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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 ..... liday period are inflated and the profits of business after the tax holiday period are reduced by claiming these deductions at that particular point of time. Thus, in our humble opinion, the Assessing Officer was wrong in invoking the provisions of section 10B(6) during the current assessment year. 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). 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). The terms profits and turnover in sub-section (4) refers only to the current year s profits and current year s turnover. No other view can be taken. Thus, the Assessing Officer should have, in our considered view, taken the profits of the business of the undertaking of the current year and then multiplied it with export turnover and then divided the resultant figure with the total turnover to arrive at the deduction under section 10B. This figure should be deducted from the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 assessee contended that section 10B(1) provides for deduction in respect of profits of 100 per cent EOU. The loss arising to the EOU cannot be ignored and is required to be carried forward for set off against the profit, if any, in the subsequent years within the tax holiday period. As the tax holiday period in assessee's case extends up to assessment year 2008-09, the brought forward loss of assessment year 1999-2000 could be set off against the profit of the impugned assessment year. 5. The learned CIT(A) did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction 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 under the head 'Profits and gains of business or profession' or within the terms of section 28 and hence benefit of carry forward and set off of loss under section 72 is not available to the assessee. He emphasised that the finding of the CIT(A) is not in accordance with law. The learned counsel then put lot of stress to contend that the profits of the assessee were determined under section 28 and consequently the claim of set off of loss under section 72 was very much in accordance with law. The only differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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 eligible for deduction under section 10B is merely a deduction from income and not exemption and accordingly, the assessee is eligible to set off of loss of such unit under sections 70 and 71 of the Act. On the strength of this decision of the co-ordinate Bench the learned counsel contended that it is not a case of inter-head set off under section 70 and inter-head set off under section 71 but it is a case of carry forward and set off of business losses under section 72 but still the broad principle decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income of the assessee." [Emphasis supplied] Section 10B(6) "Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,- (i )section 32, section 32A, section 33, section 35 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried 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 relevant to the previous year in which the business is so re-established, reconstructed or revived, and-- (a )it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year; and (b )if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-clause (v) of Explanation 2 to mean 'any assessment years falling within the period of 10 consecutive assessment years referred to in section 10B'. Section 10B(6) refers to computation of total income of the assessee for the previous years and assessment years which immediately succeed the relevant assessment years as also the subsequent previous years and assessment years. A plain reading of sub-clause (v) of Explanation 2 with section 10B(6) clearly shows that this section is not relevant while computing d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' 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 or thing or computer software bears to the total turnover of the business carried on by the undertaking. The formula is as follows : Profits of business of the undertaking × Export Turnover Total turnover of the business carried on by the undertaking. The terms 'profits' and 'turnover' in sub-section (4) refers only to the current year's profits and current year's turnover. No other view can be taken. Thus, the Assessing Officer should have, in our considered view, taken the profits of the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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