Civil Appeal No. 7427 OF 2012
The Asstt. Commissioner of Income Tax, Bangalore (Appellant) vs M/s. Micro Labs Ltd (Respondent)
Date of Judgment : 12-12-2015

A division bench of the Supreme Court comprising of Hon’ble Justice Anil R. Dave and Hon’ble Justice Dipak Mishra heard the matter on the issue of availability of simultaneous deductions under section 80HHC and 80IA or/and 80IB of the Income Tax Act, 1961. While Hon’ble Justice Anil R. Dave held that the assessee who had claimed and had been allowed deductions in respect of profits under Section 80-IB, could not have been allowed deductions in respect of the same profits under Section 80HHC, Justice Dipak Mishra held a contrary view and supported the judgment of the Karnataka High Court.

Earlier, both the ITAT and the Karnataka High Court considered the question whether along with the deduction u/s 80-IA or/and 80-IB of the Income Tax Act, 1961 the Assessee is also entitled to the deduction in respect of the profits and gains under the provisions of Section 80HHC of the Act or in other words, whether the assessee was entitled to deductions under the aforestated all the three Sections in respect of the same profits. While ITAT held that the assessee was not entitled to deductions under Sections 80HHC and 80-IB of the Act but the High Court did not agree with the said conclusion and decided in favour of the assessee holding that though the Assessee had claimed and was allowed deductions under Section 80HHC of the Act, the Assessee was also entitled to deductions under the provisions of Section 80-IB of the Act in respect of the same profits.

It is notable that on the aforesaid issue of simultaneous deductions, different views have been taken by different High Courts. The High Court of Bombay has decided it in the favour of the assessee whereas a different view has been taken by the High Court of Delhi.

Observations made by Hon’ble Justice Anil R. Dave:
1. the High Court of Karnataka is not right when it decided to allow deductions in respect of same profits under Section 80HHC as well as under Section 80-IA or Section 80-IB.
2. Section 80-IA(9) is quite unambiguous, which clearly provides that if an assessee claims any deduction under the provisions of Section 80-IA, then the assessee cannot claim deduction to the extent of such profits and gains under heading ‘C’ of Chapter VIA of the Act, which, in the present case, was claimed and wrongly allowed to the Assessee.
3. Section 80HHC, which pertains to deduction in respect of profits and gains from export business, is included under heading ‘C’, of Chapter VIA of the Act.
4. The intention of the legislature is very clear to the effect that if an assessee claims any deduction under the provisions of Sections 80-IA or/and 80-IB, he cannot claim deduction to the extent to such profits and gains which had been claimed and allowed under the provisions of Section 80HHC of the Act, because Section 80HHC is included in heading ‘C’ of Chapter VIA of the Act.
5. High Court was in error while permitting the Assessee to get benefit in respect of Section 80HHC as it did not take into account the fact that the profits in respect of which deduction was allowed under Section 80HHC had also been previously allowed under Section 80-IB. In my opinion, this is not permissible under Section 80-IB(13) read with Section 80-IA(9) because by virtue of Section 80-IB(13) provisions of Section 80-IA(9) are also applicable to Section 80-IB.
6. For the aforestated reasons, I am not in agreement with the view expressed by the High Court and therefore, I decide the appeals in favour of the Revenue by holding that the Assessee who had claimed and had been allowed deductions in respect of profits under Section 80-IB, could not have been allowed deductions in respect of the same profits under Section 80HHC of the Act.

Observations made by Hon’ble Justice Dipak Mishra :
1. There is no dispute that sub-section (9) to Section 80I would be applicable as the assessee would be entitled to deduction under Section 80IA as well as under Section 80HHC.
2. There is no doubt that Section 80AB and sub-section (9) to Section 80IA have to be harmoniously construed and read together. There cannot be any trace of doubt that the second limb of Section 9 to Section 80IA has been enacted to prevent cascading effect of deductions under Section 80IA and 80HHC. There was already a cap or the upper limit stipulated in sub-section(2) to Section 80IA that the deductions cannot exceed the gross total income of the assessee. However, Section 9 to Section 80IA stipulates that in no case deduction shall exceed profits and gains of such eligible business of undertaking and enterprise. The said provision does not make a reference to the gross total income but it refers to the profits and gains of such eligible business of undertaking and enterprise. Thus read, it cannot be said that the last part of sub-section (9) to section 80IA would be rendered meaningless being a mere reproduction of sub-section(2) to Section 80A. The two provisions operate independently.
3. Computation of deduction is a stage prior and helps in quantifying the amount, which is eligible for deduction. Sub-section (9) to Section 80IA does not bar or prohibit the deduction allowed under Section 80IA from being included in the gross total income, when deduction under Section 80HHC(3) of the Act is computed. In this context it has been held that the expression “shall not be allowed” cannot be equated with the words “shall not qualify” or “shall not be allowed” in computing deduction. The effect thereof would be that while computing deduction under Section 80HHC, the gross total income would mean the gross total income before allowing any deduction under Section 80IA or other sections of part C of Chapter VIA of the Act. But once the deduction under Section 80HHC has been calculated, it will be allowed, ensuring that the deduction under Section 80HHC and 80IA when aggregated do not exceed profits and gains of such eligible business of undertaking and enterprise.

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