2012 (4) TMI 450 - HC - Income Tax

Set off of brought forward unabsorbed depreciation and losses of the unit the Income which is not eligible for deduction under Section 10A of the Act Held that - Section 10A is a provision which is in the nature of a deduction and not an exemption - the deduction under Section 10A has to be given effect to at the stage of computing the profits and gains of business - 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 against revenue.

Summary

Issues:
1. Interpretation of Section 10A of the Income Tax Act, 1961 regarding set off of unabsorbed depreciation and losses against current profits for computing deduction under Section 10A.

Analysis:
The case involved an appeal by the Revenue under Section 260A of the Income Tax Act, 1961, concerning a decision of the Income Tax Appellate Tribunal for the Assessment Year 2006-07. The primary question raised was whether unabsorbed depreciation and losses of a unit not eligible for deduction under Section 10A can be set off against the current profit of an eligible unit for calculating the deduction under Section 10A of the IT Act.

The Assessing Officer initially observed that profits eligible for deduction under Section 10A should be considered while computing income under the head 'Profits and gains of business and profession' to prevent double taxation. However, in this case, the Assessing Officer set off brought forward business losses of previous years before determining the income eligible for deduction under Section 10A. The CIT (A) supported this approach, but the Tribunal, relying on a previous decision, emphasized that Section 10A provides for a deduction, not an exemption, and must be applied before setting off losses of a non-10A unit.

The Court highlighted that Section 10A is a deduction provision, not an exemption, as clarified in a previous judgment. The deduction under Section 10A should be considered when computing profits and gains of business, distinct from the provisions of Section 72 on carry forward and set off of business losses. The legislative intent in Chapter VI-A distinguishes between gross total income and deductions, emphasizing that deductions specified in Sections 80C to 80U should be allowed before computing total income. The Court rejected the Revenue's attempt to combine provisions of Chapter VI-A with the deduction under Section 10A without specific statutory authorization. Therefore, the Tribunal's decision to allow the deduction under Section 10A at the initial stage of computing business profits was upheld, dismissing the Revenue's appeal without costs.