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S.80AB under Part C of Chapter VI-A of IT Act determines the Deductions on the basis of ‘Net Income'

The reason for introduction of Section 80AB of the Act was for the deductions under Part C of Chapter VI-A of the Act to be made on the net income of the eligible business and not on the total profits from the eligible business. A plain reading of Section 80AB of the Act shows that the provision pertains to determination of the quantum of deductible income in the ‘gross total income’. (Para 9)

COMMISSIONER OF INCOME TAX-I V. M/S. RELIANCE ENERGY LTD. (FORMERLY BSES LTD.) THROUGH ITS M.D.

Civil Appeal No. 1327 of 2021

28th April 2021


The Divisional Bench of the Hon’ble Supreme Court consisting of Justice L. Nageswara Rao and Justice Vineet Saran dismissed the appeal regarding the issue of the extent of deduction under Section 80-IA of the Income Tax Act, 1961.


This appeal is filled by the Revenue pertains to the assessment year 2002-03 for which the income-tax return was filed by the Assessee on 31.10.2002 declaring the total income as ‘NIL’. The return was subsequently revised on 06.12.2002 and thereafter, on 30.03.2004. At the time of the assessment proceedings, the Assessee submitted a revised computation of income by revising its claim of deduction under Section 80-IA of the Act.


By an order of assessment dated 31.01.2005, the Assessing Officer restricted the eligible deduction under Section 80-IA of the Income Tax Act, 1961 to the extent of ‘business income’ only. On 23.03.2006, the Commissioner of Income-Tax (Appeal)-I (hereinafter “the Appellate Authority”) partly allowed the Appeal filed by the Assessee and reversed the order of the Assessing Officer on the issue of the extent of deduction under Section 80-IA of the Act. The Income Tax Appellate Tribunal, upheld the decision of the Appellate Authority on the issue of deduction under Section 80-IA. The High Court refused to interfere with the Tribunal’s order as far as the issue on deduction under Section 80-IA is concerned.


Mr. Arijit Prasad, learned Senior Counsel appearing on behalf of the Revenue, submitted that (i) the Assessing Officer was right in holding the deduction under Section 80-IA of the Act should be restricted to ‘business income’ only. (ii) Section 80-IA(5) makes it clear that the determination of quantum of deduction under sub-section (1) of Section 80-IA should be on the basis that the source of income from the eligible business was the only source of income of an assessee and therefore, the deduction so determined should be allowed only against ‘business income’.


Mr. Ajay Vohra, learned Senior Counsel appearing on behalf of the Assessee, supported the order passed by the Appellate Authority that Section 80AB of the Act is with reference to computation of deduction on the basis of net income which was later upheld by the Tribunal and the High Court. And submitted that (i) there is no indication in sub-section (5) of Section 80-IA that the deduction under sub-section (1) is restricted to ‘business income only’. (ii) there is no dispute that the computation of deduction is only from the eligible business as the Appellate Authority has accepted that there is no restriction on taking into account income from any other source while allowing the deduction computed under Section 80-IA, subject to the aggregate of all deductions under Chapter VI-A not exceeding the ‘gross total income’.


After hearing contention of both the parties, referred necessary provisions and various case laws and concluded the following:

We are in agreement with the Appellate Authority that Section 80AB of the Act which deals with determination of deductions under Part C of Chapter VI-A is with respect only to computation of deduction on the basis of ‘net income’. (Para 9)


In the case before us, there is no discussion about Section 80-IA(5) by the Appellate Authority, nor the Tribunal and the High Court. However, we have considered the submissions on behalf of the Revenue as it has a bearing on the interpretation of sub-section (1) of Section 80-IA of the Act. We hold that the scope of sub-section (5) of Section 80- IA of the Act is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA of the Act by treating ‘eligible business’ as the ‘only source of income’. Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to ‘business income’. (Para 15)


Subsequently, the appeal is dismissed.



Swadheen Singh

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