General Optics (Asia) Ltd. vs Deputy Commissioner of Income Tax

Prabha Sridevan, J.—The assessee claimed deductions under Sections 80HHC and 80-IA of the Income Tax Act, 1961. It had maintained separate books of account for the optic division and the opto electrical division. It claimed deduction u/s 80-IA at 100 per cent, and deduction u/s 80HHC was also claimed for the exports carried out from the optic division. The assessing officer limited the deduction claimed u/s 80HHC invoking the provisions u/s 80-IA(9A) and allowed the appeal. Against that, the revenue moved the Income Tax Appellate Tribunal by way of two appeals, one relating to the assessment year 1998-99 and the other relating to the assessment year 1999-2000. Both the appeals were heard and decided together. The Tribunal, relying on the decision of the Special Bench in I. T. A. Nos. 963/ M/05 and 1518/M/06 dated 27-4-2007, for the assessment years 1999-2000 and 2002-03, found that it was covered and following the decision of the said Special Bench, allowed the appeals, holding that the relief u/s 80-IA should be deducted from the profits and gains of the business before computing the relief u/s 80HHC.

Challenging the same, the assessee has filed this appeal and it has been the following substantial question of law:

Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the relief u/s 80-IA should be deducted from profits and gains of business before computing the relief u/s 80HHC ?

The learned Counsel for the revenue submitted that this restriction with regard to granting relief u/s 80HHC was brought in only by the Finance (No. 2) Act, 1998, made on 1-4-1999 and, therefore, this question would have to be answered in favour of the assessee as far as the assessment year 1998-99 is concerned, but that the position would be different for the assessment year 1999-2000.

After the amendment, Sub-section (9A) reads as follows:

Where any amount of profits and gains of an 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 incomes, and shall in no case exceed the profits and gains of the undertaking or hotel, as the case may be.

Paragraph 35 in the Central Board of Direct Taxes Circular No. 772dated December 23, 19981 reads as follows:

Amendment in Section 80HHD and Section 80-IA to prevent double deduction of same profit:

35.1 Under the provisions of Chapter VI-A of the Income Tax Act, various deductions from the profits and gains are allowed to specified assessees, subject to fulfilling certain requirements specified under the relevant sections. The total deductions under Chapter VI-A of the Income Tax Act are restricted to the gross total income in respect of the assessee as a whole.

35.2 However, it was noticed that certain assessees claimed more than 100 per cent, deduction on such profits and gains of the same undertaking, when they were entitled to deductions under more than one section of Chapter VI-A. With a view to providing suitable statutory safeguards in the Income Tax Act to prevent taxpayers from taking undue advantage of existing provisions of the Act by claiming repeated deductions in respect of the same amount of eligible income, even in cases where it exceeds such eligible profits of an undertaking or a hotel, in-built restrictions in Sections 80HHD and 80-IA have been provided by amending the sections, so that such unintended benefits are not passed on to the assessees.

35.3 These amendments will take effect from 1-4-1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years.

Learned Counsel for the revenue also relied on the decision in Commissioner of Income Tax Vs. Rochi Ram and Sons, . In this decision, the question was "Whether the Income Tax Appellate Tribunal was right in holding that deduction u/s 80-IA is to be allowed on the gross total income, even when deduction u/s 80HHC was already claimed and allowed and whether the total tax benefit/double tax deduction can be allowed under two different provisions" ?

The Rajasthan High Court has held as follows (pages 447 and 448):

When there is no such provision or intention of the Legislature to allow deduction u/s 80-IA on the balance amount, there is no justification to allow deduction u/s 80-IA only on the balance amount, i.e., the amount remained after deduction u/s 80HHC of the Act. In the absence of such an intention, deduction u/s 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 . . . the facts remains that this amendment has been brought by the Act of 1998 and made effective from 1-4-1999, and we are concerned with the assessment year 1995-96, therefore, this amendment has nothing to do with the assessment year 1995-96 and this amendment in no way helps the department.

The decision in (2007) 108 ITD 49 of the Special Bench, which was followed by the Tribunal, relates to the period subsequent to the date when the amendment came into effect. Therefore, the Tribunal erred in applying it to the assessment year 1998-99 when the amendment had not yet come into effect.

In these circumstances, the substantial question of law is answered in 9 favour of the assessee, but restricting it only to the assessment year 1998-99. This clarification is necessary since the impugned order was passed for both the assessment years 1998-99 and 1999-2000.

Tax Case (Appeal) is disposed of accordingly. No costs. Consequently, connected M. Ps. are closed.