Holding

Section 80‑IA(9) bars the allowance of any deduction under Section 80‑HHC to the extent of profits already claimed under Sections 80‑IA or 80‑IB, and the aggregate deduction must not exceed the eligible profits.

Summary

The case concerned Micro Labs Ltd., which claimed deductions under Sections 80‑IA/80‑IB (infrastructure development) and also under Section 80‑HHC (export profits). The Revenue argued that Section 80‑IA(9) bars any further deduction under heading "C" of Chapter VI‑A, which includes 80‑HHC, for the same profits, while the High Court allowed both deductions. The Supreme Court examined the language of Section 80‑IA(9) and held that it prevents a taxpayer from claiming the same profits as a deduction under multiple provisions, and therefore the deduction under 80‑HHC must be reduced by the amount already allowed under 80‑IA/80‑IB. The Court rejected the High Court’s view that the two deductions could be computed independently. It clarified that the restriction is on the allowance of deduction, not on the computation formula, and that the aggregate deduction cannot exceed the eligible profits. Consequently, the appeal was allowed in favour of the Revenue, setting aside the High Court judgment.

Issues considered

Whether deduction allowed under Section 80‑IA(9) (or 80‑IB(13)) precludes a further deduction under Section 80‑HHC for the same profits.
Whether Section 80‑IA(9) affects the computation of deduction under Section 80‑HHC or only its allowance.
Interpretation of the phrase "shall not be allowed" in Section 80‑IA(9) in relation to other provisions of Chapter VI‑A.

Legislation cited

Income Tax Act, 1961s. 263, s. 808, s. 80-HHC, s. 80-IA, s. 80-IB

Subjects

Income TaxSection 80‑IASection 80‑IBSection 80‑HHCdouble deductiondeduction allowancegross total incomeinfrastructure developmentexport businessstatutory interpretation

Judgment

[2015) 11S.C.R.1154

A ASSTI. COMMR. OF l.T. BANGALORE

v.

M/S. MICRO LABS LTD.

B (Civil Appeal No. 7427 of 2012)

DECEMBER 10, 2015

[ANIL R. DAVE AND DIPAK MISRA, JJ.]
c Income Tax Act, 1961: s.80-1 - Whether while
considering the deduction under the provisions of s. 801A or/
ands. 80-18, assessee is not entitled to deduction in respect
of the profits and gains under the provisions of s. 80HHC or
whether the assessee is entitled to deductions under the
D
stated all the three sections in respect of the same profits i.e.
whether deduction allowed uls. 801A is to be reduced from the
gross profits while computing deduction uls. 80HHC - In view
of difference of opinion, matter referred to larger bench.
E Referring the matter to Larger Bench (in view of
difference of opinion), the Court

PER: ANIL R. DAVE, J.:

F HELD: One can very well see from the provisions
of Section 80-IA(9) that if an Assessee is engaged in
infrastructure development as well as in the export
business, he cannot claim deduction of his entire profits
and gains under the provisions of Section 80HHC as well
G as under Section 80-IA or/and Section 80-18 of the Act.
Section 80-IA(9) is quite unambiguous, which clearly
provides that if an assessee claims any deduction under
the provisions of Section 80-IA, then the assessee
cannot claim deduction to the extent of such profits and
H
1154
ASSTT. COMMR OF l.T. BANGALORE v. M/S. MICRO 1155
LABS LTD.

gains under heading 'C' of Chapter VIA of the Act, which, A
in the present case, was claimed and wrongly allowed
to the Assessee. The intention of the legislature is very
clear to the effect that if an assessee claims any
deduction under the provisions of Sections 80-IA or/and
80-18, he cannot claim deduction to the extent to such B
profits and gains which had been claimed and allowed
under the provisions of Section 80HHC of the Act,
because Section 80HHC is included in heading 'C' of
Chapter VIA of the Act. The High Court was in error while
permitting the assessee to get benefit in respect of C
Section 80HHC as it did not take into account the fact
that the profits in respect of which deduction was
allowed under Section 80HHC had also been previously
allowed under Section 80-18. This is. not permissible D
under Section 80-18(13) read with Section 80-IA(9)
because by virtue of Section 80-18(13) provisions of
Section 80-IA(9) are also applicable to Section 80-18.
[Paras 22, 23, 27, 28] [1168-A-C; 1169-C-F]

PER DIPAK MISRA, J. (Dissenting): E

1. The deduction under sub-section (a) of Section
80HHC(3) is computed by ascertaining eligible profits,
which is the profits of business in the same proportion
as the export_ turnover in respect of such goods, bears F
to the total turnover of business. A separate formula is
prescribed under clause (b) of sub-section (3) to Section
80HHC in case of a trader exporter and under clause (c)
in respect of an assessee, who is both a manufacturer/
processor and a trader exporter. The Section is a detailed· G
one and provides complete method and mechanism to
compute deduction under Section 80HHC. There" is no
dispute that sub-section (9) to Section 801 would be
applicable as the assessee would be entitled to H
1156 SUPREME COURT REPORTS (2015] 11 S.C.R.

A deduction under Section BOIA as well as under Section
BOHHC. The second limb of Section 9 to Section BOIA
has been enacted to prevent cascading effect of
deductions under Section BOIA and BOHHC. There was
already a cap or the upper limit stipulated in sub-section
B (2) to Section BOIA that the deductions cannot exceed
the gross total income of the assessee. However sub-
section 9 to Section BOIA stipulates that in no case
deduction shall exceed profits and gains of such eligible
business of undertaking and enterprise. ,The said
C provision does not make a reference to the gross total
income but it refers to the profit and gains of such eligible
business of undertaking and enterprise. Thus read, it
cannot be $aid that the last part of sub-section (9) to
Section BOIA would be rendered meaningless being a
0
mere reproduction of sub-section (2) to Section BOA. The
first part of sub-section (9) to Section BOIA refers to the
computation of profits and gains of an undertaking or
enterprise allowed under Section BOIA in any
E assessment year and the amount so calculated shall not
be allowed as a deduction under any other provisions
of this Chapter. There is a difference between allowing
a deduction and computation of deduction. The two have
separate and distinct meanings. Computation of
F deduction is a stage prior and helps in quantifying the
amount, which is eligible for deduction. Sub-section (9)
to Section BOIA does not bar or prohibit the deduction
allowed under Section BOIA from being included in the
gross total income, when deduction under Section
G 80HHC(3) of the Act is computed. In this context it has
been held that the expression "shall not be allowed"
cannot be equated with the words "shall not qualify" or
"shall not be allowed" in computing deduction. The
effect thereof would be that while computing deduction
H under Section BOHHC, the gross total income would
ASSTT. COMMR. OF l.T. BANGALORE v. M/S. MICRO 1157
LABS LTD.

mean the gross total income before allowing any A
deduction under Section 801A or other sections of part
C of Chapter VIA of the Act. But once the deduction under
Section 80HHC has been calculated, it will be allowed,
ensuring that the deduction under Section 80HHC and
801A when aggregated do not exceed profits and gains B
of such eligible business of undertaking and enterprise.
[Paras 14, 20, 21) [1183-H; 1184-A-B; 1191-A-D; 1192-E-
H; 1193-A-C]
Associated Capsules Private Limited v. Deputy c
Commissioneroflncome Tax andAnr. (2011) 332
ITR 42 (Born)- approved.
Jeyar Consultant and Investment Private Limited
v. Commissioner of Income Tax, Madras (2015)
D
7 SCC 705: 2015 (6) SCR 979- Distinguished.
2. The legislature has used the expression "shall
not qualify"_ in Section 80HHB(5) and 80HHD(7), but the
said expression has not been used in sub-section (9) to
Section 801A. The formula prescribed in sub-section (3) E
to Section 80HHC 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 F
(a) and so forth under clause (b) and (c) of Section
80HHC(3) of the Act. In case the gross total income is
reduced or modified taking into account the deduction
allowed under Section 801A, it would lead to absurd and G
unintended consequences. It would render the formula
· under sub-section (3) to Section 80HHC ineffective and
unworkable. [Para 22) [1193-C-F]

Great Eastern Exports v. Commissioner of
Income-Tax (2011) 332 ITR 14; Joint CIT v. H
1158 SUPREME COURT REPORTS [2015] 11 S.C.R.

A Mandideep Engineering and Packaging
Industries Private Limited (2007) 292 ITR 1 (SC);
J.B. Tobacco Products Private Limited v. CIT
(1998) 229 ITR 123; Great Eastern Exports v.
Commissioner of Income-Tax (2011) 332 ITR 14;
B Assistant Commissioner of Income-tax v. Ragini
Garments (2007) 294 ITR (AT) 15; IPCA
Laboratories Limited v. CIT (2004) 12 SCC
742: 2004 (2) SCR 1075; A.M. Moosa v. CIT
(20v7) 7 sec 647: 2007 (9) SCR 831; ACG
c Associated Capsules Private Limited v.
Commissioner of Income Tax, Central-IV,
Mumbai (2012) 3 SCC 321: 2012 (2) SCR 401;
Distributors (Baroda) (P) Limited v. Union of India
(1986) 1sec43: 1985 (1) Suppl. SCR 778; CIT
D
v. K. RavindranathanNair(2007) 15 SCC 1: 2007
(11) SCR1097;. Topman Exports v CIT (2012) 3
SCC 593: 2012 (4) SCR 684- referred to.

Case Law Reference
E
DIPAK MISRA, J.
(2011) 332 ITR 42 (Born) approved. Para 4
(2011) 332 ITR 14 referred to. Para 5
F (2007) 292 ITR 1 (SC) referred to. Para 10
(1998) 229 ITR 123 referred to. Para 11
(2011) 332 ITR 14 referred to. Para 18
(2007)2941TR(AT)15 referred to. Para 19
G
2015 (6) SCR 979 distinguished Para 23
2004 (2) SCR 1075 referred to. Para 23
2007 (9) SCR 831 referred to. Para 23
H 2012 (2) SCR 401 referred to. Para 28
ASSTT. COMMR. OF l.T. BANGALORE v. M/S. MICRO 1159
LABS LTD.

1985 (1) Suppl. SCR 778 referred to. Para 29 A
2007 (11 ) SCR 1097 referred to. Para 30
2012 (4) SCR 684 referred to. Para 31

CIVIL APPELLATE JURISDICTION: Civil Appeal No. B
7427 of2012

From the Judgment and Order dated 11.07.2011 of the
High Court of Karnataka at Bangalore in ITANo. 471 of 2008

WITH c
C.A. NO. 78470F2012

C.A. NOS. 4544, 5341OF2013

C.A. NOS. 14295, 14297, 14298, 14299, 14300, 14301, D
14302, 14303, 14304, 14305, 14306, 14307, 14308, 14309,
14310,14311,14312, 14313,14314,14315,1431~ 14317,
14318, 14319, 14320, 14322,14323, 14324, 14325, 14326,
14327, 14328, 14329, 14330, 14331, 14332-14333, 14334,
14335, 14336, 14337, 14338, 14339, 14340, 14341;14342, E
.14343, 14344, 14345, 14346, 14347, 1890 OF 2015

K. Radhakrishnan, Gargi Khanna, Arijit Prasad, Sadhna
Sandhu,. Rash mi Malhotra, Vishwamar.i Khanddwal, (for Anil
Katiyar), Shashi M. Kapila, Vikas Mehta, R. R. Navya, Pravesh F
Sharma, Sanjay Kumar, Balraj Dewan, Bhargava V. Desai,
Bhushan Kapur, Y. K. Kapur, Rajin.der Mathur, Avinash Kumar,
Ambhoj Kumar Sinha, Deepanshu Jain, Namita Choudhary,
Siddharth Mittal, Anupam Yadav, S. K. Sabharwal, Rakesh
Gupta, Pramod Dayal, Nikunj Dayal, Payal Dayal for the G
Appellant.

K. V. Mohan, R. K. Raghavan, K.V. BalaKrishnan, Nikhil
Nayyar, Ravindra Keshavrao Adsure, F. V. Irani, Rustom B.
Hathikhanawala, Kamal Mohan Gupta, Jay Savla, Renuka H
1160 SUPREME COURT REPORTS [2015] 11 S.C.R.

A Sahu, Ravi Mishra, Vipin Nair, P. B. Suresh, Vishnu Shankar
Jain, (for Temple Law Firm), Pramod B. Agarwala, Prashant
Mehra for the Respondent.

The Judgment of the Court was delivered by
B
ANIL R. DAVE, J. 1. Leave granted in all the Special
Leave Petitions.

2.These are several appeals which involve the same
issue as in Civil Appeal No. 7427 of 2012 and therefore, all the
C appeals have been heard together at the request of the learned
counsel appearing for both the sides but for U '7 purpose of
· deciding all these appeals, I have considc: ed facts of
C.A.No.7427 of2012, which are as under:

D 3. Being aggrieved by the judgment delivered in ITA471
of 2008 dated 11'h July, 2011 by the High Court of Karnataka
at Bangalore, this appeal has been filed by the Assistant
Commissioner of Income Tax, Bangalore. The appellant has
been referred to hereinafter as 'the Revenue', whereas the
E respondent Mis. Micro Labs Ltd. has been referred to as 'the
Assessee'.

4 .The Assessee was aggrieved by the Order dated 11th
January, 2008 passed in ITA No.367/Bang/07 by the Income
F Tax Appellate Tribunal, Bangalore Bench and had, therefore,
approached the High Court of Karnataka at Bangalore. The
High Court allowed the appeal and therefore, the Revenue has
filed this appeal.

G 5.The question which had to be considered by the
Tribunal as well as by the High Court was whether, while
considering the deduction under the provisions of Section 80-
IAor/and 80-IB of the Income Tax Act, 1961 (hereinafter referred
to as 'the Act'), theAssessee is also entitled to the deduction
H in respect of the profits and gains under the provisions of
ASSTT COMMR. OF l.T. BANGALORE v. M/S. MICRO 1161
LABS LTD. [ANIL R. DAVE, J. ]

Section 80HHC of the Act or whether the Assessee is entitled A
to deductions under ihe aforestated all the three Sections in
respect of the same profits. Upon perusal of the aforestated
Sections <md looking at the facts of the case, the Tribunal had
come to the conclusion that the Assessee was not entitled to
deductions under Sections 80HHC and 80-IB of the Act but B
the High Court did not agree with the said conclusion arrived
at.by the Tribunal and decided in favouroftheAssessee to the
effect that though the Assessee had claimed and was allowed
.deductions under Section 80HHC of the Act, the Assessee
was also entitled to deductions under the provisions of Section C
80-IB of the Act in respect of the same profits.

6. Thus, in this appeal what is to be considered is whether
theAssessee was entitled to the deductions claimed by it under
the aforestated Sections as decided by the High Court in favour D
oftheAssessee, The.case of the Rel(enue is that looking at
the provisions of the aforestated Sections, the Assessee is
not entitled to the deductions under all the aforestated Sections
of the Act.
E
7. On the aforestated subject, different views have been
taken by different High Courts and therefore, this appeal had
been admitted. The High Court of Bombay has decided cases
in favour of the Assessee whereas a different view has been
taken by the High Court of Delhi. F

8. For the purpose of better understanding of the issue,
relevant extracts of the said Sections of the Act have been
reproduced hereinbelow:
G
"80-IB. Deduction in respect of profits and gains
from certain industrial undertakings other than
infrastructure development undertakings. - (1)
Where the gross total income of an Assessee inciudes
any profits and gains derived from any business referred H
1162 SUPREME COURT REPORTS (2015] 11 S.C.R.

A to in sub-Sections (3) to (11), (11A) and (118) (such
business being hereinafter referred to as the eligible
business), there shall, in accordance with and subject
to the provisions of the Section, be allowed, in
computing the total income of the Assessee, a deduction
B from such profits and gains of an amount equal to such
percentage and for such number of assessment years
as specified in this Section. ··

(2) to (12) xxx xxx xxx
c
(13) The provisions contained in sub-Section (5) and
sub-Section (7) to (12) of Section 80-IA shall, so far as
may be, apply to the eligible business under this
Section." \
D
"80-IA. Deductions in respe.ct of profits and gains
from industrial undertakings or enterprises engaged
in infrastructure development, etc. -

(1) to (8) xxx xxx xxx
E
(9) Where any amount of profits and gains of an
(undertaking) or of an enterprise in the case of an
Assessee is claimed and allowed under this Section
for any assessment year, deduction to the extent of such
F 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
G be."

"BOHHC. Deduction in respect ofprofits retained for
export business.-(1) Where an Assessee, being an
Indian company or a person (other than a company)
H resident in India, is engaged in the business of export
ASSTT. COMMR. OF l.T. BANGALORE v. M/S. MICRO 1163
LABS LTD. [ANIL R. DAVE, J.]

out of India of any goods or merchandise to which this A
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 B
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 C
or a Trading House, a_s the case may be), issues a
certificate referred to in clause (b) of sub-Section (4A),
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 D
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 of
export turnover specified in the said certificate bears to E
the total export turnover of the assessee in respect of
such trading goods.

(1A) xxxxxx xxx
(18) For the purposes of sub-Sections (1) and (1A}, the F
extent of cjeduction of the profits shall be an amount
equal to-
(i) eighty per cent thereof for an assessment year
beginning on the 1" day of April, 2001; G
(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; H
1164 SUPREME COURT REPORTS [2015] 11 S.C.R.

A (iv) thirty per cent thereof for an assessment year
beginning on the 151 day of April, 2004;

and no deduction shall be .allowed in respect of the
assessment year beginning on the 151 day ofApril, 2005
B and any subsequent assessment year."

9. So far as Civil Appeal No.7427 of 2012 is concerned,
which is against the judgment delivered by the High Court of
Karnataka at Bangalore, as stated hereinabove, the same has
c been decided in favour of the Assessee and in the
circumstances, the Revenue has preferred the present appeal
as it has been aggrieved by the way in which the deductions
were permitted by the High Court from the same profits and
gains of the business to the Assessee under Sections 80HHC
o and 80-IB of the Act. According to the case of the Revenue,
the Tribunal was right in deciding the case of the Assessee
and the High Court committed an error while interpreting the
legal provisions of the Sections referred to hereinabove.

E 10. The learned counsel appearing for the Revenue had
submitted that the intention behind enactment of the aforestated
three Sections of the Act was to see that no assessee gets
deductions twice under the provisions of the aforestated
Sections. In nutshell, the submission on behalf of the Revenue
F was that having once obtained deduction under the provisions
of Sections 80-1 B or/and 80-IA of the Act, no assessee can
then avail deductions under Section 80HHC of the Act in
respect of the same profits. It had been specifically stated on
behalf of the Revenue that Section 80-IA(9) of the Act had been
G amended with effect from 1' 1April, 2000 so as to see that the
total deduction does not exceed total profits and gains of the
business and in respect of the same profits, deductions under
Section 80HHC and Sections 80-IA or 80-IB together cannot
be allowed.
H
ASSTT. COMMR. OF l.T. BANGALORE v. M/S. MICRO 1165
LABS LTD. [ANIL R. DAVE, J.]

11. The learned counsel appearing for the Revenue had A
read and tried to interpret each of the aforestated Sections
and specifically put his emphasis on that part of the Section
which prevents the assessee from taking advantage of having
deductions from both of the Sections referred to hereinabove.
B
12. Section SOHHC, according to the learned coi.msel
appearing for the Revenue, deals with the deductions which
can be availed by the assessee who is engaged in the
business of export out of India of any goods or merchandise
to which the said Section applies. The said Section deals C
with the manner in which the deduction can be claimed by the.
assessee.

13. So far as Section 80-IA is concerned, it pertains to
deductions in respect of profits and gains from industrial D
undertakings or enterprises engaged in the business of
· infrastructure development. Section 80-IA(9) of the Act
specifically provides that when any deduction is claimed and
allowed under the provisions of Section SO.IA of the Act,
deduction to the extent of such profits and gains cannot be E
allowed under any other provisions under heading "C. -
Deductions in respect of certain incomes" of the Chapter in
which Section SOHHC has been included. Similarly, it had
been submitted by the learned counsel that so far as Section
80-IB is concerned, it pertains to deduction in respect of profits F ·
and gains from certain jndustrial undertakings other than the
business of infrastructure development. He had further
submitted that Section 80-IB(13) also provides that certain
provisions of Section 80-IA would also apply to Section 80-IB,
like the provisions of Sub-Section (5) and Sub-Sections (7) to G
(12) of Section 80-IA. ·

14. The learned counsel had, thus, submitted that by virtue
of the provisions of Section 80-IB(13), the provisions applicable
to industrial undertakipgs to whom deductions under Section H
1166 SUPREME COURT REPORTS [2015] 11 S.C.R.

A 80-IA are granted, would also apply to certain extent. By virtue
of the aforestated provisions of Section 80-1B(13), provisions
of Section 80-IA(9) would also apply to the industrial units who
claim benefit of deduction under Section 80-IB of the Act.

B 15. According to the learned counsel, Section 80-IA(9)
is clear to the effect that once a deduction is claimed under
Section 80-IA, no deduction can be claimed under heading
'C' of Chapter VIA. Section 80HHC is included in heading 'C'
of Chapter VIA and therefore, if an assessee claims and is
C allowed deduction under Section 80-IA or Section 80-IB, he
cannot be allowed any deduction under Section 80HHC or any
other Section that falls under heading "C" of Chapter VIA of
the Act.

D 16. Now, let us look at the case with which we are
concerned. The Assessee in the main appeal is having several
industrial units having different activities or different
businesses. The Assessee being also in the business of
export, had also claimed and was allowed deduction under
E Section 80HHC. In spite of the fact that the Assessee had
claimed deduction in respect of the provisions of Section 80-
1B, theAssessee had also claimed deduction under Section
80HHC with respect to the same profits. The Assessing Officer
had allowed deductions under Section 80HHC without
F considering the fact that the Assessee had also claimed and
was allowed deduction under the provisions of Section 80-IB.
In the aforestated circumstances, the Commissioner of Income-
Tax, exercising his power under Section 263 of the Act vide
order dated 26'" February, 2007, observed thatthe Assessing
G Officer was not correct in allowing deductions under Section
80-IB as well as under Section 80HHC and therefore, directed
the Assessing Officer to revise the assessment order.

17. The said order passed by the Commissioner of
H Income-Tax had been challenged by the Assessee before the
ASSTT. COMMR. OF IT BANGALORE v. M/S. MICRO 1167
LABS LTD. [ANIL R. DAVE, J.]

Tribunal and the Tribunal was pleased to dismiss the appeal A
and therefore, the Assessee had filed an appeal before the
High Court which has been allowed. Being aggrieved, the
Revenue has filed this appeal.

18. On the other hand, the learned counsel appearing B
for the Assessee in Civil Appeal No.7427 of 2012 and other
connected appeals had submitted that the view expressed by
the High Court is absolutely correct. According to the learned
counsel, the statute wants to give deduction to the Assessee
in respect of both the activities, namely in respect of export of c
goods as well as with respect to infrastructure development
etc. and as the assesses in all the cases are engaged in the
business of export as well as in the business of infrastructure
development etc., the assesses are entitled to claim
deductions in respect of export business as well as D
infrastructure development aetivities, etc.
19. According to the learned counsel, if there is any
confusion or any ambiguity in the tax law, benefit thereof should
be given to the assessee and the High Court of Karnataka E
and some other High Courts in the country had rightly permitted
the assesses to claim deductions under both the Sections.
Thus, the counsel appearing for the assesses had supported
the reasons given by the High Court and had submitted that
the appeals filed by the Revenue deserve dismissal. F
20. I have heard the learnedcounsel and considered the
judgments referred to by them and the provisions of the Act
concerning the subject of the appeals: .
21. Upon perusal of the Sections referred to hereinabove G
and the judgments discussed during the course of the hearing,
I am of the view that the High Court of ·Karnataka is not right
when it decided to allow deductions in respect of same profits
under Section 80HHC as well as under Section 80-IA or
Section 80~1B. H
1168 SUPREME COURT REPORTS [2015] 11 S.C.R.

A 22. One can very well see from the provisions of Section
80-IA(9) that if an Assessee is engaged in infrastructure
development as well as in the export business, he cannot claim
deduction of his entire profits and gains under the provisions
of Section 80HHC as well as under Section 80-IA or/and
B Section 80-IB of the Act.
23. Section 80-IA(9) is quite unambiguous, which clearly
provides that if an assessee claims any deduction under the
provisions of Section 80-IA, then the assessee cannot claim
c deduction to the extent of such profits and gains under heading
'C' of Chapter VIA of the Act, which, in the present case, was
claimed and wrongly allowed to the Assessee.
24. Section 80HHC, which pertains to deduction in
respect of profits and gains from export business, is included
D under heading 'C', of ChapterVIAoftheAct.
25. If an assessee claims and is allowed any deduction
under Section 80HHC, then to the extent to which deduction
has been granted to him under Section 80-IA or/and 80-IB, he
E cannot be allowed further deduction under Section 80HHC.
The language is not only very clear, but is also absolutely
unambiguous, as it says:
"Where any amount of profits and gains of an
(undertaking) or of an enterprise in the case of an
F 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.-
Oeductions in respect of certain incomes'', and shall in
G
no case exceed the profits and gains of such eligible
business of (undertaking) or enterprise, as the case may
be."

26. Admittedly, the Assessing Officer had allowed
H deductions not only under Section 80HHC but also under
ASSTI. COMMR. OF 1.T. BANGALORE v. MIS. MICRO 1169
LABS LTD. [ANILR. DAVE, J.]

Section 80-IB in respect of the entire profits and.gains of the A
business of the Assessee. In the opinion of the Commissioner,
it was not proper and therefore, he had taken the matter in
revision under Section 263 of the Act. He, ultimately, directed
the Assessing Officer to re-assess the income in the light of
the observations made in the order passed under Section 263 B
of the Act and the said order passed by the Commissioner
had also been confirmed by the Tribunal. However, the order
of the Tribunal, when challenged before the High Court, was
quashed and set aside.
c
27. In the instant case, I also find that the intention of the
legislature is very clear to the effect that if an assessee claims.
any deduction under the provisions of Sections 80-IA or/and
80-IB, he cannot claim deduction to the extent to such profits
and gains which had been claimed and allowed under the D
provisions of Section 80HHC of the Act, because Section
80HHC is included in heading 'C' of Chapter VIA of the Act.

28. In my opinion, the High Court was in error while
permitting the Assessee to get benefit in respect of Section E
80HHC as it did not take into account the fact that the profits in
respect of which deduction was allowed under Section 80HHC
had also been previously allowed under Section 80-IB. In my
opinion, this is not permissible under Section 80-IB(13) read
with Section 80-IA(9) because by virtue of Section 80-IB(13) F
provisions of Section 80-IA(9) are also applicable to Section
80-IB.

29. For the aforestated reasons, I am not in agreement
with the view expressed by the High Court and therefore, I G
decide the appeals in favour of the Revenue by holding that
the Assessee who had claimed and had been allowed
deductions in respect of profits under Section 80-IB, could not
have been allowed deductions in respect of the same profits
under Section 80HHC of the Act. H
1170 SUPREME COURT REPORTS (2015] 11 S.C.R.

A 30. Other issues, though referred to in the memo of
appeals, had not been pressed seriously and therefore, I am
not deciding the same by keeping the said issues open.

31.The appeals, thus, stand disposed of as allowed in
B favour of the Revenue with no order as to costs.

Dipak Misra, J. 1. Leave granted in the special leave
petitions.

2. Having perused the judgment of my esteemed brother,
C for whom I have the deepest respect, I am unable to concur
with the view expressed by him. Hence, I pen a 'separate
opinion.

3. In this batch of appeals, the issue that really arose
D before the different High Courts is :

"Whether the Tribunal was justified in holding that section
80-1 A(9) of the Income-Tax Act, 1961 mandates that the
amount of profits allowed as deduction under section 80-
E 1A(1) of the Act has to be reduced from the profits of the
business of the undertaking while computing deduction
under any another provisions under heading C in Chapter
VI-A of the lncome-taxAct, 1961?" ·

F 4. Be it stated, I have taken the said question from the
judgment of the High Court of Bombay in Associated
Capsules Private Limited v. Deputy Commissioner of
Income Tax and another' and the said judgment has been
placed reliance upon by the High Court of Bombay in the appeal
G arising out of Special Leave Petition (Civil) No. 26002 of 2011.
The High Court allowing the appeal of the assessee did not
agree with the view of the High Court of Delhi and opined thus:-

H 1
[2011] 332 ITR 42 (Born)
ASSTT COMMR. OF l.T. BANGALORE v. MIS. MICRO 1171
LABS LTD. [DIPAK MISRA, J.]

"We find it difficult to subscribe to the views expressed A
by the Delhi High Court in interpreting the provisions of
. section 80-1A(9). In that case, in fact, the counsel for the
Revenue had argued (see para 38 of the judgment) that
section 80-1A(9) applies at the stage of allowing
deduction and not at the stage of computing deductio~ B
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 C
sections and it is only at the stage of allowing deduction
under section 80-1A(1) and also under other provisions
under heading C of Chapter VI-A, the provisions of
section 80-1A(9) come into operation. While accepting D
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 80-1A(9) E
applies at the stage of allowing the deduction and not at
the stage of computing the deduction, the Delhi High
Court could not have held that section 80~1A(9) seeks to
disturb the method of computing the deduction provided
under other provisions under heading C of Chapter VI-A F·
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] 332 ITR 14.
For the same reason, we find·it difficult to subscribe to
the views expressed by the Kerala High Court in the case G
of 0/am Exports [2011] 332 ITR 40.
In the result, we hold that section 80-1A(9) does not affect
the computability of deduction under various provisions
under heading C of Chapter VI-A, but it affects the H
1172 SUPREME COURT REPORTS [2015] 11 S.C.R.

A allowability of deductions computed under various
provisions under heading C of Chapter VI-A, so that the
aggregate deduction under section 80-1A and other
provisions under heading C of Chapter VI-A do not
exceed 100 per cent of the profits of the business of the
B 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 80-1A(9) has been introduced with
the view to prevent the taxpayers from claiming repeated
c deductions in respect of the same amount of eligible
income and that too in excess of the eligible profits. Thus,
the object of section 80-1A(9) being not to· curtail thi:
deductions computable under various provisions under
heading C of Chapter VI-A, it is reasonable to hold that
D
section 80-1 A(9) affects allowability of deduction and not
computation of deduction. To illustrate, if Rs. 100 is the
profits of the business of the undertaking, Rs. 30 is the
profits allowed as deduction under section 80-1A(1) and
E the deduction computed as per section 80HHC is Rs.
80, then, in view of section 80-1A(9), the deduction under
section 80HHC would be restricted to Rs. 70, so thatthe
aggregate deduction does not exceed the profits of the
business."
F 5. The High Court of Delhi in Great Eastern Exports v.
Commissioner of lncome-Tax2 while interpreting the said
provision has applied the test of literal construction and
observed:-

G "We are not in a position to subscribe to the contention
of the learned counsel for the assessees that where the
Legislature intended to deduct the amount out of some
other deduction a different phraseology was used as
noticed above. This was sought to be demonstrated by
H '- [2011] 332 ITR 14 (Delhi)
ASSTT. COMMR. OF 1.T. BANGALORE v. M/S. MICRO 1173
LABS LTD. [DIPAK MISRA, J.]

refereeing to sub-section (5) of section 80HHB, sub- A
section (4) of section 80HHBA and sub-section (4) of
section 80-1 E etc. which provisions start with the use of
...
a non obstante clause. Merely because section 80-1 B
is not worded in a similar fashion that would not mean
· that we have to do violence to the plain language used in B
that provision, which is capable of only one meaning. A
particular section of an enactment, the intention of which
is otherwise manifest, cannot be read by adopting such
an insidious approach, by referring to othe·r sections. It
is well known that the Legislature adopts different ways C
and means in order to achieve its goal and there is no
justification for insistence on identical language.
Likewise, as rightly pointed out by the Special Bench of
the Tribunal, the notice and objects of accompanying
0
reasons are only an aid to construction. Such aid to
construction is needed when a literal reading of the
provision leads to an ambiguous result or absurdity."
6. To appreciate the controversy it is absolutely necessary
to understand the scheme of the Act and the purpose and the E
schematic impact of the provisions which are required to be
interpreted in the context of Chapter in which they occur.
7. The Income Tax Act, 1961 (for short, "the Act") is
arranged chapter-wise. Chapter I deals with preliminary F
definitions, subject to the context in issue. Chapter II gives
contours of the charge for levy of income tax and ambit and
scope of total income and certain other matters. Chapter Ill
relates to incomes, which do not form part of the total income
at all. Chapter IV relates to computation of total income under ' G
different sources, i.e., six sub heads, which have been divided
into parts (A) to (F}, Chapter V deals with income of other
persons, which are to be included in the assessee's total
income. Chapter VI postulates aggregation of income from
different sources or set off or carry forward of loss computed H
1174 SUPREME COURT REPORTS (2015] 11 S.C.R.

A under different sourc?.s and to the next assessment year.
Chapter VIA, with which we are concerned, deals with
deductions to be made in computing total income. The said
Chapter is divided into four parts namely, A to D. The said
Chapter becomes operative on reaching the last stage of
B computation of income from different sources as per the
provisions of Chapter I to VI. It is to be borne in mind that each
chapter deals with independent subject rpatters at different
stages. In other words, before reaching the stage of invoking
provisions of Chapter VIA, the assessee is required to work
C out the gross total income by applying the provisions upto the
stage of Chapter VI. It is in this context that in part A of Chapter
VIA under the heading "General" it is postulated in sub-
section(1) to Section BOA that an assessee shall be allowed
from his gross total income in accordance with and subject to
0
the conditions of this Chapter, the deductions specified in
Sections BOC to BOU. As per mandate of sub-section (2) to
Section BOA, the aggregate amount of such deductions in
Chapter VIA cannot exceed the gross total income of the
E assessee. Sub-section (3) stipulates that°where an assessee
is an association of persons or body of individuals to whom
specified deductions have been allowed, then no deduction
under the specified section shall be allowed in relation to share
of such member of association of the persons or body of
F individuals.
B. Having stated the scheme as is reflective from the
Chapter, it is ne_cessary to reproduce Section AB which is
relevant. It reads as follows:-

G "Deductions to be made with reference to the income
included in the gross total income.
BOAB. Where any deduction is required to be made or
allowed under any section included in this Chapter under
the heading "C.- Deductions in respect of certain
H incomes" in respect of any income of the nature specified
ASSTT. COMMR. OF 1.T. BANGALORE v. M/S. MICRO 1175
LABS LTD. [DIPAK MISRA, J.)

in that section which is included in the gross total income A
of the assessee, then, notwithstanding anything
contained in that section, for the purpose of computing
the deduction under that section, the amount of income
of that nature as computed in accordance with the
provisions of this Act (before making any deduction under B
this Chapter) shall alone be·deemed to be the amount of
income of that nature which is derived or received by the
assessee and which is included in his gross total
income"."
c
The aforesaid section stipulates that notwithstanding
anything contained in Sections 80C to 80U for the purpose of
computing deduction under the aforesaid section, the amount
of income of that nature as computed in accordance with the
provisions of the Act before making any deduction, shall alone D
be deemed to be the income derived or received by the
assessee and included in his gross total income. The section,
a non-obstante provision, overriding any section in part 'C' and
postulates that deduction under each section shall be
separately computed in respect of income of that nature, which E
is received or derived by the assessee and included in the
gross total income. This provision is significant and accepts
that an assessee may be entitled to multiple deductions under
Section 80C to 80U, when conditions precedent stipulated in
the section are satisfied. F
· 9. The expression 'gross total income' has been defined
in sub-section(5) to Section 808 and it reads as under:-
"808. In this Chapter-
G
(5) "gross total income" means the total income
computed in accordance with the provisions of this Act,
before making any deduction uJlder this Chapter;"

On a conjoint and harmonious reading of Sections 80A8
and 808(5), it is apparent that once 'gross total income' is H
1176 SUPREME COURT REPORTS [2015] 11 S.C.R.

A computed in accordance with the provisions of the Act but
before making any deduction under the provisions of Sections
BOC to SOU. Gross total income is computed by applying
provisions upto Chapter VI, without or before making any
deduction under Sections SOC to SOU,' but the quantum of
B income which qualifies for ?eduction under Sections SOC to
SOU would be amount of income of that nature, derived or
received by the assessee.

10. As I perceive, there is no difficulty to this extent. The
c difficulties arise when there are overriding provisions, which
tend to control a deduction, because deduction has been
allowed in another provision. For example, an assessee may
be entitled to multiple deductions, such as under Section 80J,
which relates to deduction in respect of profits and gains from
D duly established industrial undertakings or ships or hotel
business in certain cases; under Section 80HH which relates
to deduction in respect of P.rofits and gains derived from newly
established industrial undertakings or hotel business in
backward areas; under Section 80HHC which relates to
E deduction in respect of profits and gains derived from exports
outside India of goods and merchandise; under Section
80HHD which relates to deduction herein an assessee is
engaged in the business of hotel or tour operator and has
earning in convertible foreign exchange, etc. Thus, when an
F
assessee qualifies for deduction under separate sections,
which could be on percentage of profits or earnings,
controversy can arise. The contours or scope of Chapter VIA
in such situations was noticed by this Court in Joint CIT v.
G Mandideep Engineering and Packaging Industries Private
LimitecP, and the following observations were made:-

"1. The point inV'tllved in the present case is whether r

sections 80HH and 80-1 of the Income-tax Act, 1961, are

H ' (2007) 292 ITR 1 (SC)
ASSTT. COMMR. OF I. T. BANGALORE v. MIS. MICRO 1177
LABS LTD. [DIPAK MISRA, J.] ·

independent of each other and therefore a new industrial A ·
unit can claim deductions under both the sections on the
gross total income independently or that deduction under·
section 80-1 can be taken on the reduced balance after
taking into account the benefittaken under section 80HH.
B
2. The Madhya Pradesh High Court. in J.P. Tobacco
Products P. Ltd v. CIT reported in [1998] 299 ITR 123
took the view that both the sections are independent and,
therefore, the deductions could be claimed both under
sections 80HH and 80-1 on the gross total income. C
Against this judgment a special leave petition was filed
in this court which was dismissed on the ground of delay
on July 21, 2000 (see [2000] 245 ITR (St.) 71). The
decision in J.P. Tobacco Products P. Ltd. [1998]229 ITR
123 (MP) was followed by the same High Court in the D
case of CIT v. Alpine Solvex P. Ltd. in LT.A. No. 92 of
1999 decided on May 2, 2000. Special leave petition
against this decision was dismissed by this court on
January 12,2001, (see [2001] 247 ITR (St.) 36). This
view has been followed repeatedly by different High E
Courts in a number of cases against which no special
leave petitions were filed meaning thereby that the
Department has accepted the view taken in these
judgments. See CIT v. Nima Specific Family Trust F
reported in [2001] 248 ITR 29 Born ; CIT v. Chokshi
Contacts P. Ltd. [2001] 251ITR587 (Raj); CITv.Amod
Stamping [2005] 274 ITR 176 (Guj); CIT v. Mittal
Applianc~s P. Ltd [2004] 270 ITR 65 (MP); CIT v.
Rochiram and Sons [2004] 271 ITR 444 (Raj); CIT v. G
Prakash Chandra Basant Kumar [2005] 276 ITR 664
(MP); CIT v. S. B. Oil Industries P. Ltd [2005] 274 ITR 495
(P&H); CITv. SKG Engineering P. Ltd. [2005] 119 DLT
673 and CIT v. Lucky Laboratories Ltd. [2006] 200 CTR
(305). H
1178 SUPREME COURT REPORTS [2015] 11 S.C.R.

A 3. Since the special leave petitions filed against the
judgment of the Madhya Pradesh High Court have been
dismissed and the Department has not filed the special
leave petitions against the judgments of different High
Courts following the view taken by the Madhya Pradesh
B High Court, we do not find any merit in this appeal. The
Departmenf having accepted the view taken in those
judgments cannot be permitted to take a contrary view
in the present case involving the same point. Accordingly,
the civil appeal is dismissed. No costs."
c
11. For the purpose of clarity, I would note that the Court
upheld the view taken by the Madhya Pradesh High Court in
J.B. Tobacco Products Private Limited v. CIT', holding that
no provision has been made in Section 801 to provide for
D deduction of the gross total income computed as per the
mandate of Section 80AB read with Section 808(5), towards
deduction allowed under Section 80HH for the purpose of
allowing deduction under Section 801. Reference was made
to sub-section (9) of Section 80HH as it then existed and was
E applicable before 1•1, April, 1981 as it had made reference
only to Section 80J. Thus it was held that sub-section (9) to
Section 80HH by itself meant that deduction allowed under
Section 80HH was to be reduced from the 'gross total income'
F for granting benefit under Section 80J. Therefore, benefit under
Section 801 was to be granted on 'gross total income' and not
on the income reduced by the amount allowed under Section
80HH. Section 80HH and SOI operate independently and the
deductions have to be allowed independently subject to the
G condition that total amount of deduction under Chapter VIA
cannot exceed the 'gross total income'. In othe.r words, the
gross total income on which deduction under Section 80HH
or 801 would be computed with reference to the "gross total

H • (1998) 229 ITR 123 .
ASSTT. COMMR. OF l.T. BANGALORE v. M/S. MICRO 1179
LABS LTD. [DIPAK MISRA, J.]

income" without reducing from it deduction permitted under A
Section SOHH or SOI or for that matter under any of the sub-
sections under Section SOC or SOU.

12. It is beyond cavil that the aforesaid legal position
continued to exist up to 31 51 March, 1999. With effect from 1•1 B
April, 1999, amendments were made by inserting sub-section
(9)to Section SOIAand sub-section 13to Section SOIB. These
provisions read as under:-

"SO-IA. (9) Where any amount of profits and gains of an C
undertaking or of an enterprise 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 o
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.

SO-IB. (13) The provisions contained in sub-section (5) · E
and sub-sections (7) to ( 12) of Section SO-IA shall, so far
as may be, apply to the eligible business under this
Section."

13. In the present set of appeals, I am dealing with the F
provisions after 1•1April, 1999, i.e., post amendment provisions
and the question raised is whether deduction allowed under
Section SOIA is to be reduced from the gross profits while
computing deduction under Section SOHHC. The controversy
arise? because the assessees herein are entitled to deduction G
both under Section SOIA, which is restricted to the stipulated
p~rcentage of profits and gains derived from specified
b~siness, and under Section SOHHC again stipulated
p~rcentage of profits derived from exports of goods and
mirchandise are entitled for deduction. Section SOHHC H
1180 SUPREME COURT REPORTS [2015] 11 S.C.R.

A specifically prescribes a formula or method for computing the
said deduction in sub-section (3), which at present reads as
follows:-

"80HHC. (3) For the purposes of sub-section(1 ), -
B
(a) where the export out of India is of goods or
merchandise manufactured or processed by the
assessee, the profits :derived from such export shall be
the amount which bears to the profits of the business,
c the same proportion as the export turnover in respect of
such goods bears to the total turnover of the business
carried on by the assessee;

(b) where the export out of India is of trading goods, the
profits derived from such export shall be the export
D
turnover in respect of such trading goods as reduced by
the direct costs and indirect costs attributable to such
export;

(c) where the export out of India is of goods or
E merchandise manufactured or processed by the
assessee and of trading goods, the profits derived from
such export shall, -

(i). in respect of the goods or merchandise manufactured
F or processed by the assessee, be the amount which
bears to the adjusted profits of the business, the same
proportion as the adjusted export turnover in respect of
such goeds bears to the adjusted total turnover of the
business carried on by the assessee; and
G
(ii) in respect of trading goods, be the export turnover in
respect of such trading goods as reduced by the direct
and indirect costs attributable to export of such trading
goods:
H
·ASSTT. COM MR. OF l.T. BANGALORE v. MIS. MICRO 1181"
LABS LTD. [DIPAK MISRA, J.] ..

Provided that the profits computed under clause (a) or A
clause (b) or clause (c) of this sub-section shall be further
increased by the amount which bears to ninety per cent
of any sum referred to in clause (iiia) (not being profits '
on sale of licence acquired from any other person), and
clauses. (iiib) and (iiic) of section 28, the same proportion B
as the export turnover bears to the total turnover of the
· business carried on by the assesse:

Provided further that in the case of an assessee having
export turnover not exceeding rupees ten crores during . C
. the previous year, the profits computed under clause (a)
or clause (b) or clause (c) of this sub-section or after
giving effect to the first proviso, as the ease.may be, shall
be further increased by the amount which bears to ninety
per cent of any sum referred to in clause (iiid) or clause D-
(iiie), as the case may be, of section 28, the same
proportion as the export turnover bears to the total
turnover of the business carried on by the assessee:

Provided also that in the case of an assessee having E
export turnover exceeding rupees ten crores during the
previous year, the profits computed under clause (a) or
clause (b) or clause (c) of this sub-section or after giving
effect to the first proviso, as the case may be, shall be
. further increased by the amount which bears to ninety . F •
per cent of any sum referred to in clause (iiid) of section
28, the same proportion as the export turnover bears to
the total turnover of the business carried on by the
assessee, if the assessee has necessary and sufficient
evidence to prove that,-. G
·•
'
(a) he ha_d an option to choose eitherthe duty drawback
or the Duty Entitlement Pass Book Scheme, being the
Duty Remission Scheme; and
H_
1182 SUPREME COURT REPORTS [2015] 11 S.C.R.

A (b) the rate of drawback credit attributable to the
customs duty was higher than the rate of credit
allowable under the Duty Entitlement Pass Book
Scheme, being the Duty Remission Scheme:

B Provided also that in the case of an assessee having
export turnover exceeding rupees ten crores during tlie
previous year, the profits computed under clause (a) or
clause (b) or clause (c) of this sub-section or after giving
effect to the first proviso, as the case may be, shall be
C further increased by the amount which bears to ninety
per cent of any sum referred to in clause (iiie) of section
. 28, the same proportion as the export turnover bears to
the total turnover of the business carried on by the
assessee, ifthe assessee has necessary and sufficient
D evidence to prove that, -

(a) he had an option to choose eitherthe duty drawback
or the Duty Free Replenishment Certificate, being the
Duty Remission Scheme; and
E
(b) the rate of drawback credit attributable to the
customs duty was higher than the rate of credit
allowable under the Duty Free Replenishment
Certificate, being the Duty Remission Scheme.
F
Explanation. - For the purposes of this clause," rate of
credit allowable" means the rate of credit allowable under
the Duty Free Replenishment Certificate, being the Duty
Remission Scheme calculated in the manner as may be
notified by the Central Government:
G
Provided also that in case the computation under clause
(a) or clause (b) or clause (c) of this sub-section is a
loss, such loss shall be set off against the amount which
bears to ninety per cent of-
H
ASSTT. COMMR. OF l.T. BANGALORE v. M/S. MICRO 1183
LABS LTD. [DIPAK MISRA, J.]

(a) any sum referred to in clause (iiia) or clause (iiib) or A
clause (iiic), as the case may be, or

(b) any sum referred to in clause (iiid) or clause (iiie), as ·
the case may be, of section 28, as applicable in the case
of an assessee referred to in the second or third or the B.
fourth proviso, as the case may be,

the same proportion as the export turnover bears to the
total turnover of the business carried on by the assessee.

Explanation . ..:.. For the purposes of this sub-section, - · C

(a) "adjusted export turnover" means the export turnover
as reduced by the export turnover in respect of trading ·
goods;
(b) "adjusted profits of the business" means the profit of
D
the business as reduced by the profits derived from the
· .... business of export out of India of trading goods as
computed in the manner provided in clause (b) of sub-
I section (3); .
E
· (c) "adjusted total turnover" means the total turnover of
the business as reduced by the export turnover in respect
of trading goods;
(d) "direct costs" means costs directly attributable to the F
' trading goods exported out of India including the
purchase price of such goods;
.· : (e) "indirect costs" means costs, not being direct costs,
· · allocated in the ratio of the export turnover in respeC:t of
. trading goods to the total turnover; .... G
(f) "trac;Iing goods" means goods which are not
· manufactured or processed by the assessee."
14. As is manifest, deduction un-der sub-section (a) is
computed by ascertaining eligible profits, which is the profits H
1184 SUPREME COURT REPORTS [2015] 11 S.C.R.

A of business in the same proportion as the export turnover in
respect of such goods, bears to the total turnover of business.
A separate formula is prescribed under clause (b) of sub-
section (31 to Section 80HHC in case of a trader exporter and
under clause (c) in respect of an assessee, who is both a
B manufacturer/processor and a trader exporter. The Section is
a detailed one and provides complete method and mechanism
to compute deduction under Section 80HHC.

15. It is in the context of Section 80HHC that sub-section
C (9) to Section 801 has come up for interpretation. There is no
dispute that sub-section (9) to Section 801 would be applicable
as the assessee would be.entitled to deduction under Section
801A as well as under Section 80HHC. The contention of the
Revenue is that the said sub-section mandates that deduction
D under Section 80HHC has to be computed not only on the
profits of bu~iness as reduced by the amounts specified in
· clause (baa) and sub-section (4)(8) of Section 80HHC but by
also reducing the amount of profit and gains allowed as a
deduction under Section 801A(1) of the Act. In other words,
E the gross total income eligible for deduction under Section
80HHC would be less or reduced by the deduction already
allowed under Section 801A. Thus, the gross total income
eligible for deductior;i would not be the gross total income as
F defined in sub-section (5) to Section 808 read with Section
808, but would be the gross total income computed under sub-
section (5) to Section 808 read with Section 80A8 less the
deduction under Section 801A. An example will make position
clear. Supposing an assessee has gross total income of
G Rs.1,000/- and is entitled to deduction under Sections 801A
and 80HHC and the deduction under Section 801A is Rs. 300/
-, then the gross total income of which deduction u.nder Section
80HHC is to be computed would be Rs. 700/-, and not Rs.
1,000/-.
H
ASSTT. COMMR. OF l.T. BANGALORE v. M/S. MICRO 1185
LABS LTD. [DIPAK MISRA, J.] .

·16: On the other hand, the case of the assessee is that A
the gross total income would not undergo a change or
reduction for the purpose of Section 80HHC .. · The two
deductions will be computed separately, without the deduction'
allowed under Section 801A being reduced from the gross total
income for computing the deduction under Section 80HHC. B
The reason being that sub-section (9) to Section BOIA does
not affect computation of deduction under Section 80HHC, but
postulates that the deduction computed under Section 80HHC
so aggregated with the deduction under Section SOJA does
not exceed the p~ofits of the business. C

17. The High Court of Bombay in the case of Associated
Capsules Private Ltd (supra) has accepted the contention
of the assessee observing and recording the following
reasons:- D

"29. Section_80-IA(9) consists of three parts: .. ·

First part where any amount of profits and gains of an
undertaking/enterprise is claimed and allowed under E
section 80-IA( 1) for any assessment year, then •

Second part deduction to the extent of profits and gains
allowed under section 80-IA( 1) shall not be allowed under
c
' any other provisions under heading of ChapterVl-A of I F
the Act; and ..

Third part in no case the deduction allowed shall exceed
the profits and gains of the business of undertaking/
enterprise. ·
G
30. The dispute in the present case is, .whether the
second part of section 80-IA(9) seeks to disturb the
mechanism of computing the deduction provided under'
section 80HHC(3) of the Act? The second part of section
8CHA(9) provided that the deduction to the extent of profits H
1186 SUPREME COURT REPORTS [2015] 11 S.C.R.

A allowed under section 80-IA( 1) shall not be allowed under
any other provisions. It obviously means that the
deductions that are allowable under other provisions
under heading C of Chapter VI-A would be allowed to
the extent of profits as reduced by the profits allowed
B under section 80-IA(1 ). The second part of section 80-
IA(9) does not even remotely refer to the method of
computing deduction under other provisions under
heading C of Chapter VI-A. Thus, section 80-IA(9) seeks
to curtail allowance of deduction and not computability
c of deduction under any other provisions under heading
C of Chatper VI-A of the Act.

31. How to compute deduction allowable under section
80HHC(1) is set out in section 80HHC{3). In the case of
D a manufacturer-exporter, section 80HHC(3)(a) provides
that the deduction under section 80HHC(1) has to be
computed as per the formula:

32. Clause (baa) in section 80HHC defines the term
E "profits of the business" for the purposes of section
80HHC to mean the profits of the business as computed
under the head "Profits and gains of business or
profession" as reduced by the amounts specified therein.
Therefore, in the case of a manufacturer-exporter,
F deduction under section 80HHC( 1) is statutorily required
to be computed ·on the profits of the business as reduced
by the amounts specified in clause (baa) of section
80HHC. Unless, it is specifically provided by the statute,
the profits of the business for the purpose of section
G 80HHC cannot be reduced by any amount save and
except the amount specified in clause (baa) of section
80HHC itself. Section 80-IA(9) of the Act does not
expressly or impliedly provide that the amount of profits
allowed as deduction under Section 80-IA(1) should be
H
ASSTT. COMMR. OF l.T. BANGALORE v. MIS. MICRO 1187
LABS LTD. [DIPAK MISRA, J.)

reduced from the profits of the business for the purpose A
of computing deduction under section 80HHC or
computing deduction under any·other provisions in
heading C of Chapter VI-A and, therefore, the contention
of the Revenue to that effect cannot be accepted.
B
33. In the case of a trade-exporter, section 80HHC(3)(b)
provides thatthe deduction under section 80HHC(1) has
to be computed on the export turnover reduced by the
direct costs and indirect costs attributable to the goods
or merchandise exported by the assessee. The C
argument of the Revenue that under sec:tion 80-IA(9) the.
amount of profits allowed under section 80-IA has to be
deducted from the profits of business while computing
deduction under section 80HHC is accepted, then the
section becomes unworkable, because in the case of a D
trader-exporter, the deduction under section 80HHC is
computed on the exporter turnover and not on the profits
of the business. The words "export turnover'' and "profits
of business'' are separately defined under section
. 80HHC. Therefore, in the case of a trader-exporter, E
section 80-IA(9) can be applied only after the deduction
under section 80HHC(3)(b) is computed. Similarly, in
the case of a manufacturer/processor-exporter, section
8Qc1A(9) would be applicable while allowing the deduction F
computed under section 80HHC(3)(a) of the Act.

34. If the words used in section 80-IA(9) were "shall not
qualify", then, probably it could be said thatthe Legislature
intended to affect the quantum of deductions computable
under other provisions under heading C of Chapter VI- G
A, because the amount that qualifies.for deduction alone
forms the basis for computing the deduction. The word
"qualify" is an expression relatable to the computation of
deduction. The word "allowed" is relatable to allowing H
1188 SUPREME COURT REPORTS [2015] 11 S.C.R.

A the deduction that is computed. The word "allowed"
cannot be equated with the word "qualify". Since Section
80-IA(9) uses the words "shall not be allowed'', in our
opinion, the section seeks to restrict the allowance of
deduction and not the computation of deduction under
B any other sections under heading C of Chapter VI-A of
the Act.

35. Wherever the Legislature intended that the deduction
allowed under one section should affect the computation
c of deduction under other provisions of the Act, the
Legislature has expressly used words to that effeet. It
may be noted that sections 80HHD(7) and 80-IA(9)
(presently 80-IA(9)) were introduced by Finance (No.2)
Act, 1988, with effectfromApril 1, 1999. Section 80HHD
D (7) provides that the deduction allowed under section
80HHD (1) shall not qualify to that extent for deduction
under any other provisions of Chapter VI-A under the
heading C, whereas, section 80-IA(9A) provides that the
deduction allowed under section 80-IA(1) shall not be
E allowed under any other provisions of Chapter VI-A under
heading C. Similarly, in section 80-IC(5), the words used
are that notwithstanding anythfng contained in any other
provision of the Act, in computing the total_ income of the
assessee, no deduction shall be allowed under any other
F
section contained in Chapter VI-A or section 1OA or
section 1OB in relation to the profits and gains of the
undertaking. Thus, the Legislature has used specific
words whenever it intended to affect the computation of
deduction. As the words used in section 80-IA(9) relate
G
to allowance and not computation of deduction, it cannot
be inferred that section 80-IA(9) is inserted with a view
to affect computation of deduction under any other
provisions under heading C of Chapter VI-A.
H
Assn. COMMR. OF l.T. BANGALORE v. M/S. MICRO 1189
LABS LTD. [DIPAK MISRA, J.]

36. It is well established in law that the language of the A
statute must be read as it is, and the statute must not be
read by adding or substituting the words unless it is
absolutely necessary to do so. Since section 80-IA(9)
uses the words "shall not be allowed", it is not permissible
to read section 80-IA(9) by substituting the above words B
with the words"'shall not qualify" or by adding the words.
"shall not be allowed in computing" the deduction under
any other provisions under heading C of Chapter VI-A of
the Act. When the plain and simple meaning of section
80-IA(9) can be ascertained from the words used in the C
section, it would not be proper to construe the section by
substituting or adding the words as suggested by the
Revenue''.

18. Delhi High Court, on the other hand, in Greai Eastern D
Exports v. Commissioner of lncome-Tax5 has held as
under:-

"44. The expressions in these provisions are very crucial
which are "deduction to the extent of such profits" and E
the word "and" occurring therein. The first expression very
clearly signifies that if an assesses is claiming benefit of
deduction of a particular amount of profits and gains
under section 80-IA, to that extent profits and gains are
to be reduced while calculating the deduction under the F
heading C of Chapter VI-A of the Act. Further the word
"and" is disjunctive which would mean that the other
provision is independent of the first one namely total
deductions should not exceed the profits and gains in a
particular year. Even a layman who has some proficiency G
in English would understand the meaning of this
• provision in the manner we have explained above. It
would, therefore, be clear that this provision aims at
5 [2011] 332 ITR 14 (Delhi) H
1190 SUPREME COURT REPORTS (2015] 11 S.C.R.

A achieving two independent objectives delineated above.
It cannot be limited to the second objective alone thereby
annihilating the first altogether and making it otiose. If .
we accept the contention of learned counsel for the
assesses, it would lead to this result which has to be
B avoided.

45. Law on interpretation is clear. If the language of the
statute is plain and capable of one and only one meaning,
that obvious meaning is to be given to the said provision.
C Rules of interpretation are applied only if there are
ambiguities when the purpose of interpretation is to
ascertain the intention of the law i.e., mens leg is, it is
based on assertion by adopting plain meaning of the
statute in the absence of any ambiguity."
D
19. The aforesaid judgment gives the stamp of approval
to the opinion expressed by the Special Bench of the Tribunal
in Assistant Commissioner of Income-tax v. Ragini
Garments6 wherein it has been observed that several sections
E like 80HHA, 80HHA(5) and 80HHA(6) provide for modification
or change of manner and mode of computation or preferential
treatment of one deduction over the other. These sections have
to be read harmoniously. Though Section 80AB starts with
the non-obstante clause, the provisions of Section (9A) to
F Section 801A would override. The Delhi High Court has
accepted the said interpretation and observed that the two
provisions are required to be read harmoniously, for Section
80-IA(9) should not be treated as a redundant provision as it
was introduced for the purpose of achieving a clear objective.
G Consequently, it has held that the deduction under Section
80HHC cannot be computed without reference to the·bar under
Section 801A(9). •

H '[2007) 294 ITR (AT) 15 (Chennai)
ASSTT. COMIVIR. OF 1.T. BANGALORE v. M/S. MICRO 1191
LABS LTD. [DIPAK MISRA, J.]

20. There is no doubt that Section 80AB and sub-section A
(9) to Section 801A have to be harmoniously construed and
read together. There cannot be any trace of doubt that the
secohd limb of Section. 9 to Section 801A has been enacted to
prevent cascading effect of deductions under Section 801A and
80HHC. There was already a cap or the upper limit stipulated B
in sub-section(2) to Section 801A that the deductions cannot
exceed the gross total income of the assessee. However,
Section 9 to Section 801A stipulates that in no case deduction
shall exceed profits and gains of such eligible business of
undertaking and enterprise. The said provision does not make C
a reference to the gross total income but it refers to the profits
and gains of such eligible business of undertaking and
enterprise. Thus read, it cannot be said that the last part Qf
sub-section (9) to section 801A would be rendered meaningless D
being a mere reproduction of sub-section(2) to Section BOA.
The two provisions operate independently. The aforesaid
aspect has been overlooked by the Delhi High Court while .
emphasizing that the word "and" is disjunctive. There cannot
be any doubt that the last part of Section 801A(9) has its E
meaning and object, but it is not necessary to read the same
to curtail or reduce profit or gains of business by the deduction
allowed under Section 801A. This aspect is highlighted in
Associated Capsules Private Limited (supra) by the High
Court of Bombay in the following paragraphs:- F

"23. As per section 80A(2) in Part A of ChapterVl-A, the
aggregate amount of deduction allowed under Chapter
VI-A shall not exceed the gross total ihcome. Thus, the
overall deduction allowed under Chapter VI-A cannot G
exceed .the gross total income. However, on noticing
.. 'that several undertakings were availing of deductions
under Chapter VI-A within the overall limit of gross total
income but exceeding the profits of the undertaking, the
Legislature introduced sub-section (9A) in section 80-IA H
1192 SUPREME COURT REPORTS [2015] 11 S.C.R.

A by the Finance (No.2)Act, 1998, with effect from April 1,
1999. By the Finance Act, 1999, section 80-IA(9A) has
been renumbered as section 80-IA(9).

24. The object of amending section 80-IA by the Finance
B (No.2) Act, 1998, as is evident from the memorandum
explaining the provisions in the Finance (No.2) Bill,
1998([1998] 231 ITR (St.) 252) is that it was noticed that
certain assessees were claiming more than 100 percent
deduction on the profits and gains of the same
c undertaking, when they were entitled to deductions under
more than one section under heading C of Chapter VI-
A. With a view to prevent the taxpayer taking undue
advantage of the existing provisions of the Act, section
80-IA was amended by the Finance (No.2) Act, 1998, so
D that the deductions allowed under section 80-IA and
various sections under heading C of Chapter VI-A are
restricted to the profits of the business of the
undertakings/enterprise."

E 21. The first part of sub-section (9) to Section 801A refers
to the computation of profits and gains of an undertaking or
enterprise allowed under Section 801A in any assessment year
and the amount so calculated shall not be allowed as a
deduction under any other provisions of this Chapter. It is in
F this context that the Bombay High Court has rightly pointed out ·
that there is a difference between allowing a deduction and
computation of deduction. The two have separate and distinct
meanings. Computation of deduction is a stage prior and helps
in quantifying the amount, which is eligible for deduction. Sub-
G section (9) to Section 801A does not bar or prohibit the
deduction allowed under Section 801A from being included in
the gross total income, when deduction under Section .
80HHC(3) of the Act is computed. In this context it has been
held that the expression "shall not be allowed" cannot be
H
ASSTT. COMMR. OF 1.T. BANGALORE v. M/S. MICRO 1193
LABS LTD. [DIPAK MISRA, J.]

equated with the words "shall not qualify" or "shall not be. A
allowed" in computing deduction. The effect thereof would be
that while computing deduction under Section 80HHC, the
gross total income would mean the gross total income before
allowing any deduction under Section 801A or other sections
of part C of Chapter VIA of the Act. But once the deduction B
under Section 80HHC has been calculated, it will be allowed,
ensuring that the deduction under Section 80HHC and 801A
when aggregated do not exceed profits and gains of such
eligible business of undertaking and enterprise.
c
22. As I find, the legislature has used the expression
"shall not qualify" in Section 80HHB(5) and 80HHD(7), but the
said expression has not been used in sub-section (9) to Section
801A. The formula prescribed in sub-section (3) to Section
80HHC is a complete code for the purpose of the said D
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 clause (b) and
(c) of Section 80HHC(3) of the Act. In case the gross total . E
income.is reduced or modified taking into account the
· deduction allowed under Section 801A, it would lead to absurd
and unintended consequences. It would render the formula
under sub-section (3) to Section 80HHC ineffective and F
unworkable as highlighted in paragraph 33 of the decision in
I Associated Capsules Private Limited (supra) with reference
to clause (b) of Section 80HHC(3). Even when I apply clause
(a) and calculate eligible deduction· under Section 80HHC, it
would give an odd and anomalous figure. To illustrate, I would G
like to expound on the earlier example after recording that the
gross total income of Rs.1,000/-was on assumed total turnover
of Rs.10,000/-which includes export turnover of Rs.5,000/- and
the deduction allowable under Section 80-IA was 30% and
the deduction allowable under Section BOHHC was 80% of H
1194 SUPREME COURT REPORTS [2015) 11 S.C.R.

A · the eligible profits as computed under Section 80HHC(3). The
stand of the Revenue is that without alteration or modification
of the figures of total turnover and the export turnover, the gross
total income would undergo a reduction from Rs. 1,000/- to
Rs. 700/- as Rs. 300/- has been allowed as a deduction under
B Section 80-IA. This would result in anomaly forthe 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. There is no logic or rationale for making
C the calculation in the said impracticable and unintelligible
manner.

23. Recently, this Court in Jeyar Consultant and
Investment Private Limited v. Commissioner of Income
D Tax, Madras 7 , dealing with the Assessment Year 1989-90,
had examined sub-section (3)(b) to Section 80 HHC as it then
existed on the question of computation of deduction, which
has reference to figures of profit from business, export turnover
and total turnover. The said clause applied to assessee who
E had turnover and income from business in India as well as
from export business. The eligible profits from exports under
the clause were computed as a proportion which had reference
to the three figures. Reversing the finding of the High Court, it
F was observed that insofar export business was concerned,
the assessee therein had admittedly incurred loses and on
the said factual position there was no doubt or debate.
However, the assessee relying upon the formula prescribed in
clause (b) to Section 80HHC(3) had contended that profits of
G business as a whole, i.e., profits earned from goods or
merchandise within India, which outweighed the loses from
exports, should be taken into consideration. Referring to the
decisions in IPCA Laboratories Limited v. CIT" and A.M.
1
(201 s) 7 sec 105
H • (2004) 12 sec 742
ASSTT. COMMR. OF I. T. BANGALORE v. M/S. MICRO 1195
LABS LTD. [DIPAK MISRA, J.]

Moosa v. Cff9, the contention was rejected observing that A
the profits of business should be positive profits and not
negative income or losses. It was observed that the formula
prescribed in sub-section (3) clause (b) would not come into
the picture, where it was an accepted case of the assessee
that there were no profits from export business. Hence, when B
there were loses in export business, deduction under Section
80HHC would not be allowed.

24. The issue raised in the present case is entirely
different. The_ assessee has made profits which are eligible C
and on which deduction is to be allowed under Sections
80HHC and 801A.

25. Two other aspects need to be noticed. In Jeyar
Consultant and Investment Private Limited (supra), the o
Court was dealing with the Assessment Year 1989-90 and sub-
section (3) to Section 80HHC as it then existed and was
applicable. The said sub-section had underwent substitution
by Finance (No.1) Act, 1990 with effect from 1'1 April, 1991
and then again by Finance (No.2) Act, 1991 with effect from E
1'1 April 1992. The first substitution may not be of material
relevance for it was specified that the profits derived from
exports were to be worked out in the same proportion with the
sale proceeds received in, or brought into India in corivertible
foreign exchange bear to the total sale proceeds of such goods F
or merchandise. However, the amendments made by Finance
(No.2) Act, 1991 with effect from Assessment Year 1992-93
are substantial as the new provisions provides a detailed
mechanism for computing profits from exports from trading
goods and in case of mixed activity of manufacturing and G
trading. Sub-section(3) to Section 80HHC as enacted by the
Finance (No.2)Act, 1991 and further amendments has been
quoted in paragraph 15 above.

, c2007) 7 sec 64 7 H
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1196 ·. SUPREME COURT REPORTS
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I . .

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!
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I
..
' !:Ass LTD. [DIPAK MISRA, J.]
1197

A _· .. 26. It may be noted that the second, third and fourth
(1 Inserted by the Finance (No.2 Act, 1991, w.e.f 1-4- A
1 . provisos to Section 80HHC(3) were inserted by Taxation Laws
.1987. . ,,
(Amendment) Act, 2005 with retrospective effect from 1stApril, -•'·
· 1998. The fifth proviso was inserted by Taxation Laws -' · · 2 Inserted by the Finance (No.2 Act, 1991, w.e.f 1-4-
' ·(Amendment) Act, 2005 with retrospective effect from 1st April, . , " 1992"] '; . . .. . .. .
· B. : 1992: Explanation to sub-section (3) would indicate that it 8
defines different terms including "direct" and "indirect cost", 28; The expression "profits of the business" as defined
"trading goods", "adjusted export turnover" and "adjusted profits in clause (baa) of the Explanation to Section 80HHC of the
·of the business". . Act was interpreted by the Court in ACG ·Associated
. \ Capsules Private Limited v. Commissioner of Income Tax,
\
' c: 27. Finance (No.2).Act, 1991 with retrospective effect Central-IV, Mumbai10, in the following manner:- ..
from 1st April, 1987 in the Explanation to the Section 80HHC
c
I defines the term "total turnover" and "profits of business" in "11·. Before we deal with the contentions ~fthe learned -
clauses (ba) and (baa). They read as under:- . counsel for the parties, we'may extract Explanation (baa)
- ' ~
· ' to Section 80-HHC of the Act: '
."
"(ba) "total turnover", shall not include freight or. insurance
'
D
attributable to the transport of the goods or merchandise ·. · '"Expl~nation.-Fcfr the purposes of this section,-·· D.
..,.
beyond the customs station as defined in the Customs
' ". * • ., ' '

Act, 1962 2 (52 of 1962): Provided that in relation to any· . ,·' . ,- . ''; - - -; ·, 1-:' ' -- : ; _,: -
assessment year commencing on or after the 1st day of (baa) 'profits of the business' means the profits of the
E· April, 1991, the expression "total turnover" shall have business as computed under the head 'Profits and Gains E
effect
. as if it also excluded any sum referred to in clauses
. . ._ .. '-,.of Business or Profession' as redu'ced by-, · :. ·•'° "., ·
• - ' ·- I
(iiia), (iiib) and (iiic) of Section 28; - ' ' . - . -·.. - . -, - . j : : :··. - : ; ', : ' l- 1. - ;_' - • - • ".

, . . . ' '• I .
(1) ninety per cent of any sum referred to in clauses (iii-'
(~aa) "profits of the business" means the profits of the ·"·. , a), (iii-b), (iii-c), (iii-cf) and (iii-e) of Section 28 or of any
F ·business as computed under the head "Profits and gains : · receipts byway of brokera~e, com~i~sion, inter~st; rent, · F .
.. of business or profession" as re_duced by- · : . charges or any other receipt of a s1m1lar nature included ·
0 ,·in such profits; and '; t .; · : 1 · . : ·
.(1) ninety percent of any sum referred to in clauses (iiia), ,r , - ,- · .. ' . ~ • .. ' .,
~I , '• · · · ·
I (iiib) and (iiic) of Section 28 or of any receipts by way of .. '. (2) the pr~fits of any branch, office, warehouse or any
G_· \ . brokerage, commission, interest, rent, charges or any : . other establishnient of the assessee situate outside India;
. other receipt of a similar nature included in such profits; ' . - . - ., , . . ~- ;,·-~ . . . ·. . G.
· and · \.. : · · · · '" · ~- ''· · . ' 12: Explanation (baa) extracted above states that "profits
.~ - ' ;' . . ~... : ' of the business" means the profits of the business as
'-.... (2) the profits of any branch, office, warehouse or any .i .· - computed under the head "Profits and Gains of Business
: -~ . ' ,; '' i . • t . ;: • • '. ' ' " :! ;I )
-' H other establishment of the assesses situate outside India; (".
10 (2012i 3 sec 321 H

~

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1196 ·. SUPREME COURT REPORTS
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!
"

I
..
' !:Ass LTD. [DIPAK MISRA, J.]
1197

A _· .. 26. It may be noted that the second, third and fourth
(1 Inserted by the Finance (No.2 Act, 1991, w.e.f 1-4- A
1 . provisos to Section 80HHC(3) were inserted by Taxation Laws
.1987. . ,,
(Amendment) Act, 2005 with retrospective effect from 1stApril, -•'·
· 1998. The fifth proviso was inserted by Taxation Laws -' · · 2 Inserted by the Finance (No.2 Act, 1991, w.e.f 1-4-
' ·(Amendment) Act, 2005 with retrospective effect from 1st April, . , " 1992"] '; . . .. . .. .
· B. : 1992: Explanation to sub-section (3) would indicate that it 8
defines different terms including "direct" and "indirect cost", 28; The expression "profits of the business" as defined
"trading goods", "adjusted export turnover" and "adjusted profits in clause (baa) of the Explanation to Section 80HHC of the
·of the business". . Act was interpreted by the Court in ACG ·Associated
. \ Capsules Private Limited v. Commissioner of Income Tax,
\
' c: 27. Finance (No.2).Act, 1991 with retrospective effect Central-IV, Mumbai10, in the following manner:- ..
from 1st April, 1987 in the Explanation to the Section 80HHC
c
I defines the term "total turnover" and "profits of business" in "11·. Before we deal with the contentions ~fthe learned -
clauses (ba) and (baa). They read as under:- . counsel for the parties, we'may extract Explanation (baa)
- ' ~
· ' to Section 80-HHC of the Act: '
."
"(ba) "total turnover", shall not include freight or. insurance
'
D
attributable to the transport of the goods or merchandise ·. · '"Expl~nation.-Fcfr the purposes of this section,-·· D.
..,.
beyond the customs station as defined in the Customs
' ". * • ., ' '

Act, 1962 2 (52 of 1962): Provided that in relation to any· . ,·' . ,- . ''; - - -; ·, 1-:' ' -- : ; _,: -
assessment year commencing on or after the 1st day of (baa) 'profits of the business' means the profits of the
E· April, 1991, the expression "total turnover" shall have business as computed under the head 'Profits and Gains E
effect
. as if it also excluded any sum referred to in clauses
. . ._ .. '-,.of Business or Profession' as redu'ced by-, · :. ·•'° "., ·
• - ' ·- I
(iiia), (iiib) and (iiic) of Section 28; - ' ' . - . -·.. - . -, - . j : : :··. - : ; ', : ' l- 1. - ;_' - • - • ".

, . . . ' '• I .
(1) ninety per cent of any sum referred to in clauses (iii-'
(~aa) "profits of the business" means the profits of the ·"·. , a), (iii-b), (iii-c), (iii-cf) and (iii-e) of Section 28 or of any
F ·business as computed under the head "Profits and gains : · receipts byway of brokera~e, com~i~sion, inter~st; rent, · F .
.. of business or profession" as re_duced by- · : . charges or any other receipt of a s1m1lar nature included ·
0 ,·in such profits; and '; t .; · : 1 · . : ·
.(1) ninety percent of any sum referred to in clauses (iiia), ,r , - ,- · .. ' . ~ • .. ' .,
~I , '• · · · ·
I (iiib) and (iiic) of Section 28 or of any receipts by way of .. '. (2) the pr~fits of any branch, office, warehouse or any
G_· \ . brokerage, commission, interest, rent, charges or any : . other establishnient of the assessee situate outside India;
. other receipt of a similar nature included in such profits; ' . - . - ., , . . ~- ;,·-~ . . . ·. . G.
· and · \.. : · · · · '" · ~- ''· · . ' 12: Explanation (baa) extracted above states that "profits
.~ - ' ;' . . ~... : ' of the business" means the profits of the business as
'-.... (2) the profits of any branch, office, warehouse or any .i .· - computed under the head "Profits and Gains of Business
: -~ . ' ,; '' i . • t . ;: • • '. ' ' " :! ;I )
-' H other establishment of the assesses situate outside India; (".
10 (2012i 3 sec 321 H

~

i
1198 SUPREME COURT REPORTS (2015] 11 S.C.R.

A or Profession" as reduced by the receipts of the nature
mentioned in clauses (1) and (2) of Explanation (baa).
Thus, profits of the business of an assessee will have to
be first computed under the head "Profits and Gains of
Business or Profession" in accordance with the
B provisions of Sections 28 to 44-D of the Act. In the
computation of such profits of business, all receipts of
income Which are chargeable as profits and gains of
business under Section 28 of the Act will have to be
included. Similarly, in computation of such profits of
c business, different expenses which are allowable under
Sections 30 to 44-D have to be allowed as expenses.
After including such receipts of income and after
deducting such expenses, the total of the net receipts
are profits of the business of the assessee computed
D
under the head "Profits and Gains of Business or
Profession" from which deductions are to be made under
clauses (1) and (2) of Explanation (baa)."

29. Reliance was placed for the said interpretation on a
E decision of the Constitution Bench in Distributors (Baroda)
(P) Limited v. Union oflndia 11, to observe:-

"16. Similarly. Explanation (baa) has to be construed on
its own language and as per the plain natural meaning of
F the words used in Explanation (baa), the words "receipts
by way of brokerage, commission, interest, rent, charges
or any other receipt of a similar nature included in such
profits" will not only refer to the nature of receipts but also
the quantum of receipts included in the profits of the
.G business as computed under the head "Profits and Gains
of Business or Profession" referred to in the first part of
the Explanation (baa). Accordingly, if any quantum of any
receipt of the nature mentioned in clause ( 1) of

H (1986) 1 sec 43

J
ASSTT. COMMR. OF LT. BANGALORE v. M/S. MICRO 1199
LABS LTD. [DIPAK MISRA, J.]

Explanation (baa) has not been included in the profits of A
business of an assessee as computed under the head
"Profits and Gains of Business or Profession", ninety per
cent of such quantum of the receipt cannot be deducted
under Explanation (baa) to Section 80HHC.
B
17. If we now apply Explanation (baa) as interpreted by
us in this judgment to the facts of the case before us, if the rent
or interest is a receipt chargeable as profits and 1 gains of
business and chargeable to tax under Section 28 of the Act,
and ·if any quantum of the rent or interest of the assesses is c
allowable as an expense in accordance With Sections 30 to
· 440 of the Act and is not to be included in the profits of the
business of the assessee as computed under the head "Profits
and Gains of Business or Profession", ninety per cent of such
quantum of the receipt of rent or interest will not be deducted D
under clause (1) of Explanation (baa) to Section 80 HHC. In
other words, ninety per cent of not the gross rent or gross
interest but only the net interest or net rent, which has been
included in the profits of business of the assessee as computed
· under the head "Profits and Gains of Business or Profession", E
is19 be deducted under clause (1) of Explanation (baa) to
Section 80HHC for determining the profits of the business".

30. Referring to CIT v. K. Ravindranathan Nair12 , it
was observed that processing charges received by the F
assessee were held to be business turnover and included in
profits and gains of business. As per Explanation (baa) it was
ob~erved that 90% of this income would have to be deducted.
However, in Ravindranathan Nair(supra) the Court was not
deciding whether 90% of the deduction was to be made from G
gross or net income.

., (2007) 15 sec 1 H