Shital Fibers Ltd. v. CIT

Case snapshot

Sections / provisions: 80IA(9)

Questions before the Court / Tribunal

• Interaction of section 80IA(9) with computation and allowability of Chapter VI-A deductions: The reported Supreme Court ruling distinguishes computation of a deduction from the restriction on its ultimate allowability under section 80IA(9). The official judgment should be used for the exact interaction with the companion deduction provision.

Material facts and background

We are referring to the facts of the case in Civil Appeal

No. 14318 of 2015. Appellant is a company which filed a return declaring net taxable income at Rs. 46,99,293/- for the Assessment Year 2002-03. The appellant claimed deductions under Section 80-HHC and 80-IA of the Income Tax Act, 1961 (for short ‘the IT Act’). The return was accepted on 31 st October, 2002. Reassessment proceedings under Section 147 of the IT Act were initiated in respect of the said Assessment Year by the order dated 10th December 2008 by the Assistant Commissioner of Income-Tax, Range II, Jalandhar. Reliance was placed by the Revenue on the decision of Income Tax Appellate Tribunal (for short ‘ITAT’), Chennai (Special Bench) in the case of ACIT v. Rogini Garments2. In the said Order dated 10th December, 2008, under Section 147 of the IT Act, it was observed that a deduction of Rs. 90,43,347/- was claimed by the appellant under Section 80-IB on the total profit of Rs. 4,19,40,609/-. The appellant claimed a deduction of Rs. 1,76,90,799/- under Section 80-HHC. 4.

The return filed by the appellant was processed under

Section 143(1)(a) and a statutory notice under Section 148 of the IT Act was served upon the appellant. Based on the judgment dated 17th July, 2008 of the jurisdictional ITAT, in 2 (2007) SCC OnLine ITAT 159 Civil Appeal No.14318 of 2015 etc.

ITA Nos.320 and 321, Amritsar Bench in respect of appellant’s case for the assessment year 2003-04 and 2004-05, a fresh notice under Section 143(2) was served upon the appellant. 5.

We may note here that in the case of ACIT v. Rogini

Garments2, ITAT held that in order to prevent the taxpayers from taking undue advantage of existing provisions of the IT Act by claiming repeated deductions in respect of the same amount of eligible income, in-built restriction was introduced by enacting Sub-section (9) of Section 80-IA with effect from 1st April, 1999. 6.

Appellant / assessee submissions

The judgment copy does not separately set out this component in a distinct section; refer to the full order and the reasoning section below.

Revenue / respondent submissions

Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr4 in paragraphs 38 and 39 held thus: “39. 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 (2007) 294 ITR (AT) 15 (Chennai) Civil Appeal No.14318 of 2015 etc.

and Hindustan Mint and Agro Products P. Ltd. (2009) 315 ITR (AT) 401 (Delhi), which are affirmed by the Delhi High Court in the case of Great Eastern Exports (2011) 332 ITR 14. Reliance is also placed on decision of the Kerala High Court in the case of Olam Exports (India) Ltd. (2011) 332 ITR 40, which supports the case of the Revenue. 40. 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 paragraph 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) come into operation. While accepting the arguments...

Court / Tribunal analysis and reasoning

under heading ‘C’. Therefore, if deduction to the extent of ‘X’ is claimed and allowed out of gross total income of ‘Y’ under Section 80-IA and the assessee wants to claim deduction under any other provision under the heading ‘C’, though he may be entitled to deduction ‘Y’ under the said provision, he will get deduction under the other provisions to the extent of (Y-X) and in no case total deductions under heading ‘C’ can exceed the profits and gains of such eligible business of undertaking or enterprise. 21.

and Hindustan Mint and Agro Products P. Ltd. (2009) 315 ITR (AT) 401 (Delhi), which are affirmed by the Delhi High Court in the case of Great Eastern Exports (2011) 332 ITR 14. Reliance is also placed on decision of the Kerala High Court in the case of Olam Exports (India) Ltd. (2011) 332 ITR 40, which supports the case of the Revenue. 40. 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 paragraph 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) come into operation. While accepting the arguments...

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 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 [2011] 332ITR 14. 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 [2011] 332ITR 40. 41. 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 Central Board of Direct Taxes Circular No. 772 dated December 23, 1998 ((1999) 235 TR (St.) 35), wherein it is stated that section...

80-HHC(3). Even when I apply clause (a) and calculate eligible deduction under Section 80HHC, it would give an odd and anomalous figure. To illustrate, I would like to expound on the earlier example after recording that the gross total income of Rs 1000 was on assumed total turnover of Rs 10,000 which includes export turnover of Rs 5000 and the deduction allowable under Section 80-IA was 30% and the deduction allowable under Section 80HHC was 80% of the eligible profits as computed under Section 80-HHC(3). The stand of the Revenue is that without alteration or modification of the figures of total turnover and the export turnover, the gross total income would undergo a reduction from Rs 1000 to Rs 700 as Rs 300 has been allowed as a deduction under Section 80-IA. This would result in anomaly for the said figure would not be the actual and true figure or the true gross total income or profit earned on the total turnover including export turnover and, therefore, would give a somewhat unusual and unacceptable result. There is no logic or rationale for making the calculation in the said impracticable and unintelligible manner.” 24.

Operative decision and relief

would be that while computing deduction under Section 80-HHC, the gross total income would mean the gross total income before allowing any deduction under Section 80-IA or other sections of Part C of Chapter VI-A of the Act. But once the deduction under Section 80HHC has been calculated, it will be allowed, ensuring that the deduction under Sections 80-HHC and 80-IA when aggregated do not exceed profits and gains of such eligible business of undertaking and enterprise. 54. As I find, the legislature has used the expression “shall not qualify” in Sections 80HHB(5) and 80-HHD(7), but the said expression has not been used in sub-section (9) of Section 80-IA. The formula prescribed in sub-section (3) of Section 80-HHC is a complete code for the purpose of the said computation of eligible profits and gains of business from exports of mercantiles and goods. It has reference to total turnover, turnover from exports in proportion to profits and gains from business in clause (a) and so forth under clauses (b) and (c) of Section 80HHC(3) of the Act. In case the gross total income is reduced or modified taking into account the deduction allowed under Section 80-IA, it would lead to absurd...

Authorities and precedents appearing in the judgment

• Bangalore v. Micro Labs Limited1 which records difference
• ACIT v. Rogini Garments2. In the said Order
• We may note here that in the case of ACIT v. Rogini
• Court in the case of SCM Creations v. ACIT3 wherein it was
• Friends Casting (P) Ltd. v. Commissioner of Income Tax 4
• Associated Capsules (P) Ltd. v. Deputy Commissioner of
• Delhi High Court in the case of Great Eastern Exports v. Commissioner of Income Tax6
• Capsules (P) Ltd. v. Deputy Commissioner of Income Tax
• Bangalore v. Micro Labs Limited1 approved the view taken by Bombay
• Associated Capsules (P) Ltd. v. CIT

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Interaction of section 80IA(9) with computation and allowability of Chapter VI-A deductions. The operative result is classified as Operative order controls. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Interaction of section 80IA(9) with computation and allowability of Chapter VI-A deductions. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Use the judgment as a fact-specific precedent: match the statutory version, assessment period, procedural stage and evidentiary record before relying on the result.
• Check whether a later High Court/Supreme Court order has affirmed, reversed, distinguished or rendered the decision academic.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the authenticated official judgment PDF

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