REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 1581-1582 OF 2005 M/S. VIJAY INDUSTRIES .....APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX .....RESPONDENT(S) WITH CIVIL APPEAL NO. 2878 OF 2015 CIVIL APPEAL NO. 2877 OF 2015 CIVIL APPEAL No. 2416-2417 OF 2019 (ARISING OUT OF SLP (CIVIL) NO. 6326-6327 OF 2019) ARISING OUT OF DIARY NO. 39430 OF 2017 CIVIL APPEAL NO. 2420-2421 OF 2019 (ARISING OUT OF SLP (CIVIL) NO. 6328-6329 OF 2019) ARISING OUT OF DIARY NO. 39436 OF 2017 CIVIL APPEAL NO. 2414-2415 OF 2019 (ARISING OUT OF SLP (CIVIL) NO. 6335-6336 OF 2019) ARISING OUT OF DIARY NO. 39424 OF 2017 CIVIL APPEAL NO. 2418-2419 OF 2019 (ARISING OUT OF SLP (CIVIL) NO. 6330-6331 OF 2019) ARISING OUT OF DIARY NO. 39433 OF 2017 Signature Not Verified Digitally signed by AND MANISH SETHI Date: 2019.03.01 18:43:59 IST Reason: CIVIL APPEAL NO. 2422-2423 OF 2019 (ARISING OUT OF SLP (CIVIL) NO. 6333-6334 OF 2019) ARISING OUT OF DIARY NO. 39440 OF 2017 Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 1 of 22 JUDGMENT A.K. SIKRI, J. Leave granted. Delay condoned. 2) In all these appeals issue relates to interpretation that is to be accorded to provisions of Section 80HH of Income Tax Act, 1961 (hereinafter referred to as Act ). Section 80HH and other related provisions, as it existed at relevant time, are to be taken note of. since we are concerned with Assessment Years 1979-80 and 1980-81. Section 80HH provides deduction from income at specified rates in respect of certain industrial undertakings which are covered by said provision. Issue is limited, namely, while computing deduction whether it is to be available out of income as computed under Act or out of profits and gains , without deducting therefrom depreciation and investment allowance . Language of sub-section (1) of Section 80HH will have to be seen, in order to comprehend aforesaid issue. It reads: 80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas. (1) Where gross total income of assessee includes any profits and gains derived from industrial undertaking, or business of hotel, to which this Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 2 of 22 section applies, there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, deduction from such profits and gains of amount equal to twenty per cent thereof. 3) As can be seen from above, this Section grants deduction from profits and gains to undertaking engaged in manufacturing or in business of hotel. deduction is admissible at rate of 20% of profits and gains of undertaking for 10 assessment years. Certain conditions are to be fulfilled in order to be eligible for such deduction, about which there is no dispute insofar as these appeals are concerned. Conflict is confined to one aspect viz. 20% deduction of gross profits and gains or net income. Whereas assessees want deduction at rate of 20% of profits and gains, i.e., gross profits, stand of Income Tax Department is that deduction at rate of 20% is to be computed after taking into account depreciation, unabsorbed depreciation and investment allowance. To put it otherwise, as per Department, income of assessee is to computed in accordance with provisions contained in Sections 28 to 44DB which are provisions for computation of income under head profits and gains of business or profession . Once income is arrived at after application of aforesaid provisions, 20% thereof is allowable Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 3 of 22 as deduction under Section 80HH. assessees, on other hand, submit that Section 80HH uses expression profits and gains which is different from income . Therefore, whatever profit and gains are earned by undertaking covered by Section 80HH of Act, 20% thereof is admissible as deduction. As corollary, from such profits and gains of industrial undertaking, depreciation or unabsorbed investment allowances which are deductions admissible under Sections 32 and 32AB of Act, cannot be taken into consideration. 4) We may mention, at this stage, that this Court in the case of Motilal Pesticides (I) Pvt. Ltd. vs. Commissioner of Income Tax, Delhi-II1 has taken view which is favourable to Department. This view is followed by High Court in impugned judgment thereby dismissing appeals of appellants/assessees herein. assessees in these appeals submit that aforesaid view taken in Motilal Pesticides case is not correct view as it ignores certain earlier judgments on this very issue. Therefore, according to them, Motilal Pesticides case needs re-look. 5) These appeals had come up for hearing before Devision Bench of this Court. After hearing arguments advanced by 1 (2000) 9 SCC 63 Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 4 of 22 counsel for parties on aforesaid lines, Division Bench noted conflict and passed orders dated 5 th November, 2014, thereby referring matter to larger Bench. That is how matters have come up before this Bench. 6) In order to appreciate controversy, we would have to go through certain provisions of Act in order to understand broadly scheme of taxation on income of assessees. 7) Section 4 of Act is charging Section which makes total income of previous year of every person chargeable to tax at rates which may be specified from time to time. said Section, thus, imposes income tax upon person in respect of his income. Of course, income is to be charged at rate or rates fixed for year by Annual Finance Act. Also levy is to be on total income of assessable entity, computed in accordance with provisions of Act. Section 5 lays down scope of total income. While computing total income, certain incomes are exempted which are not to be included and these are mentioned in Section 10 of Act. 8) Section 14 of Act is next provision which is relevant for these appeals. It is first provision in Chapter IV which is titled computation of total income and, obviously, contains provision for computation of total income. Section 14 enumerates Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 5 of 22 different heads of income, namely, salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. Insofar as income under head profits and gains of business or professions is concerned, provisions thereto are contained in Sections 28 to 44DB of Act. Section 28 specifies various incomes which shall be chargeable to income tax under this head. Thereafter, Section 29 provides that income referred to in Section 28 shall be computed in accordance with provisions contained in Sections 30 to 43D. These sections provide for deductions of various kinds. Among them, Section 32 relates to depreciation, Section 32AB gives deductions in respect of certain investment allowance. After providing for admissible deductions to assessee, income under this head is ascertained. In similar way, as noted above, income under other heads is worked out. If particular assessee has income under more than one heads, in income tax returns, said assessee would show respective incomes under aforesaid heads thereby arriving at total income on which tax would become payable. 9) Chapter VIA also contains provisions in respect of certain deductions which are to be made in computing total income. Section 80A of this Chapter stipulates that in computing total Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 6 of 22 income of assessee, there shall be allowed from gross total income deductions specified in Section 80C to 80U. It is relevant to point out that though Chapter VIA also allows certain deductions in computing total income, these provisions are not clubbed with provisions of part of Chapter IV of Act. There is reason for doing so. provisions made in Chapter IV are for purposes of computing total income qua income under head profits and gains from business or profession. Various deductions which are specified to be given from gross total income are in nature of expenses incurred or to be treated as expenses. It may be rents paid, insurance premium paid for building, expenditure incurred on scientific research, various other kinds of expenditures etc. purpose is to arrive at true income after making such expenditure admissible for deduction. Deductions provided under Chapter VIA, on other hand, are largely in nature of incentives. For example, under Section 80CCA deductions provided is in respect of deposits under National Savings Scheme or payment to deferred annuity plan purpose is to encourage assessees to make deposits under these Schemes. Likewise, under Section 80CCC, deduction is given in respect of contribution to certain Pension funds. deductions are also given, inter alia, for donations for scientific Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 7 of 22 research or rural development, to newly established industrial undertakings or hotel business in backward areas, small scale industrial undertakings, housing projects, export business, businesses earning convertible foreign exchange etc. 10) It is in aforesaid scheme, one has to consider whether deductions under Section 80HH, which falls under Chapter VIA, is to be given after applying provisions for computation of income as mentioned in Chapter IV of Act. Once, we examine matter keeping in view aforesaid nature of scheme, answer becomes obvious. Chapter VIA, is stand alone chapter dehors Chapter IV. Therefore, provisions relating to various kinds of deductions mentioned therein have to be construed independent of Chapter IV of Act. Another pertinent aspect which is to be borne in mind is that conceptually income or total income is different from profits and gains . There are various heads of income and if assessee is earning income under more than one heads, all these are to be clubbed together to arrive at total income. Profits and gains from business or profession is only one of heads of income. 11) We are to examine and interpret provisions of Section 80HH of Act keeping in view aforesaid parameters. As noted above, it mentions that in computing total income of Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 8 of 22 assessee, deduction from profits and gains of amount equals to 20% thereof shall be provided. 12) Argument of Mr. Bagaria, learned senior counsel appearing for appellant, is that in Motilal Pesticides case, this Court missed marked difference in terms Income and Gross Total Income as referred to in Section 80AB as against Profits and Gains of Business as appearing in Section 80HH and 80I. It is argued that restrictive clause in Section 80AB is applicable only to provisions based on Income/Gross Total Income/Net Taxable Income and is wholly inapplicable to provisions like 80HH/80I/80IA/80J under which deduction has been provided for promoting particular kind of activity and is accordingly calculatable on Profit and Gains of Business, i.e. such activity. It is argued that Sections 80HH and 80I very categorically refer to and use terminology profits and gains of Industrial Undertakings . terms profits and gains and income are not same but are different. term profits and gains has not been defined under provisions of Act whereas term income has been defined. It is further submitted that there are number of provisions under Chapter VIA, some of which refer to term profits and gains . Whereas some other refer to term income . Thus, in some of provisions of Chapter VIA, Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 9 of 22 deduction is intended to be given out of profits and gains , whereas in some other sections, deduction has been provided to be given out of income . When term profits and gains has not been defined under Act, in that case, its meaning has to be understood as is being understood in commercial world. 13) aforesaid arguments is countered by Ms. Vibha Datta Makhija, learned senior counsel who appeared for Revenue. She argues that judgment in Cambay Electric Supply Industrial Co. Ltd. vs. CIT2, noted in Reference Order, is on Section 80E of Act which has no bearing in instant case that pertains to Section 80HH. She also submits that legislative intent would be clear from fact that decision in M/s. Cloth Traders (P) Ltd. v. Additional C.I.T., Gujarat-I3 led to insertion of Section 80AB in Act. purpose, therefore, was to take away effect of judgment in M/s. Cloth Traders (P) Ltd. According to her, Section 80AB makes it clear that deductions to be made is with reference to Income included in Gross Total Income under heading C Deduction in respect of certain incomes . It also makes it clear that amount of income of that nature is to be computed in accordance with 2 (1978) 2 SCC 644 3 (1979) 3 SCC 538 Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 10 of 22 provisions of Act (before making any deduction under this Chapter). That alone shall be deemed to be amount of income of that nature which is derived or received by assessee and which is included in his Gross Total Income. 14) Her submission is that though Section 80AB came to be inserted by Finance (No.2) Act, 1980 with effect from 01.04.1981, it is clarificatory in nature. To read provision in this manner, she has relied upon judgment in H.H. Sir Rama Varma (Dead) By LRs. v. Commissioner of Income Tax, Kerala4. She has also referred to Constitution Bench judgment in Distributors (Baroda) Pvt. Ltd. v. Union of India & Ors.5, which has over- ruled M/s. Cloth Traders (P) Ltd., and in particular paragraph 12 thereof which reads as under: "12. Soon after enactment of Section 80-M question arose before Gujarat High Court in Addl. CIT v. Cloth Traders Pvt. Ltd. whether on true construction of that section, permissible deduction is to be calculated with reference to full amount of dividends received by assessee from domestic company or with reference to dividend income computed in accordance with provisions of Act, that is, after deducting interest paid on monies borrowed from earning such income. Gujarat High Court in judgment delivered on November 28, 1973, held that deduction permissible under Section 80-M is liable to be calculated with reference to dividend income computed in accordance with provisions of Act and not with reference to full amount of dividends received by assessee. assessee being aggrieved by this judgment preferred appeal to this Court and this appeal was allowed by 4 1994 Supp (1) SCC 473 5 (1986) 1 SCC 43 Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 11 of 22 judgment delivered in Cloth Traders case. This Court overruled view taken by Gujarat High Court and held that deduction required to be allowed under Section 80-M must be calculated with reference to full amount of dividends received from domestic company and not with reference to dividend income as computed in accordance with provisions of Act, that is, after making deductions provided under Act . This decision was given by Court on May 4, 1979. 13. Now, according to Parliament, this interpretation placed on Section 80-M by summit court was not in conformity with legislative intent and it resulted in considerable unjustified loss of revenue. Parliament therefore immediately proceeded to set right what according to it was interpretation contrary to legislative intent and with view to setting at naught such interpretation. Parliament, by Section 12 of Finance (No.2) Act, 1980, introduced in Income Tax Act, 1961, Section 80-AA with retrospective effect from April 1, 1968, that is, date when Section 80-M was originally enacted, providing that deduction required to be allowed under Section 80-M in respect of inter-corporate dividends shall be computed with reference to income by way of such dividends as computed in accordance with provisions of this Act (before making any deduction under this Chapter) and not with reference to gross amount of such dividends . It is validity of this new Section 80-AA which is challenged in present writ petition. But we may make it clear that what is challenged is not prospective operation of Section 80-AA. That would clearly be unexceptionable because Legislature can always impose new tax burden or enhance existing tax liability with prospective effect. But complaint of assessee was against retrospective effect being given to Section 80-AA, because that would have effect of enhancing tax burden on assessee by setting at naught interpretation placed on Section 80-M by decision in Clothe Traders case and reducing amount of deduction required to be allowed under Section 80-M. However, as pointed out at commencement of this judgment, it would become necessary to examine this complaint against constitutional validity of retrospective operation of Section 80-AA only if we affirm interpretation placed on Section 80-M by decision of this Court in Cloth Traders case. If we do not agree with decision of this Court in Cloth Traders case and take Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 12 of 22 view that Gujarat High Court was right in interpretation placed by it on Section 80-M in Addl. CIT v. Cloth Traders Pvt. Ltd., no question of constitutional validity of retrospective operation of Section 80-AA would remain to be considered, because in that event Section 80-AA in its retrospective operation would be merely clarificatory in nature and would not involve imposition of any new tax burden. 15) Ms. Makhija also relied upon judgment of this Court in Commissioner of Income Tax, T.N.-V, Madras v. Kotagiri Industrial Cooperative Tea Factory Ltd., Kotagiri 6 wherein provisions of Section 80P of Act are interpreted in following manner: "1. Tribunal referred following question for opinion of High Court: Whether, on facts and in circumstances of case, Appellate Tribunal was right in law in holding that deduction under Section 80-P of Income Tax Act should be allowed before set-off of unabsorbed losses of earlier year? xx xx xx 5. Reference may be made at this stage to provisions of Section 80-P which falls in Chapter VI-A of Act. Sub- section (1) of Section 80-P, which is relevant for purpose of case, provides as follows: 80-P. (1) Where in case of assessee being cooperative society, gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to provisions of this section, sums specified in sub- section (2), in computing total income of assessee. 6 (1997) 9 SCC 537 Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 13 of 22 6. For purpose of Chapter VI-A expression gross total income is defined in clause (5) of Section 80-B in following terms: gross total income means total income computed in accordance with provisions of this Act, before making any deduction under this Chapter. 7. If Section 80-P(1) is read with definition of expression gross total income contained in Section 80- B(5), it has to be held that for purpose of making deduction under Section 80-P it is necessary to first determine gross total income in accordance with other provisions of Act. This means that for purposes of present case gross total income must be determined by setting off against income business losses of earlier years as required under Section 72 of Act. xx xx xx 12. Having regard to law as laid down by this Court in Distributors (Baroda) (P) Ltd. [(1986) 1 SCC 43 : 1986 SCC (Tax) 159 : (1985) 155 ITR 120] and H.H. Sir Rama Varma [1994 Supp (1) SCC 473 : (1994) 205 ITR 433] , it must be held that before considering matter of deduction under Section 80-P(2) Income Tax Officer had rightly set off carried-forward losses of earlier years in accordance with Section 72 of Act and on finding that said losses exceeded income, he rightly did not allow any deduction under Section 80-P(2) and Appellate Assistant Commissioner as well as Tribunal and High Court were in error in taking contrary view. 13. principle of statutory construction invoked by Ms Ramachandran has no application in construing expression gross total income in sub-section (1) of Section 80-P. In view of express provision defining said expression in Section 80-B(5) for purpose of Chapter VI-A, there is no scope for construing said expression differently in Section 80-P. 16) We have considered aforesaid submissions. Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 14 of 22 17) At outset, it needs to be pointed out that in these cases, Court is concerned with provisions of Section 80HH of Act and, therefore, language used in that particular provision is to be kept in mind. As noted above, sub-section (1) of Section 80HH allows deduction from such profits and gains of amount equal to 20 per cent thereof , in computing total income of assessee. Thus, so far as deduction admissible under this provision is concerned it is from profits and gains . In this context first question would be: what meaning is to be assigned to expression profits and gains ? Here we find that reference order dated 5th November, 2014 rightly draws distinction between profits and gains and income . We would like to reproduce said reference order in its entirety as we find that it captures legal position lucidly and succinctly: "1. We are concerned in these cases with Assessment Year 1979-1980 and Assessment Year 1980-1981. High Court of Rajasthan by impugned judgment dated 17th May, 2004 construed Section 80-HH of Income Tax Act, 1961 following judgment of this Court in Motilal Pesticides(I) Pvt. Ltd. Vs. Commissioner of Income Tax, Delhi-II (2000) 9 SCC 63. High Court noticed argument made before it to following effect: It is most humbly submitted that concept 'profits and gains' is wider concept than concept of 'income'. profits and gains/loss are arrived at after making actual expenses incurred 2 from figure of sales by assessee. It does not include any depreciation and investment allowance, as admittedly these are not expenses actually incurred by assessee. However, term 'income' Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 15 of 22 does take into consideration deductions on account of depreciation and investment allowance. Therefore, term profits and gains are not synonymous with term 'income'. However, High Court correctly felt that it was bound by judgment of this Court. 2. Motilal Pesticides(I) Pvt. Limited (Supra) is Judgment of this Court which affirmed Judgment of Delhi High Court concerning interpretation of very same Section 80-HH of Income Tax Act. assessment years also happened to be same assessment years as involved in these appeals. 3. question of law set out by this Court is, whether, on facts and circumstances of case, Tribunal was right in holding that assessee was not entitled to deduction under Section 80-HH of Income Tax Act, 1961 on gross profit of Rs.34,30,035 (Liquid Section) but on net income 3 therefrom for Assessment Year 1979-80? 4. Thereafter, this Court set out Section 80-HH in para 2 and Section 80-M in para 3 of Judgment. It will be noticed that whereas Section 80-HH uses expression any profits and gains derived from , Section 80-M uses expression any income . Section 80-M was held, in Cloth Traders (P) Ltd. Vs. CIT (1979) 3 SCC 538, to mean that for purpose of that Section, deduction is to be allowed on gross total income and not on net income. This was over-ruled in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (1986) 1 SCC 43. 5. Bhagwati,J. who was party to earlier decision in Cloth Traders' case delivered judgment in Distributors( Baroda) case holding that Cloth traders' case was obviously incorrectly decided because words any income cannot possibly refer to gross total income but referred only to net income . Further, Distributors (Baroda) case followed judgment of this Court in Cambay Electric Supply Industrial Co. Ltd. Vs. Commissioner of Income Tax, Gujarat-II, Ahmedabad (1978) 2 SCC 644 which decision concerned itself with Section 80-E of Income Tax Act. Section 80 E reads as follows:- Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 16 of 22 80E Deduction in respect of profits and gains from specified industries in case of certain companies- (1) In case of company to which this section applies, where total income (as computed in accordance with other provisions of this Act) includes any profits and gains attributable to business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of articles or things specified in list in Fifth Schedule, there shall be allowed deduction from such profits and gains of amount equal to eight per cent, thereof, in computing total income of company. (2) This section applies to (a) Indian Company; or (b) any other company which has made prescribed arrangements for declaration and payment of dividends (including dividends on preference shares) within India. But does not apply to any Indian Company referred to in Clause (1), or to any other company referred to in clause (b), if such Indian or other company is company referred to in Section 108 of its total income as computed before applying provisions of sub- section (1) does not exceed twenty-five thousand rupees . 6. It will be noticed that in marked contrast to Section under consideration in this appeal i.e. 80-HH, Section 80-E uses expression total income [as 5 computed in accordance with provisions of this Act] and goes on to speak of any profits and gains, so computed, for purpose of deduction under Section 80-E. It will be seen in present case said words are conspicuous by their absence in Section 80-HH even though expression profits and gains is same expression used in section 80-E. 7. finding in paragraph 4 in Motilal Pesticides (supra) that language of Section 80-HH and Section 80-M is same is, with respect, prima facie, incorrect. Conceptually, any income and profits and gains are different under Income Tax Act. Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 17 of 22 (See Section 80-M read with Sections 80-AA & AB, Section 80-T which speak of any income and Section 28 which speaks of income from profits and gains showing thereby that conceptually two expressions are understood as distinct in law). 8. In paragraph 5 of judgment in Motilal Pesticides(Supra), Shri Ramamurthi, learned senior counsel appearing for appellant submitted that both Cloth Traders and Distributors (Baroda) were cases which pertained to Section 80-M only and this Court had no occasion to consider application of Section 80-AB with 6 reference to Section 80-HH of Act. Court in repelling this contention referred to another decision in H.H. Sir Rama Varma V.CIT (1994) Supp(1) SCC 473, which judgment dealt with then newly enacted Section 80-AA and 80-AB. Both these sections again are relatable to deductions made under Section 80-M; and Section 80-T with which that judgment was concerned also uses expression any income as opposed to profits and gains . It will be clear, therefore, that prima facie Varma's case again has very little to do with concept of profits and gains with which we are concerned here. For these reasons, matters be placed before Hon'ble Chief Justice of India to constitute appropriate Bench to consider correctness of judgment in Motilal Pesticides (supra). 18) We have already stated, in brief and broadly, scheme of Act insofar as assessment of income is concerned, particularly, with reference to computing income as provided in Chapter IV of Act and contrasted it with deductions that are allowable under Chapter VI-A of Act while computing total income. That scheme itself draws distinction between the concept income on one hand and profits and gains on other hand. Insofar as computation of income under head profits and gains from Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 18 of 22 business or profession is concerned, Section 28 of Act mentions various kinds of incomes which are chargeable under this head. Therefore, all those incomes specifically mentioned in that provision when earned by particular assessee, are to be aggregated to arrive at profits and gains of assessee. Section 29 thereof mentions method of arriving at income which is to be computed in accordance with provisions contained in Sections 30-43D of Act. Sections 30-43D contain deductions of various kinds which are in nature of expenditure or like nature. After providing deductions admissible in these provisions, one arrives at figure of net profits which would become net income under head profits and gains of business or profession . In contrast, as mentioned above, under Chapter VI-A of Act certain deductions are given by way of incentives. Assessees may earn these deductions on fulfilling eligibility conditions contained therein, even when they are not in nature of any expenditure incurred by assessee. Here, Section 80A of Act provides that in computing total income of assessee, there shall be allowed from his gross total income, in accordance with subject of provisions of this Chapter, deductions specified in Sections 80C to 80U. As mentioned above, Sections 80C to 80U contain different subject matters and Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 19 of 22 also specify particular percentage of deductions for particular period. Significantly, Section 80A itself uses expression from his gross total income as it states that deduction is to be allowed to assessee from his gross total income . Moreover, different provisions from Sections 80C to 80U, while mentioning percentage at which and for which period particular deduction is allowable, also specifies as to how such deduction is to be worked out, namely, specific percentage of deduction of which component. These sections provide different parameters. Insofar as Section 80HH is concerned, it specifically mentions that deduction @ 20% of profits and gains . 19) Reading of Section 80HH along with Section 80A would clearly signify that such deduction has to be of gross profits and gains, i.e., before computing income as specified in Sections 30 to 43D of Act. It is correctly pointed out by Division Bench in reference order that in Motilal Pesticides case, Court followed judgment rendered in M/s. Cloth Traders (P) Ltd. which was case under Section 80M of Act, on premise that language of Section 80HH and Section 80M is same. This basis is clearly incorrect as language of two provisions is materially different. We are, therefore, of Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 20 of 22 considered opinion that judgment of Motilal Pesticides is erroneous. We, therefore, overrule this judgment. 20) We are unable to subscribe to contention of learned senior counsel for Revenue that Section 80AB, which was inserted by Finance (No. 2) Act, 1980 with effect from 1 st April, 1981 is clarificatory in nature. It is provision made with prospective effect as very Amendment Act says so. Therefore, it cannot apply to Assessment Years 1979-80 and 1980-81, when Section 80AB was brought on statute book after these assessment years. This position becomes clear from reading of Circular No. 281 dated September 22, 1980 issued by Central Board of Direct Taxes itself. This circular inter alia describes reasons for adding new Sections 80AA and 80AB. It refers to judgment in M/s. Cloth Traders case and mentions that directions specified in aforesaid sections will be calculated with reference to net income as computed in accordance with provisions of Act (before making any deduction under Chapter VIA) and not with reference to gross amount of such income, subject, however, to other requirements of respective sections. Notwithstanding same, this circular also categorically mentions that it will take Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 21 of 22 effect from April 01, 1981. Following portion of this circular is relevant: "The new section 80AB will take effect from 1 st April, 1981, and will accordingly apply in relation to assessment year 1981-82, and subsequent years. It should be carefuly noted that new section 80AB, unlike section 80AA, will not have any retrospective operation. 21) It is, thus, clear that change in legal position is brought about only, with insertion of Section 80AB and made applicable from Assessment Year 1981-82. In view thereof, judgments in case of M/s. Cloth Traders relied by Revenue will be of no relevance. Likewise, judgment in Kotagiri Industrial Cooperative Tea Factory Ltd. decided altogether different question, which can be discerned from passages extracted therefrom and will have no application to instant case. 22) As result, all these appeals are allowed. .............................................J. (A.K. SIKRI) .............................................J. (S. ABDUL NAZEER) .............................................J. (M. R. SHAH) NEW DELHI; MARCH 01, 2019. Civil Appeal Nos. 1581-1582 of 2005 a/w. Connected matters Page 22 of 22 Vijay Industries v. Commissioner of Income-tax