2022 (7) TMI 560 - SC - Income Tax

Taxpayer denied s.10B(8) exemption: mandatory written declaration and timely filing under s.139(1); revised return ineffective

SC held that the assessee was not entitled to exemption under section 10B(8) because both statutory conditions-furnishing a written declaration to the AO ... Compliance with conditions of Section 10B(8) - Mandatory nature of time limit in exemption provisions - Construction of taxing statute and exemption provisions strictly - Effect of revised return under Section 139(5) on substantive options - Carry forward of losses under Section 72Compliance with conditions of Section 10B(8) - Mandatory nature of time limit in exemption provisions - Construction of taxing statute and exemption provisions strictly - Both the furnishing of a declaration in writing to the Assessing Officer and furnishing it before the due date for filing the return under Section 139(1) are mandatory conditions for attracting Section 10B(8). - HELD THAT: - A plain reading of Section 10B(8) shows it prescribes two co extensive conditions: (i) a declaration in writing to the Assessing Officer that Section 10B may not apply, and (ii) that the declaration be furnished before the due date for filing the return under Section 139(1). The Court held both conditions must be satisfied and are mandatory. Exemption provisions in a taxing statute must be strictly and literally construed; one cannot treat the time limit as merely directory where the statutory language requires compliance by the stated deadline. Decisions on directory treatment of time limits under different deduction provisions (Chapter VIA) are distinguishable and do not govern an exemption provision under Section 10B. The Court therefore rejected the view that the time limit in Section 10B(8) is directory and concluded the High Court and ITAT erred in so holding. [Paras 8, 11, 14]For claiming the benefit under Section 10B(8), both the declaration to the AO and its submission before the due date for filing the return under Section 139(1) are mandatory; the High Court and ITAT's contrary view is set aside.Effect of revised return under Section 139(5) on substantive options - Carry forward of losses under Section 72 - A revised return under Section 139(5) cannot be used to withdraw a claim made in the original return and thereby avail the benefit under Section 10B(8) or to transform the original return under Section 139(1) into a return under Section 139(3) for purposes of carry forward of losses. - HELD THAT: - Section 139(5) permits revision to correct omission or wrong statement in the original return; it cannot be used to substitute the original return so as to change a substantive option taken on the date of filing the original return. Where the assessee filed the original return under Section 139(1) claiming Section 10B and then filed a belated declaration and a revised return seeking to withdraw that claim and carry forward losses, the Court held this was impermissible. Consequently, the belated declaration filed with the revised return does not satisfy the statutory requirement of furnishing the declaration before the due date under Section 139(1), and the assessee cannot claim carry forward of losses under Section 72 on that basis. [Paras 9, 10]A revised return under Section 139(5) cannot be employed to withdraw an earlier claim and thereby meet the pre return condition under Section 10B(8); the assessee is not entitled to carry forward losses on that basis.Final Conclusion: The appeals are allowed. The High Court and ITAT orders are set aside. It is held that the assessee is not entitled to the benefit under Section 10B(8) nor to carry forward the losses on account of non compliance with the mandatory twin conditions of Section 10B(8); no order as to costs. 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.