Supreme Court Of India
Ajanta Pharma Ltd. vs. CIT
Section 80HHC, 115JB
Asst. Year 2001-02
S.H. Kapadia, C.J. & K.S. Radhakrishnan, J.
Civil Appeal No. 7518 of 2010
9th September, 2010
Counsel appeared :
Bishwajit Bhattacharya & Mukul Gupta with Jehangir D. Mistri, Rustom B. Hathikhanawala, Vikas Malhotra, Ajay Singh, Judy James & B.V. Balaram Das, for the Appearing Parties
JUDGMENT
S.H. Kapadia, C.J. :
Leave granted.
2. Assessee was a MAT company at the relevant time. On 30th Oct., 2001, it filed its return of income for asst. yr. 2001-02. The said return was accompanied by statutory audit report claiming deduction under s. 80HHC of the IT Act, 1961 (for short, “the 1961 Act”). While computing the “book profits” under s. 115JB of the 1961 Act, the assessee claimed reduction, under cl. (iv) of Explanation to s. 115JB, of 100 per cent export profits. Vide assessment order dt. 27th Feb., 2004 the AO allowed only 80 per cent of the export profits in terms of s. 80HHC(1B), as being allowed for reduction of “book profits” under cl. (iv) of Explanation to s. 115JB of the 1961 Act. Being aggrieved by the assessment order, assessee moved before the CIT(A). Vide order dt. 30th July, 2004, the CIT(A) held that 100 per cent export profits earned by the assessee as computed under s. 80HHC(3) was eligible for reduction under cl. (iv) of Explanation to s. 115JB. This order of CIT (A) was upheld by the Tribunal which took the view that the amount of profit eligible for deduction would not be governed by s. 80HHC(1B) since there is no reference to the said sub-section in cl. (iv) of the Explanation to s. 115JB. Against the concurrent finding the Department carried the matter in appeal to the Bombay High Court. By the impugned decision dt. 7th May, 2009 the Department’s appeal under s. 260A of the 1961 Act stood allowed. Hence this civil appeal.
The question of law raised in this civil appeal is : whether for determining the “book profits” in terms of s. 115JB, the net profits as shown in the P&L a/c have to be reduced by the amount of profits eligible for deduction under s. 80HHC or by the amount of deduction under s. 80HHC ? To answer the above question we need to quote hereinbelow s. 115JB as inserted by Finance Act, 2000, w.e.f. 1st April, 2001 which reads as follows : “115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one- half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one-half per cent. (2) Every assessee being a company, shall, for the purposes of this section, prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956). Provided … Provided further … Explanation—For the purposes of this section, ‘book profit’ means the net profit as shown in the P&L a/c for the relevant previous year prepared under sub-s. (2), as increased by— (a) to (f) … If any amount referred to in cls. (a) to (f) is debited to the P&L a/c, and as reduced by— (i) to (iii) … (iv) the amount of profits eligible for deduction under s. 80HHC, computed under cl. (a) or cl. (b) or cl. (c) of sub- s. (3) or sub-s. (3A), as the case may be, of that section, and subject to the conditions specified in that section.” (Emphasis, italicized in print, supplied)
5. We also quote hereinbelow s. 80HHC as inserted by the Finance Act, 1983 w.e.f. 1st April, 1983. Sub-s. (1B) thereof was inserted by Finance Act, 2000, w.e.f. 1st April, 2001, the relevant portion of the said provisions reads as follows : “80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-s. (1B) derived by the assessee from the export of such goods or merchandise : Provided … (1A) … (1B) For the purposes of sub-ss. (1) and (1A), the extent of deduction of the profits shall be an amount equal to— (i) eighty per cent thereof for an assessment year beginning on the 1st day of April, 2001; (ii) seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002; (iii) fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003; (iv) thirty per cent thereof for an assessment year beginning on the 1st day of April, 2004, and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year.” (Emphasis, italicized in print, supplied) Sub-s. (1B) was inserted by Finance Act, 2000 w.e.f. 1st April, 2001 i.e., the same Act which inserted s. 115JA.
In recent times, the number of zero-tax companies and companies paying marginal tax has grown, hence, vide the Finance (No. 2) Act, 1996, levy of minimum tax on companies having “book profits” stood introduced. The scheme envisaged payment of minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, as taxable income, in a case where the total income as computed under the provisions of the 1961
Act, is less than 30 per cent of the book profit. The word “book profit” has been defined in s. 115JA(2) read with the Explanation thereto to mean the net profit as shown in the P&L a/c, as increased by the amount(s) mentioned in cls. (a) to (f), and as reduced by amount(s) covered by cls. (i) to (ix) of the Explanation. These may be called for the sake of brevity as “upward and downward adjustments”. From the above it is clear that s. 115JA is a self- contained code and will apply notwithstanding any provisions in the 1961 Act. In this case, we are concerned with downward adjustment, particularly cl. (viii) which refers to the amount(s) of profits eligible for deduction under s. 80HHC, computed under s. 80HHC(3) but subject to conditions specified in ss. 80HHC(4) and 80HHC(4A).
By the Finance Act, 2000, s. 115JB was inserted w.e.f. 1st April, 2001 providing for levy of MAT on certain companies. Sec. 115JB, though structured differently, stood inserted to provide for payment of advance tax by MAT companies. Sec. 115JB is the successor section to s. 115JA. In essence, it is the same except that s. 115JA provided for MAT on companies, so far as it does not deem the book profit as total income. Under s. 115JB, however, cl. (viii) of s. 115JA is renumbered as cl. (iv). s. 115JB continues to remain a self-contained code.
9. On the other hand, s. 80HHC(1) inter alia states that where an assessee, who is the Indian resident, is engaged in the business of exports out of India of any goods earns convertible foreign exchange then in computing the total income, a deduction of the profits derived from such exports would be admissible. Thus, s. 80HHC provides for tax incentives. Sec. 80HHC(1) at one point of time laid down that an amount equal to the amount of deduction claimed should be debited to the P&L a/c of the previous year in respect of which deduction is to be allowed and credited to the reserve account to be utilized for the business purpose. Sec. 80HHC(1) concerns eligibility whereas s. 80HHC(3) concerns computation of the quantum of deduction/tax relief. At one point of time prior to the Finance Act, 2000, exporters were allowed 100 per cent deduction in respect of profits derived from export of goods. However, that has now been reduced in a phase-wise manner under s. 80HHC(1B). It may be noted that all assessable entities are not eligible for deduction under s. 80HHC. Similarly, only eligible goods are entitled to such special deduction under s. 80HHC(1). A bare reading of s. 80AB shows that computation of deduction is geared to the amount of income, but s. 80HHC(3), which refers to quantification of deduction is geared to the exports turnover and not to the income. On the other hand, s. 115JB refers to levy of MAT on the deemed income. The above discussion is only to show that ss. 80HHC and 115JB operate in different spheres. Thus, two essential conditions for invoking s. 80HHC(1) are that assessee must be in the business of export and secondly that sale proceeds of such exports should be receivable in India in convertible foreign exchange. Hence, s. 80HHC(1) refers to “eligibility” whereas s. 80HHC(3) refers to computation of tax incentive. Coming to s. 80HHC(1B) it is clear that after Finance Act, 2000 w.e.f. asst. yr. 200102 exporters would not get 100 per cent deduction in respect of profits derived from exports but that they would get deduction of 80 per cent in the asst. yr. 2001-02, 70 per cent in the asst. yr. 2002-03 and so on. Thus, s. 80HHC(1B) deals not with “eligibility” but with the “extent of deduction”. As earlier stated, s. 115JB is a self-contained code. It taxes deemed income. It begins with a non obstante clause. Sec. 115JB refers to computation of “book profits” which have to be computed by making upward and downward adjustments. In the downward adjustment, vide cl. (iv) it seeks to exclude “eligible” profits derived from exports. On the other hand, under s. 80HHC (1B) it is the extent of deduction which matters. The word “thereof” in each of the items under s. 80HHC(1B) is important. Thus, if an assessee earns Rs. 100 crores then for the asst. yr. 2001-02, the extent of deduction is 80 per cent thereof and so on which means that the principle of proportionality is brought in to scale down the tax incentive in a phased manner. However, for the purposes of computation of book profits which computation is different from normal computation under the 1961 Act/computation under Chapter VI-A. We need to keep in mind the upward and downward adjustments and if so read it becomes clear that cl. (iv) covers full export profits of 100 per cent as “eligible profits” and that the same cannot be reduced to 80 per cent by relying on s. 80HHC(1B). Thus, for computing “book profits” the downward adjustment, in the above example, would be Rs. 100 crores and not Rs. 90 crores. The idea being to exclude “export profits” from computation of book profits under s. 115JB which imposes MAT on deemed income. The above reasoning also gets support from the Memorandum of Explanation to the Finance Bill, 2000.
10. One of the contentions raised on behalf of the Department was that if cl. (iv) of Explanation to s. 115JB is read in entirety including the last line thereof (which reads as “subject to the conditions specified in that section”), it becomes clear that the amount of profits eligible for deduction under s. 80HHC, computed under cl. (a) or cl. (b) or cl. (c) of sub-s. (3) or sub-s. (3A), as the case may be, is subject to the conditions specified in that section. According to the Department, the assessee herein is trying to read the various provisions of s. 80HHC in isolation whereas as per cl. (iv) of Explanation to s. 115JB, it is clear that book profit shall be reduced by the amount of profits eligible for deduction under s. 80HHC as computed under cl. (a) or cl. (b) or cl. (c) of sub-s. (3) or sub-s. (3A), as the case may be, of that section and subject to the conditions specified in that section, thereby meaning that the deduction allowable would be only to the extent of deduction computed in accordance with the provisions of s. 80HHC. Thus, according to the Department, both “eligibility” as well as “deductibility” of the profit have got to be considered together for working out the deduction as mentioned in cl. (iv) of Explanation to s. 115JB. We find no merit in this argument. If the dichotomy between “eligibility” of profit and “deductibility” of profit is not kept in mind then s. 115JB will cease to be a self-contained code. In s. 115JB, as in s. 115JA, it has been clearly stated that the relief will be computed under s. 80HHC(3)/(3A), subject to the conditions under sub-cls. (4) and (4A) of that section. The conditions are only that the relief should be certified by the chartered accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in cl. (iv) of Explanation to s. 115JB [subject to the conditions specified in sub-cls. (4) and (4A) of that section] to obliterate the difference between “eligibility” and “deductibility” of profits as contended on behalf of the Department.
11. For the above reasons, we set aside the impugned judgment of the High Court and restore the judgment of the Tribunal. Accordingly, the civil appeal of the assessee is allowed with no order as to costs.
[Citation : 327 ITR 305]
