CIT v. RELIANCE ENERGY LTD – [2021] 127 69 (SC)

In a recent decision, the Supreme Court allowed deduction under section 80IA from gross total income, which included other income and rejected the action of AO of restricting the deduction to ‘business income’ only.  The decision is analysed below.


The Assessee is engaged in the business of power generation and also deals with purchase and distribution of power.  The Assessee-Company generated power from its power unit located at Dahanu and claimed deduction u/s 80IA. 

The AO calculated the ‘business income’ of the Assessee at Rs. 355.74 crs.  The ‘gross total income’ (GTI) was computed at Rs. 397.37 crs which included ‘income from other sources’ of Rs.41.62.  The deduction as per the provisions of section 80IA was computed at Rs. 492.78 crs.  

The AO held that the actual deduction allowable under section 80IA shall be to the extent of ‘income from business’ as per provisions of Section 80AB of the Act.  The AO held that as the deduction under Section 80-IA of the Act pertains to profits and gains from a business undertaking, the deduction is allowable only against ‘income from business’.  The AO held that deduction computed under Section 80-IA of the Act could not be allowed against any source other than business.  

The CIT(A) directed the AO not to restrict the deduction admissible under Section 80-IA of the Act to income under the head ‘business’. The AO was further directed to aggregate the deduction under Section 80-IA of the Act with the other deductions available to the Assessee and then to allow deductions of such aggregate amount to the extent of ‘gross total income’.  The order of the CIT(A) was affirmed by the Tribunal and the High Court on this issue.  Therefore, the Revenue filed Appeal to SC.

SC Decision

Discussing the scope of section 80AB, the SC observed that Section 80AB was inserted in the year 1981 to get over a judgment of SC in Cloth Traders (P) Ltd. ((1979) 3 SCC 538).  The Circular dated 22.09.1980 issued by the CBDT makes it clear that the reason for introduction of Section 80AB of the Act was for the deductions under Part C of Chapter VI-A of the Act to be made on the net income of the eligible business and not on the total profits from the eligible business.  

The SC held that a plain reading of Section 80AB of the Act shows that the provision pertains to determination of the quantum of deductible income in the ‘gross total income’.  The SC held that section 80AB cannot be read to be curtailing the width of Section 80-IA.  

The SC accordingly observed “It is relevant to take note of Section 80A(1), which stipulates that in computation of the ‘total income’ of an assessee, deductions specified in Section 80C to Section 80U of the Act shall be allowed from his ‘gross total income’.  Section 80A(2) of the Act provides that the aggregate amount of the deductions under Chapter VI-A shall not exceed the ‘gross total income’ of the Assessee.  We are in agreement with the Appellate Authority that Section 80AB of the Act which deals with determination of deductions under Part C of Chapter VI-A is with respect only to computation of deduction on the basis of ‘net income’.”

With respect to Revenue’s reliance on section 80- IA(5) of the Act, the SC held that the scope of section is limited to determination of quantum of deduction under Section 80-IA(1) of the Act by treating ‘eligible business’ as the ‘only source of income’.  The SC held that Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to ‘business income’.  

The appeal of Revenue was dismissed.

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