THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE SAMUDRA GOVINDARAJULU REFERENCE CASE No.89 of 1996 Dated:21.11.2011 Between: Commissioner of Income Tax, A.P.-II, Hyderabad .. Appellant And M/s.Feno Plast (P) Limited, Secunderabad .. Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE SAMUDRA GOVINDARAJULU REFERENCE CASE No.89 of 1996 ORDER: (per Hon’ble Sri Justice V.V.S.Rao) In this reference under Section 256(1) of the Income Tax Act, 1961 (the Act) by the Revenue, the sole question referred to this Court is as follows. “Whether on the facts and in the circumstances of the case, the ITAT is correct in law in holding that deduction u/s.80I is to be allowed without reducing the deduction allowed under S.80HH and 80HHC?” The respondent (hereafter, the assessee) ﬁled their return of income for the assessment year 1986-1987 admitting Rs.7,46,698/- and claimed that the carried forward loss is to be set-oﬀ against this income. According to them, the net income will be nil. Subsequently, the assessee ﬁled revised returns on 09.01.1989 showing the net income as Rs.1,17,32,020/-. In this return also they claimed that carried forward losses are to be set oﬀ. The income was taken up for scrutiny. During such scrutiny, it was noticed that while arriving at the net income returned, the assessee claimed deductions under Sections 80HH as well as 80-I of the Act. Relying on the elucidation given by the learned author of “Law of Income Tax” by Sampath Iyengar, the assessing oﬃcer observed that the deduction under Section 80-I is to be calculated with reference to the ﬁgure after deducting under Section 80HH. Aggrieved by the assessment order, appeal was ﬁled before the Commissioner of Income Tax (CIT) (Appeals), Hyderabad, which was allowed. In so far as the claiming of deduction under Sections 80HH and 80-I of the Act are concerned, the CIT (A) held that the deduction under Section 80-I may be granted on the 25% of the total income without making any sanction for the relief claimed under Section 80HH. The Revenue was unsuccessful before the Income Tax Appellate Tribunal and their appeal being I.T.A.No.535/Hyd/90 for the assessment year 1986-1987 was dismissed. Therefore, they ﬁled an application 256(1) of the Act and sought for the question as noticed hereinabove. This Court heard the Junior Standing Counsel for Income Tax and the counsel for the assessee. I n J.P. Tobacco Products Pvt. Ltd. V Commissioner of Income Tax[1], the Madhya Pradesh High Court considered a similar question. Having regard to the enacting history as well as the amendments made to Section 80HH, the Division Bench held as follows. “….. Sub-section (9) of section 80HH, as it stood prior to insertion of section 80-I by the Finance (No.2) Act, 1980, with eﬀect from April 1, 1981, originally included only section 80J. Section 80J providing for deduction in respect of the proﬁts and gains from newly established industrial undertakings or ships or hotel business in certain cases did not make any provision for reduction of the gross total income by the amount of deduction admissible to the assessee under section 80HH. It was only by an amendment of the said section 80J that the provision for reducing the gross total income by the amount of deduction under section 80HH of the Act by the Direct Taxes (Amendment) Act, 1974, with eﬀect from April 1, 1974, was inserted. Section 80-I was inserted in its present form by the Finance (No.2) Act, 1980, with eﬀect from April 1, 1981, and by the same Finance (No.2) Act, section 80HH (9) was amended and the words “section 80-I or” were inserted to make the said provision applicable to section 80-I as well. However, no provision was made in section 80-I to provide for deduction of the gross total income by deduction allowed under section 80- HH for the purpose of allowing deduction under section 80-I. It would, thus, be seen that when section 80J already existed in sub-section (9) of section 80HH, an amendment was made in section 80J in the year 1974 but no such provision was made in so far as section 80-I was concerned. This clearly contra- indicates that sub-section (9) of section 80HH by itself meant that deduction allowed under section 80HH is to be reduced from the gross total income for granting the beneﬁt of section 80J and, for that matter, of section 80-I. It was provided in section 80J itself by later amendment while no such provision was made in section 80-I even though inserted on a later date. The provision of law is, therefore, clear that in so far as the beneﬁt of section 80-I is concerned, it has to be granted on the gross total income and not on the income reduced by the amount allowed under section 80HH. …..” (emphasis supplied) The Special Leave Petition ﬁled by J.P.Tobacco Products was dismissed on the ground of delay. The decision of the Madhya Pradesh High Court was followed by four High Courts (see CIT v Nima Speciﬁc Family Trust [2], CIT v Chokshi Contacts P. Ltd.[3] , CIT v Amod Stamping[4] , CIT v Mittal Appliances P. Ltd.[5] , CIT v Rochiram and Sons [6] a n d CIT v Prakash Chandra Basant Kumar[7] ). Thus, all the High Courts consistently held that the beneﬁt of Section 80-I has to be granted on the gross total income and not on the income reduced by the amount allowed under Section 80HH. The counsel for the assessee has also brought to our notice the decisions in Deputy Commissioner of Income Tax v Chola Textiles P. Ltd.[8] and Commissioner of Income Tax v Venus Electricals[9]. In that view of the matter, as the question of law is no more res integra, we answer the reference in the aﬃrmative in favour of the assessee. The Reference Case shall stand disposed of accordingly. _______________ (V.V.S.RAO, J) ________________________________ (SAMUDRA GOVINDARAJULU, J) 21.11.2011 KH [1] (1998) 229 IT R 123 (MP) [2] (2001) 248 IT R 29 (Bom) [3] (2001) 251 IT R 587 (Raj) [4] (2005) 274 IT R 176 (Guj) [5] (2004) 270 IT R 65 (MP) [6] (2004) 271 IT R 444 (Raj) [7] (2005) 276 IT R 664 (MP) [8] (2008) 304 IT R 256 (Mad) [9] (2008) 304 IT R 347 (Guj)