Commissioner of Income Tax vs Millipore India (P.) Ltd.

N. Kumar, J.—These appeals are preferred by the Revenue challenging the order passed by the Tribunal, which has upheld the deductions claimed by the assessees under section 80-IB as well as under section 80HHC. The Tribunal in a few cases did not grant the aforesaid relief and the assessees are in appeal. The question of law involved in all these appeals is one and the same, and, therefore, they are taken up for consideration together and disposed of by this common order.

The question of law that arises for consideration is as under: When the deduction of profits and gains of an undertaking is allowed under section 80-IA, whether such profits and gains has to be deducted before computation of the profits and gains under section 80HHC or after arriving at the profits and gains of business?In order to answer the aforesaid question, we set out hereunder the facts of one case for the proper appreciation of the legal issues involved.

The assessee is engaged in the manufacture and export of garments. For the assessment year 2001-02, it filed a return of income. The Assessing Officer proceeded to pass an assessment order under section 143(3) on March 19, 2004. The Commissioner exercising his jurisdiction under section 263 of the Act found that the order of the assessment is erroneous and prejudicial to the interests of the Revenue. It was held that the Assessing Officer in the original assessment order has not reduced the deduction allowable under section 80-IB before computing the deduction admissible under section 80HHC as required under section 80-IB read with section 80-IA(9) of the Act. The Assessing Officer was directed to redo the assessment in accordance with the direction as per the order dated December 30, 2004. In terms of the directions issued, the Assessing Officer has passed an order on March 14, 2005. A perusal of the said order shows the total income declared was Rs. 3,53,49,850. The assessee was entitled to a deduction under section 80-IB in a sum of Rs. 88,37,463. While calculating the benefit under section 80HHC, the Assessing Officer deducted the amount of Rs. 88,37,463 out of the profits of the business declared after giving other benefits under the said provision. The benefit to which the assessee is entitled under section 80HHC was restricted to Rs. 2,03,83,961 as against Rs. 2,50,52,596 claimed by the assessee and allowed by the Assessing Officer in the earlier order at the first instance.

In this appeal what is in challenge is the order passed by the Tribunal, which set aside the order passed in revision and restoring the original order granting the benefit of deduction of Rs. 2,50,52,596.

The order dated March 19, 2004, discloses the total profits of the business declared by the assessee was Rs. 3,53,49,850. The admissible deduction under section 80-IB as claimed was Rs. 88,37,463. The assessee claimed a deduction of Rs. 2,50,52,596 under section 80HHC. Both of which put together is less than the gross total income. Therefore, it claimed complete deduction of the aforesaid amounts from "profits of the business" which was granted by the assessing authority. The Assessing Officer allowed the aforesaid deductions and arrived at the taxable income at Rs. 14,59,791. In certain cases the Revenue has granted deduction under section 80HHC and reduced the same for the purpose of quantifying profits under section 80-IA.

The learned counsel appearing for the Revenue did not dispute that the assessee is entitled to the benefit both under section 80-IA as well as section 80HHC to the extent mentioned in sub-section (9) of section 80-IA. However, it was urged that once a deduction is granted under section 80-IA, to the extent of such profits and gains the deduction given under section 80-IA should be deducted before the computation of the profits and gains under section 80HHC and not after arriving at the profits and gains under that provision.

Chapter VI-A of the Act deals with deductions to be made in computing the total income. Heading "C deals with deductions in respect of certain incomes". Section 80-I deals with deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc., whereas section 80-IB deals with deductions in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. Section 80HHC deals with deductions in respect of profits retained for export. Sub-section (9) of section 80-IA which falls for our interpretation in these batch of appeals reads as under:

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. 7. Sub-section (13) of section 80-IB provides that the provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, applied to the eligible business under this section. Thus, the aforesaid sub-section (9) of section 80-IA is incorporated in section 80-IB, The aforesaid sub-section is in the nature of a limitation prescribed in so far as the eligibility of the benefit of deduction under more than one provisions falling under the heading "C. -Deductions in respect of certain incomes.

A careful reading of the aforesaid provision makes it clear that there are two limitations prescribed under the said provision.

(1) If the assessee claims profits and gains in respect of business under section 80-IA, such profits and gains shall not be allowed in any other provisions of this Chapter under the heading "C.-Deductions in respect of certain incomes.

(2) Such deductions to which the assessee is eligible shall in no case exceed the profits and gains of such eligible business or undertaking or enterprise, as the case may be.

Thus, those two limitations make it clear that they have to be read conjunctively and not disjunctively. Therefore, in any event the benefit to which the assessee is entitled under the heading "C.-Deductions in respect of certain incomes" shall not exceed the profits and gains of such eligible business. This position of law is not disputed even by the Revenue. However, the objection is regarding the deductions to be made while calculating the profits and gains of business under section 80HHC.

In order to appreciate the said arguments it is necessary to see how profits and gains of export business are arrived at under section 80HHC. Sub-section (1) of section 80HHC provides that the assessee resident in India is engaged in the business of export out of India of any goods or merchandise to which the said section applies, in computing the total income of such assessee a deduction to the extent of profits referred to in sub-section (1B) derived by the assessee from the export of such goods or merchandise is allowed. Sub-section (1B) provides the extent of deduction permissible to such assessee. How the deduction allowable under section 80HHC(1) is to be arrived at is set out in section 80HHC(3)(a) which prescribes the formula which could be stated as under:

Profits of the business � Export turnover

=

Profits and gains from export business

Total turnover

This formula is applicable to a manufacturer of goods with which we are concerned. Now, the contention of the Revenue is whatever the assessee is entitled to as deductions under section 80-IA, such profits and gains have to be deducted out of the "profits of the business" in the aforesaid formula, before the computation of "profits and gains of export business". On the contrary, the contention of the assessees is that the deduction under section 80-IA is not to be deducted out of the "profits and gains" from export business and not out of "profits of the business.

In this regard, it is necessary to refer to the decision of the apex court in the case of Income Tax Officer vs. Ms. Sushila M. Jhaveri(2007) 107 ITD 327 wherein it is held as under:

The point involved in the present case is whether sections 80HH and 80-I of the Income-tax Act, 1961, are independent of each other and, therefore, a new industrial unit can claim deductions under both the sections on the gross total income independently or that deduction under section 80-I can be taken on the reduced balance after taking into account the benefit taken under section 80HH.

The Madhya Pradesh High Court in J.P. Tobacco Products Pvt. Ltd. Vs. Commissioner of Income Tax, took the view that both the sections are independent and, therefore, the deductions could be claimed both under sections 80HH and 80-I on the gross total income. Against this judgment a special leave petition was filed in this court which was dismissed on the ground of delay on July 21, 2000 (see [2000] 245 ITR (St.) 71 ). The decision in J.P. Tobacco Products Pvt. Ltd. Vs. Commissioner of Income Tax, was followed by the same High Court in the case of CIT v. Alpine Solvex P. Ltd. in I. T. A. No. 92 of 1999 decided on May 2, 2000. Special leave petition against this decision was dismissed by this court on January 12, 2001 (see [2001] 247 ITR (St.) 36). This view has been followed repeatedly by different High Courts in a number of cases against which no special leave petitions were filed meaning thereby that the Department has accepted the view taken in these judgments.

Similar is the view expressed by the Division Bench of the Madhya Pradesh High Court in the case of J.P. Tobacco Products Pvt. Ltd. Vs. Commissioner of Income Tax, where they held as under:

Sub-section (9) of section 80HH, as it stood prior to insertion of section 80-I by the Finance (No. 2) Act, 1980, with effect from April 1, 1981, originally included only section 80J. Section 80J providing for deduction in respect of the profits and gains from newly established industrial undertakings or ships or hotel business in certain cases did not make any provision for reduction of the gross total income by the amount of deduction admissible to the assessee under section 80HH. It was only by an amendment of the said section 80J that the provision for reducing the gross total income by the amount of deduction under section 80HH of the Act by the Direct Taxes (Amendment) Act, 1974, with effect from April 1, 1974, was inserted. Section 80-I was inserted in its present form by the Finance (No. 2) Act, 1980, with effect from April 1, 1981, and by the same Finance (No. 2) Act, section 80HH(9) was amended and the words ''section 80-I or'' were inserted to make the said provision applicable to section 80-I as well. However, no provision was made in section 80-I to provide for deduction of the gross total income by deduction allowed under section 80HH for the purpose of allowing deduction under section 80-I. It would, thus, be seen that when section 80J already existed in sub-section (9) of section 80HH, an amendment was made in section 80J in the year 1974 but no such provision was made in so far as section 80-I was concerned. This clearly contra-indicates that sub-section (9) of section 80HH by itself meant that deduction allowed under section 80HH is to be reduced from the gross total income for granting the benefit of section 80J and, for that matter, of section 80-I. It was provided in section 80J itself by later amendment while no such provision was made in section 80-I even though inserted on a later date. The provision of law is, therefore, clear that in so far as the benefit of section 80-I is concerned, it has to be granted on the gross total income and not on the income reduced by the amount allowed under section 80HH.

In the result, we find that the Tribunal was not right in holding that deduction under section 80-I is to be allowed only on the balance of the income after deducting the relief under section 80HH from the gross total income and accordingly we answer the said question in favour of the assessee and against the Revenue.

The said judgment has been affirmed by the apex court. Similar view was taken by the Bombay High Court in the case of The Commissioner of Income Tax Vs. NIMA Specific Family Trust, which also is affirmed by the apex court.

In calculating the "profits and gains of export business", "profits of the business referred to in sub-section (1)" in sub-section (3) assumes importance. It is defined in the Explanation (baa) to the said section, which reads as under:

(baa) ''profits of the business'' means the profits of the business as computed under the head ''Profits and gains of business or profession'' as reduced by-

(1) ninety per cent. of any sum referred to in clauses (iiia), (iiib), (iic), (iiid) and (iiie) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and

(2) the profits and any branch, office warehouse or any other establishment of the assessee situate outside India;

Therefore, in arriving at the profits of the business under sub-section (3) of section 80HHC, the Legislature has specifically set out what are the receipts which have to be excluded from such computation. It is clear that in arriving at the profits of the business under sub-section (3) of section 80HHC to find out the profits and gains of export business the exclusion of deductions claimed under section 80-IA is not contemplated or included.

In the case of Associated Capsules Private Limited Vs. Dy. Commissioner of Income Tax and Commissioner of Income Tax, COMMISSIONER OF INCOME TAX (C), it is held that section 80-IA(9) does not affect the computability of deduction under various provisions under the heading "C" of Chapter VI-A, so that the aggregate deductions under section 80-IA and other provisions under heading "C" of Chapter VI-A did not extend 100 per cent. of the profits of the business of the assessee. In fact, the explanatory notes under the provisions of the Finance (No. 2) Act, 1998, deals with the amendment to section 80HHD and section 80-I to prevent double deduction from the said profit. At paragraph 35 it is stated as under:

In these circumstances, in our opinion, the reasonable construction of section 80-IA(9) would be that where deduction is allowed under section 80-IA(1), then the deduction computed under other provisions under heading ''C'' of Chapter VI-A has to be restricted to the profits of the business that remains after excluding the profits allowed as deductions under section 80-IA, so that the total deductions allowed under the heading of Chapter VI-A does not exceed the profits of the business. 18. Under the provisions of Chapter VI-A of the Income-tax Act, various deductions from the profits and gains are allowed to the assessees who have to fulfil certain requirements specified in the relevant sections. The total deductions under Chapter VI-A of the Income-tax Act are restricted to the total profits and gains in respect of such eligible business.

In fact the intention of Parliament could also be gathered from the way they have expressed themselves. In sub-section (7) of section 80HHD which reads as hereunder:

(7) Where a deduction under sub-section (1) is claimed and allowed in respect of profits derived from the business of a hotel, such part of profits shall not qualify to that extent for deduction for any assessment year 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 hotel. 20. In the aforesaid provision they have categorically stated that such portion of the profit shall not qualify to that extent for deduction for any assessment year under any other provisions in this Chapter under the heading "C.-Deductions in respect of certain incomes". Therefore, the Legislature has consciously used the words making their intentions clear. As in the very same Chapter dealing with different sections, when the Legislature has used different sets of words, meaning has to be given to those words as used by the Legislature and difference in expression in sub-section (7) of section 80HHD and sub-section (9) of section 80-IA, has to be given effect to.

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 80-IA 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 English Electric Co. of India Ltd. and Others Vs. Commissioner of Income Tax and Others, it is stated that the object of 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 80IA(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.

Though the Delhi High Court as well as the Kerala High Court have taken a contrary view of which reliance is placed by the Revenue, in the light of the express provisions contained in sub-section (a) of section 80-IA, clause (baa) to the Explanation to section 80HHC and the explanation in the circular referred to supra and keeping in mind the object with which these provisions are introduced we are of the view that the contention of the Revenue is unsustainable and the Tribunal has committed no illegality, in respect of cases where it had allowed the appeal.

For the aforesaid reasons, the substantial question of law answered against the Revenue and in favour of the assessees. In so far as the substantial question of law regarding the jurisdiction of the Commissioner to revise the orders passed by the assessing authority on the ground that he holds a different view from the view expressed by the assessing authority is concerned we do not intend to go into the said question as in view of the law declared by us the assessee is going to benefit even otherwise, in view of the same we pass the following order:

(1) I.T.A. Nos. 3213 of 2005, 139 of 2007, 137 of 2007, 154 of 2007, 155 of 2007, 156 of 2007, 1086 of 2006, 109 of 2007, 73 of 2006, 75 of 2006, 62 of 2007, 64 of 2007 674 of 2007, 36 of 2007, 234 of 2009 and 54 of 2008 are dismissed.

(2) I.T.A. Nos. 379 of 2008, 704 of 2008, 227 of 2009 216 of 2008, 429 of 2008, 165 of 2008, 113 of 2010 and 87 of 2010 are allowed, setting aside the order of the Tribunal and restoring the order of the Commissioner of Income-tax (Appeals) granting relief to the assessee and if necessary the assessing authority shall pass consequential orders giving the benefit to the assessees as declared under this judgment wherever it is necessary.