Justice Abhay S. Oka, Justice Ahsanuddin Amanullah, Justice Augustine George Masih, Supreme Court
Supreme Court Clarifies Effect Of Deduction Of Profits & Gains U/S. 80-IA Of Income Tax Act
|The Order of reference highlighted a conflict of views among various High Courts and within the Supreme Court itself regarding the components of total turnover.
The Supreme Court held that if a deduction of profits and gains under Section 80-IA of Income Tax Act is claimed and allowed, the deduction to the extent of such profits and gains in any other provision under the heading ‘C’ is not allowed.
The Order of reference highlighted a conflict of views among various High Courts and within the Supreme Court itself regarding the components of "total turnover" for the purpose of computing deductions under Sections 80-HHC and 80-IA of the Income Tax Act, 1961 (IT Act).
A Bench of Justice Abhay S Oka, Justice Ahsanuddin Amanullah and Justice Augustine George Masih held, “In view of what we have held above, we find that the interpretation made by the Bombay High Court in the case of Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr appears to be logical and correct.”
Senior Advocates Pankaj Jain, Ajay Vohra and Kavita Jha appeared for the Appellant, while Senior Advocate Bishwajit Bhattacharyya and ASG N Venkatraman represented the Respondent.
Brief Facts
The Court referred to Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr, where the Bombay High Court's interpretation was that if deductions under Section 80-IA are allowed, it would reduce the gross total income, and consequently, affect the denominator in the formula for Section 80-HHC deduction, leading to an "anomaly". The Bombay High Court's view was that "without alteration or modification of the figures of total turnover and the export turnover, the gross total income would undergo a reduction... This would result in anomaly for the said figure would not be the actual and true figure or the true gross total income or profit earned on the total turnover including export turnover and, therefore, would give a somewhat unusual and unacceptable result".
Court’s Reasoning
The Supreme Court held that the interpretation made by the Bombay High Court in Associated Capsules (P) Ltd. "appears to be logical and correct.”
The Bench noted that the "total turnover" as defined in the Explanation (b) to Section 80-HHC of the Act does not include freight, telecommunication charges, or insurance attributable to the delivery of goods outside India, or excise duty or sales tax. This statutory exclusion was inserted by the Finance (No. 2) Act, 1998, with retrospective effect from April 1, 1992. This amendment was meant to remove the “anomalies and unintended benefits” that arose from including these components in "total turnover".
“Therefore, on plain reading of Sub-section (9) of Section 80-IA, if a deduction of profits and gains under Section 80-IA is claimed and allowed, the deduction to the extent of such profits and gains in any other provision under the heading ‘C’ is not allowed. The deduction to the extent allowed under Section 80-IA cannot be allowed under any other provision under heading ‘C’. Therefore, if deduction to the extent of ‘X’ is claimed and allowed out of gross total income of ‘Y’ under Section 80-IA and the assessee wants to claim deduction under any other provision under the heading ‘C’, though he may be entitled to deduction ‘Y’ under the said provision, he will get deduction under the other provisions to the extent of (Y-X) and in no case total deductions under heading ‘C’ can exceed the profits and gains of such eligible business of undertaking or enterprise,” the Bench remarked.
The Court referred ot its previous decision in Commissioner of Income Tax v. K. Ravindranathan Nair, where it was held that if excise duty and sales tax were part of "total turnover," it would lead to a "distortion" of the formula for calculating export profits. The rationale behind this position is that the profits from the domestic market would reduce the deduction for export profits, which is contrary to the legislative intent to encourage exports.
Consequently, the Court ordered, “We accordingly, answer the reference and direct the Registry to place the appeals/petitions before appropriate Bench.”
Cause Title: Shital Fibers Limited v. Commissioner of Income Tax (Neutral Citation: 2025 INSC 743)
Appearance:
Appellant: Senior Advocates Pankaj Jain, Ajay Vohra and Kavita Jha; AOR Namita Choudhary, et al; Advocates Manish Kumar Choudhary, Srishti Choudhary, Divya Suri, Shefali Choudhary, Sachin Bhardwaj, et al
Respondent: ASG N Venkatraman; Senior Advocate Bishwajit Bhattacharyya; AOR Sahil Tagotra and Kishore Kunal; Advocate Sujay Jain