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TMI Blog2020 (3) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... tage of the aggregate of the incomes under other heads, the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be a premature for application. The deduction under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the Assessee from the gross total income. Ultimately, the issue has been settled with the following words of the Hon'ble Apex Court in the M/S YOKOGAWA INDIA LTD. [ 2016 (12) TMI 881 - SUPREME COURT] the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI . Therefore the law has been settled by the said decision of the Hon'ble Apex Court, where in clear terms, it has been held that, the deductions either under Section 10A or 10B would be made while computing the gross total income of the eligible undertaking (like the Assessee) under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI of the Act. Here in the case in hand, the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(1) of the Act and was selected as a case for scrutiny by issuance of Notice under Section 143(2). A Notice under Section 142(1) with questionnaire was issued by the Assessing Officer. In response to the same, the Assessee produced all the details. (iii) After consideration, the Assessment was completed and order was issued under Section 143(3) of the Act on 21.12.2006. In the said Assessment Order, the Assessing Officer had adjusted the brought forward unabsorbed depreciation loss relating to the Assessment Year 2001-02 to the extent of ₹ 22,06,10,631/- and to the Assessment Year 2002-03, amounting ₹ 8,76,17,002/- against the business profits before allowing the deduction claimed by the Assessee under Section 10B of the Act. (iv) The said issue along with yet another issue was taken up on Appeal by the Assessee before the Commissioner (Appeals), before whom, the case of the Assessee was that, the deduction under Section 10B was to be granted prior to the set off of the brought forward unabsorbed depreciation loss of the earlier years. The Commissioner (Appeals) having accepted the said contention of the Assessee, allowed the Assessee's Appeal and the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contend that, the issue is squarely covered by the said decision of the Hon'ble Apex Court, accordingly the impugned order is liable to be interfered with and to be set aside. 6. The learned counsel for the Assessee would also submit that, following the dictum of the Hon'ble Apex Court in Commissioner of Income-tax v. Yokogawa India Ltd., ( cited supra ), a number of decisions have been made by the Hon'ble Apex Court as well as various other High Courts. To be listed some of them, the learned counsel relied upon the following decisions : 1. Principal Commissioner of Income Tax v. Infosys BPO Ltd., (2019) 107 taxmann.com 57 (SC) 2. Commissioner of Income Tax v. J.P.Morgan Services India Pvt., Ltd., (2017) 393 ITR 24 (SC) 3. The Commissioner of Income Tax v. J.P.Morgan Services India Pvt., Ltd., MANU/MH/3184/2016 4. The Principal Commissioner of Income Tax v. Rangsons Electronics Pvt., Ltd., (2017) 398 ITR 619 (SC) 5. Principal Commissioner of Income Tax and Ors., v. Making India Private Ltd., (2017) 393 ITR 291 (SC) 6. Principal Commissioner of Income Tax-4, Bangalore and Ors., v. Makino India Pvt., Ltd., MANU/KA/3572/2016 7. Pr.Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that relief under Section 10B ought to be granted only after the set off of brought forward loss and unabsorbed depreciation of the earlier years ? 12. Since this is the only issue, on which the Appeal was admitted and the arguments were advanced only on the same and both sides produced the Judgment of the Hon'ble Apex Court, we take the said issue in the given facts and circumstances of the present case. 13. Before we delve into the said issue, for the easy understanding, the relevant provision namely Section 10B of the Act is extracted hereunder: Special provisions in respect of newly established hundred per cent export-oriented undertakings. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Carry forward depreciation allowance of assessment year 2002-03 8,76,17,002 BUSINESS INCOME NIL Income from other Sources : Interest Income 4,63,745 Taxable Income 4,63,745 LESS : Set off unabsorbed depreciation from assessment year 2002-03 4,63,745 TOTAL INCOME NIL 18. By thus, the Assessing Officer not allowed the deduction to be made under Section 10B of the Act before the setting off of the brought forward unabsorbed depreciation loss of the earlier years. Therefore the issue is in very narrow point, as to whether the deduction or exemption claimed by the Assessee under Section 10B to the extent of ₹ 29,26,65,024/- has to be given prior to the carry forward depreciation allowance of the previous years or not. 19. In this context, the learned counsel for the Revenue has heavily relied upon a decision of the Karnataka High Court in the case of Commissioner of Income Tax v. Himatasingike Seide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for arriving at the figure exigible to the deduction of 8 per cent. This argument of the assessee was rejected by the Court and the Court held that the profits and gains exigible to the deduction of 8 per cent were profits and gains computed in accordance with the provisions of the Act and forming part of the total 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., and Ors. (1995) 129 (CTR (SC) 189 (1995) 216 ITR 607 (SC), the Court considered the issue of unabsorbed depreciation in terms of s. 32(2) of the IT Act. 12. The Rajasthan High Court in the case of CIT vs. Sun Stone Engineering Industries (P) Ltd., (1996) 132 CTR (Raj) 2003 : (1996) 220 ITR 182 (Raj), has ruled that : for the purpose of determination of the relief under s.80HH of the Act, the gross total income of the assessee has to be worked out after deducting unabsorbed losses and unabsorbed depreciation and the income eligible for deduction under s.80HH will be the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im depreciation allowance. This is because Chapter VI-A is an independent code by itself for computing these special types of deductions. In other words, one must first calculate the gross total income from which one must deduct a percentage of incomes contemplated by Chapter VI-A. That such special incomes were required to be computed as per the provisions of the Act, viz., s.29 to s.43A, which included s.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 s.80HH, without taking into consideration the current depreciation will have to be rejected. 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 vs. H.M.T. Ltd. (1992) 108 CTR (Kar) 215 : (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10B in view of the said later provision being pari materia with Section 10A of the Act though governing a different situation. 24. The question which came up for consideration in the said case before the Hon'ble Apex Court has been framed as follows at para 3 of the Judgment : 3. The broad question indicated above may be conveniently dissected into the following specific questions arising in the cases under consideration. (i) Whether Section 10A of the Act is beyond the purview of the computation mechanism of total income as defined under the Act. Consequently, is the income of a Section 10A unit required to be excluded before arriving at the gross total income of the assessee ? (ii) Whether the phrase total income in Section 10A of the Act is akin and pari materia with the said expression as appearing in Section 2(45) of the Act? (iii) Whether even after the amendment made with effect from 1.04.2001, Section 10A of the Act continues to remain an exemption section and not a deduction section? (iv) Whether losses of other 10A Units or non 10A Units can be set off against the profits of 10A Units before deductions under Section 10A are eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0A which provides for pro rata exemption, necessarily involving deduction of the profits arising out of domestic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head profits and gains from business in Chapter IV and denied the benefit of deduction. The provisions of sub-section (6) of Section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation, etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understood by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income of the assessee from the gross total income. The somewhat discordant use of the expression total income of the assessee in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression total income of the assessee in Section 10A as total income of the undertaking . 18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly. 26. In the aforesaid Judgment, the reason for such conclusion arrived at by the Hon'ble Apex Court has been explained at para 17 in unequivocal terms. The Apex Court has specifically held that, at the stage of the aggregate of the incomes under other heads, the provisions for set off and carry forward con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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