THE COMMISSIONER OF INCOME TAX vs. APOLLO TYRES LTD., COCHIN

Facts

The Revenue is in appeal against an order of the Income Tax Appellate Tribunal (ITAT) which upheld the order of the Commissioner of Income Tax (Appeals). The assessee, Apollo Tyres Ltd., had its assessment for the year 1995-96 completed, then re-opened. During the re-assessment, a deduction under Section 80IA was allowed for the Baroda Unit. The Assessing Officer later sought to rectify this under Section 154, restricting the deduction. The Commissioner (Appeals) allowed the assessee's appeal, directing the deduction to be calculated on a higher profit figure. The Revenue appealed to the ITAT, which dismissed the appeal, affirming the order of the Commissioner (Appeals). The present appeal is filed by the Revenue against the ITAT's order.

Held

The High Court held that the appeal filed by the Revenue did not involve any substantial question of law. The Court agreed with the Tribunal's interpretation of Section 80IA(5), which states that for the purpose of determining the deduction, the profits and gains of the eligible business shall be computed as if such eligible business were the only source of income. The Court found that Section 80AB, while containing a non-obstante clause, does not override the specific provision of Section 80IA(5). The Court noted that the precedents cited by the Revenue were to the effect that if the total income shown by the assessee is less than the extent of deduction available, no benefit can be accrued. However, in this case, 30% of the profit from the Baroda Unit (Rs. 2,15,00,531.70) was less than the total income from all sources (Rs. 6,46,55,496/-). Therefore, the deduction was allowable as calculated by the appellate authorities. The appeal was dismissed.

Key Issues

1. Whether the deduction under Section 80IA, calculated at 30% of the profits of the eligible business (Baroda Unit), should be computed with reference to the profit of that unit (Rs. 7,16,68,439/-) or the total income from all sources (Rs. 6,46,55,496/-), as contended by the Revenue, or with reference to the profit of the eligible business alone, as held by the Tribunal. The Revenue argued that Section 80AB mandates that the deduction should be worked out with reference to the total income from all sources, and if this total income is lower than 30% of the eligible business profit, the deduction should be limited to the total income. They relied on *IPCA Laboratory Ltd. vs. Deputy Commissioner of Income Tax* (2004) and *Commissioner of Income Tax vs. Shirke Construction Equipment Ltd.* (2007). The Assessee argued, and the Tribunal held, that Section 80IA(5) mandates that the profits and gains of the eligible business should be computed as if it were the only source of income for the purpose of determining the deduction. They contended that Section 80AB does not override this specific provision of Section 80IA.