Shital Fibers Ltd. vs. Commissioner Of Income Tax

2025 INSC 743
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.14318 OF 2015
Shital Fibers Limited …Appellant
versus
Commissioner of Income Tax …Respondent
with
CIVIL APPEAL NOS. 14295/2015, 14299/2015,
14297/2015, 14301/2015, 14304/2015, 14305/2015,
14309/2015, 14324/2015, 14319/2015, 14313/2015,
14323/2015, 14314/2015, 14322/2015, 14320/2015,
14337/2015, 14339/2015, 14340/2015, 14346/2015,
14347/2015, SLP (C) No. 19698/2014, SLP(C) No.
36539/2014, SLP (C) 9723 of 2018 and SLP (C) No. 28934
of 2019
J U D G M E N T
ABHAY S. OKA, J.
1. This group of appeals/petitions has been referred to a
th
Bench of three Judges in view of the Order dated 10
December, 2015 in
Assistant Commissioner of Income Tax,
1
which records difference
Bangalore v. Micro Labs Limited
of opinion between two Hon’ble Judges of this Court.
2. For the sake of convenience, we are referring to facts of
Signature Not Verified
Digitally signed by
ANITA MALHOTRA
Date: 2025.05.20
19:16:18 IST
Reason:
the case in Civil Appeal No. 14318 of 2015. We may note here
1 (2015) 17 SCC 96
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that some of the appeals in the group have been disposed of
st
by the Order dated 01 August, 2024 due to low tax effect.
FACTUAL ASPECT
3. We are referring to the facts of the case in Civil Appeal
No. 14318 of 2015. Appellant is a company which filed a
return declaring net taxable income at Rs. 46,99,293/- for the
Assessment Year 2002-03. The appellant claimed deductions
under Section 80-HHC and 80-IA of the Income Tax Act, 1961
st
(for short ‘the IT Act’). The return was accepted on 31
October, 2002. Reassessment proceedings under Section 147
of the IT Act were initiated in respect of the said Assessment
th
Year by the order dated 10 December 2008 by the Assistant
Commissioner of Income-Tax, Range II, Jalandhar. Reliance
was placed by the Revenue on the decision of Income Tax
Appellate Tribunal (for short ‘ITAT’), Chennai (Special Bench)
2
in the case of . In the said Order
ACIT v. Rogini Garments
th
dated 10 December, 2008, under Section 147 of the IT Act, it
was observed that a deduction of Rs. 90,43,347/- was
claimed by the appellant under Section 80-IB on the total
profit of Rs. 4,19,40,609/-. The appellant claimed a deduction
of Rs. 1,76,90,799/- under Section 80-HHC.
4. The return filed by the appellant was processed under
Section 143(1)(a) and a statutory notice under Section 148 of
the IT Act was served upon the appellant. Based on the
th
judgment dated 17 July, 2008 of the jurisdictional ITAT, in
2 (2007) SCC OnLine ITAT 159
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ITA Nos.320 and 321, Amritsar Bench in respect of appellant’s
case for the assessment year 2003-04 and 2004-05, a fresh
notice under Section 143(2) was served upon the appellant.
5. We may note here that in the case of ACIT v. Rogini
2
Garments , ITAT held that in order to prevent the taxpayers
from taking undue advantage of existing provisions of the IT
Act by claiming repeated deductions in respect of the same
amount of eligible income, in-built restriction was introduced
by enacting Sub-section (9) of Section 80-IA with effect from
st
1 April, 1999.
6. The appellant filed response to the notice under Section
143(2). The appellant relied upon the decision of Madras High
3
Court in the case of wherein it was
SCM Creations v. ACIT
held that Sub-section (9) of Section 80-IA does not bar
computation of deductions provided under different
provisions of the IT Act. But, it merely restricts the
allowability of deductions to the extent of profits and gains of
th
business. However, by the Order dated 12 March, 2009,
Additional Commissioner of the Income Tax rejected the
argument of the appellant and deductions claimed by the
appellant under Section 80-IA and 80-HHC were disallowed.
7. The appeal preferred by the appellant against the said
Order was dismissed by Commissioner of Income Tax
(Appeals). In appeal preferred by the appellant before the ITAT,
the appellant was unsuccessful. Thereafter, an appeal was
3 304 ITR 319
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preferred before the Punjab and Haryana High Court which
came to be dismissed by the impugned judgment and order.
The High Court relied upon its own decision in the case of
4
Friends Casting (P) Ltd. v. Commissioner of Income Tax .
The High Court took the view that Sub-section (9) of Section
80-IA bars claim for deduction under any other provision of
Chapter VI-A, if deduction under Section 80-IA has been
allowed. In fact, a decision of Bombay High Court in the case
of
Associated Capsules (P) Ltd. v. Deputy Commissioner of
5
Income Tax and Anr was also referred . However, the High
Court did not agree with the view taken by Bombay High
Court. In addition, the High Court relied upon a decision of
Delhi High Court in the case of
Great Eastern Exports v.
6
Commissioner of Income Tax .
SUBMISSIONS
8. Learned senior counsel appearing for the appellant
invited our attention to Chapter VI-A. He pointed out that
there are 33 different provisions under the heading ‘C’ of
Chapter VI-A which includes Section 80-HHC, 80-IA, 80-IAB,
80-IB etc. He pointed out that it is possible for the assessee to
claim deductions under each of 33 sections. He submitted
that legislature has allowed each eligible assessee to claim
deductions through 33 provisions under heading ‘C’ of
Chapter VI-A. He submitted that the real issue is the extent of
4 (2011) 50 DTR Judgments 61
5 (2011) SCC Online Bombay 27
6 (2010) SCC OnLine Del 4195
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deduction allowable separately under Section 80-IA and
Section 80-HHC and the extent of deduction allowable
through each provision and overall deduction allowable by
adding them up.
9. Learned counsel invited our attention to the opinion
expressed by Anil R. Dave, J. He pointed out that heading ‘C’
deals with profit and income related deductions. He pointed
out that Section 80-A(1) provides that in computing total
income of assessee, there shall be allowed from gross total
income of an assessee in accordance with and subject to the
provisions of this Chapter, the deductions specified in Section
80-C to 80-U. He pointed out that the residue after
deductions is the total income on which income tax is levied.
It was submitted that the upper limit of profit applies under
the heading ‘C’ only in view of Sub-section (9) of Section 80-
IA.
10. Learned senior counsel invited our attention to the view
taken by Dipak Misra, J (as he then was) and submitted that
the said view is a correct view for the reasons recorded
therein.
11. Learned Additional Solicitor General appearing for the
Revenue supported the view taken by Anil R. Dave, J. He
submitted that the learned Judge rightly held that if an
assessee claims any deduction under the provisions of
Section 80-IA and/or 80-IB, he cannot claim any deduction to
the extent of such profits and gains which had been claimed
Civil Appeal No.14318 of 2015 etc. Page of
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and allowed under the provisions of Section 80-HHC. The
reason being Section 80-HHC is included in heading ‘C’ of
Chapter VI-A of the IT Act. He submitted that the profits in
respect of which deduction was allowed under Section 80-
HHC had also been previously allowed under Section 80-IB.
CONSIDERATION
12. Under Section 4 of the IT Act, Income Tax is chargeable
on the total income of an assessee for previous year. Chapter
II of the IT Act deals with the ambit of total income. Chapter
III deals with incomes which do not form part of the total
income at all. Chapter IV deals with the computation of total
income under different sources. Chapter V deals with income
of other persons which are to be included in the assessee’s
total income. Chapter VI provides for aggregation of income
from different sources or set off or carry forward of loss to the
next assessment year. Chapter VI-A specifically deals with
deductions to be made in computing the total income. Thus,
the gross total income of the assessee is worked out by
applying various provisions upto and inclusive of stage of
Chapter VI.
13. Chapter VI-A deals with deductions to be made in
computing income. Chapter VI-A contains Sections 80-A to
80-U. It has five heads, head ‘A’ – General, ‘B’ – Deductions in
respect of certain payments, ‘C’ – Deductions in respect of
certain incomes, ‘CA’ – Deductions in respect of other incomes
and ‘D’ – Other deductions.
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14. Section 80 A under the Heading ‘A – General’ provides
that in computing the total income of an assessee, there shall
be allowed from his gross total income, in accordance with
and subject to the provisions of this Chapter VI, the
deductions specified in Section 80-C to 80-U. Section 80-AB
provides that where any deduction is required to be made or
allowed under any Section included in Chapter VI-A under the
heading ‘C’ in respect of any income of the nature specified in
that Section which is included in the gross total income of the
assessee, then, notwithstanding anything contained in that
Section, for the purposes of computing the deduction under
that Section, the amount of income of that nature as
computed in respect of the provisions of IT Act (before making
any deduction under Chapter VI-A) shall alone be deemed to
be the amount of income of that nature which is derived or
received by assessee and which is included in his gross
income.
15. Sub-section (5) of Section 80-B defines gross total
income as the total income computed in accordance with
provisions of the IT Act, before making any deduction under
Chapter VI-A. At this stage, we may note that under Section
4(1), which is the charging section, income tax is chargeable
on total income of the previous year. Sections 80-A and 80-AB
refer to gross total income and not total income as
contemplated by Section 4(1). As stated earlier, Sections 80-C
to 80-GGC under heading ‘B’ provide for deductions in respect
of certain payments. In this case, we are concerned with
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deductions under Sections 80-HHC and 80-IA and 80-IB
under Heading ‘C’.
16. The relevant part of Section 80-HHC is reproduced
below:
“ 80-HHC. Deduction in respect of profits
retained for export business .—(1) Where
an assessee, being an Indian company or a
person (other than a company) resident in
India, is engaged in the business of export
out of India of any goods or merchandise to
which this section applies, there shall, in
accordance with and subject to the
provisions of this section, be allowed, in
computing the total income of the assessee,
a deduction to the extent of profits, referred
to in sub-section (1-B) derived by the
assessee from the export of such goods or
merchandise:
Provided that if the assessee, being a holder
of an Export House Certificate or a Trading
House Certificate (hereafter in this section
referred to as an export house or a trading
house, as the case may be), issues a
certificate referred to in clause ( b ) of sub-
section (4-A), that in respect of the amount
of the export turnover specified therein, the
deduction under this sub-section is to be
allowed to a supporting manufacturer, then
the amount of deduction in the case of the
assessee shall be reduced by such amount
which bears to the total profits derived by
the assessee from the export of trading
goods, the same proportion as the amount
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of export turnover specified in the said
certificate bears to the total export turnover
of the assessee in respect of such trading
goods.
(1-A) *
(1-B) For the purposes of sub-sections (1)
and (1-A), the extent of deduction of the
profits shall be an amount equal to—
( i ) eighty per cent thereof for an assessment
year beginning on the 1st day of April, 2001;
( ii ) seventy per cent thereof for an
assessment year beginning on the 1st day of
April, 2002;
( iii ) fifty per cent thereof for an assessment
year beginning on the 1st day of April, 2003;
( iv ) thirty per cent thereof for an assessment
year beginning on the 1st day of April, 2004.
and no deduction shall be allowed in respect
of the assessment year beginning on the 1st
day of April, 2005 and any subsequent
assessment year.
…………………………………”
Section 80-HHC provides for a deduction in respect of profits
retained for export business. The provision is applicable to a
company or a person engaged in business of export out of
India of any goods or mercantile to which the Section applies.
In computing the total income, the assessee is entitled to
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deduction to the extent of percentage of profits set out in Sub-
section (1B) of Section 80-HHC.
17. Section 80-IA deals with deductions in respect of profits
and gains from industrial undertakings or enterprises
engaged in infrastructure development etc. Sub-section (1)
provides that when the gross total income of an assessee
includes any profits and gains derived by an undertaking or
an enterprise from any business referred to in Sub-section (4),
in computing total income, the assessee will be entitled to
deduction of an amount equal to hundred per cent of profits
and gains derived from such business for ten consecutive
years.
18. Section 80-IB deals with deductions in respect of profits
and gains from certain industrial undertakings other than
infrastructure development undertakings. The deduction
under said provision is applicable when gross total income of
an assessee includes any profit or gain derived from any
business mentioned in various Sub-sections of Section 80-IB.
An assessee is entitled to a deduction from such profits and
gains of an amount equal to such percentage and for such
number of assessment years as specified in the Section.
19. In this context, now the provision of Sub-section (9) of
Section 80-IA must be considered. Sub-section (9) of Section
80-IA reads thus:
“(9) Where any amount of profits and gains
of an undertaking or of an enterprise in the
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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.”
Let us analyse Sub-section (9). It is applicable where any
amount of profits and gains of an undertaking or enterprise is
claimed and allowed under Section 80-IA. As stated earlier,
the deduction is to the extent of percentage of profits and
gains derived from certain category of businesses. Sub-section
(9) of Section 80-IA provides that the deduction to the extent
of profit or gain shall not be allowed under any other
provisions under heading ‘C’ of Chapter VI-A. It is further
provided in Sub-section (9) that in no case, the deduction
allowed under any other provision of Chapter VI-A under the
heading ‘C’ shall exceed profits and gains of such eligible
business of undertakings or enterprises, as the case may be.
20. 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
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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.
21. Sub-section (9) of Section 80-IA, on its plain reading,
does not provide that when a deduction is allowed under
Section 80-IA, while considering the claim for deduction
under any of the provision under heading ‘C’, the deduction
allowed under Section 80-IA should be deducted from the
gross total income. The restriction under sub-section (9) of
Section 80-IA is not on computing the total gross income. It
restricts deduction under any other provision under heading
‘C’ to the extent of the deduction claimed under Section 80-
IA.
22. Bombay High Court, in the case of Associated
Capsules (P) Ltd. v. Deputy Commissioner of Income Tax
4
in paragraphs 38 and 39 held thus:
and Anr
“39. Strong reliance was also placed by the
counsel for the Revenue on the Special Bench
decisions of the Tribunal in the case of Rogini
Garments (2007) 294 ITR (AT) 15 (Chennai)
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and Hindustan Mint and Agro Products P. Ltd.
(2009) 315 ITR (AT) 401 (Delhi), which are
affirmed by the Delhi High Court in the case
of Great Eastern Exports (2011) 332 ITR 14.
Reliance is also placed on decision of the
Kerala High Court in the case of Olam Exports
(India) Ltd. (2011) 332 ITR 40, which supports
the case of the Revenue.
40. We find it difficult to subscribe to the
views expressed by the Delhi High Court in
interpreting the provisions of section 80-IA(9).
In that case, in fact, the counsel for the
Revenue had argued (see paragraph 38 of the
judgment) that section 80-IA(9) applies at the
stage of allowing deduction and not at the
stage of computing deduction under other
provisions under heading C of Chapter VI-A. It
was argued that in the matter of grant of
deduction, the first stage is computation of
deduction and the second stage is the
allowance of the deduction. Computation of
deduction has to be made as provided in the
respective sections and it is only at the stage
of allowing deduction under section 80-IA(1)
and also under other provisions under
heading C of Chapter VI-A, the provisions of
section 80-IA(9) come into operation. While
accepting the arguments advanced by the
counsel for the Revenue, it appears that the
Delhi High Court failed to consider the
important argument of the Revenue noted in
paragraph 38 of its judgment. Moreover,
without rejecting the argument of the Revenue
that section 80-IA(9) applies at the stage of
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allowing the deduction and not at the stage of
computing the deduction, the Delhi High
Court could not have held that section 80-
IA(9) seeks to disturb the method of
computing the deduction provided under
other provisions under heading C of Chapter
VI-A of the Act. In these circumstances, we
find it difficult to concur with the views
expressed by the Delhi High Court in the case
of Great Eastern Exports [2011] 332ITR 14.
For the same reason, we find it difficult to
subscribe to the views expressed by the Kerala
High Court in the case of Olam Exports [2011]
332ITR 40.
41. In the result, we hold that section 80-IA(9)
does not affect the computability of deduction
under various provisions under heading C of
Chapter VI-A, but it affects the allowability of
deductions computed under various
provisions under heading C of Chapter VI-A,
so that the aggregate deduction under section
80-IA and other provisions under heading C of
Chapter VI-A do not exceed 100 per cent. of
the profits of the business of the assessee.
Our above view is also supported by the
Central Board of Direct Taxes Circular No. 772
dated December 23, 1998 ((1999) 235 TR (St.)
35), wherein it is stated that section 80-IA(9)
has been introduced with a view to prevent
the taxpayers from claiming repeated
deductions in respect of the same amount of
eligible income and that too in excess of the
eligible profits. Thus, the object of section 80-
IA(9) being not to curtail the deductions
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be computed not only on the profits of
business as reduced by the amounts specified
in clause ( baa ) and sub-section (4-B) of
Section 80-HHC but by also reducing the
amount of profit and gains allowed as a
deduction under Section 80-IA(1) of the Act. In
other words, the gross total income eligible for
deduction under Section 80-HHC would be
less or reduced by the deduction already
allowed under Section 80-IA. Thus, the gross
total income eligible for deduction would not
be the gross total income as defined in sub-
section (5) of Section 80-B read with Section
80-B, but would be the gross total income
computed under sub-section (5) of Section 80-
B read with Section 80-AB less the deduction
under Section 80-IA. An example will make
the position clear. Supposing an assessee has
gross total income of Rs 1000 and is entitled
to deduction under Sections 80-IA and 80-
HHC and the deduction under Section 80-IA
is Rs 300, then the gross total income of
which deduction under Section 80-HHC is to
be computed would be Rs 700, and not Rs
1000.
48. On the other hand, the case of the
assessee is that the gross total income would
not undergo a change or reduction for the
purpose of Section 80-HHC. The two
deductions will be computed separately,
without the deduction allowed under Section
80-IA being reduced from the gross total
income for computing the deduction under
Section 80-HHC. The reason being that sub-
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would be that while computing deduction
under Section 80-HHC, the gross total income
would mean the gross total income before
allowing any deduction under Section 80-IA or
other sections of Part C of Chapter VI-A of the
Act. But once the deduction under Section 80-
HHC has been calculated, it will be allowed,
ensuring that the deduction under Sections
80-HHC and 80-IA when aggregated do not
exceed profits and gains of such eligible
business of undertaking and enterprise.
54. As I find, the legislature has used the
expression “shall not qualify” in Sections 80-
HHB(5) and 80-HHD(7), but the said
expression has not been used in sub-section
(9) of Section 80-IA. The formula prescribed in
sub-section (3) of Section 80-HHC is a
complete code for the purpose of the said
computation of eligible profits and gains of
business from exports of mercantiles and
goods. It has reference to total turnover,
turnover from exports in proportion to profits
and gains from business in clause ( a ) and so
forth under clauses ( b ) and ( c ) of Section 80-
HHC(3) of the Act. In case the gross total
income is reduced or modified taking into
account the deduction allowed under Section
80-IA, it would lead to absurd and unintended
consequences. It would render the formula
under sub-section (3) of Section 80-HHC
ineffective and unworkable as highlighted in
para 30 of the decision in Associated Capsules
(P) Ltd. [ Associated Capsules (P) Ltd. v. CIT ,
2011 SCC OnLine Bom 27 : (2011) 332 ITR 42
(Bom)] with reference to clause ( b ) of Section
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25. We accordingly, answer the reference and direct the
Registry to place the appeals/petitions before appropriate
Bench.
……………………………..J.
(Abhay S. Oka)
……………………………..J.
(Ahsanuddin Amanullah)
..…….……………………..J.
(Augustine George Masih)
New Delhi;
May 20, 2025.
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