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2013 (1) TMI 112 - AT - Income TaxExemption u/s.10-B - Income of eligible units entitled to exemption u/s.10-B will not form part of the total income under Chapter-III of the Act - disallowance of set off of income of non-eligible unit against the loss of the eligible unit - Held that:- As decided in CIT v. Yokogawa India Ltd [2011 (8) TMI 845 - KARNATAKA HIGH COURT] it is clear that the income of the section 10A unit has to be excluded before arriving at the gross total income of the assessee & not after computing the gross total income. Also when there is positive income of the eligible unit then the same should be allowed deduction u/s. 10B without setting of the loss of non-eligible unit but when the eligible unit incurs loss than that will have to be set off against income if any of the non-eligible unit. As deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. The expression "Deduction" and "shall be allowed from the total income of the Assessee" used in the provisions was considered by the Hon'ble High Court and it held that the expression "shall be allowed from the total income of the Assessee" does not mean total income as defined u/s. 2(45) but that expression means "profits and gains of the STP undertaking as understood in its commercial sense or the total income of the STP unit." Thus the view expressed is that income of the STP undertaking gets quarantined and will not be allowed to be set off against loss of either another STP undertaking or a non STP undertaking. Therefore unable to accept the plea of the Assessee that the Hon'ble Karnataka High Court has only held that income of the Sec. 10B unit has to be excluded before arriving at the gross total income and not after computing the gross total income. As during the period when the eligible unit enjoys exemption u/s.10B if it suffers a loss then the same will be quarantined and carried forward to the assessment years immediately following the last of the assessment years for which the Assessee is entitled to claim exemption u/s.10B, for being set off in accordance with law as if it were any other loss to be dealt with in accordance with Sec.70 to 72 and 32(2). It is also clear that the loss suffered by the eligible unit u/s.10-B during the period it claims exemption without opting out of those provisions will only remain in suspension to be revived immediately after the tax holiday period. Therefore the set off of the eligible unit loss against income of non eligible unit during the tax holiday period when the Assessee has not opted out of the incentive provisions for this year cannot be allowed and has been rightly not allowed by the Revenue authorities. If the claim of the Assessee is accepted then that would mean that the Assessee will have two benefits u/s.10B first being an exemption of the commercial profits during the tax holiday period on a stand-alone basis without the threat of being set off against loss of any other undertaking & second that its losses during the tax holiday period can be set off against the income of the non-eligible undertaking. As the second benefit is not available during the tax holiday period and the provisions of Sec.10B(6) allow them to be kept in suspense to be set off after the tax holiday period the claim of the Assessee in the present case was rightly not accepted by the revenue authorities - against assessee.
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