In a reprieve to assessees, the Supreme Court has ruled that the dichotomy between ‘eligibility’ of profit and ‘deductibility’ of profit has to be kept in mind for computation of the book profits under section 115JB of the Income Tax Act. It was inserted in the IT Act effective from April 1, 2001 which provides for levy of MAT on certain companies.
“If the dichotomy between ‘eligibility’ of profit and ‘deductibility’ of profit is not kept in mind then Section 115JB will cease to be a self-contained code”, said a bench headed by Chief Justice SH Kapadia.
The court said, “ in Section 115JB, as in Section 115JA, it has been clearly stated that the relief will be computed under Section 80HHC(3)/(3A), subject to the conditions under sub-clauses (4) and (4A) of that Section”.
The conditions are only that the relief should be certified by the Chartered Accountant. Such condition is not a qualifying condition but it is a compliance condition, it said..
The court turned down the plea of Income Tax Department.
Revenue had said that both ‘eligibility’ as well as ‘deductibility’ of the profit have to be considered together for working out the deduction under clause (iv) of Explanation to section 115JB of the act.
According to the department, if clause (iv) of Explanation to section 115JB is read in entirety, it becomes clear that the amount of profits eligible for deduction under Section 80HHC of the act, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, is subject to the conditions specified in that section.
The court, however, said, “ one cannot rely upon the last sentence in clause (iv) of Explanation to section 115JB (subject to the conditions specified in subclauses (4) and (4A) of that section) to obliterate the difference between ‘eligibility’ and ‘deductibility’ of profits as contended on behalf of the Department”.
It allowed the appeal of assessee, Ajanta Pharma. The company had filed its return of income for assessment year 2001-02. It was accompanied by statutory audit report claiming deduction under section 80HHC of the act.
While computing the “book profits” under Section 115-JB of the 1961 act, the assessee claimed reduction, under clause (iv) of Explanation to Section 115JB, of 100% export profits.
The competent authority allowed only 80% of the export profits in terms of Section 80HHC(1B), as being allowed for reduction of “book profits” under clause (iv) of Explanation to Section 115JB of the act.
Being aggrieved by the assessment order, the company moved before the CIT(A). It said that 100% export profits earned by the assessee as computed under Section 80HHC(3) was eligible for reduction under clause (iv) of Explanation to Section 115JB.
The Income Tax Appellate Tribunal upholding the order had said that the amount of profit eligible for deduction would not be governed by Section 80HHC(1B) of the act.
Department had challenged the order of the tribunal in Bombay high court. It had allowed the plea. Then the assessee had came to the apex court.
