Section 80HHC

Section 80HHC — the law in short

What the courts have decided on section 80HHC, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Shital Fibers Ltd v CIT Supreme CourtHelps taxpayer
  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.
• CIT v HCL Technologies Ltd Supreme CourtHelps taxpayer
  The AO knocked freight and telecom charges out of my export turnover but left them in total turnover. Can he do that?
  No. What is excluded from export turnover must also come out of total turnover, because export turnover is a component of total turnover. Reading the exclusion into the numerator alone would make the s.10A formula produce an absurd result. The Court declined to construe the section in a way that would work an injustice on the assessee.
• Ajanta Pharma Ltd v CIT Supreme CourtHelps taxpayer
  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.
• CIT v. Willamson Financial Services (Supreme Court) — a Chapter VI-A deduction on a tea company's composite income is allowed AFTER the Rule 8(1) sixty-forty apportionment, not against the whole composite income Supreme CourtHelps department
  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?
  Only on the forty per cent. The Supreme Court held that the deduction under section 80HHC is required to be allowed AFTER the apportionment of income under Rule 8(1), and answered the issue in favour of the Department. The legal fiction in Rule 8(1) is confined to that rule: it assigns chargeability and computability only to the non-agricultural forty per cent, and it cannot be extended into section 80HHC(3)(a), because deductions under Chapter VI-A are made from gross total income and are not part of the computation of income under the head "Profits and gains of business".
• CIT v Max India Ltd Supreme CourtHelps taxpayer
  What if the law itself was unsettled when the officer decided?
  Reported as following the two-views principle — where the provision was capable of more than one interpretation and the officer adopted one of them, revision under s.263 does not lie.
• IPCA Laboratory Ltd v Deputy CIT Supreme CourtHelps department
  I made a profit on exporting my own manufactured goods and a bigger loss on exporting trading goods. Can I claim the deduction on the profit and ignore the loss?
  No. The Supreme Court dismissed the appeal and held that where an assessee exports both self manufactured goods and trading goods, section 80HHC(3)(c) requires the profits of both to be counted, and a loss in one must be set against the profit in the other. Profit throughout section 80HHC means positive profit arrived at after taking losses into account. Section 80AB overrides the sections in Chapter VI-A, including section 80HHC, and requires income to be computed in accordance with the Act, which brings in losses as well as profits. Against a profit of Rs 3.78 crore and a loss of Rs 6.86 crore there was a net loss, so no deduction survived.
• CIT, Agra v M/s Oswal Exports High CourtHelps taxpayerNo later treatment found
  My assessment order just says 'interest will be charged as per rules'. It never names s.234A, s.234B or s.234C. Is that enough to levy the interest?
  The Allahabad High Court held it is not. The direction must be specific and clear, so that the assessee knows the Assessing Officer applied his mind and ordered interest under a particular section; a general direction to charge interest as per rules or as per law is not a specific order and no interest can be levied on it. The Court expressly considered the Supreme Court's order in Karanvir Singh Gossal and held that it does not displace this requirement.
• Goodricke Group Ltd v CIT-II, Kolkata — the s.33AB deduction is taken in computing the composite tea profit BEFORE rule 8 splits it sixty-forty, not on the forty per cent High CourtHelps taxpayer
  The Assessing Officer has applied rule 8 first and then given my tea company its section 33AB deduction on only forty per cent of the composite income, which has more than halved the claim. Which comes first — the section 33AB deduction or the sixty-forty apportionment?
  Section 33AB comes first. On 19 May 2011 a Division Bench of the Calcutta High Court held, in an appeal under section 260A for AY 1997-98, that the deduction under section 33AB is taken in computing the profit or loss of the composite tea business, and only after that profit or loss has been determined does rule 8 of the Income-tax Rules, 1962 come into play to work out how much of it is liable to tax. The Tribunal below had held the opposite — that the section 33AB deduction was to be calculated on forty per cent of the income determined under rule 8 — and the High Court set that finding aside as erroneous. The Court's route was the parenthesis in section 33AB(1)(b) itself, which fixes the ceiling by reference to the profits of the business "computed under the head 'Profits and gains of business or profession' before making any deduction under this section": that is a computation under Chapter IV-D, and rule 8 operates only on the figure that computation produces. In the same judgment, and on the assessee's own concession, the Court answered the section 80HHC question the other way — a Chapter VI-A deduction on a composite tea income comes AFTER the sixty-forty apportionment, following Union of India v Warren Tea Ltd (2004) 266 ITR 226 (Cal) and the Supreme Court in CIT v Williamson Financial Services (2008) 297 ITR 17.
• CIT v Nalwa Sons Investments Ltd High CourtHelps taxpayerSuperseded by amendment
  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?
  No. The Delhi High Court held that where the assessment is finally made on book profit under section 115JB because that figure is higher, a disallowance in the normal computation produces no additional tax and so there is no amount of tax sought to be evaded within Explanation 4 to section 271(1)(c). The Court accepted that the assessee had made a false claim of depreciation on machinery it could not show it had used, and it disagreed with the reasons the Commissioner (Appeals) and the Tribunal had given. It still upheld the deletion of penalty, because the concealment had no role to play once tax was charged on book profit.
• Murali Export House v CIT High CourtHelps taxpayerNo later treatment found
  The accountant's certificate for the s.80HHC claim was prepared but never attached to the return. Is the deduction gone?
  No. The Calcutta High Court, following its earlier decision in Rai Bahadur Bissesswarlal Motilal, held that the defects listed in the Explanation to s.139(9) are illustrative and not exhaustive, and that the Assessing Officer retains the power to have a defect made good before the assessment is completed. The Court set aside the orders below and directed the deduction to be allowed provided the certificate was filed within two months.
• John A. Sayre v CIT Advance RulingHelps departmentSuperseded by amendment
  I am a geologist running production at three oil and gas fields in India for a foreign oil company. Am I a technician in mining, or in constructional operations, for the section 10(5B) exemption?
  No, on both routes. The Authority held that mining in the Explanation to s.10(5B) is not used in a broad sense that takes in prospecting for or extraction of mineral oil, because the Income-tax Act consistently treats mineral oil as something separate from minerals and makes its own special provision for it in ss.42, 44BB and 293A. It also rejected the alternative case that the applicant was a technician in constructional or manufacturing operations: he had a degree in geology and no shown special knowledge of construction, and he was employed to run oil and gas field production, not to build. It did accept the applicant's answer to the Commissioner's threshold objection - the second category of technician, one employed in any business carried on in India, need not be in government or public employment. The ruling binds only the applicant.
• Statutory position — Rule 8: tea grown and manufactured by the seller, forty per cent taxable and sixty per cent agricultural, and the sub-rule (2) replanting allowance CBDT Circulars & InstructionsCuts both waysNo later treatment found
  Our client grows tea and manufactures it in its own factory. What proportion of the composite income is taxable under the Income-tax Act, and what does sub-rule (2) allow for replanting?
  Rule 8(1) of the Income-tax Rules, 1962 provides that income derived from the sale of tea GROWN AND MANUFACTURED BY THE SELLER IN INDIA shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax. The balance sixty per cent is agricultural income, exempt under s.10(1) and within the States' taxing power. Sub-rule (2) directs that in computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and that in determining that cost no deduction shall be made in respect of any subsidy which, under clause (30) of section 10, is not includible in total income.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.