Provision for withdrawal of exemption vide sub-section (8) of S.10B considered as provision for exemption by the assessee Wipro by following wrong approach. Possiblity of proper remedy by way of petition for reconsideration of the judgment of the Supreme Court may be explored by Wipro.

[DEV KUMAR KOTHARI]

Provision for withdrawal of exemption vide sub-section (8) of  S.10B  considered as provision for exemption by the assessee Wipro by following wrong approach. Possibility of proper remedy by way of petition for  reconsideration of the judgment of the Supreme Court may be explored by Wipro.

Case under study:

PRINCIPAL COMMISSIONER OF INCOME TAX-III, BANGALORE AND ANOTHER VERSUS M/S WIPRO LIMITED - 2022 (7) TMI 560 - SUPREME COURT

This case concerns with provision for withdrawal of exemption  and procedure thereof and not for availing exemption.

Assessee had exemption for certain years  under S.10B for income from 100 percent export unit in free trade zone.

Sub-section (8) of the section provided that assessee may choose not to avail exemption in any year. For that procedure was prescribed.

Availing exemption and withdrawing exemption are opposite:

Availing exemption is meaning full only when tax is payable.

In case of loss there is no tax payable therefore, provision of exemption is of no meaning and can be said to be not applicable as a consequence of loss.

This was not provision for availing exemption and case was not to claim exemption:

This was not availing exemption but it was to opt out from benefit of exemption so that assessee could have determined loss  which could be set off against other taxable income or could be carried forwarded for set off in future.

With due respect, author feels that  the claim and provision have been  placed by Wipro team and so  considered as  for availing  exemption by the Supreme Court  instead of provision for withdrawal or opting out from exemption for particular year.

Exemption is of no meaning in case of loss:

Exemption is allowed to reduce tax liability, if there is income and tax is payable. In case in which assessee had suffered a loss in any year, the exemption is of no meaning, rather in that case exemption, if considered strictly and applied to loss, the assessee is placed in a disadvantageous position because the loss suffered in eligible unit will not be allowed to be set off and / or carried forwarded.

It can be said that in case of loss, eligibility to set off and /or carry forward can be considered as consequential and therefore, requirement to file a declaration not to avail exemption is a superecial provision. However, since there is a provision on statute book, it need to be applied.

Confusion was prevailing:

In early stage of these provisions there were  confusion and some assessee / consultants took view that if exemption is withdrawn for any year then it will not be allowed for entire period.  Some of  of  our  clients were  also advised that way, however our  client considered  our  view and filed declaration for not availing exemption in some particular years in which there was loss or income was nominal because client expected higher income in remaining years in future in which exemption will be more beneficial.

CONFUSION ABOUT 'ANY OF THE RELEVANT ASSESSMENT YEARS':

In sub-sections (8)  of section 10A and 10B ,  contradictory words used are `any' and 'years'. The word `any' in the context can only be considered as 'one' or some  but  definitely not all. So far the use of plural of the word year is concerned, one can easily understand it as a year or some of the  years being the year or years for which the assessee has filed declaration and  opted  not to avail of exemption. We may also rely on the provisions of section 13(2) of the General Clauses Act, 1897, the relevant and effective part of which reads as follows:

Gender and number.--

13. In all Central Acts and Regulations, unless there is anything repugnant in the subject or context,--   

(2) words in the singular shall include the plural, and vice versa.

Therefore, it can be said ,without any doubt that the words "any of …years" as  used in sub-section (8) can mean a single year - when the assessee has filed a declaration for one year only  and it will have a plural meaning only when the assessee has filed declaration of more than one years.

Furthermore, the expression 'any of the relevant assessment years' as  used in the sub-section (8) , together with the requirement of filing declaration before the due date, clearly  imply that the declaration shall be applicable only for the particular assessment year for which a declaration has been filed and not to all of the relevant Assessment Years - that is whole of the tax holiday period. Therefore, the assessee has an option to forgo exemption in any of the year by filing declaration for that year and not all the years. Suppose the assessee has filed declaration for the first year of the tax holiday period, he will have to file declaration for the second year separately if he wants to waive the tax exemption. If no declaration is filed for the second year, the exemption provision shall be applicable and the loss if any for the second year may not be carried forward.

Case of Wipro:

It seems that Wipro was afraid of loosing exemption in remaining years  or  all years  that is why they did not file declaration before due date for filing of original return. It sees that they followed first set of thoughts of tax consultants as discussed earlier and not the though as expressed by the author of this  article and earlier article.

 Rather Wipro played extremely  safe by mentioning in computation  and accompanying documents which is summarised in  paragraph 3.5 of judgment which reads as follows with highlights added by author:

“ 3.5 It is submitted that in the present case while filing the original return of income, the assessee specifically declared a loss of Rs. 15,47,76,990/- and claimed exemption under Section 10B of the IT Act. That as per the note annexed to the computation of income, annexed with the original return of income, the assessee specifically stated that “the company is registered as 100% export-oriented unit and is entitled to claim exemption under Section 10B of the IT Act. No loss is therefore being carried forward.”

Unquote:

Therefore, revenue contended a case of not withdrawing exemption was clearly in mind and subsequently assessee as an after though filed a declaration and a revised return to claim loss as allowable and withdrawal of exemption. This is noted in paragraph 3.6 of the judgment which is reproduced below with highlights added by author:

 “ 3.6 It is submitted that as an afterthought the assessee filed a declaration as required under Section 10B (5) belatedly and after the due date mentioned in Section 10B (5) and claimed carry forward of losses under Section 72 of the IT Act, withdrawing its claim for deduction under Section 10B of the IT Act. It is contended that the High Court has not properly appreciated the fact that by filing a declaration subsequently and filing the revised return of income, the intent of the assessee was to frustrate the purpose of Section 10B of the IT Act and file a declaration under Section 10B (8) belatedly. It is submitted that the High Court has not properly appreciated the fact that the assessee’s intention to file the revised return was only as an afterthought and with the intention to extend the period of filing the declaration beyond the period specified in Section 10B (8) of the IT Act.”

Exemption made a burden in case of Wipro:

It can be said that by applying provision of exemption and forcing exemption upon assessee in a year of loss, the provision of exemption has been made a burden upon the assessee by denying substantial benefit and advantage for set off and / or carry forward of loss.

 Earlier article on this website:

Option of assessee to avail or not to avail exemption or deduction.

By CA Uma Kothari dated 27.06.2008

In the bove article provisions of exemptions under sections 10A and 10B were disussed. In both provisions exemption period, option to choose years and option to opt out of exemption was similar.

Sub-secion (8) of S.10A as well as S.10B were on similar lines as follows:

"(8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years."

Therefore, with due respect author feels that:

Wipro did not follow correct line of action by not  filing declaration  and not filing a return of loss originally.

By mentioning note in the computation, Wipro admitted their understanding that in case of exemption, loss will not be claimed for set off and/ or carry forwarded . This  went  against Wipro.

Wipro did not claim that there was mistake in original ITR because they did not distinguish between income and loss and treated loss as income so far claim for exemption was concerned. Rather they could  have claimed that in case of loss, exemption does not and cannot apply and therefor, loss should be allowed for set off and/ or carry forward as the case may be.

In the earlier article by CA Uma Kothari, on this website all related aspects and drat letter to the AO for declaration and classification are mentioned. Link is as follows:

https://www.taxmanagementindia.com/print/print_Article.asp?ID=108

Can judgment be reconsidered?

If so advised Wipro can take proper course of action  by making appropriate petitions for re-consideration of  the judgment by the Supreme court  in their case to seek justice and justifiable view on correct application of principals which could not be pressed by assessee in original ITR.