TaxTMI 
TaxTMI 
2016 (12) TMI 1550
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....of the Act for the assessment year 2006-07 respectively. 2. First, we shall take up assessee's appeal for the assessment year 2004- 05 being ITA No. 7034/Mum/2013. Since both the appeals involve common issues', our decision in ITA no. 7034/Mum/2013 for assessment year 2004- 05 shall apply mutatis mutandis to the appeal in ITA no. 7035/Mum/2013 for assessment year 2006-07. The grounds of appeal raised by the Revenue in ITA no. 7034/Mum/2013 for the assessment year 2004-05 read as under:- "1. On the facts and in the circumstances of the case and in law, the Ld CIT (A)-II Thane has erred in holding that the exemption u/s 10B has to be allowed from the total income before set off of brought forward losses and depreciation. 2. The appellant prays the order of the Ld. CIT(A)-II, Thane, may be vacated and that of the Assessing Officer be restored." 3. The Revenue is aggrieved by the appellate order of the ld. CIT(A) wherein the ld. CIT(A) has held that deduction u/s 10B of the Act has to be allowed on the total income before setting off of the brought forward business losses of the eligible unit, wherein the learned CIT(A) reversed the assessment orders of the AO wherein the AO ha....
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....f the Act. However, brought forward business losses which are governed by the provisions of section 72 are to be allowed set off subsequent to the claim of deduction u/s. 10B. The A.O. is directed accordingly and appellant partly succeeds in respect of Ground Nos. 3 to 9." Aggrieved by the appellate order dated 17-09-2013 passed by the ld. CIT(A) for assessment year 2004-05, the Revenue has preferred an appeals before the tribunal. The ld. CIT(A) has held that deduction u/s 10B of the Act shall be allowed of the current year profits of the eligible unit before set off of the brought forward business losses of the eligible unit in view of the provisions of section 72 of the Act. The assessee has not come forward by filing appeal with the tribunal with respect to the findings of the ld. CIT(A) with respect to the adjustments of the unabsorbed depreciation of the eligible unit while computing profits u/s 10B of the Act , as the learned CIT(A) has held that unabsorbed depreciation of the eligible unit has to be given set off as per provisions of Section 32(2) of the Act as the same becomes current years depreciation while computing current year profits of the eligible unit for the pu....
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....#39;ble High Court of Bombay in ITA No.1237 of 2011 dated 9th April, 2012 considered the following question: "(A) Whether on the facts and circumstance of the case and law, the ITAT was correct in holding that the brought forward unabsorbed depreciation and losses of the unit, the income which is not eligible for deduction under section 10A of the Act cannot be set off against the current profit of the eligible unit for computing the deduction under section 10A of the I.T. Act." 7. The Hon'ble High Court held as under: "2. The Assessing Officer, during the course of the order of assessment under Section 143(3) observed as follows: "Under the scheme of the Act, the profits of the unit eligible for deduction under Section 10A of the Act, would form part of the income computed under the head `Profits and gains of business and profession'. However, in order the same does not suffer tax, deduction will have to be made in respect thereof while computing the income under the head `Profits and gains of business and profession'. In other words, the deduction in respect of the profits eligible under Section 10A of the Act is required to be made at the stage of computing the i....
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....to the provisions of the Chapter, the deductions specified in Sections 80C to 80U. Section 80B(5) defines for the purposes of Chapter VI-A "gross total income" to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable under Section 10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. In the circumstances, the decision of the Tribunal would have to be affirmed since it is plain and evident that the deduction under Section 10A has to be 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". 8. On similar question, the Hon'ble Karnataka High Court in the batch of cases of ACIT vs. M/s Yokogawa India Ltd and others vide order dated 9th August, 2011 exam....
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....on referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years : Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the undertaking began to manufacture or produce such articles or things or computer software in such free rade zone or export processing zone : Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software : Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012, and subsequent years. . . . (4) For the purposes of sub-sections (1) and (1A), the pro....
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..... . Explanation 2.-. . . (ii) 'convertible foreign exchange' means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder or any other corresponding law for the time being in force ; (iii) 'electronic hardware technology park' means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce and Industry ;" 12. A literal reading of the above provision requires deduction from the total income. There can be a deduction in computing the total income. How-ever, there cannot be deduction from the total income which is the final result of the computation process. The language adopted in section 10A is different from the one adopted in section 80A. Section 10A provides for deduction from the total income. In the scheme of the Act, while various deductions are allowed in computing the total income, once the total income is computed, no further adjustment to the total income is envisaged. The scheme of the Act....
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.... 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 under-taking as understood in its commercial sense. 15. Chapter IV deals with the computation of total income under various heads of income. Section 14 provides for classification of income under various heads of income for the purposes of charge of income-tax and computation of total income. The purpose of classification of any income under any head of income is to compute the same. The twin conditions of section 14 are that income is subject to charge of income-tax and is includible in the total income. As the relief 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 under-taking and accordingly such income is not liable to be computed under Chapt....
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....n of gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include section 10A. In other words, the gross total income would be arrived at after considering section 10A deduction also. Therefore, it would be inappropriate to conclude that section 10A deduction is to be given effect to after Chapter VI-A deductions are exhausted. 18. It is after the deduction under Chapter VI-A that the total income of an assessee as arrived at. Chapter VI-A deductions are the last stage of giving effect to all types of deductions permissible under the Act. At the end of this exercise, the total income is arrived at. Total income is thus, a figure arrived at after giving effect to all deductions under the Act. There cannot be any further deduction from the total income as the total income is itself arrived at after all deductions. 19. From the aforesaid discussion it is clear that the income of the section 10A unit has to be excluded before arriving at the gross total income of the assessee. The income of the section10A unit has to be deducted at source itself and not after computing t....
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.... the tax holiday period. The circular dated September 5, 2003, reads as under ([2003] 263 ITR (St.) 62, 77) : "20. Providing for carry forward of business losses and unabsorbed depreciation to units in special economic zones and 100 per cent export oriented units: 20.1 Under the existing provisions of sections 10A and 10B, the undertakings operating in a special economic zone (under section 10A) and 100 per cent export oriented units (EOU's) (under section 10B) are not permitted to carry forward their business losses and unabsorbed depreciation. 20.2 With a view to rationalize the existing tax incentives in respect of such units sub A-section (6) in sections 10A and 10B has been amended to do away with the restrictions on the carry forward, of business losses and unabsorbed depreciation. 20.3 The amendments have been brought into effect retrospectively from April 1, 2001, and have been made applicable to business losses or unabsorbed depreciation arising in the assessment year 2001-02 and subsequent years." 22. It is interesting to note that such relaxation has not been made in section 10C which provides for exemption in respect of profits of certain under-taking....
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....circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re-established, reconstructed or revived, and (a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year ; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding." 25. In fact, the Bombay High Court in the case of Hindustan Unilever Ltd. v. Deputy CIT [2010] 325 ITR 102 (Bom) interpreting section 10B as amended held as under : " . . . section 10B as it stands is not a provision in the nature of an exemption but provides for a deduction. Section....
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....pply section 84 to a particular undertaking it has to be seen when that undertaking commenced the manufacture or production of articles. It is true that the word 'undertaking' has not been defined under the Income-tax Act. But in common parlance it is taken as a concern started or formed for a specific purpose or a project engaged in. In this case though the objects of the company as set out in its articles of association cover a variety of objects, the object of the undertaking is only to manufacture lathes and bench grinders as is clear from the licence issued to the company under the Industries (Development and Regulation) Act, 1951." 27. Form No. 1 read with rule 12 of the Income-tax Rules, 1962, provides for return of income and return of fringe benefits. 28. In Schedule 9 at column No. 7 it is clearly mentioned the amount claimed/deductible under section 10A/10AA/10B or 10BA. Dealing with the scheme of the form it is stated that the scheme of this form follows the scheme of the law as outlined above in its basic form and with reference to Schedules 1, 9, 3 and 13 it is stated that "fill out Schedule 9 if you are claiming deduction under section 10A, 10AA, 10B or....
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....being set off against profits of the subsequent assessment years in the normal course. Unabsorbed depreciation also merits a similar treatment. 31.As the income of the section10A unit has to be excluded at source itself before arriving at the gross total income, the loss of the non-section 10A unit cannot be set off against the income of the section 10A unit under section 72. The loss incurred by the assessee under the head "Profits and gains of business or profession" has to be set off against the profits and gains, if any, of any business or profession carried on by such assessee. Therefore, as the profits and gains under section 10A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise. Similarly, as per section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year's depreciation under section 32(2) is to be set off. As deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set....
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....n ITA No.2134 of 2013 (2015) 97 CCH 0048 (Bom. HC) wherein Hon'ble Bombay High Court has held as under: "5. We find that the decision of the Karnataka High Court in Himatasingike Seide Ltd. (supra) which was undisturbed by the Apex Court was in respect of Assessment Year 1994-95. Thus it dealt with the provisions of Section 10B of the Act as existing prior to 1 April 2001 which was admittedly different from Section 10B as in force during Assessment Year 200910 involved in this appeal. Section 10B of the Act as existing prior to 1 April 2001 provided for an exemption in respect of profits and gains derived from export by 100% Export Oriented Undertakings and now it provides for deduction of profits and gains derived from a 100% Exported Oriented Units.. 6. In any view of the matter, the decision of the Karnataka High Court in Himatasingike Seide Ltd. (supra) which was undisturbed by the Apex Court dealt with the provision of law different from that which was dealt with in the impugned Order. A decision has to be considered in the context of the law as arising for consideration and a change in law would render the decision under the old law inapplicable while considering the ame....
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.... to 2007-08 whereby the Tribunal in ITA No. 7040 to 7042/Mum/2011 and ITA No. 245/Mum/2011 dated 29th June, 2012 in assessee's own case has allowed the appeal of the assessee , whereby the tribunal has held as under:- "4. Ground No.1 is with reference to the claim of exemption under section 10B. It as the contention that it was an exemption provision and brought forward business losses and unabsorbed depreciation were to be given set off after allowing claim u/s 10B. 5. This issue is to be decided in favour of assessee and against the Revenue, in view of the judgment of the jurisdictional High Court in the case of CIT v. Black & Veach Consulting Pvt. Ltd (ITA No.1237 of 2011) as well as the judgment of the Hon'ble Karnataka High Court in the group of cases ACIT vs. M/s Yokogawa India Ltd and others vide order dated 9th August, 2011. 6. The Hon'ble High Court of Bombay in ITA No.1237 of 2011 dated 9th April, 2012 considered the following question: "(A) Whether on the facts and circumstance of the case and law, the ITAT was correct in holding that the brought forward unabsorbed depreciation and losses of the unit, the income which is not eligible for deduction unde....
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....a 24. The submission of the Revenue placed its reliance on the literal reading of Section 10A under which a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive Assessment Years is to be allowed from the total income of the assessee. The deduction under section 10A, in our view, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of Section 72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in Sections 80C to 80U. Section 80B(5) defines for the purposes of Chapter VI-A "gross total income" to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain i....
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....ecial provision in respect of newly established undertakings in free trade zone, etc.-(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the under-taking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section, as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years : Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or ....
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....on to any such allowance or deduction ; (ii) no loss referred to in sub-section (1) of section 72 or subsection (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years ending before the 1st day of April, 2001 ; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking ; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year . . . Explanation 2.-. . . (ii) 'convertible foreign exchange' means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder or any other corresponding law ....
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....ertaking irrespective of who owns the same. The computation of relief as provided in section 10A(4) is also with reference to the undertaking. A business might have several 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 under-taking as understood in its commercial sense. 15....
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....exemption. Chapter VII deals with the incomes forming part of the total income on which no income-tax is payable. These are the incomes which are exempted from charge, but are included in the total income of the assessee. Parliament, despite being conversant with the implications of this Chapter, has consciously chosen to retain section 10A in Chapter III. 17. If section 10A is to be given effect to as a deduction from the total income as defined in section 2(45), it would mean that section 10A is to be considered after Chapter VI-A deductions have been exhausted. The deductions under Chapter VI-A are to be given from out of the gross total income. The term "gross total income" is defined in section 80B(5) to mean the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter. As per the definition of gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include section 10A. In other words, the gross total income would be arrived at after considering section 10A deduction also. Therefore, it would be inappropriate ....
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....A-section (6) restricting the disallowance only up to the first day of April, 2001, and granting the benefit, of those provisions even in respect of units to which sections 10A and 10B is applicable. The Finance Act, 2003, amended this subsection with retrospective effect from April 1, 2001, by lifting the embargo in the aforesaid clauses in respect of depreciation and business loss relating to the assessment year 2001-02 onwards. The amendment indicates the legislative intention of providing the benefit of carry forward of depreciation and business loss relating to any year of the tax holiday period to be set off against income of any year post-tax holiday. This is supported by Circular No. 7 of 2003 wherein the Board has stated that the purpose of amendment is to entitle an assessee to the benefit of carry forward of depreciation and loss suffered during the tax holiday period. The circular dated September 5, 2003, reads as under ([2003] 263 ITR (St.) 62, 77) : "20. Providing for carry forward of business losses and unabsorbed depreciation to units in special economic zones and 100 per cent export oriented units: 20.1 Under the existing provisions of sections 10A and 10B, t....
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.... a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward, to the following assessment year, and (i) it shall be set off against the profits and gains, if any, of business or profession carried on by him and assessable for that assessment year ; (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on : Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant....
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....circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of section 10B." The aforesaid principle equally applies to a case falling under section 10A of the Act. 26. The Madras High Court in the case Madras Machine Tool Manufacturers Ltd. v. CIT reported in [1975] 98 ITR 119 (Mad) has explained the difference between a company and an undertaking which is owned or run by such company. It was held as under (page 127) : "A company may own or run many undertakings, some of which may be entitled to the benefit of section 84 and others may not be so entitled. It is not, therefore, possible to equate the undertaking with the company. When a company owns more than one undertaking the application of section 84 has to be with respect to the particular undertaking and not to the company in general. When we apply section 84 to a particular undertaking it has to be seen when that undertaking commenced the manufacture or production of articles. It is true that the word 'undertaking' has not been defined under the Income-tax Act. But in common parlance it is taken as a concern started or formed for a specific purpose or a project....
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....nd such profit is not to be included in the total income of the assessee. It is only after the deduction of the said profits and gains, the income of the assessee has to be computed. 30.The provisions of this sub-section will apply even in the case where an assessee has opted out of section 10A by exercising his option under subsection (8). As discussed, it is permissible for an assessee to opt in and opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off. The balance, if any, thereafter can be carried forward for being set off against profits of the subsequent assessment years in the normal course. Unabsorbed depreciation also merits a similar treatment. 31.As the income of the section10A unit has to be excluded at source itself before arriving at the gross total income, the loss of the non-section 10A unit cannot be set off against the....
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....le Karnataka High Court in the case of CIT vs. Himatasingike Seide Ltd. (2006) 156 Taxman 1512 (Kar.) which was upheld by Hon'ble Apex court wherein vide orders dated 19-09-2013 the Hon'ble Apex Court has left the decision of the Hon'ble Karnataka High Court undisturbed in civil appeal no 1501 of 2008, by holding as under: "We have heard learned counsel for the parties to the lis. 2. Having perused the records and in view of the facts and circumstances of the case, we are of the opinion that the civil appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly. Ordered accordingly" Hon'ble Bombay High Court in the case of CIT v. Techno Tarp Polymers Private Limited in ITA No.2134 of 2013 (2015) 97 CCH 0048 (Bom. HC) has allowed the relief to the assessee wherein question of law was answered in favour of the assessee. The question of law formulated in the said appeal in CIT v. Techno Tarp Polymers Private Limited(supra) was as under: "(1) Whether on the facts and in circumstances of the case and in law, the Tribunal was justified in holding that the brought forward unabsorbed loss/depreciation of the assessee's 10B unit was not liable for set o....