TaxTMI 
TaxTMI 
2016 (6) TMI 690
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....1 has been allowed before setting off the brought forward business loss and depreciation to the extent of Rs. 1,26,68,529 (depreciation loss Rs. 42,80,324 and business loss of Rs. 83,88,205) before allowing exemption u/s 10A of the Act. Therefore, a show cause notice u/s 263 of the Act was issued to the assessee. 3. Assessee vide its letter dated 26.05.2014 explained that the relevant A.Y is the 10th and the last year in which 10A deduction was being claimed and further that the deduction u/s 10A is to be first allowed and only on the balance of income, if any, the brought forward business loss and depreciation is to be set off. The CIT was however, not convinced with the assessee's contentions and observed that sub-section (6) of sections 10A and 10B were amended by Finance Act 2003 with retrospective effect from 1.4.2001 and observed that the deduction u/s 10A or 10B is to be allowed from the total income of the assessee. Thus, according to him, the brought forward loss and depreciation of the non eligible unit is to be first set off from the eligible unit in accordance with the provisions of section 72 of the Act and only on the balance, the deduction u/s 10A is to be allowed....
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....d, supported the orders of the authorities below and placed reliance upon the decision of the Coordinate Bench of this Tribunal in ITA No.800/Hyd/2007 in the case of IIC Technologies Pvt Ltd, Hyderabad and in the case of Asstt. CIT vs. Bodhtree Consulting Ltd (Hyd.Trib.) (2010) 041 SOT 0230, wherein after considering the amended provisions of section 10A and 10B in which exemption has been converted into a deduction, it has been held that the deduction u/s 10B is to be computed after set off of brought forward business loss and depreciation brought forward from the earlier years. Thus, according to him, the order of the CIT is to be confirmed. 6. Having regard to the rival contentions and the material on record, we find that the assessee during the relevant financial year, had brought forward business losses and depreciation of earlier years pertaining to the non 10A units. It is also not in dispute that this is the final year of the exemption u/s 10A of the I.T. Act. The decision relied upon by the learned DR is the decision of the Coordinate Bench of the Tribunal dated 21.05.2010 for the A.Y 2004-05, whereas the decisions relied upon by the assessee's Counsel are of the Hon....
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....eral aspects. Firstly, Section 10A even after being amended substantially by the Finance Act, 2000 has been retained in Chapter III of the Act, notwithstanding the change in the language of sub-section (1). If the department is right in its contention that after 01.04.2001 the section only provides for a deduction and not an exemption, it was open to the legislature to transpose the section from Chapter III to Chapter VIA of the Act which is titled "deductions to be made in computing total income". This aspect of the matter has been adverted to and discussed by the Karnataka High Court in CIT v. Yokogawa India Ltd. [2012] 341 ITR 385 / 21 taxmann.com 154. It has been observed by the Karnataka High Court as follows: - "The substituted section 10A continues to remain in Chapter III. It is titled as "Incomes which do not form part of total income". It may be noted that when section 10A was recast by the Finance Act, 2001, Parliament was aware of the character of relief given in Chapter III. Chapter III deals with incomes which do not form part of total income. If Parliament intended that the relief under section 10A should be by way of deduction in the normal course of comput....
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....ther deduction, having regard to the provisions referred to above. If this is the true legal position, as we think it to be, then it is not possible to understand subsection (1) of Section 10A as providing for a "deduction" of the profits of the eligible unit "from the total income of the assessee". The definition of the expression total income given in Section 2(45) cannot be imported into the interpretation of sub-section (1) having regard to the context in which it is used and the scheme of the Act relating to the charge of the tax. It has to be kept in mind that the definition section would not apply if the context requires otherwise; in other words, if the scheme of the Act relating to the charge of income tax clearly makes it impossible for any deduction to be allowed once the total income is determined, then it would be futile to still insist on applying the definition of the expression "total income" under Section 2 (45) to the interpretation of the subsection. In other words the context in which the expression "total income" is used in the sub-section requires us to abandon the definition of that expression as per Section 2 (45). Again this aspect of the matter has been de....
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....everal undertakings and section 28 does not envisage computation of income of each such undertaking. In other words, the profits of the business of the undertaking cannot be computed in isolation. The profits are computed under the head "Profits and gains of business or profession", as under the above head, the income from business as a whole has to be computed. The phrase "total income" used in section 10A(1) is, therefore, to be understood as the total income of the STP unit. This is clear from the first proviso to section 10A(1) which makes a reference to the total income of the undertaking and not to the total income of the assessee. The definition of any term given in section 2 will apply only when the context does not otherwise require. The placement, language and setting of section 10A cannot mean the total income computed in accordance with the provisions of the Act. Instead, such a phrase in the context of section 10A, means profits and gains of the STP undertaking as understood in its commercial sense." 19. There is further indication that Section 10A provides for an exemption and not merely a deduction and this is in the form of return of income prescribed by th....
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....elief under section 10A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income-tax nor includible in the total income. Therefore, the twin provisions of section 14 are not existing in the case of income of STP undertaking and accordingly such income is not liable to be computed under Chapter IV. Therefore, the correct view would be that the relief under section 10A will have to be given before Chapter IV. The deduction shall be given first and process of computation of "profits and gains of business or profession" begins thereafter. This proposition is in line with the form of return. Allowing deduction at the earliest stage of business income computation almost blurs the difference between the commercial profits and tax profits." 20. We may now refer to two judgments of the Bombay High Court on the issue. The first is Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102 / 191 Taxman 119 (Bom.). This case dealt with Section 10B of the Act which is substantially similar to Section 10A. In that case the assessment was sought to be reopened under Section 147 of the....
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....stained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of section 10B." 21. It may be observed that in the Bombay High Court case the loss suffered by the eligible unit under Section 10B was set off against the normal business profit. The view taken by the Assessing Officer in that case was that Section 10B provided for an exemption which means that it does not enter the field of taxation and, therefore, the loss arising therefrom cannot be set off against the normal business profits. Disapproving the view taken by the Assessing Officer, the High Court held that Section 10B, as substituted by the Finance Act, 2000 was a Section providing for a deduction whereas prior to the substitution the earlier provision was in the nature of an exemption. It was thus held that the basis on which the assessment was sought to be reopened was wrong and the reassessment notice was struck down. This decision was followed by the Bombay High Court in the case of CIT v. Black & Veatch Consulting (P.) Ltd. [2012] 208 Taxman 144/20 taxmann.com 727. In this....
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.... given at the stage when the profits and gains of business are computed in the first instance. So construed, the appeal by the Revenue would not give rise to any substantial question of law and shall accordingly stand dismissed. There shall be no order as to costs." 22. It is interesting to note that though there is a divergence of opinion between the Karnataka High Court in Yokogawa India Ltd.'s case ( supra) and the Bombay High Court in Hindustan Unilever Ltd. (supra) as to the nature of Section 10A - whether it provides for exemption or deduction of the profits of the eligible unit, the ultimate decision in Black & Veatch Consulting (P.) Ltd. (supra) which purports to follow Hindustan Unilever Ltd. ( supra) was that such profits have to be eliminated at the first stage itself, that is, as soon as they are computed, suggesting that it is an exemption provision. It was held that the eligible profits are not to be subjected to the adjustment under Section 72 of the Act, and the brought forward loss from the unit eligible for the relief under Section 10B cannot be adjusted against the profits from the other three eligible units, which in effect reiterates the position t....
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.... income and given a deduction subject to fulfillment of several conditions. The fact that the deduction may be given in respect of the entire income does not necessarily mean that it is an exempt income. At the same time, the fact that a particular class of income is only partially exempt from taxation does not necessarily mean that it is only a deduction. In a recent judgment, the Supreme Court has elucidated on the subject - CIT v. Williamson Financial Services [2008] 297 ITR 17/[2007] 165 Taxman 638 where it was observed as under: - "At this stage we have to analyse Chapter III which deals with incomes which do not form part of total income. Section 10 groups in one place various incomes which are exempt from tax. The incomes enumerated in section 10 are not only excluded from the taxable income of the assessee but also from his total income. The exemption embodied in section 10 can be divided into two categories, namely, exemption to which certain classes of income from their very nature are entitled and the second category concerns exemption which the character of the assessee entitles him to claim. In the first category is agricultural income whereas in the second ca....
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....guity and doubt. The following observations are pertinent: - "114. Chapter headings and the marginal note are parts of the statute. They have also been enacted by the Parliament. There cannot, thus, be any doubt that it can be used in aid of the construction. It is, however, well settled that if the wordings of the statutory provision are clear and unambiguous, construction of the statute with the aid of 'chapter heading' and 'marginal note' may not arise. It may be that heading and marginal note, however, are of a very limited use in interpretation because of its necessarily brief and inaccurate nature. They are, however, not irrelevant. They certainly cannot be taken into consideration if they differ from the material they describe." 27. After referring to the views of the learned authors in "Interpretation of Statutes" by Vepa P. Sarathi (4th Edition) and "Principles of Statutory Interpretation" by Justice G. P. Singh on the relevance of Chapter heading, the Supreme Court summarised the position as under: - "120. Chapter heading, therefore, is a permitted tool of interpretation. It is considered to be a preamble of that section to which....