Deductions Under Different Income Tax Provisions Must Be Computed Independently: Rajasthan High Court

The Rajasthan High Court on 5 September held that deductions available under different provisions of the Income Tax Act must be computed independently, and the restriction against double deduction can be applied only while allowing the deductions.

A Division Bench of Justices Pushpendra Singh Bhati and Praveer Bhatnagar allowed Secure Meters Ltd.'s appeal and set aside the Income Tax Appellate Tribunal's finding on the computation of deductions under Sections 80-IA/80-IB and Section 80HHC for Assessment Year 2003-04. The judges held:

“The deduction under Section 80HHC was required to be computed independently in accordance with the formula prescribed under Section 80HHC(3)… After such computation, Section 80-IA(9), read with Section 80-IB(13), would operate at the stage of allowance so that the same profits are not subjected to repeated deduction.”

Secure Meters had claimed deductions under Sections 80-IA/80-IB and Section 80HHC for the relevant assessment year. The dispute concerned whether the deduction under Sections 80-IA/80-IB had to be reduced from business profits before computing the deduction under Section 80HHC.

The ITAT, relying on the Special Bench decision in ACIT v. Rogini Garments, had held that the deduction under Sections 80-IA/80-IB had to be reduced from business profits before computing the deduction under Section 80HHC. Secure Meters challenged this finding before the High Court.

Relying on the Supreme Court's decision in Shital Fibers Ltd. v. Commissioner of Income Tax, the High Court rejected this approach. It held that the deduction under Section 80HHC had to be computed independently under the formula prescribed by Section 80HHC(3). The restriction under Section 80-IA(9), read with Section 80-IB(13), would operate at the stage of allowance to prevent the same profits from being deducted twice.

It therefore decided the issue in favour of Secure Meters and against the Revenue. It also considered a separate dispute concerning Rs. 7.77 lakh comprising Rs. 6,58,989 towards additional Central Sales Tax and Rs. 1,18,618 towards interest relating to assets purchased earlier. Secure Meters had originally claimed the amount as revenue expenditure, while the Revenue contended that it should be capitalised as part of the actual cost of the assets.

The Bench held that a subsequent liability could not automatically be added to the written-down value without identifying the statutory provision permitting such adjustment and recording the necessary factual findings.

It therefore remanded this issue to the Assessing Officer to separately examine the additional sales tax and interest, including the year in which the liability crystallised, and determine their correct tax treatment.

Accordingly, the High Court allowed the appeal in the terms specified in the judgment.

Appearances: Senior Advocate Sanjay Jhanwar, assisted by Sanjay Nahar and Karan Pareek, appeared for the appellant-assessee, Secure Meters Ltd. K.K. Bissa appeared for the respondent-Revenue.