SUPREME COURT ON LIMITS OF TAX DEDUCTIONS

 

Case Name: Shital Fibers Limited v. Commissioner of Income Tax
Case Number: Civil Appeal No. 14318 of 2015 and connected appeals
Date of Judgment: 20 May 2025
Quorum: Justice Abhay S. Oka, Justice Ahsanuddin Amanullah, and Justice Augustine George Masih

 

FACTUAL BACKGROUND

The main appellant, Shital Fibers Limited, is a company that filed income tax returns for the year 2002–03 and claimed deductions under Section 80-HHC and Section 80-IA of the Income Tax Act, 1961. The return was first accepted, but later, the Income Tax Department reopened the case saying the company wrongly claimed deductions twice on the same profit amount under two different sections.

The reassessment was based on a tribunal decision in ACIT v. Rogini Garments, which said that double deduction on the same profit was not allowed due to Section 80-IA(9). The department said the company claimed Rs. 90+ lakh under Section 80-IA and Rs. 1.7+ crore under Section 80-HHC. This was not right, so both deductions were denied. The company appealed but lost in all forums — Commissioner (Appeals), Income Tax Appellate Tribunal, and Punjab & Haryana High Court. That’s how it reached the Supreme Court.

 

ISSUES FOR DETERMINATION

1. Can a company claim deductions under both Section 80-IA and Section 80-HHC on the same profit amount?
2. What is the correct interpretation of Section 80-IA(9)?
3. Does claiming deduction under one section stop deduction under another?

LEGAL PROVISIONS

• Section 80-IA (9), IT Act – Says profits claimed under this section cannot be claimed again under other provisions in Chapter VI-A (heading “C”).
• Section 80-HHC – Deduction for profits from export business.
• Chapter VI-A, IT Act – Covers various types of deductions from gross total income.

 

APPELLANT’S CONTENTIONS

• The company said the law allows separate deductions under different sections.
• Section 80-IA(9) doesn’t stop calculation of deductions under both heads; it only restricts double benefit from the same income.
• They referred to earlier judgments like SCM Creations v. ACIT, where it was said that deductions are allowed separately but total should not cross the business profit.

RESPONDENT’S CONTENTIONS

• The department said the company is trying to claim the same profit twice, which is not legal.
• Once deduction is allowed under 80-IA, that profit cannot be considered again for 80-HHC.
• They argued that Section 80-IA(9) is meant to stop this kind of double benefit.

ANALYSIS

The Court explained how deductions under Chapter VI-A work. It said:

• Deductions are allowed only from gross total income.
• Sub-section (9) of 80-IA does not say you can’t calculate deductions under other sections  it only says you can’t allow the same profit deduction twice.
• The problem is not with calculation, but with giving double deduction — that’s what is restricted.

The Supreme Court agreed with the view taken by the Bombay High Court in Associated Capsules (P) Ltd., which said:

• Section 80-IA(9) does not affect “how you calculate” deductions.
• It only affects “how much you finally allow”  to make sure the total deduction is not more than the profit made.
• You can compute deductions under both sections separately, but while allowing, make sure total doesn’t cross 100% of profit.

This view was also supported by Justice Dipak Misra in Micro Labs Ltd. v. ACIT. The Court said deduction under one section doesn’t reduce gross total income for other deductions, but total deduction can’t exceed total business profit.

 

JUDGMENT

• The Court approved the view of the Bombay High Court and said it is the correct interpretation.
• Deduction under Section 80-HHC and 80-IA can be computed separately.
• But the final total deduction allowed cannot exceed the business profit.
• The appeal was answered accordingly and sent back to a suitable Bench for decision.

CONCLUSION

This case shows:

• You can calculate deductions under different sections of Income Tax Act, but you can’t take double benefit from the same income.
• Section 80-IA(9) limits the allowability, not the calculation of deductions.
• Income Tax law allows deductions but total tax benefit cannot be more than the actual profit.
• Court interpretation matters more than department circulars if the language is unclear.

This judgment makes it clear that fair interpretation of law is important, and businesses should not misuse tax deductions by taking credit twice for the same profit.

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WRITTEN BY PRIYANKA DESHIKAN.