2020 (12) TMI 305 - HC - Income Tax

Exemption under Section 10B - Carry forward of losses under section 72 - assessee had filed declaration as required under section 10B(8) of Act after due date of filing original return of income date is over - assessee cannot claim the benefit of carry forward of losses and provisions of section 10B(8) are contravened - HELD THAT - Section 10B of the Act deals with special provisions in respect of newly established 100% export oriented undertakings. It contains twin requirements viz., the filing of a declaration and submission of such a declaration. The constitution bench of the Supreme Court in SARDAR AMRJIT SING KALARA VS. PRAMOD GUPTA 2002 (12) TMI 607 - SUPREME COURT has held that procedural laws have always been viewed as handmaid of justice and not to hamper the cause of justice. It has further been held that technical objection which tend to be stumbling blocks to defeat and delay substantial and effective justice should be viewed strictly for being discouraged except when mandate of law inevitably necessitates it. In the instant case, Section 10B of the Act does not provide for non compliance of submission of declaration. Therefore, the requirement of submission of declaration in terms of Section 10B(8) of the Act has to be treated as mandatory whereas, the requirement of submission of declaration by a time limit has to be treated as directory as the provision does not provide for any consequence by non filing of the declaration by the time limit. In any case, in the instant case, the declaration has been filed before the completion of assessment. Similar view has been taken by High Court of Delhi In Moser Baer India Ltd. 2007 (9) TMI 268 - DELHI HIGH COURT with which we respectfully concur. - Decided against the revenue.

Summary

Issues:
- Interpretation of Section 10B(8) of the Income Tax Act
- Claim of carry forward of losses under Section 72 of the Act

Analysis:
1. The appeal before the Karnataka High Court involved the interpretation of Section 10B(8) of the Income Tax Act and the claim of carry forward of losses under Section 72 of the Act for the Assessment Year 2001-02. The primary question was whether the assessee could claim the benefit of carrying forward losses under Section 72 despite filing the declaration required under Section 10B(8) after the due date of the original return of income.

2. The factual background revealed that the assessee, a software company, initially claimed exemption under Section 10B of the Act in the return filed on time. However, this exemption was later withdrawn before the assessment was completed. A revised return was filed without the exemption claim, declaring a loss. The assessing officer denied the claim of carrying forward losses under Section 72, leading to an appeal before the Commissioner of Income Tax (Appeals).

3. The Commissioner partly allowed the appeal, and both the assessee and the revenue further appealed to the Income Tax Appellate Tribunal. The tribunal partially allowed both appeals, granting relief to the assessee regarding the claim for carrying forward losses under Section 72. This decision was challenged by the revenue before the High Court.

4. The revenue argued that the assessee could not claim the benefit of carrying forward losses under Section 72 due to the alleged contravention of Section 10B(8) of the Act. On the other hand, the assessee contended that the submission of the declaration was mandatory, but the timeline for submission was directory. The assessee had complied with the submission requirement before the completion of assessment, as per relevant case laws cited.

5. The High Court analyzed Section 10B(8) of the Act, emphasizing the twin requirements of filing and submitting the declaration. Referring to Supreme Court precedents, the court held that procedural laws should serve justice and technical objections should not impede substantial justice. Since the Act did not specify consequences for non-compliance with the submission deadline, the requirement was considered mandatory, but the timeline was directory. The court agreed with the view taken by the Delhi High Court in a similar case.

6. Ultimately, the High Court ruled in favor of the assessee, stating that the submission of the declaration before the completion of assessment fulfilled the mandatory requirement under Section 10B(8). The substantial question of law was answered against the revenue, leading to the dismissal of the appeal.