TaxTMI 
TaxTMI 
2016 (12) TMI 1550
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....e assessment year 2004-05 , and u/s 143(3) 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)....
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.... u/s. 30 to 43D of the Act including provisions of section 32(2) of 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 w....
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.... 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 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 r....
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....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 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'....
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....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 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 shal....
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....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 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 provid....
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....d 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. 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,....
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....er 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 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 af....
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....g 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, 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 retrospecti....
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.... 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 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 ....
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....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 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. ....
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....he 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 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 an....
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.... "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" The learned counsel for the assessee referred to decision of 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) 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 f....
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....unit against current year profits of the eligible unit while computing deduction u/s 10B of the Act , as the learned CIT(A) has held that brought forward depreciation of the eligible unit has to be set off as per provisions of Section 32(2) of the Act as the same becomes current years depreciation while computing the profits from business of profession for the purposes of working out deductions u/s. 10B of the Act. We have observed that the same issues' arose in assessment years 2005-06 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 wel....
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....eduction under Chapter III. Following that decision, the Tribunal held that the deduction under Section 10A in respect of the allowable unit under Section 10A has to be allowed before setting off brought forwarded losses of a non 10A unit. 3. Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasized in a judgment of a Division Bench of this Court while construing the provisions of Section 10B in Hindustan Unilever Ltd Vs. Deputy Commissioner of Income Tax 2. (2010) 325 ITR 102 at Para 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 Legislatur....
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....ues with a marginal change by way of addition of the word "etc." to read as "Special provisions in respect of newly established undertakings in a free trade zone, etc". The new section provides for deduction of profits and gains of eligible undertaking from the total income of the assessee. 10. Section 10B which is also substituted by the Finance Act,2000, and which came into effect from April 1, 2001, deals with the special provisions in respect of newly established 100 per cent export oriented undertakings. 11. Section 10A reads as under: "10A. Special 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 ....
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....day of April, 2001), in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of subsection (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub A-section (1) of section 36, as the case may be, shall not apply in relation 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) ....
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....y of tax. The computation of total income begins only with Chapter IV and as section 10A is covered in Chapter III, the phrase "total income" used in section 10A cannot be understood in the same sense as in section 2(45). 14. The phrase "total income" has been used in the Income-tax Act in several places with different connotations and shades. The phrase "total income" used in section 10A is one such variant. The phrase need not necessarily mean the total income as computed in accordance with the provisions of the Act. The relief under this section is with reference to the STP undertakings and not to the assessee. In other words, the relief travels with the undertaking 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 c....
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....under section 10A should be by way of deduction in the normal course of computation of total income, it could have placed the same in Chapter VI-A which houses the sections like 80HHC, 80-IA, etc. Parliament was aware of the various restricting and limiting provisions like section 80A and section 80AB which was in Chapter VIA which do not appear in Chapter III. The fact that even after its recast, the relief has been retained in Chapter III indicates that the intention of Parliament it is to be regarded as an exemption and not a deduction. The Act of Parliament in consciously retaining this section in Chapter III indicates its intention that the nature of relief continues to be an 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 i....
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....lause (ii) of subsection (2) of section 33 and sub-section (4) of section 35 of the Act or the second proviso to clause (ix) of subsection (1) of section 36 shall not be applicable in relation to any such allowance or deduction. Similarly, no loss as referred to in sub-section (1) or in section 72 or sub-section (1) or subsection (3) of section 74 in so far as such loss relates to the business of the undertaking was permitted to be carried forward or set off where such loss relates to any of the relevant assessment years. 21. It is in this background the Finance Act, 2003, was introduced by inserting the words "the year ending up to the first day of April, 2001, for that in clauses (i) and (ii) of sub 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 inten....
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....visions of the Act should be made for each year of the tax holiday period. While so computing, attention will have to be given to the provisions of sections 70, 71, 72 and section 32(2). The amount of depreciation and business loss remaining unabsorbed at the end of the tax holiday period should be determined so that the same may be set off against the income post-tax holiday period. 24. Chapter VI deals with the aggregation of income and set off or carry forward of loss. Section 72(1) deals with the carry forward and set off of business loss which reads as under : "72.(1) Where for any assessment year, the net result of the computation under the head 'Profits and gains of business or profession' is a loss to the assessee, not being 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....
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....e assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. Consequently, it is evident that the basis on which the assessment has sought to be reopened is belied by a plain reading of the provision. The Assessing Officer was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under section 10B. Three units had returned a profit during the course of the assessment year, while the crab stick unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained 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." 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 ....
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....allowed from the total income of the assessee", has to be understood in the context with which the said provision is inserted in Chapter III of the Act. Sub-section (4) of section 10A clarifies this position. It provides that the profits derived from export of articles or things from computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and 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....
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....ully following the above, we uphold the contention of assessee that carry forward business losses and depreciation cannot be set off to the profits of the undertaking while working the claim u/s 10B. Therefore, AO is directed to do the needful in light of the above principles laid down. Ground No.1 is accordingly allowed." The tribunal has followed the decision of Hon'ble Bombay High Court in the case of CIT v. Black & Veach Consulting Pvt. Ltd. (ITA No. 1237 of 2011) (2012) 20 taxmann.com 727(Bom.) as well as the decision of Hon'ble Karnataka High Court in the case of ACIT v. M/s Yokogawa India Ltd.((2012) 21 taxmann.com 154(Kar.) and allowed relief to the assessee. The 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 duly considered the decision of Hon'ble 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: "....