2018 (11) TMI 1335 - HC - Income Tax

Entitlement to the benefit u/s 10B - deduction of export profit for 100% export oriented industrial unit - benefit of set off of unabsorbed depreciation for Asst.Years 1994-95 to 1996-97 against the assessable income for the AY 2001-02, 2002-03, 2004-05 and 2006-07? - deduction not claimed for a particular year - Held that - When there is a tax holiday provided for ten consecutive assessment years to 100% EOUs, among others, depreciation, which is the specific subject matter of the present appeals, would be deemed to have been claimed and allowed in the relevant assessment year in which there is eligible a tax holiday. The contention of the assessee that when deduction under Section 10B is not claimed for a particular year, then necessarily there should be permitted a carry forward of unabsorbed depreciation, since sub-section (6) of Section 10B would only be applicable if there is a deduction claimed under the beneficial provision has to be accepted since, when a claim under Section 10B is made in a relevant year; the claim for depreciation arising in that year alone would be deemed to have been allowed, giving the provision for set off full effect. The unabsorbed depreciation carried forward from the earlier years would be permitted set off against any other income or allowed to be carried forward. The unabsorbed depreciation claimed by the assessee is of the earlier years, when there was no claim made under Section 10B. Such unabsorbed depreciation is permitted carry forward in the subsequent years. What is deemed to be allowed, in any relevant year, in which deduction under Section 10B is claimed, is the depreciation arising in that year. The unabsorbed depreciation carried forward to the relevant year, from any year in which Section 10B was not claimed, remains untouched and could be set off against any income, for which Section 10B deduction is not permissible and also could be carried forward to the next years, if not fully set off against other incomes. The prohibition in carry forward is only to the depreciation claim arising in that relevant year; wherein a deduction is claimed under Section 10B; which stands totally effaced by reason of the deeming provision; on applying Section 10B deduction. - Decided in favour of assessee.

Summary

Issues:
Interpretation of Section 10B for deduction of export profit, set off of unabsorbed depreciation, and tax holiday benefits.

Analysis:
The judgment pertains to an appeal by the Revenue against a Tribunal order. The key issue is the interpretation of Section 10B regarding the deduction of export profit and set off of unabsorbed depreciation for a 100% export-oriented industrial unit. The Division Bench of the High Court had allowed set off of carried forward depreciation before granting the exemption under Section 10B. However, the Supreme Court reversed this decision, emphasizing that deductions under Section 10A should precede the computation of total income. The case involved two units eligible for Section 10B deduction, with changes in the deduction period due to an amendment in 2001.

The questions raised were whether unabsorbed depreciation of Unit A for certain years could be set off against income for later years, and similarly for Unit B. The interpretation of sub-section (6) of Section 10B was crucial. This clause deems that all allowances and deductions under certain sections of the Income Tax Act are granted if a claim under Section 10B is made. The contention was whether this provision applies only when a deduction under Section 10B is claimed for a specific year.

The court analyzed sub-section (6) of Section 10B in detail, emphasizing that the provision applies when a deduction under Section 10B is availed of. It clarified that only depreciation arising in the relevant assessment year is deemed to have been allowed, not carried forward depreciation from earlier years. The judgment affirmed that unabsorbed depreciation from years without a Section 10B claim can be set off against other income and carried forward. The prohibition on carry forward only applies to depreciation claimed in a year with a Section 10B deduction.

In conclusion, the court rejected the appeals, upholding the Tribunal's order in favor of the assessee. The judgment clarified the application of Section 10B regarding deduction, set off of unabsorbed depreciation, and tax holiday benefits, providing a detailed interpretation of sub-section (6) in this context.