Income Tax Deductions u/s 80IA and 80HHC can be Claimed Together Subject to 100% Profit Cap: Madras HC
The Madras High Court ruled that deductions under Sections 80IA and 80HHC can be claimed together as long as the total deduction does not exceed 100 percent of business profits
In a recent ruling, the Madras High Court held that deductions under Sections 80IA and 80HHC of the Income Tax Act, 1961 can be claimed together, subject to the condition that the total deduction does not exceed 100 percent of the profits of the business, and that Section 80IA(9) restricts the allowability of deductions and not their computation. The Commissioner of Income Tax,...
In a recent ruling, the Madras High Court held that deductions under Sections 80IA and 80HHC of the Income Tax Act, 1961 can be claimed together, subject to the condition that the total deduction does not exceed 100 percent of the profits of the business, and that Section 80IA(9) restricts the allowability of deductions and not their computation.
The Commissioner of Income Tax, Chennai, filed a tax case appeal before the Madras High Court challenging the order passed by the Income Tax Appellate Tribunal, Chennai Bench, for the assessment year 2004–05. The appeal was filed under Section 260A of the Income Tax Act against the Tribunal’s order dated 17 September 2010.
The respondent, Mohan Breweries and Distilleries Ltd, had claimed deductions under both Section 80IA and Section 80HHC in respect of the same business profits. The Assessing Officer allowed the deductions. Later, the Commissioner of Income Tax invoked revisionary powers under Section 263, holding that the assessment order was erroneous and prejudicial to the interests of revenue on the ground that deduction under Section 80HHC should have been reduced by the amount already allowed under Section 80IA.
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Aggrieved by the revision order, the assessee approached the Income Tax Appellate Tribunal, which set aside the order passed under Section 263. The revenue then carried the matter to the High Court, raising substantial questions of law on whether simultaneous deductions under Sections 80IA and 80HHC were permissible in view of Section 80IA(9).
The revenue counsel argued that Section 80IA(9) bars double deduction on the same profits and that the Tribunal erred in not following the earlier Madras High Court decision in General Optics (Asia) Ltd. It was argued that the deduction under Section 80HHC should have been reduced by the amount already granted under Section 80IA.
The assessee’s counsel argued that the issue stood settled by judgments of the Supreme Court. They argued that deductions under Sections 80IA and 80HHC can be allowed simultaneously, subject only to the restriction that the total deduction does not exceed the profits of the business.
The Division Bench comprising Justice Dr. Anita Sumanth and Justice Mummimeni Sudheer Kumar observed that both parties agreed that the issue was covered by binding decisions of the Supreme Court. The court observed that the Supreme Court, in ACIT v. Micro Labs Ltd, had approved the view taken by the Bombay High Court in Associated Capsules (P) Ltd.
The court explained that Section 80IA(9) does not affect the computation of deductions under other provisions but restricts their allowability to ensure that the aggregate deduction does not exceed 100 percent of the profits. The court pointed out that the provision was introduced to prevent excess deductions and not to deny multiple deductions altogether.
The court answered all the substantial questions of law in favour of the assessee and against the revenue. The tax case appeal was dismissed, and no costs were awarded.
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