2022 (7) TMI 560 - SC - Income Tax

Strict Compliance Required for Claiming Benefits under Income Tax Act: Supreme Court Decision

Principal Commissioner of Income Tax-III, Bangalore and another Versus M/s Wipro Limited

The Supreme Court held that the conditions under Section 10B(8) of the Income Tax Act are mandatory, requiring strict compliance for claiming benefits. ... Exemption u/s 10B - whether, for claiming exemption u/s 10B (8) assessee is required to fulfil the twin conditions, namely, (i) furnishing a declaration to the assessing officer in writing that the provisions of Section 10B (8) may not be made applicable to him; and (ii) the said declaration to be furnished before the due date of filing the return of income under sub-section (1) of Section 139? - Claim of withdrawal of exemption u/s 10B in the Revised Return and claim of carry forward of loss HELD THAT:- None of the decisions which are relied upon on behalf of the assessee on interpretation of Chapter VIA shall be applicable while considering the claim under Section 10B (8) of the IT Act. Even the submission on behalf of the assessee that the assessee had a substantive statutory right under Section 10B (8) to opt out of Section 10B which cannot be nullified by construing the purely procedural time requirement regarding the filing of the declaration under Section 10B (8) as being mandatory also has no substance. As observed hereinabove, the exemption provisions are to be strictly and literally complied with and the same cannot be construed as procedural requirement. We are of the opinion that the High Court has committed a grave error in observing and holding that the requirement of furnishing a declaration under Section 10B (8) is mandatory, but the time limit within which the declaration is to be filed is not mandatory but is directory. The same is erroneous and contrary to the unambiguous language contained in Section 10B (8) - We hold that for claiming the benefit u/s 10B (8) the twin conditions of furnishing a declaration before the assessing officer and that too before the due date of filing the original return of income under section 139(1) are to be satisfied and both are mandatorily to be complied with. Accordingly, the question of law is answered in favour of the Revenue and against the assessee. The orders passed by the High Court as well as ITAT taking a contrary view are hereby set aside and it is held that the assessee shall not be entitled to the benefit under Section 10B (8) on non-compliance of the twin conditions as provided u/s 10B (8) as observed hereinabove. The present Appeal is accordingly Allowed. Claim of withdrawal of exemption u/s 10B in the Revised Return and claim of carry forward of loss - HELD THAT:- filing a revised return under section 139(5) of the IT Act claiming carrying forward of losses subsequently would not help the assessee. In the present case, the assessee filed its original return under section 139(1) and not under section 139(3). Therefore, the Revenue is right in submitting that the revised return filed by the assessee under section 139(5) can only substitute its original return under Section 139(1) and cannot transform it into a return under Section 139(3), in order to avail the benefit of carrying forward or set-off of any loss under Section 80 of the IT Act. The assessee can file a revised return in a case where there is an omission or a wrong statement. But a revised return of income, under Section 139(5) cannot be filed, to withdraw the claim and subsequently claiming the carried forward or setoff of any loss. Filing a revised return under Section 139(5) of the IT Act and taking a contrary stand and/or claiming the exemption, which was specifically not claimed earlier while filing the original return of income is not permissible. - Decided against the assessee. Issues Involved:1. Interpretation of Section 10B(8) of the Income Tax Act, 1961 (IT Act) regarding the mandatory nature of filing a declaration before the due date for furnishing the return of income.2. Validity of the revised return of income filed by the assessee.3. Compliance with Section 80 of the IT Act for carrying forward losses.4. Applicability of precedents and legal principles to the case.Detailed Analysis:1. Interpretation of Section 10B(8) of the IT Act:The primary issue was whether the twin conditions under Section 10B(8) of the IT Act, namely, furnishing a declaration to the assessing officer in writing and doing so before the due date for filing the return of income under Section 139(1), are mandatory or directory. The Supreme Court held that both conditions are mandatory. The Court emphasized that the wording of Section 10B(8) is clear and unambiguous, requiring strict compliance with both conditions for claiming the benefit. The Court rejected the High Court's interpretation that the time limit for filing the declaration is directory, underscoring that in a taxing statute, provisions must be read as they are and literally construed, especially in cases of exemption.2. Validity of the Revised Return of Income:The Court examined the validity of the revised return filed by the assessee under Section 139(5) of the IT Act. The revised return was filed after the due date for the original return, with a declaration under Section 10B(8). The Court held that filing a revised return under Section 139(5) to withdraw an earlier claim and subsequently claim the carry forward of losses is not permissible. The revised return can only correct omissions or wrong statements in the original return, not introduce new claims. Thus, the assessee's revised return did not comply with the mandatory conditions of Section 10B(8).3. Compliance with Section 80 of the IT Act:The Court addressed the argument that the assessee had complied with Section 80 by filing the original return in time, declaring the loss. However, the Court noted that the original return was filed under Section 139(1) and not under Section 139(3), which is required for claiming the carry forward of losses. The revised return cannot transform an original return into one under Section 139(3). Therefore, the assessee did not meet the conditions for carrying forward losses under Section 80.4. Applicability of Precedents and Legal Principles:The Court considered various precedents cited by both parties. The assessee relied on the Supreme Court's decision in G.M. Knitting Industries Pvt. Ltd., which dealt with additional depreciation under Section 32(1)(ii-a) and held that the requirement to file a form with the return was directory. However, the Court distinguished this case, noting that Section 10B(8) is an exemption provision requiring strict compliance, unlike the deduction provisions in Chapter VIA. The Court also addressed the Delhi High Court's decision in Moser Baer, which held that the time limit for filing a declaration under Section 10B(8) is directory. The Supreme Court clarified that the special leave petition against Moser Baer was dismissed due to low tax effect, and the question of law was left open. Therefore, Moser Baer does not bind the Court.Conclusion:The Supreme Court concluded that the High Court erred in holding that the time limit for filing a declaration under Section 10B(8) is directory. Both conditions under Section 10B(8) are mandatory, and the assessee's failure to comply with these conditions disqualifies it from the benefit of carrying forward losses. The appeal by the Revenue was allowed, and the orders of the High Court and ITAT were set aside.