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

Citation: [2010] 11 S.C.R. 404 · Decided: 09-09-2010 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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 earned by the assessee 
as computed under Section 80HHC(3) was eligible for 
reduction under clause (iv) of Explanation to Section 
11 SJB. Aggrieved, respondent-Department filed an appeal 
G and the High Court allowed the same. Therefore, the 
appellant-assessee filed the instant appeal. 
Allowing the appeal, the Court 
HELD: 1.1 Section 115JB of the Income Tax Act, 1961 
H 
404 
AJANTA PHARMA LTD. v. COMMISSIONER OF 
405 
INCOME TAX-9, MUMBAI 
refers to levy of MAT on the deemed income. Sections A 
80HHC and 11 SJB operate in different spheres. The two 
essential conditions for invoking Section 80HHC(1) are 
that assessee must be in the business of export and 
secondly that sale proceeds of such exports should .be 
receivable in India in convertible foreign exchange. Hence, B 
Section 80HHC(1) refers to 'eligibility' whereas Section 
80HHC(3) refers to computation of ta>< incentive. Coming 
to Section 80HHC(1 B), it is clear that after Finance Act, 
2000 w.e.f. assessment year 2001~02 exporters would not 
get 100% deduction in respect of pn:>fits derived from c 
exports but they would get deduction of 80% in the 
assessment year 2001-02, 70% in the assessment year 
2002-03 and so on. Thus, Section 80HHC(1 B) deals not 
with 'eligibility' but with the 'extent of deduction'. [Para 9] 
[411-F-H; 412-A-B] 
D 
1.2 Section 11 SJB is a self-contained Code. It taxes 
deemed income. It begins with a non-obstante clause. 
Section 11 SJB refers to computation of 'book profits' 
which have to be computed by making Upward and 
Downward Adjustments. In the Downward Adjustment, E 
vide clause (iv) it seeks to exclude 'eligible' profits derived 
from exports. On the other hand, under Section 80HHC(1 B) 
it is the extent of deduction which matters. The word 
'thereof' in each of the items under Section 80HHC(1 B) is 
important. Thus, if an assessee· earns Rs. 100 crores then 
F 
for the assessment year 2001-2002, the extent of deduction 
is 80% thereof and so on, which means that the principle 
of proportionality is brought in to scale down the tax 
incentive in a phased manner. However, for the purposes 
of computation of book profits which is different from G 
normal computation under the 1961 Act/computation 
under Chapter VIA, the Upward and Downward 
Adjustments are to be kept in mind and, if so read, it 
becomes clear that clause (iv) covers full export profits of 
100% as 'eligible profits' and that the same cannot be H 
406 
SUPREME COURT REPORTS 
[2010) 11 S.C.R. 
A 
reduced to 80% by relying on Section 80HHC(18). Thus, 
for computing 'book profits' the Downward Adjustment 
would be Rs. 100 crores and not Rs. 90 crores. The idea 
being to exclude 'export profits' from computation of book 
profits under Section 11 SJB which imposes MAT on 
B 
deemed income. The Memorandum of Explanation to the 
Finance Bill, 2000 supports the said reasoning. [Para 9) 
[412-B-G] 
1.3 It cannot be said that the 'eligibility' as well as 
'deductibility' of the profit have got to be considered 
C together for working out the deduction as mentioned in 
clause (iv) of Explanation to Section 11 SJB. If the 
dichotomy between 'eligibility' of profit and 'deductibility' 
of profit is not kept in mind then Section 11 SJB will cease 
to be a self-contained code. In Section 11 SJ
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