M/S ACG ASSOCIATED CAPSULES PVT. LTD. versus THE COMMISSIONER OF INCOME TAX, CENTRAL-IV, MUMBAI

Citation: [2012] 2 S.C.R. 401 · Decided: 08-02-2012 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Disposed off

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Judgment (excerpt)

[2012] 2 S.C.R. 401 
M/S ACG ASSOCIATED CAPSULES PVT. LTD. 
A 
(FORMERLY M/S ASSOCIATED CAPSULES PVT. LTD.) 
v. 
THE COMMISSIONER OF INCOME TAX, CENTRAL-IV, 
MUMBAI 
(Civil Appeal No. 1914 of 2012) 
B 
FEBRUARY 08, 2012 . 
[S.H. KAPADIA, CJI, A.K. PATNAIK AND 
SWATANTER KUMAR, JJ.] 
c 
Income Tax Act, 1961: s.BOHHC, Explanation (baa) -
Deduction under - Held: Ninety per cent of the net interest, 
which has been included in the profits of the business of the 
assessee as computed under the head 'Profits and Gains of 
Business or Profession' is to be deducted under clause (1) 
D 
of Explanation (baa) to s. BOHHC for determining the profits 
of the business. 
! 
The question which arose for consideration in the 
instant appeals was whether while determining the 
profits of the business as defined in Explanation (baa) to 
E 
Section 80HHC of the Income Tax Act, 1961, ninety per 
cent of only the net interest which has been included in 
the profits of the business of the assessee as computed 
under the head 'Profits and Gains of Busniness and 
Profession' would be excluded for the purpose of F 
working out the deduction under Section 80HHC of the 
Act. 
Disposing of the appeals, the Court 
HELD: 1. Explanation (baa) to Section 80HHC of the 
Income Tax Act, 1961 states that "profits of the business" 
means the profits of the business as computed under the 
head "Profits and Gains of Business or Profession" as 
401 
G 
H 
402 
SUPREME COURT REPORTS 
[2012] 2 S.C.R. 
1 A reduced by the receipts of the nature mentioned in 
clauses (1) and (2) of the Explanation (baa). Thus, profits 
of the business of an assessee will have to be first 
computed under the head "Profits and Gains of Business 
or Profession" in accordance with provisions of Section 
B 28 to 440 of the Act. In the computation of such profits 
of business, all receipts of income which are chargeable 
as profits and gains of business under Section 28 of the 
Act will have to be included. Similarly, in computation of 
such profits ·of business, different expenses which are 
C allowable under Sections 30 to 440 have to be allowed 
as expenses. After including such receipts of income and 
after deducting such expenses, the total of the net 
receipts are profits of the business of the assessee 
computed under the head "Profits and Gains of Business 
0 or Profession" from which deductions are to made under 
clau~es (1) and (2) of Explanation (baa). [Para 9) [409-E-
H; 410-A] 
2. Under Clause (1) of Explanation (baa), ninety per 
cent of any receipts by way of brokerage, commission, 
E interest, rent, charges or any other receipt of a similar 
nature included in any such profits are to be deducted 
from the profits of the business as computed under the 
head "Profits and Gains of Business or Profession". The 
expression "included any such profits" in clause (1) of 
F the Explanation (baa) would mean only such receipts by 
way of brokerage, commission, interest, rent, charges or 
any other receipt which are included in the profits of the 
business as computed under the head "Profits and Gains 
of Business or Profession". Therefore, if any quantum of 
G the receipts by way of brokerage, commission, interest, 
rent, charges or any other receipt of a similar nature is 
allowed as expenses under Sections 30 to 440 of the Act 
and is not included in the profits of business as 
computed under the head "Profits and Gains of Business 
H or Profession", ninety per cent of such quantum of 
ACG ASSOCIATED CAPSULES PVT. LTD. v. COMMNR. OF 403 
INCOME TAX, CENTRAL-IV, MUMBAI 
receipts cannot be reduced under Clause (1) of A 
Explanation (baa) from the profits of the business. In 
other words, only ninety per cent of the net amount of any 
receipt of the nature mentioned in clause (1) which is 
actually included in the profits of the assessee is to be 
deducted from the profits of the assessee for determining 
B 
"profits of the business" of the assessee under 
Explanation (baa) to Section SOHHC. [Para 10] [410-B-F] 
3. In "Distributors (Baroda) P. Ltd. v. Union of India and 
Others the Constitution Bench of this Court held that 
Section SOM of the Act provided for deduction in respect c 
of certain intercorporate dividends and it provided in sub-
section (1) of Section SOM that "where the gross total 
income of an assessee being a company includes any 
income by way of dividends received by it from a 
domestic company, there shall, in accordance with and 
D 
subject to the provisions 

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