SHITAL FIBERS LIMITEDversusCOMMISSIONER OF INCOME TAX

                 [2025] 5 S.C.R. 1248 : 2025 INSC 743

                         Shital Fibers Limited
                                   v.
                      Commissioner of Income Tax
                       (Civil Appeal No. 14318 of 2015)
                                   20 May 2025
   [Abhay S. Oka,* Ahsanuddin Amanullah and Augustine
                    George Masih, JJ.]


                            Issue for Consideration
       Deductions claimed cumulatively under the provisions of s.80-HHC
       and s.80-IA or s.80-IB under Heading ‘C’ of Chapter VI-A, Income
       Tax Act, 1961, if can be allowed; scope of restriction u/sub-section (9)
       of s.80-IA, Income Tax Act, 1961 on such deductions claimed.

                                    Headnotes†
       Income Tax Act, 1961 – Chapter VI-A – Heading ‘C’– ss.80-HHC,
       80-IA, 80-IB, 80-IA(9) – Deductions u/ss.80-HHC, 80-IA and
       80-IB under Heading ‘C’ – Appellant claimed deductions
       u/s.80-HHC and ss.80-IA, 80-IB, disallowed – Appeal
       thereagainst dismissed till High Court which held that s.80-
       IA(9) bars claim for deduction under any other provision of
       Chapter VI-A, if deduction u/s.80-IA has been allowed – Matter
       before Supreme Court, difference of opinion between two
       Judges – Matter referred to three judge bench:
       Held: On a plain reading of s.80-IA(9), if a deduction of profits
       and gains u/s.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
       u/s.80-IA cannot be allowed under any other provision under
       heading ‘C’ – s.80-IA(9), on its plain reading, does not provide that
       when a deduction is allowed u/s.80-IA, while considering the claim
       for deduction under any of the provision under heading ‘C’, the
       deduction allowed u/s. 80-IA should be deducted from the gross
       total income – The restriction under sub-section (9) of s. 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


* Author
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          Shital Fibers Limited v. Commissioner of Income Tax


     claimed u/s.80-IA – s.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 u/s.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 – Reference answered. [Paras 20-22, 24]

                             Case Law Cited
     Associated Capsules (P) Ltd. v. Deputy Commissioner of Income
     Tax and Anr. (2011) SCC Online Bombay 27 – approved.
     Assistant Commissioner of Income Tax, Bangalore v. Micro Labs
     Limited [2015] 11 SCR 1154 : (2015) 17 SCC 96 – referred to.
     Friends Casting (P) Ltd. v. Commissioner of Income Tax (2011) 50
     DTR Judgments 61; Great Eastern Exports v. Commissioner of
     Income Tax (2010) SCC OnLine Del 4195 – referred to.
     ACIT v. Rogini Garments (2007) SCC OnLine ITAT 159; SCM
     Creations v. ACIT, 304 ITR 319 – referred to.

                                List of Acts
     Income Tax Act, 1961.

                             List of Keywords
     Sub-section 9 of Section 80-IA of Income Tax Act, 1961; Deductions
     claimed; Deductions Under Section 80-HHC, 80-IA and 80-IB;
     Section 80-HHC; Section 80-IA; Scope of restriction under sub-
     section 9 of Section 80-IA of Income Tax Act, 1961; Computation
     of deductions; Allowability of deductions; Chapter VI-A; Heading
     C; Profits and gains; Total gross income; Reference; Deduction of
     profits and gains; Deductions in respect of profits and gains from
     industrial undertakings or enterprises; Deductions in respect of
     industrial undertakings.

                            Case Arising From
     CIVIL APPELLATE JURISDICTION : Civil Appeal No. 14318
     of 2015
     From the Judgment and Order dated 18.04.2011 of the High Court
     of Punjab & Haryana at Chandigarh in ITA No. 394 of 2010
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      With
      Civil Appeal No(s). 14295, 14299, 14297, 14301, 14304, 14305,
      14309, 14324, 14319, 14313, 14323, 14314, 14322, 14320,
      14337, 14339, 14340, 14346 and 14347 of 2015, SLP (C) No.
      19698, 36539 of 2014, SLP (C) No. 9723 of 2018 and SLP (C)
      No. 28934 of 2019

                           Appearances for Parties
      Advs. for the Appellant:
      N Venkatraman, A.S.G., Pankaj Jain, Salil Aggarwal, Ms. Kavita
      Jha, Ajay Vohra, Ms. Kavita Jha, Sr. Advs., Raj Bahadur Yadav,
      Venkatraman Chandrashekhara Bharathi, Udai Khanna, H R Rao,
      Annirudh Sharma Ii, Divya Suri, Sachin Bhardwaj, Ms. Shefali
      Choudhary, Ms. Namita Choudhary, Dr. Rakesh Gupta, Somil
      Agarwal, Ambhoj Kumar Sinha, Madhur Aggarwal, Bhargava
      V. Desai, Shivam Sharma, Akash Shukla, Ms. Usha Nandini V.,
      Mrs. Shashi Kapila, Vikas Mehta, Pravesh Sharma, Sushil Kumar,
      Siddharth Kapila, Ankit Vashisht, Ms. Nitika Grover, Akash Shukla,
      Aniket Deepak Agrawal.

      Advs. for the Respondent:
      N Venkatraman, A.S.G., Bishwajit Bhattacharyya, Sr. Adv., Sahil
      Tagotra, Sujay Jain, Kishore Kunal, Ms. Ankita Prakash, Raj
      Bahadur Yadav, Venkatraman Chandrashekhara Bharathi, Udai
      Khanna, H R Rao, Annirudh Sharma Ii.

                    Judgment / Order of the Supreme Court

                                 Judgment

      Abhay S. Oka, J.

1.    This group of appeals/petitions has been referred to a Bench of
      three Judges in view of the Order dated 10th December, 2015 in
      Assistant Commissioner of Income Tax, Bangalore v. Micro Labs
      Limited1 which records difference of opinion between two Hon’ble
      Judges of this Court.



1    (2015) 17 SCC 96
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            Shital Fibers Limited v. Commissioner of Income Tax


2.    For the sake of convenience, we are referring to facts of the case
      in Civil Appeal No. 14318 of 2015. We may note here that some of
      the appeals in the group have been disposed of by the Order dated
      01st 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 (for short ‘the IT Act’). The return
      was accepted on 31st October, 2002. Reassessment proceedings
      under Section 147 of the IT Act were initiated in respect of the said
      Assessment Year by the order dated 10th 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) in the case of ACIT
      v. Rogini Garments2. In the said Order dated 10th 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 judgment dated 17th July, 2008 of
      the jurisdictional ITAT, in 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 Garments2,
      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 1st April, 1999.



2    (2007) SCC OnLine ITAT 159
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6.    The appellant filed response to the notice under Section 143(2).
      The appellant relied upon the decision of Madras High Court in
      the case of SCM Creations v. ACIT3 wherein it was 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 business. However, by the Order dated 12th 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 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 Friends Casting (P) Ltd. v. Commissioner of Income
      Tax4. 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 Income Tax and Anr5 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. Commissioner of Income Tax6.

      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


3    304 ITR 319
4    (2011) 50 DTR Judgments 61
5    (2011) SCC OnLine Bombay 27
6    (2010) SCC OnLine Del 4195
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          Shital Fibers Limited v. Commissioner of Income Tax


     claim deductions through 33 provisions under heading ‘C’ of Chapter
     VI-A. He submitted that the real issue is the extent of 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 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
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     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.
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 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
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          Shital Fibers Limited v. Commissioner of Income Tax


           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 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.
           …………………………………”
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     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 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 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
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          Shital Fibers Limited v. Commissioner of Income Tax


     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 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 and Anr4 in paragraphs 38
    and 39 held thus:
           “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) 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
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        (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 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
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          Shital Fibers Limited v. Commissioner of Income Tax


           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 computable
           under various provisions under heading C of Chapter
           VI-A, it is reasonable to hold that section 80-IA(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-IA(1) and the deduction computed as per
           section 80HHC is Rs. 80, then, in view of section 80-IA(9),
           the deduction under section 80HHC would be restricted to
           Rs. 70, so that the aggregate deduction does not exceed
           the profits of the business.”
23. Hence, we find that the view taken by the Bombay High Court is
    correct. Dipak Misra, J (as he then was), in paragraphs 47 and 48
    of the decision in the case of Assistant Commissioner of Income
    Tax, Bangalore v. Micro Labs Limited1 approved the view taken
    by Bombay High Court in the aforesaid case. Paragraphs 47 and 48
    read thus:
           “47. It is in the context of Section 80-HHC that sub-
           section (9) of Section 80-I has come up for interpretation.
           There is no dispute that sub-section (9) of Section 80-I
           would be applicable as the assessee would be entitled to
           deduction under Section 80-IA as well as under Section
           80-HHC. The contention of the Revenue is that the said
           sub-section mandates that deduction under Section 80-HHC
           has to 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
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         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-section (9)
         of Section 80-IA does not affect computation of deduction
         under Section 80-HHC, but postulates that the deduction
         computed under Section 80-HHC so aggregated with the
         deduction under Section 80-IA does not exceed the profits
         of the business.”
    In paragraphs 53 and 54 of the same decision, it is held thus:-
         “53. The first part of sub-section (9) of Section 80-IA refers
         to the computation of profits and gains of an undertaking or
         enterprise allowed under Section 80-IA 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 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-section (9) of Section
         80-IA does not bar or prohibit the deduction allowed
         under Section 80-IA from being included in the gross total
[2025] 5 S.C.R.                                                            1261

          Shital Fibers Limited v. Commissioner of Income Tax


           income, when deduction under Section 80-HHC(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 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 80-HHC(3). Even when I apply
           clause (a) and calculate eligible deduction under Section
           80-HHC, it would give an odd and anomalous figure. To
           illustrate, I would like to expound on the earlier example
           after recording that the gross total income of Rs 1000 was
           on assumed total turnover of Rs 10,000 which includes
           export turnover of Rs 5000 and the deduction allowable
1262                                                         [2025] 5 S.C.R.

                            Supreme Court Reports


             under Section 80-IA was 30% and the deduction allowable
             under Section 80-HHC was 80% of the eligible profits as
             computed under Section 80-HHC(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 1000 to
             Rs 700 as Rs 300 has been allowed as a deduction under
             Section 80-IA. This would result in anomaly for the said
             figure would not be the actual and true figure or the true
             gross total income or profit earned on the total turnover
             including export turnover and, therefore, would give a
             somewhat unusual and unacceptable result. There is no
             logic or rationale for making the calculation in the said
             impracticable and unintelligible manner.”
24. In view of what we have held above, we find that the interpretation
    made by the Bombay High Court in the case of Associated Capsules
    (P) Ltd. v. Deputy Commissioner of Income Tax and Anr4 appears
    to be logical and correct.
25. We accordingly, answer the reference and direct the Registry to
    place the appeals/petitions before appropriate Bench.

     Result of the case: Reference answered.




     †
         Headnotes prepared by: Divya Pandey