TMI Blog2013 (1) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the profits of Unit-I, i.e., Rs. 6,78,13,152-6,65,23,391 (Rs. 6,22,40,143 + Rs. 42,83,248) and offered the balance sum of Rs. 12,89,761 to tax. 3. The AO held that income of eligible units that are entitled to exemption u/s.10-B of the Act will not form part of the total income under the Act under Chapter-III of the Act and therefore they will not enter the computation of total income at all and therefore the set off of income of non-eligible unit against the loss of the eligible unit cannot be allowed. The AO relied on the decision of the Bangalore Bench of the ITAT in the case of Asstt. CIT v. Yokogawa India Ltd. [2007] 13 SOT 470 (Bang.) wherein the Tribunal took the view that profits of the eligible units u/s.10-B of the Act cannot be set off against loss of the non-eligible unit and exemption u/s.10-B allowed after such set off. The Tribunal ruled that income of the eligible unit is exempt under Chapter-III of the Act and will not therefore enter the computation of total income at all. Applying the same reasoning, the AO was of the view that when there are losses in the eligible units they cannot be set off against the taxable profits of the non-eligible unit. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch profit and game of the undertaking would not arise. In that view of the matter, the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of Section 10-A to the assessee. Hence, the main substantial question of law is answered in favour of the assessees and against the Revenue. In view of the clear and unambiguous finding of the jurisdictional High Court of Karnataka, it becomes clear that the unit exempted under section 10A is an insulated entity which has to carry its business performance in isolation from the rest of the appellant's business. In view of the findings of the court, it becomes academic as to whether the provisions of section l0B(6) places a specific bar or restriction regarding set off of carry forward of the losses of exempted units. Be that as it may, the provisions of section 10B(6) themselves quite clearly prescribe a specific methodology for carrying forward the losses of such unit for a certain period, which is distinguishable from the fact that no such specific stipulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability to pay interest U/s. 234B and 234D of 1.T. Act. The interest having been levied erroneously is to be deleted. 5. In view of the above and on other grounds to be adduced at the time of hearing, it is requested that the orders passed be quashed or atleast the appellant be allowed to set off losses of Unit-II and III against profit of Unit-I as claimed and interest levied be also deleted." 6. We have heard the submissions of the learned counsel for the Assessee. It was submitted by him that the decision of the Hon'ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd. [2012] 341 ITR 385 does not lay down that the provisions of Sec.10B are exemption provisions. The consequences if the provisions of Sec.10-B are treated as exemption provisions or deduction provision need to be set out. Income which does not form part of the total income under Chapter-III of the Act (i.e. exemption provision), do not enter the computation of total income at all. Sec. 4 of the Act creates charge of income-tax and it provides that where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of that definition must satisfy two conditions. Firstly, it must comprise the "total amount of income, profits and gains." Secondly, it must be "computed in the manner laid down in the Act". If either of these conditions fails, the income will not be a part of the total income that can be brought to charge. If income includes loss and if income of the eligible unit does not form part of the total income under the Act by virtue of provisions of Sec.10B(1) of the Act contained in Chapter III of the Act, then neither the gain nor loss would be considered for computation of total income. (Emphasis supplied) 8. The Hon'ble Supreme Court in CIT v. Harprasad Co. (P) Ltd. [1975] 99 ITR 118 (SC) has taken the view that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set off. Its sole purpose is to set off the loss against the profits of a subsequent year. It presupposes the permissibility and possibility of the carried forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of Sec.10A unit has to be deducted at source itself and not after computing the gross total income. 12. His further submission was that after the amendment to the provisions of Sec.10-B(6) of the Act by the Finance Act, 2003 w.r.e.f. 1.4.2001, whereby if during the period for which Sec.10-B unit enjoys tax benefits, the Assessee incurs loss, then those loss will be eligible for carry forward and set off against any other income. In this regard our attention was drawn to certain passages from the decision of the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra). 13. Reliance was also placed on the following decisions of the Hon'ble Bombay High Court wherein it was held that loss of Sec.10B unit has to be set off against income of the non-eligible unit. - Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102. - CIT v. Galaxy Surfactants Ltd. [2012] 343 ITR 108. - CIT v. Black Veatch Consulting (P.) Ltd 14. In final conclusion it was submitted that (a) when there is positive income of the eligible unit then the same should be allowed deduction u/s.10B of the Act without setting of the loss of non-eligible unit; (b) when the eligible uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this section, a deduction of such profits and gains as are derived by 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 under-taking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :" (Emphasis supplied) The expression "Deduction" and "shall be allowed from the total income of the Assessee" used in the aforesaid provisions was considered by the Hon'ble High Court and it held in para 13 to 15 of its judgment that the expression "shall be allowed from the total income of the Assessee" does not mean total income as defined u/s. 2(45) of the Act 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. The Hon'ble Court thereafter held that though the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s permitted to be carried forward or set off where such loss relates to any of the relevant assessment years. 22. It is in this background the Finance Act, 2003 was introduced by inserting the words "the year ending upto the first day of April, 2001", for that in cls. (1) and (2) of sub-s. (6) restricting the disallowance only upto the first day of April, 2001 and granting the benefit, of those provisions even in respect of units to which ss. 10A and 10B are applicable. The Finance Act, 2003, amended this sub-section with retrospective effect from 1st April, 2001 by lifting the embargo in the aforesaid clauses in respect of depreciation and business loss relating to the asst. yr. 2001-02 onwards. The amendment indicates the legislative intention of providing the benefit of carry forward of depreciation and business loss relating to any year of the tax holiday period to be set off against income of any year post tax holiday. This is supported by Circular No. 7 of 2003 [(2003) 184 CTR (St) 33] wherein the board has stated that the purpose of amendment is to entitle an assessee to the benefit of carry forward of depreciation and loss suffered during the tax holiday period. The circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Act, 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) of the Act. It is also clear that the loss suffered by the eligible unit u/s.10-B of the Act 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. 21. If the claim of the Assessee is accepted then that would mean that the Assessee will have two benefits u/s.10B. The first benefit is an exemption of the commercial profits during the tax holiday period on a stand-alone basis without the threat of those profits being set off against loss of any other undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from non-eligible unit against the profits of the eligible unit while allowing deduction u/s.10-A of the Act. The following were the relevant observations of the Hon'ble Court: "28. ... In interpreting sub-section (1) of Section 10A after the amendment made by the Finance Act, 2000 w. e. f. 01.04.2001, one cannot deny that there is ambiguity or doubt, because of the language used, as to whether the sub-section provides for an exemption or a deduction. We have earlier referred to the difficulty caused by the language which says that the deduction shall be made from the total income, when the Act contains no provision to allow any deductions from the total income. The section has been interpreted by the Karnataka High Court (supra) as an exemption provision whereas the Bombay High Court has understood the same as a deduction section, though the ultimate result did not make any difference to the assessee's claim in Black Veatch Consulting (supra). Therefore, it cannot be denied that there is uncertainty and lack of clarity or precision in the language employed in sub-section (1). It is, therefore, not impermissible to rely on the heading or title of Chapter III and interpret the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
