2017 (11) TMI 2038 - HC - Income Tax

High Court aligns with Supreme Court on Section 10A deductions, clarifies 'total income of the undertaking.'

The High Court dismissed the appeal, aligning with the Supreme Court's interpretation that deductions under Section 10A of the Income Tax Act should be ... Deduction u/s 10A - whether required to be allowed before adjusting the brought forward losses and unabsorbed depreciation? - HELD THAT:- It is clear from the ratio laid down in CIT VS. YOKOGAWA INDIA LIMITED [2016 (12) TMI 881 - SUPREME COURT] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking (unit), that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently, that at that stage, the aggregate of the incomes under other heads and the provisions for set off and carry forward under Sections 70, 72 and 74 of the Act, would be premature for application of Section 10A. It can be further culled out from the said judgment that, deductions under Section 10A of the Act would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act, for arriving at the total income of the assessee from the gross total income. The Supreme Court also termed the use of words, “total income of the assessee” under Section 10A as somewhat discordant and held that the said expression has to be construed as a total income of the undertaking. Decided in favour of assessee. Income u/s 10A is an exemption or deduction - The Supreme Court in CIT VS. YOKOGAWA INDIA LIMITED [2016 (12) TMI 881 - SUPREME COURT] held that Section 10A as amended, is a provision for deduction. This question is answered accordingly. Issues:1. Whether deduction under Section 10A of the IT Act should be allowed before adjusting brought forward losses and unabsorbed depreciationRs.2. Whether income under Section 10A of the Act is an exemption or deductionRs.Analysis:Issue 1:The High Court addressed the first substantial question of law raised in the appeal, which questioned the justification of allowing deduction under Section 10A before adjusting brought forward losses and unabsorbed depreciation. The Court referred to a Supreme Court judgment in CIT VS. YOKOGAWA INDIA LIMITED [(2017) 2 SCC 1], which clarified that Section 10A of the Income Tax Act is a provision for deduction. The Court answered this question in accordance with the Supreme Court's interpretation.Issue 2:Regarding the second substantial question of law raised in the appeal, the Court delved into the revisional order passed by the Commissioner of Income Tax under Section 263 of the Act. The Commissioner had revised the assessment by considering brought forward losses while computing gains/profits under Section 10A. The Tribunal, following a judgment of the Karnataka High Court, set aside the Commissioner's order. However, the Supreme Court, in a subsequent judgment, emphasized that the deduction under Section 10A should be made independently while computing the gross total income of the eligible undertaking, not during the computation of the total income under Chapter VI of the Act. The Supreme Court clarified that the expression 'total income of the assessee' in Section 10A should be understood as 'total income of the undertaking.' Consequently, the Court answered the substantial question of law in favor of the Assessee based on the Supreme Court's interpretation.In conclusion, the High Court dismissed the appeal in light of the Supreme Court's judgment, which established the correct stage for allowing deductions under Section 10A of the Income Tax Act. The judgment provided clarity on the treatment of deductions and the computation of income for eligible undertakings, aligning with the legal provisions and interpretations set forth by the Supreme Court.