Where a deduction has been allowed under s.80-IA, does s.80-IA(9) require the other Chapter VI-A deduction, such as s.80-HHC, to be computed on a reduced profit?
No. Section 80-IA(9) operates at the stage of allowance, not computation. The s.80-HHC deduction is still computed on the profits of the business without first reducing them by the s.80-IA deduction; what s.80-IA(9) prevents is the aggregate of the deductions under heading C exceeding the profits of the eligible business. A three-Judge Bench answered a reference to this effect, approving the Bombay High Court's view in Associated Capsules.
Decided by the Supreme Court (Abhay S. Oka J, Ahsanuddin Amanullah J and Augustine George Masih J (three-Judge Bench; judgment by Oka J)) on 2025-05-20, reported as 2025 INSC 743; Civil Appeal No. 14318 of 2015 and connected matters. It bears on section 80-IA, section 80-IB, section 80HHC of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
This closes a long-running split. Assessing Officers had been reducing the s.80-IA deduction from profits before computing s.80-HHC, which cuts the second deduction substantially. The correct method is to compute each deduction independently and then apply the overall cap.
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The question whether s.80-IA(9) restricts the computation of another Chapter VI-A deduction or only the aggregate amount allowable had divided the High Courts, the Bombay High Court in Associated Capsules (P) Ltd. v. Dy. CIT holding that it restricts allowance and not computation, and other courts taking the contrary view. A two-Judge Bench recorded a difference of opinion in ACIT, Bangalore v. Micro Labs Ltd. by order dated 10 December 2015, and the matter was referred to a larger Bench. The reference came before this three-Judge Bench along with a large batch of assessees' appeals and special leave petitions.
The reference was answered. The interpretation placed on s.80-IA(9) by the Bombay High Court in Associated Capsules (P) Ltd. v. Dy. CIT was held to be logical and correct (para 24): the sub-section restricts the aggregate deduction allowable under heading C of Chapter VI-A to the profits of the eligible business, and does not require the profits to be reduced by the s.80-IA deduction before computing another deduction such as s.80-HHC. The Court answered the reference and directed the Registry to place the appeals and petitions before an appropriate Bench (para 25).
The Court distinguished between the computation of a deduction and its allowance. Section 80-IA(9) says that where a deduction is claimed and allowed under s.80-IA for any assessment year, deduction to the extent of such profits shall not be allowed under any other provision under heading C, and the aggregate shall not exceed the profits of the eligible business. That language operates on what may be allowed in total, and does not direct that the base on which another deduction is computed be reduced. Reading it as a computation provision would rewrite the separate computation mechanisms Parliament provided in each of those sections.
In view of what we have held above, we find that the interpretation made by the Bombay High Court in the case of Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr appears to be logical and correct.
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Handle my notice → Ask a CA on WhatsAppNo. Section 80-IA(9) operates at the stage of allowance, not computation. The s.80-HHC deduction is still computed on the profits of the business without first reducing them by the s.80-IA deduction; what s.80-IA(9) prevents is the aggregate of the deductions under heading C exceeding the profits of the eligible business. A three-Judge Bench answered a reference to this effect, approving the Bombay High Court's view in Associated Capsules. This was decided by the Supreme Court (Abhay S. Oka J, Ahsanuddin Amanullah J and Augustine George Masih J (three-Judge Bench; judgment by Oka J)) and bears on section 80-IA, section 80-IB, section 80HHC of the Income Tax Act 1961. It is reported as 2025 INSC 743; Civil Appeal No. 14318 of 2015 and connected matters. This closes a long-running split. Assessing Officers had been reducing the s.80-IA deduction from profits before computing s.80-HHC, which cuts the second deduction substantially. The correct method is to compute each deduction independently and then apply the overall cap. If it applies to you, the first step is this: Compute each Chapter VI-A heading C deduction separately on the profits of the business, without first deducting the s.80-IA or s.80-IB amount.
The question whether s.80-IA(9) restricts the computation of another Chapter VI-A deduction or only the aggregate amount allowable had divided the High Courts, the Bombay High Court in Associated Capsules (P) Ltd. v. Dy. CIT holding that it restricts allowance and not computation, and other courts taking the contrary view. A two-Judge Bench recorded a difference of opinion in ACIT, Bangalore v. Micro Labs Ltd. by order dated 10 December 2015, and the matter was referred to a larger Bench. The reference came before this three-Judge Bench along with a large batch of assessees' appeals and special leave petitions. The matter was decided on 2025-05-20 by the Supreme Court (Abhay S. Oka J, Ahsanuddin Amanullah J and Augustine George Masih J (three-Judge Bench; judgment by Oka J)). On those facts the Supreme Court held as follows. The reference was answered. The interpretation placed on s.80-IA(9) by the Bombay High Court in Associated Capsules (P) Ltd. v. Dy. CIT was held to be logical and correct (para 24): the sub-section restricts the aggregate deduction allowable under heading C of Chapter VI-A to the profits of the eligible business, and does not require the profits to be reduced by the s.80-IA deduction before computing another deduction such as s.80-HHC. The Court answered the reference and directed the Registry to place the appeals and petitions before an appropriate Bench (para 25).
The Court distinguished between the computation of a deduction and its allowance. Section 80-IA(9) says that where a deduction is claimed and allowed under s.80-IA for any assessment year, deduction to the extent of such profits shall not be allowed under any other provision under heading C, and the aggregate shall not exceed the profits of the eligible business. That language operates on what may be allowed in total, and does not direct that the base on which another deduction is computed be reduced. Reading it as a computation provision would rewrite the separate computation mechanisms Parliament provided in each of those sections. In the words reproduced by the source cited on this page: "In view of what we have held above, we find that the interpretation made by the Bombay High Court in the case of Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr appears to be logical and correct." The decision followed or applied Associated Capsules (P) Ltd. v. Dy. CIT (Bombay High Court) — approved; ACIT, Bangalore v. Micro Labs Ltd., order dated 10 December 2015 — the reference order.
It was decided by the Supreme Court on 2025-05-20 and is reported as 2025 INSC 743; Civil Appeal No. 14318 of 2015 and connected matters. 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 80-IA, section 80-IB, 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 reference was answered. The interpretation placed on s.80-IA(9) by the Bombay High Court in Associated Capsules (P) Ltd. v. Dy. CIT was held to be logical and correct (para 24): the sub-section restricts the aggregate deduction allowable under heading C of Chapter VI-A to the profits of the eligible business, and does not require the profits to be reduced by the s.80-IA deduction before computing another deduction such as s.80-HHC. The Court answered the reference and directed the Registry to place the appeals and petitions before an appropriate Bench (para 25). It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 80-IA, section 80-IB, section 80HHC of the Income Tax Act 1961, and was decided by Abhay S. Oka J, Ahsanuddin Amanullah J and Augustine George Masih J (three-Judge Bench; judgment by Oka J). 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. Apply s.80-IA(9) only as a ceiling: check that the total of the deductions claimed does not exceed the profits of the eligible business. Where an assessment or appellate order computed s.80-HHC on reduced profits, take this judgment and the follow-on order of 26 February 2026 in the same appeals. Where the amount in dispute is small, also check whether the departmental appeal falls below the monetary threshold in CBDT Circular 09/2024, which disposed of two of the connected appeals.
Still good law. Applied by a Bench of Aravind Kumar and Prasanna B. Varale JJ on 26 February 2026 in the same batch of appeals (Civil Appeal No. 14318 of 2015 and connected matters), which recorded that the three-Judge Bench had resolved the issue by affirming the Bombay High Court's view in Associated Capsules, allowed the assessees' appeals, dismissed the Revenue's appeals, and disposed of two appeals under CBDT Circular 09/2024. No decision doubting the answer to the reference was located. 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.
This judgment answered a reference; it did not decide the appeals. The Court directed the Registry to place the appeals and petitions before an appropriate Bench (para 25). Those appeals were then decided on 26 February 2026 by a Bench of Aravind Kumar and Prasanna B. Varale JJ, which applied the answer and allowed the assessees' appeals and dismissed the Revenue's. The February 2026 order therefore implements this judgment; it does not displace it. 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 reference was answered. The interpretation placed on s.80-IA(9) by the Bombay High Court in Associated Capsules (P) Ltd. v. Dy. CIT was held to be logical and correct (para 24): the sub-section restricts the aggregate deduction allowable under heading C of Chapter VI-A to the profits of the eligible business, and does not require the profits to be reduced by the s.80-IA deduction before computing another deduction such as s.80-HHC. The Court answered the reference and directed the Registry to place the appeals and petitions before an appropriate Bench (para 25).
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