SC: Deductions u/ Income Tax Act’s Ch. VIA are independent of Ch. IV

The Hon’ble Supreme Court, on 1st March 2019, in the matter of M/s Vijay Industries v. Commissioner of Income tax, pronounced that Income Tax Act’s Chapter VIA is a stand-alone chapter dehors Chapter IV. Therefore, provisions relating to various kinds of deductions mentioned therein have to be construed independent of Chapter IV of the Act.

The Hon’ble Supreme Court observed that: 

Though Chapter VIA of the Income Tax Act, 1961 also allows certain deductions in computing total income, these provisions are not clubbed with the provisions of part of Chapter IV of the Income Tax Act. There is a reason for doing so. The provisions made in Chapter IV are for the purposes of computing total income qua income under the head ‘profits and gains’ from business or profession. Various deductions which are specified to be given from the gross total income are in the nature of expenses incurred or to be treated as expenses. It may be rents paid, insurance premium paid for building, expenditure incurred on scientific research, various other kinds of expenditures etc. The purpose is to arrive at true income after making such expenditure admissible for deduction. Deductions provided under Chapter VIA, on the other hand, are largely in the nature of incentives.  (Para 9)

Income Tax Act’s Chapter VIA is a stand alone chapter dehors Chapter IV. Therefore, provisions relating to various kinds of deductions mentioned therein have to be construed independent of Chapter IV of the Act. (Para 10)

Conceptually ‘income or total income’ is different from ‘profits and gains’. (Para 10)

The scheme of the Act insofar as assessment of income is concerned particularly, with reference to computing the income as provided in Chapter IV of the Act and the deductions that are allowable under Chapter VI-A of the Act while computing total income, itself draws distinction between the the concept ‘income’ on the one hand and ‘profits and gains’ on the other hand. (Para 18)

Sections 80C to 80U contain different subject mattersand also specify particular percentage of deductions for a particular period. Significantly, Section 80A itself uses the expression ‘from his gross total income’ as it states that deduction is to be allowed to an assessee ‘from his gross total income’. Moreover, different provisions from Sections 80C to 80U, while mentioning the percentage at which and for which period a particular deduction is allowable, also specifies as to how such a deduction is to be worked out, namely, specific percentage of deduction of which component. These sections provide different parameters.Insofar as Section 80HH is concerned, it specifically mentions that deduction @ 20% of ‘profits and gains’. (Para 18)

Reading of Section 80HH of the Income Tax Act along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act. (Para 19)

Copy of judgement: Judgement_01-Mar-2019

-Manikya Malik & Tushar Kaushik

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