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TMI Blog2017 (11) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Income Tax Act, 1961 (hereinafter called "the Act") till assessment year 2002 - 03. For the year under consideration, i.e. AY 2003-04, the return of income was initially filed showing income of Rs. 11,19,69,789/- but later on the assessee realized that it had not claimed setoff of depreciation loss brought forward from assessment years 1993-94, 1994-95 and 1995-96 aggregating to Rs. 10,33,07,980/-. Therefore, after adjusting the set off of depreciation allowance already allowed amounting to Rs. 5,38,447/-, the assessee filed revised return of income claiming setoff of brought forward depreciation amounting to Rs. 10,27,69,533/-. 2.1 The assessee was entitled to special deduction under section 10A (3) of the Act and as per the existing provisions applicable to the assessee in the relevant assessment years, the assessee was entitled to claim deduction of its profits and gains in respect of any five consecutive assessment years falling within a period of eight years beginning with the assessment year relevant to the previous year in which the industrial undertaking began to manufacture or produce articles or things. The assessee, while filing the return for assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided in favour of the Department by holding that the unabsorbed depreciation for the assessment years 1993 - 94 to 1995-96 pertained to the period before 01/04/2001 and, therefore, the same could not be set off against the income of the assessment year under consideration. 2.5 Aggrieved, the assessee approached the Hon'ble High Court of Allahabad wherein vide judgment dated 13/02/2017 in ITA No. 446/2009, the Hon'ble High Court restored the issue to the file of the ITAT with the following observations - "After hearing Ld. counsels on both sides we are of the opinion that this matter requires reconsideration because one thing is clear on fact that the assessee had not claimed any benefit or any deduction in respect of the years 1993 - 94, 1994 - 95, 1995 - 96. It is also clear that no exemption was granted to the assessee. Although, Ld. counsel for the respondent has sought to argue that a specific bar was created by the 2001 amendment by which the right of the assessee to see anything beyond 1st April, 2001 was not there and his rights stood extinguished or exhausted by way of deemed in fiction, we are unable to agree with that because the amendment, which came thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier definition wherein "relevant assessment year" meant the five consecutive assessment years specified by the assessee at his option under subsection (3). The Ld. Authorised Representative underlined the fact that the earlier definition did not use the word "any". It was submitted that by the use of word "any", the unexpired period of the ten consecutive assessment years would be covered. 3.2 It was further submitted by the Ld. AR that the object and purpose behind section 10A and subsection 10A(6) of the Act was clearly discernible from the historical background of the provisions in the context of meaning and definition of "relevant assessment years" which could never be to deprive the assessee the benefit of other provisions of the Act in respect of those years for which the assessee could not avail exemption under section 10A. 3.3 It was further submitted that section 10A was an exemption section and the Department cannot interpret and use a deeming provision against the assessee when, by law, the assessee is precluded from taking the benefit on account of an express exclusion given under the provision itself. It was further submitted that since section 10A was a benefici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enjoys the tax holiday under section 10A does not enjoy any other tax concession. The effect was that from 01/04/2001, once the tax holiday ended, the bar or prohibition on enjoying other tax benefits such as carry forward and set off of loss and unabsorbed depreciation etc. came into force. The mandate of this subsection was that all such allowances and reliefs would be deemed to have been exhausted during the tax holiday period itself and no part thereof would survive for consideration after the tax holiday period. 5.2 However, it has to be first seen whether a particular benefit to the assessee is in the nature of a deduction or an exemption. The essential difference between exemption and deduction is that exempt income does not enter the computation of total income at all whereas in the case of a deduction, in the very nature of things, the income is first included in the total income and then given a deduction subject to fulfillment of certain conditions. The fact that the deduction may be given in respect of entire income does not necessarily mean that it is exempt income. At the same time, the fact that a particular class of income partially exempt from taxation does not n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally by the Finance Act, 2000, has been retained in Chapter III of the Act, notwithstanding the change in the language of subsection (1). If the Department is right in its contention that after 01/04/2001, the section only provides for deduction and not in exemption, it was open to the legislature to transpose the section from Chapter III to Chapter VI-A of the Act which is titled "deductions to be made in computing total income". This aspect of the matter has been adverted to and discussed by the Karnataka High Court in CIT v. Yokogawa India Ltd. (2012) 341 ITR 385 (Karn). It has been observed by the Karnataka High Court as follows (page 396): (Para 17) "The substituted section 10A continues to remain in Chapter III. It is titled as "Incomes which do not form part of total income.' It may be noted that when section 10A was recast by Finance Act, 2001, Parliament was aware of the character of relief given in Chapter III. Chapter III deals with incomes which do not form part of total income. If Parliament intended that the relief under section 10A should be by way of deduction in the normal course of computation of total income, it could have placed the same in Chapter VI-A, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is the true legal position, as we think it to be, then it is not possible to understand subsection (1) of section 10A as providing for a "deduction" of the profits of the eligible unit "from the total income of the assessee". The definition of the expression "total income" given in section 2 (45) cannot be imported into the interpretation of subsection (1) having regard to the context in which it is used in the scheme of the Act relating to the charge of the Act. It has to be kept in mind that the definition section would not apply if the context requires otherwise; in other words, if the scheme of the Act relating to the charge of income-tax clearly makes it impossible for any deduction to be allowed once the total income is determined, then it would be futile to still insist on applying the definition of the expression "total income" under section 2 (45) to the interpretation of the subsection. In other words, the context in which the expression "total income" is used in the subsection requires us to abandon the definition of that expression as per section 2 (45)....... (Para 18) There is further indication that section 10A provides for an exemption and not merely a deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re computed, suggesting that it is an exemption provision. It was held that the eligible profits are not to be subjected to the adjustment under section 72 of the Act, and the brought forward losses from the unit eligible for the relief under section 10B cannot be adjusted against the profits from the other three eligible units, which in effect reiterates the position that the loss does not entered the field of taxation just as the profits also do not enter the field. This, with respect, lends support more to the view that section 10A and section 10B are in the nature of exemption provisions, rather than provisions for deduction. In the ultimate analysis it may perhaps be wise to fall back on the observations of Justice Narasimham J. (as then he was) speaking for a Division Bench of the Orissa High Court in Ramachandra Mardaraj Deo versus Collector of Commercial Taxes (1957) 31 ITR 651 (Orissa) where he described the difference between "exemption" and "deduction" as "a fine distinction" and observed as under (page 658): (Para 22) "Whether a particular sum is claimed as an exemption or as a deduction, the net result is its immunity from taxation if the claim is allowed." Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessee's appeal to the ITAT that the intent of the Legislature while making these amendments was certainly not to curtail relief to an assessee, who had not availed double benefit. It is not the Department's case that any double benefit has been availed by the assessee. Also, the question as to whether section 10A is an exemption provision or a deduction provision is also no longer res integra in view of the judgment of the Hon'ble Delhi High Court in the case of CIT v. Tei Technologies Pvt. Ltd (supra) as well as CIT v. Yokogawa (supra), which the Hon'ble Delhi High Court has discussed in the case of CIT v. Tei Technologies Pvt. Ltd (supra). The Hon'ble Delhi High Court has held that it was in agreement with the judgment of the Karnataka High Court in the case of CIT v. Yokogawa (supra).Therefore, respectfully following the ratio of the said judgment of the Hon'ble Delhi High Court, we are of the considered opinion that the assessee will be eligible for set off of unabsorbed depreciation for the assessment years 1993 - 94 to 1995-96 against the income of the assessee for the assessment year under consideration. Therefore, we set aside the order of the Ld. CTT (Appeals) on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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