Case Law Details

Case Name : ACIT Vs M/s. Micro Labs Ltd. (Supreme Court of India)
Appeal Number : Civil Appeal no. 7427 of 2012
Date of Judgement/Order : 10/12/2015
Related Assessment Year :
Courts : Supreme Court of India (343)

Brief of the Case

Supreme Court held In the case of ACIT vs. M/s. Micro Labs Ltd. that – As per first thought of opinion, Section 80-IA (9) is quite unambiguous, which clearly provides that if an assessee claims any deduction under the provisions of Section 80-IA, then the assessee cannot claim deduction to the extent of such profits and gains under heading ‘C’ of Chapter VIA of the Act, which, in the present case, was claimed and wrongly allowed to the Assessee. Section 80HHC, which pertains to deduction in respect of profits and gains from export business, is included under heading ‘C’, of Chapter VIA of the Act.

As per second thought of opinion, Bombay High Court has rightly pointed out that there is a difference between allowing a deduction and computation of deduction. The two have separate and distinct meanings. Computation of deduction is a stage prior and helps in quantifying the amount, which is eligible for deduction. Sub-section (9) to Section 80IA does not bar or prohibit the deduction allowed under Section 80IA from being included in the gross total income, when deduction under Section 80HHC (3) is computed. The expression “shall not be allowed” cannot be equated with the words “shall not qualify” or “shall not be allowed” in computing deduction. The effect thereof would be that while computing deduction under Section 80HHC, the gross total income would mean the gross total income before allowing any deduction under Section 80IA or other sections of part C of Chapter VIA of the Act. But once the deduction under Section 80HHC has been calculated, it will be allowed, ensuring that the deduction under Section 80HHC and 80IA when aggregated do not exceed profits and gains of such eligible business of undertaking and enterprise.

Facts of the Case

The question which had to be considered by the Tribunal as well as by the High Court was whether, while considering the deduction under the provisions of Section 80-IA or/and 80-IB, the Assessee is also entitled to the deduction in respect of the profits and gains under the provisions of Section 80HHC or whether the Assessee is entitled to deductions under all the three Sections in respect of the same profits. Upon perusal of the Sections and looking at the facts of the case, the Tribunal had come to the conclusion that the Assessee was not entitled to deductions under Sections 80HHC and 80-IB but the High Court did not agree with the said conclusion arrived at by the Tribunal and decided in favour of the Assessee. The case of the Revenue is that looking at the provisions of the sections; the Assessee is not entitled to the deductions under all the 3 Sections of the Act.

On this subject, different views have been taken by different High Courts and therefore, this appeal had been admitted. The High Court of Bombay has decided cases in favour of the Assessee whereas a different view has been taken by the High Court of Delhi.

Contention of the Assessee

The ld counsel of the assessee submitted that the view expressed by the High Court is absolutely correct. According to the learned counsel, the statute wants to give deduction to the Assessee in respect of both the activities, namely in respect of export of goods as well as with respect to infrastructure development etc. and as the assesses in all the cases are engaged in the business of export as well as in the business of infrastructure development etc., the assesses are entitled to claim deductions in respect of export business as well as infrastructure development activities, etc. According to the learned counsel, if there is any confusion or any ambiguity in the tax law, benefit thereof should be given to the assessee and the High Court of Karnataka and some other High Courts in the country had rightly permitted the assesses to claim deductions under both the Sections.

Contention of the Revenue

The ld counsel of the revenue submitted that the intention behind enactment of the all three Sections of the Act was to see that no assessee gets deductions twice under the provisions of the aforestated Sections. In nutshell, the submission on behalf of the Revenue was that having once obtained deduction under the provisions of Sections 80-IB or/and 80-IA of the Act, no assessee can then avail deductions under Section 80HHC of the Act in respect of the same profits. It had been specifically stated on behalf of the Revenue that Section 80-IA(9) of the Act had been amended with effect from 1st April, 2000 so as to see that the total deduction does not exceed total profits and gains of the business and in respect of the same profits, deductions under Section 80HHC and Sections 80-IA or 80-IB together cannot be allowed.

The learned counsel appearing for the Revenue had read and tried to interpret each of the aforestated Sections and specifically put his emphasis on that part of the Section which prevents the assessee from taking advantage of having deductions from both of the Sections. The learned counsel had, thus, submitted that by virtue of the provisions of Section 80-IB (13), the provisions applicable to industrial undertakings to whom deductions under Section 80-IA are granted, would also apply to certain extent. By virtue of the aforestated provisions of Section 80-IB (13), provisions of Section 80-IA (9) would also apply to the industrial units who claim benefit of deduction under Section 80-IB of the Act. According to the learned counsel, Section 80-IA (9) is clear to the effect that once a deduction is claimed under Section 80-IA, no deduction can be claimed under heading ‘C’ of Chapter VIA. Section 80HHC is included in heading ‘C’ of Chapter VIA and therefore, if an assessee claims and is allowed deduction under Section 80-IA or Section 80-IB, he cannot be allowed any deduction under Section 80HHC or any other Section that falls under heading “C” of Chapter VIA of the Act.

Held by Supreme Court

Supreme Court held that High Court of Karnataka is not right when it decided to allow deductions in respect of same profits under Section 80HHC as well as under Section 80-IA or Section 80-IB. One can very well see from the provisions of Section 80-IA(9) that if an Assessee is engaged in infrastructure development as well as in the export business, he cannot claim deduction of his entire profits and gains under the provisions of Section 80HHC as well as under Section 80-IA or/and Section 80-IB.

Section 80-IA(9) is quite unambiguous, which clearly provides that if an assessee claims any deduction under the provisions of Section 80-IA, then the assessee cannot claim deduction to the extent of such profits and gains under heading ‘C’ of Chapter VIA of the Act, which, in the present case, was claimed and wrongly allowed to the Assessee. Section 80HHC, which pertains to deduction in respect of profits and gains from export business, is included under heading ‘C’, of Chapter VIA of the Act.

In my opinion, the High Court was in error while permitting the Assessee to get benefit in respect of Section 80HHC as it did not take into account the fact that the profits in respect of which deduction was allowed under Section 80HHC had also been previously allowed under Section 80-IB. In my opinion, this is not permissible under Section 80-IB (13) read with Section 80-IA (9) because by virtue of Section 80-IB(13) provisions of Section 80-IA(9) are also applicable to Section 80-IB.

Accordingly appeal decided in favour of revenue.

Second thought of opinion

The first part of sub-section (9) to Section 80IA refers to the computation of profits and gains of an undertaking or enterprise allowed under Section 80IA in any assessment year and the amount so calculated shall not be allowed as a deduction under any other provisions of this Chapter. It is in this context that the Bombay High Court has rightly pointed out that there is a difference between allowing a deduction and computation of deduction. The two have separate and distinct meanings. Computation of deduction is a stage prior and helps in quantifying the amount, which is eligible for deduction. Sub-section (9) to Section 80IA does not bar or prohibit the deduction allowed under Section 80IA from being included in the gross total income, when deduction under Section 80HHC (3) is computed.

In this context it has been held that the expression “shall not be allowed” cannot be equated with the words “shall not qualify” or “shall not be allowed” in computing deduction. The effect thereof would be that while computing deduction under Section 80HHC, the gross total income would mean the gross total income before allowing any deduction under Section 80IA or other sections of part C of Chapter VIA of the Act. But once the deduction under Section 80HHC has been calculated, it will be allowed, ensuring that the deduction under Section 80HHC and 80IA when aggregated do not exceed profits and gains of such eligible business of undertaking and enterprise.

The legislature has used the expression “shall not qualify” in Section 80HHB (5) and 80HHD (7), but the said expression has not been used in sub-section (9) to Section 80IA. The formula prescribed in sub-section (3) to Section 80HHC is a complete code for the purpose of the said computation of eligible profits and gains of business from exports of mercantiles and goods. It has reference to total turnover, turnover from exports in proportion to profits and gains from business in clause (a) and so forth under clause (b) and (c) of Section 80HHC(3) of the Act. In case the gross total income is reduced or modified taking into account the deduction allowed under Section 80IA, it would lead to absurd and unintended consequences. It would render the formula under sub-section (3) to Section 80HHC ineffective and unworkable.

In view of the aforesaid analysis, the interpretation placed by the High Court of Bombay is correct and, accordingly, dismiss the appeals preferred by the revenue and allow the appeals preferred by the assessee.

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Posted Under

Category : Income Tax (20858)
Type : Judiciary (8910)