2012 (10) TMI 61 - HC - Income Tax

Deduction u/s 80IA as well as u/s 80HHC - whether an assessee is entitled to full deduction or has to be proportionately reduced - Held that - While calculating the deduction the provisions of the deducting sections have to be followed. There is nothing in Section 801A(9) which lays down that the assessee would not be entitled to claim deduction under Section 80HHC on that portion of the profits of the unit of which benefit has been taken under Sections 801A or 801B. The object of Section 801A(9) is not to curtail the deduction but to avoid double benefits - The total benefits cannot be higher than the gross income and cannot exceed the profits of the priority undertaking. The assessee would be entitled to the benefit of Sections 801A or 801B separately and to that of Section 80 HHC independently and while computing the deduction under Section 80 HHC the profits or deductions which have been granted under Sections 801A or 801B cannot be taken into consideration. Thus in agreement with the Bombay and Karnataka High Courts that in case the contention of the revenue that the profits and gains, permitted to be deducted under Section 80IA or 80IB, should be deducted out of the profits of the business and thereafter the profits and gains of the export business are to be reckoned for the purpose of calculating the benefit under Section 80HHC is contrary to the statutory provisions and the letter and spirit of the Act. The deductions are independent of each other and therefore, full deduction under each Section can be claimed though the overall benefit has to be restricted to the total profits and gains of such eligible business - in favour of assessee.

Summary

Issues Involved:
1. Entitlement to deductions under Sections 80IB and 80HHC of the Income-tax Act, 1961.
2. Interpretation of Section 80IA(9) in relation to other provisions in Chapter VIA.
3. Restriction on aggregate deductions under Chapter VI-A.

Issue-wise Detailed Analysis:

1. Entitlement to deductions under Sections 80IB and 80HHC:
The core issue is whether an assessee can claim full deductions under both Sections 80IB and 80HHC independently or if the deductions must be proportionately reduced. The revenue argued that the deductions should be computed on the balance income after accounting for the initial deduction, while the assessee claimed that both deductions are independent and should be fully granted.

2. Interpretation of Section 80IA(9):
Section 80IA(9) states that profits and gains claimed under this section should not be allowed under any other provisions of Chapter VIA, and the total deductions should not exceed the profits of the eligible business. The revenue relied on the Delhi High Court's judgment in Great Eastern Exports, which interpreted the section to mean that once a deduction is allowed under Section 80IA, it should be reduced from the profits for any other deductions under Chapter VIA. The Bombay High Court, however, held that Section 80IA(9) restricts the allowance of deductions but not their computation.

3. Restriction on aggregate deductions under Chapter VI-A:
The Bombay High Court clarified that Section 80IA(9) affects the allowability of deductions to ensure that the total deductions do not exceed the profits of the business, but it does not disturb the computation of deductions under other sections. This view was supported by the Karnataka High Court, which stated that Sections 80HHC and 80IA are independent, and deductions should be computed separately.

Judgment Summary:
The High Court of Himachal Pradesh agreed with the Bombay High Court's interpretation, stating that the deductions under Sections 80IB and 80HHC are independent and should be computed separately. The court emphasized that Section 80IA(9) aims to prevent double benefits but does not affect the computation of deductions under other sections. The total deductions should not exceed the profits of the business, but each section's deductions should be allowed in full. The court concluded that the revenue's interpretation would make Section 80IA(9) unworkable and contrary to the statutory provisions.

Conclusion:
The court ruled in favor of the assessee, allowing full deductions under both Sections 80IB and 80HHC, provided the total deductions do not exceed the profits of the business. The appeals were rejected with no order as to costs.