PLASTIBLENDS INDIA LIMITED VERSUS ADDL. COMMISSIONER OF INCOME TAX, MUMBAI & ANR

09-10-2017

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 238 OF 2012

PLASTIBLENDS INDIA LIMITED …..APPELLANT(S)
VERSUS
ADDL. COMMISSIONER OF INCOME
TAX, MUMBAI & ANR. …..RESPONDENT(S)

W I T H
CIVIL APPEAL NO. 12828 OF 2017
CIVIL APPEAL NO. 12757 OF 2017
CIVIL APPEAL NO. 12758 OF 2017
CIVIL APPEAL NO. 12762 OF 2017
CIVIL APPEAL NO. 540 OF 2012
CIVIL APPEAL NO. 528 OF 2012
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CIVIL APPEAL NO. 532 OF 2012
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CIVIL APPEAL NO. 535 OF 2012
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CIVIL APPEAL NO. 533 OF 2012
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CIVIL APPEAL NO. 534 OF 2012
CIVIL APPEAL NO. 537 OF 2012
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CIVIL APPEAL NO. 549 OF 2012
CIVIL APPEAL NO. 551 OF 2012
CIVIL APPEAL NO. 12755 OF 2017
A N D
CIVIL APPEAL NO. 12980 OF 2017
J U D G M E N T
A.K. SIKRI, J.
The singular issue which needs to be considered in these appeals
pertains to claim of depreciation under Section 80-IA of the Income Tax
3
Act, 1961 (hereinafter referred to as the ‘Act’). Interpreting the
provisions of Section 32 of the Act (which prevailed in the relevant
Assessment Years1
) this Court in CIT v. Mahendra Mills2
held that it is a
choice of an assessee whether to claim or not to claim depreciation. As
aforesaid, that decision was rendered in the context of assessing
business income of an assessee under Chapter IV of the Act which is
regulated by Sections 28 to 43D of the Act. Section 32 deals with
depreciation and allows the deductions enumerated therein from the
profits and gains of business or profession. Section 80-IA of the Act, on
the other hand, contains a special provision for assessment of industrial
undertakings or enterprises which are engaged in infrastructure
development etc. This provision allows certain specific kind of
deductions in respect of depreciation. The issue is as to whether claim
for deduction on account of depreciation under Section 80-IA is the
choice of the assessees or it has to be necessarily taken into
consideration while computing the income under this provision. For
better understanding of the aforesaid issue, the factual environment in
which the aforesaid question has germinated, needs to be recapitulated.
For the sake of convenience, facts appearing in Civil Appeal No. 238 of
2012 are taken note of.
1 Section 32 was amended by Finance Act, 2001 and Explanation 5 was
added to nullify the effect of Mahendra Mills case.
2 (2000) 243 ITR 56
4
2) The Assessment Years involved in this appeal are 1997-98 to 2000-01.
The assessee is engaged in the business of manufacture of master
batches and compounds. For this purpose, it had manufacturing
undertakings at Daman Units I and II. Units I and II began to
manufacture article or things in the previous years relevant to
Assessment Years 1994-95 and 1995-96 respectively. Accordingly, for
the year under consideration i.e. Assessment Year 1997-98 profits of the
business of both the undertakings were eligible for 100% deduction
under Section 80-IA of the Act. The assessee did not claim depreciation
while computing its income under the head profits and gains of
business. Consequently, deduction under Section 80-IA was also
claimed on the basis of such profits i.e. without reducing the same by
depreciation allowance. This position was accepted by the Assessing
Officer (AO) in an intimation made under Section 143(1)(a) of the Act.
Likewise, for the Assessment Year 1996-97, the assessee did not claim
deduction on account of depreciation. Though, this position was not
accepted by the AO, the claim of the assessee was upheld by the
Tribunal.
3) Coming to the Assessment Year 1997-98, from which Assessment Year
the dispute has arisen, the annual accounts prepared by the assessee
for the year disclosed that it earned a net profit of Rs.1,80,85,409/-. This
was arrived at after charging depreciation of Rs.64,98,968/- in
5
accordance with the Companies Act, 1956. The assessee filed its return
of income for Assessment Year 1997-98 determining the gross total
income at Rs.2,46,04,962/-. The gross total income included profits and
gains derived from business of undertakings I and II at Daman
aggregating to Rs.2,46,04,962/- which profits were eligible for deduction
under Section 80-IA of the Act. After reducing the gross total income by
the deductions available under Section 80-IA, the total income was
computed at Rs. Nil. The AO initiated reassessment proceedings and
passed an assessment order under Section 143(3) read with Section
147 computing the gross total income at Rs.34,15,583/-. Though, the
assessee had disclaimed deduction in respect of depreciation, the AO
allowed deduction on this account as well in respect of the same in the
sum of Rs.2,13,89,379/- while computing the profit and gains of
business. After reducing the gross total income by the brought forward
loss of Rs.98,47,170/-, he determined the business loss to be carried
forward to Assessment Year 1998-99 at Rs.66,25,587/-.
Aggrieved by the said assessment order, the assessee filed the
appeal before the Commissioner of Income Tax (Appeals) {CIT(A)}
urging that the AO erred in not considering the Tribunal’s decision in the
assessee’s own case for the Assessment Year 1996-97 wherein it had
been held that depreciation cannot be thrust on it. The CIT(A) upheld
the assessee’s submission that claim for depreciation is optional, based
6
on the Tribunal’s order in its own case for Assessment Year 1996-97 and
hence allowed the appeal.
Aggrieved by the appellate order of the CIT(A), the AO filed an
appeal before the Tribunal with the plea that CIT(A) erred in directing
him to work out business profit and deduction under Section 80-IA of the
Act without taking into account the corresponding depreciation amount.
The Tribunal reversed the appellate order of the CIT(A) following the
decision of the High Court of Bombay in Scoop Industries P. Ltd. v.
Income-Tax Officer3
. Aggrieved by the Tribunal’s order, the assessee
filed the appeal thereagainst before the High Court of Bombay under
Section 260A of the Act on the basis that a substantial question of law
arose for consideration. The High Court was pleased to admit the
appeal and formulated the following question of law as arising for
determination:
“Whether the eligible income of an undertaking in respect of
which deductions available under Section 80-IA has to be
reduced by the allowance of depreciation for the year even
though the assessee has exercised the option not to claim
depreciation under Section 32 in arriving at its income of the
undertaking for the purposes of computing the assessee’s
income under the head profits and gains of business or
profession?”
The Division Bench of the High Court at Bombay in the assessee’s
case noticed that there was a conflict of opinion in two earlier decisions
viz. Grasim Industries Ltd. v. Assistant Commissioner of
3 (2007) 289 ITR 195
7
Income-Tax & Ors.4
wherein it was held that the profits and gains
eligible for deduction under Chapter VI-A shall be the same as profits
and gains computed in accordance with the provisions of the Act and
included in the gross total income and the decision in Scoop Industries
P. Ltd. where it was held that depreciation whether claimed or not has to
be reduced for arriving at the profits eligible for deduction under Chapter
VI-A. Noticing this conflict of opinion, the matter was referred to the Full
Bench, to resolve the conflict.
The Full Bench of the High Court of Bombay has upheld the stand
of the Revenue, that, whilst computing a deduction under Chapter VI-A,
it was mandatory to grant deduction by way of depreciation. The High
Court has proceeded on the basis that the computation of profits and
gains for the purposes of Chapter VI-A is different from computation of
profits under the head ‘profits and gains of business’. It has, therefore,
concluded that, even assuming that the assessee had an option to
disclaim current depreciation in computing the business income,
depreciation had to be reduced for computing the profits eligible for
deduction under Section 80-IA of the Act. The High Court concluded
that Section 80-IA provides for a special deduction linked with profits and
is a code by itself and in so doing relied on the decisions of this Court in
the case of Liberty India v. Commissioner of Income Tax5
,
4 (2000) 245 ITR 677
5 (2009) 317 ITR 218
8
Commissioner of Income Tax v. Williamson Financial Services &
Ors.6
and Commissioner of Income Tax, Dibrugarh v. Doom Dooma
India Ltd.7
. The High Court proceeded on the basis that this Court in
the aforementioned decisions has held that for computing such special
deduction, any device adopted by an assessee to reduce or inflate the
profits of such eligible business has to be rejected. The High Court
ultimately held that the quantum of deduction eligible under Section
80-IA has to be determined by computing the gross total income from
business after taking into consideration all the deductions allowable
under Sections 30 to 43D including depreciation under Section 32.
4) After the Full Bench answered the reference in the aforesaid manner,
the appeal of the assessee was disposed of by the Division Bench vide
order dated November 03, 2009 following the aforesaid opinion of the
Full Bench. This is how the matter has travelled up to this Court.
5) The relevant portion of the provisions of Section 80-IA of the Act, which
was in vague during the concerned Assessment Years8
, reads as under:
“80-IA. Deductions in respect of profits and gains from
industrial undertakings etc., in certain cases.- (1) Where the
gross total income of an assessee includes any profits and
gains derived from any business of an industrial undertaking or
a hotel or operation of a ship or developing, maintaining and
6 (2008) 297 ITR 17
7 (2009) 310 ITR 392
8 It may be mentioned that Section 80-IA inserted by the Finance (No.2)
Act, 1991 and was amended from time to time. The provision was recasted and substituted by
Finance Act, 2001 and certain amendments made to that provision also thereafter. We are, however,
concerned with the provision that was in force before its amendment vide Finance Act, 2001.
9
operating any infrastructure facility or scientific and industrial
research and development or providing telecommunication
services whether basic or cellular including radio paging,
domestic satellite service or network of trunking and electronic
data interchange services or construction and development of
housing projects or operating an industrial park or commercial
production or refining of mineral oil in the North Eastern Region
or in any part of India on or after the 1st day of April, 1997 (such
business being hereinafter referred to as the eligible business),
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 from
such profits and gains of an amount equal to the percentage
specified in sub-section (5) and for such number of
assessment years as is specified in sub-section (6).”
6) It is not in dispute that all the assessees in these appeals are those
industrial undertakings which fulfil the conditions mentioned in Section
80-IA and, therefore, are entitled to deductions as stipulated in
sub-section (5) of the said Section. It is also not in dispute that all the
assessees fall in that category of industrial undertakings which are
entitled to 100% deduction of the profits and gains derived from such
industrial undertakings for the specified number of years. It is also an
admitted fact that for the Assessment Years in question, they were
entitled to the aforesaid deduction and their assessments were
completed under Section 80-IA of the Act. Submission of Mr. Pardiwala,
the learned senior counsel for the assessees, was that deduction is to
be allowed from ‘such profits and gains’ and, therefore, in the first
instance, profits and gains which are earned by the assessees in the
relevant Assessment Year are to be computed. For computation of such
10
profits and gains, one has to go back and apply the provisions from
Section 28 onwards contained in Part D of Chapter IV dealing with
‘profits and gains from business or profession’. Section 29 of the Act, in
this behalf, specifically stipulates that income referred to in Section 28
shall be computed in accordance with provisions contained in Sections
30 to 43D. In this hue, he argued, when it comes to claiming
depreciation, Section 32 of the Act gets attracted and interpreting this
Section, it has been held in Mahendra Mills case that whether to claim
depreciation or not is the option of the assessees and it cannot be
thrusted upon the assessees. Following passage from the said
judgment was relied upon by the learned senior counsel:
“40. We do not think that the Gujarat High Court in the case
of Gujarat State Warehousing Corpn. [(1976) 104 ITR 1 (Guj)]
has taken the correct view in respect of the issues with which
we are concerned in the present appeal. The High Court has
not properly appreciated the context in which this Court made
observations in the case of Jaipuria China Clay Mines (P)
Ltd. [(1966) 59 ITR 555 : AIR 1966 SC 1187] on which the High
Court has relied. In the later two cases of Chokshi Metal
Refinery [(1977) 107 ITR 63 (Guj)] and Arun Textile “C” [(1991)
192 ITR 700 (Guj)] the Gujarat High Court has itself taken, if
we may say so, a different view falling in line with the views of
the Bombay, Punjab and Haryana, Karnataka, Andhra
Pradesh, Calcutta and Kerala High Courts which view
commends to us. The language of the provisions of Sections
32 and 34 is specific and admits of no ambiguity. Section 32
allows depreciation as deduction subject to the provisions of
Section 34. Section 34 provides that deduction under Section
32 shall be allowed only if prescribed particulars have been
furnished. We have seen Rule 5-AA of the Rules which though
since deleted provided for the particulars required for the
purpose of deduction under Section 32. Even in the absence of
Rule 5-AA return of income in the form prescribed itself
requires particulars to be furnished if the assessee claims
depreciation. These particulars are required to be furnished in
11
great detail. There is a circular of the Board dated 31-8-1965,
which provides that depreciation could not be allowed where
the required particulars have not been furnished by the
assessee and no claim for the depreciation has been made in
the return. The Income Tax Officer in such a case is required to
compute the income without allowing depreciation allowance.
The circular of the Board dated 11-4-1955 is of no help to the
Revenue. It imposes merely a duty on the officers of the
Department to assist the taxpayers in every reasonable way,
particularly, in the matter of claiming and securing relief. The
officer is required to do no more than to advise the assessee. It
does not place any mandatory duty on the officer to allow
depreciation if the assessee does not want to claim that.
Provision for claim of depreciation is certainly for the benefit of
the assessee. If he does not wish to avail that benefit for some
reason, benefit cannot be forced upon him. It is for the
assessee to see if the claim of depreciation is to his
advantage. Rather, the Income Tax Officer should advise him
not to claim depreciation if that course is beneficial to the
assessee. That would be in our view the spirit of the circular
dated 11-4-1955. Income under the head “Profits and gains of
business or profession” is chargeable to income tax under
Section 28 and that income under Section 29 is to be
computed in accordance with the provisions contained in
Sections 30 to 43-A. The argument that since Section 32
provides for depreciation it has to be allowed in computing the
income of the assessee cannot in all circumstances be
accepted in view of the bar contained in Section 34. If Section
34 is not satisfied and particulars are not furnished by the
assessee his claim for depreciation under Section 32 cannot
be allowed. Section 29 is thus to be read with reference to
other provisions of the Act. It is not in itself a complete code.”
7) He also referred to sub-sections (9) and (10) of Section 80-IA which
provide for specific eventualities for the purpose of deductions under the
said Section and submitted that insofar as depreciation is concerned,
that was not mentioned therein. Thus, according to him, it is these two
sub-sections which contained special provisions and except that, for
computing the profits and gains of the business, Sections 30 to 43D had
to be applied which would embrace Section 32 as well.
12
8) Counsel appearing in other appeals for the assessees made their
submissions almost on the same lines thereby virtually adopting the
arguments advanced by Mr. Percy.
9) Learned counsel for the Revenue emphatically refuted the aforesaid
submissions. He extensively referred to the Full Bench judgment of the
High Court, justifying the view taken therein on the reasoning contained
in the said judgment. In addition, he submitted that the very basis of the
judgment of this Court in Mahendra Mills Limited has been knocked off
by the Parliament with the addition of Explanation 5 to Section 32 vide
Finance Act, 2001. Though, this provision was given effect to from April
1, 2002, his submission was that it is declaratory in nature and,
therefore, has to be applied retrospectively. In order to buttress this
submission, he relied upon the following judgments:
(i) CIT, Bombay v. M/s Gwalior Rayon Silk Manufacturing Co.
Ltd.9
(ii) Commissioner of Income Tax v. M/s Alps Theatre10
(iii) Commissioner of Income Tax-I, Ahmedabad v. Gold Coin
Health Food Private Limited11
10) In rejoinder, Mr. Percy argued that Explanation 5 to Section 32 was
9 (1992) 3 SCC 326
10 AIR 1967 SC 1437 = (1967) 3 SCR 181
11 (2008) 9 SCC 622
13
specifically made applicable w.e.f. April 1, 2002 and was, therefore,
prospective in nature. In this behalf, he referred to three High Court
judgments rendered by Kerala High Court, Madras High Court and
Punjab & Haryana High Court which had taken the view as projected by
him in the following cases:
(i) Commissioner of Income-Tax v. Kerala Electric Lamp Works
Ltd. & Anr.12
,
(ii) Commissioner of Income Tax v. Sree Senhavalli Textiles P.
Ltd.13 and
(iii) Shri Ram Nath Jindal and Shri Jaghjiwan Ram v. The
Commissioner of Income-Tax, Haryana, Rohtak14

He argued that wherever Legislature wanted a particular
amendment to be retrospective in nature, it was specifically provided so.
11) Before dealing with the aforesaid submissions, let us first discern
the reasons which prevailed with the Full Bench of the Bombay High
Court in arriving at the said conclusion.
12) We have already mentioned that Full Bench of the Bombay High
Court answered the reference by holding that depreciation had to be
reduced for computing the profits eligible for deduction under Section
80-IA of the Act, as it was a complete code in itself. For arriving at the
said conclusion, the Full Bench took note of the relevant provisions of
12 (2003) 261 ITR 721
13 (2003) 259 ITR 77
14 (2001) 252 ITR 590
14
Chapter VI-A, particularly, Section 80A, Section 80AB and Section 80B
as well as Section 80-IA of the Act. Contrasting the provisions of
Chapter VI-A with Chapter IV, the High Court remarked that whereas
Chapter IV contains provision relating to the computation of total income
under various heads of income as also the deductions that are allowable
under each head, Chapter VI contains provisions relating to the
aggregation of income and set off or carry forward of loss. Chapter VI-A
of the Act, on the other hand, provides for special deductions that are
allowed at such rates that are specified in the respective provisions on
the gross total income of the assessee. Keeping in view the aforesaid
scheme of these Chapters, the High Court distinguished the judgment of
this Court in Mahendra Mills and held it to be not applicable, when
dealing with the cases under Section 80-IA of the Act. In the process,
the High Court gave the following three reasons:
“31. However, it is pertinent to note that firstly, the decision of
the Apex Court in the case of Mahendra Mills (supra) was
rendered in the context of determining total income of an
industrial undertaking under Chapter IV of the Act and not in
the context of determining the deduction under Chapter VIA of
the Act. Secondly, what is held by the Apex Court in the case
of Mahendra Mills (supra) is that, when there are two
provisions under which an assessee can claim some benefit, it
is for the assessee to choose one and that the consequence of
the assessee not claiming depreciation in the current year
would be that the written down value would remain the same
for the following year (see 243 ITR 56 at Page 62). Thirdly, the
Apex Court in the case of Mahendra Mills (supra) has not laid
down any proposition of law that by disclaiming depreciation,
the assessee can claim enhanced deduction allowable under
any other provision in the Act.
32. The choice or the option available to an assessee to claim
15
or not to claim current depreciation as per the decision of the
Apex Court in the case of Mahendra Mills (supra) can be
elucidated by an illustration. Suppose an assessee is carrying
business in scientific research. That assessee would be
entitled to deduction under section 32 (current depreciation on
the plant and machinery used for that business) as well as
deduction under section 35(1)(iv) (capital expenditure on the
scientific research business). In such a case, it cannot be said
that the legislature intended to give double deduction in
respect of the same business outgoing and the assessee
would have to choose one out of the above two deductions and
cannot claim both the deductions. In these circumstances, the
Apex Court in the case of Mahendra Mills(supra) has observed
that the assessee has an option to disclaim depreciation and
that the consequence of disclaiming depreciation would be that
the written down value of the asset would remain the same for
the following year. Thus, even according to the Apex Court,
disclaiming of depreciation cannot result in enhancement in the
quantum of deduction that is allowable under any other
provision in the Act.”
13) The High Court also observed that in Mahendra Mills case, this
Court neither consider the scope of deduction under Chapter VI-A nor
the said decision can be read to mean that by disclaiming current
depreciation, the assessees can claim enhanced deduction under any
other provisions in the Act.
14) After removing the applicability of Mahendra Mills on the
aforesaid grounds, the High Court proceeded to consider as to whether
it can be said that the quantum of deduction allowable under Section
80-IA depend upon the assessees claiming or not claiming current
depreciation? The Full Bench went on to answer this question with the
observations that it was no longer res integra as the Apex Court had
reflected thereupon in the case of Liberty India and quoted the
following passage from the said judgment in support of its aforesaid
16
remarks:
“13. Before analyzing section 80-IB, as a prefatory note, it
needs to be mentioned that the 1961 Act broadly provides for
two types of tax incentives, namely, investment linked
incentives and profit linked incentives. Chapter VI-A which
provides for incentives in the form of tax deductions essentially
belong to the category of “profit linked incentives”. Therefore,
when section 80-IA/80-IB refers to profits derived from eligible
business, it is not the ownership of that business which attracts
the incentives. What attracts the incentives under section
80-IA/80-IB is the generation of profits (operational profits). For
example, an assessee company located in Mumbai may have
a business of building housing projects or a ship in Nava
Sheva. Ownership of a ship per se will not attract section 80-IB
(6). It is the profits arising from the business of a ship which
attracts sub-section (6). In other words, deduction under
sub-section (6) at the specified rate has linkage to the profits
derived from the shipping operations. This what we mean in
drawing the distinction between profit linked tax incentives and
investment linked tax incentives. It is for this reason that
Parliament has confined deduction to profits derived from
eligible businesses mentioned in sub-sections (3) to (11A) [as
they stood at the relevant time]. One more aspect needs to be
highlighted. Each of the eligible business in sub-sections (3) to
(11A) constitutes a stand-alone item in the matter of
computation of profits.’That is the reason why the concent of
“Segment Reporting” stands introduced in the Indian
Accounting Standards (IAS) by the Institute of Chartered
Accountants of India (ICAI).
14. Analysing Chapter VI-A, we find that sections 80-IB/80-IA
are the Code by themselves as they contain both substantive
as well as procedural provisions. Therefore, we need to
examine what these provisions prescribe for “computation of
profits of the eligible business”. It is evident that section 80-IB
provides for allowing of deduction in respect of profits and
gains derived from the eligible business. The words “derived
from” in narrower in connotation as compared to the words
“attributable to”. In other words, by using the expression
“derived from”, Parliament intended to cover sources not
beyond the first degree. In the present batch of cases, the
controversy which arises for determination is: whether the
DEPB credit/Duty drawback receipt comes within the first
degree sources? According to the assessee(s), DEPB
credit/duty drawback receipt reduces the value of purchases
(cost neutralization), hence, it comes within first degree source
as it increases the net profit proportionately. On the other hand,
17
according to the Department, DEPB credit, duty drawback
receipt do not come within first degree source as the said
incentives flow from Incentive Schemes enacted by the
Government of India or from section 75 of the Customs Act,
1962. Hence, according to the Department, in the present
cases, the first degree source is the incentive
scheme/provisions of the Customs Act. In this connection,
Department places heavy reliance on the judgment of this
Court in Sterling Food (supra). Therefore, in the present cases,
in which we are required to examine the eligible business of an
industrial undertaking, we need to trace the source of the
profits to manufacture [see CIT v. Kirloskar Oil Engines Ltd.,
reported in (1986) 157 ITR 762].
15. Continuing our analysis of sections 80-IA/80-IB it may be
mentioned that sub-section (13) of section 80-EB provides for
applicability of the provisions of sub-section (5) and
sub-sections (7) to (12) to section 80-IA, so far as may be,
applicable to the eligible business under section 80-IB.
Therefore, at the outset, we stated that one needs to read
sections 80-1, 80-IA and 80-EB as having a common Scheme.
On perusal of sub-section (5) of section 80-IA, it is noticed that
it provides for manner of computation of profits of an eligible
business. Accordingly, such profits are to be computed as if
such eligible business is the only source of income of the
assessee. Therefore, the devices adopted to reduce or inflate
the profits of eligible business has got to be rejected in view of
the overriding provisions of sub-section (5) of section 80-IA,
which are also required to be read into section 80-IB. [see
section 80-EB(13)]. We may reiterate that sections 801, 80-IA
and 80-IB have a common scheme and if so read it is clear
that the said sections provide for incentives in the form of
deduction(s) which are linked to profits and not to investment.
On analysis of sections 80-IA and 80-EB it becomes clear that
any industrial undertaking, which becomes eligible on
satisfying sub-section (2), would be entitled to deduction under
sub-section (1) only to the extent of profits derived from such
industrial undertaking after specified date(s). Hence, apart from
eligibility, sub-section (1) purports to restrict the quantum of
deduction to a specified percentage of profits. This is the
importance of the words “derived from industrial undertaking”
as against “profits attributable to industrial undertaking.
(Emphasis supplied)”
15) The High Court also took aid of the following discussion from the
18
judgment of this Court in Williamson Financial Services and held that:
“In this connection, it is also important to note that section 80A
which falls in Chapter VI-A, deductions are allowed only from
‘gross total income”. The object for making such provision is to
limit the amount of section 80HHC deduction. It is true that
section 80HHC provides for deduction of a percentage of the
export profits. The percentage is calculated with reference to
the export profits, but the deduction is only from “gross total
income” as defined under section 80B(5) of the 1961 Act.
Therefore, the very scheme of the 1961 Act is to treat the
deductions under Chapter VI-A as deductions only from “gross
total income” in order to arrive at the “total income“. In other
cases falling under section 28 where computation of income
falls under the head “Business”, allowances are deductible
from the income but not from “gross total income”. It is,
therefore, not possible to accept the contention that section
80HHC is part of the provisions for computation of business
income. Section 80 HHC does not have any direct impact on
the computation of business income in the manner in which, for
example, section 72 affects the computation of business
income.”
16) The High Court also noted that in Doom Dooma India Ltd., this
Court had specifically remarked that Chapter VI-A refers to special
deduction. It is a distinct code by itself. It was also held in the said
judgment that there was a clear distinction between
‘deductions/allowances in Section 30 to 43D’ and ‘deductions admissible
under Chapter VI-A’ inasmuch as deductions/ allowances provided in
Sections 30 to 43D are allowed in determining gross total income and
are not chargeable to tax because the same constitute a charge on
profit, whereas, deductions under Chapter VI-A are allowed from gross
total income chargeable to tax. After discussing the aforesaid three
judgments of this Court, the High Court noticed that Section 80-IA is a
19
code by itself and deduction allowable under Section 80-IA is a special
deduction which is linked to profits, unlike deductions contained in
Chapter IV of the Act which are linked to investment.
17) The aforesaid conclusion of the Full Bench is based on the
judgments of this Court and there is no reason to disagree with the
same, on finding that the judgments of this Court are rightly analysed
and ratio thereof is correctly understood and applied. We, thus, entirely
agree with the Full Bench judgment of the Bombay High Court in
Plastiblends India Limited v. Additional Commissioner of
Income-Tax & Ors.15 and the following manner in which the position has
been summed up by the High Court:
“44. To summarise, firstly, the Apex Court decision in the case
of Mahendra Mills (supra) cannot be construed to mean that by
disclaiming depreciation, the assessee can claim enhanced
quantum of deduction under section 80IA. Secondly, the Apex
Court in the case of Distributors (Baroda) P. Ltd. (supra) and in
the case of Liberty India (supra) has clearly held that the
special deduction under Chapter VIA has to be computed on
the gross total income determined after deducting all
deductions allowable under sections 30 to 43D of the Act and
any device adopted to reduce or inflate the profits of eligible
business has got to be rejected. Thirdly, this Court in the case
of Albright Morarji and Pandit Ltd. (supra), Grasim Industries
Ltd. (supra) and Asian Cable Corporation Ltd. (supra) has only
followed the decisions of the Apex Court in the case
of Distributors Baroda (supra). Thus, on analysis of all the
decisions referred hereinabove, it is seen that the quantum of
deduction allowable under section 80-IA of the Act has to be
determined by computing the gross total income from
business, after taking into consideration all the deductions
allowable under sections 30 to 43D of the Act. Therefore,
whether the assessee has claimed the deductions allowable
under sections 30 to 43D of the Act or not, the quantum of
15 (2009) 318 ITR 352
20
deduction under section 80IA has to be determined on the total
income computed after deducting all deductions allowable
under sections 30 to 43D of the Act.”
18) As is clear from the arguments advanced by Mr. Pardiwala, main
thrust of his argument was predicated on the judgment of this Court in
Mahendra Mills, which according to us, cannot be applied while
interpreting Section 80-IA of the Act. It may be stated at the cost of the
repetition that judgment in Mahendra Mills was rendered while
construing the provisions of Section 32 of the Act, as it existed at the
relevant time, whereas we are concerned with the provisions of Chapter
VI-A of the Act. Marked distinction between the two Chapters, as
already held by this Court in the judgments noted above, is that not only
Section 80-IA is a code by itself, it contains the provision for special
deduction which is linked to profits. In contrast, Chapter IV of the Act,
which allows depreciation under Section 32 of the Act is linked to
investment. This Court has also made it clear that Section 80-IA of the
Act not only contains substantive but procedural provisions for
computation of special deduction. Thus, any device adopted to reduce
or inflate the profits of eligible business has to be rejected. The
assessees/appellants want 100% deduction, without taking into
consideration depreciation which they want to utilise in the subsequent
years. This would be anathema to the scheme under Section 80-IA of
the Act which is linked to profits and if the contention of the assessees is
21
accepted, it would allow them to inflate the profits linked incentives
provided under Section 80-IA of the Act which cannot be permitted.
19) Having interpreted the provisions of Section 80-IA in the aforesaid
manner, it is not necessary to go into the other question, viz., whether
Explanation 5 to Section 32 of the Act is declaratory in nature or it is to
be applied prospectively. Judgments cited by both the sides on this
aspect, therefore, need not be dealt with.
20) Result of the aforesaid discourse would be to hold that there is no
merit in any of the appeals filed by the assessees which are accordingly
dismissed.
………………………………………J.
(A.K. SIKRI)
………………………………………J.
(ASHOK BHUSHAN)
NEW DELHI;
OCTOBER 9, 2017.