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TMI Blog2010 (11) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... led to claim and is allowed deduction of certain amount of the profits and gains under Section 80IA of the Act, whether deduction to the extent of such profits claimed under Section 80IA would not be allowed for computing deduction under Section 80 HHC or whether the profits and gains are to be computed and deduction undertaken independently all over again, irrespective of the deduction already claimed and allowed under Section 80 IA of the Act. This question revolves around the interpretation which is to be given to sub-Section (9) of Section 80IA of the Act and that provision reads as under: "(9) Where any amount of profits and gains of an {undertaking} or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading "C-Deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of {undertaking} or enterprise, as the case may be". 2. It is manifest that a the plain reading of the aforesaid provision suggests that the amount of profits and gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 80JJ, no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals. (4) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 1 0B or section 10BA or in any provisions of this Chapter under the heading "C-Deductions in respect of certain incomes", where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be. (5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, before making any deduction under this Chapter. 5. A conjoint reading of Section 80A (2) and 80B (5) would bring out the fact that various deductions provided in this Chapter are to be computed on the "gross total income‟. It also follows that where such gross total income is found to be a net loss in the year concerned, no deduction under this Chapter is to be allowed. 6. The contours and scope of the scheme contained in Chapter- VIA has come up for discussion before various High Courts. Interplay of Section 80HHC and 80-I involving same kind of issue first came up for consideration before Madhya Pradesh High Court and was discussed elaborately in its decision contained in J.P. Tabacco Private Limited Vs. Commissioner of Income Tax, 229 ITR 123 (M.P.). The question which was framed for the opinion of the Court, in that case was of following nature :- "Whether the Tribunal is right in law in holding that the deduction under section 80-I is to be allowed on balance of income after deducting the relief under section 80HH from gross total income and not from gross total income as defined in Section 80B (5) of the Act ?" 7. The Court answered the question in the negati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the income reduced by the amount allowed under Section 80HH. In the result, we find that the Tribunal was not right in holding that deduction under Section 80I is to be allowed only on the balance of the income after deducting the relief under Section 80HH from the gross total income and accordingly we answer the said question in favour of the assessee and against the Revenue". 8. Special Leave petition against this decision was dismissed by the Supreme Court. (See 245 ITR (ST) 71). The Judgment of Madhya Pradesh High Court was thereafter repeatedly followed by the same Court as well as other High Courts. All these judgments were taken note of by the Supreme Court in JCIT Vs. Mandideep Engineering and Packaging India Private Ltd. 292 ITR 1 (SC) which passed the following short and crisp order in that case:- "1.The point involved in the present case is whether sections 80HH and 80-I of the Income-tax Act, 1961, are independent of each other and therefore a new industrial unit can claim deductions under both the sections or the gross total income independently or that deduction under Section 80HH can be taken on the reduced balance after taking into account the benefit taken un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deals with preliminary definitions by defining various expressions used in the Act subject to the context of the issue. Chapter II deals with the basis of charge for levying income tax and additional income tax and deals with charging of the tax of income and the scope of total income determined for the purpose of computation of income and certain other matters. Chapter III deals with the incomes which do not form part of the total income at all. Chapter IV deals with computation of total income from different sources. For this purpose it divides the sources of income in six sub-heads on the basis of which income from each source is to be computed. Part D of Chapter IV deals with the computation of income from profits and gains of business or profession with which we are concerned. Chapter E deals with computation of capital gains and Part F deals with the income from other sources. Remaining Part A and Part C dealing with income from salaries and from house property respectively. Part B of Chapter IV which dealt with the income from interest on securities has since been deleted. Part D of Chapter IV deals with computation of profits and gains of business or profession providing w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under that Chapter. The Court noted that the "gross total income" was assigned a special meaning under this Chapter by defining the same in Section 80B (5) of the Act. The Court then took note of the provisions contained in Section 80 AB of the Act which read as under:- "Section 80AB:- Where any deduction is required to be made or allowed under any Section (except section 80M) included in this Chapter under the heading "C.--Deductions in respect of certain incomes" in respect of any income of the nature specified in that Section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income." 12. Interpreting Section 80 B (5) and Section 80 AB of the Act together, the Court opined that once the gross total income is computed, no further deduction there from was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contained in para A of Chapter VIA, on the basis of aforesaid judgments can be summed up as under:- (a) In general the statute does not prescribe any order of priority in which the various deductions are to be allowed. Therefore deductions can be claimed by an assessee so as to ensure to his best advantage. There are however, a few places where the statute indicates a priority and these have to be given effect to. (b) Each relief under each section of Chapter VI-A is a separate one. Each relief operates in a separate realm to fulfill different economic or social objectives. When an assessee is entitled to more than one relief, each relief has to be independently determined. The Courts have held that one relief cannot be abridged or diluted by any other relief which assessee may be rightly entitled. The amendment: 14. So far so good. However, what needs to be highlighted at this stage is that in all these judgments, the Courts were concerned with the assessment years for the period prior to 1st April, 1999. With effect from 1st April, 1999 amendments were made by inserting Clause-9 in Section 80 IA and clause 13 in Section 80 IB. These provisions read as under:- "80-IA (9): W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b Section 9 in Section 80 IA has made a clear departure and legislative intent is manifest in this provision namely once the deduction is claimed under Section 80-IA in respect of certain amount of profits and gains, "to the extent of such profits and gains", deduction shall not be allowed and this has to be reduced while computing deduction under other provisions namely Section 80 HHC in the instant cases. Conflicting views of ITAT and the decision of the Special Bench: 18. This controversy has received attention at the hands of various Benches of the Tribunal. In view of conflicting opinions a three member Special Bench of Chennai ITAT was constituted in the case of ACIT Vs. Rogini Garments (2007) 294 ITR 15. Before the decision of Special Bench of Chennai ITA various Division Benches had, in the past, dealt with the issue and decided it mainly in favour of assessee for reasons recorded therein. The Special Bench in case of Rogini Garments essentially being influenced by the literal interpretation of the provisions of Section 80-IA (9), held that the relief under Section 80-IA should be deducted from the profits and gains of business before computing relief under section 80HHC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n base from "gross total income" to "net income". Thus ITAT‟s interpretation would render sections 80AB and 80B (5), inert, lifeless and redundant. Furthermore, Clause (baa) to Explanation 4 to Sec. 80HHC would become also lifeless. She pointed out that the Supreme Court has held that section 80AB has been given an overriding effect over all other sections in Chapter VIA of the Act {IPCA Laboratory Ltd. Vs. DCIT (2004) 266 ITR 521 (SC) and in the case of CIT Vs. Shirke Constructions Equipment Ltd. 291 ITR 380 (SC)}. 23. Continuing her submission along this line, Ms. Kapila contended that unlike the language in Section 80AB, the provision of Section 80IA (9) does not contain a non-obstante clause so as to supersede the non-obstante provision of Sec. 80AB, or Section 80B (5). If the provision of Section 80 IA (9) are to be read as diluting all deductions under the heading „C‟ by computing them on reduced profits after deducting relief u/S 80IA or 80IB, then such interpretation would be in manifest contradiction to the provisions of Section 80AB which overrides all the provisions of Chapter VIA and which specifically provide by way of non-obstante clause that in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of existing provisions of the Act by claiming repeated deductions in respect of the same amount of eligible income, even in cases where it exceeds such eligible profits of an undertaking or a hotel, in built restrictions in section 80HHD and 80 IA have been provided by amending the section, so that such unintended benefits are not passed on to the appellant. 3. These amendments will take effect from 1-4-1999 and will accordingly, apply in relation to assessment year 1999-2000 and subsequent years". 26. She argued that this Circular made it abundantly clear that the only and limited object of the amendment to Section 80IA (9) was to ensure that an assessee does not claim more than 100% of deductions by claiming multiple deductions on same profits and gains Under Sec. 80 IA and 80 IB under certain circumstances 100% deduction is available on profits of an undertaking. In cases where the assessee is eligible for deduction under more than one section then deduction will be restricted to 100% of the eligible profits. In this way limbs (a) and (b) of the Sec. 80 IA (9) amendment get harmonized. 27. She also stressed o the binding nature of Circulars issued by CBDT and constitute conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 23.3.1998 of CBDT. 31. Mr. Kanan Kapoor argued in the same vein with added passion and additionally highlighted that wherever benefit granted under one provision is to be reduced in other provisions, specific language to this effect is used in those proceedings and gave the following examples:- "Section 80P (3): In a case where the assessee is entitled also to the deduction under Section 80 HH or Section 80HHA or Section 80 HHB or Section 80 HHC, or Section 80 HHD or Section 80-I or Section 80-IA or Section 80J or Section 80 JJ, the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under Section 80 HH, Section 80 HHA, Section 80 HHB, Section 80 HHC, Section 80HHD, Section 80-I, Section 80-IA Section 80 J and Section 80JJJ" "80Q (2): In a case where the assessee is entitled also to the deduction under Section 80HH or Section 80HHA or section 80HHC or section 80-1 or section 80-IA or section 80J or section 80P, in relation t any part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. She submitted that the expression "profit derived from‟ has received judicial recognition. It has been repeatedly held by the Apex Court in various decisions that incomes which have first degree nexus with the eligible business would be regarded as profits and derived from the eligible business and hence would qualify for deduction under the said section (refer CIT Vs. Sterling Foods; 237 ITR 579 (SC) , Pandian Chemicals Vs. CIT: 262 ITR 278 (SC) Liberty India Ltd: 317 ITR 218 (SC)). In other words, the amount forming the basis of deduction under the said section (including sections 80-IA/IB) is an artificial figure, computed having regard to the principles laid down in the said judgments. 36. Coming specifically to the provision, which is the centre of discussion controversy, her submission was that on a careful consideration of the provision of sub section (9) of section 80 IA of the Act, it will be noticed that the said sub section has three limbs, as under:- (a) Where any amount of profits and gains of an undertaking is claimed and allowed under this section for any assessment year; (b) deduction to the extent of such profits shall not be allowed under any other pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o mean that they are independent of each other. It was categorically laid down that a new industrial unit can claim deduction under Section 80 HHC as well under Section 80-IA of the Act (or for that matter any other provision of this Chapter) on the gross total income independently and for granting deduction under Section 80-I of the Act, the said income was not to be reduced balance after taking into account the benefit under Section 80 HH of the Act. The legal position was that the statute did not prescribe any order of priority in which the various deductions are to be allowed as each relief under each section of Chapter -VI A was separate one, the assessee could be entitled to more than one relief, and each relief was required to be independently determined. The question is as to whether insertion of sub Section (a) of Section 80 IA and sub-Section (13) of Section 80-IB of the Act has made any difference to this position. Though we have already reproduced these provisions in the earlier part of this judgment, we are extracting these provisions again to maintain proper sequential continuity in our discussion:- "80 IA (9) Where any goods held for the purposes of the eligible busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove. It would, therefore, be clear that this provision aims at achieving two independent objectives delineated above. It cannot be limited to second objective alone thereby annihilating the first altogether and making it otiose. If we accept the contention of learned counsel for the assessees, it would lead to this result which has to be avoided. 44. Law on interpretation is clear. If the language of the statute is plain and capable of one and only one meaning, that obvious meaning is to be given to the said provision. Rules of interpretation are applied only if there are ambiguities when the purpose of interpretation is to ascertain the intention of the law i.e. mens legis, it is based on assertion by adopting plain meaning of the statute in the absence of any ambiguity. 45. No doubt, we are in the era of purposive interpretation, which means: to understand the purpose with which that a particular provision was enacted or inserted by the legislature. Unfortunately, for the assessees, even when we view the matter from that angle, we find that the purpose behind introducing this provision was to ensure that an assessee does not get deduction on the amount of profits and gains acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re quite clear and unambiguous and are to be given effect to as rightly contended by the Revenue. The profits or gains of industrial undertaking, which has already been allowed as a deduction under Section 90-IA, such profit (to the extent) cannot be taken into consideration for allowing deduction under any other provision of this Chapter "C". If profit which has already been allowed as a deduction is again taken into consideration for computing deduction under any other provision referred to above, then restriction (a) above is disregarded and ignored. It cannot be done without doing violence to the language of the provision. We see no justification for adopting a course prohibited by the Legislature. It is not possible to ignore the restriction placed as (a) nor is it possible to accept that in Circular No. 772, there is a suggestion to ignore restriction (a) mentioned above. As per the settled law, courts and Tribunals must see the mandate of the Legislature and give effect to it as rightly argued by the Revenue. Therefore, restriction (a) above, has to be respected and followed." 48. With regard to the submission of the counsel of the assessees based on section 80 AB of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gains (to the extent) shall not be allowed under any other provision of the relevant Chapter. For example, if total profit of undertaking is Rs. 100 and 20 per cent is allowed as a deduction under section 80-IA or 80-IB, then for purposes of other provisions like section 80HHC, on such 20 per cent of profit, no deduction can be allowed. The deduction under other sections has to be computed after reducing such profit of 20 per cent. In other words, it will be computed with reference to 80 per cent of the profit. Such deduction cannot be governed by section 80 AB alone as it is a case in which deductions under more than one section of Chapter VI-A is to be allowed. Adjustment of deductions under various sections is to be made. It is not a case where provision before making any deduction under Chapter VI-A is applicable. Therefore, provision of Section 80 AB is of no assistance in resolving the problem in hand." We entirely agree with the aforesaid meaning given to Section 80 AB of the Act. 49. Here, we would like to deal with one submission of the learned counsels for the assessees, which was spearheaded by Ms. Kapil, Advocate. She emphatically argued that in view of a non-obstan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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