TMI Blog2016 (9) TMI 852X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) TMI 195 - SUPREME COURT ) although given in context of Section 80HHC of the Act. Thus,it is of considered view that consequent to amended provisions section 10B makes it clear that it is a deduction and not exemption , and the computation of income has to be in accordance with the provisions of the Act, therefore, not only profits but also losses from the business have to be taken into consideration while computing deduction u/s 10B of the Act. Thus, it is held that losses incurred in the non-eligible business by the assessee are to be set off against the profit of eligible units of the assessee to arrive at the deduction u/s 10B of the Act. - ITA No.4620/Mum/2015 - - - Dated:- 12-8-2016 - Shri Joginder Singh, Judicial Member For The Assessee : Shri Sharad A. Shah For The Revenue : Shri Ajay Pratap Singh-DR ORDER The Revenue is aggrieved by the impugned order dated 20/05/2015 of the Ld. First Appellate Authority, Mumbai. The only ground raised in this appeal, by the Revenue, is with respect to the learned CIT(A) holding that deduction claimed u/s 10B of the Income Tax Act, 1961 (hereinafter the Act) is an exemption, thus do not form part of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 10B of the Act which was claimed without adjusting loss from ineligible unit. I am of the view that deduction u/s 10A/10B, has to be given effect at the stage of computing the profit gains of the business under the head income from business or profession which shall be arrived at after adjusting loss of ineligible unit with the profit of the eligible unit i.e. giving effect to the provisions of Section 70 and 71 of the Act. Section 80A(1) stipulates that while computing the total income of the assessee, there shall be allowed from the gross total income, in accordance with and subject to the provisions of the chapter, the deduction specified in section 80C to 80U. Section 80B(5) defines the purposes of section VIA gross total income to mean the total income computed in accordance with the provisions of the Act before making any deduction under the chapter. The deduction u/s 10B, in my view, has to be given effect to at the stage of computing the profit gains of the business. Admittedly, there were divergent views among the Courts. The matter was clarified by Circular No.07/DV/2013 dated 16/07/2013 which is reproduced below : CIRCULAR NO. 7/DV/2013 [FILE NO.279/MISC. / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented 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 articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee... 3.2 The effect of the substitution of sections 10A and 10B of the Act has been elaborated in Circular No. 794 dated 9.8.2000 which clearly provides that the new provisions provide for deduction in respect of profits and gains derived by an undertaking from export of articles or things or computer software. 4. Sub-section (6) of sections 10A and 10B were amended by Finance Act, 2003 with retrospective effect from 1-4-2001. Circular No. 7/2003, dated 5-9-2003 explains the amendments brought by Finance Act, 2003. The relevant paragraph is reproduced below: 20. Providing for carry forward of business losses and unabsorbed depreciation to units in Special Economic Zones and 100% Export Orient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 71 of the Act. If after giving effect to the provisions of sections 70 and 71 of the Act there is any income (where there is no brought forward loss to be set off in accordance with the provisions of section 72 of the Act) and the same is eligible for deduction in accordance with the provisions of Chapter VI-A or sections 10A, 10B etc. of the Act, the same shall be allowed in computing the total income of the assessee. 5.3 If after aggregation of income in accordance with the provisions of sections 70 and 71 of the Act, the resultant amount is a loss (pertaining to assessment year 2001-02 and any subsequent year) from eligible unit it shall be eligible for carry forward and set off in accordance with the provisions of section 72 of the Act. Similarly, if there is a loss from an ineligible unit, it shall be carried forward and may be set off against the profits of eligible unit or ineligible unit as the case may be, in accordance with the provisions of section 72 of the Act. 6. The provisions of Chapter IV and Chapter VI shall also apply in computing the income for the purpose of deduction under sections 10AA and 10BA of the Act subject to the conditions specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 794 dated 09/08/2000 which clearly provides that the new provisions provide for deduction in respect of profits and gains derived by an undertaking from export of articles or things or computer software. 2.9. Sub-sections (6) of sections 10A and 10B were amended by Finance Act, 2003 with retrospective effect from 1.4.2001 Circular no.7/2003 dated 05/09/2003 explains the amendments brought by Finance Act, 2003. The relevant paragraph is reproduced below: 20. Providing for carry forward of business losses and unabsorbed depreciation to units in Special Economic Zones and 100% Export Oriented Units 20.1 Under the existing provisions of sections 10A and 10B, the undertakings operating in a Special Economic Zone (under section 10A) and 100% Export Oriented Units (EOU's) (under section 10B) are not permitted to carry forward their business losses and unabsorbed depreciation. . 20.2 With a view to rationalize the existing tax incentives in respect of such units, sub- section (6) in sections 10A and 10B has been amended to do away with the restrictions on the carry forward of business losses and unabsorbed depreciation. 20.3 The amendments have been brought into ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -A. Decisions of the Bombay High Court in CIT v. Shirke Construction Equipment Ltd. (2000 (246) ITR 429) and the Kerala High Court in CIT v. T.C. Usha (2003 (132) Taxman 297) to the contrary cannot be said to be the correct law . (The Hon ble Apex Court held in JEYAR CONSULTANT VS CIT in Civil Appeal No.8912 of 2003, order dated 01/04/2015) . Thus, section 80-AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration . 2.14. The Hon'ble jurisdictional High Court in Hindustan Unilever Ltd. vs DCIT (2010) 325 ITR 102 (Bom.); (2011) 237 CTR 287 (Bom.) held that section 10B, as it now stands, is not a provision in the nature of exemption but provides for a deduction and the loss sustained by the unit eligible for deduction u/s 10B could be set off against the normal business income and therefore, the assessment could not be reopened on the ground that loss of that unit was wrongly set off against the normal business income of the assessee. The Hon'ble Bombay High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riented undertaking, to which the section applies shall not be included in the total income of the assessee . The provision, therefore, as it earlier stood was in the nature of an exemption. After the substitution of Section 10B by the Finance Act of 2000, the provision as it now stands provides for a deduction of such profits and gains as are derived by a 100 per cent export oriented undertaking from the export of articles or things or computer software for ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. Consequently, it is evident that the basis on which the assessment has sought to be reopened is belied by a plain reading of the provision. The Assessing Officer was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under Section 10B. Three units had returned a profit during the course of the assessment year, while the Crab Stick unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of an undertaking referred to in Section 80- IA. Section 80-IA contains a specific provision in sub-section (5) to the following effect : (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1)apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. A similar provision corresponding to sub-section (5) of Section 80- IA is to be found in sub-section (6) of Section 80-I. Under subsection (5) of Section 80-IA which begins with overriding nonobtante provisions, profits and gains of an eligible business to which sub-section (1) applies are for the purposes of determining the quantum of deduction to be computed as if such eligible business were the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10B is a special provision in respect of the newly established 100 per cent export oriented undertaking. It provides for a tax deduction on the turnover on account of 100 per cent export oriented undertaking. In the case on hand, the appellant has submitted a computation of total income and for the said computation, he has taken the net profit, disallowance, entertainment of expenses, donation interest accrued but not due depreciation etc. He has arrived at a figure of ₹ 11,17,87,315. He has claimed the entire amount as an exemption under section 10B of the Act. The same has been accepted by the department. However, he has derived business income from other sources. The said amount works out to ₹ 41,09,479. Even for this income from other business sources, he has chosen to take unabsorbed depreciation of assessment year 1988-89. Totally the very amount thereby he has shown as taxable income nil for the relevant assessment year. The Assessing Officer has chosen to accept the same. The Commissioner of Income-tax noticing the nil income issued a notice under section 263 of the Income-tax Act, obtained reply and thereafter, he comes to a conclusion that the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to necessarily take into consideration the total income in terms of the Act. To arrive at the income one has to take into consideration, the various additions and deletions in terms of the Act. In fact, the petitioner knowing fully has chosen to take into consideration the allowability of depreciation for the purpose of calculation of total income. But curiously an argument has now been advanced that exemption in terms of section 10B could also be on commercial basis not necessarily in terms of the calculation. We do not accept this submission. Section 10B cannot be read in isolation of other provisions. It is only an exemption provision. Exemption cannot be fanciful and it has some rational with other provisions of the Act. There- fore, a combined reading of the definition of exemption, total income-tax liability deductibility etc., one has to come to a conclusion that calculation as far as possible is to be in terms of the Income-tax Act. That is exactly what has been done by the assessee. Having calculated in a particular manner, now it does not lie in the mouth of the assessee to contend contra in these proceedings. It cannot be argued that calculation so provided is on a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to the full amount of dividend received by the assessee. 10. In case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC), the Court considered as under : The question which arose in Cambay Electric Supply Co. s case ( 113 ITR 84) was whether unabsorbed depreciation and unabsorbed development rebate were liable to be deducted in arriving at the figure of profits and gains exigible to deduction of 8 per cent contemplated in sub-section (1) of section 80E. The argument of the assessee was precisely the same as the one advanced in the present case, namely, that the words such profits and gains in the latter part of sub-section (1) of section 80E were intended to refer only to the category of profits and gains referred to in the earlier part of that provision, namely, profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule and not to the quantum of the profits and gains included in the total income, so that the profits and gains exigi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that depreciation allowance ought to be deducted while computing the total income for the purposes of deduction under section 80HH. The Bombay High Court noticed the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC). After noticing the Bombay High Court ruled as under: The scheme of sections 4 and 5 of the Income-tax Act does indicate that income-tax is a tax in respect of income computed as per the provisions of the Act. There is a distinct dichotomy between cases of computation of normal income under the Act de hors Chapter VI-A and computation of taxable income where the assessee claims the benefit of deduction under Chapter VI-A because the Legislature has intended that these special deductions should be restricted to the profits derived from a newly established undertaking. The Court ruled ultimately reading as under: That Chapter VI-A, for the purposes of computing such deductions, constituted a separate code by itself. In order to compute the total taxable income of the assessee, deductions computed under section 80HH have to be reduced from the gross total income of the assessee. The question basically in this ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that total income have to be made as specified in Schedule I. There is no provision in Schedule I for making any adjustment in respect of relief under sections 80-I and 80J. The expression part of income, profits and gains not includible in the total income in rule 4 of the second Schedule cannot be construed or understood as referring to deductions, allowances etc., made under the Income-tax Act for purposes of computation of total income. The contention of the Commissioner could, therefore, not be accepted. A reading of the said judgment would show that it was rendered in totally different circumstances. 17. Taking into consideration, various aspects of the matter including the object of providing exemption in our view, the Commissioner is fully justified in holding that the assessee is not justified in showing nil return. We therefore, deem it proper to answer the questions of law in favour of the revenue. Consequently, the order of the Tribunal has to be set aside and the order of the Commissioner has to be accepted. No costs. 2.17. Keeping in my foregoing discussions and reasoning as set out above in preceding para s of this order, I hereby reiterate and conclude ..... X X X X Extracts X X X X X X X X Extracts X X X X
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