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TMI Blog2015 (3) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... The tax-exempt income of the assessee, eligible under Section 10-B could not have been set off against the losses from tax-liable income. - Decided in favour of revenue. - ITA 386/2013 - - - Dated:- 13-3-2015 - S. Ravindra Bhat And R. K. Gauba,JJ. For the Appellant : Sh. Balbir Singh, Sr. Standing Counsel and Sh. Abhishek Singh Baghel, Advocate. For the Respondent : Sh. Satyen Sethi and Sh. Arta Trana Panda, Advocates. ORDER M. Justice S. Ravindra Bhat 1. The question of law framed in this case is as follows: Whether the learned Income Tax Appellate Tribunal was correct in holding that the loss suffered by the Assessee in a unit entitled for exemption under Section 10B of the Income Tax Act, 1961, can be set off against income from any other unit not eligible for such exemption? 2. The brief facts of this appeal under Section 260A of the Income Tax Act, 1961 (hereinafter the Act ) are as follows. M/s. Kei Industries Ltd., (hereinafter the Assessee ) is a Public Limited company, engaged in the business of manufacturing cables, wires and stainless steel wires selling them to public sector companies and Electricity Board. It filed its return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sustained by the eligible units are to be set off against the income of such eligible units in the subsequent years and thereafter, only to allow deduction of the balance profit. 5.6 In the case of CIT v. Himatasingike Side Ltd. 286 ITR 255, the Hon ble Karnataka High Court has held that, Section 10B cannot be read in isolation of other provisions. It is only an exemption provision. It may be true that even after taking into consideration the unabsorbed depreciation, the Assessee may get exemption but nonetheless it could not take only a portion of depreciation just to suit its income for the purposes of NIL liability and adjust the balance of unabsorbed depreciation against other business income once again to show NIL liability. The intention of the legislature was to provide 100% exemption only for export income and not for other income Interpretation of a statute has to be meaningful and acceptable and it cannot be against the intentions of the legislation. XXXXXX XXXXXX XXXXX 5.8 When the facts of the present case analysed in the light of the provisions of sub-section (3) to (6) of sub-section 10B, more particularly, clause (ii) of sub-section (6) and ratio laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made for carry forward and setting off of a loss sustained against the head of profits and gains of business or profession. Under section 72, where a loss which has been sustained under the head of profits and gains of business or profession cannot be set-off against income under any head of income under section 71 so much of the loss as has not been set-off or the entire loss where there is no income under any other head can be carried forward in the manner which is indicated in the provision. Section 72 which provides for a carry forward of a business loss comes into operation only when the provisions of sections 70 and 71, as the case may be, are exhausted. There is no provision in section 10B by which a prohibition has been introduced by the Legislature in setting off of a loss which is sustained from one source falling under the head of profits and gains of business against income from any other source under the same head. On the other hand, there is intrinsic material in section 10B to indicate that such a prohibition was not within the contemplation of the Legislature. Sub-section (7) of section 10B provides that the provisions of sub-section (8) and sub-section (10) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow its previous Division Bench precedent in CIT v. TEI Technologies (P) Ltd (ITA No. 347/2011 2067/2010; decided on 27-08-2012; reported in [2014] 361 ITR 36). 7. Counsel for the assessee argued that the impugned judgment of the ITAT is sound and should not be upset. He relied on the decision of the Bombay High Court in Galaxy Surfactants (supra) and submitted that the previous ruling in Hindustan Unilever Ltd. (supra) also ruled that Section 10B is in the nature of deduction. Counsel highlighted that textually, Section 80A (4) of the Act affirms that provisions of Section 10A and 10B are in the nature of deductions. Section 80A(4) reads as follows: (4) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading C - Deductions in respect of certain incomes , where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: 10B. Special provision in respect of newly established hundred per cent export oriented undertakings.-Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent export oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in the total income of the assessee. The Finance Act, 2000 substituted Sections 10A and 10B. Substituted Section 10A reads as follows: 10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an 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 such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee.... Substituted Section 10B (by Finance Act, 2000) reads as under: 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained provisions for ensuring that an assessee who enjoys the tax holiday under Section 10A does not enjoy any other tax concession. This aspect was earlier taken care of by sub-section (4), but when the entire Section was substituted and recast by the Finance Act, 2000 with effect from 1st April, 2001, sub-section (4) became subsection (6) but the essence and substance of the provisions of these sub-sections remained the same. The effect was that from 1st April, 2001 (assessment year 2001- 2002) once the tax holiday ended, the bar or prohibition on enjoying other tax benefits such as carry forward and set off of laws (sic) and unabsorbed depreciation etc. came into force. 14. The rationale behind both sub-section (4) and sub-section (6) is not far to seek. The legislature obviously wanted to ensure that if the profits from the eligible undertaking are allowed to enjoy the benefits of Section 10A, they should not enjoy any further reliefs or benefits which are available under the provisions of the Act. We have already referred to this aspect when we referred to para 6.6 of the Circular No.308 dated 29.06.1981 (supra) which explained sub-section (4) of Section 10A when the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en after its recast, the relief has been retained in Chapter III indicates that the intention of Parliament it is to be regarded as an exemption and not a deduction. The Act of Parliament in consciously retaining this section in Chapter III indicates its intention that the nature of relief continues to be an exemption. Chapter VII deals with the incomes forming part of the total income on which no income-tax is payable. These are the incomes which are exempted from charge, but are included in the total income of the assessee. Parliament, despite being conversant with the implications of this Chapter, has consciously chosen to retain section 10A in Chapter III. 11. The court then took note of various provisions which dealt with computation of total income, viz Section 2 (45); Section 14 and Section 80B (5) ( gross total income ) and held that: The position that emerges from a harmonious reading of these provisions is that the assessee is required to pay income tax on his total income of the previous year. The determination of the total income is the last point before the tax is charged and once the total income is determined or quantified, there is absolutely no scope for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken note of in Tei Technologies (supra). In Williamson Financial Services (supra), the Supreme Court held that: At this stage we have to analyse Chapter III which deals with incomes which do not form part of total income. Section 10 groups in one place various incomes which are exempt from tax. The incomes enumerated in section 10 are not only excluded from the taxable income of the assessee but also from his total income. The exemption embodied in section 10 can be divided into two categories, namely, exemption to which certain classes of income from their very nature are entitled and the second category concerns exemption which the character of the assessee entitles him to claim. In the first category is agricultural income whereas in the second category of exempted income is the income of local authorities and diplomatic officers. We are concerned with the first category. In addition to the above two categories there is a third kind of income. These incomes are wholly or partly tax-free incomes on account of special deductions under Chapter VI-A. We are essentially concerned with these tax-free incomes. XXXXXX XXXXXX XXXXXX . As stated above, there is a vital diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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