2009 (6) TMI 124 - AT - Income Tax

Computation of deduction u/s 80HHC and 80-IB - Profit And Gains From Industrial Undertakings - Applicability of section 80-IA(9) - Whether in view of the provisions of section 80-IA(9) read with section 80-IB(13), the deduction of income under Chapter VI-A can be allowed on the entire profit and gains of an undertaking or an enterprise of an assessee or it is to be allowed on such profit and gains as are reduced by the deduction claimed and allowed u/s 80-IB/80-IA - HELD THAT - It cannot be said that decision of Hon'ble Madras High Court in the case of SCM Creations v. Asstt. CIT 2008 (3) TMI 223 - MADRAS HIGH COURT is an authority for the proposition how provisions of section 80-IA(9) made applicable with effect from assessment year 1999-2000 is to be applied. Effect and implementation of above provision was neither raised, nor examined nor decided by the Hon'ble Madras High Court. The later decision of Madras High Court in the case of General Optics (Asia) Ltd. v. Dy. CIT(A) 2008 (12) TMI 191 - MADRAS HIGH COURT has made our task easier. In the said case, similar question was raised and the Tribunal, after following the decision of Special Bench in the case of Rogini Garments 2007 (4) TMI 122 - ITAT, CHENNAI had allowed deduction u/s 80HHC after deducting relief allowed u/s 80-IA(9). It is clear from above that application of restrictions as upheld by the Special Bench in the case of Rogini Garments was held to be applicable from assessment year 1999-2000 onward. Thus, we hold that decision of Hon'ble Madras High Court in the case of SCM Creation did not impinge upon the ratio of Special Bench in the case of Rogini Garments. It is accordingly held that benches of the Tribunal, which have taken a view contrary to the view of Rogini Garments case did not correctly appreciate the legal position. The mere fact, that SLP against the decision in the case of J.P. Tobacco and other decisions noted above was not filed or was dismissed, does not improve the situation in favour of the assessee. None of the decisions of the Hon'ble High Courts and the Hon'ble Supreme Court are applicable here as provision of section 80-IA(9), with which we are concerned, was not relevant in those cases. Hence, we hold that the Special Bench decision in the case of Rogini Garments is fully applicable. Thus, we are of the view that further discussion of the question is not necessary. However, to meet ends of justice, we would briefly comment on other submissions of the assessees and the interveners. Deductions u/s 80-IA and section 80HHC to be computed independently - total deductions under various sections should not exceed profits and gains of undertaking - We find that arguments were considered and rejected in Rogini Garments' case for good reasons. We are not persuaded to take a view different from the one taken by the Special Bench. On consideration of provisions of section 80- IA(9), we find that there are two restrictions in the statutory provision under consideration. These are - (a) where an assessee is allowed deduction under this section (80-IA or 80-IB), deduction to the extent of such profit and gain shall not be allowed under any other provision of this Chapter (Heading C-Deduction in respect of certain incomes ), and (b) deduction shall in no case exceed the profit and gain of the undertaking or hotel as the case may be. We see no justification for adopting a course prohibited by the Legislature. It is not possible to ignore the restriction placed as (a) nor it is possible to accept that in CBDT Circular , there is a suggestion to ignore restriction (a) mentioned above. As per the settled law, courts and Tribunals must see the mandate of the Legislature and give effect to it as rightly argued by the revenue. Therefore, restriction (a) above has to be respected and followed. On careful consideration, we do not find any substance in above argument. It is a settled law that Legislature adopts different ways and means in order to achieve its goal and there is no justification for insistence on identical language. What is required to be seen is the language employed, which, if clear and unambiguous, is to be given effect to. We are not concerned here with other provision but on plain reading of sections involved, we clearly see the restrictions discussed above. The Special Bench in the case of Rogini Garments did not find any difficulty in understanding and interpreting sub-section (9) of section 80-IA as words of the provision are plain, clear and unambiguous. On plain reading of the statutory provision, we entirely agree with the view expressed by the Special Bench in case of Rogini Garments. We agree that all the provisions should be read together and given a harmonious construction. All provisions are inter-related and cannot be read de hors one and other. The Special Bench in the case of Rogini Garments has held that the restriction imposed by sub-section (9) on account of section 80-IA is to be read in all the provisions of Chapter VI-A and it is not possible to ignore the restriction that profits and gains claimed and allowed as exempt under sub-section (9), (to the extent allowed) cannot be allowed under any other provision of Chapter 'C'. Above construction in reading restriction in all relevant provisions under Chapter 'C', in our opinion, is leading to no contradiction or absurdity and is reasonable. It is the legislative policy not to allow repeated deduction of same profit under sections of deductions in Chapter VI-A. We, therefore, see no conflict or contradiction in giving effect to the legislative mandate. Doing otherwise would, no doubt, be doing violence to the clear language. The argument is accordingly rejected. Difference in language used in section 80HH(9A) and 80HHA(7) - The language used in section 80-IA(9)/80-IB(9A) is clear and unambiguous and is required to be given effect to. Deduction of profits and gains allowed under section 80-IA/80-IB is not to be allowed again under any other provision. There is then further restriction on total deduction not exceeding eligible profit of the undertaking. No useful purpose would be served in repeating what we have observed above. Restriction contained in section 80-IA or 80-IB not to allow repeated deductions are applicable to same profit - In our considered opinion, all statutory provisions are inter-related and are part of one scheme. This cannot be read de hors one and other. Restriction imposed in section 80-IA(9)/80-IB(9A) are to be read in all sections and given effect to. This would only give harmonious reading. The decision of Supreme Court relied upon by Shri Vohra also support above proposition although they do not deal with section 80-IA/80-IB of the Act. We are unable to find any substance in above argument of the learned counsel. Whether decision of SCM Creations can be treated as a precedent - HELD THAT - We have already held that the said decision cannot be treated as a precedent. The issue has been discussed threadbare and those reasons need not be repeated again. Observations of Hon'ble Madras High Court in the later decision in case of General Optics (Asia) Ltd. 2008 (12) TMI 191 - MADRAS HIGH COURT has put the controversy beyond any shadow of doubt. In the above case, amendment brought with effect from 1-4-1999 introducing sections (9) and (9A) in 80-IA and 80-IB respectively were clearly noticed. These amendments were not brought to the knowledge of the Hon'ble Court in the case of SCM Creations. Therefore, there is no question of supersession of Special Bench decision in the case of Rogini Garments 2007 (4) TMI 122 - ITAT, CHENNAI . The said decision is applicable with full force. We do agree that correct propositions in the case of Nodi Exports 2008 (7) TMI 455 - ITAT DELHI-F are overstated. There is no question of Tribunal not following and applying decision of superior court. The question involved here is whether decision of SCM Creations can be treated as a precedent. For the reasons already given, the said decision did not lay down that section 80-IA(9) or 80-IB(13) should be disregarded while computing deduction u/s 80HHC or other deduction under Chapter 'C' of VI-A. We accordingly hold that deduction to be allowed under any other provision of Chapter VI-A with the heading 'C' is to be reduced by amount of deduction allowed u/s 80-IB/80-IA of the Income-tax Act. We answer the question referred to the Special Bench in the affirmative i.e. in favour of the revenue. We answer above question and refer the appeals and other grounds for disposal to the regular benches.

Summary

Issues Involved:
1. Computation of deduction under section 80HHC after deduction under section 80-IB.
2. Application of section 80-IA(9) introduced with effect from April 1, 1999.
3. Interpretation of section 80AB in relation to section 80HHC and 80-IA/80-IB.
4. Impact of judicial precedents and circulars on the interpretation of deductions under Chapter VI-A.

Issue-wise Detailed Analysis:

1. Computation of Deduction under Section 80HHC after Deduction under Section 80-IB:
The core issue was whether the deduction under section 80HHC should be computed on the entire profits or on profits reduced by the deduction allowed under section 80-IB. The Tribunal held that the deduction under section 80HHC must be computed after reducing the profits by the amount of deduction allowed under section 80-IB. This was in line with the decision in Asst. CIT v. Rogini Garments, where it was held that relief under section 80-IA should be deducted from the profits before computing relief under section 80HHC.

2. Application of Section 80-IA(9) Introduced with Effect from April 1, 1999:
Section 80-IA(9) was introduced to prevent the repeated deduction of the same profits under different sections of Chapter VI-A. The Tribunal emphasized that the language of section 80-IA(9) was clear and unambiguous, indicating that profits claimed and allowed under section 80-IA/80-IB should not be allowed under any other provisions of Chapter VI-A. This provision was intended to prevent unintended benefits and ensure that the total deduction did not exceed the profits of the eligible business.

3. Interpretation of Section 80AB in Relation to Section 80HHC and 80-IA/80-IB:
Section 80AB, which governs all provisions under Chapter VI-A, specifies that deductions should be computed on the income before making any deductions under Chapter VI-A. However, the Tribunal found that section 80AB did not apply in cases where multiple deductions under different sections of Chapter VI-A were claimed. The Tribunal held that the restrictions in section 80-IA(9) must be read into all relevant provisions of Chapter VI-A, and deductions under other sections should be computed after reducing the profits by the amount allowed under section 80-IA/80-IB.

4. Impact of Judicial Precedents and Circulars on the Interpretation of Deductions under Chapter VI-A:
The Tribunal considered various judicial precedents and circulars, including the decision in SCM Creations v. Asst. CIT and Circular No. 772. It was noted that the SCM Creations case did not consider the amended provisions of section 80-IA(9) and was decided based on concessions by the parties. The Tribunal held that the decision in SCM Creations did not supersede the Special Bench decision in Rogini Garments. The Tribunal also clarified that Circular No. 772 dealt with the restriction that the total deduction should not exceed the profits of the business but did not address the restriction on repeated deductions of the same profits.

Conclusion:
The Tribunal concluded that the deduction under section 80HHC should be computed after reducing the profits by the amount of deduction allowed under section 80-IB, in line with the provisions of section 80-IA(9). The decision in Rogini Garments was upheld, and it was clarified that the restrictions in section 80-IA(9) must be applied to all relevant provisions of Chapter VI-A. The Tribunal emphasized the need to give effect to the clear and unambiguous language of the statutory provisions and rejected the arguments for a liberal interpretation that would allow repeated deductions of the same profits.