2013 (3) TMI 509 - AT - Income Tax

Exemption u/s.10B - Deduction on the total income of both the units - Held that - It is settled law that if a decision of High Court is available, then the decision of Tribunal, even if that is of Special Bench, cannot override the same. Since the decision of Hon ble Kerala High Court is squarely applicable to the facts of the case and therefore following the same, we decide this issue against the assessee. Section 10B(4) itself refers to total income which would mean income of all units put together . The Special Bench of the Tribunal in the case of the Tribunal in the case of M/s. Scientific Atlanta India Technology P. Ltd. vs. ACIT 2010 (2) TMI 658 - ITAT, CHENNAI has taken the view that deduction u/s.10A does not fall in Chapter VIA. Therefore, sec. 80AB could not be applied which mandates the deduction to be out of gross total income . On this basis, deduction of profitable unit was held to be allowable without adjusting the same against the loss of other units. However, the Hon ble Kerala High Court in CIT, Cochin vs. Patspin India Ltd. 2011 (9) TMI 276 - KERALA HIGH COURT has taken a contrary view. In that case also, the assessee had two industrial units and both of them were qualifying u/s.10B. The Hon ble Court referred to the provisions of sec.10B and held that profit has to be computed in the manner laid down in sections 32 to 43D. Deduction eligible under section 10B(4) has to be determined with reference to export turnover and the total turnover. - Decided in favor of revenue and against the assessee.

Summary

Issues:
1. Disallowance of exemption u/s.10B on profits of Pune Unit.
2. Interpretation of provisions of Sec.10B regarding independent units.
3. Claiming deduction u/s.10B on total income of both units.
4. Application of sec. 80AB in relation to deduction u/s.10A.
5. Determination of eligible export profit for deduction under section 10B(4).

Issue 1: Disallowance of exemption u/s.10B on profits of Pune Unit
The assessee appealed against the disallowance of exemption u/s.10B on the profits of the Pune Unit. The contention was that both the Pune and Nasik units are independent units eligible for exemption u/s.10B, and the mere similarity in manufacturing products does not make them one 'undertaking.' The AO insisted that the assessee should have claimed deduction u/s.10B on the total income of both units and set off against each other, which the assessee did not do. The assessee argued that each undertaking is entitled to 10B benefit for its profits independently before adjusting against losses in other undertakings.

Issue 2: Interpretation of provisions of Sec.10B regarding independent units
The Tribunal noted that the assessee had two manufacturing units in Pune and Nasik, with separate accounts. The AO's contention was that deduction u/s.10B should be claimed on the total income of both units and set off against each other. However, the assessee maintained that each unit's profits are eligible for exemption u/s.10B without offsetting the losses of other units, citing a Tribunal order supporting this view.

Issue 3: Claiming deduction u/s.10B on total income of both units
The AO did not accept the assessee's contention, arguing that deduction u/s.10B should be claimed on the total income of both units as per sec. 10B(5)(i), considering 'income' to include losses. The CIT(A) confirmed the AO's order. The Tribunal referred to conflicting decisions, including a Special Bench ruling and a Kerala High Court decision, ultimately deciding against the assessee based on the Kerala High Court's interpretation of sec. 10B(4) referring to 'total income.'

Issue 4: Application of sec. 80AB in relation to deduction u/s.10A
The Tribunal discussed the application of sec. 80AB in relation to deduction u/s.10A, highlighting the Special Bench's view that deduction does not fall under Chapter VIA, thus not subject to sec. 80AB. The Kerala High Court decision emphasized computing business profits for determining deduction eligibility under sec. 10B(4) based on specific provisions, leading to the rejection of the assessee's appeal.

Issue 5: Determination of eligible export profit for deduction under section 10B(4)
The Tribunal analyzed the determination of eligible export profit for deduction under section 10B(4), emphasizing the computation of business profits based on specific sections. The Kerala High Court's decision clarified the computation process, leading to the rejection of the assessee's appeal in line with the High Court's interpretation of sec. 10B(4) and 'total income.'

In conclusion, the Tribunal dismissed the assessee's appeal based on the interpretation of provisions of sec. 10B, emphasizing the independent eligibility of each unit for exemption u/s.10B and the computation of business profits for deduction eligibility. The decision was influenced by conflicting views from a Special Bench and the Kerala High Court, ultimately favoring the latter's interpretation.