2011 (8) TMI 845 - HC - Income Tax

Exemption u/s 10A - Setting off of losses - it is clear that the income of the section10A unit has to be excluded before arriving at the gross total income of the assessee - the income eligible for exemption under section 10A would not enter into computation as the same has to be deducted at source level. Regarding adjustment of carry forward and set off of loss before granting exemption u/s 10A - unabsorbed depreciation - Section 72 and 32(2) - held that - As deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise.

Issues Involved:
1. Interpretation of Section 10A of the Income-tax Act, 1961, concerning the computation of total income and the set-off of losses.
2. Applicability of the amendment to Section 10A by the Finance Act, 2000, and its effect on the set-off of unabsorbed losses and depreciation.
3. Justification of the Commissioner of Income-tax in revising the order of the assessing authority when two views are possible.

Issue-wise Detailed Analysis:

1. Interpretation of Section 10A of the Income-tax Act, 1961:

The High Court examined whether the income eligible for exemption under Section 10A should be excluded before arriving at the gross total income of the assessee. The court noted that Section 10A was originally enacted as an absolute exemption under Chapter III, which deals with incomes that do not form part of the total income. The court emphasized that the profits derived from the STP unit should be excluded at the source itself and not after computing the gross total income. This interpretation aligns with the legislative intent and the scheme of the Act, indicating that the income of the Section 10A unit should not enter into the computation of the gross total income.

2. Applicability of the amendment to Section 10A by the Finance Act, 2000:

The court analyzed the impact of the amendment to Section 10A by the Finance Act, 2000, which came into effect from April 1, 2001. The amendment recast Section 10A to provide for a deduction of profits and gains of eligible undertakings from the total income of the assessee. The court highlighted that the amendment and subsequent circulars clarified that the benefit of carry forward of depreciation and business loss relating to any year of the tax holiday period should be set off against income post-tax holiday. This legislative intention supports the view that the income of the Section 10A unit should be excluded before computing the gross total income.

3. Justification of the Commissioner of Income-tax in revising the order:

The court addressed whether the Commissioner of Income-tax was justified in revising the order passed by the assessing authority when two views are possible. Given that the main substantial question of law was answered in favor of the assessee, the court found that the additional question became purely academic and did not require further consideration.

Conclusion:

The High Court concluded that the income of the Section 10A unit should be excluded before arriving at the gross total income of the assessee. The court upheld the orders of the Appellate Commissioner and the Tribunal, which directed the assessing authority to allow the exemption under Section 10A without setting off the losses of non-Section 10A units. Consequently, the appeals by the Revenue were dismissed, and the appeals by the assessees were allowed. This judgment reinforces the interpretation that the income eligible for exemption under Section 10A should not form part of the total income and should be deducted at the source level itself.

← Previous Next →