2017 (12) TMI 1125 - HC - Income Tax

Deductions u/s 10A - whether made only at the stage of computation of gross total income under Chapter VI of the Act and not at the stage of computation of the total income under Chapter IV of the Act before setting off the loss, particularly in view of the circular of CBDT dated 16/07/2013 - Revision u/s 263 - Held that - We find it appropriate to hold that the Income Tax Appellate Tribunal was justified in setting aside the order of the Commissioner of Income Tax passed under Section 263 of the Act, observing that the deduction under Section 10A of the Act has to be made at the stage of the Chapter IV of the Act. Accordingly, we answer the substantial question of law in favour of the assessee and against the revenue.

Summary

Issues:
Interpretation of deductions under Section 10A of the Income Tax Act - Whether deductions under Section 10A are to be made at the stage of computation of gross total income under Chapter VI of the Act or at the stage of computation of total income under Chapter IV before setting off the loss.

Analysis:

Issue 1: Interpretation of deductions under Section 10A of the Income Tax Act
The appeal before the Karnataka High Court involved a dispute regarding the timing of deductions under Section 10A of the Income Tax Act. The respondent-assessee, a limited company providing Data Processing Services to foreign customers, had its assessment for the year 2010-11 concluded under Section 143(3) of the Act with exemption under Section 10A. However, the Commissioner of Income Tax, invoking powers under Section 263, held the exemption erroneous for not following a CBDT circular and directed a reassessment. The Income Tax Appellate Tribunal allowed the assessee's appeal, relying on a judgment of the High Court of Karnataka in a similar case. The Revenue appealed this decision.

Issue 1 Analysis:
The Revenue, citing a judgment by the Hon'ble Apex Court, argued that deductions under Section 10A should be made while computing the gross total income under Chapter IV of the Act, not at the stage of total income computation under Chapter VI. The High Court agreed with this interpretation, stating that the Apex Court had confirmed this position in a previous case involving Yokogawa India Ltd. Therefore, the High Court held that the Income Tax Appellate Tribunal was correct in setting aside the Commissioner's order and that deductions under Section 10A should occur at the Chapter IV stage. Consequently, the substantial question of law was answered in favor of the assessee, leading to the rejection of the appeal by the Revenue.

This detailed analysis of the judgment showcases the legal interpretation and application of provisions under the Income Tax Act, specifically concerning the timing of deductions under Section 10A. The High Court's decision provides clarity on the procedural aspect of claiming such deductions, aligning with the precedent set by the Hon'ble Apex Court in a related matter.