Section 10B computation, TDS remission, and unit-specific expense allocation principles govern depreciation and deduction claims.

Electrical fittings were treated as furniture and fittings, so depreciation at 10% was upheld rather than 15% as plant and machinery. The Tribunal also accepted deletion of disallowance under section 40(a)(i) where tax deducted on payment to a non-resident was remitted before the return-filing due date, applying the amended curative regime. For section 10B computation, foreign exchange fluctuation loss directly attributable to eligible units could not be reallocated on a turnover basis, and research and development expenses were not shown to warrant apportionment to those units. The Tribunal further applied the principle that section 10B deduction is computed before set-off of carried-forward business loss under Chapter VI.

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Issues: (i) Whether electrical fittings were eligible for depreciation at 15% as plant and machinery, or at 10% as furniture and fittings; (ii) Whether disallowance under section 40(a)(i) of the Income-tax Act, 1961 was warranted where tax deducted at source on payment to a non-resident was remitted before the due date for filing the return; (iii) Whether foreign exchange fluctuation loss directly attributable to units could be reallocated on a turnover basis while computing deduction under section 10B of the Income-tax Act, 1961; (iv) Whether research and development expenses were liable to apportionment to eligible units for computing deduction under section 10B of the Income-tax Act, 1961; (v) Whether carried forward business loss had to be set off before allowing deduction under section 10B of the Income-tax Act, 1961.

Issue (i): Whether electrical fittings were eligible for depreciation at 15% as plant and machinery, or at 10% as furniture and fittings.

Analysis: The depreciation claim on electrical installations had already been decided against the assessee in its own case by the jurisdictional High Court. The ruling treated electrical installations and wiring as falling within furniture and fittings rather than plant and machinery, attracting the lower rate of depreciation.

Conclusion: The issue was decided against the assessee and depreciation at 10% was upheld.

Issue (ii): Whether disallowance under section 40(a)(i) of the Income-tax Act, 1961 was warranted where tax deducted at source on payment to a non-resident was remitted before the due date for filing the return.

Analysis: The disallowance was deleted by the first appellate authority on the basis that the later amendment to section 40(a)(i) was curative and applied retrospectively, and that the tax had been remitted before the return-filing due date. The Tribunal found no infirmity in that approach and affirmed the view that the amended regime applied to the non-resident payment as well.

Conclusion: The issue was decided in favour of the assessee and the disallowance was not sustained.

Issue (iii): Whether foreign exchange fluctuation loss directly attributable to units could be reallocated on a turnover basis while computing deduction under section 10B of the Income-tax Act, 1961.

Analysis: The Tribunal accepted the assessee's distinction between corporate-level forex loss and unit-level forex loss. Where the disputed loss was directly identifiable and claimed on actual basis, there was no basis to substitute a turnover apportionment merely because a different corporate-level allocation method had been used for other expenses.

Conclusion: The issue was decided in favour of the assessee and the turnover-based reallocation was deleted.

Issue (iv): Whether research and development expenses were liable to apportionment to eligible units for computing deduction under section 10B of the Income-tax Act, 1961.

Analysis: The Tribunal accepted that the R&D expenditure related to scientific research and was not shown to be directly attributable to the eligible units in the manner assumed by the Assessing Officer. The factual basis for a turnover allocation was not accepted, and the appellate finding deleting the apportionment was affirmed.

Conclusion: The issue was decided in favour of the assessee and the R&D apportionment was rejected.

Issue (v): Whether carried forward business loss had to be set off before allowing deduction under section 10B of the Income-tax Act, 1961.

Analysis: The Tribunal applied the Supreme Court principle that deduction for an eligible undertaking is to be worked out at the stage of computing the income of that undertaking and not after bringing in Chapter VI set-off mechanics. On that basis, the brought-forward loss could not be adjusted before allowing the section 10B deduction.

Conclusion: The issue was decided in favour of the assessee and the pre-deduction set-off was disallowed.

Final Conclusion: The dispute was resolved with only the depreciation issue going against the assessee, while the challenge to the TDS disallowance, the foreign exchange loss allocation, the R&D apportionment, and the set-off of brought-forward loss were all decided in the assessee's favour in the manner indicated above.

Ratio Decidendi: Where a unit-specific expense is directly identifiable and supported by actuals, it cannot be rewritten on a turnover basis for section 10B computation, and deduction under section 10B is to be computed before applying brought-forward loss set-off mechanics under Chapter VI.

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