In Brief
The Supreme Court clarified that under Section 80HH of the Income Tax Act, 1961, a 20% deduction for industrial undertakings in backward areas must be calculated on gross profits and gains before deducting depreciation and investment allowance, not on net income as the Income Tax Department argued. The Court overruled its earlier Motilal Pesticides decision, finding it incorrectly treated Section 80HH (using 'profits and gains') as synonymous with Section 80M (using 'income'). The Court held Chapter VIA deductions are independent incentives separate from Chapter IV income computation provisions. Section 80AB, inserted prospectively from 1981, could not apply to Assessment Years 1979-80 and 1980-81, so earlier law favoring assessees remained applicable."
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