By treating ‘qualified corporation’ as the ‘only source of profits,’ the Supreme Court determined that sub-section (5) of Section 80-IA of the Act is limited to determining the quantum of deduction under sub-section (1) of Section 80-IA of the Act.
The bench of Justices L. Nageswara Rao and Vineet Saran observed that this clause could not be used to read a restriction of the deduction under sub-section (1) to only ‘company profits.’
The Assessing Officer in this case limited the qualifying deduction under Section 80-IA of the Income Tax Act to only ‘company income. On the question of deduction under Section 80-IA, the Income Tax Appellate Tribunal upheld the judgement of the Appellate Authority. In the case of the deduction under Section 80-IA, the High Court declined to intervene with the Tribunal’s decision.
In its appeal to the Supreme Court, the Revenue argued that the Assessing Officer was correct in limiting the deduction under Section 80-IA of the Act to “company profits.
The basic ingredients of Section 80-IA (1) of the Act, according to the court, are a) an assessee’s ‘gross total income shall include profit and gains; b) such profits and gains are generated from an undertaking or an enterprise from a company referred to in subsection (4), and c) the assessee is entitled to a deduction equal to 100 per cent of the profits and gains derived from a business referred to in subsection (4). d) such deduction shall be permitted in calculating the Assessee’s “total revenue” for ten consecutive assessment years.
While dismissing the appeal, the bench observed thus:
We hold that the scope of Section 80-IA of the Act’s sub-section (5) is restricted to determining the quantum of deduction under Section 80-IA of the Act’s subsection (1) by treating ‘qualified corporation’ as the ‘only source of income.’ Subsection (5) cannot be used to restrict the exclusion under subsection (1) to just ‘company profits.'”