Section 80-IA(9) Caps Aggregate Deduction but Leaves Computation Intact – Supreme Court settles conflict in Shital Fibers Ltd. v. Commissioner of Income Tax (2025)

1. Introduction

The Supreme Court of India, in its three-Judge decision dated 20 May 2025, has conclusively resolved a decade-long conflict concerning the interplay between Section 80-IA(9) and other deduction provisions falling under Heading “C” of Chapter VI-A of the Income-tax Act, 1961 (“IT Act”). The litigation reached the apex court through a batch of civil appeals led by Shital Fibers Ltd., an export-oriented textile manufacturer, challenging reassessment orders that denied simultaneous deductions under Sections 80-IA and 80-HHC on the same profits.

Two earlier Supreme Court Judges (Anil R. Dave J. and Dipak Misra J.) had recorded diametrically opposite views in ACIT v. Micro Labs Ltd. (2015) 17 SCC 96, thereby necessitating the present reference to a larger Bench comprising Abhay S. Oka, Ahsanuddin Amanullah and Augustine George Masih JJ.

The core question: Does Section 80-IA(9) require the quantum of profits already deducted under Section 80-IA to be removed from the “gross total income” while computing deductions under other provisions such as Section 80-HHC, or does it merely impose a ceiling on aggregate deductions without disturbing the individual computational formulae?

2. Summary of the Judgment

Affirming the Bombay High Court’s reasoning in Associated Capsules (P) Ltd. v. DCIT (2011) 332 ITR 42 (Bom), the Supreme Court held:

Section 80-IA(9) does not alter the method of computing deductions under other sections listed in Heading “C”.
The provision merely forbids “double deduction” by stipulating that allowance of deductions under other sections shall be restricted to the extent the same profits have already enjoyed deduction under Section 80-IA.
The aggregate of deductions claimed under Section 80-IA and any other section(s) under Heading “C” cannot exceed 100 % of the eligible business profits.

Consequently, Shital Fibers’ claim for a full Section 80-HHC deduction (computed on its unadjusted gross total income) had to be allowed, subject only to reduction at the allowance stage to ensure that the sum of the two deductions did not breach the cap imposed by Section 80-IA(9). The impugned orders of the Punjab & Haryana High Court therefore stand set aside.

3. Analysis

3.1 Precedents Cited and Their Influence

ACIT v. Rogini Garments (ITAT Special Bench, 2007) – Introduced the “adjust-gross-total-income” theory later adopted by several High Courts, holding that deduction under other sections must be computed after reducing profits claimed under Section 80-IA. Became the Revenue’s primary authority.
SCM Creations v. ACIT (Madras HC, 2008) – Took a taxpayer-friendly view, stating that Section 80-IA(9) merely caps aggregate deductions.
Friends Casting (P) Ltd. v. CIT (P&H HC, 2011); Great Eastern Exports v. CIT (Delhi HC, 2011); Olam Exports (India) Ltd. v. CIT (Kerala HC, 2011) – Followed Rogini Garments and held that profits deducted under Section 80-IA must be excluded while computing Section 80-HHC deductions.
Associated Capsules (P) Ltd. v. DCIT (Bombay HC, 2011) – Rejected the above approach, distinguishing between “computation” and “allowance” of deduction. Became the fulcrum of the present Supreme Court decision.
Micro Labs Ltd. (SC, 2015) – Two-Judge Bench split: Anil R. Dave J. adopted the Rogini Garments view; Dipak Misra J. concurred with Associated Capsules. The resulting stalemate triggered the reference.

3.2 The Court’s Legal Reasoning

The Supreme Court undertook a structural reading of Chapter VI-A:

Distinction between “computation” and “allowance” – Section 80-IA(9) uses the words “shall not be allowed”, unlike Sections 80-HHB(5) & 80-HHD(7) which employ “shall not qualify”. Parliament’s deliberate lexical choice signals that Section 80-IA(9) operates at the allowance stage.
Integrity of Section-specific formulae – Sections such as 80-HHC employ self-contained mathematical formulae relying on “gross total income” as defined in Section 80-B(5). Modifying GTI by subtracting Section 80-IA profits would distort these formulae and lead to illogical results, noted in the Associated Capsules illustration adopted by Dipak Misra J.
Purpose of Section 80-IA(9) – CBDT Circular No. 772 (23-12-1998) confirms that the provision was enacted only to prevent repetitive deductions on the same profits, not to curtail genuine deductions on different profits.
Plain meaning rule – The Bench held that Section 80-IA(9) neither amends nor overrides the computation methodology in other sections; it simply bars an assessee from claiming again the very profits already deducted.

3.3 Impact of the Judgment

The ruling carries far-reaching consequences:

Uniformity nationwide – Conflicting High Court decisions are neutralised; the Supreme Court’s pronouncement is now binding under Article 141 of the Constitution.
Reduced litigation – Thousands of pending appeals on the Section 80-IA(9) versus Section 80-HHC/80-IB issue stand effectively resolved.
Tax planning clarity – Businesses can legitimately claim multiple deductions provided the aggregate does not exceed their eligible profits, fostering certainty in projected tax liabilities.
Guidance for future provisions – Legislators drafting anti-double-deduction clauses may now employ clearer language (e.g., “shall not qualify”) if the intent is to affect computation itself.

4. Complex Concepts Simplified

Gross Total Income (GTI): Under Section 80-B(5), GTI = total income prior to making any Chapter VI-A deductions.
Total Income: The figure on which tax is finally levied, arrived at after subtracting allowable deductions from GTI (Section 4).
Computation vs. Allowance: “Computation” is the arithmetic process of determining the eligible amount; “Allowance” is the final act of granting that amount as a deduction to arrive at taxable income.
Heading “C” of Chapter VI-A: Contains 33 provisions (80-HB to 80-RRB, historically) granting deductions for specified income sources (exports, infrastructure, power, etc.). Deductions here are profit-linked, unlike Heading “B” which is payment-linked.
Section 80-IA(9) Cap: A statutory ceiling ensuring that the combined deductions under Section 80-IA and any other Heading “C” deduction never exceed the profits of the eligible business – essentially avoiding “double dip” on the same rupee of profit.

5. Conclusion

The Supreme Court in Shital Fibers Ltd. v. CIT crystallises an important doctrinal distinction: while Parliament can validly prevent assessees from availing multiple deductions on the same quantum of profit, it has chosen in Section 80-IA(9) to do so only at the stage of allowing deductions, not at the computational stage. Entities deriving profits from infrastructure undertakings and simultaneously engaged in exports, manufacturing, or other qualifying activities may therefore compute each deduction independently; they must merely ensure the overall figure does not surpass total eligible profits.

This clarification not only harmonises divergent High Court jurisprudence but also restores coherence to the architecture of Chapter VI-A. With the litigation cloud lifted, taxpayers and the Revenue alike can proceed on the foundation of a single, authoritative rule: Compute each Heading “C” deduction as legislated; at the end, truncate the aggregate to 100 % of business profits.

Section 80-IA(9) Caps Aggregate Deduction but Leaves Computation Intact – A Commentary on Shital Fibers Ltd. v. Commissioner of Income Tax (2025)