Case Law Details
J. Creations Vs ACIT (Madras High Court)
The Madras High Court heard an appeal arising from Assessment Year 2004-05 concerning the computation of deductions under Sections 80-IB and 80-HHC of the Income Tax Act, 1961. The assessee had filed its return declaring total income of Rs. 59,96,390. During scrutiny assessment, the Assessing Officer treated interest of Rs. 1,23,569 earned on bank deposits as “Income from other sources” and denied deduction under Section 80-HHC on such income.
The assessee succeeded before the Commissioner of Income Tax (Appeals), who held that the interest income from fixed deposits was assessable under the head “Business” and not “Other sources”. The appellate authority also held that Section 80-IB(9) merely regulates deductions under Chapter VI-A and does not restrict other deductions, directing that deduction under Section 80-HHC be allowed on the eligible profits without reducing the deduction granted under Section 80-IB.
The Revenue challenged the appellate order before the Income Tax Appellate Tribunal. The Tribunal partly allowed the Revenue’s appeal. It held that assessing the interest income as business income while excluding 90% of such income from business profits for the purpose of computing deduction under Section 80-HHC was in accordance with the directions of the High Court. On the issue of simultaneous deductions under Sections 80-IB and 80-HHC, the Tribunal decided in favour of the Revenue by following the Special Bench decision in Asstt. CIT, Circle-I, Tirupur v. Rogini Garments [2007] 108 ITD 49/111 TTJ 274 (Chennai).
The assessee appealed before the Madras High Court. At the time of admission, the Court framed two substantial questions of law: first, whether the relief under Section 80-IB should be deducted from the profits and gains of business before computing relief under Section 80-HHC; and second, whether the Tribunal erred in not considering the assessee’s alternative contention that deduction under Section 80-HHC should first be granted, followed by deduction under Section 80-IB.
During the hearing, both parties placed before the Court the judgment of the Supreme Court in Shital Fibers Ltd. v. CIT (SC), which was stated to cover the issues involved. The High Court reproduced the relevant observations of the Supreme Court explaining the scope of Sections 80-HHC, 80-IA and 80-IB, particularly the effect of Section 80-IA(9).
The Supreme Court’s observations, as reproduced by the High Court, explain that Section 80-HHC grants deduction in respect of profits retained from export business, while Sections 80-IA and 80-IB provide deductions in respect of profits and gains derived from specified industrial undertakings and businesses. Referring to Section 80-IA(9), the Supreme Court observed that where deduction of profits and gains has been claimed and allowed under Section 80-IA, deduction to the extent of such profits and gains cannot be allowed again under any other provision under Heading “C” of Chapter VI-A. However, Section 80-IA(9) does not require the deduction already allowed under Section 80-IA to be reduced from the gross total income while computing deductions under other provisions. The restriction operates only to prevent double deduction of the same profits and gains and ensures that total deductions under Heading “C” do not exceed the profits and gains of the eligible business.
In view of the authoritative pronouncement of the Supreme Court in Shital Fibers Ltd. v. CIT (SC), the High Court held that the matter required reconsideration. It remanded the case to the Assessing Officer for recomputation of the tax payable by applying the principles laid down by the Supreme Court. As regards the second substantial question of law, the Court held that it was only an alternative plea and, in light of the remand, found it unnecessary to answer that question.
Accordingly, the High Court set aside the order of the Tribunal and remanded the matter to the Assessing Officer for recomputation of all taxes payable by the assessee in accordance with the Supreme Court’s directions. The appeal was disposed of without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The appellant herein, for the assessment year 2004-2005, has filed its Return, admitting the total income of Rs.59,96,390/-. The assessment was taken up for scrutiny and it was completed by treating the interest of Rs.1,23,569/- earned on Bank Deposit as taxable under the head “Income from other sources” and the deduction was denied under Section 80-HHC on such income. Aggrieved by the said order, the assessee had preferred appeal before the Commissioner of Income Tax (Appeals)-II, Coimbatore. The said appeal was allowed in favour of the assessee treating interest income on Fixed Deposit assessable under the head “business” and not under the head “other sources”.
2. Regarding the simultaneous deduction under Section 80-IB and Section 80-HHC, the appellate authority held that the provisions of Section 18-IB(9) are only to regulate the deduction eligible under Chapter VI-A and there is no restriction contained therein to regulate the other deductions.
3. Assailing the said finding, the Revenue preferred appeal before the Income Tax Appellate Tribunal in I.T.A.No.1544/Mds/06 (Assessment Year 2004-2005). The Tribunal partly allowed the appeal holding that the order of the appellate authority is not in consonance with the direction of this Court, and therefore, assessing interest income as business income was made, excluding 90% from the business profits for computing the deduction under Section 80-HHC, is correct.
4. Regarding the direction of the appellate authority to the Assessing Officer to allow the deduction under Section 80-HHC on the eligible profits without reducing the deduction given under Section 80-IB and held in favour of the Revenue, by following the order of the Special Bench of the Tribunal in the case of Asstt. CIT, Circle-I, Tirupurv. Rogini Garments [2007] 108 ITD 49/111 TTJ 274 (Chennai). Being aggrieved, the assessee is before this Court by filing this appeal.
5. At the time of admitting this appeal on 12.12.2007, along with connected T.C.A.Nos.1518 and 1519 of 2007, the following substantial questions of law were framed:
(i) Whether the relief under Section 80-IB should be deducted from profits and gains of business before computing relief under Section 80-HHC ?
(ii) Whether the Tribunal erred in failing to deal with the appellant’s alternative submission admittedly raised before it, to the effect that the appellant should first be granted a deduction under Section 80-HHC of the Act and thereafter, a deduction under Section 80-IB of the Act ?
6. In the course of hearing this appeal, learned counsel on either side placed before this Court, a judgment of the Honourable Supreme Court in the case of Shital Fibers Ltd. v. CIT (SC), which covers the substantial questions of law involved in this appeal. The Honourable Supreme Court in the above said case, held as follows:
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“16… … Section 80-HHC provides for a deduction in respect of profits retained for export business. The provision is applicable to a company or a person engaged in business of export out of India of any goods or mercantile to which the Section applies. In computing the total income, the assessee is entitled to deduction to the extent of percentage of profits set out in Subsection (1B) of Section 80 HHC.
17. Section 80-IA deals with deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. Sub-section (1) provides that when the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in Sub-section (4), in computing total income, the assessee will be entitled to deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive years.
18. Section 80-IB deals with deductions in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. The deduction under said provision is applicable when gross total income of an assessee includes any profit or gain derived from any business mentioned in various Sub-sections of Section 80-IB. An assessee is entitled to a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in the Section.
19. In this context, now the provision of Subsection (9) of Section 80-IA must be considered. Sub-section (9) of Section 80-IA reads thus:
“(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.
Let us analyse Sub-section (9). It is applicable where any amount of profits and gains of an undertaking or enterprise is claimed and allowed under Section 80-IA. As stated earlier, the deduction is to the extent of percentage of profits and gains derived from certain category of business. Sub-section (9) of Section 80-IA provides that the deduction to the extent of profit or gain shall not be allowed under any other provisions under heading ‘C’ of Chapter VI-A. It is further provided in Subsection (9) that in no case, the deduction allowed under any other provision of Chapter VI-A under the heading ‘C’ shall exceed profits and gains of such eligible business of undertakings or enterprise, as the case may be.
20. Therefore, on plain reading of Subsection (9) of Section 80-IA, if a deduction of profits and gains under Section 80-IA is claimed and allowed, the deduction to the extent of such profits and gains in any other provision under the heading ‘C’ is not allowed. The deduction to the extent allowed under Section 80-IA cannot be allowed under any other provision under heading ‘C’. Therefore, if deduction to the extent of ‘X’ is claimed and allowed out of gross total income of ‘Y’ under Section 80-IA and the asssessee wants to claim deduction under any other provisoin under the heading ‘C’, though he may be entitled to deduction ‘Y’ under the said provision under the heading ‘C’, though he may be entitled to deduction ‘Y’ under the said provision, he will get deduction under the other provisions to the extent of (Y-X) and in no case total deductions under heading ‘C’ can exceed the profits and gains of such eligible business of undertaking or enterprise.
21. Sub-section (9) of Section 80-IA, on its plain reading, does not provide that when a deduction is allowed under Section 80-IA, while considering the claim for deduction under any of the provision under heading ‘C’, the deduction allowed under Section 80-IA should be deducted from the gross total income. The restrictions under sub-section (9) of Section 80-IA is not on computing the total gross income. It restricts deduction under any other provision under heading ‘C’ to the extent of the deduction claimed under Section 80-IA.”
7. In view of the above authoritative pronouncement of the Honourable Supreme Court in the said Shital Fibres Limitedcase (supra), the matter has to be remanded back for re-computing the tax by following the dictum laid down by the Apex Court in the said Shital Fibres Limited case (supra).
8. Hence, in respect of the first substantial question of law, the matter is remanded back to the Assessing Officer to re-compute the tax payable by following the dictum of the Honourable Supreme Court laid down in the above said Shital Fibres Limitedcase (supra).
9. Insofar as the second substantial question of law, is concerned, it is only an alternative prayer. In view of the above findings and directions, there is no necessity to answer the second substantial question of law.
10. In the result, the impugned order of the Tribunal is set aside. The matter is remanded back to the Assessing Officer for re-computing all the taxes payable by the assessee, in the light of the above direction of the Honourable Supreme Court.
11. With the above observations/direction, this appeal is disposed of. There shall be no order as to costs.
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