Bombay H.C : Whether section 80-IA(9) mandates that profits has to be reduced from the profits of the business of the undertaking

High Court Of Bombay

Associated Capsules (P.) Ltd. Vs. DCIT, Central Circle 43, Mumbai

Assessment Year : 2003-04

Section : 80-IA

J.P. Devadhar And R.M. Savant, JJ.

IT Appeal No. 3036 Of 2010

January 10, 2011

JUDGEMENT

J.P. Devadhar, J. – This appeal was admitted on 23-8-2010 on two questions of law. However, at the hearing of the appeal, the said two questions were re-framed into one question of law, which reads thus :—

“Whether the Tribunal was justified in holding that section 80-IA(9) of the Income-tax Act, 1961 mandates that the amount of profits allowed as deduction under section 80-IA(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 VI-A of the Income-tax Act, 1961 ?”

2. The assessment year involved herein is assessment year 2003-04.

3. The appellant (herein afterreferred 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 80-IA and section 80HHC of the Income-tax Act, 1961 (‘the said Act’ for short).

4. In the assessment year in question i.e. assessment year 2003-2004, the assessee claimed deduction under section 80-IA 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 80-IA is claimed and allowed, then section 80-IA(9) of the Act requires that the quantum of deduction allowable under any section under heading ‘C’ of Chapter VI-A 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 80-IA(1) of the Act. In other words, according to the Assessing Officer, if the assessee is entitled to deduction under sections 80-IA and 80HHC, then, deduction under section 80-IA(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 80-IA of the Act.

6. On appeal filed by the assessee, the Commissioner of Income-tax (Appeals) by his order dated 10-5-2005 allowed the appeal, by holding that section 80-IA(9) does not authorize the Assessing Officer to reduce the amount of profits of business allowed as deduction under section 80-IA 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 80-IA and section 80HHC, then the deduction under both the sections have to be computed independently and thereafter, the deduction computed under section 80-IA 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 80-IA, so that the deductions under both the sections (80-IA 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 15-12-2009, 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 Asstt. CIT v. Hindustan Mint & Agro Products (P.) Ltd. [2009] 119 ITD 107 (Delhi). The Tribunal held that section 80-IA(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 15-12-2009, 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 80-IA(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 80-IA(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 80-IA. Referring to sections 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 VI-A, 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 VI-A under the heading ‘C’. Since the words ‘such part of profits shall not qualify’ is missing in section 80-IA(9), it is submitted that no inference can be drawn that section 80-IA(9) contemplates that the amount of profits claimed and allowed under section 80-IA 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 80-IA 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.) Ltd. (supra) as also in the case of Asstt. CIT v. Rogini Garments [2007] 108 ITD 49 (Chennai) have failed to appreciate that the effect of section 80-IA(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 80-IA(9) is in respect of the amount of profits for which deduction is claimed and allowed under section 80-IA(1). Therefore, in order to apply section 80-IA(9) it is necessary to establish that on the very same amount of profits on which deduction is allowed under section 80-IA(1), deduction is also claimed under any other provisions under the heading ‘C’ of Chapter VI-A (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 80-IA(1), the assessee is claiming deduction under section 80HHC. Therefore, there is no scope for reducing the amount allowed as deduction under section 80-IA from the profits of business while computing deduction under section 80HHC.

11. Counsel for the assessees further submitted that the deduction under section 80-IA 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 sections 80-IA and 80HHC are totally different. Therefore, the restriction imposed under section 80-IA(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 :—

            Export turnover

Deduction under section 80HHC(1) =Profits of the business x —————————–

       Total turnover

In the case of a trader exporter, section 80HHC(3)( b), provides that the deduction under section 80HHC(1) shall be on the export turnover as reduced by the direct costs and the indirect costs attributable to the export of trading goods from the amount of export turnover. Section 80-IA(9) does not seek to disturb the above method of computation of deduction provided under section 80HHC, but it merely seeks to restrict the deduction computed under section 80HHC to the extent of profits of business reduced by the amount of profits allowed under section 80-IA so that the aggregate deduction under heading ‘C’ of Chapter VI-A does not exceed the profits of the business.

13. It is further contended that the two restrictions contained in section 80-IA(9) viz. the deduction allowed under section 80-IA shall not be allowed under any other provisions under the heading ‘C’ of Chapter VI-A and that in no case the deduction shall exceed the profits and gains of such eligible business of undertaking or enterprise have to be read together and on reading so, it becomes clear that the restrictions in section 80-IA(9) are with reference to allowability and not computability of deduction under other provisions in heading ‘C’ of Chapter VI-A of the Act.

14. Referring to the memorandum explaining the reasons for inserting section 80-IA(9) by Finance Bill, 1998 and the Board’s Circular No. 772 dated 23-12-1998, it is contended that the object of inserting section 80-IA(9) was that in certain cases it was noticed that the assessee’s were allowed deduction in excess of the profits and gains of the undertaking and, therefore, with a view to prevent the taxpayer from taking undue advantage of the existing provisions of the Act by claiming repeated deductions in respect of the same amount of eligible income, in-built restriction were provided by introducing section 80-IA(9) so that unintended benefits are not passed on to the assessees. Thus, section 80-IA(9) restriction is with reference to the allowability of deduction and not computation of deduction under other provisions in heading ‘C’ of Chapter VI-A of the Act. In other words, it is argued, that the object of inserting section 80-IA(9) is that where deduction is allowable under section 80-IA(1) and any other provision under heading ‘C’ of Chapter VI-A, then deduction should be first allowed under section 80-IA and the deduction computed under other sections under heading ‘C’ of Chapter VI-A has to be allowed on the profits reduced by the profits allowed under section 80-IA(1), so that the overall deduction shall not exceed the profits and gains of the business of the eligible undertaking.

15. Alternatively, it is contended that if section 80-IA(9) is held to affect the computation of deduction under section 80HHC, then it needs to be considered that the deduction under section 80HHC is not claimed on the profits on which deduction is claimed under section 80-IA. In the present case, deduction under section 80-IA is on one part of the profits, while deduction under section 80HHC is on the profits derived from exports and thus deduction under sections 80-IA and 80HHC are not allowed on the same profit. In this connection, reliance is placed on a decision of the Calcutta High Court in the case of Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219 1, which is upheld by the Apex Court in the case of East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 6272 .

16. Mr. Vimal Gupta, Mr. Suresh Kumar and Mr. Sahadevan, learned Counsel appearing on behalf of the revenue submitted that a plain reading of section 80-IA(9), clearly shows that the deduction to the extent of profits claimed and allowed under section 80-IA cannot be taken into account while computing deduction under section 80HHC. Therefore, the Assessing Officer as well as the Tribunal were justified in reducing the amount of profits allowed as deduction under section 80-IA while computing the deduction under section 80HHC of the Act.

17. Counsel for the revenue further submitted that section 80-IA(9) was introduced to avoid repeated deductions in respect of the same profits claimed and allowed under section 80-IA, which may be eligible for deduction under any other section covered under part C of Chapter VI-A. Section 80-IA(9) is intended to check the misuse of double deduction on the same profits eligible for deduction under Part C of Chapter VI-A. Therefore, to give effect to section 80-IA(9) of the Act, it is necessary to exclude the deduction to the extent of profits claimed and allowed under section 80-IA from the profits available for deduction under section 80HHC of the Act.

18. Relying on the decision of the Apex Court in the case of CIT v. K. Ravindranathan Nair [2007] 295 ITR 228 3, it is submitted by the Counsel for the revenue that section 80HHC is not a self-contained code and hence open to the restrictions and accordingly by inserting section 80-IA(9), the legislature has imposed restrictions on the computation of deduction allowable under section 80HHC. Therefore, the Tribunal was justified in following the Special Bench decision of the Tribunal in the case of Hindustan Mint & Agro Products (P.) Ltd. (supra), wherein it is held that to the extent of the amount of profits of business on which section 80-IA deduction is allowed, no other deduction shall be allowed under any other provisions under Part ‘C’ of Chapter VI-A of the Act.

19. The decision of the Special Bench in the case of Hindustan Mint & Agro Products (P.) Ltd. (supra) has been affirmed by the Delhi High Court in the case of Great Eastern Exports v. CIT [Tax Appeal No. 267 of 2008 decided on 29-11-2010]. Similar view has also been taken by the Kerala High Court in the case of Olam Exports (India) Ltd. v. CIT [2009] 184 Taxman 373 . In these circumstances, it is submitted that similar view be taken in the matter so that there is consistency or uniformity of decision on the question raised in this appeal.

20. Lastly, it is contended on behalf of the revenue that section 80-IA(9) affects whole of section 80HHC and it cannot be said that even though section 80HHC is subject to section 80-IA(9), the manner of computation of deduction under section 80HHC is not affected. It is submitted that the words ‘profits of business’ defined under clause (baa) of the Explanation to section 80HHC would be subject to further restriction contained in section 80-IA(9). It is submitted that the expression ‘profits of business’ under section 80HHC is subject to the restrictions contained in clause (baa) and section 80HHC(4B) and the restriction in section 80-IA(9), if the undertaking avails deduction under section 80-IA. Accordingly, it is submitted that the question raised in this appeal be answered in favour of the revenue and against the assessee.

21. We have carefully considered the rival submissions as also the decisions of two High Courts, wherein similar question has been answered in favour of the Revenue. However, we find it difficult to concur with the views expressed therein for the reasons enumerated hereinbelow.

22. Chapter VI-A of the Act provides for variety of deductions to be made in computing the total income. Chapter VI-A is divided into four parts viz. Part A, B, C & D. Part A (sections 80A to 80B) deals with general provisions, Part B (sections 80C to 80GGC) deals with deductions in respect of certain payments, Part C (sections 80H to 80TT) provides for deductions in respect of certain incomes and Part D (sections 80U to 80VV) deals with other deductions.

23. As per section 80A(2) in part A of Chapter VI-A, the aggregate amount of deduction allowed under Chapter VI-A shall not exceed the gross total income. Thus, the overall deduction allowed under Chapter VI-A cannot exceed the gross total income. However, on noticing that several under- takings were availing deductions under Chapter VI-A within the overall limit of gross total income but exceeding the profits of the undertaking, the legislature introduced sub-section (9A) in section 80-IA by Finance Act, 1998 with effect from 1-4-1999. By Finance Act, 1999, section 80-IA(9A) has been renumbered as section 80-IA(9).

24. The object of amending section 80-IA by Finance Act, 1998 as is evident from the memorandum explaining the provisions in the Finance Bill, 1998 [231 ITR (ST) 252] is that it was noticed that certain assessees were claiming more than 100 per cent deduction on the profits and gains of the same undertaking, when they were entitled to deductions under more than one section under heading ‘C’ of Chapter VI-A. With a view to prevent the taxpayer taking undue advantage of the existing provisions of the Act, section 80-IA was amended by Finance Act, 1998 so that the deductions allowed under section 80-IA and various sections under heading ‘C’ of Chapter VI-A are restricted to the profits of the business of the undertaking/enterprise.

25. There is no dispute that in the present case, the assessee is an undertaking entitled to deduction under section 80-IA 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 of the business. Further, there is no dispute that the deduction under section 80-IA has to be computed on the total profits derived from the business. However, the dispute is in computing the deduction under section 80HHC in view of the insertion of section 80-IA(9) by the Finance Act, 1998. According to the Revenue, section 80-IA(9) mandates that the deduction under section 80HHC has to be computed not only on the profits of the business as reduced by the amounts specified in clause (baa) and clause (4B) of section 80HHC but also by reducing the amount of profits and gains allowed as deduction under section 80-IA(1) of the Act. According to the assessee, even after the introduction of section 80-IA(9), the deduction under section 80HHC has to be computed in the manner specified under section 80HHC on the profits of the business computed under the head ‘profits & gains of business or profession’ as reduced by the amount set out in clause (baa) of section 80HHC/80HHC(4B) as the case may be and there is no scope for reducing the profits of business by the amount of profits allowed under section 80-IA(1) of the Act. According to the assessee, section 80-IA(9) merely affects the allowability of the deduction computed under section 80HHC so that the combined deduction under sections 80-IA(1) and 80HHC does not exceed the profits and gains of the undertaking.

26. To illustrate, if the profits and gains of the eligible undertaking is Rs. 100, the deduction allowable under section 80-IA(1) is 30 per cent and the deduction allowable under section 80HHC is 80 per cent, then accord- ing to the Revenue, deduction to be allowed under section 80-IA would be Rs. 30 (30 per cent of Rs. 100) and in view of section 80-IA(9), the deduction under section 80HHC has to be computed not on the profits of the business of Rs. 100 but on Rs. 70 being the profits of the business reduced by the amount of profits allowed under section 80-IA(1). According to the assessee, deduction under section 80HHC has to be computed on the profits of the business of Rs. 100 and not on Rs. 70 as contended by the Revenue, because, according to the assessee, section 80-IA(9) does not affect the computation of deduction under section 80HHC but affects the allowance of deduction computed under section 80HHC, so that the aggregate deduction does not exceed the profits of the business.

27. The question, therefore, to be considered is, whether section 80-IA(9) seeks to disturb the mechanism of computing the deduction provided under section 80HHC(3) of the Act or section 80-IA(9) comes into operation only at the stage of allowing the deduction computed under section 80HHC, so that the combined deduction under sections 80-IA and 80HHC does not exceed the total profits of the business of the undertaking.

28. Section 80-IA(9) consists of three parts:—

“First Part – where any amount of profits and gains of an undertaking/enterprise is claimed and allowed under section 80-IA(1) for any assessment year, then

Second Part – deduction to the extent of profits and gains allowed under section 80-IA(1) shall not be allowed under any other provisions under heading ‘C’ of Chapter VI-A of the Act; and

Third Part – in no case the deduction allowed shall exceed theprofits and gains of the business of the undertaking enterprise.”

29. The dispute in the present case is, whether the second part of section 80-IA(9) seeks to disturb the mechanism of computing the deduction provided under section 80HHC(3) of the Act ? The second part of section 80-IA(9) provided that the deduction to the extent of profits allowed under section 80-IA(1) shall not be allowed under any other provisions. It obviously means that the deductions that is allowable under other provisions under heading ‘C’ of Chapter VI-A would be allowed to the extent of profits as reduced by the profits allowed under section 80-IA(1). The second part of section 80-IA(9) does not even remotely refer to the method of computing deduction under other provisions under heading ‘C’ of Chapter VI-A. Thus, section 80-IA(9) seeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading ‘C’ of Chapter VI-A of the Act.

30. How to compute deduction allowable under section 80HHC(1) is set out in section 80HHC(3). In the case of a manufacturer exporter, section 80HHC(3)(a) provides that the deduction under section 80HHC(1) has to be computed as per the formula :

            Export turnover

                                   Profits of the business x —————————–

       Total turnover

Clause (baa) in section 80HHC defines the term ‘profits of the business’ for the purposes of section 80HHC to mean the profits of the business as computed under the head ‘profits and gains of business or profession’ as reduced by the amounts specified therein. Therefore, in the case of a manufacturer exporter, deduction under section 80HHC(1) is statutorily required to be computed on the profits of the business as reduced by the amounts specified in clause (baa) of section 80HHC. Unless, it is speci-fically provided by the statute, the profits of the business for the purpose of section 80HHC cannot be reduced by any amount save and except the amount specified in clause (baa) of section 80HHC itself. Section 80-IA(9) of the Act does not expressly or impliedly provide that the amount of profits allowed as deduction under section 80-IA(1) should be reduced from the profits of the business for the purpose of computing deduction under section 80HHC or computing deduction under any other provisions in heading ‘C’ of Chapter VI-A and, therefore, the contention of the revenue to that effect cannot be accepted.

31. In the case of a trader exporter, section 80HHC(3)(b) provides that the deduction under section 80HHC(1) has to be computed on the export turnover reduced by the direct costs and indirect costs attributable to the goods or merchandise exported by the assessee. The argument of the revenue that under section 80-IA(9) the amount of profits allowed under section 80-IA has to be deducted from the profits of business while computing deduction under section 80HHC is accepted, then the section becomes unworkable, because in the case of a trader exporter, the deduction under section 80HHC is computed on the exporter turnover and not on the profits of the business. The words ‘export turnover’ and ‘profits of business’ are separately defined under section 80HHC. Therefore, in the case of a trader exporter, section 80-IA(9) can be applied only after the deduction under section 80HHC(3)(b) is computed. Similarly, in the case of a manufacturer/processor exporter, section 80-IA(9) would be applicable while allowing the deduction computed under section 80HHC(3)(a) of the Act.

32. If the words used in section 80-IA(9) were ‘shall not qualify’, then, probably it could be said that the legislature intended to affect the quantum of deductions computable under other provisions under heading ‘C’ of Chapter VI-A, because the amount that qualifies for deduction alone forms the basis for computing the deduction. The word ‘qualify’ is an expression relatable to the computation of deduction. The word ‘allowed’ is relatable to allowing the deduction that is computed. The word ‘allowed’ cannot be equated with the word ‘qualify’. Since section 80-IA(9) uses the words ‘shall not be allowed’, in our opinion, the section seeks to restrict the allowance of deduction and not the computation of deduction under any other sections under heading ‘C’ of Chapter VI-A of the Act.

33. Wherever the Legislature intended that the deduction allowed under one section should affect the computation of deduction under other provisions of the Act, the legislature has expressly used words to that effect. It may be noted that sections 80HHD(7) and 80-IA(9A) [presently 80-IA(9)] were introduced by Finance Act, 1998 with effect from 1-4-1999. Section 80HHD(7) provides that the deduction allowed under section 80HHD(1) shall not qualify to that extent for deduction under any other provisions of Chapter VI-A under the heading ‘C’, whereas, section 80-IA(9A) provides that the deduction allowed under section 80-IA(1) shall not be allowed under any other provisions of Chapter VI-A under heading ‘C’. Similarly, in section 80-IC(5), the words used are that notwithstanding anything contained in any other provision of the Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or section 10A or section 10B in relation to the profits and gains of the undertaking. Thus, the legislature has used specific words whenever it intended to affect the computation of deduction. As the words used in section 80-IA(9) relate to allowance and not computation of deduction, it cannot be inferred that section 80-IA(9) is inserted with a view to affect computation of deduction under any other provisions under heading ‘C’ of Chapter VI-A.

34. It is well established in law that the language of the statute must be read as it is, and the statute must not be read by adding or substituting the words unless it is absolutely necessary to do so. Since section 80-IA(9) uses the words ‘shall not be allowed’, it is not permissible to read section 80-IA(9) by substituting the above words with the words ‘shall not qualify’ or by adding the words ‘shall not be allowed in computing’ the deduction under any other provisions under heading ‘C’ of Chapter VI-A of the Act. When the plain and simple meaning of section 80-IA(9) can be ascertained from the words used in the section, it would not be proper to construe the section by substituting or adding words as suggested by the revenue.

35. In these circumstances, in our opinion, the reasonable construction of section 80-IA(9) would be that where deduction is allowed under section 80-IA(1), then the deduction computed under other provisions under heading ‘C’ of Chapter VI-A has to be restricted to the profits of the business that remains after excluding the profits allowed as deductions under section 80-IA, so that the total deduction allowed under the heading ‘C’ of Chapter VI-A does not exceed the profits of the business.

36. Strong reliance was placed by the Counsel for the revenue on the Notes on Clauses explaining the reasons for inserting section 80-IA(9A) [presently 80-IA(9)], by Finance Act, 1998, wherein it is stated that the profits allowed under section 80-IA(1) shall not qualify for deductions under any other provisions under heading ‘C’ of Chapter VI-A. As noted earlier, the words used in section 80-IA(9) are ‘shall not be allowed’ and not the words ‘shall not qualify’ or ‘shall not be allowed in computing deduction’ …. Therefore, reading the section 80-IA(9) in the light of the words used in the section, we have no hesitation in holding that the restriction therein relates to the allowance of deduction and not computation of deduction.

37. Strong reliance was also placed by the Counsel for the revenue on the Special Bench decisions of the Tribunal in the case of Rogini Garments (supra) and Hindustan Mint & Agro Products (P.) Ltd. (supra), which are affirmed by the Delhi High Court in the case of Great Eastern Exports (supra). Reliance is also placed on decision of the Kerala High Court in the case of Olam Exports (India) Ltd. (supra) which supports the case of the revenue.

38. We find it difficult to subscribe to the views expressed by the Delhi High Court in interpreting the provisions of section 80-IA(9). In that case, in fact, the Counsel for the revenue had argued (see para 38 of the judgment) that section 80-IA(9) applies at the stage of allowing deduction and not at the stage of computing deduction under other provisions under heading ‘C’ of Chapter VI-A. It was argued that in the matter of grant of deduction, the first stage is computation of deduction and the second stage is the allowance of the deduction. Computation of deduction has to be made as provided in the respective sections and it is only at the stage of allowing deduction under section 80-IA(1) and also under other provisions under heading ‘C’ of Chapter VI-A, the provisions of section 80-IA(9) comes into operation. While accepting the arguments advanced by the Counsel for the Revenue, it appears that the Delhi High Court failed to consider the important argument of the revenue noted in para 38 of its judgment. Moreover, without rejecting the argument of the revenue that section 80-IA(9) applies at the stage of allowing the deduction and not at the stage of computing the deduction, the Delhi High Court could not have held that section 80-IA(9) seeks to disturb the method of computing the deduction provided under other provisions under heading ‘C’ of Chapter VI-A of the Act. In these circumstances, we find it difficult to concur with the views expressed by the Delhi High Court in the case of Great Eastern Exports (supra). For the same reason, we find it difficult to subscribe to the views expressed by the Kerala High Court in the case of Olam Exports (India) Ltd. (supra).

39. In the result, 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 assessee. Our above view is also supported by the C.B.D.T. Circular No. 772 dated 23-12-1998, wherein it is stated that section 80IA(9) has been introduced with a view to prevent the tax-payers 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, it is reasonable to hold that section 80-IA(9) affects allowability of deduction and not computation of deduction. To illustrate, if Rs. 100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80, then, in view of section 80-IA(9), the deduction under section 80HHC would be restricted to Rs. 70, so that the aggregate deduction does not exceed the profits of the business.

40. Accordingly, the appeal is allowed by answering the question raised herein in the negative, that is, in favour of the assessee and against the Revenue. There shall be no order as to costs.

[Citation : 332 ITR 42]

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