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TMI Blog2016 (9) TMI 852X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order. 2.1. On the other hand, the ld. counsel for the assessee, Shri Sharad A Shah, defended the conclusion, arrived at in the impugned order passed by learned CIT(A)by placing reliance upon the decision in the case of KEI Industries Ltd. 373 ITR 574 (Del.). 2.2. I have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in the business of electrical components, polyester polycarbonate and aluminium enclosures, specialized motors and aluminium profiles etc and declared loss of Rs. 33,55,143/- in its return of income filed on 30/09/2010. The assessee had profit of Rs. 2,38,49,196/- from the eligible unit and loss of Rs. 33,55,143/- from non-eligible unit and assessee sought to carry forward the loss from ineligible unit without set off against profit of eligible unit , and consequently claiming deduction of entire profit from eligible unit u/s. 10B of the Act. The said claim of the assessee was denied by the ld. Assessing Officer. On appeal, before the Ld. Commissioner of Income Tax (Appeal), the claim of the assessee was allowed. The Revenue is aggrieved and is in appeal before this Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Officers of the Department as well as by different High Courts. 2. The two sections 10A and 10B of the Act were initially placed on statute in 1981 and 1988 respectively, and continued with some modifications and amendments till 31.03.2001. Section 10A as inserted by Finance Act, 1981 read as under: "10A. Special provision in respect of newly established industrial undertakings in the free trade zones.-(1) Subject to the provisions of this section, 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." 2.1 Similarly section 10B as inserted by Finance Act, 1988 read as under: "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." 3. Vide Finance Act, 2000 sections 10A and 10B of the Act were substituted. Section 10A as substi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into effect retrospectively from 1-4-2001 and have been made applicable to business losses or unabsorbed depreciation arising in the assessment year 2001-02 and subsequent years." 5. From the above it is evident that irrespective of their continued placement in Chapter III, sections 10A and 10B as substituted by Finance Act, 2000 provide for deduction of the profits and gains derived from the export of articles or things or computer software for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such article or thing or computer software. The deduction is to be allowed from the total income of the assessee. The term 'total income' has been defined in section 2 (45) of the IT Act and it means the total amount of income referred to in section 5, computed in the manner laid down in the Income-tax Act. 5.1 All income for the purposes of computation of total income is to be classified under the following heads of income and computed in accordance with the provisions of Chapter IV of the Act- * Salaries * Income from house property * Profits and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10B as inserted by Finance Act, 1988 read as under: "10B: Special provision in respect of newly established hundred percent 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. " 2.6. Vide Finance Act, 2000 section 10A and 10B of the Act were substituted. Section 10A as substituted by Finance Act, 2000 reads as under:- "Section 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 " 2.7. Similarly, section 10B as substituted by Finance Act, 2000 reads as under:- "10B. (1) Subject to the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or thing or computer software. The deduction is to be allowed from the total income of the assessee. The term 'total income' has been defined in section 2 (45) of the IT Act and it means the total amount of income referred to in section 5, computed in the manner laid down in the Income-tax Act,1961. 2.11. In computing the total income of the assessee both profits as well as losses will have to be taken into consideration. Section 80-AB is relevant. It reads as follows: "80-AB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading 'C'. Deductions in respect of certain incomes in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provision of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m a hundred percent export oriented undertaking to which the section applies shall not be included in the total income of the assessee. Section 10A as at present stands, came to be substituted by the Finance Act, 2000 with effect from 1 April 2001. The section as it now stands, is not a provision for exemption, but a provision which enables an assessee to claim a deduction. As it now stands, the section contemplates a deduction of such profits and gains as are derived by a hundred per cent export oriented undertaking from the export of articles and 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. The deduction has to be allowed from the total income of the assessee. In Hindustan Lever Ltd. v. Dy. CIT [2010] 325 ITR 102 / 191 Taxman 119 (Bom.) a Division Bench of this Court considered the provisions of Section 10B, while considering a petition challenging the action of the Assessing Officer in purport to reopen the assessment under Section 148. The Division Bench noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged on behalf of the Revenue. Section 70 provides for a setting off of a loss from one source falling under any head of income (other than capital gains) against income from any other source under the same head. Section 71 provides for the setting off of a loss sustained with reference to one head of income against income from another head (save and except for capital gains). Under Section 72, a provision has been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... introduced a statutory prohibition, there is no reason to deprive the assessee of the normal entitlement which would flow out of the provisions of Section 70. 7. In this view of the matter, for the reasons which we have already indicated earlier, we follow the earlier decision of a Division Bench of this Court on this aspect. Consequently, no substantial question of law would arise in the appeal. The Appeal is accordingly dismissed. 2.15. However, Hon'ble Delhi High Court in CIT vs KEI Industries Ltd. (2015) 373 ITR 574 (Del.) concluded that the assessee, who enjoys the tax holiday u/s 10A should not enjoy any other tax concession. Thus, the tax exempt income of the assessee, eligible u/s 10B could not have been set off against the loss from the tax liable income. 2.16. However, we are bound by the decisions of Hon'ble jurisdictional High Court in the cases cited by me as above. My above view and decision in this appeal is fortified by the Hon'ble Apex Court decision in Jeyar Consultant & Investment Pvt. Ltd. vs CIT (Civil Appeal No.8912 of 2003) vide order dated 01/04/2015 reported in [2015] 57 taxmann.com 85 (SC) although given in context of Section 80HHC of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjusted against the profits and gains of the export oriented undertaking for allowing exemption in respect of such profits and gains. 7. At this stage, we should notice the definition of total income in terms of section 2(45) of the Income-tax Act. Total Income has been defined as the total amount of income referred to in section 5, computed in the manner laid down in this Act. Section 4 provides for charge of Income-tax Act. Section 5 provides for scope of total income. Sub-section (1) of section 5 says that subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- "(a)is received or is deemed to be received in India in such year by or on behalf of such person; or (b)accrues or arises or is deemed to accrue or arise to him in India during such year or; (c )accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot play with the figures for the purpose of showing nil liability as has been done in the case on hand. The intention of the Legislature is only to provide 100 per cent exemption for export income and not for other income. The petitioner by dividing depreciation contrary to section 32 has virtually taken exemption from payment of tax even for other business income in the case on hand. That cannot be allowed as rightly ruled by the Commissioner. The allowance of the depreciation by the Tribunal, in our view, is prejudicial to the interest of revenue as argued by the Department. The Tribunal has taken a narrow view of the matter without taking into consideration, the laudable object of exemption and at the same time providing for tax liability towards other liability. The interpretation has to be meaningful and acceptable and it cannot be against the intention of the legislation. Legislation never wanted the entire income to be exempted by taking advantage of section 10B of the Act. The approach of the Tribunal to our mind is incorrect and, hence, we find substance in the argument of the revenue. 8. Several case laws have been placed before us by the parties concerned. 9. Dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and hence unabsorbed depreciation and unabsorbed development rebate were liable to be excluded from the profits and gains attributable to the specified business in arriving at the figure exigible to 8 per cent deduction." 11. In the case of CIT v. Virmani Industries (P.) Ltd. [1995] 216 ITR 607 (SC), the Court considered the issue of unabsorbed depreciation in terms of section 32(2) of the Income-tax Act. 12. The Rajasthan High Court in the case of CIT v. Sun Stone Engg. Industries (P.) Ltd. [1996] 220 ITR 182 , has ruled that "...For the purpose of determination of the relief under section 80HH of the Act, the gross total income of the assessee has to be worked out after deducting unabsorbed loss and unabsorbed depreciation and the income eligible for deduction under section 80HH will be the net income as computed in accordance with the provisions of the Act...." (p. 182) The Rajasthan High Court again in the case of CIT v. Surendra Textiles [2002] 258 ITR 387 ruled that : "The gross total income of the assessee has to be worked out after deducting unabsorbed loss and unabsorbed depreciation and the income eligible for deduction under section 80HH of the Incometa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from a newly established undertaking for computing deductions under Chapter VI-A. Therefore, the appellant's claim for allowance of deduction under section 80HH, without taking into consideration the current depreciation will have to be rejected." (p. 107) 14. All these judgments would support the argument that calculation cannot be at the whims and fancies of an assessee for exemption of tax. It has to be in accordance with the provisions of the Act. 15. CIT v. H.MT. Ltd. [1993] 199 ITR 235 (Kar.) is pressed into service by Sri Parthasarathi, learned counsel. We have carefully gone through the said judgment. In the said judgment, the Division Bench of the High Court has no doubt ruled that computation of profits and gains of new unit may be made without deducting depreciation and investment allowance. But the facts of the present case stand on a different footing compared to the facts in the case on hand. The petitioner has chosen to calculate depreciation in such a way that he has chosen nil liability. 16. He also relies on Second ITO v. Stumpp, Schuele & Somappa (P.) Ltd. [1977] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivil Appeal No.8912 of 2003) vide order dated 01/04/2015 reported in [2015] 57 taxmann.com 85 (SC) although given in context of Section 80HHC of the Act , and also by the decision of Hon'ble Supreme Court in Civil Appeal NO.1501 of 2008 vide order dated 19/09/2013 reported in (2014)48taxmann.com 357(SC) , wherein, Hon'ble Supreme Court has in Himatsingike Seide Ltd. vs CIT approved the decision of Hon'ble Karnataka High Court in the case of CIT vs Himatasingike Seide Ltd. reported in (2006) 156 Taxman 151 (Karn.) which was although rendered under the un-amended provision of Section 10B of the Act . Thus, I am of the considered view that consequent to amended provisions section 10B makes it clear that it is a deduction and not exemption , and the computation of income has to be in accordance with the provisions of the Act, therefore, not only profits but also losses from the business have to be taken into consideration while computing deduction u/s 10B of the Act. Thus, it is held that losses incurred in the non-eligible business by the assessee are to be set off against the profit of eligible units of the assessee to arrive at the deduction u/s 10B of the Act. I order a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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