB, applicable from the assessment year 2001-02 onwards, further clarified that the deduction under section 80HHC should be computed as per the regular provisions of section 80HHC, reinforcing the shift from book profits to regular taxable profits. 2. Supreme Court Decisions: - The Revenue cited the Supreme Court decision in Karnataka Small Scale Industries Development Corporation Ltd. v. CIT, which emphasized that deductions should be computed based on regular business profits and not book profits. - The Supreme Court's decision in IPCA Laboratory Ltd. v. Deputy CIT clarified that section 80HHC does not override section 80AB or other provisions in Chapter VI-A, indicating that deductions should be computed based on regular taxable profits. 3. Interpretation of Legislative Intent: - The Revenue argued that the legislative intent behind the amendments in sections 115JA and 115JB was to ensure that deductions under section 80HHC are computed based on regular taxable profits to avoid undue benefits to assessees. Assessee's Argument: 1. Non-Obstante Clause: - The assessee argued that section 115JA begins with a non-obstante clause, indicating that it should prevail over other provisions of the Act. Therefore, the profits for the purpose of section 80HHC should be the adjusted book profits under section 115JA. 2. Consistency in Legislative Intent: - The assessee contended that the legislative intent remained consistent across sections 115J, 115JA, and 115JB, aiming to provide full deduction under section 80HHC for MAT purposes. The amendments only clarified the method of computation without altering the basis of computation from book profits to regular taxable profits. 3. Supreme Court Decisions: - The assessee relied on the Supreme Court's decision in Apollo Tyres Ltd. v. CIT, which held that the Assessing Officer must accept the book profits certified under the Companies Act without further adjustments. This supports the argument that deductions under section 80HHC should be computed based on adjusted book profits. 4. Circulars and Finance Minister's Speech: - The assessee highlighted the Finance Minister's speech and CBDT Circulars, which consistently indicated that export profits should be fully deductible under section 80HHC in the MAT regime, supporting the computation based on adjusted book profits. Tribunal's Conclusion: 1. Legislative History and Intent: - The Tribunal acknowledged the legislative history and the consistent intent to provide full deduction under section 80HHC in the MAT regime. The amendments in sections 115JA and 115JB clarified the method of computation but did not change the basis from book profits to regular taxable profits. 2. Supreme Court and High Court Decisions: - The Tribunal considered the Supreme Court's decisions in Apollo Tyres Ltd. and IPCA Laboratory Ltd., concluding that the computation of deductions under section 80HHC should be based on adjusted book profits for MAT purposes. 3. Circulars and Finance Minister's Speech: - The Tribunal gave weight to the Finance Minister's speech and CBDT Circulars, which supported the interpretation that deductions under section 80HHC should be computed based on adjusted book profits. 4. Harmonious Interpretation: - The Tribunal emphasized a harmonious interpretation of the provisions, ensuring that the legislative intent to provide full deduction under section 80HHC in the MAT regime is upheld. Final Decision: - The Tribunal concluded that the deduction under section 80HHC in a MAT assessment should be computed based on the adjusted book profits under section 115JA and not on the regular taxable profits computed under the normal provisions of the Income-tax Act. Conclusion: The Special Bench ruled that for the purpose of computing book profits under section 115JA of the Income-tax Act, 1961, the assessee is entitled to reduce the net profit as per the profit and loss account by the profits eligible for deduction under section 80HHC computed with reference to adjusted book profits, thus aligning with the legislative intent and consistent judicial interpretations.
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