In Brief
In these consolidated civil appeals concerning Assessment Years 1979-80 and 1980-81, the Supreme Court resolved a longstanding tax dispute regarding Section 80HH of the Income Tax Act, 1961. The issue was whether a 20% deduction for industrial undertakings in backward areas should be calculated on gross profits and gains or on net income after deducting depreciation and investment allowance. The Court held that the deduction applies to gross profits and gains, as 'profits and gains' and 'income' are conceptually distinct under the Act. Section 80HH deductions fall under Chapter VI-A (incentive provisions) and operate independently of Chapter IV (income computation rules). The Court overruled its earlier decision in Motilal Pesticides, finding it erroneous for equating materially different statutory language. The Court also clarified that Section 80AB, enacted in 1980 with prospective effect from 1981-82, cannot apply to earlier assessment years.
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