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2016 (9) TMI 852 - AT - Income TaxDeduction u/s 10A computation - 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 - total income computation - 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. This view is consistent with the circular no. 7/DV/2013 FILE NO.279/MISC./M-116/2012 dated 16-07- 2013 as well interpretation accorded to Section 10B of the Act by the Hon ble jurisdictional High Court decisions in the case of Hindustan Unilevers Limited v. DCIT (2010 (4) TMI 206 - BOMBAY HIGH COURT ) and CIT v. Galaxy Surfactants Limited(2012 (3) TMI 101 - BOMBAY HIGH COURT ) which proposition of law is laid down by Hon ble Apex Court in Jeyar Consultant & Investment Pvt. Ltd. vs CIT (2015 (4) TMI 195 - SUPREME COURT ) although given in context of Section 80HHC of the Act. Thus, it is of considered view that 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.
Issues Involved:
1. Whether the deduction claimed under Section 10B of the Income Tax Act, 1961, is an exemption or a deduction. 2. Whether the loss from a non-eligible unit can be set off against the profit of an eligible unit for computing the deduction under Section 10B. Issue-wise Detailed Analysis: 1. Nature of Deduction under Section 10B: The primary issue in the appeal is whether the deduction claimed under Section 10B of the Income Tax Act, 1961, is an exemption or a deduction. The Revenue contends that the learned CIT(A) erred in treating the deduction as an exemption, which does not form part of the total income, and failed to follow the precedents set by CIT vs. Black & Veatch Consulting Pvt. Ltd., Hindustan Lever Ltd. vs. DCIT, and CIT vs. Galaxy Surfactants Ltd., along with Circular No. 07/DV/2013 dated 16-07-2013. 2. Set Off of Loss from Non-Eligible Unit against Profit of Eligible Unit: The core question to be adjudicated is whether the loss from a non-eligible unit can be set off against the profit of an eligible unit or whether only the profit of the eligible unit should be considered for computing the deduction under Section 10B. The assessee claimed the entire profit from the eligible unit under Section 10B without adjusting the loss from the non-eligible unit. The Assessing Officer denied this claim, but the CIT(A) allowed it. The Tribunal examined the provisions of Sections 70, 71, 80A(1), and 80B(5) of the Act, concluding that the deduction under Section 10B should be given effect at the stage of computing the profits and gains of the business, which must include the adjustment of losses from non-eligible units. Analysis of Legal Provisions and Precedents: - Circular No. 07/DV/2013: The circular clarifies that Sections 10A and 10B, initially providing exemptions, were amended to provide deductions. The income computation should follow the provisions of Chapter IV and VI, considering both profits and losses. - Section 80-AB and 80-B(5): These sections emphasize that the computation of income must be in accordance with the Act, considering both profits and losses. - Judicial Precedents: - Hindustan Unilever Ltd. vs. DCIT (325 ITR 102): The Bombay High Court held that Section 10B provides for a deduction, not an exemption, allowing the set-off of losses from eligible units against other business income. - CIT vs. Galaxy Surfactants Ltd. (343 ITR 108): Reiterated that losses from eligible units could be set off against other business income. - CIT vs. KEI Industries Ltd. (373 ITR 574): The Delhi High Court held that tax-exempt income under Section 10B should not be set off against taxable income, but this was not followed due to jurisdictional precedence. - Supreme Court Decisions: The Supreme Court in Jeyar Consultant & Investment Pvt. Ltd. vs. CIT and Himatsingike Seide Ltd. vs. CIT upheld the view that the computation of income under Section 10B should include both profits and losses. Conclusion: Based on the analysis, the Tribunal concluded that the deduction under Section 10B should be computed by adjusting the losses from non-eligible units against the profits of eligible units. This view aligns with the jurisdictional High Court decisions and Supreme Court rulings, establishing that Section 10B provides a deduction, not an exemption, and the computation must consider both profits and losses. Consequently, the appeal of the Revenue was allowed, adhering to the legal provisions and judicial precedents. Order: The appeal of the Revenue is allowed, and the order was pronounced in the open court on 12/08/2016.
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