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2013 (10) TMI 381 - HC - Income TaxComputation of deduction u/s 80HHC of the Income Tax Act Over riding effect of section 80AB of the Income Tax Act - exclusion of income exempted u/s 10A from total turnover and export turnover for the purpose of Section 80HHC Held that - Section 80AB is in Chapter VI-A. It starts with the words where any deduction is required to be made or allowed under any Section of this Chapter . This would include Section 80HHC. Section 80AB further provides that notwithstanding anything contained in that Section . Thus Section 80AB has been given an overriding effect over all other Sections in Chapter VIA. Section 80HHC does not provide that its provisions are to prevail over Section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by Section 80AB - Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. While computing total income of the assessee engaged in business in Free Trade Zone and also in export of goods or merchandise out of India the turn over will be reduced by the turn over of the unit of the assessee having benefit under Section 10A of the Act and on which profits and gains derived are not to be included in total income of the assessee - For deduction under Section 80HHC the turn over of the assessee of the industrial undertaking in Free Trade Zone of which profits and gains are exempt under Section 10A of the Act is not to be taken into consideration Decided in favor of Revenue.
Issues Involved:
1. Inclusion of NOIDA unit's export turnover for Section 80HHC deduction. 2. Treatment of NOIDA and Kanpur units as one business under Section 80HHC. 3. Calculation of Section 80HHC deduction by combining turnover and profit of both units. 4. Consideration of NOIDA unit's turnover and profit for Section 80HHC deduction despite Section 10A exclusion. Issue-wise Detailed Analysis: 1. Inclusion of NOIDA unit's export turnover for Section 80HHC deduction: The core issue was whether the export turnover of the NOIDA unit, which was excluded from the total income under Section 10A of the Income Tax Act, should be included for calculating the deduction under Section 80HHC. The Assessing Officer did not include the NOIDA unit's export turnover, arguing that only the income/profit included in the total income of the assessee could be considered for Section 80HHC deduction. The Income Tax Appellate Tribunal (ITAT) directed that the turnover of both units should be considered together. However, the High Court agreed with the revenue's argument, emphasizing that Section 80AB mandates that deductions under Chapter VI-A, including Section 80HHC, must be computed based on income included in the gross total income. Since the NOIDA unit's profits were exempt under Section 10A, its turnover should not be included for Section 80HHC deduction. 2. Treatment of NOIDA and Kanpur units as one business under Section 80HHC: The ITAT had held that the business activities of the NOIDA and Kanpur units should be treated as one for the purpose of Section 80HHC deduction. The High Court, however, found that this approach was flawed because Section 10A specifically exempts the profits of the NOIDA unit from the total income. Consequently, treating the units as one business for Section 80HHC purposes would contradict the statutory provisions that govern the inclusion of income for deduction purposes. 3. Calculation of Section 80HHC deduction by combining turnover and profit of both units: The ITAT had directed that the deduction under Section 80HHC should be worked out by taking the turnover and profit of both the Kanpur Head Office and NOIDA unit together. The High Court disagreed, holding that since the NOIDA unit's profits were exempt under Section 10A, its turnover should not be included in the calculation of Section 80HHC deductions. The Court emphasized that Section 80AB, which has an overriding effect, requires that deductions be computed based on income included in the gross total income. 4. Consideration of NOIDA unit's turnover and profit for Section 80HHC deduction despite Section 10A exclusion: The assessee had argued that while the NOIDA unit's profits were excluded under Section 10A, its export turnover should still be considered for Section 80HHC deduction. The High Court rejected this argument, stating that including the NOIDA unit's turnover would be inconsistent with the statutory framework, particularly Section 80AB, which mandates that deductions be computed based on income included in the gross total income. The Court noted that the assessee itself had not included the NOIDA unit's profits for Section 80HHC calculation, which logically extended to excluding its turnover as well. Conclusion: The High Court allowed the income tax appeals, deciding all questions of law in favor of the revenue and against the assessee. The Court held that for calculating the deduction under Section 80HHC, the turnover of the industrial undertaking in the Free Trade Zone, whose profits and gains are exempt under Section 10A, should not be taken into consideration. The income tax department was directed to proceed accordingly.
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