Gujarat High Court
The Commissioner Of Income Taxiv vs Shah Alloys Ltd.....Opponent(S) on 26 March, 2014
Author: Sonia Gokani
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/445/2008 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 445 of 2008
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THE COMMISSIONER OF INCOME TAXIV....Appellant(s)
Versus
SHAH ALLOYS LTD.....Opponent(s)
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Appearance:
MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1
RULE SERVED for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 26/03/2014
ORAL ORDER
(PER : HONOURABLE MS JUSTICE SONIA GOKANI)
1. Substantial questions of law which had been framed and admitted by the Court in present tax appeal on 14.8.2008 are as follows :
"A) Whether the Appellate Tribunal is right in law and on facts in confirming the order of the CIT (A) in directing the Assessing Officer to exclude excise duty from the total turnover while computing deduction under Section 80HHC of the Act ?
B) Whether the Appellate Tribunal is right in law and on facts in confirming the order of the CIT (A) in directing the Assessing Officer to allow deduction under Section 80IB and 80HHC independently ?"
2. We have heard learned counsel for the Revenue Shri Nitin Page 1 of 15 O/TAXAP/445/2008 ORDER Mehta who has submitted that first question is already decided by this Court in Tax Appeal No.884/2006 and allied matters in favour of the assessee and against the Revenue in the following manner :
"[3.0] Having heard Shri Manish Bhatt, learned counsel appearing on behalf of the Revenue and Shri Soparkar, learned counsel appearing for assessee in respective appeals and the substantial question of law raised, referred to hereinabove, and the decisions of the Honble Supreme Court in the cases of Lakshmi Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra), we are of the opinion that the substantial question of law raised in the present tax appeals is now not res integra and the same is squarely covered against the Revenue by the decisions of the Honble Supreme Court in the cases of Lakshmi Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra). In paras 16 to 18 in the case of Lakshmi Machine Works (Supra), the Honble Supreme Court has observed and held as under:
16. The principal reason for enacting the above formula was to disallow a part of 80HHC concession when the entire deduction claimed could not be regarded as relatable to exports. Therefore, while interpreting the words "total turnover" in the above formula in Section 80HHC one has to give a schematic interpretation to that expression. There is one more reason for giving schematic interpretation. The various amendments to Section 80HHC show that receipts by way of brokerage, commission, interest, rent etc. do not form part of business profits as they have no nexus with the activity of exports. If interest or rent was not regarded by the legislature as business profits, the question of treating the same as part of the total turnover in the above formula did not arise. In fact, Section 80 HHC had to be amended several times since the formula on several occasions gave a distorted figure of export profits when receipts like interest, rent, commission etc. which did not have the element of turnover got included in the profit and loss account and consequently became entitled to deduction. This was clarified by the above amendment to Section 80HHC commencing from 1.4.92. The said amendment made it clear that though commission and interest emanated from exports, they did not involve any element of turnover and merely for the reason that commission, interest, rent etc. were included in the profit Page 2 of 15 O/TAXAP/445/2008 ORDER and loss account, they did not become eligible to deduction. We have to give purposeful interpretation to the above section. The said section is entirely based on the formula. The amendments from time to time indicate that they became necessary in order to make the formula workable. Hence, we have to give schematic interpretation to Section 80HHC of the Act.
17. Shri P.P. Malhotra, leaned senior counsel appearing for the Department (appellant), submitted that one has to give plain and unambiguous meaning to the word "turnover" in the above formula; that there was no need to call for any rule of interpretation or external aid to interpret the said word; that having regard to the plain words of the section, excise duty and sales tax ought to have been included in the "total turnover".
Learned counsel submitted that the word "turnover" even in the ordinary sense would include the above two items. Learned counsel urged that the formula should be read strictly. In this connection, he pointed out that the legislature had expressly excluded items of freight and insurance and not sales tax and excise duty from the said definition. It was urged that while construing a taxing statute strict interpretation should be given by the Courts. It was urged that the definition of the words "total turnover" did not include freight/insurance. He urged that since the legislature had excluded only insurance and freight, it was not open to the courts to exclude excise duty and sales tax from the concept of "total turnover" in the said formula. He contended that the word "turnover" referred to the aggregate amount for which the goods were sold and since sales tax and excise duty formed part of the value of the goods, the said two items were includible in the definition of the words "total turnover". In this connection, learned counsel placed reliance on the judgment of the Supreme Court in the case of M/s. Chowringhee Sales Bureau (supra). Reliance was also placed on "The Law and Practice of Income Tax" by Kanga and Palkhivala (eighth edition) at page 123. In support of the contention that a tax or duty is part of the dealer's trading/business receipts, even if the tax or duty is charged separately or credited to a separate account. Reliance was also placed on the judgment of the King's Bench Division in the case of Paprika, Ltd., and Another v. Board of Trade (1944)1 All E.R. 372, in which it has been held that wherever a sale attracts purchase tax, that tax affects the price Page 3 of 15 O/TAXAP/445/2008 ORDER which the seller who is liable to pay the tax demands, but it does not cease to be the price which the buyer has to pay even if the price is expressed as cost x + purchase tax. Reliance was also placed on the judgment of the Court of Appeal in the case of Love v. Norman Wright (Builders), Ltd. # (1944) 1 All E.R. 618, in which it has been held that if a seller quotes a price of 'x' + purchase tax, the buyer has to pay the amount of the tax as part of the price and since the tax is charged on the wholesale value of the goods the tax element has to be taken into account. It was urged that one has to give strict interpretation to the word "turnover". It was urged that there was no question of giving purposeful interpretation to the word "turnover" in the said Section 80HHC of the Act. It was urged that the legislature had used the expression "total turnover" from which it became clear that the said expression referred to the aggregate amount for which the goods were sold and since the above two items formed part of the value of the goods, they were includible in the "total turnover". Learned counsel urged that there was no merit in the contention advanced on behalf of the assessee that excise duty was the liability of the assessee to the Government and, therefore, it was not includible in the total turnover. Learned counsel urged that there was no merit in the contention advanced on behalf of the assessee that the components of "export turnover" and "total turnover" should be the same in the above formula. Learned counsel submitted that the formula would become unworkable if the components in the "export turnover"
and the components in the "total turnover" are the same. Learned counsel submitted that there was no merit in the argument advanced on behalf of the assessee that excise duty and sales tax did not form part of trading receipts. Learned counsel submitted that there was no merit in the contention of the assessee that the expression "business profits" in Section 80HHC did not include receipts which did not emanate for exports and, therefore, such receipts did not constitute an element of turnover.
18. We do not find any merit in the above contentions advanced on behalf of the Department. It is important to note that tax under the Act is upon income, profits and gains. It is not a tax on gross receipts. Under Section 2(24) of the Act the word "income"
includes profits and gains. The charge is not on gross receipts but on profits and gains. The charge is not on gross receipts but on profits and gains properly socalled. Gross receipts or sale Page 4 of 15 O/TAXAP/445/2008 ORDER proceeds, however, include profits. According to "The Law and Practice of Income Tax" by Kanga and Palkhivala, the word "profits" in Section 28 should be understood in normal and proper sense. However, subject to special requirements of the income tax, profits have got to be assessed provided they are real profits. Such profits have to be got to be ascertained on ordinary principles of commercial trading and accounting. However, the income tax has laid down certain rules to be applied in deciding how the tax should be assessed and even if the result is to tax as profits what cannot be construed as profits, still the requirements of the income tax must be complied with. Where a deduction is necessary in order to ascertain the profits and gains, such deductions should be allowed. Profits should be computed after deducting the expenses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the Act [SEE: page 455 of "The Law and Practice of Income Tax" by Kanga and Palkhivala]. Therefore, schematic interpretation for making the formula in Section 80HHC workable cannot be ruled out. Similarly, purposeful interpretation of Section 80HHC which has undergone so many changes cannot be ruled out, particularly, when those legislative changes indicate that the legislature intended to exclude items like commission and interest from deduction on the ground that they did not possess any element of "turnover" even though commission and interest emanated from exports. We have to read the words "total turnover" in Section 80HHC as part of the formula which sought to segregate the "export profits" from the "business profits". Therefore, we have to read the formula in entirety. In that formula the entire business profits is not given deduction. It is the business profit which is proportionately reduced by the above fraction/ratio of export turnover w total turnover which constitute 80HHC concession (deduction). Income in the nature of "business profits" was, therefore, apportioned. The above formula fixed a ratio in which "business profits" under Section 28 of the Act had to be apportioned. Therefore, one has to give weightage not only to the words "total turnover" but also to the words "export turnover", "total export turnover" and "business profits". That is the reason why we have quoted hereinabove extensively the illustration from the Direct Taxes (Income tax) Ready Reckoner of the relevant word. In the circumstances, we cannot interpret the Page 5 of 15 O/TAXAP/445/2008 ORDER words "total turnover" in the above formula with reference to the definition of the word "turnover" in other laws like Central Sales Tax or as defined in accounting principles. Goods for export do not incur excise duty liability. As stated above, even commission and interest formed a part of the profit and loss account, however, they were not eligible for deduction under Section 80HHC. They were not eligible even without the clarification introduced by the legislature by various amendments because they did not involve any element of turnover. Further, in all other provisions of the income tax, profits and gains were required to be computed with reference to the books of accounts of the assessee. However, as can be seen from the Income Tax Rules and from the above Form No.10CCAC in the case of deduction under Section 80HHC a report of the auditor certifying deduction based on export turnover was sufficient. This is because the very basis for computing Section 80HHC deduction was "business profits" as computed under Section 28, a portion of which had to be apportioned in terms of the above ratio of export turnover to total turnover. Section 80HHC(3) was a beneficial section. It was intended to provide incentives to promote exports. The incentive was to exempt profits relatable to exports. In the case of combined business of an assessee having export business and domestic business the legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under Excess Profits Tax Act, it existed in the Business Profits Tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of "turnover", excise duty and sales tax also cannot form part of the "turnover". Similarly, "interest" emanates from exports and yet "interest" does not involve an element of turnover. The object of the legislature in enacting Section 80HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, "turnover" was the requirement. Commission, rent, interest etc. did not involve any turnover. Therefore, 90% of such commission, interest etc. was excluded from the profits derived from the export. Therefore, even without the clarification such items did not form part of the formula in Section 80HHC(3) for the simple reason that it did not emanate from the "export turnover", much less any Page 6 of 15 O/TAXAP/445/2008 ORDER turnover. Even if the assessee was an exclusive dealer in exports, the said commission was not includible as it did not spring from the "turnover". Just as interest, commission etc. did not emanate from the "turnover", so also excise duty and sales tax did not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent etc. do yield profits, but they do not partake of the character of turnover and, therefore, they were not includible in the "total turnover". The above discussion shows that income from rent, commission etc. cannot be considered as part of business profits and, therefore, they cannot be held as part of the turnover also. In fact, in Civil Appeal No.4409 of 2005, the above proposition has been accepted by the A.O. [See: page no.24 of the paper book], if so, then excise duty and sales tax also cannot form part of the "total turnover" under Section 80HHC(3), otherwise the formula becomes unworkable. In our view, sales tax and excise duty also do not have any element of "turnover" which is the position even in the case of rent, commission, interest etc. It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under Section 80HHC would become unworkable. The view which we have taken is in the light of amendments made to Section 80HHC from time to time.
Even in the subsequent decision in the case of Shiva Tex Yarn Ltd. (Supra), the Honble Supreme Court even with respect to assessment order after section 145A, has followed the decision of the Honble Supreme Court in the case of Lakshmi Machine Works (Supra).
[4.0] Applying the ratio of law laid down by the Honble Supreme Court in the case of Lakshmi Machine Works (Supra) to the facts of the cases on hand, the question raised is held against the Revenue and it is held that the learned Tribunal has not committed any error in holding that the excise duty is excise duty is to be excluded for the purpose of computation of deduction u/s. 80HHC.
3. This question therefore, deserves no further consideration Page 7 of 15 O/TAXAP/445/2008 ORDER and is answered in favour of the assessee and agaisnt the Revenue.
4. Second question pertains to allowance of deduction under section 80IB and 80HHC. This Court in Tax Appeal No.508/2007 and allied matters has decided the same as follows :
"23. It can thus be seen that judicial opinion on the issue is split right down the middle. Delhi, Kerala and Punjab and Haryana High Courts have permitted full operation of section 80IA(9), whereas Bombay and Karnataka High Courts have held that the implication of subsection (9) of section 80IA on an assessee's claim of deduction under section 80HHC would be limited to not permitting such deduction in excess of the business profit. Under the circumstances, it is our duty to examine the statutory provisions applicable, and give an interpretation, which, in our opinion, would best fit the language used by the Legislature and the scheme of the Act pertaining to granting deductions for various purposes under different provisions of Chapter VI.
24. We have noticed that Chapter VI of the Act pertains to deductions of certain incomes. PartA thereof contains provisions of general applicability. Under subsection (2) of section 80A, it is provided that the aggregate amount of deductions under Chapter VI shall not in any case exceed the gross total income of an assessee. However, the reference in this section is to the gross total income of an assessee, and not the business income. The situation, therefore, would arise as is apparent from the decision of Madhya Pradesh High Court in case of J.P. Tobacco Products Private Limited (supra) that an assessee may claim full deduction for the same gross profit under two different deduction provisions contained in Chapter VI of the Act, and such deduction would be allowed. In some cases, thus, such total deduction would exceed the income of the business of an assessee. In case of Mandideep Eng. And Pag. Ind. P. Ltd. (supra), the Supreme Court did not permit the Revenue to challenge the judgment of the Madhya Pradesh High Court in Page 8 of 15 O/TAXAP/445/2008 ORDER view of earlier decisions of different High Courts, which were not questioned. It was in this backdrop that subsection (9) of section 80IA was introduced with effect from 1st April 1999. In this context, we may peruse more closely the language used in sub section (9) of section 80IA. In plain terms it provides that where any amount of profits and gains of an undertaking or enterprise in case of an assessee is claimed and allowed under section 80IA, 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 in no case exceed the profits of gains of such eligible business of the undertaking or enterprise. It can thus be seen that subsection (9) is divided into two clear parts. First part pertains to non allowability of deduction under any other provision contained in PartC of Chapter VI to the extent of profits and gains of an enterprise or undertaking with respect to which deduction under section 80IA is claimed and allowed. The second part provides that in any case, such deduction shall not exceed the profits and gains of eligible business of an undertaking or enterprise. If we accept the interpretation of the assessee that only effect of sub section (9) of section 80IA would be to limit the maximum permissible deduction under section 80HHC to the profits and gains of the eligible business, we would be completely ignoring the first part of the subsection. In other words, the earlier part of subsection would be rendered completely redundant, purposeless and otiose. It is well settled that the Legislature cannot be expected to have used words and expressions, which have no meaning or effect. Limiting the scope of application of subsection (9) of section 80IA only to restricting the claim of deduction under section 80HHC or for that matter under the provisions of subchapter C to Chapter VI would amount to giving no effect to the earlier portion of the subsection, which specifically provides for making a disallowance of deduction claimed by the assessee under various provisions contained in subchapter C profit or gain of an undertaking or enterprise which has already been claimed and allowed under section 80IA.
In case of Aswini Kumar Khose v. Aravinda Bose reported in AIR 1952 SC 369 the Supreme Court observed that it is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application. In case of Rao Shiv Bahadur Singh v. State of Page 9 of 15 O/TAXAP/445/2008 ORDER Uttar Pradesh reported in AIR 1953 SC 369 the Court observed that it is incumbent on the Court to avoid a construction, if reasonably permissible on the language, which would render a part of statute devoid of any meaning or application. In our understanding, therefore, subsection (9) of section 80IA has two implications. First part would operate as to denying an assessee's claim of deduction under other provisions of subchapter C of Chapter VI when a certain profit or gain has already been granted deduction under section 80IA. Under such situation, to the extent specified in first part of subsection (9), the assessee's claim of deduction under other provisions, including section 80HHC, would be restricted. Second implication of subsection (9) of section 80IA is that under no circumstances, once deduction has been granted under section 80IA, deduction under any other provision combined together would exceed the total amount of profits and gains of eligible business of an undertaking or enterprise. This much is plain, and requires neither any imagination nor any interpretative process. Any other view would amount to obliterating the first part of subsection (9) of section 80IA, and would, thus, be wholly impermissible to do. We wonder, if the sole intention of the Legislature was to limit various deductions to the maximum limit of the profit of the eligible business, why was such long and somewhat complex expression was used in subsection (9) of section 80IA? The same purpose could have been easily achieved by far briefer and more simple expression of providing maximum limit of deduction, for example, as was done in subsection (2) of section 80A. We, therefore, refuse to accept the theory that the Legislature has in far more complex and detailed expression desired to bring about the same result, though in plain terms, when the subsection read as a whole, conveys entirely different connotation.
25. Having said so, we are actually conscious of the fact that sub section (9) of section 80IA does not contain a nonobstante clause. Two things thus emerge in our understanding of the said provision. First in plain terms when read as a whole subsection (9) of section 80IA does not limit its effect only to disallowing deduction over and above the profit or gain of an enterprise or undertaking. Second aspect is that such provision does not have a nonobstante clause. What would be the effect of these two forces emerging from subsection (9) of section 80IA needs to be Page 10 of 15 O/TAXAP/445/2008 ORDER appreciated. In our opinion, the combined effect of these two factors would be that subsection (9) of section 80IA of the Act would operate as along as there is nothing contrary contained in any other provisions of subchapter C of Chapter VI. In the present case, our enquiry would be limited to finding out if there is anything contrary provided in section 80HHC of the Act. Thus, if there is any indication of legislative intent to allow the full deduction under section 80HHC of the Act irrespective of the provision contained in subsection (9) of section 80IA, such legislative intent must prevail. On the other hand, if we find that section 80HHC of the Act is not immune to outside influence, full play of the provision of subsection (9) of section 80IA must be allowed, even if it means restricting the claim of an assessee for deduction under section 80HHC of the Act. In other words, merely because subsection (9) of section 80IA does not contain nonobstante clause would not by itself mean that it can have no effect on the deduction under section 80HHC of the Act. As is well known, the Legislature uses the nonobstante clause typically using expression `notwithstanding anything contained in any other provision, Act or law for the time being in force'. Ordinarily, such expression would be equivalent to saying that inspite of the provision of the Act mentioned in nonobstante clause, the enactment following any such provision have full operation. Thus, often times, nonobstante clause is used to override other statutory provisions specified in such a section in specified circumstances. It can thus be seen that a provision containing nonobstante clause would prevail irrespective of anything contrary contained in any other provision referred to in such non obstante clause. This, however, could not mean that in absence of a nonobstante clause, even if there is no conflict between the two statutory provisions, the provision restricting the ambit of a benefit must yield in absence of such nonobstante expression.
26. In this context, we have perused the provisions of section 80HHC of the Act. Though previously as held and observed by Madhya Pradesh High Court in J.P. Tobacco Products Private Limited (supra), the deduction provisions contained in Chapter VI were seen as independent standalone provisions, such views were expressed prior to introduction of subsection (9) of section 80IA and subsection (13) of section 80B of the Act. In case of Commissioner of IncomeTax v. K. Ravindranathan Nair Page 11 of 15 O/TAXAP/445/2008 ORDER reported in 295 ITR 228, the Supreme Court observed that, At the outset, we may state that, in the present case, we are dealing with the law as it stood during assessment year 199394. At that time Section 80HHC(3) of the I.T. Act constituted a Code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a code by itself.
27. Subsection (9) of section 80IA was aimed at restricting the successive claims of deduction of the same profit or gain under different provisions contained in subchapter C of Chapter VI of the Act. This provision, therefore, necessarily impacts other deduction provisions including section 80HHC of the Act. Nothing contained in section 80HHC suggests that the deduction provided therein was immune from any outside influence or that the provision was impregnable by any other statute or enactment. Accepting any such theory would lead to incongruous results. Even the assessee concedes that subsection (9) of section 80IA would operate as to limiting the combined deductions to a maximum of the profits and gains from an eligible business of the undertaking or enterprise. If section 80HHC contained a protective shell making it immune from any outside influence, even this effect of subsection (9) of section 80IA could not be applied. This would completely render the provisions of sub section (9) of section 80IA redundant and meaningless.
28. It is true, as pointed out by the counsel for the assessee that in different provisions the Legislature has used different language for restricting or limiting the claim of deductions. The use of language in statutory provisions in such complex situations must be peculiar to every situation the Legislature may seek to meet with. Merely because in some of the provisions certain disallowances are expressed in different language would not by itself mean that subsection (9) of section 80IA was aimed to have restricted and limited scope of application.
29. The contention that no such matching provision was made in section 80HHC of the Act would clearly indicate the Legislative intent also, in our opinion, is not a valid argument. Subsection (9) of section 80IA was enacted to have universal application to all deductions under subchapter C of Chapter VI. It was neither possible nor expected of the Legislature to make individual Page 12 of 15 O/TAXAP/445/2008 ORDER matching provisions in large number of statutory provisions recognizing deductions under various situations. Such provisions are often times made for a limited period, new deductions are introduced from time to time and old deductions withdrawn.
30. Reference to the circular No. 772 dated of 23rd December 1998 also would not resolve this controversy. In the said circular, it is merely amplified that it was noticed that certain assessees claimed more than hundred per cent deduction of profits and gains of same undertaking, where they were entitled for deduction under more sections than one. It was, therefore, to prevent the tax payers from taking undue advantage of the existing provisions of claiming repeated deductions in respect of the same amount of eligible income, even in cases where it exceeds such eligible profits, inbuilt restrictions under section 80HHC and section 80IA have been provided. This explanation nowhere restricts the scope of subsection (9) of section 80IA. It only provides that the provision was made because under the existing provisions the assessees were claiming double deductions, and in some cases such deduction would exceed hundred per cent of the profits and gains of the same undertaking. The clarification does not provide that subsection (9) would apply and operate only when such claim exceeds the profits and gains of the undertaking.
31. We are unable to follow the line of logic adopted by the Bombay High Court in case of Associated Capsules P. Ltd. (supra) that section 80IA(9) of the Act in the context of section 80HHC would operate not at the stage of computation but at the stage of allowing the deduction. In plain terms subsection (9) of section 80IA disentitles an assessee from claiming deduction under any other provision of subchapter C to the extent deduction is already claimed and allowed for certain profit or gain of an undertaking or enterprise under section 80IA. Such provision, therefore, would have to be applied at the very stage to assessee's claim for deduction under section 80HHC of the Act is considered. While computing such deduction the effect of sub section (9) of section 80IA would have to be given. We do not think that in the process we are tinkering with the formula for computation of eligible profit for deduction under section 80HHC of the Act. We have noticed that different formulae have been Page 13 of 15 O/TAXAP/445/2008 ORDER provided for manufacturing exporter and trader and in case of an assessee whose exports comprise of both the sources. It is, therefore, at the stage of subsection (3) of section 80HHC effect of subsection (9) of section 80IA would apply. It is true that clause (baa) to explanation to section 80HHC defines a term `profits of the business'. While working out the business profits as specified therein, in terms of subsection (9) of section 80IA the profit or gain which had already been allowed deduction to the extent mentioned therein would have to be ignored.
32. This interpretation, which we have adopted, would not be disturbed by reference to section 80AB of the Act. The said section only provides that while computing a deduction under any other provisions contained in subchapter C of Chapter VI in respect of any income specified in such section, then, notwithstanding anything contained in that section, for the purpose of computing deduction, the amount of income of that nature as computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature, which is derived or received by the assess, and which is included in his gross total income. The nonobstante expression used in this section is notwithstanding contained in `that section' namely, the section under which the claim of deduction is to be examined. By no means this provision of expression `notwithstanding anything contained in that section' can be used to interpret that section 80HHC of the Act can have no effect of subsection (9) of section 80IA. As noted earlier, if this were so, the second part of subsection (9) limiting the total deductions to the profit and gain from the eligible business also could not be applied.
33.In case of IPCA Laboratory Ltd. v. Deputy Commissioner of IncomeTax reported in 266 ITR 521 the Supreme Court observed as under:
Section 80AB is also in Chapter VIA. It starts with the words "where any deduction is required to be made or allowed under any Section of this Chapter". This would include Section 80HHC. Section 80AB further provides that "notwithstanding anything contained in that Section". Thus Section 80AB has been given an overriding effect over all other Sections in Chapter VIA. Section Page 14 of 15 O/TAXAP/445/2008 ORDER 80HHC does not provide that its provisions are to prevail over Section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by Section 80AB. Decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration.
34. In the result, we side with the view of Delhi High Court following by Kerala and Punjab and Haryana High Courts. The question is answered in favour of the Revenue. Tax appeal is allowed. Judgment of the Tribunal is reversed to that extent. Appeal is disposed of accordingly."
5. The second issue accordingly is answered in favour of the Revenue and against the assessee.
6. Tax appeal is thus partly allowed and stands disposed of accordingly.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 15 of 15