Deduction to be allowed under any other provision of Chapter VI-A with the heading ‘C’ is to be reduced by amount of deduction allowed u/s. 80-IB/80-IA

RELEVANT EXTRACTS:

1.  This Special Bench was constituted on the recommendation of the regular Bench which was hearing above appeals. The controversy relates to the computation of deduction u/s 80HHC to an assessee (industrial undertaking) after it has been allowed deduction u/s 80-IB of the Income Tax Act.  In other words, the effect of provision of Section 80-IA(9) introduced w.e.f. 1.4.1999 is to be seen.

2.  Earlier Special Bench (ITAT ‘D’ Bench) at Chennai in the case of ACIT Vs Rogini Garments (2007) 108 ITD 49 was constituted to consider similar controversy when conflict of views between different benches of ITAT was found. The Special Bench after hearing both the parties had held that where deduction u/s 80HHC as also u/s 80-IA are claimed for AYs 1999-2000 and 2002-03, then relief allowed u/s 80-IA is to be deducted from profits and gains of assessee’s business on which relief u/s 80HHC of the Act is to be computed.  After the above Special Bench, the Hon’ble Madras High Court in the case of SCM Creations decided the same question and took a view which some benches thought was different from the view taken by Special Bench in the case of Rogini Garments.  It was thought by these benches that Rogini Garments is no more applicable after the decision of SCM Creations (supra).  The referral Bench hearing these appeals noticed that Delhi ‘F’ Bench of the Tribunal, in case of Sarla Fashions & Modi Exports (ITA No. 1799 & 1085/D/06 for AY 2001-02 and 2002-03), decided a similar view in favor of the assessee in the light of above decision of Hon’ble Madras High Court. Similarly, Delhi Bench of the Tribunal in the case of Anil Kumar Rastogi Vs ACIT and Stanrose Mesowares (P) Ltd. Vs ACIT  (ITA No. 2465/D/07 and ITA No. 1567/D/07) respectively took a similar view in favour of the taxpayer.  Above case fell under the jurisdiction of Allahabad High Court.  The Revenue had submitted before the referral Bench that Delhi Tribunal in above cases committed an error in not properly considering the decision of the Hon’ble Madras High Court in the case of SCM Creations.  The revenue further relied upon the decision of the Delhi Bench in the case of Modi Exports Vs ACIT 24 SOT 526 where the case of SCM Creations (supra) was held to be not applicable.  Several other Benches have held that applicability of Special Bench decision in the case of Rogini Garments was not affected by decision of Hon’ble Madras High Court in the case of SCM Creations.  The referral Bench, in the light of conflict of views of different benches, thought it proper to refer the matter to the President for constitution of a larger special bench.  Accordingly, a Special Bench of five Members was constituted to consider the following question:-

“Whether in view of the provisions of Section 80-IA(9) read with Section 80IB(13), the deduction of income under Chapter VI-A can be allowed on the entire profit and gains of an undertaking or an enterprise of an assessee or it is to be allowed on such profit and gains as are reduced by the deduction claimed and allowed under section 80IB/80IA.”

18. The legislature by Finance (No.2) Act 1998 w.e.f. April 1, 1999 introduced the following provision as sub-section (9) of section 80-IA:-

“Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

80-IA(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.”

The provision has been made applicable to S.80IB by insertion of sub-section 13 noted above.

19. The above provision seems to have been introduced after taking note of observations of their lordships in the case of J.P. Tobacco (P) Ltd. Vs CIT and other similar decisions noted above.  The Madhya Pradesh High Court had held that “no such provision was made in so far as Section 80-IA was concerned.”  Courts have elaborately discussed that under sub-section (9) of Section 80HH and other provisions only priorities of deduction under different sections were fixed.  In order to meet the lacuna pointed out by High Courts, the legislature added sub-section (9) in section 80-IA and a provision (sub-section 13) with a similar effect in Section 80-IB of the Act.  It is therefore evident that there was change in the legislative policy.  The mischief was sought to be removed.  To the extent deduction allowed u/s 80-IA or for that matter in Section 80-IB was not to be allowed under any other provision of the Chapter under the heading “C – Deductions in respect of certain incomes” (hereinafter deduction under ‘C’ chapter VI-A).  In other words, deficiency in the provision pointed out by the Hon’ble High Court in the case of J.P. Tobacco Products Pvt. Ltd. and in other cases noted above was covered and a specific provision to the above effect was made.  It is not in dispute that in the case of J.P. Tobacco Products Pvt. and other decisions, no question of consideration of provision (80-IA)(9) arose as these cases pertained to Asstt. Years earlier than Asst. Year 1999-2000. In the case S.C.M. Creations (supra), as noted above, ld. Representative of the parties did not bring to the notice of their lordships the change in the statutory provision. The case was decided on concession by ld. Representative of parties. Applicability of section 80-IA(9) or similar provision u/s 80-IB was not considered by the Hon’ble Court. The case pertained to an assessment year after 1.4.99, yet the pre- amended law was applied. This fact is quite evident from the decision quoted above and is not in dispute.

19.1   Legal position of such a decision, as a binding precedent is quite clear.  In the case of B.Bhama Rao vs Union Territory of Pondicherry AIR 1967 SC 1480, their Lordships of Supreme Court stated as under:-

“It is trite to say that a decision is binding not because of its conclusions but in regard to its ratio and the principles laid down therein.  Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be declaration of law or authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law.”

The above principles have been again applied in large number of cases by the Supreme Court and by various High Courts.  For the sake of convenience, we can refer to the case of State of U.P. Vs Synthetics and Chemicals Ltd. (1991) 4 SCC 139.

19.2 Further, in the case of CIT Vs Kelvinator India Ltd. 256 ITR 1, the full Bench observed as under:-

“A decision as is well known, is an authority for the proposition that it decides and not what can logically be deduced therefrom.  A point not raised nor argued at the Bar cannot be said to be the ratio of the decision.”

20. The full Bench also observed as under:-

“It is a well settled principle of interpretation of statute that the entire statute should be read as a whole and the same has to be considered thereafter chapter by chapter and then section by section and ultimately word by word.”

20.1   In the light of above settled proposition, it cannot be said that decision of Hon’ble Madras High Court is an authority for the proposition how  provisions of section 80-IA(9) made applicable w.e.f. Asstt. Year 1999-2000 is to be applied.  Effect and implementation of above provision was neither raised, nor examined nor decided by the Hon’ble Madras High Court.  The later decision of Madras High Court in the case of M/s General Optics (Asia) Ltd. Vs DCIT(A) decided on 27.12.08 has made our task easier.  In the said case, similar question was raised and the Tribunal, after following the decision of Special Bench in the case of Rogini Garments, had allowed deduction u/s 80HHC after deducting relief allowed u/s 80-IA(9).  Their lordships in the judgment noted provision of sub-section (9A) as also Circular of CBDT No. 772 and ultimately observed as under:-

“8.  The decision in ACIT Vs M/s Rogini Garments of the Special Bench, which was followed by the Tribunal, relates to the period subsequent to the date when the Amendment came into effect. Therefore, the Tribunal erred in applying it to the assessment year 1998-99 when the Amendment had not yet come into effect.

9. In these circumstances, the substantial question of law is answered in favor of the assessee, but restricting it only to the assessment year 1998-99.  This clarification is necessary since the impugned order was passed for both assessment years 1998-99 and 1999-2000.

Tax case (Appeal) is disposed of accordingly.  No costs.  Consequently, connect M.Ps. are closed.”

20.2  It is clear from above that application of restrictions as upheld by the Special Bench in the case of M/s Rogini Garments was held to be applicable from AY 1999-2000 onward. In the light of above discussion, we hold that decision of Hon’ble Madras High Court in the case of SCM Creation Vs ACIT did not impinge upon the ratio of Special Bench in the case of Rogini Garments (supra).  It is accordingly held that benches of the Tribunal, which have taken a view contrary to the view of Rogini Garments did not correctly appreciate the legal position.  The mere fact, that SLP against the decision in the case of J.P. Tobacco and other decisions noted above was not filed or was dismissed, does not improve the situation in favor of the assessee. None of the decisions of the Hon’ble High Courts and the Hon’ble Supreme Court are applicable here as provision of Section 80IA(9), with which we are concerned, was not relevant in those cases.  For the aforesaid reasons, we  hold that the special bench decision in the case of Rogini Garments is fully applicable. In the light of above discussion and when comprehensive decision of the special bench is already available on record, we are of the view that further discussion of the question is not necessary. However, to meet ends of justice, we would briefly comment on other submissions of the assessees and the interveners.

20.3   It was submitted that computation of deductions under both the provisions like Section 80-I & 80HHC is to be made independently and for this purpose, reference was made to Section 80AB of the I.T.Act. In other words, it was contended that deductions u/s 80-IA and Section 80HHC were to be computed independently and, thereafter, adjustments were called for only if total deduction exceeded 100% of the profits and gains of eligible business of undertaking or enterprise.  If deduction under both the provisions computed independently did not exceed profits and gains of eligible business, there was no question of placing any restriction on the deduction permissible u/s 80HHC or any section in the same chapter under the heading “C”.  In this connection, reliance was placed on Circular of CBDT No. 772 dated 23.12.98 which has been noted earlier.  Reliance was also placed on several other decisions noted above.  It was contended that provisions of section 80AB and other provisions were not correctly appreciated by the special bench.

21.    After careful consideration of rival submissions, we find that above arguments were considered and rejected in Rogini Garments for good reasons.  We are not persuaded to take a view different from the one taken by the Special Bench.  On consideration of  provisions of Section 80-IA(9), we find that there are two restrictions in the statutory provision under consideration.  These are :-

a)     where an assessee is allowed deduction under this section (80-IA or 80-IB), deduction to the extent of such profit and gain shall not be allowed under any other provision of this chapter (Heading “C – Deduction in respect of certain incomes”),  AND

b)     deduction shall in no case exceed the profit and gain of the undertaking or hotel as the case may be.

22.     The contention on behalf of the assessee and intervener is that total deductions under various sections should not exceed profits and gains of undertaking.  We are unable to accept this contention.  It is seen that CBDT Circular No. 772 clarified and only dealt with (b) above and did not deem it necessary to make reference to restriction (a).  In order to accept the contention of the assessee, we would have to exclude portion of the provision covered by (a) and ignore the restriction placed therein.  Why such course should be adopted when words used by the legislature, “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” are quite clear and unambiguous and are to be given effect to as rightly contended by the revenue. The profit or gains of industrial undertaking, which has already been allowed as a deduction u/s 80-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 it is 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.

23.      The statutory provision of Section 80AB, no doubt, provides that deduction under each section of Chapter VI-A is to be computed independently. But as laid down by the full bench decision of the Delhi High Court, not only the total scheme of the statute but scheme of every section is to be read and interpreted and every word given proper meaning.  In several sections under Chapter VI-A, it is provided that if deduction is allowed under that Section, then no deduction under any other section under chapter VI-A would be allowed.  Thus, where deduction under such specific section has been claimed and allowed, there is no need to compute deduction permissible under other sections of Chapter VI-A.  It would be a futile and useless exercise.  Therefore, no question of computing deduction in above circumstances would arise and section 80AB would have no application.  The Section provides no solution to the problem where deduction is to be computed under more than one section of Chapter VIA.  It cannot follow that other sections providing modification or change in manner or mode of computation are to be ignored.  There are several sections like Section 80HHA, 80HHA(5), 80HHA(6) providing manner of deductions or preferential treatment to one deduction over another when assessee is entitled to deduction under more than one section of Chapter VI-A.  It is provided that effect shall first be given to a particular section.  All the sections are to be read together harmoniously.  The fact that section 80AB starts with a non-obstante clause does not make any difference as we see no conflict in various provisions.  Restriction placed on double deduction of same eligible profit cannot be read as absurdity or conflict.  Having regard to above provisions, putting ban on allowability of deduction under other sections, computation of deduction under those sections would serve no purpose.  It can not follow from above that restriction of those sections are not to be given effect to as scheme in those sections is different from scheme of Section 80AB which starts with non-obstante clause “Notwithstanding anything……”  Arguments advanced on behalf of the assessee, if accepted, would lead to complications not envisaged by the legislature. We find it difficult to accept them.  Therefore, in a case where deduction u/s 80-IA has been allowed, then in the light of provisions of sub-section (9A), such profits and 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% is allowed as a deduction u/s 80-IA or 80-IB, then for purposes of other provisions like Section 80HHC, on such 20% of profit, no deduction can be allowed.  The deduction under other sections has to be computed after reducing such profit of 20%.  In other words, it will be computed with reference to 80% of the profit.  Such deduction cannot be governed by Section 80AB alone as it is a case in which deductions under more than one section of Chapter VIA 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 VIA is applicable.  Therefore, provision of Section 80-AB is of no assistance in resolving the problem in hand.

24.     The ld. Counsel for the assessee further contended that where legislature intended to deduct the amount of deduction out of some other deduction, a different phraseology was used.  Ld. Counsel referred to sub-section (5) of Section 80HHB, sub-section (4) of Section 80HHBA and sub-section (4) of 80-IE and submitted that in all these provisions, the legislature had specifically used “non-obstante” clause whereas no overriding effect has been given in section 80-IA or 80-IB.  The difference in language clearly pointed out that the legislature did not intend that deduction allowed under above provisions should be deducted from relief permitted by other sections.

25.     On careful consideration, we do not find any substance in above argument.  It is a settled law that legislature adopts different ways and means in order to achieve its goal and there is no justification for insistence on identical language.  What is required to be seen is the language employed, which, if clear and unambiguous, is to be given effect to. We are not concerned here with other provision but on plain reading of sections involved, we clearly see the restrictions discussed above. The Special Bench in the case of Rogini Garments did not find any difficulty in understanding and interpreting sub-section (9) of Section 80-IA as words of the provision are plain, clear and unambiguous.  On plain reading of the statutory provision, we entirely agree with the view expressed by the Special Bench in case of Rogini Garments.

26.     It was contended that provision of section 80HHC was a special provision providing an incentive to exporters earning precious foreign exchange for the country whereas Sections 80-IA or 80-IB cover a totally different field.  Therefore, reading of provision of Section 80-IA(9) in Section 80HHC would only lead to an apparent conflict.  Such a conflict has to be avoided.  It was further submitted that all statutory provisions should be read together and given a harmonious and reasonable construction to avoid contradictions.  It was submitted that instead of literal interpretation, a liberal interpretation should be applied to avoid part of statute becoming meaningless or redundant. Reference was made to interpretation of statute by Justice G.P. Singh and to several other decisions of Supreme Court noted above.

27.     On careful consideration of above submissions, we do not find any force in them.  We agree that all the provisions should be read together and given a harmonious construction.  All provisions are inter-related and cannot be read de hors one and other.  The Special Bench in the case of Rogini Garments has held that the restriction imposed by sub-section (9) on account of 80-IA is to be read in all the provisions of Chapter VI-A and it is not possible to ignore the restriction that profit and gains claimed and allowed as exempt under sub-section (9), (to the extent allowed) can not be allowed under any other provision of chapter ‘C’.  Above construction in reading restriction in all relevant provisions under chapter ‘C’, in our opinion, is leading to no contradiction or absurdity and is reasonable.  It is the legislative policy not to allow repeated deduction of same profit under sections of deductions in Chapter VI-A.   We, therefore, see no conflict or contradiction in giving effect to the legislative mandate. Doing otherwise would, no doubt, be doing violence to the clear language.  The argument is accordingly rejected.

28.     Ld. Representative of the assessee and interveners also laid stress to notes of objects and reasons pertaining to introduction of sub-sections (9), & (13) in Section 80-IA, and 80-IB.  Our attention was also drawn to Circular of CBDT No. 772 dated 23.12.1998 to emphasise that legislature only intended to limit deduction under all the provisions to 100% of eligible profit.  In other words, the intention was to see that total amount of deduction under all the provisions of Chapter-VI should not exceed the eligible profit.  It was not intended to impose restriction or deduct profit allowed under Section 80-IA /80-IB from deduction permissible u/s 80HHC.  Decision relied upon for above provisions have already been noted above and considered in detail.

29.     Having done so, we are unable to find any substance in the argument advanced on behalf of the taxpayers.  The notes on objects and accompanying reasons are only an aid to construction. Such aid to construction is needed when literal reading of provision leads to ambiguous results or absurdity.  Where language is clear and there is no ambiguity or absurdity, notes on clauses need not be referred to.  Therefore, on facts, we do not see any support for the assessee from notes on clauses of the Finance Act.  As regards Circular No. 772 dated 23.12.1998, we have already held that the said Circular was dealing with restriction (b) which provided that deduction (under other provision with heading “C”), “shall in no case exceed profit and gains of business or hotel as the case may be”.  The above portion of the Section is separated from the other portion of the sub-Section by word ‘and’.  It is, therefore, clear that there are two restrictions in the sub-section and circular of the Board is dealing only with the second restriction.  It is difficult to accept that circular was issued to do away with first restriction incorporated in the provisions.  There is absolutely no justification for allowing repeated deductions on profit and gain on which deduction has been allowed u/s 80-IA or 80-IB of the Act. The Special Bench in the case of Rogini Garments rightly held that repeated deductions of same profit and gains of undertaking was not intended to be disallowed.  Above conclusion, in our opinion, was rightly arrived at and is confirmed.

30.     Shri Ajay Vohra counsel for the intervener in ITA No. 1537 to 1539/D/07, in ITA No. 4409/D/03 and ITA No. 1827/D/07 had submitted that there was no provision contained in Section 80HHC requiring deduction of amount of business profit allowed as deduction u/s 80-IA/80-IB.  The amount on which deduction u/s 80HHC is to be allowed is prescribed in Explanation to Section 80HHC.    He emphasized that purpose and object of inserting sub-section (9) of Section 80-IA was to restrict total deduction available under Chapter VI-A to the amount of total eligible profit of the business.  He also placed certain illustration in his submissions to show how taxpayer should not be entitled to deduction of more than 100% of eligible profit.

31.     Shri Vohra also drew our attention to difference in language used in sub-section 80HH(9A) and 80HHA(7) where the expression used is different and is, “no part of the consideration or of income shall qualify for deduction for any assessment year under any such other provision”.  He argued that above language clearly provided that deduction allowed u/s 80HH or 80HHA shall not qualify for deduction under any other provision of Chapter VI-A. The legislature deliberately used different language u/s 80-IA which clearly showed that purpose of Section 80-IA(9) not to deduct the deduction allowed but was to restrict overall deduction under Chapter VI-A to 100% of eligible profit of eligible undertaking or enterprise.

32.     We have considered and discussed above submissions of Shri Vohra,  but have not found any force in them.  In our considered opinion, the language used in Section 80-IA(9)/80-IB(9A) is clear and unambiguous and is required to be given effect to.  Deduction of profit and gains allowed u/s 80-IA/80-IB is not to be allowed again under any other provision.  There is then further restriction on total deduction not exceeding eligible profit of the undertaking.  No useful purpose would be served in repeating what we have observed above.

33.     Shri Vohra then contended that Section 80HHC and 80-IA or 80-IB operate in different fields inasmuch as Section 80HHC is applicable only to all eligible units exporting goods or merchandise whereas Section 80-IA or 80-IB is applicable only to all eligible units even if goods manufactured in those units are not exported, and in that event, the question of reducing deduction allowed u/s 80-IA or 80-IB would not arise.  Shri Vohra had placed reliance on decision of Hon’ble Bombay High Court in the case of Godrej Agrovet Ltd. Vs ACIT 290 ITR 252.  As far as this limited issue is concerned, we are inclined to agree with the submission advanced by Shri Vohra.  Restriction contained in Sections 80-IA or 80-IB not to allow repeated deductions are applicable to same profit.  This is more than clear from use of word “such profit” in Section 80-IA/80-IB. In other words, there has to be identity of profits on which deduction under more than one provision under Chapter VI-A is claimed by the assessee. The provisions are applicable where on the profit of the undertaking or enterprise, deduction is claimed u/s 80-IA or 80-IB and then on the same profit of the undertaking, deduction under other provisions like 80HHC is claimed. In such cases, restriction contained in above provisions would apply. If profits are derived from separate undertaking, restriction contained in above provision would not be applicable.

34. Shri Vohra also relied upon decision of Supreme Court in the case of Brittania Industries Ltd. Vs CIT 278 ITR 546 to contend that section 80-IA (9) can not control the mechanism of computing the deduction u/s 80HHC(3) of I.T. Act. He further submitted that where assessee was found that provision allowing deduction of assumption is applicable, then those provisions are to be interpreted liberally. Reliance was placed on decision of Supreme Court in the case of P.R. Prabhakar Vs CIT 284 ITR 548.

35. We have already dealt with above contention. In our considered opinion, all statutory provisions are inter-related and are part of one scheme. This cannot be read de hors one and other. Restriction imposed in Section 80-IA(9)/80-IB(9A) are to be read in all sections and given effect to. This would only give harmonious reading. The decision of Supreme Court relied upon by Shri Vohra also support above proposition although they do not deal with Section 80-IA/80-IB of the Act. We are unable to find any substance in above argument of the learned counsel.

36. Shri Vohra, on the applicability of the decision of Hon’ble Madras High Court in the case of SCM Creations (supra), submitted that principle of sub-silencio rule could not be applied to the decision. The aforesaid decision of High Court being decision of a superior court has to be given preference over the decision of Rogini Garments (Special Bench). In support of this contention, it was submitted that even decision of non-jurisdictional High Court is to be given preference over the Special Bench decision. In this connection, reliance was placed on the decision of Madhya Pradesh High Court in the case of National Textile Corporation Ltd. vs CIT (2208) 171 Taxman 339 (M.P.) as also on the decision of Hon’ble Delhi High Court in the case of All India Lakshmi Commercial Bank Officers Union vs. Union of India 150 ITR 1. Shri Vohra also submitted that certain observations of the bench of ITAT in the case of Nodi Exports Vs ACIT, Moradabad, clearly exceeded its jurisdiction.  After careful consideration of decision of Hon’ble Madras High Court in the case of SCM Creations (supra), we have already held that the said decision cannot be treated as a precedent. The issue has been discussed threadbare and those reasons need not be repeated again. Observations of Hon’ble Madras High Court in the later decision dated 20.12.08 in case of General Optics (Asia ) Ltd. (supra) has put the controversy beyond any shadow of doubt. In the above case, amendment brought w.e.f. 1.4.99 introducing Section 9 and (9A) in 80-IA and 80-IB respectively were clearly noticed. These amendments were not brought to the knowledge of the Hon’ble Court in the case of  SCM Creations. Therefore, there is no question of super session of Special Bench decision in the case of Rogini Garments. The said decision is applicable with full force. We do agree that correct propositions in the case Nodi Exports are overstated. There is no question of Tribunal not following and applying decision of superior court.  The question involved here is whether decision of SCM Creations can be treated as a precedent. For the reasons already given, the said decision did not lay down that section 80-IA(9) or 809-IB(13) should be disregarded while computing deduction u/s 80HHC or other deduction under Chapter ‘C’ of  VI-A.

37. We accordingly hold that deduction to be allowed under any other provision of Chapter VI-A with the heading ‘C’ is to be reduced by amount of deduction allowed u/s 80-IB/80-IA of the I.T. Act. We answer the question referred to the Special Bench in the affirmative i.e. in favor of the revenue.