Karle International, Bangalore V. ACIT, Bangalore

ITA 381/BANG/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63702 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-10-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 15-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA CITIDR
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Business income; Depreciation; Carry forward of business losses; Question of law; Unabsorbed depreciation
• Section: 234B; 10B; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.381/BANG/2012 ASSESSMENT YEAR : 2008-09 KARLE INTERNATIONAL PVT. LTD. (FORMERLY KARLE INTERNATIONAL), NO.203/73, TUMKUR ROAD, NAGASANDRA VILLAGE, BANGALORE NORTH, BANGALORE. PAN : AACFK 0385L VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(1), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI PADAMCHAND KHINCHA, C.A. REVENUE BY : SHRI S.K. AMBASTHA, CIT-I(DR) DATE OF HEARING : 09.10.2012 DATE OF PRONOUNCEMENT : 12.10.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THE ASSESSEE IS A PARTNERSHIP FIRM. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF READY-MADE GARMENTS. FOR AY 08-09, THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INC OME OF RS.12,89,760/-. THE ASSESSEE HAD THREE UNITS. UNIT-I IS A DOMESTIC TARIFF AREA (DTA) UNIT. ITA NO.381/BANG/2012 PAGE 2 OF 19 THIS UNIT WAS NOT ENTITLED TO ANY EXEMPTION. WE WI LL REFER TO THIS AS A NON- ELIGIBLE UNIT. UNIT II AND UNIT III WERE 100% EXPO RT ORIENTED UNITS ELIGIBLE FOR EXEMPTION U/S.10-B OF THE ACT. THESE UNITS WIL L BE REFERRED TO AS ELIGIBLE UNITS. THE POSITION OF INCOME AND LOSS OF THE THRE E UNITS FOR THE PREVIOUS YEAR WAS AS FOLLOWS: UNIT INCOME/(LOSS) UNIT-I RS.6,78,13,152 UNIT-II (RS.6,22,40,143) LOSS UNIT-III (RS.42,83,248) LOSS 2. WHILE FILING THE RETURN OF INCOME, THE ASSESSEE SET OFF LOSSES OF ELIGIBLE UNITS (UNIT-II AND III) AGAINST THE PROFIT S OF UNIT-I, I.E., RS.6,78,13,152 - 6,65,23,391 (RS.6,22,40,143 + RS.42,83,248) AND O FFERED THE BALANCE SUM OF RS.12,89,761 TO TAX. 3. THE AO HELD THAT INCOME OF ELIGIBLE UNITS THAT A RE 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 TH E 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 YOKOGOWA INDIA LTD. 111 TTJ 548 BANGALORE 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 TH E 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 ITA NO.381/BANG/2012 PAGE 3 OF 19 THAT WHEN THERE ARE LOSSES IN THE ELIGIBLE UNITS TH EY CANNOT BE SET OFF AGAINST THE TAXABLE PROFITS OF THE NON-ELIGIBLE UNI T. THIS IS THE SUM AND SUBSTANCE OF THE REASONING OF THE AO. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) VIDE ORDER DTD. 02.02.2012 HELD AS FOLLOWS: 5.2. I HAVE CAREFULLY CONSIDERED THE GROUNDS RAIS ED BY THE APPELLANT AND PERUSED THE CASE LAWS ADDUCED IN SUPP ORT OF THE CLAIM. AT THE OUTSET, I MAY MENTION THAT THE ROOT O F THE ISSUE CONCERNS THE PLACEMENT OF THE EXEMPTIONS ALLOWED UN DER SECTION 10A, WITH RESPECT TO WHETHER THESE ARE IN THE NATUR E OF EXEMPTIONS OR DEDUCTIONS. THERE HAS BEEN A RUNNING DISPUTE BETWEEN TAXPAYERS AND THE DEPARTMENT ON THIS ISSUE FOR SOME YEARS NOW, AS TO WHETHER THE PROVISIONS OF CHAPTER 6 OF THE ACT PRECEDE THE FINAL DETERMINATION OF INCOMES UNDER SE CTION 10A. AS FAR AS KARNATAKA IS CONCERNED, THE MATTER HAS BEEN JUDICIALLY SETTLED RECENTLY BY THE LD. HIGH COURT OF KARNATAKA IN ITA NUMBER 78/2011 IN THE CASE OF COMMISSIONER OF INCOM E TAX VS M/S YOKOGAWA INDIA LTD. AFTER AN EXHAUSTIVE DISCUSS ION ON THE LEGAL PROVISIONS INVOLVED, THE COURT FOUND THAT THE INCOME OF A 10A UNIT HAS TO BE EXCLUDED AT THE SOURCE ITSELF BE FORE ARRIVING AT THE GROSS TOTAL INCOME AND THAT SINCE THIS INCOME I S NOT TO BE INCLUDED IN THE INCOME OF THE ASSESSEE AT ALL, THER E WAS NO OCCASION TO SET OFF THE LOSSES OF THE ASSESSEE IN R ESPECT OF HIS OTHER BUSINESS AGAINST THE PROFITS OF THE EXEMPTED UNITS. THE SALIENT FINDINGS OF THE HONOURABLE COURT ARE AS BEL OW: AS THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED AT SO URCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, T HE LOSS OF NON 10-A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10- A UNIT UNDER SECTION 72. THE LOSS INCURRED BY THE A SSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PRO FESSION HAS TO BE SET OFF AGAINST THE PROFITS AND GAINS IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY SUCH ASSESSEE. THEREFORE AS THE PROFITS AND GAINS UNDER SECTION 10 -A IS NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE AT AL L, THE QUESTION OF SETTING OFF THE LOSS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY, AS P ER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FI RST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION UNDER SECTION 32(2) IS T O BE SET OFF AS DEDUCTION UNDER SECTION 10-A HAS TO BE EXCLU DED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF ITA NO.381/BANG/2012 PAGE 4 OF 19 UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAME OF THE UNDERTAKING WOULD NOT ARISE. IN THA T VIEW OF THE MATTER, THE APPROACH OF THE ASSESSING AUTHOR ITY WAS QUITE CONTRARY TO THE AFORESAID STATUTORY PROVISION S AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUSTIFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDE R AND GRANTING THE BENEFIT OF SECTION 10-A TO THE ASSESSE E. HENCE, THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSW ERED 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 APPELLANTS BUSINESS. IN VIEW OF THE FINDINGS OF THE COURT, IT BECOMES ACADEMIC AS TO WHETHER THE PROVISIONS OF SECTION L0 B(6) PLACES A SPECIFIC BAR OR RESTRICTION REGARDING SET OFF OF CA RRY FORWARD OF THE LOSSES OF EXEMPTED UNITS. BE THAT AS IT MAY, THE PR OVISIONS 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 F ACT THAT NO SUCH SPECIFIC STIPULATION IS GIVEN FOR ADJUSTMENT OF THE INCOMES OF EXEMPTED UNITS AGAINST LOSSES OF OTHER UNITS. IT IS SIGNIFICANT TO MENTION THAT IN THE VERY CASE BEFORE IT, THE KARNAT AKA HIGH COURT WAS HEARING AN APPEAL AGAINST THE ORDER OF THE APPE LLATE TRIBUNAL WHICH HAD RULED IN FAVOUR OF THE APPELLANT BY INSUL ATING THE PROFITS OF THE EXEMPTED UNITS FROM ADJUSTMENT AGAIN ST OF OTHER UNITS AS DONE BY THE ASSESSING OFFICER. THE EFFECT OF THIS INSTALLATION, SINCE CONFIRMED BY THE HIGH COURT, IS TO QUARANTINE THE PERFORMANCE OF THE 10A UNIT COMPLETELY. IT LOGI CALLY FOLLOWS THAT THE SAME INSULATION WOULD PREVENT THE FLOW OF THE ADJUSTMENT IN A REVERSE DIRECTION ALSO. HENCE, NEITHER THE INC OME NOR THE LOSS OF SUCH AN EXEMPTED UNIT CAN BE NOW ADJUSTED AGAINS T THE RESULTS OF ANOTHER UNIT (WHETHER EXEMPTED OR NOT) RUN BY TH E APPELLANT, AS PER THE RATIONALE OF THE JUDGEMENT OF THE JURISDICT IONAL HIGH COURT. 5.4. IN VIEW OF THE ABOVE, AND RESPECTFULLY FOLLOW ING THE RATIONALE OF THE ORDER OF THE HONOURABLE HIGH COURT OF KARNATAKA AS DETAILED IN THE PRECEDING PARAGRAPHS, I AM UNABL E TO CONCEDE TO THE CLAIM OF THE APPELLANT AS RAISED IN THE GROUNDS OF APPEAL, AND FIND THAT THE ACTION OF THE AO DOES NOT MERIT ANY I NTERFERENCE. AS SUCH, THE APPEAL IS DISMISSED. ITA NO.381/BANG/2012 PAGE 5 OF 19 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE GROUND S OF APPEAL RAISED BY THE ASSESSEE READS AS FOLLOWS: 1. THE LEARNED ASSESSING OFFICER HAD ERRED IN PAS SING THE ORDER IN THE MANNER PASSED BY HIM AND THE LEARNED C OMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO ERRED IN CONFIRMIN G THE SAME. THE ORDERS PASSED BEING BAD IN LAW ARE LIABLE TO BE QUASHED. 2. IN ANY CASE AND WITHOUT PREJUDICE, THE AUTHORIT IES BELOW HAVE ERRED IN NOT ALLOWING THE SET OFF LOSSES OF UN ITS, WHOSE PROFITS ARE ENTITLED FOR EXEMPTION U/S. L0B OF I.T. ACT, 1961 AGAINST PROFITS OF DTA UNIT. THE ACTION OF AUTHORIT IES BELOW BEING CONTRARY TO BOTH THE FACTS AND LAW AND ON AN ERRONEOUS PREMISE ARE TO BE DISREGARDED. 3. THE LOWER AUTHORITIES HAVE ERRED IN NOT APPRECI ATING THE FACTS THAT FOR THE YEAR, THE ERSTWHILE FIRM HAD NOT CLAIMED DEDUCTION U/S. L0B OF THE I.T. ACT, FOR UNITS-II AN D III. ON PROPER APPRECIATION OF FACTS AND LAW TO SET OFF THE LOSSES OF UNITS II & III IS ALLOWED TO BE SET OF AGAINST THE PROFITS OF UNIT S-I (DTA UNITS) AND SAME IS TO BE ALLOWED. 4. THE APPELLANT DENIES THE LIABILITY TO PAY INTER EST U/S. 234B AND 234D OF 1.T. ACT. THE INTEREST HAVING BEEN LEVI ED 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 OR DERS 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 COU NSEL FOR THE ASSESSEE. IT WAS SUBMITTED BY HIM THAT THE DECISIO N OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. 341 ITR 385 (KAR) DOES NOT LAY DOWN THAT THE PROVISIONS OF SEC.10B AR E 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 ITA NO.381/BANG/2012 PAGE 6 OF 19 WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER CHAPTER-III OF THE ACT (I.E. EXEMPTION PROVISION), DO NOT ENTER THE COMPUT ATION OF TOTAL INCOME AT ALL. SEC. 4 OF THE ACT CREATES CHARGE OF INCOME-TA X 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 SHALL BE CHARGED FOR THAT YEAR IN ACCORDANCE WITH, AND SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEVY OF AD DITIONAL INCOME-TAX) OF THIS ACT IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. THE CHARGE OF TAX IS THUS ON TOTAL INCOME. SEC. 2 (45) DEFINES TOTAL INCOME TO MEAN TOTAL AMOUNT OF INCOME REFERRED TO IN SEC.5, C OMPUTED IN THE MANNER LAID DOWN IN THIS ACT. CHAPTER-II OF THE ACT, FROM SECTION 4 TO 9 DEAL WITH BASIS OF CHARGE. CHAPTER-III OF THE ACT, DEALS WITH INCOME WHICH DO NOT FORM PART OF TOTAL INCOME AND ARE CONTAINED IN SECT . 10 TO 13-B OF THE ACT. CHAPTER IV DEALS WITH THE COMPUTATION OF TOTAL INCO ME. FIRSTLY INCOME IS CATEGORIZED UNDER VARIOUS HEADS OF INCOME. THIS IS LAID DOWN IN SECTION 14 OF THE ACT, WHICH LAYS DOWN THAT 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 HEA DS OF INCOME SALARIES, INCOME FROM HOUSE PROPERTY, PROFITS AND GAINS OF BU SINESS OR PROFESSION, CAPITAL GAINS, INCOME FROM OTHER SOURCES. CHAPTER V THEN BRINGS INCOME OF OTHER PERSONS, WHICH ARE TO BE INCLUDED IN THE TOTA L INCOME OF AN ASSESSEE AND THIS IS CONTAINED IN SECTION 60 TO 65 OF THE AC T. CHAPTER-VI (CONTAINING SEC. 66 TO 80) THEN LAYS DOWN PROVISIONS REGARDING AGGREGATION OF INCOME AND SET OFF OR CARRY FORWARD OF LOSS. SECTION 66 RE ADS AS UNDER:- ITA NO.381/BANG/2012 PAGE 7 OF 19 TOTAL INCOME IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE INCLUDED ALL INCOME ON WHICH NO INCO ME-TAX IS PAYABLE UNDER CHAPTER VII. THE PROVISIONS OF SECTION 66 ARE NOT APPLICABLE TO INCOMES WHICH ARE ABSOLUTELY EXEMPT FROM TAX AS PER SECTION 10, SECTI ON 11 ETC., FALLING UNDER CHAPTER III. THIS POSITION IS MADE CLEAR BY S. 66 I TSELF AS IT SPEAKS ONLY OF INCOMES ON WHICH TAX IS NOT PAYABLE AND SIMILAR W ORDS ARE USED IN CHAPTER VII ONLY THUS LEAVING OUT BY IMPLICATION IN COMES WHICH DO NOT FORM PART OF TOTAL INCOME AT ALL AS PER CHAPTER III FROM THE SCOPE OF S. 66. 7. FROM THE CHARGING PROVISIONS OF THE ACT, IT IS C LEAR THAT BOTH PROFIT AS WELL AS LOSS WHICH IS NEGATIVE PROFIT MUST ENTER IN TO COMPUTATION, WHEREVER IT BECOMES MATERIAL. THE CHARGE IS ON TOTAL INCOME OF THE ASSESSEE. SEC. 2 (45) DEFINES TOTAL INCOME TO MEAN TOTAL AMOUNT OF INCOME REFERRED TO IN SEC.5, COMPUTED IN THE MANNER LAID DOWN IN THIS ACT . AN INCOME IN ORDER TO COME WITHIN THE PURVIEW OF THAT DEFINITION MUST SAT ISFY TWO CONDITIONS. FIRSTLY, IT MUST COMPRISE THE 'TOTAL AMOUNT OF INCO ME, PROFITS AND GAINS. SECONDLY, IT MUST BE 'COMPUTED IN THE MANNER LAID D OWN IN THE ACT'. IF EITHER OF THESE CONDITIONS FAILS, THE INCOME WILL N OT 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 T HE 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 T HE GAIN NOR LOSS WOULD BE CONSIDERED FOR COMPUTATION OF TOTAL INCOME . (EMPHASIS SUPPLIED). ITA NO.381/BANG/2012 PAGE 8 OF 19 8. THE HONBLE SUPREME COURT IN CIT VS. HARPRASAD & CO. (P) LTD. 1975 CTR (SC) 65 : (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 T HE LOSS AGAINST THE PROFITS OF A SUBSEQUENT YEAR. IT PRESUPPOSES THE PERMISSIBILITY AND POSSIBILITY OF THE CARRIED FORWARD LOSS BEING ABSORBED OR SET OFF AGAI NST THE PROFITS AND GAINS, IF ANY, OF THE SUBSEQUENT YEAR. SET OFF IMPLIES THA T THE TAX IS EXIGIBLE AND THE ASSESSEE WANTS TO ADJUST THE LOSS AGAINST PROFI T TO REDUCE THE TAX DEMAND. IT FOLLOWS THAT, IF SUCH SET-OFF IS NOT PER MISSIBLE OR POSSIBLE OWING TO THE INCOME OR PROFITS OF THE SUBSEQUENT YEAR BEI NG FROM A NON-TAXABLE SOURCE, THERE WOULD BE NO POINT IN ALLOWING THE LOS S TO BE `CARRIED FORWARD'. CONVERSELY, IF THE LOSS ARISING IN THE PREVIOUS YEA R WAS UNDER A HEAD NOT CHARGEABLE TO TAX, IT COULD NOT BE ALLOWED TO BE CA RRIED FORWARD AND ABSORBED AGAINST INCOME IN A SUBSEQUENT YEAR FROM A TAXABLE SOURCE. 9. IT IS, THEREFORE, CLEAR THAT THE SOURCE MUST BE CHARGEABLE TO TAX WHICH, IF RESULTING IN A POSITIVE FIGURE OF INCOME, WOULD ATTRACT TAX LIABILITY AND, IF RESULTING IN A NEGATIVE FIGURE OF LOSS WOUL D ENTITLE THE ASSESSEE TO CARRY FORWARD OR SET OFF THE SAME AGAINST ANY OTHER INCOME IN THE SAME YEAR. IT IS IN THIS CONTEXT THE COURT HAS FURTHER O BSERVED THAT 'FROM THE CHARGING PROVISIONS OF THE ACT, IT IS DISCERNIBLE T HAT THE WORDS `INCOME' OR `PROFITS AND GAINS' SHOULD BE UNDERSTOOD AS INCLUDI NG LOSSES ALSO, SO THAT, IN ONE SENSE `PROFITS AND GAINS' REPRESENT `PLUS' I NCOME WHEREAS LOSSES REPRESENT `MINUS' INCOME. IN OTHER WORDS, LOSS IS N EGATIVE PROFIT. BOTH POSITIVE AND NEGATIVE PROFITS ARE OF A REVENUE CHAR ACTER. BOTH MUST ENTER ITA NO.381/BANG/2012 PAGE 9 OF 19 INTO COMPUTATION, WHEREVER IT BECOMES MATERIAL, IN THE SAME MODE OF THE TAXABLE INCOME OF THE ASSESSEE'. 10. IF, THEREFORE, THE SOURCE IS TOTALLY BEYOND THE PURVIEW OF COMPUTATION OF INCOME UNDER THE INCOME-TAX ACT, THERE CAN BE NO QUESTION OF SET OFF OR CARRY FORWARD OF THE LOSS ATTRIBUTABLE TO THAT SOUR CE IN RESPECT OF THE PERIOD FOR WHICH THE INCOME-TAX ACT HAS NO APPLICATION. IF THE SOURCE COMES WITHIN THE PURVIEW OF COMPUTATION FOR ANY EARLIER OR LATER PERIOD, THE LOSS COMPUTED WOULD BE ELIGIBLE FOR SET OFF OR CARRY FOR WARD. IT IS FOR THIS REASON THAT THE SUPREME COURT HAS HELD IN THE CASE OF HARPRASAD CITED ABOVE, THAT 'IF THE LOSS IS FROM THE SOURCE OR HEAD OF INCOME N OT LIABLE TO TAX OR CONGENITALLY EXEMPT FROM INCOME-TAX, NEITHER THE AS SESSEE IS REQUIRED TO SHOW THE SAME IN THE RETURN NOR IS THE INCOME-TAX O FFICER UNDER ANY OBLIGATION TO COMPUTE OR ASSESS IT MUCH LESS FOR TH E PURPOSE OF CARRY FORWARD'. 11. THE SUBMISSION OF THE LEARNED COUNSEL FOR THE A SSESSEE WAS THAT THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) HAS ONLY LAID DOWN THAT INCOME OF SEC.10-A UNIT HA S TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL INCOME OF THE ASSESSEE AND THAT INCOME 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 AMEND MENT 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 SE C.10-B UNIT ENJOYS TAX BENEFITS, THE ASSESSEE INCURS LOSS, THEN THOSE LOSS WILL BE ELIGIBLE FOR CARRY ITA NO.381/BANG/2012 PAGE 10 OF 19 FORWARD AND SET OFF AGAINST ANY OTHER INCOME. IN TH IS REGARD OUR ATTENTION WAS DRAWN TO CERTAIN PASSAGES FROM THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) . 13. RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECIS IONS OF THE HONBLE 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. VS. DCIT 325 ITR 102 (BO M). - CIT VS. GALAXY SURFACTANTS LTD. 343 ITR 108 (BOM ). - CIT VS. BLACK & VEATCH CONSULTING PVT. LTD., 6 TAXCORP(DT)51475 (BOM). 14. IN FINAL CONCLUSION IT WAS SUBMITTED THAT (A) W HEN 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 N ON-ELIGIBLE UNIT; (B) WHEN THE ELIGIBLE UNIT INCURS LOSS THAN THAT WILL HAVE T O BE SET OFF INCOME IF ANY OF THE NON-ELIGIBLE UNIT. 15. THE LEARNED DR PLACED STRONG RELIANCE ON THE RE ASONING OF THE CIT(A) BASED ON THE DECISION OF THE HONBLE KARNATA KA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) . 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ISSUE AS TO WHETHER THE PROVISIONS OF SEC.10B OF THE ACT ARE DEDUCTION PROVISIONS OR EXEMPTION PROVISIONS WILL ASSUME GREAT IMPORTANCE. WE HAVE A LREADY SET OUT THE REASON WHY THE ABOVE DISTINCTION WILL BE MATERIAL I N THE EARLIER PART OF THIS ORDER. IN SHORT, THE REASON IS THAT IF THE PROVISI ONS ARE CONSIDERED AS EXEMPTION PROVISIONS THEN THEY WILL NOT ENTER THE C OMPUTATION OF TOTAL INCOME AND THEREFORE THE LOSS OF THE ELIGIBLE UNIT CANNOT BE SET OFF AGAINST ITA NO.381/BANG/2012 PAGE 11 OF 19 THE PROFITS OF THE NON-ELIGIBLE UNIT. THIS ISSUE H AS ALREADY BEEN SETTLED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) . THE CIT(A) HAS ALREADY REFERRED TO THE PORTION O F THE HIGH COURTS JUDGMENT DEALING WITH THE ABOVE ISSUE. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER SUBMITTED BEFORE US THAT THE HONB LE 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 A FTER COMPUTING THE GROSS TOTAL INCOME. IT HAS BEEN HIS FURTHER SUBMISSION T HAT (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 UNIT INCURS LOSS THAN THAT WI LL HAVE TO BE SET OFF AGAINST INCOME IF ANY OF THE NON-ELIGIBLE UNIT. WE WILL TH EREFORE CONSIDER THE CLAIM OF THE ASSESSEE AS AFORESAID AND AS TO WHETHER THE SAME FLOWS FROM THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT. 17. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA (SUPRA) HAD TO DEAL WITH TWO SUBSTANTIAL QUESTION OF LAW. THE FIRST SUBSTANTIAL QUESTION OF LAW WAS ON THE RIGHT OF SET OFF OF LOSS OF NON-ELIGIBLE UNIT AGAINST THE PROFIT OF THE ELIGIBLE UNIT ON WHI CH DEDUCTION U/S.10B WAS TO BE ALLOWED. THE HONBLE COURT IN PARA 10 TO 20 OF ITS JUDGMENT DEALT WITH THE ISSUE. THE HONBLE COURT NOTICED THAT SEC.10-A (1) OF THE ACT (WHICH IS IN PARI MATERIA WITH SEC.10-B OF THE ACT) READ AS F OLLOWS: 10B. SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABL ISHED UNDERTAKING IN FREE TRADE ZONE ETC.,-(1) SUBJECT TO 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 A SSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT T O THE ITA NO.381/BANG/2012 PAGE 12 OF 19 PREVIOUS-YEAR IN WHICH THE UNDER-TAKING BEGINS TO M ANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSES SEE : (EMPHASIS SUPPLIED) THE EXPRESSION DEDUCTION AND SHALL BE ALLOWED FR OM THE TOTAL INCOME OF THE ASSESSEE USED IN THE AFORESAID PROVISIONS WAS CONSIDERED BY THE HONBLE 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 A CT BUT THAT EXPRESSION MEANS PROFITS AND GAINS OF THE STP UNDERTAKING AS UNDERSTOOD IN ITS COMMERCIAL SENSE OR THE TOTAL INCOME OF THE STP UNI T. THUS THE VIEW EXPRESSED IS THAT INCOME OF THE STP UNDERTAKING GET S QUARANTINED AND WILL NOT BE ALLOWED TO BE SET OFF AGAINST LOSS OF EITHER ANOTHER STP UNDERTAKING OR A NON STP UNDERTAKING. THE HONBLE COURT THEREA FTER HELD THAT THOUGH THE EXPRESSION USED IN SEC.10A WAS DEDUCTION BUT IN EFFECT IT WAS ONLY AN EXEMPTION SECTION. THESE CONCLUSIONS CLEARLY EMANA TE FROM PARA 17 OF THE HONBLE COURTS JUDGMENT. 18. WE ARE THEREFORE UNABLE TO ACCEPT THE PLEA OF T HE LEARNED COUNSEL FOR THE ASSESSEE THAT THE HONBLE KARNATAKA HIGH CO URT HAS ONLY HELD THAT INCOME OF THE SEC.10B UNIT HAS TO BE EXCLUDED BEFOR E ARRIVING AT THE GROSS TOTAL INCOME AND NOT AFTER COMPUTING THE GROSS TOTA L INCOME. 19. AS FAR AS THE PLEA OF THE ASSESSEE THAT (A) WHE N 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 N ON-ELIGIBLE UNIT; (B) WHEN THE ELIGIBLE UNIT INCURS LOSS, THEN THAT WILL HAVE TO BE SET OFF AGAINST INCOME ITA NO.381/BANG/2012 PAGE 13 OF 19 IF ANY OF THE NON-ELIGIBLE UNIT. IT IS NO DOUBT TR UE THAT THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA (SUPRA) WAS CONCERNED WITH SITUATION (A) AS SET OUT ABOVE. BUT THE SECOND SUBSTANTIAL Q UESTION OF LAW DEALT WITH BY THE HONBLE COURT WAS WITH REGARD TO SET OFF OF BROUGHT FORWARD UNABSORBED LOSSES AND DEPRECIATION OF EARLIER YEARS /CURRENT YEAR, EITHER OF THE NON-STP UNIT OR THE VERY SAME UNDERTAKING. THI S ASPECT HAS BEEN DEALT WITH BY THE HONBLE KARNATAKA HIGH COURT IN P ARA 21 TO 33 OF ITS ORDER. THE HONBLE HIGH COURT IN PARA 21 NOTICED THAT THE PROVISIONS OF SEC.10B(6) OF THE ACT AS IT EXISTED PRIOR TO ITS AM ENDMENT W.E.F. 1.4.2001 PROVIDED THAT THE LOSS OF THE ELIGIBLE UNIT HAS TO BE IGNORED ALTOGETHER. IN PARA-22 TO 24, THE HONBLE COURT NOTICED THAT AFTER THE AMENDMENT THE POSITION AS FOLLOWS: 21. PRIOR TO THE INTRODUCTION OF SUB-S. (6) OF S. 10A A ND S. 10B BY THE FINANCE ACT, 2000, WHICH CAME INTO EFFECT FR OM 1ST APRIL, 2001, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMED IATELY SUCCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEAR S, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMEN T YEAR, SUB-S. (2) OF S. 32, CL. (II) OF SUB-S. (III), S. 32A CL. (II) OF SUB-S. (3) OF S. 32A, CL. (II) OF SUB-S. (2) OF S. 33 AND SUB-S. (4) OF S. 35 OF THE ACT OR THE SECOND PROVISO TO CL. (IX) OF SUB-S. (1) OF S. 36 SHALL NOT BE APPLICABLE IN RELATION TO ANY SUCH ALLOWANCE OR DED UCTION. SIMILARLY NO LOSS AS REFERRED TO IN SUB-S. (1) OR I N S. 72 OR SUB-S. (1) OR SUB-S. (3) OF S. 74 INSOFAR AS SUCH LOSS REL ATES TO THE BUSINESS OF THE UNDERTAKING WAS PERMITTED TO BE CAR RIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RE LEVANT 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) O F SUB-S. (6) RESTRICTING THE DISALLOWANCE ONLY UPTO THE FIRST DA Y 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 E FFECT FROM 1ST APRIL, 2001 BY LIFTING THE EMBARGO IN THE AFORESAID CLAUSES IN ITA NO.381/BANG/2012 PAGE 14 OF 19 RESPECT OF DEPRECIATION AND BUSINESS LOSS RELATING TO THE ASST. YR. 2001-02 ONWARDS. THE AMENDMENT INDICATES THE LEGISL ATIVE INTENTION OF PROVIDING THE BENEFIT OF CARRY FORWARD OF DEPRECIATION AND BUSINESS LOSS RELATING TO ANY YEAR OF THE TAX H OLIDAY PERIOD TO BE SET OFF AGAINST INCOME OF ANY YEAR POST TAX HOLI DAY. THIS IS SUPPORTED BY CIRCULAR NO. 7 OF 2003 [(2003) 184 CTR (ST) 33] WHEREIN THE BOARD HAS STATED THAT THE PURPOSE OF AM ENDMENT IS TO ENTITLE AN ASSESSEE TO THE BENEFIT OF CARRY FORWARD OF DEPRECIATION AND LOSS SUFFERED DURING THE TAX HOLIDAY PERIOD. TH E CIRCULAR DT. 5TH SEPT., 2003 READS AS UNDER : '20. PROVIDING FOR CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION TO UNITS IN SPECIAL ECONOMI C ZONES AND 100 PER CENT EXPORT ORIENTED UNITS. 20.1 UNDER THE EXISTING PROVISIONS OF SS. 10A AND 1 0B, THE UNDERTAKINGS OPERATING IN A SPECIAL ECONOMIC ZO NE (UNDER S. 10A) AND 100 PER CENT EXPORT ORIENTED UNI TS (UNDER S. 10B) ARE NOT PERMITTED TO CARRY FORWARD T HEIR BUSINESS LOSSES AND UNABSORBED DEPRECIATION. 20.2 WITH A VIEW TO RATIONALIZE THE EXISTING TAX INCENTIVES IN RESPECT OF SUCH UNITS SUB-S. (6) IN S S. 10A AND 10B HAS BEEN AMENDED TO DO AWAY WITH THE RESTRICTIONS ON THE CARRY FORWARD OF BUSINESS LOSSE S AND UNABSORBED DEPRECIATION. THE AMENDMENTS HAVE BEEN BROUGHT INTO EFFECT RETROSPECTIVELY FROM 1ST APRIL, 2001 AND HAVE BEEN MADE APPLICABLE TO BUSINESS LOSSES OR UNABSORBED DEPRECIATION ARISING IN THE ASST. YR. 2001-02 AND SUBSEQUENT YEARS.' 23. IT IS INTERESTING TO NOTE THAT SUCH RELAXATION HAS NOT BEEN MADE IN S. 10C WHICH PROVIDES FOR EXEMPTION IN RESP ECT OF PROFITS OF CERTAIN UNDERTAKINGS IN NORTH EASTERN REGION. TH IS MAKES CLEAR THE LEGISLATIVE INTENTION OF PROVIDING RELAXATION W HEREVER IT DEEMS FIT AND IN THE PRESENT CASE, SUCH RELAXATION HAS BEEN MADE IN S. 10A BUT NOT IN S. 10C. 24. IT IS TO BE NOTED THAT THE AFORESAID AMENDMENT READ WITH THE BOARD CIRCULAR DOES NOT MILITATE AGAINST THE PR OPOSITION THAT THE BENEFIT OF RELIEF UNDER THIS SECTION IS IN THE NATURE OF EXEMPTION WITH REFERENCE TO THE COMMERCIAL PROFITS. HOWEVER, IN ORDER TO GIVE EFFECT TO THE LEGISLATIVE INTENTION O F ALLOWING THE CARRY FORWARD OF DEPRECIATION AND LOSS SUFFERED IN RESPECT OF ANY YEAR DURING THE TAX HOLIDAY FOR BEING SET OFF AGAIN ST INCOME POST TAX HOLIDAY, IT IS NECESSARY THAT THE NOTIONAL COMP UTATION OF BUSINESS INCOME AND THE DEPRECIATION AS PER THE PRO VISIONS OF THE ACT SHOULD BE MADE FOR EACH YEAR OF THE TAX HOLIDAY PERIOD. ITA NO.381/BANG/2012 PAGE 15 OF 19 WHILE SO COMPUTING, ATTENTION WILL HAVE TO BE GIVEN TO PROVISIONS OF SS. 70, 71, 72 AND S. 32(2). THE AMOUNT OF DEPRE CIATION AND BUSINESS LOSS REMAINING UNABSORBED AT THE END OF TH E TAX HOLIDAY PERIOD SHOULD BE DETERMINED SO THAT THE SAME MAY BE SET OFF AGAINST THE INCOME POST TAX HOLIDAY PERIOD. (EMPHASIS SUPPLIED) 20. IT IS CLEAR FROM THE AFORESAID PROVISIONS AS EX PLAINED BY THE HONBLE HIGH COURT THAT DURING THE PERIOD WHEN THE ELIGIBLE UNIT ENJOYS EXEMPTION U/S.10B OF THE ACT , 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 ENTI TLED 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 TH E ELIGIBLE UNIT U/S.10-B OF THE ACT DURING THE PERIOD IT CLAIMS EXEMPTION WITHOUT O PTING OUT OF THOSE PROVISIONS WILL ONLY REMAIN IN SUSPENSION TO BE REV IVED IMMEDIATELY AFTER THE TAX HOLIDAY PERIOD. THEREFORE THE SET OFF OF T HE 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 T HIS YEAR CANNOT BE ALLOWED AND HAS BEEN RIGHTLY NOT ALLOWED BY THE REVENUE AUT HORITIES. 21. IF THE CLAIM OF THE ASSESSEE IS ACCEPTED THEN T HAT WOULD MEAN THAT THE ASSESSEE WILL HAVE TWO BENEFITS U/S.10B. THE F IRST BENEFIT IS AN EXEMPTION OF THE COMMERCIAL PROFITS DURING THE TAX HOLIDAY PERIOD ON A STAND-ALONE BASIS WITHOUT THE THREAT OF THOSE PROFI TS BEING SET OFF AGAINST LOSS OF ANY OTHER UNDERTAKING OF THE ASSESSEE WHICH MAY BE ANOTHER ELIGIBLE UNDERTAKING OR NON-ELIGIBLE BUSINESS OF TH E ASSESSEE. THE SECOND BENEFIT IS THAT ITS LOSSES DURING THE TAX HOLIDAY P ERIOD CAN BE SET OFF AGAINST ITA NO.381/BANG/2012 PAGE 16 OF 19 THE INCOME OF THE NON-ELIGIBLE UNDERTAKING. IN OUR OPINION, THE SECOND BENEFIT IS NOT AVAILABLE DURING THE TAX HOLIDAY PER IOD AND THE PROVISIONS OF SEC.10B(6) ALLOW THEM TO BE KEPT IN SUSPENSE TO BE SET OFF AFTER THE TAX HOLIDAY PERIOD. WE THEREFORE HOLD THAT THE CLAIM O F THE ASSESSEE IN THE PRESENT CASE WAS RIGHTLY NOT ACCEPTED BY THE REVENU E AUTHORITIES. 22. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN THE F OLLOWING CASES, FOR THE PROPOSITION THAT LOSS OF THE ELIGIBLE UNIT CAN BE S ET OFF AGAINST THE PROFITS OF THE NON ELIGIBLE UNITS:- HINDUSTHAN UNILEVER LTD. VS. DCIT 325 ITR 102 (BOM) CIT VS. GALAXY SURFACTANTS LTD. 343 ITR 108 (BOM), AND CIT VS. BLACK & VEATCH CONSULTING PVT.LTD. ITA LODG ING NO.1237 OF 2011 DATED 9.4.2012. 23. WE HAVE CONSIDERED THOSE DECISIONS AND FIND THA T THE HONBLE BOMBAY HIGH COURT WAS CONCERNED IN ALL THE THREE CA SES WITH A CLAIM OF THE ASSESSEE FOR SET OFF THE ELIGIBLE UNIT LOSS AGA INST THE PROFITS OF THE NON- ELIGIBLE UNIT. THE CLAIM OF THE ASSESSEE WAS ALLOW ED HOLDING THAT THE PROVISIONS OF SEC.10A/10B OF THE ACT WERE DEDUCTION PROVISIONS AND THEREFORE THE LOSS OR PROFIT IN ELIGIBLE BUSINESS W ILL ENTER THE COMPUTATION OF TOTAL INCOME. THIS IS CONTRARY TO THE VIEW EXPRESS ED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) IN WHICH IT WAS HELD THAT THOSE PROVISIONS WERE EXEMPT ION PROVISIONS. WE HAVE ALREADY SET OUT IN THE EARLIER PART OF THE ORD ER THE CONSEQUENCES OF TREATING THE PROVISIONS AS EXEMPTION PROVISION. IF ACCORDING TO THE HONBLE ITA NO.381/BANG/2012 PAGE 17 OF 19 KARNATAKA HIGH COURT THE PROVISIONS ARE EXEMPTION P ROVISIONS, THEN THE LOSS WILL NOT ENTER THE COMPUTATION AT ALL. TO THI S EXTENT THERE IS A CONFLICT OF OPINION BETWEEN THE HONBLE KARNATAKA HIGH COURT AN D THE HONBLE BOMBAY HIGH COURT. 24. IN A RECENT DECISION OF THE HONBLE DELHI HIGH COURT IN ITA NO.347/2001 & 2067/2010 DATED 27.8.2012 , THIS CONFLICT HAS BEEN NOTICED AND THE HONBLE DELHI HIGH COURT HAS AGREED WITH THE VIEW OF THE HONBLE KARNATAKA HIGH COURT THAT THE PROVISIONS OF SEC.10-A/10B ARE EXEMPTION PROVISIONS AND NOT DEDUCTION PROVISIONS. THE HONBLE DELHI HIGH COURT WAS ALSO CONCERNED WITH THE CLAIM OF THE ASSESSEE FOR NOT SETTING OFF THE LOSS 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 HONBLE COURT: 28. ......... IN INTERPRETING SUB-SECTION (1) O F 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 E ARLIER REFERRED TO THE DIFFICULTY CAUSED BY THE LANGUAGE W HICH 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 KAR NATAKA HIGH COURT (SUPRA) AS AN EXEMPTION PROVISION WHEREAS THE BOMBAY HIGH COURT HAS UNDERSTOOD THE SAME AS A DEDUCTION S ECTION, THOUGH THE ULTIMATE RESULT DID NOT MAKE ANY DIFFERE NCE TO THE ASSESSEE'S CLAIM IN BLACK & VEATCH CONSULTING (SUPR A). THEREFORE, IT CANNOT BE DENIED THAT THERE IS UNCERT AINTY AND LACK OF CLARITY OR PRECISION IN THE LANGUAGE EMPLOYED IN SU B-SECTION (1). IT IS, THEREFORE, NOT IMPERMISSIBLE TO RELY ON THE HEADING OR TITLE OF CHAPTER III AND INTERPRET THE SECTION AS PROVIDING FOR AN EXEMPTION RATHER THAN A DEDUCTION. 29. THE KEY TO THE PROBLEM SEEMS TO LIE IN APPRECIA TING THE DIFFERENCE BETWEEN A PROVISION WHICH EXEMPTS AN INC OME AND A ITA NO.381/BANG/2012 PAGE 18 OF 19 PROVISION WHICH PROVIDES FOR A DEDUCTION OF THE INC OME OR A PART THEREOF IN COMPUTING THE TOTAL INCOME OF THE ASSESS EE. WE HAVE ATTEMPTED TO OUTLINE THE DIFFERENCE BETWEEN THE TWO KINDS OF PROVISIONS IN THE LIGHT OF THE AUTHORITIES CITED AB OVE. THE MATTER IS NOT ALTOGETHER FREE FROM DIFFICULTY. HOWEVER, AS S. RANGANATHAN, J. (AS HE THEN WAS) HAS POINTED OUT IN CIT V. DALMIA C EMENT (BHARAT) LTD. (SUPRA): - 'IN THE PROCESS OF JUDICIAL ASSESSMENT OF SUCH CONFL ICTING INTERPRETATIONS, THERE IS NO SENSITIVE BALANCE WITH WH ICH TO WEIGH THE PROS AND CONS AND DETERMINE WITH SCIENTIFI C ACCURACY WHICH SIDE IS THE WEIGHTIER AND, PERHAPS IN THE DRAWING OF THE ULTIMATE INFERENCE ONE WAY OR THE OTHER, THE SUBJECTIVE ELEMENT IS NOT ALTOGETHER EXCLUDED.' 30. WITH THIS CAUTION OR DISCLAIMER IN MIND WE ARE INCLINED TO HOLD THAT SECTION 10A IS A PROVISION EXEMPTING A PA RTICULAR KIND OF INCOME EVEN IN ITS PRESENT FORM, THAT IS TO SAY, EVEN AFTER BEING AMENDED BY THE FINANCE ACT, 2000 W. E. F. 01.04.200 1. WE ARE INCLINED, WITH RESPECT, TO AGREE WITH THE VIEW TAKE N BY THE KARNATAKA HIGH COURT IN THE CASE OF CIT V. YOKOGAVA (SUPRA). AS NOTICED, THE BOMBAY HIGH COURT REACHED THE SAME CON CLUSION WHICH THE KARNATAKA HIGH COURT REACHED IN THE CASE OF CIT V. YOKOGAVA (SUPRA), IN ITS JUDGMENTS IN HINDUSTAN UNI LEVER LTD. (SUPRA) AND CIT V. BLACK & VEATCH CONSULTING PVT. L TD. (SUPRA), DESPITE TAKING THE VIEW THAT THE SECTION PROVIDES F OR A DEDUCTION AND NOT AN EXEMPTION. 25. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE MADE A POINT THAT THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) IN PARA-26 APPROVED THE VIEW OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD. (SUPRA) . IN OUR VIEW, THOSE OBSERVATIONS HAVE TO BE CONSTRUED IN THE LIGHT OF H ONBLE COURTS OBSERVATIONS IN PARA-24 OF ITS ORDER WHERE THE COUR T HAS HELD THAT THE BENEFIT OF SET OFF OF LOSS OF ELIGIBLE UNIT DURING THE TAX HOLIDAY PERIOD HAS TO ITA NO.381/BANG/2012 PAGE 19 OF 19 BE CARRIED FORWARD FOR SET OFF IN ACCORDANCE WITH L AW AFTER THE TAX HOLIDAY PERIOD. 26. FOR THE REASONS GIVEN ABOVE WE CONFIRM THE ORDE R OF THE CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF OCTOBER, 2012. SD/- SD/- ( JASON P.BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE, DATED, THE 12 TH OCTOBER , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.