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TMI Blog2014 (12) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... w deduction under section 10B before setting of the brought forward business losses against the profits of the year without appreciating the fact that as per the amended provisions of section 10B w.e.f. 1.4.2001, the deduction u/s 10B has to be finally allowed from the total income of the assessee and total income is computed after aggregation of the profits / losses of various units and after setting off b/f loss/unabsorbed depreciation relating to the earlier assessment years." 4. The assessee is a company. It is engaged in running IT enabled services. The assessee claimed deduction u/s. 10B of the Act on the profits of Export Oriented Unit (EOU) of Rs. 74,50,513. The AO was of the view that the deduction u/s. 10B was not an exemption provision and therefore brought forward losses for the A.Ys. 2003-04 & 2004-05 had to be set off against the profits of 10B unit and only on the remainder, deduction u/s. 10B has to be allowed. Accordingly, deduction u/s. 10B was allowed as follows:- "Total Business Profit Rs.74,55,513/- Less: Brought forward losses for Assessment year 2003-04 Rs.8,17,767 Assessment year 2004-05 Rs.33,87,978 Rs.42,05,745/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the CBDT, namely Circular No.7, dt 16.07.2013, as well as the decision of the Hon'ble Karnataka High Court in the case of Himatasingike Seide Ltd (286 ITR 255), which was later confirmed by the Hon'ble Supreme Court. It was pointed out by him that the Tribunal in the aforesaid decision finally came to the conclusion that the provisions of Sec.10A of the Act, are exemption provisions and therefore the income of 10A unit has to be excluded at the source. Therefore the question of set off of the current year and brought forward business loss and unabsorbed depreciation against Sec.10A profits does not arise. 7. We have given a careful consideration to the rival submissions. A similar issue and similar arguments on that issue had been considered by this Tribunal in the case of DCIT Vs. Biocon (supra). This Tribunal on an identical issue held as follows: "23. We have given a very careful consideration to the rival submissions. The issue raised by the assessee in ground no.21 is identical to the ground raised by the assessee in Biocon (supra). The facts of the case before the Tribunal in the case of Biocon (supra) were that the assessee during the previous year had fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Court took the view that the aforesaid provision was only an exemption provision. The CIT(Appeals) noticed that the aforesaid decision was followed by the ITAT Bangalore Bench in the case of Intelnet Technologies India Pvt. Ltd. v. ITO, ITA No.1021/Bang/2009 dated 12.3.2010. Similar view expressed by the Delhi Bench of the Tribunal in the case of Global Vantage Pvt. Ltd. v. DCIT, 2010 TIOL 24 ITAT (DEL) was also referred to by the CIT(A). A contrary view was expressed by the Bangalore Bench of the Tribunal in the case of KPIT Cummins Info Systems (Bangalore) Pvt. Ltd. v. ACIT, 120 TTJ 956. The CIT(A) found that in the case of Global Vantage Pvt. Ltd. (supra) decided by the Delhi Tribunal this decision has been held to be not in tune with the decision of the Hon'ble High Court of Karnataka in the case of Himatsingike Seide Ltd. (supra). The CIT(A) also referred to the decision of the Chennai Bench of the Tribunal in the case of Sword Global India Pvt. Ltd. v. ITO, 306 ITR 286 (AT), wherein the provisions of section 10A and 10B have been held to be deduction provisions and not exemption provisions. For all the above reasons, the CIT(Appeals) confirmed the order of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be set off against loss of either another STP undertaking or a non STP undertaking. The Hon'ble Court thereafter held that though the expression used in Sec.10A was "Deduction" but in effect it was only an exemption section. These conclusions clearly emanate from para 17 of the Hon'ble Court's judgment. 65. The situation with which we are concerned in the present case is a situation where 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. The Hon'ble Karnataka High Court in the case of Yokogawa (supra) was concerned with similar situation as set out above. In view of the aforesaid decision of the Hon'ble Karnataka High Court, we are of the view that the claim as made by the Assessee for carry forward of loss of the non-eligible unit had to be allowed without set off of profits of the 10A/10B unit. We hold accordingly and allow the relevant grounds of appeal of the Assessee. 66. We may also observe that the Hon'ble Karnataka High Court's decision in the case of Himatasingike Seide (supra) has held that unabsorbed depreciation (and business loss) of same (s. 10A/10B) unit broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so set off as mandated in the decision of the Hon'ble Karnataka High Court in the case of Himatasingike Seide Ltd. (supra). As we have already seen, in Yokogawa India Ltd. 341 ITR 385 (Kar), it was held that even after s. 10A/10B were converted into a "deduction" provision w.e.f 1.4.2001, the benefit of relief u/s 10A/10B is in the nature of "exemption" with reference to "commercial profits" and that as the income of the s. 10A unit has to be excluded at source itself before arriving at the gross total income, the question of setting off the loss of the current year's or the brought forward business loss (and unabsorbed depreciation) against the s. 10A profits does not arise. Therefore the decision of the Hon'ble Karnataka High Court in the case of Himatasingike Seide (supra) will not apply to the facts of the present case." 26. In view of the aforesaid decision, we are of the view that the claim made by the assessee deserves to be accepted. We may also observe that CBDT circular No.7 dated 16.07.2013, on the facts and circumstances of the present case is not a benevolent circular vis-à-vis, the assessee, and therefore the decision to the contrary of the Hon'ble Karnat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to deduct tax at source. The AO however took the view that the payment in question was fee for technical services rendered by the non-resident and was therefore chargeable to tax in India in the hands of the non-resident and therefore the Assessee was under an obligation to deduct tax at source. Since the Assessee failed to do so, the AO invoking the provisions of section 40(a)(ia) of the Act, disallowed the claim of the Assessee for deduction of payments made to the non-resident which was otherwise an expenditure deductible while computing total income of the Assessee. The total income of the Assessee came to be determined at Rs. 48,28,382/- due to this disallowance. 11. On appeal by the Assessee, the CIT(A) found that the ITAT in Assessee's own case for the assessment year 2008-09 in ITA No.1297/Bang/2011 order dated 28.9.2012 in respect of an identical payment to M/S. Novatel, USA, held that the payment was not fees for technical services rendered by the non-resident but was business income in the hands of the non-resident and since the non-resident did not have a permanent residence in India, the same is not chargeable to tax in the hands of the non-resident in India. The Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made it implicit that 'The most important expression in s. 195(1) consists of the words 'chargeable under the provisions of the Act'. A person paying interest or any other sum to a non-resident is not liable to deduct tax, if such sum is not chargeable to tax under the I.T.Act. 4.17 Moreover, the Hon'ble earlier Bench of this Tribunal had considered a similar issue in the case of Infosys Technologies Ltd. v. DCIT in ITA.No.1140/BangI2009 dated 21.1.2011. After due consideration of the issue and also in conformity with the ruling of the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. v. DCIT reported in 327 ITR 456(SC), the Hon'ble earlier Bench had decided the issue in favour of the assessee. The relevant portion of the findings of the Hon'ble Bench is reproduced as under: '4.9 The payments made to service providers such as AT and T or MCI Telecommunications are for the use of bandwidth provided for down linking signals in the United States. The payments made are not in the nature of managerial, consultancy or technical services nor is it for the use of or right to use industrial, commercial or scientific equipment. The service providers such as MCI Teleco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to the deducted at source by the resident in India making payment to non-resident. Admittedly, for the A.Y. 2010-11, such provision did not exist. At the time when the Assessee made payments to the non-resident such a provision did not exist. It is not possible for the Assessee to foresee an obligation to deduct tax at source by a retrospective amendment to the law. In such circumstances, the question that arises for consideration is as to, whether a liability to deduct tax at source can be fastened on an assessee on the basis of a retrospective amendment to the law. The amendment brought in by the Finance Act with retrospective effect, which was passed in the year subsequent to the year under consideration, should not be considered for penalizing the assessee by way of disallowance u/s 40(a)(ia) of the Act. 16. In the case of Kerala Vision Ltd. Vs. Asstt. CIT (ITAT Cochin), ITAT No. 794/Coch/2013, order dated 06.06.2014 question that came up for consideration was whether the retrospective amendment to Sec.195 can fasten obligation to deduct tax at source. The Tribunal found that the Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd Vs. DIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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