2019 (2) TMI 59 - HC - Income Tax

Deduction u/s 10B - computation without setting off of any carried forward losses and unabsorbed depreciation - Held that - It is only logical and natural that the stage of deduction of profits and gains of the business of an eligible undertaking has to be made independently and therefore immediately after the stage of determination of its profits and gains. As pointed out that at that stage the aggregate of income under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. Thus, it held that the deductions under Section 10A would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. For the above reasons, it was held that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI of the Act. As pointed out by us earlier, the arguments advanced by the learned counsels for the parties was not the arguments which were put forth before the Tribunal. That apart, the decision of the Tribunal was rendered in the year 2007 and the law on the issue has been interpreted by the Appellate Courts and some of the decisions have been referred supra. All the decisions which were referred by us, the latest being the decision of the Apex Court in the case of Yokogawa India Ltd (2016 (12) TMI 881 - SUPREME COURT). The issue requires to be decided afresh, more particularly, in the light of the law laid down by the Hon'ble Supreme Court as to its applicability to the case on hand. Thus, we are of the view that the matter requires to be remanded to the Assessing Officer for fresh consideration. Tax case appeals filed by the assessee are allowed and the orders passed by the Tribunal and CIT(A) are set aside and the matter is remanded to the Assessing Officer to take a fresh decision

Issues Involved:
1. Applicability of Section 10B(6) of the Income Tax Act, 1961.
2. Computation of deduction under Section 10B without setting off carried forward losses and unabsorbed depreciation.
3. Interpretation of the term "relevant assessment year" in Section 10B.
4. Impact of judicial precedents on the interpretation of Section 10B.

Detailed Analysis:

1. Applicability of Section 10B(6) of the Income Tax Act, 1961:
The core issue revolves around whether Section 10B(6) is applicable, thereby preventing the set-off of carried forward losses and unabsorbed depreciation when computing deductions under Section 10B. The Tribunal held that Section 10B(6) begins with a non-obstante clause, overriding other provisions of the Act. It concluded that the section’s provisions apply, restricting the set-off of losses and depreciation for the relevant assessment years.

2. Computation of Deduction under Section 10B without Setting off Carried Forward Losses and Unabsorbed Depreciation:
The assessee argued that Section 10B is not self-contained and that income should be computed per normal provisions before applying Section 10B deductions. The CIT(A) initially supported this by allowing set-offs for unabsorbed depreciation from the assessment year 2001-02. However, the Tribunal reversed this, stating that Section 10B(6) implies that losses and depreciation from the tax holiday period cannot be carried forward and set off against future profits.

3. Interpretation of the Term "Relevant Assessment Year" in Section 10B:
The Tribunal interpreted "relevant assessment year" to mean any year within the ten consecutive assessment years specified in Section 10B. It held that the non-obstante clause in Section 10B(6) applies to the entire tax holiday period, thus barring the carry forward and set off of losses and depreciation incurred during this period.

4. Impact of Judicial Precedents on the Interpretation of Section 10B:
The assessee cited the Kerala High Court’s decision in Patspin India Ltd., which held that Section 10B(6) does not affect the computation of business profit during the tax holiday period. Conversely, the revenue referred to another Kerala High Court decision in Akay Flavours & Aromatics (P.) Ltd., supporting the Tribunal’s interpretation. The Supreme Court’s decision in Yokogawa India Ltd. was also discussed, which clarified that deductions under Section 10A (similar to Section 10B) should be computed before applying Chapter VI provisions, thus supporting the Tribunal’s stance.

Conclusion:
The High Court noted that the arguments presented were not previously raised before the lower authorities or the Tribunal. Given the evolving judicial interpretations, especially the Supreme Court’s ruling in Yokogawa India Ltd., the High Court found it necessary to remand the matter for fresh consideration. The Assessing Officer is directed to re-evaluate the issue, considering the latest judicial precedents and providing both parties an opportunity to present their cases.

Judgment:
The tax case appeals by the assessee are allowed, setting aside the orders of the Tribunal and CIT(A). The matter is remanded to the Assessing Officer for fresh consideration in light of the Supreme Court’s decision and other relevant judicial precedents. No costs were awarded.

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