TMI Blog2017 (11) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995-96 against the income of the assessee for the assessment year under consideration. Therefore, we set aside the order of the Ld. CTT (Appeals) on this issue and direct the AO to allow set off of unabsorbed depreciation to the assessee as discussed hereinabove. - Decided in favour of assessee. - ITA No. 2845/Del/2007 - - - Dated:- 31-10-2017 - SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Appellant : Shri Shashwat Bajpai, Sharat Agrawal, Adv. For The Respondent : Shri Atiq Ahmad, Sr. DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER This appeal has been preferred by the assessee against the order dated 5th of March 2007 passed by the Commissioner of Income Tax (Appeals), Ghaziabad for assessment year 2003 04. 2. The brief facts of the case are assessee is a company incorporated on 26/03/1991 and 1 of the units (Unit 1) is in the Noida Export Processing Zone, Noida. The assessee company manufactures CFL lamps for which it has 2 units. The unit in the Noida Export Processing Zone began production w.e.f. 01/02/1993 (relevant to assessment year 1993 94). The second unit is admittedly outsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sorbed carried forward depreciation could be set off by the assessee in the assessment year under consideration. It was contended that assessment years 1993 94 to 1995 96 were prior to the start of relevant assessment year for the purpose of section 10A of the Act and, therefore, the unabsorbed carried forward depreciation could be set off in the year under consideration. 2.3 However, the assessing officer after considering the provisions of section 10A (6) of the Act opined that section 10A (6), as amended from 01/04/2001, assumed that full allowance under depreciation had been given effect to. The AO was of the opinion that section 10A(6) overrode all other provisions of the Act and it provided certain special provisions for computing the total income of the assessee. The AO held that since the year under consideration immediately succeeded the last of the relevant assessment year, the brought forward depreciation could not be allowed to be set off against the income of the relevant Unit 1 or any other unit. Consequently, the respective unabsorbed depreciation amounts were not allowed to be carried forward or set off against the profits of any subsequent year as they were pend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the 1st proviso to section 10A(1) provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of the section, as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this subsection only for the unexpired period of the aforesaid ten consecutive assessment years. It was submitted that, accordingly, in terms of 1st proviso, the assessee could not have claimed exemption for the expired period which was covered by assessment years 1993-94, 1994 95 and 1995 1996 and, therefore, the assessee could have claimed exemption for the unexpired period which is assessment year 2001-02 and 2002 03. 3.1 The Ld. Authorised Representative further submitted that it was the Revenue s contention that as per the amended definition, the phrase relevant assessment year meant all assessment years falling within a period of ten consecutive years whereas the definition of the term relevant assessment year very categorically used the word any and not all . He referred to explanation 2 to section 10A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to say the gross receipts of profits minus expenditure incurred that will be eligible for exemption. It was submitted that in light of the legal provisions as well as judicial precedents, the appeal of the assessee be allowed. 4. In response, the Ld. Senior Departmental Representative relied on the order of the Ld. CIT (Appeals) as well as supported the observations of the AO in the assessment order and submitted that the Ld. Commissioner of Income Tax (Appeals) had given his adjudication after due consideration of the facts and the legal issues involved and, therefore, the same should not be disturbed. 5. We have heard the rival submissions and have perused the material on record. As far as the facts of the case are concerned, the same are undisputed. The only question for consideration before us is whether the unabsorbed depreciation relating to nonexemption years that is assessment year 1993 94, 94 95 and 1995 96 could be denied to be carried forward and set off in the assessment year under consideration, that is, assessment year 2003 04. 5.1 We proceed to analyse the legal position first. The Finance Act, 2003 made significant changes both with prospective and retro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, however provides for a deduction of such profits 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 subsection (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 includable in the assessees total income are now so included, subject to deduction, and once the profits are included, all the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the eligible profits, there is good reason to think that it is not to be considered as a deduction because the subsection 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 the 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 VI-A. 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 the 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 inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that after aggregating the income from salary, house property, profits and gains from business, capital gains and income from other sources, the total is arrived at and it is from this total that the losses 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 VI-A 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 be 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. (Para 19) It is interesting to note that though there is a divergence of opinion between the Karnataka High Court in Yokogawa s case (supra) and the Bombay High Court in Hindustan Unilever (supra) as to the nature of section 10A whether it provides for exemption or deduction of the profits of the eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven after being amended by the Finance Act, 2000, w.e.f. 01/04/2001.We are inclined, with respect to agree with the view taken by the Karnataka High Court in the case of CIT v. Yokogawa (supra). As noticed, the Bombay High Court reached the same conclusion which the Karnataka High Court reached in the case of CIT v. Yokogawa (supra), in its judgment in Hindustan Unilever Ltd (supra) and CIT vs. Black and Veatch Consulting Ltd (supra), despite taking the view that section provides for a deduction and not an exemption. (Para 30) . We have already seen that section 10A, as it presently stands, though worded as deduction provision, is essentially and in substance an exemption provision we have also held that the implication of an exemption provision is that the particular income which is exempt from taxes does not enter the field of taxation and is not subject to any computation. The computation provisions of the Act do not get attracted at all to the exempted income. . (Para 35) 5.4 Coming to the present appeal before us, as we have already stated, the facts are not in dispute and the only question for our consideration is whether the unabsorbed depreciation relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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