TMI Blog2012 (4) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... ce if cognizance of the judgment in Indian Rayon Corpn. Ltd.'s (2003 -TMI - 11904 - BOMBAY High Court) had been taken while interpreting section 80HHC. Since we are concerned with sections 10A/10B having no definition of the expression "profits of the business", there is no scope for arguing that the judgment in the case of Indian Rayon Corpn. Ltd. (supra) is not applicable which, in fact, has interpreted the expression "profits of the business" in the context of section 80HH without there being any specific definition of it. Clause (i) of sub-section (6) makes it clear that in computing the total income of the assessee for the eleventh year (i.e. after the expiry of the benefit u/s 10A for the first ten assessment years), depreciation u/s.32 shall be computed on the written down value of the fixed assets as reduced by the full amount of depreciation allowable for the ten relevant assessment years from the actual cost of the assets. Further, clause (iv) makes it clear that the written down value of any asset used for the business of the undertaking in the eleventh year shall be computed as if the assessee had claimed and had been actually allowed the deduction in respect of depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng heard to the assessee on the applicability of judgment in the case of Indian Rayon Corpn. ( supra ). On all other aspects, the order hitherto passed by the tribunal on 07.01.2009 is final. That is how this issue has come up before us in the instant proceedings. 3. Briefly stated, the facts of the case are that the assessee claimed deduction under sections 10A/10B. While computing eligible income for deduction under these sections, the assessee opted not to claim depreciation. On being show caused as to why depreciation be not allowed and the amount of eligible profits computed accordingly, the assessee submitted that Their Lordships of the Hon'ble Supreme Court in the case of CIT v. Mahendra Mills [2000] 243 ITR 56/109 Taxman 225 has held that the assessee cannot be forced to claim depreciation. The AO observed that in the past the assessee had been consistently claiming depreciation and hence the departure made in this year was not bona fide . Resultantly he granted depreciation to the tune of Rs. 14,31,96,372/-. Even the first appeal did not change the fortune of the assessee on this point. 4. Before us, the learned senior counsel for the assessee contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion "profits of the business" as used in sub-section (4) has not been specifically defined, specifically defines this expression in Explanation (baa) to section 80HHC. It was, therefore, submitted that in the absence of any definition of the expression "profits of the business" u/s. 10A, the ratio decidendi of the judgment in the case of Indian Rayon Corpn. Ltd. ( supra ) could not be applied to the facts of the instant case. In the light of these submissions, it was argued that the case of Indian Rayon Corpn. Ltd. ( supra ) is distinguishable on facts as it has no bearing on the question of deduction/s.10A. 5. In the opposition, the ld. D.R. contended that the said judgment in the case of Indian Rayon Corpn. Ltd. ( supra ) is fully applicable in the context of section 10A as well, as there is no material difference between deductions under Chapter VI-A and section 10A. 6. We have considered the rival submissions in the light of the material placed before us. It is an undisputed fact that the assessee is otherwise eligible to claim deduction u/ss. 10A/10B and all the requisite conditions stood satisfied. The assessee claimed such deduction in respect of the eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumvent unintended consequences flowing from this judgment, the Parliament has inserted Explanation 5 to section 32, through the Finance Act 2002, declaring that depreciation shall be allowed whether or not the assessee has claimed it. 8. In the instant case, we are concerned with computation of deduction under sections 10A/10B. The ld. AR has made his submissions by taking up the provisions of section 10A contending that the requisite conditions of section 10B, in so far as present controversy is concerned, are similar. As such, we will also concentrate on the provisions of section 10A. Sub-section (1) of section 10A provides as under : "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 : " (Emphasis supplied by us) 9. From a bare perusal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of Mahendra Mills ( supra ) was also considered and held to be not applicable. In the final analysis, it was held that : "Profits and gains of a newly established undertaking, therefore, have got to be computed as per the provisions of section 29 to 43A and if the assessee claimed relief under chapter VI-A of the Act, then it is not open to the assessee to disclaim depreciation allowance". 12. From the above judgment, it is discernible that in so far as computation of income not involving the claim of deductions under Chapter VI-A is considered, the same may be done as per the judgment of the Hon'ble Supreme Court in the case of Mahendra Mills ( supra ) that is, without claiming or allowing depreciation allowance under section 32 for the period anterior to the insertion of Explanation 5 to section 32. If, however, the question of deductions comes under consideration, then the profits of the business have to be computed after allowing all eligible deductions and allowances including the depreciation allowance. In the absence of any definition of the expression "profits of the business" given in section 10A, the same has to be understood i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irly indicates that the meaning of such expression as understood in commercial sense should be assigned which presupposes the grant of depreciation. The second reason for which this contention of the ld. AR is incapable of acceptance is that the judgment in Indian Rayon Corpn. ( supra ) has been, in fact, rendered in the context of section 80HH and not 80HHC as pleaded. There is no doubt that the expression "profits of the business" has been specifically defined in section 80HHC. In that view of the matter, it is not open to disregard the meaning so specifically given and import the meaning as understood in common parlance. However, the fact of the matter is that there is no definition of "profits of the business" in section 80HH which was the subject matter of consideration by the Hon'ble jurisdictional High Court. Their Lordships rendered the decision holding that depreciation must be taken into account for the purposes of computing profits of the business while working out the quantum of deduction u/s.80HH. In the present appeal, we are concerned with deduction under sections 10A/10B where, again, no definition has been given of the expression "profits of the business". In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent assessment year, --". [Emphasis supplied] 15. When we turn to sub-section (1) of section 10A, it can be noticed that the deduction under the section is available 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 etc. The opening part of sub-section (6) makes it abundantly clear that it has relevance and facilitates the computation of total income of the assessee of the previous year relevant to the assessment year(s) immediately succeeding the last of the years in which the benefit is available under section 10A. It has four clauses. Clause (i) provides that sec. 32 etc. shall apply in such year(s) as if depreciation allowance has been given full effect to in the relevant assessment years, that is, the years in which the benefit of deduction under this section is available. Clause (iv) states that in computing the depreciation allowance u/s.32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and actually been allowed the deduction in respect of depreciation for eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of admissible depreciation is actually taken into account in the first ten years, logically there is no reason to reduce the written down value of the assets in the eleventh year by the depreciation actually taken into account in the first ten years. 17. The ld. A.R. also emphasized that if the depreciation is to be compulsorily allowed in the relevant ten assessment years, then sub-section (6) would be rendered otiose. In his opinion, the compulsory granting of depreciation in the first ten years would automatically reduce the cost of assets by the depreciation allowed and there would be no requirement to have subsection (6) of sec. 10A. This contention is again devoid of force for the reason that sub-section (6) merely clarifies that in the eleventh year depreciation u/s. 32 shall be allowed on the written down value of the assets as reduced by the amount of depreciation for the ten relevant assessment years. The purpose behind sub-section (6) is that the written down value in the eleventh year has essentially to be determined after reducing the depreciation for ten years from the actual cost of the assets irrespective of the fact whether or not there were sufficient profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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