Income Tax Act | Supreme Court Clarifies Restriction Under S.80-IA(9) On Claiming Cumulative Deductions Under S.80IA & 80-HHC

Answering a reference, the Supreme Court held that deductions under Sections 80-IA/80-IB of the Income Tax Act need not reduce the gross total income before computing deductions under other provisions like Section 80-HH for export profits.

The bench comprising Justices Abhay S Oka, Ahsanuddin Amanullah and AG Masih delivered the verdict while answering a reference after a matter was referred to the larger bench due to split verdict in Assistant Commissioner of Income Tax v. Micro Labs Limited (2015) on the issue of whether deductions claimed under Section 80-IA/80-IB (for industrial profits in certain categories) and Section 80-HHC (for export profits) could be cumulatively allowed.

In this case, the appellant had claimed deductions under Section 80-HHC (export profits) and Section 80-IA/80-IB (industrial profits). However, the Income Tax Department disallowed these claims, contending that Section 80-IA (9) prohibits availing double benefits on the same profits, a view later upheld by the Punjab & Haryana High Court, leading the appellant to approach the Supreme Court.

One view rendered by Justice Anil R. Dave was that the deduction under Section 80-IA must first reduce gross total income before computing deductions under other provisions (like Section 80-HHC).

Opposing Justice Dave's view, Justice Dipak Misra held that Section 80-IA (9) does not alter the computation of deductions under other provisions but only restricts the aggregate deduction to not exceed the eligible profits.

The case was referred to a 3-judge bench due to a split decision.

The judgment authored by Justice Oka upheld the view taken by Justice Misra, stating that assesses do not have to subtract the Section 80-IA deduction before calculating the Section 80-HHC deduction, i.e., both the deductions can be calculated separately.

"Therefore, on plain reading of Sub-section (9) of Section 80-IA, if a deduction of profits and gains under Section 80-IA is claimed and allowed, the deduction to the extent of such profits and gains in any other provision under the heading 'C' is not allowed. The deduction to the extent allowed under Section 80-IA cannot be allowed under any other provision under heading 'C'. Therefore, if deduction to the extent of 'X' is claimed and allowed out of gross total income of 'Y' under Section 80-IA and the assessee wants to claim deduction under any other provision under the heading 'C', though he may be entitled to deduction 'Y' under the said provision, he will get deduction under the other provisions to the extent of (Y-X) and in no case total deductions under heading 'C' can exceed the profits and gains of such eligible business of undertaking or enterprise.

Sub-section (9) of Section 80-IA, on its plain reading, does not provide that when a deduction is allowed under Section 80-IA, while considering the claim for deduction under any of the provision under heading 'C', the deduction allowed under Section 80-IA should be deducted from the gross total income. The restriction under sub-section (9) of Section 80-IA is not on computing the total gross income. It restricts deduction under any other provision under heading 'C' to the extent of the deduction claimed under Section 80- IA."

In this regard, the Court approved the Bombay High Court's judgment of Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr. (2011) SCC Online Bombay 27, where the High Court observed:

“we hold that section 80-IA (9) does not affect the computability of deduction under various provisions under heading C of Chapter VI-A, but it affects the allowability of deductions computed under various provisions under heading C of Chapter VI-A, so that the aggregate deduction under section 80-IA and other provisions under heading C of Chapter VI-A do not exceed 100 per cent. of the profits of the business of the assesse.”

Further, the High Court observed:

“section 80-IA (9) has been introduced with a view to prevent the taxpayers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus, the object of section 80- IA(9) being not to curtail the deductions computable under various provisions under heading C of Chapter VI-A, it is reasonable to hold that section 80-IA(9) affects allowability of deduction and not computation of deduction. To illustrate, if Rs.100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80, then, in view of section 80-IA(9), the deduction under section 80HHC would be restricted to Rs. 70, so that the aggregate deduction does not exceed the profits of the business.”

In light of the aforesaid observations, the Court answered the reference accordingly.

Case Title: Shital Fibers Limited versus Commissioner of Income Tax (and connected cases)

Citation : 2025 LiveLaw (SC) 606

Click here to read/download the judgment

Appearances:

For Appellant(s)/ : Petitioner(s) Mr. Pankaj Jain, Sr. Adv. Mr. Manish Kumar Choudhary, Adv. Ms. Srishti Choudhary, Adv. Mr. Divya Suri, Adv. Ms. Shefali Choudhary, Adv. Mr. Sachin Bhardwaj, Adv. Ms. Namita Choudhary, AOR Mr. Yogesh Kumar Mittal, Adv. Dr. Rakesh Gupta, Adv. Mr. Ambhoj Kumar Sinha, AOR Mr. Somil Agarwal, Adv. Mr. Raj Bahadur Yadav, AOR Mr. Bhargava V. Desai, AOR Mr. Shivam Sharma, Adv. Ms. Usha Nandini V., AOR Ms. Shashi M Kapila, Adv. Mr. Vikas Mehta, AOR Mr. Pravesh Sharma, Adv. Mr. Sushil Kumar, Adv. Ms. Nitika Grover, Adv. Mr. Nishant Anshul, Adv. Mr. Ajay Vohra, Sr. Adv. Ms. Kavita Jha, Sr. Adv. Mr. Aniket Deepak Agrawal, AOR Mr. Akash Shukla, Adv.

For Respondent(s) : Mr. Bishwajit Bhattacharyya, Sr. Adv. Mr. Sahil Tagotra, AOR Mr. Sujay Jain, Adv. Mr. Kishore Kunal, AOR Ms. Ankita Prakash, Adv. Mr. Anuj Kumar, Adv. Mr. N Venkatraman, A.S.G. Mr. Raj Bahadur Yadav, AOR Mr. Venkatraman Chandrashekhara Bharathi, Adv. Mr. Udai Khanna, Adv. Mr. H R Rao, Adv. Mr. Annirudh Sharma Ii, Adv.