ASSTI. COMMR. OF L.T. BANGALORE  versus M/S. MICRO LABS LTD.
[2015] 11 S.C.R. 1154, Supreme Court of India, 2015
Outcome: Unknown
Segment: Ratio
A 
B 
c 
D 
E 
[2015) 11S.C.R.1154 
ASSTI. COMMR. OF l.T. BANGALORE 
v. 
M/S. MICRO LABS LTD. 
(Civil Appeal No. 7427 of 2012) 
DECEMBER 10, 2015 
[ANIL R. DAVE AND DIPAK MISRA, JJ.] 
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 
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. 
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. 
H 
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 
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): 
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 
E 
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 
0 
Section BOIA would be rendered meaningless being a 
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 
Commissioneroflncome Tax andAnr. (2011) 332 
ITR 42 (Born)- approved. 
Jeyar Consultant and Investment Private Limited 
v. Commissioner of Income Tax, Madras (2015) 
7 SCC 705: 2015 (6) SCR 979- Distinguished. 
c 
D 
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 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2015] 11 S.C.R. 
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; 
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 
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 
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 
DIPAK MISRA, J. 
(2011) 332 ITR 42 (Born) 
approved. 
Para 4 
(2011) 332 ITR 14 
referred to. 
Para 5 
(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 
2015 (6) SCR 979 
distinguished Para 23 
2004 (2) SCR 1075 
referred to. 
Para 23 
2007 (9) SCR 831 
referred to. 
Para 23 
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 
2007 (11 ) SCR 1097 
2012 (4) SCR 684 
referred to. 
Para 29 
referred to. 
Para 30 
referred to. 
Para 31 
A 
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.A. NO. 78470F2012 
C.A. NOS. 4544, 5341OF2013 
c 
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. 
B 
The Judgment of the Court was delivered by 
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. 7 427 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. 
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 
E 
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 
c 
D 
E 
F 
G 
H 
as specified in this Section. 
· · 
(2) to (12) 
xxx 
xxx 
xxx 
(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." 
\ 
"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 
(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." 
"BOHHC. 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
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 of April, 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 '1 April, 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. 
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 
B 
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-
1 B, 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
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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. 
F 
G 
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 
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 
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 
A 
B 
c 
D 
E 
F 
G 
SUPREME COURT REPORTS 
[2015] 11 S.C.R. 
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 
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 
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 
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 
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." 
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:-
"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 
0 
from his gross total income in accordance with and subject to 
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. 
G 
H 
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:-
"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 
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"." 
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 
c 
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 
E 
backward areas; under Section 80HHC which relates to 
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 
F earning in convertible foreign exchange, etc. Thus, when an 
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. 
2. The Madhya Pradesh High Court. in J.P. Tobacco 
Products P. Ltd v. CIT reported in [1998] 299 ITR 123 
B 
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] 27 4 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 
A 
B 
c 
SUPREME COURT REPORTS 
[2015] 11 S.C.R. 
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 
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." 
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:-
B 
c 
D 
E 
F 
G 
H 
"80HHC. (3) For the purposes of sub-section(1 ), -
(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, 
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 
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 
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 
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 
(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:
· 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 
(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: 
D-
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, -
E 
F 
G 
H 
(a) he had an option to choose eitherthe duty drawback 
or the Duty Free Replenishment Certificate, being the 
Duty Remission Scheme; and 
(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. 
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: 
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-
I 
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; 
D 
(b) "adjusted profits of the business" means the profit of 
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-
section (3); . 
· (c) "adjusted total turnover" means the total turnover of 
the business as reduced by the export turnover in respect 
of trading goods; 
E 
(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:-
"29. Section_80-IA(9) consists of three parts: .. · 
D 
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 
' any other provisions under heading c 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 
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B 
c 
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E 
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[2015] 11 S.C.R. 
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 
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 
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 
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 
"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, 
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 
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
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. 
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 
B 
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 
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G 
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[2015] 11 S.C.R. 
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 
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 
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 
(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 
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 
section contained in Chapter VI-A or section 1 OA or 
section 1 OB 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 
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.
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
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(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 
D 
statute in the absence of any ambiguity." 
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
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[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 
G 
in quantifying the amount, which is eligible for deduction. Sub-
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 
H held that the expression "shall not be allowed" cannot be
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 
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[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, Madras7, 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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·' 
·--,.__ 
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(2015] 11 ~>.C.R. 
.. 
. i 
A 
I 
! 
_· .. 26. It may be noted that the second, third and fourth 
1 . 
provisos to Section 80HHC(3) were inserted by Taxation Laws 
(Amendment) Act, 2005 with retrospective effect from 1st April, 
· 1998. The fifth proviso was inserted by Taxation Laws 
' ·(Amendment) Act, 2005 with retrospective effect from 1st April, 
· B. : 1992: Explanation to sub-section (3) would indicate that it 
defines different terms including "direct" and "indirect cost", 
"trading goods", "adjusted export turnover" and "adjusted profits 
·of the business". 
. \ 
c: 
D 
E· 
F 
G_· 
-' H 
27. Finance (No.2).Act, 1991 with retrospective effect 
from 1st April, 1987 in the Explanation to the Section 80HHC 
defines the term "total turnover" and "profits of business" in 
clauses (ba) and (baa). They read as under:-
-
' 
~ 
"(ba) "total turnover", shall not include freight or. insurance 
attributable to the transport of the goods or merchandise 
beyond the customs station as defined in the Customs 
Act, 1962 2 (52 of 1962): Provided that in relation to any· 
assessment year commencing on or after the 1st day of 
April, 1991, the expression "total turnover" shall have 
effect as if it also excluded any sum referred to in clauses . 
. 
. 
(iiia), (iiib) and (iiic) of Section 28; 
, 
. 
. 
. 
' 
'• 
I 
. 
(~aa) "profits of the business" means the profits of the 
·business as computed
under the head "Profits and gains : 
.. of business or profession" as re_duced by-
· 
. (1)
0
ninety percent of any sum referred to in clauses (iiia), 
(iiib) and (iiic) of Section 28 or of any receipts by way of 
\ . brokerage, commission, interest, rent, charges or any : 
. other receipt of a similar nature included in such profits; ' 
· and · 
\.. : · · · · '" · 
~- ''· 
. ~ 
- ' 
; ' 
. . ~ ... : 
'-.... (2) the profits of any branch, office, warehouse or any 
other establishment of the assesses situate outside India; 
~ 
.
.ASSTT. COMMR. OF l.T. BANGALORE v. M/S. MICRO 
1197 
' 
!:Ass LTD. [DIPAK MISRA, J.] 
(1 Inserted by the Finance (No.2 Act, 1991, w.e.f 1-4-
A 
.1987. 
. ,, 
-•'· 
-' · · 2 Inserted by the Finance (No.2 Act, 1991, w.e.f 1-4-
. , " 1992"] '; 
. 
. . .. . 
.. 
. 
28; The expression "profits of the business" as defined 8 
in clause (baa) of the Explanation to Section 80HHC of the 
. Act was interpreted by the Court in ACG ·Associated 
Capsules Private Limited v. Commissioner of Income Tax, 
Central-IV, Mumbai10, in the following manner:-
.. 
"11·. Before we deal with the contentions ~fthe learned -
. counsel for the parties, we'may extract Explanation (baa) 
· ' to Section 80-HHC of the Act: 
' 
. " 
' 
c 
·. · '"Expl~nation.-Fcfr the purposes of this section,-·· 
D. 
.. ,. 
' ' 
' 
". 
* 
• 
., 
. ,·' . ,- . 
''; - - -; 
·, 1-:' ' 
-- : ; _,: 
-
(baa) 'profits of the business' means the profits of the 
business as computed under the head 'Profits and Gains E 
._ .. '-,.of Business or Profession' as redu'ced by-, · :. · •'° 
"., · 
• 
-
' 
·-
I 
-
' 
' 
. 
-
. 
-· .. -
. -, - . 
j 
:: :··. -
: ; 
', : 
' l- 1. -
;_' - • 
-
• ". 
(1) ninety per cent of any sum referred to in clauses (iii-' 
·"·. , a), (iii-b), (iii-c), (iii-cf) and (iii-e) of Section 28 or of any 
· receipts byway of brokera~e, com~i~sion, inter~st; rent, · F . 
: . charges or any other receipt of a s1m1lar nature included 
· 
, ·in such profits; and 
'; t 
.; · : 1 · 
. 
: · 
' 
, r , 
- , -
· . . 
~I . ~ • ..
' ., 
, '• · · · · 
.. '. (2) the pr~fits of any branch, office, warehouse or any 
. 
other establishnient of the assessee situate outside India; 
. - . 
-
. , , 
. . 
~-
;,·-~ . . 
. 
·. 
. 
G . 
· . ' 12: Explanation (baa) extracted above states that "profits 
' of the business" means the profits of the business as 
. · - computed under the head "Profits and Gains of Business 
: -~ 
. ' ,; '' i . • t 
. 
; : 
• • '. 
' ' 
" 
: ! 
; I ) 
10 (2012i 3 sec 321 
(". 
H 
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SUPREME COURT REPORTS 
(2015] 11 S.C.R. 
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 
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 
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 
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) 
F 
.G 
H 
(P) Limited v. Union oflndia11, to observe:-
"16. Similarly. Explanation (baa) has to be construed on 
its own language and as per the plain natural meaning of 
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 
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 
(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. 
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 
B 
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 
is 19 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