Summary
For assessment years 1979–80 and 1980–81, the Court held that the Section 80HH deduction was calculated on profits and gains before depreciation and investment allowance. It overruled Motilal Pesticides and held that Section 80AB operated prospectively from assessment year 1981–82.
Issues
- Whether the historical Section 80HH deduction was computed before depreciation and investment allowance.
- Whether Section 80AB applied retrospectively to the assessment years in question.
Provisions considered
- Section 80HH(1) read with Section 80A, Income-tax Act, 1961The particular words allowing deduction from profits and gains supported a 20% deduction before computing income through the specified depreciation and investment allowances for the relevant assessment years. (¶¶ 2, 3, 10, 11, 17, 18, 19)
- Section 80AB, Income-tax Act, 1961The provision introduced with effect from 1 April 1981 changed the legal position prospectively and did not govern assessment years 1979–80 and 1980–81. The Court relied also on the Board’s express explanation of prospective operation. (¶¶ 13, 14, 20, 21)
Held
- The terms profits and gains and income were not interchangeable in the provisions under consideration. The deduction specified by Section 80HH had to be construed according to its own language, rather than importing the materially different wording of Section 80M. (¶¶ 10, 11, 17, 18, 19)
- For these pre-1981–82 assessments, Section 80HH read with Section 80A allowed the deduction on gross profits and gains before the depreciation and investment-allowance deductions in computing income. Motilal Pesticides, which proceeded on an incorrect equivalence with Section 80M, was overruled. (¶¶ 17, 18, 19)
- Section 80AB was not merely clarificatory with retrospective effect. Its stated commencement and Board Circular 281 made it applicable from assessment year 1981–82; the Revenue’s cited cases did not determine the historical question here. (¶¶ 20, 21, 22)
Result
All assessees’ appeals allowed; Motilal Pesticides overruled. The ruling on deduction computation concerns the historical assessment years preceding Section 80AB’s operation.