Supreme Court Clarifies S. 80-IA(9) of Income Tax Act Does not affect Computability of Cumulative Deductions [Read Judgement]

The Supreme Court held that Section 80-IA (9) of the Income Tax Act  does not alter the computation of deductions under other provisions and further ruled that deductions under Sections 80-IA/80-IB of the Act need not reduce the gross total income before computing deductions under other provisions like Section 80-HH for export profits.

The three judge bench comprising Justices Abhay S Oka, Ahsanuddin Amanullah and AG Masih observed

“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 restriction 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.”

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Shital Fibers Limited , the appellant had claimed deductions under Section 80-HHC (export profits) and Section 80-IA/80-IB (industrial profits). Reassessment proceedings under Section 147 of the IT Act were initiated in respect of the said Assessment Year by the order dated 10th December 2008 by the Assistant Commissioner of Income-Tax, Range II, Jalandhar.

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However, the Income Tax Department disallowed these claims, contending that Section 80-IA (9) prohibits availing double benefits on the same profits, a view later upheld by the Punjab & Haryana High Court, leading the appellant to approach the Supreme Court.

The appellant stated that there are 33 different provisions under the heading ‘C’ of Chapter VI-A which includes Section 80-HHC, 80-IA, 80-IAB, 80-IB etc and it is possible for the assessee to claim deductions under each of 33 sections. The legislature has allowed each eligible assessee to claim deductions through 33 provisions under heading ‘C’ of Chapter VI-A. He submitted that the real issue is the extent of deduction allowable separately under Section 80-IA and Section 80-HHC and the extent of deduction allowable through each provision and overall deduction allowable by adding them up.

According to Justice Anil R. Dave, before calculating deductions under other sections (such as Section 80-HHC), the deduction under Section 80-IA must first lower gross total income. Justice Dipak Misra disagreed with Justice Dave, ruling that Section 80-IA (9) merely limits the total deduction to not exceeding the qualified earnings and has no effect on how deductions are calculated under other provisions. A split decision resulted in the case being sent to a three-judge bench.

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The Court approved the Bombay High Court's judgment of Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr. (2011) S, where the High Court observed, “we hold that section 80-IA (9) does not affect the computability of deduction under various provisions under heading C of Chapter VI-A, but it affects the allowability of deductions computed under various provisions under heading C of Chapter VI-A, so that the aggregate deduction under section 80-IA and other provisions under heading C of Chapter VI-A do not exceed 100 per cent. of the profits of the business of the assesse.”

The court held that assesses do not have to subtract the Section 80-IA deduction before calculating the Section 80-HHC deduction, i.e., both the deductions can be calculated separately.

The apex court relied on  High Court’s view  that section 80-IA (9) has been introduced with a view to prevent the taxpayers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus, the object of section 80- IA(9) being not to curtail the deductions computable under various provisions under heading C of Chapter VI-A, it is reasonable to hold that section 80-IA(9) affects allowability of deduction and not computation of deduction.

To Read the full text of the Order CLICK HERE

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