In a significant ruling, the Supreme Court of India has resolved a longstanding interpretative conflict regarding the interaction between deductions under Sections 80-IA and 80-HHC of the Income Tax Act, 1961. The Court held that while deductions under both provisions may be computed independently, the aggregate deduction cannot exceed the profits and gains of the eligible business.
The judgment was delivered in Shital Fibers Limited v. Commissioner of Income Tax (Civil Appeal No. 14318 of 2015), along with a batch of connected appeals. A Bench comprising Justices Abhay S. Oka, Ahsanuddin Amanullah, and Augustine George Masih concluded that Section 80-IA(9) restricts the allowability—not the computation—of deductions under other provisions of Chapter VI-A(C) once a deduction under Section 80-IA has been granted.
Background
Shital Fibers Limited, the appellant, filed its return for the Assessment Year 2002–03, declaring a taxable income of ₹46,99,293 and claiming deductions under Sections 80-HHC and 80-IA. The Income Tax Department initiated reassessment proceedings under Section 147, relying on the ITAT Chennai Special Bench decision in ACIT v. Rogini Garments. The Revenue disallowed the deductions, asserting that once a deduction under Section 80-IA is granted, no further deductions are permissible under other provisions of Chapter VI-A(C) for the same profits.
This position was upheld by the Commissioner of Income Tax (Appeals), the ITAT, and subsequently the Punjab and Haryana High Court, which relied on its prior decision in Friends Casting (P) Ltd. v. CIT, and declined to follow the contrary view taken by the Bombay High Court in Associated Capsules (P) Ltd. v. DCIT.
Arguments
Senior counsel for the appellant contended that Section 80-IA(9) does not prohibit computation of deductions under other sections, such as Section 80-HHC, but merely limits the total allowable deduction to the profits of the eligible business. The Revenue, represented by the Additional Solicitor General, argued that profits allowed under Section 80-IA cannot be considered again for deduction under Section 80-HHC.
Court’s Analysis
The Court undertook a detailed examination of Chapter VI-A of the Income Tax Act, especially Sections 80-A, 80-AB, 80-HHC, 80-IA, and 80-IB. It interpreted Section 80-IA(9) to mean that while deductions under different provisions can be computed based on respective formulae, the total allowable deduction must not exceed the profits of the eligible business.
Rejecting the restrictive interpretation of Section 80-IA(9) adopted by some High Courts, the Supreme Court endorsed the reasoning of the Bombay High Court in Associated Capsules (P) Ltd.. The Court observed:
“On plain reading of Sub-section (9) of Section 80-IA, if a deduction of profits and gains under Section 80-IA is claimed and allowed, the deduction to the extent of such profits and gains in any other provision under the heading ‘C’ is not allowed.”
The Court affirmed that Section 80-IA(9) affects the “allowability” of deduction and not its “computation,” stating:
“Section 80-IA(9) does not bar or prohibit the deduction allowed under Section 80-IA from being included in the gross total income, when deduction under Section 80-HHC is computed.”
Decision
Answering the reference arising from divergent judicial opinions, the Court held that Section 80-IA(9) restricts the total deductions under Chapter VI-A(C) to the profits of the eligible business. However, deductions under Section 80-HHC can still be computed independently, and only at the stage of allowing deductions should the restriction be enforced.
Accordingly, the Court directed the Registry to place the appeals before an appropriate Bench for disposal in accordance with the interpretation laid down.
