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2012 (9) TMI 47 - HC - Income TaxComputation of deduction u/s 10A - losses suffered in the Non-EPZ Unit need not be set off from the profit/income of the EPZ Unit as allowed by ITAT - Revenue appeal - Held that - All the sections referred to in Section 10A (6) refer either to the eligible undertaking or business/ profits & gains of the undertaking. The provisions of section 10A refer only to the eligible undertaking and not to all the units operated by the assessee. Further, under section 10A the exemption has been prescribed to the computed separately with reference to the profits/ gains of the undertaking in question and does not contemplate computation of such exemption with reference to the aggregate profits of all the undertakings of the assessee. Section 10A is a provision exempting a particular kind of income even after being amended by the Finance Act, 2000 w. e. f. 01.04.2001 as decided in CIT Versus Yokogawa India Ltd. 2011 (8) TMI 845 - KARNATAKA HIGH COURT the substituted section 10A continues to remain in Chapter III. It is titled as Incomes which do not form part of total income , thus it is clear that the income of the section 10A unit has to be excluded before arriving at the gross total income of the assessee - the income eligible for exemption under section 10A would not enter into computation as the same has to be deducted at source level. Though sub-section (1) provides for a deduction of the eligible profits, there is good reason to think that it is not to be considered as a deduction because the sub-section further says that the deduction shall be allowed from the total income of the assessee - The return of income in Form No.ITR-6 shows shows that after aggregating the income from salary, house property, profits and gains from business, capital gains and income from other sources, the total is arrived at and it is from this total that the losses of the current year and the brought forward losses from the past years are to be set off. The resultant figure gives the gross total income of the assessee from which deductions under Chapter VIA are to be made in order to arrive at the total income. The steps given in the income tax return form also are an indication that it is before the adjustment of the losses of the current year and the brought forward losses from the past year that the profits eligible for the relief under Section 10A have to be given the relief. The form of return is also an indication that the relief under Section 10A has to be given before adjustment of the current as well as the past losses. The sole object of the sub-section (4) of Section 80A is to ensure that double benefit does not result to an assessee in respect of the same income, once under Section 10A or Section 10B or under any of the provisions of Chapter VI-A and again under any other provision of the Act. This sub-section does not militate against the view that Section 10A or Section 10B is an exemption provision. As decided in Hindustan Unilever Limited Versus Deputy Commissioner of Income tax & Union of India 2010 (4) TMI 206 - BOMBAY HIGH COURT such profits have to be eliminated at the first stage itself, that is, as soon as they are computed, suggesting that it is an exemption provision - the implication of an exemption provision is that the particular income which is exempt from tax does not enter the field of taxation and is not subject to any computation. The computation provisions of the Act do not get attracted at all to the exempted income - in favour of assessee.
Issues Involved:
1. Whether the Income Tax Appellate Tribunal is right in holding that for the purpose of Section 10A of the Income Tax Act, 1961, the losses suffered in the Non-EPZ Unit need not be set off from the profit/income of the EPZ Unit. 2. Whether the Income Tax Appellate Tribunal is right in holding that for computing deduction under Section 10A of the Income Tax Act, 1961, in respect of EPZ Unit, brought forward losses of the Non-EPZ Unit should not be deducted or reduced. Issue-wise Detailed Analysis: Issue 1: Losses in Non-EPZ Unit and Profits in EPZ Unit for Section 10A Deduction (Assessment Year 2002-2003) The assessee, a private limited company, filed a return declaring income and claimed exemption under Section 10A for profits derived from its EPZ unit. The Assessing Officer set off the loss from the non-eligible unit against the profit of the eligible unit, resulting in a net income assessed at Nil. The CIT (Appeals) upheld this decision, stating that Section 10A provides for a deduction, not an exemption, thus the benefit under Section 10A cannot be entertained if the company does not have any positive income. The Tribunal, however, held that the losses from non-eligible units cannot be adjusted against the eligible unit's profits for the purposes of Section 10A, thereby deciding in favor of the assessee. Issue 2: Brought Forward Losses of Non-EPZ Unit for Section 10A Deduction (Assessment Year 2003-2004) The assessee filed its return declaring Nil income after setting off brought forward losses. The Assessing Officer computed the income without allowing the Section 10A deduction, setting off the brought forward losses against the profits of the eligible unit. The CIT (Appeals) upheld this view, stating that Section 10A provides for a deduction and not an exemption, and thus, if the gross total income becomes Nil, the deduction under Section 10A cannot be entertained. The Tribunal, relying on its decision for the previous assessment year, directed the Assessing Officer to allow the deduction under Section 10A without setting off the brought forward losses, deciding in favor of the assessee. Legal Interpretation and Analysis: The High Court analyzed Section 10A, which has undergone several amendments, and its placement in Chapter III of the Income Tax Act, titled "Incomes which do not form part of total income." The Court noted that the language of Section 10A, even after amendments, indicates it provides for an exemption rather than a deduction. The Court discussed the implications of this interpretation, noting that exempt income does not enter the field of taxation and is not subject to the computation provisions of the Act. Key Judgments Referenced: 1. Karnataka High Court in CIT v. Yokogawa India Ltd. - Held that Section 10A provides for an exemption. 2. Bombay High Court in Hindustan Unilever Ltd. v. Deputy Commissioner of Income-tax and Anr. - Held that Section 10B (similar to 10A) provides for a deduction. 3. Bombay High Court in CIT v. Black & Veatch Consulting Pvt. Ltd. - Affirmed that the deduction under Section 10A should be given at the stage of computing the profits and gains of business, not after setting off brought forward losses. Conclusion: The High Court concluded that Section 10A is an exemption provision, meaning the profits from the eligible unit do not enter the field of taxation and are not subject to set off against losses from non-eligible units. The substantial questions of law were answered in favor of the assessee, and the appeals filed by the Revenue were dismissed.
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