Case Law Details
Tata International Limited Vs ACIT (Madras High Court)
In the case of Tata International Limited Vs ACIT, the Madras High Court examined the method of computing deductions under Sections 80IB and 80HHC of the Income Tax Act for Assessment Year 2003-04.
The assessee, a private limited company engaged in the manufacture and export of leather goods including shoe uppers and full shoes, filed its return declaring income of Rs.16,53,065/-. It claimed deductions of Rs.72,77,912 under Section 80HHC and Rs.58,27,020 under Section 80IB.
The Assessing Officer completed the assessment under Section 143(3) by first deducting the amount claimed under Section 80IB from the business profits and then allowing deduction under Section 80HHC only on the remaining income. Consequently, deduction under Section 80HHC was restricted to Rs.39,29,201.
The assessee challenged this computation before the Commissioner of Income Tax (Appeals), arguing that the Assessing Officer had wrongly applied Sections 80IB and 80IA to reduce the deduction under Section 80HHC. However, the CIT(A) upheld the assessment by relying on decisions of the ITAT Special Bench. The Income Tax Appellate Tribunal also dismissed the assessee’s appeal and held that deduction under Section 80IB must first be granted and only thereafter deduction under Section 80HHC could be computed on the remaining income.
Before the High Court, the assessee contended that the method adopted by the authorities was contrary to the principles laid down by the Supreme Court in M/s Shital Fibers Ltd. vs Commissioner of Income Tax [(2025) 174 com 807 (SC)], which dealt with computation of deductions under Chapter VIA, particularly Sections 80IA, 80IB, and 80HHC. The assessee sought remand of the matter for fresh consideration in light of the Supreme Court judgment.
The Revenue agreed that if remanded, the reassessment should be confined to deductions under Sections 80IB and 80HHC.
The High Court held that the impugned tax demand was not based on proper computation of income in light of the Supreme Court ruling in Shital Fibers Ltd. Accordingly, it set aside the ITAT order and remanded the matter to the Assessing Officer for fresh computation of taxable income after granting deductions under Sections 80IB and 80HHC in accordance with the Supreme Court’s dictum. The tax case appeal was allowed and the matter remanded for reassessment.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The appellant is a Private Limited Company formerly known as ‘M/s Bachi Shoes India Pvt Ltd’. This company is engaged in the business of manufacturing and export of Leather goods including shoes uppers and full shoes. For the Assessment year 2003-2004, it filed return of income declaring income of Rs.16,53,065/-. The appellant arrived this income claiming deduction of Rs.72,77,912/- under Section 80 HHC and besides claiming deduction of Rs.58,27,020/- under Section 80 IB, from the gross income.
2. The Assessing Officer completed the assessment under Section 143(3) determining the total income at Rs.50,01,780/-. Inter alia, for computing the deduction under Section 80 HHC, he first deducting Rs.58,27,020/- (claimed under Section 80 IB by the assessee) from the profits of the business and thereafter, allowed only Rs.39,29,201/- as deduction under Section 80 HHC.
3. The assessee preferred appeal before CIT(A) contending that the Assessing Officer has misapplied the provisions of Section 80 IB r/w Section 80 IA to reduce the deduction under Section 80 HHC. However, the CIT(A) confirmed the view of the Assessing Officer by relying on the decision of the ITAT Special Bench rendered in Leben Laboratories Limited –vs- DCIT in ITA No:2850/Mum/04. Further appeal filed by the assessee before the ITAT was also dismissed by following the decision of the Special Bench in the case of ACIT –vs- Rogini Garments reported in [294 ITR (AT) 15 (SB)].
4. The Tribunal confirmed the order of the assessing officer and the appellate authority by holding , the deduction under Section 80 IB to be given effect prior to deduction under Section 80 HHC. Thereafter, only if any positive income is arrived at after giving effect to the deduction under Section 80 IB, then deduction under Section 80 HHC will be computed for the remaining income. In other words, deduction under Section 80 IB and Section 80 HHC cannot be done simultaneously from the gross income. It should be one after the another. While computing the taxable income, the claim of deduction under Section 80 HHC cannot be on the gross income. The deduction under Section 80 IB should be granted from profits and gains of the business. Thereafter, from the remaining balance, relief under Section 80 HHC should be granted.
5. Against the above method of computing the income and deductions claimed under Sections 80 HHC and 80 IB postulated by the Tribunal, the assessee is before this Court questioning the same as infirm and contrary to the spirit of law meant for providing tax concessions for industries involved in exports and earning foreign exchange.
6. On considering the conflicting views regarding the method of computing the taxable income, the following Substantial Question of Law framed for consideration:-
Whether the Tribunal was right in holding that the relief u/s 80 IB should be deducted from profits and gains of business before computing relief u/s 80 HHC of the Income Tax Act?
7. The Learned Counsel appearing for the appellant/assessee submitted that the mode of computing deductions claimed under Chapter VI A of the Act been considered by the Hon’ble Supreme Court at length in M/s Shital Fibers Ltd –vs- Commissioner of Income Tax reported in [(2025) 174 com 807 (SC)]. The Hon’ble Supreme Court has laid down the guidelines, how to compute the deductions mentioned in Chapter-VIA of the Income Tax Act, 1961 particularly under Sections 80 IA , 80 IB and Section 80 HHC.
8. In the case in hand, the Tribunal has affirmed the view of the assessing officer and the appellate authority, the computation of taxable income by first deducting under Section 80 IB (deductions in respect of profit and gains from industrial undertaking other than infrastructure development undertaking) and thereafter deducting the claim under Section 80 HHC ( deduction in respect of profits retained for export business) from the balance of profit and gain instead of, the gross profit and gains. This method of computing taxable income is apparently in deviation to the method of computing approved by the Supreme Court in M/s Shital Fibers Ltd case (cited supra). Hence, he prays for remand back the matter to the Assessing Officer to reconsider the return of income afresh by the assessee company, in the light of the guidelines laid by the Hon’ble Supreme Court in M/s Shital Fibers Ltd. case (cited supra).
9. The Learned Senior Standing Counsel for the respondent submitted that if the matter is to be remanded back to the Assessing Officer, the reassessment shall be restricted in respect of deductions claimed under Section 80 IB and 80 HHC, in the light of M/s Shital Fibers Ltd., case and shall not expand the scope of remand any further.
10. Considering the rival submissions and the judgment of the Hon’ble Supreme Court rendered in M/s Shital Fibers Ltd –vs- Commissioner of Income Tax reported in [(2025) 174 com 807 (SC)], in our view the impugned tax demand is not based on proper computation of income. Hence, it has to be set aside.
11. As a result, we set aside the order of ITAT in ITA No:643/Mds/2007 dated 11/04/2008 and remand back the matter to the Assessing Officer for computation of taxable income after giving due deductions under Section 80 IB and Section 80 HHC as per the dictum laid by the Hon’ble Supreme Court in M/s Shital Fibers Ltd. case (cited supra) and pass order as per law.
12. In fine, the Tax Case Appeal by the assessee stands allowed and the matter is remanded back for re-assessment as directed above. No order as to costs.
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