TMI Blog2008 (8) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... quantum of telecommunication charges so considered to be reduced from the export turnover and therefore stands partly allowed on the agitation of the assessee before us that the said amount is to be correspondingly reduced from the total turnover as well for the purpose of arriving at the deduction in the ratio of export turnover to the total turnover. This issue stands partly allowed. We are of the opinion that even if it is agreed that s. 10A deduction is to be given effect to after applying ss. 28 to 44D, the same would be without giving effect to the provisions of s. 32(2). This is because s. 32(2) is to be given effect to after the provisions of s. 72 are applied. The prioritization between ss. 72 and 32(2) is provided for in each of the said sections. Once the income of the present year is computed, one would have to first give effect to the provisions of s. 72(1), and thereafter come back to s. 32(2). In the process of giving effect to s. 72(1), one would traverse out of the regime of Chapter IV-D. Therefore the provisions of s. 32(2) are not to be given effect to while computing the profits of the undertaking eligible for deduction under s. 10A. The Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits of the business. The case was selected for scrutiny and the assessment was completed on 31st Oct., 2006 under s. 143(3). 3. In the assessment order deduction under s. 10A has been allowed after reducing the unabsorbed depreciation allowance from the profits of the business. Also, communicating charges of Rs. 7,56,347 has been reduced from the export turnover, while calculating the deduction under s. 10A. 4. Aggrieved, the assessee appealed before the first appellate authority, who considered the case of the assessee appellant and on the issue of claiming deduction under s. 10A after reducing the brought forward losses and depreciation of earlier years, relying on the decision of the Tribunal Bangalore Bench in the case of Infocon International Ltd. and Karnataka High Court decision in the case of CIT vs. Himatasingike Seide Ltd. (2006) 206 CTR (Kar) 106 : (2006) 286 ITR 255 (Kar), held that unabsorbed depreciation is to be treated as current year's depreciation as per s. 32(2) and to be deducted while computing profits of business under Chapter IV-D. The special incomes are required to be computed as per provisions of the Act, ss. 29 to 43A which included s. 32(2) and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws relied on for supporting the theory which has to be understood in the simple manner so as to bring out the legal fiction so created and understood otherwise by the authorities below. He submitted the profits will have to be determined on the basis of commercial principles, the deduction of such profits cannot fit into the computation scheme given under s. 14 of the IT Act. The deduction of such profits will have to be first given under s. 10A and only if any balance remains. the same will have to be treated in accordance with the provisions of the Act. Under s. 10A, as it stood prior to amendment w.e.f. 1st April, 2001, it was provided that the profits shall not be included in the total income. At the time of substitution of s. 10A w.e.f. 1st April, 2001, it was stated by the CBDT in its Circular No. 794, dt. 9th Aug., 2000 [(2000) 162 CTR (St) 9 : (2000) 245 ITR (St) 1] that the substitution has been effected with a view to rationalize the provisions of s. 10A. In para 15.2 of Circular No. 794, it is stated as follows, "with a view to rationalize the concession and to phase these out by the end of the asst. yr. 2009-10, the provisions of ss. 10A and 10B have been substituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire total income. 10. The learned counsel for the assessee submitted that s. 10A provides for deduction from total income. In the scheme of the Act, while various deductions are allowed in computing the total income, once the total income is computed, no further adjustment to the total is envisaged. The scheme of the Act provides for deductions in computing total income and provides no mechanism for any deduction from the total income already computed. Once the total income is computed, the next step is determination of tax by applying the applicable rates on the total income. Deduction under s. 10A thus cannot be from the total income. 11. Under s. 10A(1), the deduction "shall be allowed from the total income of the assessee". Instruction No. 18 in the "Instruction for filling Form No. 1" reads as follows. "Item 18: Secs. 10A and 10C permit the claiming of deduction from incomes of some specified businesses. This item is meant to eliminate such income(s) from the computation of profits/gains". The instructions are clear that s. 10A would operate to eliminate the relevant income from the computation of profits and gains. In the context of the purpose, object and the placement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the above sections are required to be mentioned separately under col. 35. The deduction under each of the above sections is required to be mentioned in separate schedules designed for this purpose. Under these schedules, the deductions are required to be specified for each undertaking separately. Item No. 16(k) of the instructions for filling Form ITR-6 clarifies that the amount of deduction under s. 10A would be for each undertaking separately and such amount would be the amount of deduction as specified in Item 17 of Form No. 56F being the report of audit under s. 10A. 13. The Supreme Court in CIT vs. Smt. P.K. Kochammu Amma Peroke (1980) 19 CTR (SC) 196 : (1980) 125 ITR 624 (SC) has laid down the principle that forms prescribed by the Department cannot be ignored, and the interpretation of law contained therein reflects the executive opinion on the matter. 14. Thus, deduction under s. 10A is to be allowed for each eligible undertaking separately under Chapter IV itself. After this, all the incomes are aggregated under Chapter VI. The applicability of Chapter VI-A would have to be considered subsequent to the role of Chapter VI. The total income would be computed after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Judgment of the Hon'ble Karnataka High Court was squarely applicable to the fads and circumstances of the assessee's case and the learned CIT(A) rightly upheld the order of the AO in reducing the brought forward unabsorbed depreciation of earlier years from the profits of business of the assessee before computing deduction under s. 10A. 18. With respect to the other issue agitated by the assessee that telecommunication charges to be reduced from the total turnover also, she agreed that the issue stands covered by the various decisions of the Tribunal Bangalore Benches insofar as the assessee is not disputing the quantum of telecommunication charges to be reduced from the export turnover as defined in the said section. 19. We have heard the rival contentions and perused the material available on record. The second issue stands covered by the various decisions of Tribunal Bangalore Benches as relied upon by the learned counsel for the assessee by citing the various decisions which need not be repeated. The learned counsel for the assessee has not disputed the quantum of telecommunication charges so considered to be reduced from the export turnover amounting to Rs. 7,56,347 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision contained in provision (b) to s. 10(2)(vi) of the Indian IT Act, 1922 and in s. 32(2) of the IT Act, 1961, is to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year so that it is available unlike unabsorbed carried forward business loss. for being set off against other heads of income of that year. Such being the purpose for which the legal fiction is created, the fiction cannot be extended beyond its legitimate field and will have to be confined to that purpose. It cannot be said that because of the legal fiction. the unabsorbed carried forward losses should be given preference not merely over the unabsorbed carried forward depreciation but also over the current year's depreciation." Current year's depreciation is allowed as a deduction under s. 32(1) of the IT Act. If the net result of the computation after deducting the current year's depreciation is a loss. the said loss is characterized as loss under the head "profits and gains of business or profession". At this stage, no distinction is drawn between business loss and depreciation loss. While giving effect to s. 70 or 71 no distinction is dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed to take a contrary stand. 22. The lower authorities in support of their stand have relied on the decision of Karnataka High Court in the case of CIT vs. Himatasingike Seide Ltd. The Karnataka High Court held that unabsorbed depreciation and investment allowance have to be set off against income of eligible units before the computation of exemption under s. 10B. It was also held that the income eligible for exemption has to be computed as per the provision of the IT Act and not on a commercial basis. The case before the Karnataka High Court pertained to asst. yr. 1994-95. Sec. 10B at the relevant time excluded certain incomes in the process of arriving at the total income. Sec. 10B at the relevant time operated as an exemption section. The terminology of s. 10B has not been changed. The section currently provides for a deduction from total income. This change was brought about when s. 10B was substituted. Thus, the decision of the Karnataka High Court having been rendered in the context of old s. 10B, cannot be made applicable to the present case. Also the various citations referred and relied by the Hon'ble Karnataka High Court pertain to deductions conferred under Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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