By TIOL News Service

MUMBAI, JUNE 21, 2016: THE issue is - Whether the claim of deduction under Sec 80IB(10) is to be restricted to the amount of gross total income prescribed u/s 80B(5). YES is the answer.

Facts of the case

Assessee is engaged in the business of construction and property development. In assessment u/s 143(3) income was determined at Rs. 10.59 crores including relief claimed u/s 80IB(10) of Rs. 71.99 crores. AO issued notice u/s 148 and reassessed the income restricting the relief u/s 80IB(10) of Rs. 68.18 crores.

The stand of AO is that the claim of deduction u/s 80IB(10) is to be restricted to the extent of income under the head 'business or profession', whereas as per the assessee the claim of deduction u/s 80IB(10) is allowable to the extent of gross total income. CIT (A) allowed the appeal of assessee observing that the provisions of section 80IB(10) do not place any such restriction and the deduction allowable cannot be limited to the income assessable under the head 'business orprofession'.

Revenue contended that the deduction allowable under section 80IB(10) of the Act is with respect to the business income and not against the income assessable under the other heads. Profit from the housing project was to the extent of Rs.68.18 crores. Section 80IB(10) was relating to the business of development of the housing project and thus deduction was allowable to the extent of business income and not gross total income of an assessee, which may include incomes other than the business income also.

After hearing both the parties, the ITAT held that,

++ sec. 80IB of the Act prescribes for deduction in respect of profits and gains from certain industrial undertaking in order to compute the total income of an assessee. Sub-section (1) of Sec. 80IB prescribes that where the gross total income of an assessee includes any profits and gains derived from any business referred to in the sub-sections prescribed therein, the assessee shall be allowed in computing total income a deduction from such profits and gains in the manner as may be prescribed. The sub-section relevant for our purpose is sub-section (10) of Sec. 80IB which prescribes for deduction in case of an undertaking developing and building housing projects;

++ what is relevant to decide the controversy is the scheme in which the deductions prescribed in Chapter VI-A of the Act are allowable. For that matter, sub-section (1) of Sec. 80A prescribes that in computing the total income there shall be allowed from the gross total income, deductions specified in Sec. 80C to 80U of the Act subject to the conditions prescribed therein. The claim of the assessee is u/s 80IB(10) which is also liable to be governed by the prescription of Sec. 80A(1) of the Act. Sub-section (2) of Sec. 80A further prescribes that the aggregate amount of deductions under Chapter VI-A shall not, in any case, exceed the gross total income of the assessee. Furthermore, the 'gross total income' has also been defined in Chapter VI-A by way of Sec. 80B(5) to mean the total income computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A. The aforesaid clearly implies that in order to deduce the amount of deduction entitled to the assessee u/s 80IB(10) of the Act, the starting point is the determination of the gross total income. Along with it, the eligible amount of deductions under various sections of Chapter VI-A are to be individually computed and such aggregate of deductions is liable to be restricted to the amount of gross total income prescribed in Sec. 80B(5) of the Act;

++ no doubt, the profits derived from the eligible business, which in the present case is the development and building of a housing project, is relevant to compute the amount of deduction, so however, its allowability has to be reckoned in the context of the availability of gross total income of the assessee. Considered in this light, in our view, CIT(Appeals) has made no mistake in coming to conclude that the claim u/s 80IB(10) of the Act is to be allowed to the extent of gross total income as claimed by the assessee and not to be restricted to the extent of income from business orprofession.

(See 2016-TIOL-1105-ITAT-MUM)