2005 (5) TMI 37 - HC - Income Tax

Deduction under section 80HHC and section 80-I - New Industrial Undertaking - Assessing Officer held that a deduction is required to be first made under section 80HHC of the Act and thereafter from the residual gross total income a deduction can be made under section 80-I - Whether the assessee is entitled to deduction/benefit under section 80-I on the gross total income without excluding/reducing deduction allowed under section 80HH? - we answer the question in the affirmative and in favour of the assessee and against the Revenue.

Summary

Issues involved:
Interpretation of sections 80HHC and 80-I of the Income-tax Act, 1961 for deduction claims.

Analysis:
The judgment delivered by the High Court of Delhi pertained to the assessment year 1996-97, where the respondent-assessee claimed deductions under sections 80HHC and 80-I of the Income-tax Act, 1961. The Assessing Officer initially held that a deduction should be made under section 80HHC first, followed by a deduction under section 80-I from the residual gross total income. The Commissioner of Income-tax (Appeals) allowed the appeal based on a previous case law and directed the Assessing Officer to allow the deduction under section 80-I without reducing it by the amount of deduction under section 80HHC.

Subsequently, the Income-tax Appellate Tribunal rejected the Revenue's appeal based on the same case law. The Revenue then appealed to the High Court, framing a substantial question of law regarding whether the assessee is entitled to deduction under section 80-I on the gross total income without reducing the deduction allowed under section 80HHC. The High Court rephrased the substantial question of law to clarify the reference to sections 80HHC and 80-I of the Income-tax Act.

The High Court analyzed previous judgments from the Madhya Pradesh High Court and the Rajasthan High Court on similar issues. It was observed that the legal position dictates that the benefit of section 80-I should be granted on the gross total income without reducing it by the deduction under section 80HHC. The Rajasthan High Court specifically highlighted that section 80HHC(9) only establishes the order of priority for adjusting deductions in the gross total income and does not require recalculation for computing deductions under section 80-I or 80J.

The High Court concurred with the interpretations of the Madhya Pradesh High Court and the Rajasthan High Court, emphasizing that section 80HHC(9) does not mandate recalculating the gross total income after adjusting the deduction under section 80HHC. The Court noted that the Assessing Officer had accepted this legal position in subsequent assessment years. Therefore, based on the precedent set by the aforementioned judgments, the High Court ruled in favor of the assessee and against the Revenue.

Additionally, the Court directed the Registry to list a separate matter for disposal concerning an identical question of law raised in another appeal, ensuring consistent application of the legal interpretation provided in this judgment.