CIT vs. Ajanta Pharma (Bombay High Court)

Sunset clause of s. 80HHC (1B) applies to s. 115JB

In respect of AY 2001-2002, the assessee claimed that though s. 80HHC (1B) limited the deduction to 80% of the profits eligible for deduction u/s 80HHC, this limitation did not apply for purposes of “book profits” u/s 115JB and that 100% of the 80HHC profits were deductible. The Tribunal allowed the claim by relying on the Special Bench judgement in Syncome Formulations 106 ITD 193 (Mum) (SB) and the Budget speech of the Finance Minister. On appeal by the Revenue, HELD, reversing the Tribunal’s order:

(1) S. 115JB allows a deduction from the “book profits” of “the amount of profits eligible for deduction u/s 80HHC, computed under clause (a) …. of sub-section (3) …. subject to the conditions specified in that section.” Ss (3) and (3A) provide for the method for computation of profits. Once the profits are worked out, then only the profit which is eligible can be deducted. In computing the “eligibility”, the limits of s. 80HHC (1B) have to be read in;

(2) Accepting the argument that MAT companies are not subject to the limits of s. 80HHC (1B) would mean that they are treated more advantageously than other export companies. There is no rational reason why the legislature would give MAT companies additional benefits than that given to other companies;

(3) The argument also renders s. 80HHC (1B) irrelevant and otiose for s. 115JB and results in the absurdity that MAT companies will enjoy exemption even after AY 2005-2006 when s. 80HHC ceases to operate;

(4) The Budget Speech and the Memorandum explaining the Bill are external aids to construction and reliance on them is not permissible as there is no absurdity on a literal reading of s. 80 HHC r.w.s. 115JB(2);

Note: The judgements in Syncome Formulations 106 ITD 193 (Mum) (SB) and Govind Rubber 89 ITD 457 (Mum) have been overruled.

The Judgment of the Kerala High Court in GTN Textiles 248 ITR 372 was distinguished.