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TMI Blog2016 (6) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the question of un-absorbed business loss of non 10A Units being set off prior thereto would not arise. See CIT Versus TEI TECHNOLOGIES PVT. LTD. [2012 (9) TMI 47 - DELHI HIGH COURT] and CIT vs. Yokogawa India Ltd [2011 (8) TMI 845 - Karnataka High Court ] - Decided in favour of assessee - ITA No. 766/Hyd/2015 - - - Dated:- 17-6-2016 - Smt. P. Madhavi Devi, Judicial Member For the Assessee : Shri V. Raghavendra Rao For the Revenue : Shri Venkata Reddy, DR ORDER This is assessee s appeal for the A.Y 2010-11. In this appeal, the assessee is aggrieved by the order of the CIT u/s 263 of the I.T. Act, holding the assessment order dated 26.03.2013 to be erroneous and prejudicial to the interests of the Revenue and directing the AO to set off the brought forward depreciation and loss before allowing the deduction u/s 10A of the I.T. Act. 2. Brief facts of the case are that the assessee company, engaged in the business of software development, filed its return of income for the A.Y 2010-11 on 24.09.2010 admitting income at Rs. Nil after claiming deduction u/s 10A i.e. ₹ 6,05,63,431. The AO allowed the dedeuctin u/s 10A of the Act of ₹ 6,02,93,581 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A Unit as independent and on a stand alone basis for the period of 10 years from the initial period of claiming deduction u/s 10A of the Act out of the total period of 15 years and therefore, according to him, the AO has allowed deduction u/s 10A before set off of brought forward business loss and depreciation. In support of his contention, he placed reliance upon the following judgments: a) CIT vs. TEI Technologies P Ltd (2012) 25 Taxmann.com 5 (Delhi) High Court of Delhi. b) CIT vs. Black Veatch Consulting P Ltd (2012) 20 Taxmann.com 727 (Bom) High Court of Bombay c) CIT vs. Yokogawa India Ltd (2012) 21 Taxmann.com 154 (Karnataka), High Court of Karnataka AND d) The judgment of the Andhra Pradesh High Court dated 28.08.2013 in ITA Nos. 360 of 2011, 407 of 2010, 279 of 2012, 361 of 2011 and 362 of 2011 in the case of M/s. CCL Products (India) Ltd. He submitted that in all these cases, it has been held that the business loss of non eligible units should not be set off from the income of the undertakings eligible for exemption u/s 10A of the Act during the period of 10 years when the assessee was claiming deduction u/s 10A of the Act. Thus, the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits and gains as are derived by an undertaking from the export of articles or things or computer software from the total income of the assessee . The language used has given rise to the argument that the section only provides for a deduction which means that the profits of the eligible undertaking will have to enter the field of taxation and be subjected to all the provisions of the Act and only the balance of profits, if any, will be deducted from the total income. This is in contrast to sub-section (1) as it stood prior to the aforesaid amendment, which provided that any profits and gains derived by an assessee from an industrial undertaking to which this Section applies shall not be included in the total income of the assessee . This phraseology which we have noted earlier to conform to the title of Chapter III of the Act has given rise to the further argument from the department that w.e.f. 01.04.2001 there is a significant change and profits which were earlier exempt from income tax and were not includible in the assessee's total income are now so included, subject to deduction, and once the profits are included, all the provisions of the Act will have to be applied whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... think that it is not to be considered as a deduction because the sub-section further says that the deduction shall be allowed from the total income of the assessee . Under the Income Tax Act, 1961 the income of an assessee under the various heads of income enumerated in Section 14 have to be computed in accordance with the provisions of the Act. The aggregate of such incomes constitutes the gross total income of the assessee within the meaning of Section 80B (5) which defines gross total income as the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VIA. The expression total income is defined in Section 2 (45) of the Act to mean the total amount of income referred to in Section 5, computed in the manner laid down in the Act. Section 4 which is charging section provides for the charge of income tax in respect of the total income of the previous year of every person. 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 onc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r laid down in the Income-tax Act. Section 5 defines the scope of total income and it is subject to the provisions of the Income-tax Act. Section 14 provides that save as otherwise provided by the Income-tax Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income . Therefore, the total income in its strict sense requires computation for the purpose of levy of tax. The computation of total income begins only with Chapter IV and as section 10A is covered in Chapter III, the phrase total income used in section 10A cannot be understood in the same sense as in section 2(45). The phrase total income has been used in the Income-tax Act in several places with different connotations and shades. The phrase total income used in section 10A is one such variant. The phrase need not necessarily mean the total income as computed in accordance with the provisions of the Act. The relief under this section is with reference to the STP undertakings and not to the assessee. In other words, the relief travels with the undertaking irrespective of who owns the same. The computation of relief as provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the current year and the brought forward losses from the past years are to be set off. The resultant figure gives the gross total income of the assessee from which deductions under Chapter VIA are to be made in order to arrive at the total income. The steps given in the income tax return form also are an indication that it is before the adjustment of the losses of the current year and the brought forward losses from the past year that the profits eligible for the relief under Section 10A have to be given the relief. The form of return is also an indication that the relief under Section 10A has to be given before adjustment of the current as well as the past losses. This aspect of the matter is also considered by the Karnataka High Court in the judgment cited (supra) in the following manner: - Chapter IV deals with the computation of total income under various heads of income. Section 14 provides for classification of income under various heads of income for the purposes of charge of income-tax and computation of total income. The purpose of classification of any income under any head of income is to compute the same. The twin conditions of section 14 are that income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated that any profits and gains derived by an assessee from a 100 per cent. export oriented undertaking, to which the section applies shall not be included in the total income of the assessee . The provision, therefore, as it earlier stood was in the nature of an exemption. After the substitution of section 10B by the Finance Act of 2000, the provision as it now stands provides for a deduction of such profits and gains as are derived by a 100 per cent. export oriented undertaking from the export of articles or things or computer software for ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. Consequently, it is evident that the basis on which the assessment has sought to be reopened is belied by a plain reading of the provision. The Assessing Officer was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under section 10B. Three units had returned a profit during the course of the assessment year, while the Crab Stick unit had returned a loss. The assessee was entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under Section 10A, in our view, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of Section 72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in Sections 80C to 80U. Section 80B(5) defines for the purposes of Chapter VI-A gross total income to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable under Section 10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. In the circumstances, the decision of the Tribunal would have to be affir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Stumpp, Schuele Somappa (P.) Ltd. v. Second ITO [1976] 102 ITR 320 where the position was summed up as under: - (a) Any amount in respect of which deduction is claimed under any of the provisions in sections 80C to 80V is already included in the gross total income of the assessee and, therefore, cannot be stated to be not includible in the income of the assessee. (b) The expression not includible means not capable of being included. It cannot refer to an amount which already formed part of the total income. It refers to the classes of income, which Chap. III directs, shall not be included in the total income of the assessee. (c) The concept of deductions by way of expenses, rebates, allowances, etc., under Chaps. IV VI-A is totally different from that of non-inclusion. 24. Thus incomes which are enumerated in Chapter III of the Act have traditionally been considered as incomes which are exempt from tax rather than as deductions in the computation of the total income. The essential difference between an exemption and deduction seems to be that an exempt income does not enter the computation of total income at all, whereas a deduction, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is of some importance. As stated above, section 5 provides what the total income shall include. Chapter III refers to incomes which do not form part of total income . Chapter IV deals with computation of total income . It classifies the income under different heads and the deductions to be made in respect of each of the different heads of income. In the Income-tax Act, the expression income includible in the total income has a definite connotation. Similarly, the expression deduction and allowances have particular connotation. Therefore, on the one hand we have agricultural income which is neither chargeable nor includible in the total income and on the other hand we have incomes under Chapter VI-A which are part of total income but which are tax-free. 26. In the case of TATA Power Company Ltd. v. Reliance Energy Ltd. (JT) 2009 (8) SC 562, the Supreme Court was confronted with the question whether Chapter headings and marginal notes should be taken into consideration for the purpose of interpretation of the main provisions. It was held that Chapter headings are parts of the statute and have been enacted by the Parliament and, therefore, they can be used a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption provision whereas the Bombay High Court has understood the same as a deduction section, though the ultimate result did not make any difference to the assessee's claim in Black Veatch Consulting (supra). Therefore, it cannot be denied that there is uncertainty and lack of clarity or precision in the language employed in subsection (1). It is, therefore, not impermissible to rely on the heading or title of Chapter III and interpret the section as providing for an exemption rather than a deduction. 29. The key to the problem seems to lie in appreciating the difference between a provision which exempts an income and a provision which provides for a deduction of the income or a part thereof in computing the total income of the assessee. We have attempted to outline the difference between the two kinds of provisions in the light of the authorities cited above. The matter is not altogether free from difficulty. However, as S. Ranganathan, J. (as he then was) has pointed out in CIT v. Dalmia Cement (Bharat) Ltd. (supra): - In the process of judicial assessment of such conflicting interpretations, there is no sensitive balance with which to weigh the pros and co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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