IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 3036 OF 2010
Versus
1. Dy. Commissioner of Income Tax
2. Commissioner of Income tax
CORAM : J.P. Devadhar &R.M. Savant, JJ.
Reserved on : 21st December, 2010.
Pronounced on : 10th January, 2011.
JUDGMENT: (Per J.P. Devadhar, J.)
1. This appeal was admitted on 23rd August 2010 on two questions of law. However, at the hearing of the appeal, the said two questions were reframed into one question of law, which reads thus :
“Whether the Tribunal was justified in holding that Section 80IA(9) of the Income Tax Act, 1961 mandates that the amount of profits allowed as deduction under Section 80IA(1) of the Act has to be reduced from the profits of the business of the undertaking while computing deduction under any other provisions under heading ‘C’ in Chapter VIA of the Income Tax Act, 1961 ?”
2. The assessment year involved herein is A.Y. 2003-2004.
3. The appellant (herein after referred to as ‘the assessee’) is engaged in the business of manufacture of Empty Hard Gelatin Capsules and PVDC Capsules. For the above business, the assessee has set up four industrial undertakings at Kandivali, Mumbai and two industrial units at Pune. Out of the above industrial undertakings / units, one undertaking at Kandivali, Mumbai and one unit at Pune are eligible for deduction under Section 80IA and Section 80HHC of the Income Tax Act, 1961 (‘the said Act’ for short).
4. In the assessment year in question i.e. A.Y. 20032004, the assessee claimed deduction under Section 80IA at 30 per cent of the profits and gains derived from the business and deduction under Section 80HHC at 50 per cent of the profits derived from the export of goods or merchandise determined on the basis of the formula set out in Section 80HHC of the Act.
5. The assessing officer in his assessment order passed under Section 143(3) of the Act disagreed with the quantum of deduction computed by the assessee under Section 80HHC of the Act. According to the assessing officer, where deduction under Section 80IA is claimed and allowed, then Section 80IA(9) of the Act requires that the quantum of deduction allowable under any section under heading ‘C’ of Chapter VIA has to be computed not on the total profits of the business but on the profits of the business as reduced by the profits of business allowed as deduction under Section 80IA(1) of the Act. In other words, according to the assessing officer, if the assessee is entitled to deduction under Sections 80IA and 80HHC, then, deduction under Section 80IA(1) has to be computed and allowed on the profits of the business and the deduction allowable under Section 80HHC has to be computed on the profits of the business as reduced by the profits allowed as deduction under Section 80IA of the Act.
6. On appeal filed by the assessee, the Commissioner of Income Tax (Appeals) by his order dated 10th May 2005 allowed the appeal, by holding that Section 80IA (9) does not authorize the A.O. to reduce the amount of profits of business allowed as deduction under Section 80IA from the total profits of business while computing deduction under Section 80HHC. According to the Commissioner of Income Tax (Appeals), where the assessee is entitled to deduction under Section 80IA and Section 80HHC, then the deduction under both the Sections have to be computed independently and thereafter, the deduction computed under Section 80IA has to be allowed in full and the deduction computed under Section 80HHC has to be restricted to the profits of the business reduced by the profits allowed under Section 80IA, so that the deductions under both the Sections (80IA and 80HHC in the present case) do not exceed the profits of the business of the undertaking.
7. Challenging the order of the Commissioner of Income Tax (Appeals), the Revenue filed an appeal before the Income Tax Appellate Tribunal (‘Tribunal’ for short). By the impugned order dated 15th December 2009, the Tribunal reversed the decision of the Commissioner of Income Tax (Appeals) by following the Special Bench decision of the Tribunal in the case of Assistant Commissioner of Income Tax V/s. Hindustan Mint & Agro
Products (P) Limited reported in 2009 (119) ITD 107 (Del.). The Tribunal held that Section 80IA(9) affects the computation of deduction under Section 80HHC of the Act and not allowance of deduction computed under Section 80HHC of the Act. Being aggrieved by the aforesaid order of the Tribunal dated 15th December 2009, the assessee has filed the present appeal.
8. Mr. Mistri, learned Senior Advocate appearing on behalf of the assessee and Dr.K. Shivram, Mr.V. Sridharan, Mr.Jitendra Jain as well as Mr. F.B. Andhyarujina, Senior Advocate appearing as Counsel for the intervenors submitted that in the present case, the restriction imposed by Section 80IA(9) is not applicable at the stage of computation of deduction under Section 80HHC (3) but is applicable at the stage of allowing deduction under Section 80HHC (1). It is submitted that plain reading of Section 80IA(9) does not in any way suggest that the deduction allowable under Section 80HHC has to be computed by reducing the amount of profits allowed as deduction under Section 80IA. Referring to Section 80HHB (5), 80HHBA (4), 80HHD (7) and Section 80P(3) of the Act, it is submitted that whenever, the legislature intended that the deduction allowed under one Section shall affect the computation of deduction allowable under other Section, the legislature has specifically stated so. For example, in Section 80HHB(5), it is provided that notwithstanding anything contained in any other provision under heading ‘C’ of Chapter VIA, no part of the consideration or of the income covered under Section 80HHB (1) shall qualify for deduction for any assessment year under any other provision. Similarly, Section 80HHD (7) provides that where a deduction under Section 80HHD (1) is claimed and allowed in respect of profits derived from the business of a hotel, such part of profits shall not qualify to that extent for deduction for any assessment year under any other provisions of Chapter VIA under the heading ‘C’. Since the words ‘such part of profits shall not qualify’ is missing in Section 80IA(9), it is submitted that no inference can be drawn that Section 80IA(9) contemplates that the amount of profits claimed and allowed under Section 80IA has to be deducted from the profits of business while computing deduction under Section 80HHC.
9. It is further contended on behalf of the assessees that the expression ‘profits of the business’ for the purpose of deduction under Section 80HHC is defined in clause (baa) of Section 80HHC. If the legislature intended that the deduction allowed under Section 80IA has to be excluded from the profits of business while computing the deduction under Section 80HHC, then the legislature would have used the non obstante provision as found in Sections 80HHB (5) and 80HHBA (4). It is submitted that unless the restriction is placed by way of non obstante provision, it would not be possible for the Revenue to tinker with the method / manner of computation of deduction allowable under Section 80HHC of the Act.
10. Counsel for the assessees further submitted that the Special Bench of the Tribunal in the case of Hindustan Mint & Agro Products P. Limited (supra) as also in the case of Commissioner of Income Tax V/s. Rogini Garments reported in 108 ITD 49 (Chen) have failed to appreciate that the effect of Section 80IA(9) has to be given at the stage of allowing deduction and not at the stage of computing deduction. Counsel for the assessees submitted that the restriction under Section 80IA(9) is in respect of the amount of profits for which deduction is claimed and allowed under Section 80IA(1). Therefore, in order to apply Section 80IA(9) it is necessary to establish that on the very same amount of profits on which deduction is allowed under Section 80IA(1), deduction is also claimed under any other provisions under the heading ‘C’ of Chapter VIA (in the present case Section 80HHC). There is no material on record to suggest that on the very same amount of profits on which deduction is allowed under Section 80IA(1), the assessee is claiming deduction under Section 80HHC. Therefore, there is no scope for reducing the amount allowed as deduction under Section 80IA from the profits of business while computing deduction under Section 80HHC.
11. Counsel for the assessees further submitted that the deduction under Section 80IA is computed on the basis of profits and gains derived by an eligible undertaking, whereas, deduction under Section 80HHC is based on the profits and gains derived by an assessee from the export of goods and merchandise, as computed under the head profits and gains of the business of the assessee. Thus, the basis for deduction under Section 80IA and 80HHC are totally different. Therefore, the restriction imposed under Section 80IA(9) has no relation to the computation of deduction under Section 80HHC.
12. Counsel for the assessees further submitted that Section 80HHC comprehensively set out the method of computation of deduction and the conditions to be fulfilled for allowing deduction under Section 80HHC. In the case of a manufacturer exporter, the deduction under Section 80HHC (1) is to be computed by applying the formula set out under Section 80HHC(3) (a) as follows :
