2014 (9) TMI 884 - HC - Income Tax

Allowability of deduction on Gross total income or Net total income u/s 80HHC - Whether the Tribunal is correct in holding that the deduction U/s. 80 HHC to be allowed on the gross total income and not on net total income Held that - The gross total income is nothing but the total income, before any deductions under Chapter-VIA are made - If the Act provides for deduction of any amount from the gross total income, it is axiomatic that the deduction of that nature must take place at the first instance and thereafter, the other deductions can be made - once the deductions u/s 80-HHC are to be made from total income, there may not be any justification to insist that it shall be the first of all the deductions - If that were to be so, the Parliament would have employed the expression gross total income u/s 80-HHC also, instead of the expression total income. When the law requires that the deduction of the amounts are required to be made from the corresponding total income, the inescapable conclusion is that the deduction must take place, at the threshold, before the left over total income referable to that activity merges in the other head, of the income of the assessee Relying upon Commissioner of Income-Tax Versus Shirke Construction Equipment Limited 2007 (5) TMI 194 - SUPREME Court - once the deduction is to be made from total income, in contra distinction to gross total income, the assessee must be given the facility, as to the stage of deduction - Law provides the assessee, the freedom to arrange his affairs in a manner, which is beneficial to him, as long as the same is not prohibited by or is contrary to any provision of an enactment Decided against the revenue.

Summary

Issues:
1. Interpretation of Section 80-HHC of the Income Tax Act, 1961 regarding the stage of deduction - gross total income vs. net total income.

Analysis:

Issue 1: Interpretation of Section 80-HHC regarding the stage of deduction - gross total income vs. net total income

The case involved a dispute over the interpretation of Section 80-HHC of the Income Tax Act, 1961, specifically regarding the stage at which the deduction should be allowed - whether on gross total income or net total income. The respondent, an industry engaged in exporting goods, claimed deduction under Section 80-HHC for the assessment year 1993-94. The Assessing Authority disagreed with the respondent's claim and directed the deduction to be made at a later stage, citing Section 80-HH of the Act. The respondent appealed to the Commissioner of Income Tax (Appeals) III, Hyderabad, but the appeal was dismissed. Subsequently, the respondent filed an appeal before the Income Tax Appellate Tribunal, Hyderabad B Bench, which allowed the appeal on 21.8.2001.

The appellant contended that deductions under Chapter VIA of the Act should be made from gross total income as per Section 80AB, emphasizing that deductions under heading C should be made from corresponding gross total income. The appellant argued that the Tribunal did not consider this distinction and relied on certain judgments which were not applicable to the case. On the other hand, the respondent's counsel argued that the Tribunal correctly interpreted the provisions of Chapter VIA and Section 80-HHC, stating that the deduction should be made from the corresponding total income.

The Court analyzed the definitions of gross total income and total income under the Act, highlighting that gross total income is the total income before any deductions under Chapter-VIA are made. Referring to Section 80-AB, the Court noted that deductions under heading C should be made from the income of that nature included in the gross total income. The Court emphasized that the stage at which deductions are made can significantly impact the assessee, as it may affect the treatment of unabsorbed losses or depreciation. The Court also compared various sections under Chapter VIA, noting that deductions under Section 80-HHC are to be made from total income, not gross total income, as specified in the Act.

Ultimately, the Court dismissed the appeal, concluding that the deduction under Section 80-HHC should be made from total income, allowing the assessee the flexibility to arrange deductions in a beneficial manner. The Court found the appeal devoid of merits and ordered no costs to be paid. Any pending miscellaneous petitions in the appeal were also closed.

In conclusion, the judgment clarified the interpretation of Section 80-HHC regarding the stage of deduction, emphasizing the distinction between gross total income and total income and providing guidance on the application of deductions under Chapter VIA of the Income Tax Act, 1961.