In Ita v. In Ita

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Income-tax Appeal No. 9 of 2007 a/w ITA Nos. 12, 13 and 24 of 2007. Reserved on: 27.08.2012 Date of decision: 19.09.2012 In ITA No. 9 of 2007 Commissioner of Income-tax, Shimla Appellant. Versus M/s Emmbros Metal Pvt. Ltd., Plot No. 27, Sector-2, Parwanoo. Through its Managing Director. Respondent. In ITA No.12 of 2007 Commissioner of Income-tax, Shimla Appellant. Versus M/s Emmbros Metal Pvt. Ltd. , Plot No. 27, Sector-2, Parwanoo. Through its Managing Director. Respondent. In ITA No. 13 of 2007 Commissioner of Income-tax, Shimla Appellant. Versus M/s Emmbros Metal Pvt. Ltd. , Plot No. 27, Sector-2, Parwanoo. Through its Managing Director. Respondent. In ITA No.24 of 2007 Commissioner of Income-tax, Shimla Appellant. Versus M/s P.A.Time Industries, Kasauli Road, Dharampur, Distt. Solan, Through its Managing Director. Respondent. Coram The Hon’ble Mr.Justice Deepak Gupta, J. The Hon’ble Mr. Justice Rajiv Sharma, J. Whether approved for reporting? No. For the appellant(s): Mr. Vinay Kuthiala, Sr. Advocate with Ms. Vandana Kuthiala, Advocate in all the appeals. For the respondent: Mr. M.M.Khanna, Sr. Advocate with Shri Vayur Gautam, Advocate in ITA Nos.9, 12 and 3 of 2007 Mr. S.K.Mukhi, Advocate in ITA No. 24 of 2007. Per Deepak Gupta, J. 1. These four appeals are being disposed of by a common judgement since the following identical questions of law are raised in all the appeals:- 1.Whether on the facts and in the circumstances of the case, the Hon’ble ITAT was right in law in holding that the assessee was entitled to deduction u/s 80IB as well as u/s 80HHC on the same profits of the business on the ground that these deductions are independent of each other and are to be computed separately with reference to the entire eligible profits, in spite of the express provisions of section 80IA(9)? Hon’ble ITAT was right in law in holding that the assessee was entitled to deduction u/s 80IB as well as u/s 80HHC on the same profits of the business on the ground that these deductions are independent of each other and are to be computed separately with reference to the entire eligible profits, in spite of the express provisions of section 80IA(9)? 2.Whether the Hon’ble ITAT was right in law in interpreting section 90IA(9) of the Income-tax Act by referring to Section 80AB and other provisions contained in Chapter VIA of the Act, when the provisions of section 80IA(9) are clear and unambiguous and ought to be given their natural meaning? section 90IA(9) of the Income-tax Act by referring to Section 80AB and other provisions contained in Chapter VIA of the Act, when the provisions of section 80IA(9) are clear and unambiguous and ought to be given their natural meaning? 3. Whether the Hon’ble ITAT has correctly interpreted the provisions of Section 80IA(9) of the Income-tax Act, in holding that the said provisions only serve to restrict the aggregate deductions under Chapter VI-A of the Act to the profits of the business, without appreciating that the said provision has two limbs that are to be read together?provisions of Section 80IA(9) of the Income-tax Act, in holding that the said provisions only serve to restrict the aggregate deductions under Chapter VI-A of the Act to the profits of the business, without appreciating that the said provision has two limbs that are to be read together? 2. The basic issue involved in these cases is whether an assessee is entitled to full deduction under Sections 80IB and 80HHC of the Income-tax Act, 1961 or the deduction has to be proportionately reduced. 3. To give an example, supposing the assessee is entitled to claim exemption of 20% of income under Section 80IB and is also entitled to benefit under Section 80HHC or any other provisions contained in Chapter VIA, on what income can claim 4. 5. 2. The basic issue involved in these cases is whether an assessee is entitled to full deduction under Sections 80IB and 80HHC of the Income-tax Act, 1961 or the deduction has to be proportionately reduced. 3. To give an example, supposing the assessee is entitled to claim exemption of 20% of income under Section 80IB and is also entitled to benefit under Section 80HHC or any other provisions contained in Chapter VIA, on what income can claim 4. 5. the second deduction. If the income is 1 Crore and 20% income is exempted that leave balance of 80 lacs. According to the revenue the benefit under Section 80HHC or any other sections has to be computed on the balance amount of Rs.80 lacs whereas the claim of the assessee is that these are two independent sections and therefore full benefit of both will have to be given. The provisions of law relevant for deciding these cases are Sections 80AB and 80IA(9). Section 80AB reads as follows:- “80AB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading “C.-Deductions in respect of certain incomes” in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.” For the purpose of deciding these appeals we are also concerned with Section 801A(9), which reads as follows:- “Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading “C.-Deductions in respect of certain incomes”, and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise as the case may be.” Sh. Vinay Kuthiala, learned senior counsel appearing for the revenue mainly relies upon the judgement of the Delhi High Court in Great Eastern Exports vs. Commissioner of Income-tax (2011) 332 ITR 14 wherein the Delhi High Court held as follows:- “41. We have considered the aforesaid elaborate submissions made by counsel for various parties appearing in these matters. We have stated in detail the scheme of Chapter VI-A of the Act and case law up to the stage of amendment, explaining the said Scheme. No doubt, as the unamended provisions stood, the Courts had interpreted those provisions to mean that they are independent of each other. It was categorically laid down that a new industrial unit can claim deduction under Section 80 HHC as well under Section 80-IA of the Act (or for that matter any other provision of this Chapter) on the gross total income independently and for granting deduction under Section 80-I of the Act, the said income was not to be reduced balance after taking into account the benefit under Section 80 HH of the Act. The legal position was that the statute did not prescribe any order of priority in which the various deductions are to be allowed as each relief under each section of Chapter –VI A was separate one, the assessee could be entitled to more than one relief, and each relief was required to be independently determined. The question is as to whether insertion of sub Section (a) of Section 80 IA and sub-Section (13) of Section 80-IB of the Act has made any difference to this position. xxx… xxx…. xxx… 42. When we make an attempt to understand this provision, by reading the plain language as it appears i.e. applying the test of literal construction, it manifestly evidence the following status:- 42. When we make an attempt to understand this provision, by reading the plain language as it appears i.e. applying the test of literal construction, it manifestly evidence the following status:- (a) Once an assessee is allowed deduction under Section 80 IA, “to the extent of such profits and gains” he is not to be allowed further deductions under Chapter-C; (b) In no case the deduction shall exceed the profits and gains of such eligible business of Undertaking or Enterprise, as the case may be. 43. The expressions in these provisions are very crucial which are “deduction to the extent of such profits” and the word “and” occurring therein. The first expression very clearly signifies that if an assessee is 7. 8. claiming benefit of deduction of a particular amount of profits and gains under Section 80 IA, to that extent profits and gains are to be reduced while calculating the deduction under the Heading-C of Chapter VI A of the Act. Further the word “and” is disjunctive which would mean that the other provision is independent and the first one namely total deductions should not exceed the profits and gains in a particular year. Even a layman who has some proficiency in English would understand the meaning of this provision in the manner we have explained above. It would, therefore, be clear that this provision aims at achieving two independent objectives delineated above. It cannot be limited to second objective alone thereby annihilating the first altogether and making it otiose. If we accept the contention of learned counsel for the assessees, it would lead to this result which has to be avoided. 44. Law on interpretation is clear. If the language of the statute is plain and capable of one and only one meaning, that obvious meaning is to be given to the said provision. Rules of interpretation are applied only if there are ambiguities when the purpose of interpretation is to ascertain the intention of the law i.e. mens legis, it is based on assertion by adopting plain meaning of the statute in the absence of any ambiguity.” It is contended on behalf of the revenue that though the Apex Court in IPCA Laboratory Ltd. vs. Deputy Commissioner of Income-tax (2004) 266 ITR 521 had clearly held that Section 80AB has been given overriding effect over all other sections in Chapter VIA, this would not apply to Section 80IA(9) since that section was introduced much after the introduction of Section 80AB. Reliance was also placed by Mr. Kuthiala, on the judgement of the Kerala High Court in Olam Exports (India) Ltd. vs. Commissioner of Income-tax (2011) 332 ITR 40. 9. 10. On the other hand it is contended on behalf of the assessee that Section 80AB is the overriding section. A Division Bench of the Bombay High Court in Associated Capsules P. Ltd. vs. Dy. Commissioner of Income-tax and another (2011) 332 ITR 42 considered both the judgements of the Delhi and Kerala High Courts and the entire law on the point and held as follows:- “22. 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 herein below. 23. Chapter VIA of the Act provides for variety of deductions to be made in computing the total income. Chapter VIA is divided in to 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. “22. 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 herein below. 23. Chapter VIA of the Act provides for variety of deductions to be made in computing the total income. Chapter VIA is divided in to 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. 24. As per Section 80A(2) in part A of Chapter VIA, the aggregate amount of deduction allowed under Chapter VIA shall not exceed the gross total income. Thus, the overall deduction allowed under Chapter VIA cannot exceed the gross total income. However, on noticing that several undertakings were availing deductions under Chapter VIA within the overall limit of gross total income but exceeding the profits of the undertaking, the legislature introduced sub Section 9A in Section 80IA by Finance Act 1998 with effect from 1.4.1999. By Finance Act, 1999, Section 80IA(9A) has been renumbered as Section 80IA(9). 25. The object of amending Section 80IA by Finance Act 1998 as is 14 itxa3036-10 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% 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 VIA. With a view to prevent the taxpayer taking undue advantage of the existing provisions of the Act, Section 80IA was amended by Finance Act 1998 so that the deductions allowed under Section 80IA and various Sections under heading ‘C’ of Chapter VIA are restricted to the profits of the business of the undertaking / enterprise. 26. There is no dispute that in the present case, the assessee is an undertaking entitled to deduction under Section 80IA at 30% of the profits and gains derived from the business and deduction under Section 80HHC at 50% of the profits of the business. Further, there is no dispute that the deduction under Section 80IA 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 80IA(9) by the Finance Act, 1998. According to the Revenue, Section 80IA(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 80IA(1) of the Act. According to the assessee, even after the introduction of Section 80IA(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 80IA(1) of the Act. According to the assessee, Section 80IA(9) merely affects the allowability of the deduction computed under Section 80HHC so that the combined deduction under Section 80IA(1) and 80HHC does not exceed the profits and gains of the undertaking. xxx… xxx… xxx… 28. The question, therefore, to be considered is, whether Section 80IA(9) seeks to disturb the mechanism of computing the deduction provided under Section 80HHC (3) of the Act or Section 80IA(9) comes in to operation only at the stage of allowing the deduction computed under Section 80HHC, so that the combined deduction under Section 80IA and 80HHC does not exceed the total profits of the business of the undertaking. 29. Section 80IA(9) consists of three parts: First Part where any amount of profits and gains of an undertaking / enterprise is claimed and allowed under Section 80IA(1) for any assessment year, then Second Part deduction to the extent of profits and gains allowed under Section 80IA(1) shall not be allowed under any other provisions under heading ‘C’ of Chapter VIA of the Act;and Third Part in no case the deduction allowed shall exceed the profits and gains of the business of the undertaking enterprise. 30. The dispute in the present case is, whether the second part of Section 80IA(9) seeks to disturb the mechanism of computing the deduction provided under Section 80HHC (3) of the Act ? The second part of Section 80IA(9) provided that the deduction to the extent of profits allowed under Section 80IA(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 VIA would be allowed to the extent of profits as reduced by the profits allowed under Section 80IA(1). The second part of Section 80IA(9) does not even remotely refer to the method of computing deduction under other provisions under heading ‘C’ of Chapter VIA. Thus, Section 80IA(9) seeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading ‘C’ of Chapter VIA of the Act. xxx… xxx… xxx… 34. If the words used in Section 80IA(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 VIA, 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 80IA(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 VIA of the Act. 11. Finally, the Bombay High Court held as follows:- “40. We find it difficult to subscribe to the views expressed by the Delhi High Court in interpreting the provisions of Section 80IA(9). In that case, in fact, the Counsel for the Revenue had argued (see para38 of the judgment) that Section 80IA(9) applies at the stage of allowing deduction and not at the stage of computing deduction under other provisions under heading ‘C’ of Chapter VIA. It was argued that in the 11. Finally, the Bombay High Court held as follows:- “40. We find it difficult to subscribe to the views expressed by the Delhi High Court in interpreting the provisions of Section 80IA(9). In that case, in fact, the Counsel for the Revenue had argued (see para38 of the judgment) that Section 80IA(9) applies at the stage of allowing deduction and not at the stage of computing deduction under other provisions under heading ‘C’ of Chapter VIA. 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 80IA(1) and also under other provisions under heading ‘C’ of Chapter VIA, the provisions of Section 80IA(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 80IA(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 80IA(9) seeks to disturb the method of computing the deduction provided under other provisions under heading ‘C’ of Chapter VIA 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 (supra). 41. In the result, we hold that Section 80IA(9) does not affect the computability of deduction under various provisions under heading ‘C’ of Chapter VIA, but it affects the allowability of deductions computed under various provisions under heading ‘C’ of Chapter VIA, so that the aggregate deduction under Section 80IA and other provisions under heading ‘C’ of Chapter VIA do not exceed 100% 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 23121998, wherein it is stated that Section 80IA(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 80IA(9) being not to curtail the deductions computable under various provisions under heading ‘C’ of Chapter, it is reasonable to hold that Section 80IA(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 80IA(1) and the deduction computed as per Section 80HHC is Rs.80/, then, in view of Section 80IA(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.” 13. 14. After giving our careful consideration to the judgements of the Delhi and Bombay High Courts, we respectfully agree with the view of the Bombay High Court. According to us, the Bombay High Court was right in holding that if the argument of the revenue that amount of profits allowed under Section 801A has to be deducted from the profits of business while computing deduction under Section 80HHC is accepted then the section becomes unworkable since deduction under Section 80 HHC is computed not on the profits of business but on the export turnover. The Karnataka High Court in Commissioner of Income- tax and another vs. Millipore India P. Ltd. (2012) 341 ITR 219 held as follows:- 13. 14. After giving our careful consideration to the judgements of the Delhi and Bombay High Courts, we respectfully agree with the view of the Bombay High Court. According to us, the Bombay High Court was right in holding that if the argument of the revenue that amount of profits allowed under Section 801A has to be deducted from the profits of business while computing deduction under Section 80HHC is accepted then the section becomes unworkable since deduction under Section 80 HHC is computed not on the profits of business but on the export turnover. The Karnataka High Court in Commissioner of Income- tax and another vs. Millipore India P. Ltd. (2012) 341 ITR 219 held as follows:- “From the aforesaid statutory provisions and the law declared by the courts it is clear all the sections which fall under the heading “C. – Deductions in respect of certain incomes” are independent of each other. Therefore, sections 80HHC and 80-I are independent of each other. A new industrial unit can claim deduction under both sections on the gross total income independently. Sub-section (9) of section 80IA makes it clear that such profits and gains which is allowed deductions under Section 80-IA cannot be again allowed deduction under any other provisions of the Chapter under the heading “C. – Deductions in respect of certain incomes”. The stress on the profits and gains of such eligible business in the case of section 80HHC, is the profits and gains from export business. Under the provisions of Chapter VI-A of the Act, various deductions from the profits and gains are allowed to the assessee who have to fulfil certain requirements specified under the relevant section. The total deductions under Chapter VI-A of the Act are restricted to the gross total profits in respect of the assessee as a whole. In the Explanatory Note in Circular No.772(see(1999) 235 ITR (St.) 35) it is stated that the object of courts it is clear all the sections which fall under the heading “C. – Deductions in respect of certain incomes” are independent of each other. Therefore, sections 80HHC and 80-I are independent of each other. A new industrial unit can claim deduction under both sections on the gross total income independently. Sub-section (9) of section 80IA makes it clear that such profits and gains which is allowed deductions under Section 80-IA cannot be again allowed deduction under any other provisions of the Chapter under the heading “C. – Deductions in respect of certain incomes”. The stress on the profits and gains of such eligible business in the case of section 80HHC, is the profits and gains from export business. Under the provisions of Chapter VI-A of the Act, various deductions from the profits and gains are allowed to the assessee who have to fulfil certain requirements specified under the relevant section. The total deductions under Chapter VI-A of the Act are restricted to the gross total profits in respect of the assessee as a whole. In the Explanatory Note in Circular No.772(see(1999) 235 ITR (St.) 35) it is stated that the object of 15. 15. section 80-IA is not to curtail the deductions obtainable under various provisions under the heading “C.-Deductions in respect of certain incomes.” Therefore, section 80-IA(9) affects the allowability of deductions and not computation and deductions. The deduction to which the assessee is entitled to under this provision is to be computed at the time of allowing deductions and not at the time of computing deductions. Therefore, the contention of the Revenue that the profits and gains permitted to be deducted under section 80-IA should be deducted out of the profits of the business and, thereafter, the profits and gains from export business is to be calculated, as otherwise it would amount to double benefit, is contrary to the scheme of the aforesaid statutory provisions as well as clause (baa) to Explanation to section 80HHC. When once it is held that sections under the heading “C.- Deductions in respect of certain incomes” are independent of each other and the assessee is entitled to claim deduction under more than one section, the deduction has to be necessarily in the profits and gains arrived at after making the claims in terms of the aforesaid section. However, the overall claim under both sections has to be restricted to the total profits and gains of such eligible business from the gross total income.” This Court in a recent judgement delivered in ITA No. 36 of 2008 titled as Commissioner of Income-tax, Shimla vs. M/s Him Teknoforge Ltd. has clearly held that calculations of deduction is different from giving the benefits of the deduction. While calculating the deduction the provisions of the deducting sections have to be followed. There is nothing in Section 801A(9) which lays down that the assessee would not be entitled to claim deduction under Section 80HHC on that portion of the profits of the unit of which benefit has been taken under Sections 801A or 801B. The object of Section 801A(9) is not to curtail the deduction but to avoid double benefits. The total benefits cannot be higher than the gross income and cannot 16. exceed the profits of the priority undertaking. The assessee would be entitled to the benefit of Sections 801A or 801B separately and to that of Section 80 HHC independently and while computing the deduction under Section 80 HHC the profits or deductions which have been granted under Sections 801A or 801B cannot be taken into consideration. Under the provisions of Chapter VIA of the Act an assessee is entitled to various deductions from profits and gains if the assessee fulfills the requirements of the Sections. The total deduction, however, cannot exceed the gross total profits of the assessee. It is thus apparent that Section 80-IA(9) has been framed in a manner to avoid the assessee claiming deduction more than the profits of the unit. The entitlement or quantification of deduction, as discussed above, is different than the actual claim of deduction. Therefore, we are in agreement with the Bombay and Karnataka High Courts that in case the contention of the revenue that the profits and gains, permitted to be deducted under Section 80IA or 80IB, should be deducted out of the profits of the business and thereafter the profits and gains of the export business are to be reckoned for the purpose of calculating the benefit under Section 80HHC is contrary to the statutory provisions and the letter and spirit of the Act. The deductions are independent of each other and 17. therefore, full deduction under each Section can be claimed though the overall benefit has to be restricted to the total profits and gains of such eligible business. In view of the above discussion, we answer the questions in favour of the assessee and against the revenue. The appeals are accordingly rejected with no order as to costs. ( Deepak Gupta ), J. 19[th] September, 2012 ™ ( Rajiv Sharma ), J.