Income Tax Act, 1961 – ss. 80HH(1), 80A, 80AB and ss. 30 to 43D – Assessees claimed deduction u/s. 80HH @ 20% of profits and gains, i.e. gross profits – Whereas, the stand of the Income Tax Department was that deduction @ 20% is to be computed after taking into account depreciation, unabsorbed depreciation and investment allowance – In other words, as per Department, the income of the assessee is to be computed in accordance with the provisions contained in ss.28 to 44DB which are the provisions for computation of ‘income’ under the head ‘profits and gains of business or Professions’ and once income is arrived at, 20% thereof is allowable as deduction u/s. 80HH – Further, the Revenue sought the application of s.80AB – Held: In the instant case, Assessment Years 1979-1980 and 1980-1981 were under consideration – s.80HH specifically mentions that deduction @ 20% of ‘profit and gains’ – Reading of s. 80HH along with s. 80A would clearly signify that such a deduction has to be of gross profits and gains i.e. before computing the income as specified in ss. 30 to 43D of the Act – Insofar as s.80AB is concerned, the said section was inserted by Finance (No.2) Act, 1980 with effect from 1st April, 1981 – Clearly, s.80AB is a provision made with prospective effect – Therefore, it cannot apply to the Assessment years 1979-80 and 1980-81 – Finance (No.2) Act, 1980.
Allowing the appeals, the Court
HELD: 1. The scheme of the Income Tax Act, 1961 insofar as assessment of income is concerned, particularly, with reference to computing the income as provided in Chapter IV of the Act and contrasted it with the deductions that are allowable under Chapter VI-A of the Act while computing total income. That scheme itself draws distinction between the concept ‘income’ on the one hand and ‘profits and gains’ on the other hand. Insofar as computation of income under the head ‘profits and gains’ from business or profession is concerned, Section 28 of the Act mentions various kinds of incomes which are chargeable under this head. Therefore, all those incomes specifically mentioned in that provision when earned by a particular assessee, are to be aggregated to arrive at profits and gains of the assessee. Section
29 thereof mentions the method of arriving at ‘income’ which is to be computed in accordance with the provisions contained in Sections 30-43D of the Act. Sections 30-43D contain deductions of various kinds which are in the nature of expenditure or the like nature. After providing the deductions admissible in these provisions, one arrives at the figure of net profits which would become the net income under the head ‘profits and gains of business or profession’. In contrast, as mentioned above, under Chapter VI-A of the Act certain deductions are given by way of incentives. Assessees may earn these deductions on fulfilling the eligibility conditions contained therein, even when they are not in the nature of any expenditure incurred by the assessee. Here, Section 80A of the Act provides that in computing the total income of assessee, there shall be allowed from his gross total income, in accordance with the subject of the provisions of this Chapter, the deductions specified in Sections 80C to 80U. As mentioned above, Sections 80C to 80U contain different subject matters and also specify particular percentage of deductions for a particular period. Significantly, Section 80A itself uses the expression ‘from his gross total income’ as it states that deduction is to be allowed to an assessee ‘from his gross total income’. Moreover, different provisions from Sections 80C to 80U, while mentioning the percentage at which and for which period a particular deduction is allowable, also specifies as to how such a deduction is to be worked out, namely, specific percentage of deduction of which component. These sections provide different parameters. Insofar as Section 80HH is concerned, it specifically mentions that deduction @ 20% of ‘profits and gains’. Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act. [Paras 18 and 19] [942-F-H; 943-A-F]
Motilal Pesticides (I) Pvt. Ltd. v. Commissioner of Income Tax, Delhi-II (2000) 9 SCC 63 – overruled. M/s. Cloth Traders (P) Ltd. v. Additional C.I.T., Gujarat-I (1979) 3 SCC 538 : [1979] 3 SCR 984; Commissioner of Income Tax, T.N.-V, Madras v. Kotagiri Industrial Cooperative Tea Factory Ltd., Kotagiri (1997) 9 SCC 537 : [1997] 2 SCR 738 – inapplicable. Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 2 SCC 644 : [1978] 3 SCR 660; H.H. Sir Rama Varma (Dead) By LRs. v. Commissioner of Income Tax, Kerala [1994] 1 Suppl. SCC 473; Distributors (Baroda) Pvt. Ltd. v. Union of India & Ors. (1986) 1 SCC 43 : [1985] 1 Suppl. SCR 778 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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