Summary
Industrial undertakings claiming profit-linked deductions under Section 80-IA sought to omit depreciation from eligible profits for assessment years preceding the 2001 amendment. The Court upheld the Bombay High Court’s Full Bench ruling that depreciation must be deducted in computing the eligible profits, whether claimed or not. Mahendra Mills did not permit enhanced Chapter VI-A deductions through disclaiming depreciation.
Issues
- Whether an assessee could enlarge the Section 80-IA deduction by declining current depreciation.
- Whether Mahendra Mills governed computation of the special profit-linked deduction.
- Whether the temporal effect of Explanation 5 to Section 32 required determination.
Provisions considered
- Section 80-IA, as applicable to the assessment years concerned, Income-tax Act, 1961A self-contained scheme for special profit-linked deductions requiring eligible profits to be computed after allowable deductions, including depreciation. (¶¶ 5, 12–18)
Held
- Section 80-IA provides a special profit-linked deduction under Chapter VI-A. Its quantum must be calculated after the deductions allowable under Sections 30 to 43D, including Section 32 depreciation, irrespective of whether the assessee claims them. Devices inflating eligible business profits must be rejected. (¶ 12–18)
- Mahendra Mills concerned the option to claim depreciation in computation under Chapter IV as then framed. It did not establish a right to disclaim depreciation in order to enlarge a separate Chapter VI-A deduction and retain depreciation for subsequent years. (¶¶ 12–13, 17–18)
- The interpretation of Section 80-IA resolved the appeals. The Court expressly found it unnecessary to decide whether Explanation 5 to Section 32 was declaratory or prospective. (¶ 19)
Result
All assessees’ appeals dismissed; depreciation remained deductible in computing the eligible profits for Section 80-IA relief.