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.

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.

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.

The current bench of The Apex court relied upon various judgements and found the Judgement of Hon’ble Bombay High Court in Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr to be logical and correct.

Hon’ble Supreme Court in this case held that:

  1. Chapter VI-A (Sections 80-A to 80-U) allows tax deductions under five heads for payments, incomes, and other specified expenses.
  2. Section 80A allows deductions from gross total income as per Chapter VI-A (Sections 80C–80U), while Section 80AB ensures deductions under ‘C’ are based on income computed before any Chapter VI-A deductions, for clarity and accuracy. Section 80A ensures that all deductions claimed under Chapter VI-A, such as 80C to 80U, together cannot exceed your gross total income before these deductions. This rule prevents deductions from reducing your taxable income below zero.
  3. Sub-section (5) of Section 80-B defines gross total income as income before Chapter VI-A deductions. Section 4(1) charges tax on total income. Sections 80-A and 80-AB use gross total income. Deductions under Section 80-IB allows deductions for profits from new industrial undertakings, with benefits varying by assessee type and eligibility criteria for up to ten years 80-HHC, 80-IA, and 80-IB fall under Heading ‘C’. Section 80-HHC allows export businesses to deduct a percentage of profits from exports, as specified in the act, from their total income.
  4. Section 80-IA offers a 100% deduction for profits from infrastructure projects, allowing eligible businesses to claim this benefit for ten consecutive years.
  5. Sub-section (9) of Section 80-IA ensures that if you claim profits under it, you cannot claim the same profits again under other Chapter VI-A ‘C’ deductions. The total deduction cannot exceed the actual profits of the eligible business.
  6. Sub-section (9) of Section 80-IA does not require you to reduce your gross total income by the 80-IA deduction before claiming other ‘C’ deductions. It simply limits total ‘C’ deductions so they, together with 80-IA, do not exceed eligible profits.
  7. In the case of Associated Capsules v deputy Commissioner of Income Tax, the Bombay High Court clarified that Section 80-IA(9) does not change how deductions are calculated under Chapter VI-A heading ‘C’. Instead, it ensures that when a deduction is claimed under Section 80-IA, the total deductions under ‘C’ cannot exceed the business’s eligible profits. This means you can calculate each deduction separately, but the combined total under ‘C’ (including 80-IA) must not surpass the actual profits of the business.
  8. The court further held that “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.”
  9. The Hon’ble Supreme Court held that The Bombay High Court’s approach is correct: Section 80-IA(9) does not require reducing gross total income by the 80-IA deduction before calculating other deductions. Deductions are computed separately, but the total cannot exceed eligible profits—ensuring no double benefit and maintaining the law’s intent.

Hence the Apex tour clarified the Restriction Under S.80-IA(9) On Claiming Cumulative Deductions Under S.80IA & 80-HHC

Click to read the original judgement

Click to read the original judgement

The definitions of the sections mentioned in the Judgement :

  1. Section 4 – Charge of Income-Tax

Section 4(1) of the Income Tax Act, 1961, states: