Section 122 — Deductions to be made in computing total income. Successor to s.80A, s.80AB, s.80AC, s.80B of the 1961 Act.
Section 122 is in Chapter VIII — Deductions to Be Made in Computing Total Income, which runs from section 122 to section 154.
Sub-sections (1) and (2) set the frame for the whole Chapter: the deductions in it are allowed from gross total income, and their aggregate can never exceed gross total income. Sub-section (3) stops a double claim where a deduction under section 133, 135, 137, 138, 141, 142 or 143 has been allowed to an association of persons or body of individuals — the member cannot claim the same section again on his share. Sub-section (4) bars, for Part C claims on the profits of an undertaking, unit, enterprise or eligible business, any other deduction under the Act on the same profits and caps the claim at those profits, and sub-section (5) denies Part C deductions altogether where the assessee fails to file the return by the section 263(1) due date or fails to make the claim in that return. Sub-sections (6) and (7) require inter-business transfers of goods or services recorded at other than market value to be recomputed at market value, defined as open-market sale or acquisition price, or the arm's length price under section 173(a) for a specified domestic transaction under section 164. Sub-sections (8) to (10) bar a section 46 deduction for a specified business already relieved under Part C, require the income of the specified nature to be taken as computed under the Act before any Chapter VIII deduction, and define 'gross total income' as total income computed before Chapter VIII deductions.
It is the control panel for Chapter VIII: it fixes the base the deductions come off, prevents the same profit being relieved twice through different provisions or through an association and its members, and makes the relief conditional on a timely return carrying the claim. The market value rule in sub-section (6) prevents profits being shifted into a deduction-eligible undertaking through mispriced internal transfers.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Ceiling on total Chapter VIII deductions | The gross total income of the assessee | The aggregate of all deductions under the Chapter cannot exceed it in any case | Sub-section (2) |
| Deadline for the return that carries a Part C claim | The due date specified under section 263(1) | The return must be furnished on or before that date and the deduction must be claimed in it, otherwise no Part C deduction is allowed | Sub-section (5) |
| Ceiling on a Part C claim on an undertaking's profits | The profits and gains of that undertaking, unit, enterprise or eligible business | And no other provision of the Act may give a deduction to the extent of those same profits for that year | Sub-section (4) |
File on time and claim in the return itself — sub-section (5) makes a late return or an omitted claim fatal to every Part C deduction, and there is no saving in the section for a claim made later. Where an undertaking transacts with the assessee's other businesses, price at market value or expect the profits of the eligible undertaking to be recomputed at market value under sub-section (6), and at arm's length price where it is a specified domestic transaction. Remember that the deduction base is income of that nature computed under the Act before any Chapter VIII deduction, not the amount as it appears in the accounts.
A company with gross total income of Rs. 4 crore claims a Part C deduction of Rs. 1.5 crore on the profits of an eligible undertaking, but files its return a week after the section 263(1) due date. Sub-section (5) is fatal — the entire Part C deduction goes, because that sub-section requires both a return by the due date and the claim made in that return, and there is no saving for a claim made later. Separately, if the eligible unit had transferred goods to the company's other business at Rs. 60 lakh when their open-market value was Rs. 1 crore, sub-section (6) recomputes the unit's profits as if the transfer had been at Rs. 1 crore, and sub-section (7)(c) substitutes the arm's length price where the transaction is a specified domestic transaction under section 164. Whatever survives is still capped by sub-section (2) at gross total income.
In the return itself, since sub-section (5) makes the return and the claim within it a condition of the deduction, and then in an intimation or assessment order that disallows a Chapter VIII claim — most often on the timing ground, or by recomputing an eligible undertaking's profits at market value under sub-section (6).
Deduction under the provisions of Part C of this Chapter shall not be allowed to an assessee, who fails to— (a) furnish a return of income on or before the due date specified under section 263(1); or (b) make a claim of deduction in a return furnished under section 263(1).
See the full 1961 to 2025 concordance.
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