AJANTA PHARMA LTD. vs. COMMISSIONER OF INCOME TAX-9, MUMBAI

CIVIL APPEAL No. 7518/2010Supreme Court[2010] 11 S.C.R. 40409 September 2010Bench: 2 JudgesAuthor: S.H. KAPADIA, K.S. RADHAKRISHNAN B10 pages
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What did the Supreme Court hold?

The Supreme Court held that for computing 'book profits' under Section 115JB, the downward adjustment under clause (iv) of the Explanation to Section 115JB should be the full 100% of the 'eligible' export profits, and not the reduced amount of 80% as per Section 80HHC(1B). The Court reasoned that Section 115JB is a self-contained code for computing Minimum Alternate Tax (MAT) on deemed income. It distinguished between 'eligibility' for deduction under Section 80HHC(1) and the 'extent of deduction' under Section 80HHC(1B). Clause (iv) of the Explanation to Section 115JB specifically refers to 'eligible' profits derived from exports. The Court found that the conditions mentioned in Section 80HHC(1B) pertain to the 'extent of deduction' and not the 'eligibility' of profits. Therefore, the full amount of profits eligible for deduction under Section 80HHC(3) should be considered for downward adjustment in book profits, not the reduced percentage. The Court set aside the High Court's judgment and restored the Tribunal's order. No issue was expressly left undecided.

What were the facts?

The assessee, Ajanta Pharma Ltd., a Minimum Alternate Tax (MAT) company, filed its return for assessment year 2001-02. It claimed a deduction of 100% of its export profits under clause (iv) of the Explanation to Section 115JB of the Income Tax Act, 1961, when computing its 'book profits'. The Assessing Officer (AO) allowed only an 80% reduction, citing Section 80HHC(1B). The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) ruled in favor of the assessee, holding that 100% of the export profits, as computed under Section 80HHC(3), were eligible for reduction. The Revenue appealed to the High Court, which allowed the appeal, leading to the present civil appeal before the Supreme Court.

What were the issues?

1. Whether, for determining 'book profits' under Section 115JB, the net profits in the profit and loss account should be reduced by the amount of profits eligible for deduction under Section 80HHC, or by the amount of deduction allowable under Section 80HHC? Assessee's contention: The assessee argued that 100% of the export profits, as computed under Section 80HHC(3), were eligible for reduction under clause (iv) of the Explanation to Section 115JB. They contended that Section 115JB is a self-contained code and that the 'eligibility' of profits for deduction under Section 80HHC should be considered, not the 'extent of deduction' as per Section 80HHC(1B). Revenue's contention: The Revenue argued that the deduction under clause (iv) of the Explanation to Section 115JB should be subject to the conditions specified in Section 80HHC, implying that both 'eligibility' and 'deductibility' of profits must be considered together. They contended that the reduction should be limited to the extent of deduction allowable under Section 80HHC, which for AY 2001-02 was 80% as per Section 80HHC(1B).

Which sections of the Income-tax Act were involved?

Section 115JB,Section 80HHC,Section 80HHC(1),Section 80HHC(1B),Section 80HHC(3),Section 260A

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A B [2010] 11 S .. C.R. 404 AJANTA PHARMA LTD. v. COMMISSIONER OF INCOME TAX-9, MUMBAI (Civil Appeal No. 7518 of 2010) SEPTEMBER 9, 2010 (S.H. KAPADIA, CJI AND K.S. PANICKER RADHAKRISHNAN, J.)

Income Tax Act, 1961 - ss. 115JB and BOHHC - c Assessment of Minimum Alternate Tax (MAT) Company u/s. 115-JB for assessment year 2001-2002 - Deduction in respect of profits retained for export business - Computation of 'book profits' uls. 115-JB - Held: Reduction of 100% export profits, as computed u/s. 80HHC(3), is eligible for reduction under D clause (iv) of Explanation to s. 115JB.

The appellant, a Minimum Alternate Tax (MAT)

Company, filed its return of income for the assessment year 2001-02. It claimed deduction under Section 80HHC of the lncome'-Tax Act, 1961". While computing the 'book profits' E under Section 115-JB of the Act, the assessee claimed reduction of 100% export profits under clause (iv) of Explanation to Section 11 SJB. The Assessing Authority allowed reduction of only 80% of the export profits in terms of Section 80HHC(1 B). The Appellate Authority as F well as the tribunal allowed the claim of the assesee holding that 100% export profits earn

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