2015 (11) TMI 495 - SC - Income Tax

Entitlement to deduction under section 80HH - deduction allowed on gross or net income - Held that - As decided in Motilal Pesticides (I.) Pvt. Ltd. Versus Commissioner of Income-Tax 2000 (2) TMI 9 - SUPREME Court that deduction is to be allowed only on the net income and not on the gross income. The finding in paragraph 4 in Motilal Pesticides (supra) that the language of Section 80 -HH and Section 80 -M is the same is, with respect, prima facie, incorrect. Conceptually, any income and profits and gains are different under the Income Tax Act. The matters be placed before the Hon ble Chief Justice of India to constitute an appropriate Bench to consider the correctness of the judgment in Motilal Pesticides (supra).

Summary

Issues involved:
1. Interpretation of Section 80-HH of the Income Tax Act, 1961.
2. Whether the Assessee was entitled to deduction under Section 80-HH on gross profit or net income.
3. Comparison of Section 80-HH and Section 80-M.
4. Analysis of the judgments in Cloth Traders (P) Ltd. v. CIT and Distributors (Baroda) Pvt. Ltd. v. Union of India.
5. Consideration of the application of Section 80-AB with reference to Section 80-HH.

Issue 1: The judgment dealt with the interpretation of Section 80-HH of the Income Tax Act, 1961, in relation to Assessment Year 1979-1980 and Assessment Year 1980-1981. The High Court of Rajasthan had followed a previous judgment of the Supreme Court in Motilal Pesticides (I) Pvt. Ltd. v. Commissioner of Income Tax, Delhi -II. The argument presented was regarding the distinction between "profits and gains" and "income," highlighting that they are not synonymous terms under the Act.

Issue 2: The main question was whether the Assessee was entitled to deduction under Section 80-HH on the gross profit or net income for Assessment Year 1979-80. The Court analyzed the language of Section 80-HH, which refers to "any profits and gains derived from," and compared it with Section 80-M, which uses the term "any income." The Court discussed precedents related to deductions on gross total income versus net income, citing cases like Cloth Traders (P) Ltd. v. CIT and Distributors (Baroda) Pvt. Ltd. v. Union of India.

Issue 3: The judgment compared Section 80-HH with Section 80-M, noting the difference in language used in the two sections. It discussed the historical interpretation of "any income" and "profits and gains" in the context of the Income Tax Act, highlighting the conceptual distinction between the two terms in the legal framework.

Issue 4: The Court delved into the judgments in Cloth Traders (P) Ltd. v. CIT and Distributors (Baroda) Pvt. Ltd. v. Union of India to analyze the evolution of interpretations regarding deductions under different sections of the Income Tax Act. It highlighted the significance of the language used in each section and how it impacts the eligibility for deductions.

Issue 5: The judgment considered the application of Section 80-AB with reference to Section 80-HH and discussed previous cases like H.H. Sir Rama Varma v. CIT to explore the relevance of different sections concerning deductions under the Act. The Court decided to refer the matter to the Hon'ble Chief Justice of India to constitute an appropriate Bench to review the correctness of the judgment in Motilal Pesticides.