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2016 (9) TMI 557 - AT - Income TaxDeduction claimed u/s 10B - whether loss from non-eligible unit can be set off against the profit of eligible unit or whether only profit of eligible unit is to be considered for computation of deduction u/s 10B? - Held that - Deduction u/s 10A/10B, has to be given effect at the stage of computing the profit & gains of the business under the head income from business or profession which shall be arrived at after adjusting loss of ineligible unit with the profit of the eligible unit i.e. giving effect to the provisions of Section 70 and 71 of the Act. Consequent to amended provisions section 10B makes it clear that it is a deduction and not exemption , and the computation of income has to be in accordance with the provisions of the Act, therefore, not only profits but also losses from the business have to be taken into consideration while computing deduction u/s 10B of the Act. Thus, it is held that losses incurred in the non-eligible business by the assessee are to be set off against the profit of eligible units of the assessee to arrive at the deduction u/s 10B of the Act - Decided in favour of revenue
Issues Involved:
1. Whether the loss from a non-eligible unit can be set off against the profit of an eligible unit for the computation of deduction under Section 10B of the Income Tax Act, 1961. 2. Interpretation of Section 10B as a deduction versus an exemption. 3. Applicability of Circular No. 7/DV/2013 regarding the set-off and carry forward of business losses. 4. Precedence of jurisdictional High Court decisions over conflicting judgments from other High Courts. Issue-wise Detailed Analysis: 1. Whether the loss from a non-eligible unit can be set off against the profit of an eligible unit for the computation of deduction under Section 10B of the Income Tax Act, 1961: The Tribunal examined whether the loss from the non-eligible unit can be set off against the profit of the eligible unit. The assessee claimed a deduction under Section 10B without adjusting the loss from the non-eligible unit. The Tribunal held that deduction under Section 10B should be computed after adjusting the loss of the non-eligible unit with the profit of the eligible unit, in line with Sections 70 and 71 of the Act. This means that the total income should be computed by aggregating the income/loss from various sources under the same head before allowing any deduction under Section 10B. 2. Interpretation of Section 10B as a deduction versus an exemption: The Tribunal clarified that Section 10B, as amended by the Finance Act, 2000, provides for a deduction rather than an exemption. This interpretation was supported by decisions from the Bombay High Court, which stated that Section 10B now allows for a deduction from the total income of the assessee, rather than excluding the income from the total income. The Tribunal emphasized that both profits and losses must be considered in computing the total income, aligning with Section 80-AB, which overrides other sections in Chapter VI-A. 3. Applicability of Circular No. 7/DV/2013 regarding the set-off and carry forward of business losses: The Tribunal referred to Circular No. 7/DV/2013, which clarified that Sections 10A and 10B provide for deductions from the total income computed under the Act. The Circular highlighted that the provisions of Chapter IV and Chapter VI should be applied in computing the income for the purpose of deduction under Sections 10A and 10B. This means that income/loss from eligible and ineligible units should be aggregated in accordance with Sections 70 and 71 before allowing the deduction under Section 10B. 4. Precedence of jurisdictional High Court decisions over conflicting judgments from other High Courts: The Tribunal acknowledged conflicting judgments from different High Courts on the issue but decided to follow the jurisdictional High Court's rulings. The decisions of the Bombay High Court in Hindustan Unilever Ltd. vs DCIT and CIT vs Galaxy Surfactants Ltd. were considered binding. These judgments supported the view that losses from non-eligible units should be set off against the profits of eligible units before computing the deduction under Section 10B. The Tribunal also noted that the Supreme Court's decision in Jeyar Consultant & Investment Pvt. Ltd. vs CIT, although in the context of Section 80HHC, reinforced the principle that the computation of income should consider both profits and losses. Conclusion: The Tribunal concluded that deduction under Section 10B should be computed after adjusting the loss of the non-eligible unit with the profit of the eligible unit, in accordance with the provisions of Sections 70 and 71 of the Act. The Tribunal's decision was consistent with the jurisdictional High Court's rulings and Circular No. 7/DV/2013, which clarified the computation of income for deductions under Sections 10A and 10B. Consequently, the appeal of the Revenue was allowed.
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