Case: Plastiblends India Limited Vs. Addl. Commissioner of Income Tax, Mumbai and Ors

in Williamson Financial Services and held that:"In this connection, it is also important to note that section 80A which falls in Chapter VI-A, deductions are allowed only from `gross total income". The object for making such provision is to limit the amount of section 80HHC deduction. It is true that section 80HHC provides for deduction of a percentage of the export profits. The percentage is calculated with reference to the export profits, but the deduction is only from "gross total income" as defined under section 80B(5) of the 1961 Act. Therefore, the very scheme of the 1961 Act is to treat the deductions under Chapter VI-A as deductions only from "gross total income" in order to arrive at the "total income". In other cases falling under section 28 where computation of income falls under the head "Business", allowances are deductible from the income but not from "gross total income". It is, therefore, not possible to accept the contention that section 80HHC is part of the provisions for computation of business income. Section 80 HHC does not have any direct impact on the computation of business income in the manner in which, for example, section 72 affects the computation of business income."16. The High Court also noted that in Doom Dooma India Ltd., this Court had specifically remarked that Chapter VI-A refers to special deduction. It is a distinct code by itself. It was also held in the said judgment that there was a clear distinction between `deductions/allowances in Section 30 to 43D and `deductions admissible under Chapter VI-A inasmuch as deductions/ allowances provided in Sections 30 to 43D are allowed in determining gross total income and are not chargeable to tax because the same constitute a charge on profit, whereas, deductions under Chapter VI-A are allowed from gross total income chargeable to tax. After discussing the aforesaid three judgments of this Court, the High Court noticed that Section 80-IA is a code by itself and deduction allowable under Section 80-IA is a special deduction which is linked to profits, unlike deductions contained in Chapter IV of the Act which are linked to investment.17. The aforesaid conclusion of the Full Bench is based on the judgments of this Court and there is no reason to disagree with the same, on finding that the judgments of this Court are rightly analysed and ratio thereof is correctly understood and applied. We, thus, entirely agree with the Full Bench judgment of the Bombay High Court in Plastiblends India Limited v. Additional Commissioner of Income-Tax & Ors., (2009) 318 ITR 352 and the following manner in which the position has been summed up by the High Court:"44. To summarise, firstly, the Apex Court decision in the case of Mahendra Mills (supra) cannot be construed to mean that by disclaiming depreciation, the assessee can claim enhanced quantum of deduction under section 80IA. Secondly, the Apex Court in the case of Distributors (Baroda) P. Ltd. (supra) and in the case of Liberty India (supra) has clearly held that the special deduction under Chapter VIA has to be computed on the gross total income determined after deducting all deductions allowable under sections 30 to 43D of the Act and any device adopted to reduce or inflate the profits of eligible business has got to be rejected. Thirdly, this Court in the case of Albright Morarji and Pandit Ltd. (supra), Grasim Industries Ltd. (supra) and Asian Cable Corporation Ltd. (supra) has only followed the decisions of the Apex Court in the case of Distributors Baroda (supra). Thus, on analysis of all the decisions referred hereinabove, it is seen that the quantum of deduction allowable under section 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act. Therefore, whether the assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not, the quantum of deduction under section 80IA has to be determined on the total income computed after deducting all deductions allowable under sections 30 to 43D of the Act."18. As is clear from the arguments advanced by Mr. Pardiwala, main thrust of his argument was predicated on the judgment of this Court in Mahendra Mills, which according to us, cannot be applied while interpreting Section 80-IA of the Act. It may be stated at the cost of the repetition that judgment in Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapter VI-A of the Act. Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Section 80-IA is a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Section 80-IA of the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Section 80-IA of the Act which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided under Section 80-IA of the Act which cannot be permitted.19. Having interpreted the provisions of Section 80-IA in the aforesaid manner, it is not necessary to go into the other question, viz., whether Explanation 5 to Section 32 of the Act is declaratory in nature or it is to be applied prospectively. Judgments cited by both the sides on this aspect, therefore, need not be dealt with.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]6. It is not in dispute that all the assessees in these appeals are those industrial undertakings which fulfil the conditions mentioned in Sectionand, therefore, are entitled to deductions as stipulated in(5) of the said Section. It is also not in dispute that all the assessees fall in that category of industrial undertakings which are entitled to 100% deduction of the profits and gains derived from such industrial undertakings for the specified number of years. It is also an admitted fact that for the Assessment Years in question, they were entitled to the aforesaid deduction and their assessments were completed under Sectionof the Act.Submission of Mr. Pardiwala, the learned senior counsel for the assessees, was that deduction is to be allowed from `such profits and gains and, therefore, in the first instance, profits and gains which are earned by the assessees in the relevant Assessment Year are to be computed. For computation of such profits and gains, one has to go back and apply the provisions from Section 28 onwards contained in Part D of Chapter IV dealing with `profits and gains from business or profession. Section 29 of the Act, in this behalf, specifically stipulates that income referred to in Section 28 shall be computed in accordance with provisions contained in Sections 30 to 43D. In this hue, he argued, when it comes to claiming depreciation, Section 32 of the Act gets attracted and interpreting this Section, it has been held in Mahendra Mills case that whether to claim depreciation or not is the option of the assessees and it cannot be thrusted upon the assessees.The High Court also noted that in Doom Dooma India Ltd., this Court had specifically remarked that Chapterrefers to special deduction. It is a distinct code by itself. It was also held in the said judgment that there was a clear distinction between `deductions/allowances in Section 30 to 43D and `deductions admissible under Chapterinasmuch as deductions/ allowances provided in Sections 30 to 43D are allowed in determining gross total income and are not chargeable to tax because the same constitute a charge on profit, whereas, deductions under Chapterare allowed from gross total income chargeable to tax. After discussing the aforesaid three judgments of this Court, the High Court noticed that Sectionis a code by itself and deduction allowable under Sectionis a special deduction which is linked to profits, unlike deductions contained in Chapter IV of the Act which are linked to investment.17. The aforesaid conclusion of the Full Bench is based on the judgments of this Court and there is no reason to disagree with the same, on finding that the judgments of this Court are rightly analysed and ratio thereof is correctly understood and applied. We, thus, entirely agree with the Full Bench judgment of the Bombay High Court in Plastiblends India Limited v. Additional Commissioner of& Ors., (2009) 318 ITR 352     and the following manner in which the position has been summed up by the HighAs is clear from the arguments advanced by Mr. Pardiwala, main thrust of his argument was predicated on the judgment of this Court in Mahendra Mills, which according to us, cannot be applied while interpreting Sectionof the Act.It may be stated at the cost of the repetition that judgment in Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapterof the Act.Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Sectionis a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Sectionof the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Sectionof the Act which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided under Sectionof the Act which cannot be permitted.19. Having interpreted the provisions of Sectionin the aforesaid manner, it is not necessary to go into the other question, viz., whether Explanation 5 to Section 32 of the Act is declaratory in nature or it is to be applied prospectively. Judgments cited by both the sides on this aspect, therefore, need not be dealt with.