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JUDGMENT
Leave granted.
deduction under Section 80HHC of the Income-tax Act, 1961 (for short,
“the 1961 Act”). While computing the “book profits” under Section 115-
JB of the 1961 Act, the assessee claimed reduction, under clause (iv) of
assessee moved before the CIT(A). Vide order dated 30.7.2004, the
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computed under Section 80HHC(3) was eligible for reduction under
upheld by the Tribunal which took the view that the amount of profit
Section 260A of the 1961 Act stood allowed. Hence this civil appeal.
determining the “book profits” in terms of Section 115JB, the net profits
reads as follows:
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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 …
Provided further …
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 –
(a) to (f) …
If any amount referred to in clauses (a) to (f) is debited to the
profit and loss account, and as reduced by –
(i) to (iii) …
(iv) the amount of profits eligible for deduction under Section
80HHC, computed under clause (a) or clause (b) or clause (c)
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.”
(emphasis supplied)
Finance Act, 1983 w.e.f. 1.4.83. Sub-section (1B) thereof was inserted
by Finance Act, 2000, w.e.f. 1.4.2001, the relevant portion of the said
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“80HHC. (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 out of India of any goods or
merchandise to which this 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
(1B) derived by the assessee from the export of such goods or
merchandise:
Provided …
(1A) …
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7. In recent times, the number of zero-tax companies and
companies paying marginal tax has grown, hence, vide the Finance
tax by deeming 30% of the book profits computed under the Companies
under the provisions of the 1961 Act, is less than 30% of the book
profit. The word “book profit” has been defined in Section 115JA(2)
read with the Explanation thereto to mean the net profit as shown in
to (ix) of the Explanation. These may be called for the sake of brevity as
any provisions in the 1961 Act. In this case, we are concerned with
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successor section to Section 115JA. In essence, it is the same except
not deem the book profit as total income. Under Section 115JB,
provides for tax incentives. Section 80HHC(1) at one point of time laid
derived from export of goods. However, that has now been reduced in a
assessable entities are not eligible for deduction under Section 80HHC.
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computation of deduction is geared to the amount of income, but
to the exports turnover and not to the income. On the other hand,
Section 115JB refers to levy of MAT on the deemed income. The above
Act, 2000 w.e.f. assessment year 2001-02 exporters would not get
100% deduction in respect of profits derived from exports but that they
deals not with “eligibility” but with the “extent of deduction”. As earlier
vide clause (iv) it seeks to exclude “eligible” profits derived from exports.
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under Section 80HHC(1B) is important. Thus, if an assessee earns
Rs.100 crores then for the assessment year 2001-02, the extent of
that clause (iv) covers full export profits of 100% as “eligible profits” and
on deemed income. The above reasoning also gets support from the
including the last line thereof (which reads as “subject to the conditions
eligible for deduction under Section 80HHC, computed under clause (a)
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According to the Department, the assessee herein is trying to read the
section (3) or sub-section (3A), as the case may be, of that Section and
of the profit have got to be considered together for working out the
as in Section 115JA, it has been clearly stated that the relief will be
under sub-clauses (4) and (4A) of that Section. The conditions are only
Therefore, one cannot rely upon the last sentence in clause (iv) of
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between “eligibility” and “deductibility” of profits as contended on behalf
of the Department.
11. For the above reasons, we set aside the impugned judgment of
the High Court and restore the judgment of the Tribunal. Accordingly,
…………………….CJI
(S. H. Kapadia)
………………………..J.
(K.S. Radhakrishnan)
New Delhi;
September 9, 2010
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