IN THE HIGH COURT OF KERALA AT ERNAKULAM
ITA.No. 930 of 2009()
1. THE COMMISSIONER OF INCOME TAX,
... Petitioner
Vs
1. PACKWORTH UDYOG LTD,
... Respondent
For Petitioner :SRI.JOSE JOSEPH, SC, FOR INCOME TAX
For Respondent :SRI.P.BALAKRISHNAN (E)
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice B.P.RAY
The Hon'ble MR. Justice P.N.RAVINDRAN
Dated :30/11/2010
O R D E R
C.R.
C .N. RAMACHANDRAN NAIR,
BHABANI PRASAD RAY, &
P.N. RAVINDRAN, JJ.
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I.T.A. Nos. 930, 1525, 1638,
1668 & 1681 of 2009
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Dated this the 30th day of November, 2010
JUDGMENT
Ramachandran Nair, J.
In these appeals filed by the revenue, the only question raised is
whether the assessees are entitled to deduction under Section 80HHC
in the computation of book profit under Section 115JB of the Income
Tax Act. Even though in respect of one assessee, the provision
involved is Section 115JA, there is no need to consider the issue
separately because applicability of Section 80HHC in the computation
of book profit is one and the same both under Section 115JA and
115JB of the Act.
2. When huge amount of carried forward business loss and
unabsorbed depreciation were set off by the assessees, the gross profit
became a negative figure. Therefore the assessees were not entitled to
deduction under Section 80HHC of the Act by virtue of operation of
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Section 80AB and Section 80B(5) of the Act. However, the assessing
officer proceeded to make assessment on book profit under Section
115JB of the Act. In the computation of book profit, the assessing
officer declined deduction under Section 80HHC, though the assessee
claimed it under Section 115JB (2)(iv) of the Act. When the matter
was heard before the Division Bench, the assessees relied on the
decision of the Division Bench of this Court in CIT V. G.T.N.
TEXTILES LTD., 248 I.T.R. 372, which was in their favour.
However, standing counsel appearing for the revenue contended that
the Division Bench judgment of this Court requires reconsideration in
view of subsequent decisions of the Supreme Court in IPCA
LABORATORY LTD. V. DEPUTY COMMISSIONER OF INCOME
TAX, (2004) 266 I.T.R. 521, A.M. MOOSA V. COMMISSIONER OF
INCOME TAX, (2007) 294 I.T.R. 1 (SC) and C.I.T. v. SHIRKE
CONSTRUCTION EQUIPMENTS LTD., (2007) 291 I.T.R. 380. In
view of the contentions raised by the revenue, the matter was referred
to Full Bench and hence these appeals are before us. We have heard
senior standing counsel appearing for the revenue and senior counsel
Sri. Joseph Markose, and Advocate, Sri. P. Balakrishnan, appearing for
3
the respondents.
3. Counsel appearing for both sides brought to our notice the
latest decision of the Supreme Court on Section 115JB in AJANTA
PHARMA LTD. V. CIT, (2010) 327 I.T.R. 305 (SC) wherein the issue
decided is assessee’s eligibility for deduction under Section 80HHC of
the Act in the computation of book profit under Section 115JB. While
the case of the assessees is that issue is squarely covered by this
judgment of the Supreme Court in their favour, standing counsel for the
revenue contended all what the Supreme Court has said is that ceiling
of deduction provided under Section 80HHC (1B) at 80% should not
be applied in the computation of book profit and assessees are entitled
to deduction of the entire eligible export profit computed under
Section 80HHC of the Act. In other words, standing counsel
contended that in the computation of book profit, deduction under
Section 80HHC should be considered by applying the provisions of
Section 80AB and Section 80B(5), etc., of the Act. Therefore
according to him, if the total income computed before considering the
claim of deduction under Chapter VIA-C is a negative figure then the
assessees shall not be entitled to deduction under Section 80HHC at all.
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His contention is that in the case of all the assessees herein carried
forward business loss and depreciation from previous years are such
that gross profit, after setting off the same from the gross total income,
is a negative figure which disentitles the assessees for deduction under
any of the provisions of Chapter VIA-C of the Act. Therefore the
contention of the revenue is that assessees are not entitled to deduction
under Section 80HHC of the Act, even in the computation of book
profit for assessment.
4. The short question arising for consideration therefore is
whether the assessees whose gross total income after setting off
business loss and depreciation carried forward from previous years is
NIL are entitled to deduction under Section 80HHC in the computation
of book profit under Section 115JB (2)(iv) of the Act. For easy
reference we extract hereunder the relevant portions of Section 115JB
of the Act:
115JB. Special provision for payment of tax by certain
companies:
(1) Notwithstanding anything contained in any other
provision of this Act, where in the case of an assessee,
being a company, the income-tax payable on the total
income as computed under this Act in respect of any
previous year relevant to the assessment year commencing
on or after the 1st day of April, 2001, is less than seven and
5
one-half per cent of its book profit, such book profit shall
be deemed to be the total income of the assessee and the tax
payable by the assessee on such total income shall be the
amount of income tax at the rate of seven and one-half per
cent.
(2) Every assessee, being a company, shall for the purposes
of this section, prepare its profit and loss account for the
relevant previous year in accordance with the provisions of
parts II and III of Schedule VI to the Companies Act, 1956
(1 of 1956):
Provided that while preparing the annual accounts
including profit and loss account,–
(i) the accounting policies;
(ii) the accounting standards followed for preparing
such accounts including profit and loss account;
(iii) the method and rates adopted for calculating the
depreciation,
…………………..
Explanation.– For the purposes of this section, “book
profit” means the net profit as shown in the profit and loss
account for the relevant previous year prepared under sub-
section (2), as increased by–
……………….
(e) the amount or amounts of dividends paid or
proposed; or
(f) the amount or amounts of expenditure relatable to
any income to which section 10 or section 10A or section
10B or section 11 or section 12 apply,
if any amount referred to in clauses (a) to (f) is debited to
the profit and loss account, and as reduced by–
(i) the amount withdrawn from any reserve or
provision (excluding a reserve created before the 1st
day of April, 1997 otherwise than by way of a debit
to the profit and loss account), if any such amount is6
credited to the profit and loss account:
Provided that where this section is applicable to
an assessee in any previous year, the amount
withdrawn from reserves created or provisions made
in a previous year relevant to the assessment year
commencing on or after the 1st day of April, 1997
shall not be reduced from the book profit unless the
book profit of such year has been increased by those
reserves or provisions (out of which the said amount
was withdrawn) under this Explanation or
Explanation below second proviso to section 115JA,
as the case may be; or
(ii) the amount of income to which any of the
provisions of section 10 or section 10A or section
10B or Section 11 or section 12 apply, if any such
amount is credited to the profit and loss account; or
(iii) the amount of loss brought forward or
unabsorbed depreciation, whichever is less as per
books of account,Explanation.– For the purposes of this clause,–
(a) the loss shall not include depreciation;
(b) the provisions of this clause shall not apply
if the amount of loss brought forward or
unabsorbed depreciation, is nil, or
(iv) the amount of profits eligible for deduction under
section 80HHC, computed under clause (a) or clause
(b) or clause ) of sub-section (3) or sub-section (3A)
as the case may be, of that section, and subject to the
conditions specified in that section; or,
(v) the amount of profits eligible for deduction under
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section 80HHE computed under sub-section (3) or
sub-section (3A), as the case may be, of that section,
and subject to the conditions specified in that section;
or
(vi) the amount of profits eligible for deduction under
section 80HHF computed under sub-section (3) of
that section and subject to the conditions specified in
that section; or
(vii) the amount of profits of sick industrial company
for the assessment year commencing on and from the
assessment year relevant to the previous year in
which the said company has become a sick industrial
company under sub-section (1) of section 17 of the
Sick Industrial Companies (Special provisions) Act,
1985 (1 of 1986) and ending with the assessment year
during which the entire net worth of such company
becomes equal to or exceeds the accumulated losses.
Explanation.– For the purposes of this clause
“net worth” shall have the meaning assigned to
it in clause (ga) of sub-section (1) of section 3
of the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986).
…….
The contention raised by the revenue is that admissible deduction of
export profit under clause (iv) in the computation of book profit is the
same amount of deduction allowable to the assessee under Section
80HHC in the computation of total income, had the assessment been
made in the normal course. Therefore according to him, if the assessee
8
is not entitled to any deduction under Section 80HHC in the
computation of total income under the other provisions of the Act, then
no deduction is admissible under export profit under clause (iv) above
in the computation of book profit as well. Counsel appearing for the
assessees on the other hand relied on the decision of the Supreme Court
in AJANTA PHARMA LTD.’s case wherein the Supreme Court has
held that Section 115JB is a self-contained code in the computation of
book profit. Assessees’ counsel has also relied on the decision of the
Madras High Court in CIT V. MAGNA ELECTRO CASTINGS LTD.,
(2009) 184 Taxman 79 (Mad.) and the earlier decision of this Court in
GTN TEXTILES’s case referred above and submitted that restrictions
in the computation of deduction under Chapter VIA-C which includes
deduction of export profit under Section 80HHC cannot be subject to
the provisions of Section 80AB or Section 80B(5) of the Act. The
further contention canvassed by assessees’ counsel is that export profit
has to be determined with reference to the profit available in the Profit
and Loss Account prepared under the Companies Act, with reference to
which book profit is determined under Section 115JB of the Act.
5. After hearing both sides and after going through the decisions
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above referred, particularly that of the Supreme Court, we feel that
assessees are entitled to deduction under Section 80HHC computed in
accordance with sub-section (3) and (3A) of Section 80HHC of the Act
because it is expressly so provided under clause (iv) of Section 115JB
(2) of the Act. All what the Supreme Court has held is that the ceiling
contained in Section 80HHC (1B) is not applicable for the purpose of
granting deduction under clause (iv) above in the computation of book
profit. However, there is nothing to indicate in the Supreme Court
decision that eligible deduction of export profit under clause (iv) above
in the computation of book profit can be computed in any other manner
other than what is provided in sub-section (3) and (3A) of Section
80HHC of the Act. What is clearly stated in clause (iv) is that
deduction of export profit in the computation of book profit is the same
“amount of profit eligible for deduction under Section 80HHC”
computed under clause (a) or clause (b) or clause ) of sub-section (3)
or sub-section (3A) of the said section. So much so, computation of
export profit has to be done only in accordance with the method
provided under Section 80HHC which is in fact done in the
computation of business profit if the assessment was on the total
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income computed under the other provisions of the Act. MAT
assessment is only an alternative scheme of assessment and what is
clear from clause (iv) above is that even in the alternative scheme of
assessment under Section 115JB assessee is entitled to deduction of
export profit under Section 80HHC. In other words, export profit
eligible for deduction under Section 80HHC is allowable under both
the scheme of assessment. So much so, assessees are certainly entitled
to deduction under Section 80HHC but it is only by following the
method provided under sub-section (3) and (3A) of Section 80HHC.
However, by virtue of the decision of the Supreme Court above
referred, we feel the restriction contained in Section 80AB or Section
80B(5) could not be applied inasmuch as carry forward of business loss
or depreciation should not be first set-off leaving gross total income
nil, which disentitles the assessee for deduction under other provisions
of Chapter VIA-C which includes Section 80HHC also. But assessees’
contention that export profit has to be computed with reference to the
Profit and Loss Account prepared under the Companies Act is equally
unacceptable because there is no such provision in Section 80HHC to
determine export profit with reference to Profit and Loss Account
11
maintained under the Companies Act. Consistent with the decision of
the Supreme Court, we hold that assessees are entitled to deduction of
export profit under Section 80HHC and the relief is to be granted in
terms of sub-section (3) and (3A) of the said section.
We therefore dispose of the appeals by vacating the orders of the
lower authorities with direction to the assessing officer to recompute
the book profit by granting deduction under Section 80HHC in terms of
above findings and the decision of the Supreme Court in AJANTA
PHARMA LTD’s case referred above.
Sd/-
(C.N.RAMACHANDRAN NAIR)
Judge.
Sd/-
(BHABANI PRASAD RAY)
Judge.
Sd/-
(P.N. RAVINDRAN)
Judge.
True copy
kk PS to Judge