Recently, the Mumbai Tribunal, relying on a decision of Supreme Court, issued a landmark decision in the case of Reliance Industries Ltd, holding that the taxpayer is eligible to claim deduction under section 10AA with reference to its commercial profits, without deducting tax depreciation and investment allowance under the Income-tax Act (“the Act”). This decision has far reaching implications for taxpayers entitled to claim tax deduction under section 10AA of the Act. It gives rise to several interesting issues, some of which are as under:
Whether it is possible to claim deduction under section 10AA on profits and gains computed before claiming any deduction under section 29 to 43D (and not just depreciation and investment allowance)?
What is meant by the term ‘commercial profits’?
The decision alludes to ‘gross profits and gains’ for arriving at deduction under section 10AA. How exactly should this be computed – should it be computed after taking into account only the direct expenses of the undertaking or should it be computed after taking into account the book depreciation or should it be computed without allocation of common expenses or in some other manner?
Would the manner of computing the deduction under section 10AA w.e.f. AY 18-19 change having regard to Explanation to section 10AA(1)?
Should one revise tax returns for the past years and / or make the revised claim for deduction before the appellate authorities basis the above decision?
How should the deduction be computed in the tax return for AY 2020-21?
Partner and Head International and corporate Tax