When I reduce export profits from book profit under section 115JB, do I take the full section 80HHC(3) figure or only the 80 per cent the phase-out allows?
The full figure. The Supreme Court held that clause (iv) of the Explanation to section 115JB reduces book profit by the amount of profits eligible for deduction under section 80HHC as computed under sub-section (3) or (3A), and the phased percentages in section 80HHC(1B) do not cut it down. Section 80HHC(1) governs eligibility and sub-section (3) the computation, while sub-section (1B) deals only with the extent of the deduction. Section 115JB is a self-contained code taxing deemed income and operates in a different sphere. So on export profits of Rs 100 crore the downward adjustment is Rs 100 crore, not Rs 80 crore.
Decided by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction - S.H. Kapadia, CJI and K.S. Radhakrishnan, J; judgment by S.H. Kapadia, CJI) on 2010-09-09, reported as (2010) 327 ITR 305; (2010) 9 SCC 455; 2010 AIR SCW 6963; (2010) 9 SCALE 236. It bears on section 115JB, section 80HHC(1B), section 80HHC(3), section 80HHC of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
This is the Supreme Court's ruling on the eligibility versus deductibility distinction, and it does more work than its own facts. The reasoning is that where the minimum alternate tax provision borrows a computation from Chapter VI-A, it borrows only what it names: clause (iv) names sub-sections (3) and (3A), and the conditions it makes the relief subject to are those in sub-sections (4) and (4A), which require a chartered accountant's certificate and are compliance conditions rather than qualifying conditions. The Department's argument that eligibility and deductibility must be worked out together was rejected because it would stop section 115JB being a self-contained code. It reversed the Bombay High Court and restored the Tribunal, and it settles the treatment for the phase-out years from assessment year 2001-02 to 2004-05.
Binding on every court and authority in India.
Read aloud by your device. Press again to stop.
The assessee was a company liable to minimum alternate tax. It filed its return for assessment year 2001-02 on 30 October 2001 with the statutory audit report claiming deduction under section 80HHC. In computing book profit under section 115JB it reduced 100 per cent of its export profits under clause (iv) of the Explanation. By assessment order dated 27 February 2004 the Assessing Officer allowed only 80 per cent, applying the phased percentage in section 80HHC(1B), which had been inserted by the Finance Act 2000 with effect from 1 April 2001 and which steps the deduction down from 80 per cent for assessment year 2001-02 to nil from assessment year 2005-06. The Commissioner (Appeals) held on 30 July 2004 that the whole of the export profit computed under section 80HHC(3) was eligible for reduction. The Tribunal upheld that, reasoning that clause (iv) makes no reference to section 80HHC(1B). The Bombay High Court allowed the Revenue's appeal under section 260A on 7 May 2009, and the assessee appealed to the Supreme Court.
The appeal was allowed, the judgment of the High Court set aside and the order of the Tribunal restored. Clause (iv) of the Explanation to section 115JB covers the full export profits of 100 per cent as eligible profits, and that figure cannot be scaled down to 80 per cent by relying on section 80HHC(1B). On export profits of Rs 100 crore the downward adjustment in computing book profit is Rs 100 crore and not Rs 80 crore. The Department's argument that the closing words of clause (iv), making the amount subject to the conditions specified in that section, import the extent of deduction as well was rejected.
The Court read section 115JB as a self-contained code beginning with a non obstante clause and taxing deemed income, under which book profit is the net profit as shown in the profit and loss account subject to upward and downward adjustments. Clause (iv) is a downward adjustment and its purpose is to take export profits out of the minimum alternate tax base altogether. Within section 80HHC the Court drew a three-way distinction: sub-section (1) is about eligibility, requiring that the assessee be in the business of export and that the sale proceeds be receivable in convertible foreign exchange; sub-section (3) quantifies the tax incentive and is geared to export turnover rather than to income; and sub-section (1B), inserted by the same Finance Act 2000, deals not with eligibility but with the extent of deduction, the word thereof in each of its items showing that it brings in proportionality to scale the incentive down in phases. Clause (iv) refers to profits eligible for deduction computed under clause (a), (b) or (c) of sub-section (3) or under sub-section (3A). It does not refer to sub-section (1B). The words subject to the conditions specified in that section pick up sub-sections (4) and (4A), which require certification by a chartered accountant; that is a compliance condition, not a qualifying condition, and cannot be used to obliterate the difference between eligibility and deductibility. Reading eligibility and deductibility together, as the Department urged, would stop section 115JB being a self-contained code. The Memorandum explaining the Finance Bill 2000 supported the same reading.
clause (iv) covers full export profits of 100% as "eligible profits" and that the same cannot be reduced to 80% by relying on Section 80HHC(1B).
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppThe full figure. The Supreme Court held that clause (iv) of the Explanation to section 115JB reduces book profit by the amount of profits eligible for deduction under section 80HHC as computed under sub-section (3) or (3A), and the phased percentages in section 80HHC(1B) do not cut it down. Section 80HHC(1) governs eligibility and sub-section (3) the computation, while sub-section (1B) deals only with the extent of the deduction. Section 115JB is a self-contained code taxing deemed income and operates in a different sphere. So on export profits of Rs 100 crore the downward adjustment is Rs 100 crore, not Rs 80 crore. This was decided by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction - S.H. Kapadia, CJI and K.S. Radhakrishnan, J; judgment by S.H. Kapadia, CJI) and bears on section 115JB, section 80HHC(1B), section 80HHC(3), section 80HHC of the Income Tax Act 1961. It is reported as (2010) 327 ITR 305; (2010) 9 SCC 455; 2010 AIR SCW 6963; (2010) 9 SCALE 236. This is the Supreme Court's ruling on the eligibility versus deductibility distinction, and it does more work than its own facts. The reasoning is that where the minimum alternate tax provision borrows a computation from Chapter VI-A, it borrows only what it names: clause (iv) names sub-sections (3) and (3A), and the conditions it makes the relief subject to are those in sub-sections (4) and (4A), which require a chartered accountant's certificate and are compliance conditions rather than qualifying conditions. The Department's argument that eligibility and deductibility must be worked out together was rejected because it would stop section 115JB being a self-contained code. It reversed the Bombay High Court and restored the Tribunal, and it settles the treatment for the phase-out years from assessment year 2001-02 to 2004-05. If it applies to you, the first step is this: When a minimum alternate tax clause borrows a computation from another section, read exactly which sub-sections it names and resist importing restrictions from sub-sections it does not name.
The assessee was a company liable to minimum alternate tax. It filed its return for assessment year 2001-02 on 30 October 2001 with the statutory audit report claiming deduction under section 80HHC. In computing book profit under section 115JB it reduced 100 per cent of its export profits under clause (iv) of the Explanation. By assessment order dated 27 February 2004 the Assessing Officer allowed only 80 per cent, applying the phased percentage in section 80HHC(1B), which had been inserted by the Finance Act 2000 with effect from 1 April 2001 and which steps the deduction down from 80 per cent for assessment year 2001-02 to nil from assessment year 2005-06. The Commissioner (Appeals) held on 30 July 2004 that the whole of the export profit computed under section 80HHC(3) was eligible for reduction. The Tribunal upheld that, reasoning that clause (iv) makes no reference to section 80HHC(1B). The Bombay High Court allowed the Revenue's appeal under section 260A on 7 May 2009, and the assessee appealed to the Supreme Court. The matter was decided on 2010-09-09 by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction - S.H. Kapadia, CJI and K.S. Radhakrishnan, J; judgment by S.H. Kapadia, CJI). On those facts the Supreme Court held as follows. The appeal was allowed, the judgment of the High Court set aside and the order of the Tribunal restored. Clause (iv) of the Explanation to section 115JB covers the full export profits of 100 per cent as eligible profits, and that figure cannot be scaled down to 80 per cent by relying on section 80HHC(1B). On export profits of Rs 100 crore the downward adjustment in computing book profit is Rs 100 crore and not Rs 80 crore. The Department's argument that the closing words of clause (iv), making the amount subject to the conditions specified in that section, import the extent of deduction as well was rejected.
The Court read section 115JB as a self-contained code beginning with a non obstante clause and taxing deemed income, under which book profit is the net profit as shown in the profit and loss account subject to upward and downward adjustments. Clause (iv) is a downward adjustment and its purpose is to take export profits out of the minimum alternate tax base altogether. Within section 80HHC the Court drew a three-way distinction: sub-section (1) is about eligibility, requiring that the assessee be in the business of export and that the sale proceeds be receivable in convertible foreign exchange; sub-section (3) quantifies the tax incentive and is geared to export turnover rather than to income; and sub-section (1B), inserted by the same Finance Act 2000, deals not with eligibility but with the extent of deduction, the word thereof in each of its items showing that it brings in proportionality to scale the incentive down in phases. Clause (iv) refers to profits eligible for deduction computed under clause (a), (b) or (c) of sub-section (3) or under sub-section (3A). It does not refer to sub-section (1B). The words subject to the conditions specified in that section pick up sub-sections (4) and (4A), which require certification by a chartered accountant; that is a compliance condition, not a qualifying condition, and cannot be used to obliterate the difference between eligibility and deductibility. Reading eligibility and deductibility together, as the Department urged, would stop section 115JB being a self-contained code. The Memorandum explaining the Finance Bill 2000 supported the same reading. In the words reproduced by the source cited on this page: "clause (iv) covers full export profits of 100% as "eligible profits" and that the same cannot be reduced to 80% by relying on Section 80HHC(1B)."
It was decided by the Supreme Court on 2010-09-09 and is reported as (2010) 327 ITR 305; (2010) 9 SCC 455; 2010 AIR SCW 6963; (2010) 9 SCALE 236. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 115JB, section 80HHC(1B), section 80HHC(3), section 80HHC, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed, the judgment of the High Court set aside and the order of the Tribunal restored. Clause (iv) of the Explanation to section 115JB covers the full export profits of 100 per cent as eligible profits, and that figure cannot be scaled down to 80 per cent by relying on section 80HHC(1B). On export profits of Rs 100 crore the downward adjustment in computing book profit is Rs 100 crore and not Rs 80 crore. The Department's argument that the closing words of clause (iv), making the amount subject to the conditions specified in that section, import the extent of deduction as well was rejected. It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 115JB, section 80HHC(1B), section 80HHC(3), section 80HHC of the Income Tax Act 1961, and was decided by Supreme Court of India, Civil Appellate Jurisdiction - S.H. Kapadia, CJI and K.S. Radhakrishnan, J; judgment by S.H. Kapadia, CJI. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Distinguish the eligibility provision from the quantification provision from the provision fixing the extent of relief; the argument in this case turns entirely on that three-way split. Where a provision makes relief subject to the conditions of another section, check whether those conditions are qualifying or merely compliance conditions such as a certificate. For the phase-out years, compute the section 115JB downward adjustment on the whole export profit under section 80HHC(3) and keep the auditor's certificate on file.
Still good law. The document read is a thin copy: a citator search on it returns only 2 later decisions. A second search by case name with sections 115JB and 80HHC returns 191. The holding is applied by the Kerala High Court in CIT v Packworth Udyog Ltd (30 November 2010), which relies on it for the proposition that section 115JB is a self-contained code, and by the Punjab and Haryana High Court in CIT v Saluja Exim Ltd on the very point that clause (iv) of the Explanation is not cut down by the phased percentages. At Tribunal level it is applied by the Mumbai Bench in Crompton Greaves Ltd (28 March 2012), by the Hyderabad Bench in Matrix Laboratories Limited (25 May 2012) and by the Delhi Bench across the Uflex Ltd orders of 26 July 2024, which take from it that sections 80HHC and 115JB operate in different spheres. Nothing overruling or doubting it was found. Section 80HHC ceased to give any deduction from assessment year 2005-06, so the direct application of the holding is confined to the phase-out years. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment records in paragraph 6 that section 80HHC(1B) was inserted by the same Finance Act 2000 that inserted section 115JA; section 115JA was in fact inserted by the Finance (No. 2) Act 1996 as the judgment itself says in paragraph 7, and it is section 115JB that the Finance Act 2000 inserted. The slip is in the text and is noted rather than resolved. The judgment does not set out the amounts of export profit or of tax in dispute. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed, the judgment of the High Court set aside and the order of the Tribunal restored. Clause (iv) of the Explanation to section 115JB covers the full export profits of 100 per cent as eligible profits, and that figure cannot be scaled down to 80 per cent by relying on section 80HHC(1B). On export profits of Rs 100 crore the downward adjustment in computing book profit is Rs 100 crore and not Rs 80 crore. The Department's argument that the closing words of clause (iv), making the amount subject to the conditions specified in that section, import the extent of deduction as well was rejected.
TaxSphere, “Ajanta Pharma Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/ajanta-pharma-ltd-v-cit/ (validity last checked 2026-08-29)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Our tea company exports. Should the section 80HHC deduction be worked out on the whole composite income before Rule 8 splits it sixty-forty, or only on the forty per cent that is taxable?
My company was finally assessed on book profit under section 115JB. Can the officer still levy concealment penalty on a disallowance he made in the normal computation?
The AO knocked freight and telecom charges out of my export turnover but left them in total turnover. Can he do that?
What if the law itself was unsettled when the officer decided?
