Full Judgment
2. The learned CIT (Appeals) did not appreciate that what could be excluded from computation of business profits for the purpose of deduction under section 80HHC is the amount included in such profits and not gross receipts.
3. The learned CIT (Appeals) did not appreciate the facts with regard to deduction of freight and insurance from Export turnover.
4. The learned CIT (Appeals) erred in holding that benefit of deduction under section 80-IA was not permissible to the appellant as the deduction was already allowed under section 80HHC.5. The learned CIT (Appeals) did not appreciate that his concluision as above was not warranted+y any provisions of the Income Tax Act, 1961 as in force at the relevant time.
6. The learned CIT (Appeals) erred in holding that insertion of section 80-IA (9) though prospective, has been mainly to clarify or declare the earlier existing provisions.' The first ground is regarding exclusion of freight and insurance from direct cost of trading goods. The Commissioner (Appeals) had decided the issue against the assessee by following his order for the assessment year 1996-97. This order came up for consideration before ITAT in ITA No. 2347/Mum./04. Vide their order dated 11-7-2005. Hon'ble ITAT observed as under : "We have considered the rival submissions and we are inclined to agree with the contention of the learned counsel for the assessee that freight and insurance attributable to the transport of goods beyond the custom station cann be added to the direct cost of the goods as the same is already excluded from the export turnover. But for the limited purpose of verification as to whether the freight and insurance added by the assessee officer to the direct cost of trading export is attributable to the transport of the goods beyond custom station, we set aside this matter to the file of the assessing officer with a direction to verify this fact and if it is found that this payment of freight and insurance is attributable to the transport of the goods beyond the custom station, then it should not be added to the direct cost and if it is found that it is attributable to the transport of the goods within the custom station then it can be added to the direct cost but shall not be excluded from the export turnover as per the definition of the export turnover given in Explanation (b) of section 80HHC(4C). This ground of the assessee stands allowed for statistical purposes." Since facts and circumstances of the case this year are the same as for the previous year, we respectfully following the decision of the ITAT as referred above, restore the issue to the file of the assessing officer to verify whether freight and insurance are attributable to the transport of goods beyond 'custom station', and if yes, then it should not be added to the direct cost and if it relates to transportation within the custom station', then it should be added to the direct cost and will not be excluded from turnover. Hence, the issue is set aside.
This ground is allowed for statistical purpose.
Ground No. 2, relates to whether deduction under section 80-IA would be available along with deduction under section 80HHC or deduction under section 80-IA would be restricted because the assessee is also getting deduction under section 80HHC. The assessing officer disallowed the claim of Rs. 17,75,930 under section 804A. It was argued before the Commissioner (Appeals) that (i) section 80HHC and section 80-IA are independent of each other. Deduction under both can be claimed (ii) sub-section 9A of section 80-IA was introduced with effect from 1-4-1999 and was not retrospective. It is also not declaratory (iii) Prior to 1-4-1999 there is no provision under sections 80HHC and 80-IA to the effect that if deduction under one section is claimed then deduction in other section cannot be claimed or has to be restricted (iv). As per decision of J.P. Tobacco Products (P) Ltd. v. CIT ( 1998) 229 ITR 123 (MP) deduction under both sections 80MM and 80-IA can be claimed.
The Commissioner (Appeals) considered the submission of the assessee and held that an assessee could not claim deduction on the same profits twice under two different sections. Assessee has got 100 per cent deduction under section 80HHC or profits and if further deduction is allowed then total deduction would be more than 100 per cent. The learned Commissioner (Appeals) relied on the observation of Honble Supreme Court in Escorts Ltd. v. Union of India (1993) 199 ITR 431 (SC), given in the context of claim of deductions under sections 10(2)(vi) and 10(2)(xiv) of 1922 Act, i.e., usual depreciation as well as special allowance for scientific research. Hon'ble Supreme Court held that two deductions on same asset or expenditure could not be allowed. Further where two deductions are to be allowed then same should be specifically provided in the statute. In absence of specific provision in the statute, two deductions on the same asset/ expenditure could not be provided.
The learned Commissioner (Appeals) further observed that the Hon'ble Judges of Apex Court in Escorts Ltd.'s case (supra) also expressed their view on the insertion of legislation and held that "in our view the intention of Legislature is not to allow double deduction (of 200 per cent) in respect of the same asset once under section 35 and again by way of depreciation under section 32". According to learned Commissioner (Appeals) while introducing sub-section (9A) in section 80-IA, the intention of the Legislature was to provide that where the deduction on the profits and gain of an Industrial Undertaking is claimed under the said section then profits to that extent shall not qualify for deduction under any other provisions of Chapter VIA. The learned Commissioner (Appeals) then referred to Memorandum explaining the provisions in Finance (No. 2) Bill, 1998 to the effect that this amendment intended to prevent the tax payers from taking advantage of existing provisions by claiming repeated deduction in respect of the same amount of eligible income. This Bill was proposed to be effective with effect from 1-4-1990. Thus, the Legislature intended to clarify that sub-section (9A) is declaratory in nature. The learned Commissioner (Appeals) then referred to the decision of Hon'ble Supreme Court in CIT v. Anand Theatres (2000) 110 Taxman 338 (SC) for the proposition that real intent of Income Tax Act is to get a true picture of real income of the business and if double deduction on the same income, exceeding more than 100 per cent is allowed, the real income of the assessee would not be arrived at. Thus, the main thrust of the learned Commissioner (Appeals) was that the assessee is claiming double deduction on the same income, once under section 80HHC and then under section 80IA. He, thus, confirmed the order of the assessing officer.
Before us the learned authorised representative of the assessee Mr.
Dastur submitted that subsection (9A) in section 80-IA was added to the statute with effect from 1-4-1999. It was initially proposed to be made effective from 1-4-1990 as per Finance (No. 2) Bill introduced in the Parliament but finally, it was made prospective by making it effective from 1-4-1999. Thus, the intention of the legislation is clear. They did not want to make it applicable to assessment year prior to 1-4-1999. This aspect was considered by Hon'ble Rajasthan High Court in CIT v. Rochiram & Sons (2004) 271 ITR 444 (Raj); Hon'ble ITAT (Bangalore) in Mittal Clothing Co. v. Dy. CIT (2005) 4 SOT 626 (Bang-Trib) held that when more than 100 per cent deduction of profits are not claimed then deduction under section 80-IB as well as under section 80HHC can be allowed. He further submitted that the deduction under section 80HHC is claimed in respect of profits whereas deduction under section 80-IA is allowable only on income. Hence there is no double deduction as such on the same income or profits. The bases for working out the deductions under two sections are different.
On the other hand, the learned Departmental Representative relied on the orders of the authorities below and submitted that in any case there is a double deduction. On same income/profit which is not permissible in view of Hon'ble Supreme Court decision in Escorts Ltd's case (supra). Further, sub-section (9A) of section 80-IA should be held declaratory as it intended to explain the intention of the Legislature.
Finally, the learned Departmental Representative submitted that, without prejudice to above arguments, the total deductions under Chapter VIA should not exceed the gross total income worked out before deductions under this Chapter.
We have heard the rival submission; case laws cited by the parties and perused the material on record. Following issues arise in this case.
(1) How is the capping under section 80-IA (9A) is workable (ii) whether introduction of sub-section (9A) in section 80-IA is prospective or retrospective or whether it can be called declaratory so that it would be effective for the assessment prior to 1-4-1999 (iii) whether the deduction under section 80-IA would affect the computation of deduction under section 80HHC or vice versa (iv) whether deduction under both sections are permissible and whether section 80A would be operative on combined deductions.
Sub-section (9A) to section 80-IA introduced by Finance Act (No. 2) of 1998 with effect from 1-4-1999 reads as under: "9A. Where any amount of profits and gains of the industrial undertaking or of a hotel 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 income' and shall in no case exceed the profits and gains of the undertaking or the hotel, as the case may be." It envisages a situation where deduction under section 80-IA is claimed and allowed to an eligible Industrial Undertaking then deduction to that extent shall not be allowed under any other sections of 80HH to 80RRA falling under heading "C-Deduction in respect of certain income" Upper limit of the multiple deductions under different sections in heading 'C' under Chapter VI-A is the total profits and gains of the undertaking. Thus, for example, where one industrial undertaking is also exporting, it is entitled to deductions both under sections 80HHC as well as 80-IA and where deduction under section 80-IA is higher than deduction under section 80HHC, then total deduction under two sections will be limited to deduction under section 80-IA. On the other hand, where deduction under section 80HHC is higher than deduction under section 80-IA then total deductions under two sections will be limited to the deduction granted under section 80HHC. In other words, after allowing one of the two deductions under one section, the balance would be allowed in other section. If higher of the two is already allowed in one section, nothing further will be allowed in other section. But in no case the total deduction under two sections will exceed the profits and gains of the industrial undertaking. Prior to 1-4-1999 the two deductions were held mutually exclusive as held in CIT v. Choksi Contacts (P) Ltd. "Chapter VI-A, which consists of sections 80A to 80V of the Income Tax Act, 196 1, becomes operative on reaching the last stage of computation of income from different sources. The expression "gross total income", in various sections of Chapter VI-A, has been assigned a special meaning to mean total income computed in accordance with the provisions of the Income Tax Act, 1961, except any provision under Chapter VI-A.Computation of gross total income of the industrial undertaking for the purpose of deduction under section 80HH and section 80-I operates independently and has to be made without making any deduction under Chapter VI-A.The language and intent of the provisions of sub-section (9) of section 80HH make it clear that the three deductions, viz., under section 80HH, section 80-I and section 80-J, are simultaneously permissible and not mutually exclusive. The provision only fixes the priority of order in which deduction under each provision is to be adjusted in the gross total income derived from such industrial undertaking to which section 80HH or section 80-I or section 80J respectively apply simultaneously.
In case any industrial undertaking falls in the category of new unit established in a backward area and it is entitled to avail of the benefit under all the provisions, deduction under section 80HH is to be made in the first instance which is with an object to promote industrial establishment in backward areas and only thereafter deduction computed under section 80-I or section 80J shall be given effect to." From the above, if follows that deduction under sections 80HHC and 80-IA are not mutually exclusive and both are simultaneously permissible.
The revenue has contended that the introduction of sub-section (9A) to section 80-IA is declaratory in nature and hence would be effective for years earlier to 1-4-1999 even though mentioned in the Amendment Act as effective from 1-4-1999. We are not convinced. The controversy, if any, has been set on rest by the decision of the Hon'ble Rajasthan High Court in CIT v. Rochiram & Sons (2004) 271 ITR 444 (Raj). The head notes from that decision are as under: "The provisions of section 80-IA of the Income Tax Act, 1961, have been amended by insertion of sub-section (9A) which provides that if deduction under any of the sections has been allowed under Chapter VI-A and if any further deduction is to be allowed under any other section, that should be allowed only on the balance amount. This amendment has been brought by the Act of 1998 and made effective from 1-4-1999. Prior to the amendment, section 80-IA did not provide that if deduction under section 80HHC has been allowed on the gross total income, deduction under section 80-IA should be allowed only on the balance income, i.e., the amount remaining after deduction under section 80HHC. When there is no such provision or intention of the Legislature to allow deduction under section 80-IA on the balance amount, there is no justification to allow deduction under section 80-IA only on the balance amount, ie., the amount which remained after deduction under section 80HHC." Even Legislature intends is contrary to what revenue has contended. As per Financial (No. 2) Bill, 1989 (Bill No. 51 of 1998), this amendment was intended to be inserted w.e.f. 1-4-1991 to be effective from assessment year 1991-92 as under: "It is proposed to insert a new sub-section (9A) in section 80-IA so as to provide that where an amount of profits and gains of an industrial undertaking or a hotel, is claimed and allowed under the said section, the profits to that extent shall not qualify for deduction for any assessment year under any other provision of Chapter VI-A and in no case shall exceed the eligible profits of the industrial undertakings or hotel, as the case may be. This amendment will take effect retrospectively from 1-4-1991, and will, accordingly, apply to the assessment year 1991-92 and subsequent years." Memorandum explaining the provisions of the Finance Bill reads out as under: "Therefore, the object of insertion of section 80-IA(9A), which later became 80-IA(9) in the present section, was to prevent deduction of more than 100 per cent of profits and gains of the undertaking by claiming multiple deduction. The object of insertion of section 80-IA(9A) was not to prevent claim of deduction under more than one section, under Chapter VIA where the assessee satisfies conditions of these sections, but only to ensure that the sum total of the deductions so claimed by the assessee does not exceed the profits and gains of the undertaking in respect of which deductions are allowable." However, when bill was passed, the amendment was made effective from 1-4-1999. In other words, a conscious intention was expressed to make the amendment effective with effect from 1-4-1999 even though it was proposed in the bill that it would be made effective from 1-4-1991.
We are, therefore, in agreement with the views canvassed by learned Counsel for the assessee that introduction of sub-section (9A) in section 80-IA was not declaratory as well as it was only prospective to be effective for and from assessment year 2000-01.
In our considered view the computation of deduction under section 80HHC and section 80-IA would not affect each other. Both are based on different provisions. Deduction under section 80HHC is based on exports and foreign exchange brought into India whereas deduction under section 80-IA is available for specific industrial activity. Certain percentage of eligible profits from that industrial undertaking is allowed as deduction. Question involved was whether deduction allowed under section 80HHC could be reduced from the total income for computation of deduction under section 80IA. This question was considered by the Hon'ble Rajasthan High Court in Rochiram & Sons case (supra) as under: "The only dispute between the assessee and the department is as to whether the deduction under section 80-IA should be allowed only on the balance amount, ie., the amount remained after deduction under section 80HHC or on the gross total income. Even section 80-IA of the Act does not provide that if deduction under section 80HHC has been allowed on the gross total income, deduction under section 80-IA should be allowed only on the balance income, ie., the amount remained after deduction under section 80HHC.When there is no such provision or intention of the Legislature to allow deduction under section 80-IA on the balance amount, there is no justification to allow deduction under section 80-IA only on the balance amount ie., the amount remained after deduction under section 80HHC of the Act. In the absence of such an intention, deduction under section 80-IA of the Act should also be allowed on the gross total amount, as the words used in sub-section (1) of section 80A of the Act for deduction are "gross total income" and not on the balance amount after any deduction made under any section." It is thus clear that deduction under one section cannot be reduced while computing deduction under other section.
Thus the computation of total deduction is to be done independently without being affected by each other. However, thereafter the provisions of section 80A would come into operation and restriction on total deduction under two sections will be placed. One of the two restrictions (one being that total deductions under two sections together would not exceed the higher of the two after 1-4-1999) is that the total deduction under two sections will not exceed total profits and gains of the industrial undertaking ie., it will not be more than 100% of the profits of industrial undertaking. It has been elaborately discussed in the decision of ITAT in Mittal Clothing Co. v. Dy. CIT (2005) 4 SOT 626 (Bang.) wherein it has held as under : "The object of insertion of section 80-IA(9A), which later became section 80-IA(9), the present section, was to prevent deduction of more than 100 per cent of profits and gains of the undertaking by claiming multiple deduction. The object of insertion of section 80-IA(9A) was not to prevent the claim of deduction under more than one section under Chapter VI-A, where the assessee satisfies the conditions of those sections, but only to ensure that the sum total of the deduction so claimed by the assessee does not exceed the profits and gains of the undertaking in respect of which deductions are allowable." Now the last issue relevant to the present appeals is as to whether provisions of section 80A would be operative. In our considered view, as supported by the decision of Hon'ble Rajasthan High Court in Rochiram & Sons'case (supra), the total deduction under Chapter VI-A cannot exceed gross total income. Section 80A reads as under: "80A.Deductions to be made in computing total income.-(1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 80U.(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.
(3) Where, in computing the total income of an association of persons or a body of individuals, any deduction is admissible under section 80G or section 80GGA or section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA or section 80J or section 80JJ, no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals." Thus it is clear from sub-section (2) that total deduction under Chapter VI-A will not exceed gross total income computed before giving deduction under Chapter VI-A.(a) Sub-section (9A) to section 80-IA is prospective to be effective from 1-4-1999. It is also not declaratory.
(b) Deduction under sections 80HHC and 80-IA are mutually exclusive prior to 1-4-1999.
(c) After 1-4-1999 capping on two deductions is to be done as persection 80-IA(9A).
(d) Before 1-4-1999 capping on two deductions will be in accordance with section 80A only.
As a result we allow the appeal of the assessee on this ground. The assessee is entitled to deduction under section 80HHC as well as under section 80-IA subject to limitation under section 80A." 1. The learned Commissioner (Appeals) erred in holding in conformity with the assessee that the appellant was not entitled to deduction under section 80-IA of the Income Tax Act, 1961.
2. The appellant submits that the omission of the above ground of appeal in the original memo of appeal was not wilful and the same has been now raised as advised by simply raises a purely legal grounds which does not involved fresh investigation of facts." We admit the same as it is an elaborative of the grounds already taken.
And in view of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC) as no investigation is required. The ground is disposed of in accordance with the discussion held in respect of ground No. 2. This ground is accordingly allowed.
1. The learned Commissioner (Appeals) erred in holding that the appellants were not entitled to deductions under section 80HHC.2. The learned Commissioner (Appeals) erred in not appreciating the facts with regard to deduction of freight and insurance from export turnover.
3. The learned Commissioner (Appeals) erred in dismissing the ground of appeal levy of interest under section 234B.First ground is the same as 2nd ground for the assessment year 1997-98.
In accordance with the discussion on the subject in that year we allowed the claim of the assessee. The order of Commissioner (Appeals) is reversed on this ground. Second ground is also allowed in favour of the assessee as per discussions in ground No. 1 for the assessment year 1997-98. The third ground is consequential. The assessing officer will re-computed interest chargeable under section 234B on the basis of income finally assessed.