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2017 (12) TMI 350 - AT - Income TaxSection 14A applicability on the investment made in the EOU covered by the provisions of section 10B - Held that - Section 10A is a provision for deduction and not exemption. SEE CIT versus TEI Technologies Private Limited 2012 (9) TMI 47 - DELHI HIGH COURT As the provisions of section 10B are pari materia with section 10A of the Act, respectfully following the above decisions of the Hon ble Supreme Court, we hold that section 10B is a provision dealing with deduction and not exemption. Since section 14A of the Act deals with the exempted income, accordingly, the section 14A of the Act is not applicable on the investment made in the EOU covered by the provisions of section 10B of the Act. - Decided in favour of the assessee.
Issues Involved:
1. Whether Section 10B of the Income Tax Act, 1961 is an exemption provision or a deduction provision. 2. Applicability of Section 14A of the Income Tax Act, 1961 to investments made in Export Oriented Units (EOUs) covered under Section 10B. Issue-wise Detailed Analysis: 1. Whether Section 10B of the Income Tax Act, 1961 is an exemption provision or a deduction provision: The Tribunal initially decided against the assessee, following the jurisdictional High Court's decision in CIT Vs. TEI Technologies Private Limited, which treated Section 10B as an exemption provision. However, this decision was reversed by the Hon’ble Supreme Court on 16/12/2016, which clarified that Section 10B is a deduction provision, not an exemption provision. The Supreme Court's judgment emphasized that the legislative intent behind the amendment by the Finance Act, 2000, was to transform Section 10B from an exemption to a deduction provision. The Court noted that the introduction of the word ‘deduction’ in Section 10A (which is pari materia with Section 10B) indicated a clear legislative decision to alter its nature. The Supreme Court highlighted the practical differences between exemption and deduction, stating that the deductions contemplated under Section 10A (and by extension, Section 10B) are specific to the eligible undertaking and should be computed independently before arriving at the total income under Chapter VI of the Act. 2. Applicability of Section 14A of the Income Tax Act, 1961 to investments made in EOUs covered under Section 10B: Initially, the Tribunal upheld the CIT(A)'s decision that Section 14A, which deals with expenses related to exempt income, was applicable to investments in EOUs under Section 10B, based on the Delhi High Court's interpretation that Section 10B provided for exemption. However, following the Supreme Court's ruling that Section 10B is a deduction provision, the Tribunal revisited its decision. The Supreme Court's interpretation clarified that since Section 10B is a deduction provision, the income from EOUs covered under Section 10B is not exempt but is subject to deduction. Consequently, Section 14A, which pertains to exempt income, does not apply to such investments. The Tribunal concluded that Section 14A is not applicable to investments in EOUs covered by Section 10B, as the latter deals with deductions and not exemptions. Therefore, the assessee's contention that Section 14A should not apply was accepted. Conclusion: The Tribunal allowed the assessee's appeal on ground No. 3, holding that Section 10B is a deduction provision and that Section 14A does not apply to investments in EOUs covered under Section 10B. The decision was pronounced in the open court on 25th August, 2017.
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