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TMI Blog2007 (12) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... nd turbine Generators manufactured by it. In the computation of income the assessee had shown business income of Rs. 70,38,585 and after set off of unabsorbed depreciation of Rs. 2,61,656 the profits were determined at Rs. 67,76,929. The assessee claimed exemption of Rs. 62,10,828 under section 10B. Thus, the taxable income was worked out at Rs. 5,66,101. Out of this the assessee claimed set off of loss of Rs. 5,66,101 out of loss of Rs. 7,55,789 incurred in the assessment year 1999-2000 and thus the taxable income was declared at Nil. The Assessing Officer denied the claim of set off on the ground that set off was not permissible in view of the provisions of section 10B(6)(ii) of the Act. 4. It was the contention of the assessee before the CIT(A) that provision of section 10B(6) would come into play only on completion of the relevant assessment years i.e., only after the expiry of tax holiday period. The CIT(A), though in principle was in agreement with the assessee that provisions of section 10B(6) would not be applicable in assessee's case however, was of the opinion that the case of the assessee was hit by provisions of section 10B(1) read with section 72 of the Act. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day period. The restrictions do not apply to previous years within the tax holiday period. In the instant case tax holiday period extends up to 2008-09. Hence, there is no bar in claiming the brought forward loss of assessment year 1999-2000 against the profit of assessment year 2001-02. The deduction under section 10B(1) has been worked out in accordance with the provisions of section 10B(4). He contended that the new section 10B as substituted by Finance Act, 2000 with effect from 1-4-2001 provides for deduction and not exemption as was there in old section 10B. Moreover, the deduction is with respect to export profit and not total profit of eligible undertaking. It also provides for method of computation of export profit on pro rata basis. Therefore in many cases, there will be possibility that the eligible undertaking will also have taxable income. It is thus submitted that in such circumstances, it cannot be said that the assessee's profits have been determined under section 10B(1) and not under section 28 of the Act. Thus it was the contention of the learned counsel that the CIT(A) is not correct and justified in holding that the assessee's profits have not been determined un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. It was held by the Hon'ble Apex Court that losses incurred by the assessee in his business in earlier years which are brought forward could be set off against such income. It is submitted that the aforecited case being distinguishable, does not assist the department's case. Moreover, the brought forward loss in that case was allowed to be set off against the current year's income of that assessee which included the share profits of assessee's wife and minor children from the firm and hence this decision in fact helps the assessee's case rather than helping the case of the department as the assessee also sought the set off of brought forward loss against current year's profits. 9. The learned counsel for the assessee instead sought to rely on the following decision : 9.1 Navin Bharat Industries Ltd. v. Dy. CIT [2004] 90 ITD 1 (Mum.) (TM) wherein it was held that the assessee in that case being a SEZ unit was entitled to deduction under section 10A. Further, such units are entitled to set off losses against the profit of other units or other business income. 9.2 Mindtree Consulting (P.) Ltd. v. Asstt. CIT [2006] 102 TTJ (Bang.) 691 wherein it was held that income of unit e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72 of the Act is applicable to the case. The main objection of the CIT(A) in denying the claim was that the profits of the assessee was not determined under the head 'Profits and gains of business or profession' or within the terms of section 28. But according to the assessee, the profits of the assessee was, in fact, computed under section 28 and were taxable under the head 'Profits and gains of business or profession' and only a deduction under section 10B(1) was claimed. It is in these circumstances, we deem it relevant to extract the relevant provisions, i.e., section 10B(1), section 10B(6), section 10B(9A), Explanation 2(v) to section 10B, section 72, section 28 and section 2(45) of the Act : Section 10B(1) "Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i )it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii )if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on:] [Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and it includes all incomes from whatever source derived, which is received or deemed to be received, accrues or arises or deemed to accrue or arise to, a person both inside India and outside India. From the above it is clear that the findings of the first appellate authority that the term 'total income' appearing in section 10B(1) cannot be said to be profits and gains of business or profession computed in terms of section 28, is an error. In our humble opinion, the term 'total income' appearing in section 10B(1), is total income as computed under the Act. 15. Now we come to section 10B(6)(ii) invoked by the Assessing Officer for the purpose of denying carry forward losses to the assessee. The first appellate authority negatived this finding of the Assessing Officer. The Revenue has not filed a cross objection nor a cross appeal and thus accepted this finding of the CIT(A) that the Assessing Officer wrongly invoked provisions of section 10B(6)(ii) of the Act. Be it as it may, we examine the section as a lot of debate has taken place in the court on this issue. The starting words of section 10B(6) refers to term 'relevant assessment years'. This term is defined in sub-clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year. 16. Be it as it may, we also find that the first appellate authority was wrong in his conclusions that total income does not refer to income computed under sections 28 to 44DB of the Act but has to be separately computed under section 10B(1). There is no such scheme envisaged in the Act. Profits and gains from business has to be necessarily computed by applying sections 28 to 44DB of the Act as well as other relevant sections of the Act. In any event, we are concerned with the term 'total income' used in section 10B(1). A conjoined reading of section 2(45) and section 5 brings us to a conclusion that the total income of any previous year shall be computed as per the provisions of this Act. In our considered opinion, total income has to be computed under the provisions of the Act and thereafter a deduction has to be quantified under section 10B as provided in section 10B(4). In section 10B(4) it is provided that for the purpose of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect to such articles o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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