SHITAL FIBERS LIMITED vs. COMMISSIONER OF INCOME TAX

CIVIL APPEAL No. 14318/2015Supreme Court[2025] 5 S.C.R. 124820 May 2025Bench: 3 JudgesAuthor: ABHAY S. OKA, AHSANUDDIN AMANULLAH, AUGUSTINE GEORGE MASIH15 pages
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What were the facts?

The assessee, Shital Fibers Limited, filed its return for Assessment Year 2002-03, declaring a net taxable income and claiming deductions under Section 80-HHC and Section 80-IA of the Income Tax Act, 1961. Reassessment proceedings were initiated. The Assessing Officer disallowed deductions claimed under Section 80-IA and Section 80-HHC, relying on the restriction under Section 80-IA(9). The assessee's appeals to the Commissioner (Appeals) and the Income Tax Appellate Tribunal (ITAT) were dismissed. The High Court also dismissed the appeal, holding that Section 80-IA(9) bars deductions under other provisions of Chapter VI-A if a deduction under Section 80-IA is allowed. This led to a difference of opinion among judges, prompting a reference to a three-judge bench of the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that on a plain reading of Section 80-IA(9), if a deduction of profits and gains under Section 80-IA is claimed and allowed, then the deduction to the extent of such profits and gains cannot be allowed under any other provision under Heading 'C' of Chapter VI-A. However, the restriction under Section 80-IA(9) is not on the computation of gross total income. It restricts the allowability of deductions under any other provision under Heading 'C' to the extent of the deduction claimed under Section 80-IA. The provision does not affect the computability of deductions under various provisions of Heading C, but it affects their allowability, ensuring that the aggregate deduction under Section 80-IA and other provisions under Heading C does not exceed 100% of the profits of the assessee's business. The Court found the interpretation of the Bombay High Court in Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr. to be logical and correct. The reference was answered in line with this interpretation.

What were the issues?

1. Whether deductions claimed cumulatively under Section 80-HHC and Section 80-IA (or 80-IB) under Heading 'C' of Chapter VI-A of the Income Tax Act, 1961, can be allowed? (Question of law) 2. What is the scope of the restriction under sub-section (9) of Section 80-IA of the Income Tax Act, 1961, on such cumulative deductions? (Question of law) Assessee's Contentions: The assessee contended that Section 80-IA(9) does not bar the computation of deductions provided under different provisions of the Act. It merely restricts the allowability of deductions to the extent of profits and gains of the business. The two deductions should be computed separately without reducing the deduction allowed under Section 80-IA from the gross total income for the purpose of computing the deduction under Section 80-HHC. The assessee relied on the decision in SCM Creations v. ACIT. Revenue's Contentions: The revenue contended that Section 80-IA(9) bars a claim for deduction under any other provision of Chapter VI-A if a deduction under Section 80-IA has been allowed. The deduction allowed under Section 80-IA should be deducted from the gross total income when considering deductions under other provisions of Heading 'C'. The revenue relied on the decision in ACIT v. Rogini Garments and the High Court's decision in Friends Casting (P) Ltd. v. Commissioner of Income Tax.

Which sections of the Income-tax Act were involved?

Section 80-HHC,Section 80-IA,Section 80-IB,Section 80-IA(9),Section 147,Section 143(1)(a),Section 148,Section 143(2),Section 80-HHB(5),Section 80-HHD(7),Section 80-B(5),Section 80-AB,Section 80-HHC(3)

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[2025] 5 S.C.R. 1248 : 2025 INSC 743 Shital Fibers Limited v.

Commissioner of Income Tax (Civil Appeal No. 14318 of 2015) 20 May 2025 [Abhay S. Oka,* Ahsanuddin Amanullah and Augustine George Masih, JJ.] Issue for Consideration Deductions claimed cumulatively under the provisions of s.80-HHC and s.80-IA or s.80-IB under Heading ‘C’ of Chapter VI-A, Income Tax Act, 1961, if can be allowed; scope of restriction u/sub-section (9) of s.80-IA, Income Tax Act, 1961 on such deductions claimed.

Headnotes† Income Tax Act, 1961 – Chapter VI-A – Heading ‘C’– ss.80-HHC, 80-IA, 80-IB, 80-IA(9) – Deductions u/ss.80-HHC, 80-IA and 80-IB under Heading ‘C’ – Appellant claimed deductions u/s.80-HHC and ss.80-IA, 80-IB, disallowed – Appeal thereagainst dismissed till High Court which held that s.80- IA(9) bars claim for deduction under any other provision of Chapter VI-A, if deduction u/s.80-IA has been allowed – Matter before Supreme Court, difference of opinion between two Judges – Matter referred to three judge bench: Held: On a plain reading of s.80-IA(9), if a deduction of profits and gains u/s.80-IA is claimed and allowed, the deduction to the extent of such profits and gains i

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