V.

ITTA/362/2011

AI Insights

The appeals in question revolved around the interpretation of Section 10B of the Income Tax Act, 1961, specifically whether the profits and gains from a 100% export-oriented undertaking should be deducted before or after adjusting for brought forward losses and unabsorbed depreciation. The appellants argued that Section 10B income should be excluded first from the total income computation, a view supported by precedents from the Karnataka and Delhi High Courts. Conversely, the Revenue contended that all incomes, including those under Section 10B, should be considered in the computation of total income as per Section 14 of the Act. The court sided with the appellants, affirming that Section 10B provides a clear exemption from total income, thus should be excluded at the outset of the income computation process.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 796374 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 20-08-2013
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Yokogawa India Limited, CIT v. Tei Technologies Pvt. Ltd., Commissioner of Income Tax v. Himatasingike Seide Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Applicant
• Court: HIGH COURT
• Keywords: Brought forward losses; Deduction; Export Oriented Undertaking; Tax Computation; Unabsorbed depreciation
• Section: 28; 72; 10B; 5; 14; 2(45)

Judgement Text

"THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE H0N’BLE SRI JUSTICE K.C.BHANU I.T.T.A. Nos. 360 OF 2011, 407 of 2010, 279 of 2012, 361 of 2011 and 362 of 2011 COMMON JUDGMENT: (Per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) All these appeals raise one common question of law i.e. whether deduction under Section 10B of the Income Tax Act, 1961 (for short, ‘the Act’) is required to be allowed before adjusting brought forward losses and unabsorbed depreciation. 2. To clarify this, we are to examine whether the profits and gains as are derived from 100% export oriented undertaking from the export of articles, is allowable before computing income for the purpose of taxation. 3. Learned counsel for the appellants submits that Chapter-III of the Act, which makes Section 10B as a part thereof, makes it clear about incomes which do not form part of total income, and the effect of Section 10B of the Act remains same irrespective of amendment of Section 10 B of the Act. According to him, before computation of total income, the deduction as mentioned in Section 10B of the Act has to be excluded first and thereafter the income has to be computed followed by deductions allowable under the law, one of which is losses of business of the previous years. He has also drawn our attention to Return of Income (ITS-1)- Form No.1 to support his contention. His further contention is that even the Guidelines given to file return in this regard by the Department also support the view that this income should not be brought for the purpose of computation. In support of his legal submission, he has relied upon decision of the Karnataka High Court in case of Commissioner of Income Tax v. Yokogawa India Limited[1], and also the decision of the Delhi High Court in case of CIT v. Tei Technologies Pvt. Ltd.[2]. 4. On the other hand, Mr. J.V. Prasad, learned counsel appearing for Revenue, while supporting the Judgment of the learned Tribunal, submits that all incomes as mentioned in Section 14 of the Act constitute income for the purpose of computation of total income. Section 14D of the Act deals with the head ‘profits and gains of business or profession’ and that this income has been derived in the course of business and the provision of Section 10B of the Act has to be read subject to Section 14 of the Act, and that under the provision of Section 10B, income deduction has to be given as it is allowable in the ordinary course of business. According to him, no special treatment is envisaged while dealing with the export income as it is essentially income from business. He has also referred to Section 28 of the Act, which provides a complete and exhaustive mechanism for taking income from profits and gains of business or profession, and further deduction is allowable under the said Section. According to him, the income from profit and gains is merely an exemption, if Section 10B is read carefully. In support of his contention, he relied on a decision reported in case of Commissioner of Income Tax v. Himatasingike Seide Ltd.[3]. 5. We, after hearing them, examine when deduction of export profit under Section 10B is to be allowed. Section 14 of the Act provides ‘Heads of Income’. Under this Section, profits and gains of business or profession is one of the heads which is required to be computed for the purpose of taxation. Whereas Section 10B of the Act is a provision for deduction of such profits and gains as are derived by 100% export oriented undertaking from the export of articles, before computing income for the purpose of taxation. Section 10B is a part of Chapter-III. It appears this Chapter is introduced for special purpose as it starts with words “Incomes which do not form part of total income”. 6. ‘Total Income’ has been defined under Section 2 (45) of the Act, which reads as follows: “the total amount of income referred to in section 5, computed in the manner laid down in this Act.” 7. Section 5 of the Act provides as follows: “Scope of total income. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year; Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year.” This Section relates to the total income of any assessee. 8. Total income has to be understood in the context of Section 14 of the Act. Aggregate income out of all the heads are mentioned in the heads of income under the said Section. Section 14 of the Act provides as follows :- Heads of income. 14. Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income- A-Salaries. B- (***) C-Income from house property D-Profits and gains of business or profession E-Capital gains F-Income from other sources. Language of Section 14 of the Act starts with words ‘Save as otherwise provided by this Act.’ Therefore, what is required to be found out is whether any income is kept outside the purview of taxable income. 9. As we have indicated supra, Chapter-III provides a measure where incomes are not included in the total income. We are of the view that Section 10B of the Act, which is a part of Chapter-III, is to be governed by this Chapter alone and the intention of the Legislature is very clear that any incomes within this Chapter are not to be included in total income. Total income means an aggregate figure computed for the purpose of taxation. Thus, we conclude that Section 14 of the Act has to be read subject to Section 10 which is a special provision, and by the provision of Section 14, this Chapter has been saved. Therefore, the argument of Mr. J.V.Prasad that income as mentioned in Section 10B of the Act has to be brought in the formula of general provision under Section 14 of the Act and also Section 28 of the Act and other provisions, is not acceptable. This question came up for consideration before the Karnataka High Court in the case of Yokogawa India Limited (1 supra). In paragraph no.29 of the report, the Karnataka High Court took the view as follows: “After making all such computations, the assessee would be entitled to the benefit of set off or carry forward of loss as provided under Section 72 of the Act. That is the benefit which is given to the assessee under the Act irrespective of the nature of business which he is carrying on. The said benefit is available even to undertakings under Section 10B of the Act. The expression ‘deduction of such profits and gains as derived by an undertaking shall be allowed from the total income of the assessee’ has to be understood in the context with which the said provision is inserted in Chapter-III of the Act. Sub-Section (4) of Section 10-A clarifies this position. It provides that the profits derived from export of articles or things from computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking” It is further observed in paragraph no.31 that as the income of 10- A unit has to be excluded as source itself before arriving at the gross total income, the loss of non 10-A unit cannot be set off against the income of 10-A unit under Section 72 of the Act. 10. The Delhi High Court in case of Tei Technologies Pvt. Ltd., (2 supra), while following the above judgment of the Karnataka High Court in the case of Yokogawa India Limited (1 supra), held in paragraph no.30 that Section 10A is a provision exempting a particular kind of income even in its present form, that is to say, even after being amended by the Finance Act, 2000. 11. From the aforesaid discussion, we are of the view that the aforesaid principle is squarely applicable in case of Section 10B of the Act and that the principle laid down for deciding the matter relatable to Section 10A of the Act is also to be applicable in case of Section 10B of the Act. The Department has not kept the provision ambiguous and unexplained. Schedule-B of Form No.1 viz. Return of Income (ITS-1) provides profits and gains of business or profession. In Item No.18 thereof, it is mentioned as follows. “Is section 10A/10B/10C applicable in your case ? If yes, have you opted out by filing declaration prescribed u/s 10A (8)/10B(8)/10C (6) ?” The instructions issued by the Department to fill up the form made the position clear. It has been clarified with regard to item No.18 as follows: “Sections 10A, 10B and 10C permit the claiming of deduction from incomes of some specified businesses. This item is meant to eliminate such income (s) from the computation of profits/gains.” Thus, from a reading of the aforesaid stand of the Department, it is clear that the provision of Section 10B, amongst others, is not treated to be any head of income and it cannot be brought within the purview of computing income for the purpose of taxation. We, therefore, hold accordingly that the Department has to exclude this portion of the income first at the threshold and thereafter proceed to compute the income for the purpose of taxation and then usual deductions under the other provisions of law have to be given. 12. In view of our findings, we do not find that the decision of Karnataka High Court in case of Himatasingike Seide Ltd, cited by Mr.J.V.Prasad is applicable. This decision helps the assessee, which observed that it is an exemption provision and nothing has been decided with regard to this issue in the judgment. 13. So far as second point in other matters viz., ITTA Nos. 360 of 2011 and 279 of 2012, whether the entire proceedings are liable to be set aside as the notice for the re-assessment is time barred as being beyond the period of 4 years from the relevant assessment year in the light of the fact that appellant not having failed to disclose any relevant particulars in its return of income is concerned, we find from the impugned judgment of the Tribunal that this issue has not been brought before the Tribunal by either of the parties for decision. The Commissioner of Income Tax (Appeals) decided the first issue though the appeal was preferred on both the issues by the assessee. Hence, we hold that when no appeal was preferred before the Tribunal by the assessee with regard to this point, question of being aggrieved by non rendering the decision does not and cannot arise. Naturally, we cannot examine this point when it was not raised before the Tribunal. 14. Accordingly, the appeals are allowed to the extent indicated above. No order as to costs. Miscellaneous petitions, if any, pending in these appeals shall stand closed. _____________________ K.J. SENGUPTA, CJ _______________ K.C.BHANU, J DATED: 20.08.2013 DRK/HSD THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE H0N’BLE SRI JUSTICE K.C.BHANU I.T.T.A. Nos. 360 OF 2011, 407 of 2010, 279 of 2012, 361 of 2011 and 362 of 2011 (Per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) 20.08.2013 [1] (2012) 341 ITR 385 [2] (2013) 259 CTR (Del) 186 [3] (2006) 286 ITR 255 (Karn.) "