Indus Business Systems Ltd., Hyd, Hyderabad V. ITO, Ward-2(1), Hyd, Hyderabad

ITA 766/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6436 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 04-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VENKATA REDDY
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Business income; Depreciation; Salary income; Earning of tax free income; Question of law; Assessment record; Unabsorbed depreciation
• Section: 80C; 10B; 147; 263; 28

Judgement Text

ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B SMC BENCH, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER ITA NO.766/HYD/2015 (ASSESSMENT YEAR: 2010-11) M/S INDUS BUSINESS SYSTEMS LTD HYDERABAD PAN: AAACI 4749 M VS. INCOME TAX OFF ICER WARD (2)1 HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI V. RAGHAVENDRA RAO FOR REVENUE : SHRI VENKATA REDDY, DR DATE OF HEARING : 07/06/2016 DATE OF PRONOUNCEMENT : 17 /06/2016 O R D E R THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11. IN T HIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF T HE CIT U/S 263 OF THE I.T. ACT, HOLDING THE ASSESSMENT ORDER DATED 26.03.2013 TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF TH E REVENUE AND DIRECTING THE AO TO SET OFF THE BROUGHT FORWARD DEP RECIATION AND LOSS BEFORE ALLOWING THE DEDUCTION U/S 10A OF THE I .T. ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT, FI LED ITS RETURN OF INCOME FOR THE A.Y 2010-11 ON 24.09.2010 ADMITTI NG INCOME AT RS. NIL AFTER CLAIMING DEDUCTION U/S 10A I.E. RS .6,05,63,431. THE AO ALLOWED THE DEDEUCTIN U/S 10A OF THE ACT OF RS.6,02,93,581. SUBSEQUENTLY THE CIT, ON PERUSAL OF THE ASSESSMENT RECORDS OBSERVED THAT 10A DEDUCTION AT ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 2 OF 14 RS.6,02,93,581 HAS BEEN ALLOWED BEFORE SETTING OFF THE BROUGHT FORWARD BUSINESS LOSS AND DEPRECIATION TO THE EXTEN T OF RS.1,26,68,529 (DEPRECIATION LOSS RS.42,80,324 AND BUSINESS LOSS OF RS.83,88,205) BEFORE ALLOWING EXEMPTION U/S 10A OF THE ACT. THEREFORE, A SHOW CAUSE NOTICE U/S 263 OF THE ACT WAS ISSUED TO THE ASSESSEE. 3. ASSESSEE VIDE ITS LETTER DATED 26.05.2014 EXPLAI NED THAT THE RELEVANT A.Y IS THE 10 TH AND THE LAST YEAR IN WHICH 10A DEDUCTION WAS BEING CLAIMED AND FURTHER THAT THE DEDUCTION U/ S 10A IS TO BE FIRST ALLOWED AND ONLY ON THE BALANCE OF INCOME , IF ANY, THE BROUGHT FORWARD BUSINESS LOSS AND DEPRECIATION IS T O BE SET OFF. THE CIT WAS HOWEVER, NOT CONVINCED WITH THE ASSESSE ES CONTENTIONS AND OBSERVED THAT SUB-SECTION (6) OF SE CTIONS 10A AND 10B WERE AMENDED BY FINANCE ACT 2003 WITH RETRO SPECTIVE EFFECT FROM 1.4.2001 AND OBSERVED THAT THE DEDUCTIO N U/S 10A OR 10B IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE A SSESSEE. THUS, ACCORDING TO HIM, THE BROUGHT FORWARD LOSS AND DEPR ECIATION OF THE NON ELIGIBLE UNIT IS TO BE FIRST SET OFF FROM T HE ELIGIBLE UNIT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 72 OF THE ACT AND ONLY ON THE BALANCE, THE DEDUCTION U/S 10A IS TO BE ALLO WED. HE ACCORDINGLY SET ASIDE THE ASSESSMENT ORDER AND DIRE CTED THE AO TO GIVE EFFECT TO THE ORDER OF THE CIT U/S 263 OF T HE ACT. AGAINST THE ORDER OF THE CIT U/S 263, THE ASSESSEE IS IN AP PEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE WAS IN THE BUSINESS OF SOFTWARE DEVELOPMEN T AND WAS ACCORDINGLY ELIGIBLE FOR DEDUCTION U/S 10A OF THE A CT. HE SUBMITTED THAT IN THE EARLIER YEARS, THE ASSESSEE W AS ALLOWED ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 3 OF 14 DEDUCTION U/S 10A OF THE ACT AS CLAIMED BY THE ASSE SSEE AND THE A.Y BEFORE US BEING THE LAST YEAR, THE AO HAS ALLOW ED EXEMPTION U/S 10A ON THE INCOME OF THE 10A UNIT. HE SUBMITTED THAT THE ORDER OF THE CIT HOLDING THE ASSESSMENT ORDER ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS NOT CORRECT AS EVEN AFTER SET OFF OF BROUGHT FORWARD LOSS AND DEPRECIAT ION OF THE NON ELIGIBLE UNIT, THERE WAS NO TAX LIABILITY ON THE AS SESSEE AND THUS THERE WAS NO PREJUDICE CAUSED TO THE INTERESTS OF T HE REVENUE. EVEN OTHERWISE, ACCORDING TO HIM, THE ASSESSMENT OR DER IS ALSO NOT ERRONEOUS AS 10A DEDUCTION TO BE COMPUTED TREAT ING THE 10A UNIT AS INDEPENDENT AND ON A STAND ALONE BASIS FOR THE PERIOD OF 10 YEARS FROM THE INITIAL PERIOD OF CLAIMING DEDUCT ION U/S 10A OF THE ACT OUT OF THE TOTAL PERIOD OF 15 YEARS AND THE REFORE, ACCORDING TO HIM, THE AO HAS ALLOWED DEDUCTION U/S 10A BEFORE SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND DEPREC IATION. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE UPON THE FOLLOWING JUDGMENTS: A) CIT VS. TEI TECHNOLOGIES P LTD (2012) 25 TAXMANN .COM 5 (DELHI) HIGH COURT OF DELHI. B) CIT VS. BLACK & VEATCH CONSULTING P LTD (2012) 2 0 TAXMANN.COM 727 (BOM) HIGH COURT OF BOMBAY C) CIT VS. YOKOGAWA INDIA LTD (2012) 21 TAXMANN.COM 154 (KARNATAKA), HIGH COURT OF KARNATAKA AND D) THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT DA TED 28.08.2013 IN ITA NOS. 360 OF 2011, 407 OF 2010, 27 9 OF 2012, 361 OF 2011 AND 362 OF 2011 IN THE CASE OF M/ S. CCL PRODUCTS (INDIA) LTD. HE SUBMITTED THAT IN ALL THESE CASES, IT HAS BEEN H ELD THAT THE BUSINESS LOSS OF NON ELIGIBLE UNITS SHOULD NOT BE S ET OFF FROM THE INCOME OF THE UNDERTAKINGS ELIGIBLE FOR EXEMPTION U /S 10A OF THE ACT DURING THE PERIOD OF 10 YEARS WHEN THE ASSESSEE WAS ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 4 OF 14 CLAIMING DEDUCTION U/S 10A OF THE ACT. THUS, THE LE ARNED COUNSEL FOR THE ASSESSEE PRAYED THAT THE ORDER OF T HE CIT BE QUASHED. 5. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND PLACED RELIANCE UPON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.800 /HYD/2007 IN THE CASE OF IIC TECHNOLOGIES PVT LTD, HYDERABAD AND IN THE CASE OF ASSTT. CIT VS. BODHTREE CONSULTING LTD (HYD .TRIB.) (2010) 041 SOT 0230, WHEREIN AFTER CONSIDERING THE AMENDED PROVISIONS OF SECTION 10A AND 10B IN WHICH EXEMPTIO N HAS BEEN CONVERTED INTO A DEDUCTION, IT HAS BEEN HELD THAT T HE DEDUCTION U/S 10B IS TO BE COMPUTED AFTER SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND DEPRECIATION BROUGHT FORWARD FROM THE EARLIER YEARS. THUS, ACCORDING TO HIM, THE ORDER OF THE CIT IS TO BE CONFIRMED. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE DURING THE RELEVA NT FINANCIAL YEAR, HAD BROUGHT FORWARD BUSINESS LOSSES AND DEPRE CIATION OF EARLIER YEARS PERTAINING TO THE NON 10A UNITS. IT I S ALSO NOT IN DISPUTE THAT THIS IS THE FINAL YEAR OF THE EXEMPTIO N U/S 10A OF THE I.T. ACT. THE DECISION RELIED UPON BY THE LEARNED D R IS THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL DA TED 21.05.2010 FOR THE A.Y 2004-05, WHEREAS THE DECISIO NS RELIED UPON BY THE ASSESSEES COUNSEL ARE OF THE HON'BLE K ARNATAKA AND DELHI HIGH COURTS FOR THE A.YS 2001-02 TO 2006-07 A ND 2002-03 RESPECTIVELY. THE HON'BLE HIGH COURTS HAVE TAKEN IN TO CONSIDERATION THE AMENDMENT TO SECTION 10A AND 10B AND ALSO ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 5 OF 14 THAT THE EARLIER EXEMPTION PROVISION HAS BEEN CONVE RTED INTO A DEDUCTION AND EVEN IN THE PRESENT FORM, SECTION 10A IS AN EXEMPTION PROVISION AND THEREFORE, THE DEDUCTION U/ S 10A OF THE I.T. ACT HAS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE AND THE QUESTION OF UN-ABSORBED BUSINESS LOSS OF NO N 10A UNITS BEING SET OFF PRIOR THERETO WOULD NOT ARISE. THE RE LEVANT PORTION OF THE JUDGMENT IS REPRODUCED HEREUNDER FOR READY REFE RENCE: 17. THE QUESTION WHETHER SECTION 10A PROVIDES FOR TOTA L EXEMPTION FROM TAX OR PROVIDES FOR ONLY A DEDUCTION FROM THE INCOME OF TH E ASSESSEE WAS DEBATED AT THE BAR AT CONSIDERABLE LENGTH. THE SECTION IS PLACED I N CHAPTER III OF THE ACT WHICH IS TITLED 'INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME'. SUB-SECTION (1) OF THIS SECTION AS IT STOOD AMENDED BY THE FINANCE ACT, 200 0 W. E. F. 01.04.2001, HOWEVER, PROVIDES FOR 'A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWAREFROM THE TOTAL INCOME OF THE ASSESSEE'. THE LANGUAGE USE D HAS GIVEN RISE TO THE ARGUMENT THAT THE SECTION ONLY PROVIDES FOR A DEDUC TION WHICH MEANS THAT THE PROFITS OF THE ELIGIBLE UNDERTAKING WILL HAVE TO EN TER THE FIELD OF TAXATION AND BE SUBJECTED TO ALL THE PROVISIONS OF THE ACT AND ONLY THE BALANCE OF PROFITS, IF ANY, WILL BE DEDUCTED FROM THE TOTAL INCOME. THIS IS IN CONTRAST TO SUB-SECTION (1) AS IT STOOD PRIOR TO THE AFORESAID AMENDMENT, WHICH PROVI DED THAT 'ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM AN INDUSTRIAL UND ERTAKING TO WHICH THIS SECTION APPLIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME O F THE ASSESSEE'. THIS PHRASEOLOGY WHICH WE HAVE NOTED EARLIER TO CONFORM TO THE TITLE OF CHAPTER III OF THE ACT HAS GIVEN RISE TO THE FURTHER ARGUMENT FROM THE DEPARTMENT THAT W.E.F. 01.04.2001 THERE IS A SIGNIFICANT CHANGE AND PROFIT S WHICH WERE EARLIER EXEMPT FROM INCOME TAX AND WERE NOT INCLUDIBLE IN THE ASSE SSEE'S TOTAL INCOME ARE NOW SO INCLUDED, SUBJECT TO DEDUCTION, AND ONCE THE PROFIT S ARE INCLUDED, ALL THE PROVISIONS OF THE ACT WILL HAVE TO BE APPLIED WHILE ARRIVING AT THE AMOUNT OF DEDUCTION. IN ORDER TO TEST THIS ARGUMENT IT IS NEC ESSARY TO LOOK AT SEVERAL ASPECTS. FIRSTLY, SECTION 10A EVEN AFTER BEING AMENDED SUBST ANTIALLY BY THE FINANCE ACT, 2000 HAS BEEN RETAINED IN CHAPTER III OF THE ACT, N OTWITHSTANDING THE CHANGE IN THE LANGUAGE OF SUB-SECTION (1). IF THE DEPARTMENT IS RIGHT IN ITS CONTENTION THAT AFTER 01.04.2001 THE SECTION ONLY PROVIDES FOR A DE DUCTION AND NOT AN EXEMPTION, IT WAS OPEN TO THE LEGISLATURE TO TRANSPOSE THE SEC TION FROM CHAPTER III TO CHAPTER VIA OF THE ACT WHICH IS TITLED 'DEDUCTIONS TO BE MA DE 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 / 21 TAXMANN.COM 154 . IT HAS BEEN OBSERVED BY THE KARNATAKA HIGH COURT AS FOLLOWS: - 'THE SUBSTITUTED SECTION 10A CONTINUES TO REMAIN IN CHAPTER III. IT IS TITLED AS 'INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME'. I T MAY BE NOTED THAT WHEN SECTION 10A WAS RECAST BY THE FINANCE ACT, 2001, PA RLIAMENT WAS AWARE OF THE CHARACTER OF RELIEF GIVEN IN CHAPTER III. CHAPTER I II DEALS WITH INCOMES WHICH DO ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 6 OF 14 NOT FORM PART OF TOTAL INCOME. IF PARLIAMENT INTEND ED THAT THE RELIEF UNDER SECTION 10A SHOULD BE BY WAY OF DEDUCTION IN THE NORMAL COU RSE OF COMPUTATION OF TOTAL INCOME, IT COULD HAVE PLACED THE SAME IN CHAPTER VI -A WHICH HOUSES THE SECTIONS LIKE 80HHC, 80-IA, ETC. PARLIAMENT WAS AWARE OF THE VARIOUS RESTRICTING AND LIMITING PROVISIONS LIKE SECTION 80A AND SECTION 80 AB WHICH WAS IN CHAPTER VI-A WHICH DO NOT APPEAR IN CHAPTER III. THE FACT THAT E VEN AFTER ITS RECAST, THE RELIEF HAS BEEN RETAINED IN CHAPTER III INDICATES THAT THE INTENTION OF PARLIAMENT IT IS TO BE REGARDED AS AN EXEMPTION AND NOT A DEDUCTION. TH E ACT OF PARLIAMENT IN CONSCIOUSLY RETAINING THIS SECTION IN CHAPTER III I NDICATES ITS INTENTION THAT THE NATURE OF RELIEF CONTINUES TO BE AN EXEMPTION. CHAP TER VII DEALS WITH THE INCOMES FORMING PART OF THE TOTAL INCOME ON WHICH NO INCOME -TAX IS PAYABLE. THESE ARE THE INCOMES WHICH ARE EXEMPTED FROM CHARGE, BUT ARE INC LUDED IN THE TOTAL INCOME OF THE ASSESSEE. PARLIAMENT, DESPITE BEING CONVERSANT WITH THE IMPLICATIONS OF THIS CHAPTER, HAS CONSCIOUSLY CHOSEN TO RETAIN SECTION 1 0A IN CHAPTER III.' 18. SECONDLY, WE FIND THAT THOUGH SUB-SECTION (1) PROV IDES FOR A DEDUCTION OF THE ELIGIBLE PROFITS, THERE IS GOOD REASON TO THINK THA T IT IS NOT TO BE CONSIDERED AS A DEDUCTION BECAUSE THE SUB-SECTION FURTHER SAYS THAT THE DEDUCTION 'SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE'. UND ER THE INCOME TAX ACT, 1961 THE INCOME OF AN ASSESSEE UNDER THE VARIOUS HEADS O F INCOME ENUMERATED IN SECTION 14 HAVE TO BE COMPUTED IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT. THE AGGREGATE OF SUCH INCOMES CONSTITUTES THE 'GROSS TO TAL INCOME' OF THE ASSESSEE WITHIN THE MEANING OF SECTION 80B (5) WHICH DEFINES 'GROSS TOTAL INCOME' AS THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVIS IONS OF THE ACT BEFORE MAKING ANY DEDUCTION UNDER CHAPTER VIA. THE EXPRESS ION 'TOTAL INCOME' IS DEFINED IN SECTION 2 (45) OF THE ACT TO MEAN THE TO TAL AMOUNT OF INCOME REFERRED TO IN SECTION 5, COMPUTED IN THE MANNER LAID DOWN I N THE ACT. SECTION 4 WHICH IS CHARGING SECTION PROVIDES FOR THE CHARGE OF INCOME TAX IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. THE PO SITION THAT EMERGES FROM A HARMONIOUS READING OF THESE PROVISIONS IS THAT THE ASSESSEE IS REQUIRED TO PAY INCOME TAX ON HIS TOTAL INCOME OF THE PREVIOUS YEAR . THE DETERMINATION OF THE TOTAL INCOME IS THE LAST POINT BEFORE THE TAX IS CH ARGED AND ONCE THE TOTAL INCOME IS DETERMINED OR QUANTIFIED, THERE IS ABSOLUTELY NO SCOPE FOR MAKING ANY FURTHER DEDUCTION, HAVING REGARD TO THE PROVISIONS REFERRED TO ABOVE. IF THIS IS THE TRUE LEGAL POSITION, AS WE THINK IT TO BE, THEN IT IS NO T POSSIBLE TO UNDERSTAND SUB- SECTION (1) OF SECTION 10A AS PROVIDING FOR A 'DEDU CTION' OF THE PROFITS OF THE ELIGIBLE UNIT 'FROM THE TOTAL INCOME OF THE ASSESSE E'. THE DEFINITION OF THE EXPRESSION TOTAL INCOME GIVEN IN SECTION 2(45) CANN OT BE IMPORTED INTO THE INTERPRETATION OF SUB-SECTION (1) HAVING REGARD TO THE CONTEXT IN WHICH IT IS USED AND THE SCHEME OF THE ACT RELATING TO THE CHARGE OF THE TAX. 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 T O 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 INS IST ON APPLYING THE DEFINITION OF THE EXPRESSION 'TOTAL INCOME' UNDER SECTION 2 (45) TO T HE INTERPRETATION OF THE SUB- SECTION. IN OTHER WORDS THE CONTEXT IN WHICH THE EX PRESSION 'TOTAL INCOME' IS USED IN THE SUB-SECTION REQUIRES US TO ABANDON THE DEFIN ITION OF THAT EXPRESSION AS PER SECTION 2 (45). AGAIN THIS ASPECT OF THE MATTER HAS BEEN DEALT WITH IN THE JUDGMENT OF THE KARNATAKA HIGH COURT (SUPRA ) IN THE FOLLOWI NG WORDS: - ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 7 OF 14 'A LITERAL READING OF THE ABOVE PROVISION REQUIRES DEDUCTION FROM THE TOTAL INCOME. THERE CAN BE A DEDUCTION IN COMPUTING THE T OTAL INCOME. HOWEVER, THERE CANNOT BE DEDUCTION FROM THE TOTAL INCOME WHICH IS THE FINAL RESULT OF THE COMPUTATION PROCESS. THE LANGUAGE ADOPTED IN SECTIO N 10A IS DIFFERENT FROM THE ONE ADOPTED IN SECTION 80A. SECTION 10A PROVIDES FO R DEDUCTION FROM THE TOTAL INCOME. IN THE SCHEME OF THE ACT, WHILE VARIOUS DED UCTIONS ARE ALLOWED IN COMPUTING THE TOTAL INCOME, ONCE THE TOTAL INCOME I S COMPUTED, NO FURTHER ADJUSTMENT TO THE TOTAL INCOME IS ENVISAGED. THE SC HEME OF THE ACT PROVIDES FOR DEDUCTION IN COMPUTING THE TOTAL INCOME BUT NO MECH ANISM FOR ANY DEDUCTION FROM THE TOTAL INCOME ALREADY COMPUTED IS PROVIDED UNDER THE ACT. ONCE THE TOTAL INCOME IS COMPUTED, THE NEXT STEP IS DETERMINATION OF TAX BY APPLYING THE APPLICABLE RATES ON THE TOTAL INCOME. SECTION 2(45) DEFINES 'TOTAL INCOME' TO MEAN THE TO TAL AMOUNT OF INCOME REFERRED TO IN SECTION 5 AND COMPUTED IN THE MANNER LAID DOW N IN THE INCOME-TAX ACT. SECTION 5 DEFINES THE SCOPE OF TOTAL INCOME AND IT IS SUBJECT TO THE PROVISIONS OF THE INCOME-TAX ACT. SECTION 14 PROVIDES THAT 'SAVE AS OTHERWISE PROVIDED BY THE INCOME-TAX ACT, ALL INCOME SHALL, FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME, BE CLASSIFIED UNDER TH E FOLLOWING HEADS OF INCOME'. THEREFORE, THE TOTAL INCOME IN ITS STRICT SENSE REQ UIRES COMPUTATION FOR THE PURPOSE OF LEVY OF TAX. THE COMPUTATION OF TOTAL IN COME BEGINS ONLY WITH CHAPTER IV AND AS SECTION 10A IS COVERED IN CHAPTER III, TH E PHRASE 'TOTAL INCOME' USED IN SECTION 10A CANNOT BE UNDERSTOOD IN THE SAME SENSE AS IN SECTION 2(45). THE PHRASE 'TOTAL INCOME' HAS BEEN USED IN THE INCO ME-TAX ACT IN SEVERAL PLACES WITH DIFFERENT CONNOTATIONS AND SHADES. THE PHRASE 'TOTAL INCOME' USED IN SECTION 10A IS ONE SUCH VARIANT. THE PHRASE NEED NOT NECESS ARILY MEAN THE TOTAL INCOME AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF TH E ACT. THE RELIEF UNDER THIS SECTION IS WITH REFERENCE TO THE STP UNDERTAKINGS A ND NOT TO THE ASSESSEE. IN OTHER WORDS, THE RELIEF TRAVELS WITH THE UNDERTAKING IRRE SPECTIVE OF WHO OWNS THE SAME. THE COMPUTATION OF RELIEF AS PROVIDED IN SECTION 10 A(4) IS ALSO WITH REFERENCE TO THE UNDERTAKING. A BUSINESS MIGHT HAVE SEVERAL UNDE RTAKINGS AND SECTION 28 DOES NOT ENVISAGE COMPUTATION OF INCOME OF EACH SUCH UND ERTAKING. IN OTHER WORDS, THE PROFITS OF THE BUSINESS OF THE UNDERTAKING CANN OT BE COMPUTED IN ISOLATION. THE PROFITS ARE COMPUTED UNDER THE HEAD 'PROFITS AN D GAINS OF BUSINESS OR PROFESSION', AS UNDER THE ABOVE HEAD, THE INCOME FR OM BUSINESS AS A WHOLE HAS TO BE COMPUTED. THE PHRASE 'TOTAL INCOME' USED IN SECT ION 10A(1) IS, THEREFORE, TO BE UNDERSTOOD AS THE TOTAL INCOME OF THE STP UNIT. THIS IS CLEAR FROM THE FIRST PROVISO TO SECTION 10A(1) WHICH MAKES A REFERENCE T O THE TOTAL INCOME OF THE UNDERTAKING AND NOT TO THE TOTAL INCOME OF THE ASSE SSEE. THE DEFINITION OF ANY TERM GIVEN IN SECTION 2 WILL APPLY ONLY WHEN THE CONTEXT DOES NOT OTHERWISE REQUIRE. THE PLACEMENT, LANGUAGE AND SETTING OF SECTION 10A CANNOT MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. INSTEAD, SUCH A PHRASE IN THE CONTEXT OF SECTION 10A, MEANS PROFITS AND GAINS OF THE STP UNDERTAKING AS UNDERSTOOD IN ITS COMMERCIAL SENSE.' 19. THERE IS FURTHER INDICATION THAT SECTION 10A PROVI DES FOR AN EXEMPTION AND NOT MERELY A DEDUCTION AND THIS IS IN THE FORM OF R ETURN OF INCOME PRESCRIBED BY THE INCOME TAX RULES, 1962. THE RETURN OF INCOME IN FORM NO.ITR-6 SHOWS THAT ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 8 OF 14 THE FIRST STEP WHICH AN ASSESSEE IS REQUIRED WHILE COMPUTING THE INCOME FROM BUSINESS OR PROFESSION IS TO COMMENCE THE COMPUTATI ON FROM THE PROFIT AS PER THE PROFIT AND LOSS ACCOUNT. THE SECOND STEP IS TO ADJU ST THE PROFIT FIGURE BY EXCLUDING RECEIPTS WHICH ARE NOT SUBJECT TO TAX OR WHICH ARE SUBJECT TO TAX UNDER OTHER HEADS OF INCOME. THE THIRD STEP IS TO EXCLUDE EXEMP T INCOME CREDITED TO THE PROFIT AND LOSS ACCOUNT. FOURTH STEP IS TO ADD BACK CLAIMS WHICH ARE DISALLOWABLE UNDER THE VARIOUS PROVISIONS OF THE ACT. THE FIFTH STEP I S TO CLAIM ANY OTHER ALLOWANCE OR DEDUCTION. THIS EXERCISE GIVES THE FIGURE OF PROFIT OR LOSS BEFORE DEDUCTION UNDER SECTION 10A. THEREAFTER THE ASSESSEE HAS TO DEDUCT THE PROFITS ELIGIBLE UNDER SECTION 10A. THE FORM FURTHER PRESCRIBES THE STEPS INVOLVED IN THE COMPUTATION OF TOTAL INCOME. THIS SHOWS THAT AFTER AGGREGATING THE INCOME FROM SALARY, HOUSE PROPERTY, PROFITS AND GAINS FROM BUSINESS, CAPITAL GAINS AND INCOME FROM OTHER SOURCES, THE TOTAL IS ARRIVED AT AND IT IS FROM THI S TOTAL THAT THE LOSSES OF THE CURRENT YEAR AND THE BROUGHT FORWARD LOSSES FROM TH E PAST YEARS ARE TO BE SET OFF. THE RESULTANT FIGURE GIVES THE GROSS TOTAL INCOME O F THE ASSESSEE FROM WHICH DEDUCTIONS UNDER CHAPTER VIA ARE TO BE MADE IN ORDE R TO ARRIVE AT THE TOTAL INCOME. THE STEPS GIVEN IN THE INCOME TAX RETURN FO RM ALSO ARE AN INDICATION THAT IT IS BEFORE THE ADJUSTMENT OF THE LOSSES OF THE CU RRENT YEAR AND THE BROUGHT FORWARD LOSSES FROM THE PAST YEAR THAT THE PROFITS ELIGIBLE FOR THE RELIEF UNDER SECTION 10A HAVE TO BE GIVEN THE RELIEF. THE FORM O F RETURN IS ALSO AN INDICATION THAT THE RELIEF UNDER SECTION 10A HAS TO BE GIVEN B EFORE ADJUSTMENT OF THE CURRENT AS WELL AS THE PAST LOSSES. THIS ASPECT OF THE MATT ER IS ALSO CONSIDERED BY THE KARNATAKA HIGH COURT IN THE JUDGMENT CITED (SUPRA) IN THE FOLLOWING MANNER: - 'CHAPTER IV DEALS WITH THE COMPUTATION OF TOTAL INC OME UNDER VARIOUS HEADS OF INCOME. SECTION 14 PROVIDES FOR CLASSIFICATION OF I NCOME UNDER VARIOUS HEADS OF INCOME FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME. THE PURPOSE OF CLASSIFICATION OF ANY INCOME UNDER ANY HEAD OF INCOME IS TO COMPUTE THE SAME. THE TWIN CONDITIONS OF SECTION 14 ARE THAT INCOME IS SUBJECT TO CHARGE OF INCOME-TAX AND IS INCLUDIBLE IN THE TO TAL INCOME. AS THE RELIEF UNDER SECTION 10A IS IN THE NATURE OF EXEMPTION ALTHOUGH TERMED AS DEDUCTION AND THE SAID RELIEF IS IN RESPECT OF COMMERCIAL PROFITS, SU CH INCOME IS NEITHER SUBJECT TO CHARGE OF INCOME-TAX NOR INCLUDIBLE IN THE TOTAL IN COME. THEREFORE, THE TWIN PROVISIONS OF SECTION 14 ARE NOT EXISTING IN THE CA SE OF INCOME OF STP UNDERTAKING AND ACCORDINGLY SUCH INCOME IS NOT LIABLE TO BE COM PUTED UNDER CHAPTER IV. THEREFORE, THE CORRECT VIEW WOULD BE THAT THE RELIE F UNDER SECTION 10A WILL HAVE TO BE GIVEN BEFORE CHAPTER IV. THE DEDUCTION SHALL BE GIVEN FIRST AND PROCESS OF COMPUTATION OF 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' BEGINS THEREAFTER. THIS PROPOSITION IS IN LINE WITH THE FORM OF RETURN . ALLOWING DEDUCTION AT THE EARLIEST STAGE OF BUSINESS INCOME COMPUTATION ALMOS T BLURS THE DIFFERENCE BETWEEN THE COMMERCIAL PROFITS AND TAX PROFITS.' 20. WE MAY NOW REFER TO TWO JUDGMENTS OF THE BOMBAY HI GH COURT ON THE ISSUE. THE FIRST IS HINDUSTAN UNILEVER LTD. V. DY. CIT [2010] 325 ITR 102 / 191 TAXMAN 119 (BOM.) . THIS CASE DEALT WITH SECTION 10B OF THE ACT WHICH IS SUBSTANTIALLY SIMILAR TO SECTION 10A. IN THAT CASE THE ASSESSMENT WAS SOUGHT TO BE REOPENED UNDER SECTION 147 OF THE ACT FOR SEVERAL REASONS. O NE OF THE REASONS WAS THAT THE ASSESSEE WAS WRONGLY ALLOWED DEDUCTION UNDER SECTIO N 10B IN THE AMOUNT OF RS. 11.11 CRORES IN THE ASSESSMENT. THE ASSESSING OFFIC ER OBSERVED THAT THERE WAS A ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 9 OF 14 LOSS IN THE CRAB STICK UNIT AMOUNTING TO RS. 1.33 C RORES AND SINCE THIS UNIT WAS EXEMPT FROM TAXATION UNDER SECTION 10B, THE LOSSES THEREIN WERE WRONGLY SET OFF AGAINST THE NORMAL BUSINESS INCOME OF THE ASSESSEE AND THUS THERE WAS ESCAPEMENT OF INCOME TO THE EXTENT OF RS. 1.33 CROR ES. THE REOPENING WAS CHALLENGED BEFORE THE BOMBAY HIGH COURT WHICH HELD AS FOLLOWS: - 'THERE IS MERIT IN THE SUBMISSION WHICH HAS BEEN UR GED ON BEHALF OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS WHILE REOPE NING THE ASSESSMENT EX FACIE PROCEEDED ON THE ERRONEOUS PREMISE THAT SECTION 10B IS A PROVISION IN THE NATURE OF AN EXEMPTION. PLAINLY, SECTION 10B AS IT STANDS IS NOT A PROVISION IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUC TION. SECTION 10B WAS SUBSTITUTED BY THE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001. PRIOR TO THE SUBSTITUTION OF THE PROVISION, THE EARLIER PROV ISION STIPULATED THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A 100 PER CENT. EXPORT ORIENTED UNDERTAKING, TO WHICH THE SECTION APPLIES 'SHALL NO T 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 S ECTION 10B BY THE FINANCE ACT OF 2000, THE PROVISION AS IT NOW STANDS PROVIDE S 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 S OFTWARE 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 B ASIS THAT BECAUSE THE INCOME IS EXEMPTED, THE LOSS WAS NOT ALLOWABLE. ALL THE FO UR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 10B. THREE UNITS HAD RETURNE D A PROFIT DURING THE COURSE OF THE ASSESSMENT YEAR, WHILE THE CRAB STICK UNIT H AD RETURNED A LOSS. THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOUR TH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THESE CIRCUMSTANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED IS CONTRARY TO THE PLAIN LANGUAGE OF SECTION 10B.' 21. IT MAY BE OBSERVED THAT IN THE BOMBAY HIGH COURT C ASE THE LOSS SUFFERED BY THE ELIGIBLE UNIT UNDER SECTION 10B WAS SET OFF AGA INST THE NORMAL BUSINESS PROFIT. THE VIEW TAKEN BY THE ASSESSING OFFICER IN THAT CAS E WAS THAT SECTION 10B PROVIDED FOR AN EXEMPTION WHICH MEANS THAT IT DOES NOT ENTER THE FIELD OF TAXATION AND, THEREFORE, THE LOSS ARISING THEREFROM CANNOT B E SET OFF AGAINST THE NORMAL BUSINESS PROFITS. DISAPPROVING THE VIEW TAKEN BY TH E ASSESSING OFFICER, THE HIGH COURT HELD THAT SECTION 10B, AS SUBSTITUTED BY THE FINANCE ACT, 2000 WAS A SECTION PROVIDING FOR A DEDUCTION WHEREAS PRIOR TO THE SUBSTITUTION THE EARLIER PROVISION WAS IN THE NATURE OF AN EXEMPTION. IT WAS THUS HELD THAT THE BASIS ON WHICH THE ASSESSMENT WAS SOUGHT TO BE REOPENED WAS WRONG AND THE REASSESSMENT NOTICE WAS STRUCK DOWN. THIS DECISION WAS FOLLOWED BY THE BOMBAY HIGH COURT IN THE CASE OF CIT V. BLACK & VEATCH CONSULTING (P.) L TD. [2012] 208 TAXMAN 144/20 TAXMANN.COM 727 . IN THIS CASE THE PRECISE QUESTION WHICH AROSE UND ER SECTION 10A WAS WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND LOSSES OF THE U NIT, THE INCOME FROM WHICH ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 10 OF 14 WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A CA NNOT BE SET OFF AGAINST THE CURRENT PROFIT OF THE ELIGIBLE UNIT FOR COMPUTING T HE DEDUCTION UNDER SECTION 10A. REFERRING TO ITS EARLIER JUDGMENT IN THE CASE OF HI NDUSTAN UNILEVER LTD. (SUPRA) IT WAS HELD AS UNDER: - '2. SECTION 10A IS A PROVISION WHICH IS IN THE NATU RE OF A DEDUCTION AND NOT AN EXEMPTION. THIS WAS EMPHASISED IN A JUDGMENT OF A D IVISION BENCH OF THIS COURT WHILE CONSTRUING THE PROVISIONS OF SECTION 10 B IN HINDUSTAN UNILEVER LTD V. DEPUTY COMMISSIONER OF INCOME TAX [2010] 325 ITR 102 AT PARA 24. THE SUBMISSION OF THE REVENUE PLACED ITS RELIANCE O N THE LITERAL READING OF SECTION 10A UNDER WHICH A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR TH INGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE DEDUCTION UNDER S ECTION 10A, IN OUR VIEW, HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFITS AND GAINS OF BUSINESS. THIS IS ANTERIOR TO THE APPLICATION OF TH E PROVISIONS OF SECTION 72 WHICH DEALS WITH THE CARRY FORWARD AND SET OFF OF B USINESS LOSSES. A DISTINCTION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATIN G THE PROVISIONS OF CHAPTER VI-A. SECTION 80A(1) STIPULATES THAT IN COM PUTING THE TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS GROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80C TO 80U. SECTION 80B(5) DEFINES FOR THE PURPOSES OF CHAPTER VI-A 'GROSS TOTAL INCOME' TO MEAN THE TOTAL INCOME COMPU TED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, BEFORE MAKING ANY DEDUCT ION UNDER THE CHAPTER. WHAT THE REVENUE IN ESSENCE SEEKS TO ATTAIN IS TO T ELESCOPE THE PROVISIONS OF CHAPTER VI-A IN THE CONTEXT OF THE DEDUCTION WHICH IS ALLOWABLE UNDER SECTION 10A, WHICH WOULD NOT BE PERMISSIBLE UNLESS A SPECIF IC STATUTORY PROVISION TO THAT EFFECT WERE TO BE MADE. IN THE ABSENCE THEREOF , SUCH AN APPROACH CANNOT BE ACCEPTED. IN THE CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL WOULD HAVE TO BE AFFIRMED SINCE IT IS PLAIN AND EVIDENT THAT THE DEDUCTION UNDER SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE PROFITS AND G AINS OF BUSINESS ARE COMPUTED IN THE FIRST INSTANCE. SO CONSTRUED, THE A PPEAL BY THE REVENUE WOULD NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW AN D SHALL ACCORDINGLY STAND DISMISSED. THERE SHALL BE NO ORDER AS TO COSTS.' 22. IT IS INTERESTING TO NOTE THAT THOUGH THERE IS A D IVERGENCE OF OPINION BETWEEN THE KARNATAKA HIGH COURT IN YOKOGAWA INDIA LTD.'S CASE ( SUPRA ) AND THE BOMBAY HIGH COURT IN HINDUSTAN UNILEVER LTD. ( SUPRA ) AS TO THE NATURE OF SECTION 10A - WHETHER IT PROVIDES FOR EXEMPTION OR DEDUCTION OF THE PROFITS OF THE ELIGIBLE UNIT, THE ULTIMATE DECISION IN BLACK & VEATCH CONSULTING (P.) LTD. ( SUPRA ) WHICH PURPORTS TO FOLLOW HINDUSTAN UNILEVER LTD. ( SUPRA ) WAS THAT SUCH PROFITS HAVE TO BE ELIMINATED AT THE FIRST STAGE ITSELF, TH AT IS, AS SOON AS THEY ARE COMPUTED, SUGGESTING THAT IT IS AN EXEMPTION PROVISION. IT WA S HELD THAT THE ELIGIBLE PROFITS ARE NOT TO BE SUBJECTED TO THE ADJUSTMENT UNDER SEC TION 72 OF THE ACT, AND THE BROUGHT FORWARD LOSS FROM THE UNIT ELIGIBLE FOR THE RELIEF UNDER SECTION 10B CANNOT BE ADJUSTED AGAINST THE PROFITS FROM THE OTH ER THREE ELIGIBLE UNITS, WHICH IN EFFECT REITERATES THE POSITION THAT THE LOSS DOES N OT ENTER THE FIELD OF TAXATION JUST AS THE PROFITS ALSO DO NOT ENTER THE FIELD. THIS, W ITH RESPECT, LENDS SUPPORT MORE TO THE VIEW THAT SECTION 10A AND SECTION 10B ARE IN TH E NATURE OF EXEMPTION ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 11 OF 14 PROVISIONS, RATHER THAN PROVISIONS FOR DEDUCTION. I N THE ULTIMATE ANALYSIS IT MAY PERHAPS BE WISE TO FALL BACK ON THE OBSERVATIONS OF JUSTICE NARASIMHAM, J. (AS HE THEN WAS) SPEAKING FOR A DIVISION BENCH OF THE ORIS SA HIGH COURT IN RAMACHANDRA MARDARAJ DEO V. COLLECTOR OF COMMERCIAL TAXES [1957] 31 ITR 651 WHERE HE DESCRIBED THE DIFFERENCE BETWEEN 'EXEM PTION' AND 'DEDUCTION' AS 'A FINE DISTINCTION' AND OBSERVED AS UNDER: - 'WHETHER A PARTICULAR SUM IS CLAIMED AS AN EXEMPTIO N OR AS A DEDUCTION, THE NET RESULT IS ITS IMMUNITY FROM TAXATION IF THE CLAIM I S ALLOWED.' 23. THIS COURT CONSIDERED A SOMEWHAT SIMILAR QUESTION, THOUGH NOT IDENTICAL, IN CIT V. DALMIA CEMENT (BHARAT) LTD. [1980] 126 ITR 736 . THE QUESTION AROSE UNDER THE COMPANIES (PROFITS) SURTAX ACT, 1964. RAN GANATHAN, J. (AS HE THEN WAS) REFERRED TO THE JUDGMENT OF E. S. VENKATARAMIAH, J. (AS HE THEN WAS) OF THE KARNATAKA HIGH COURT IN STUMPP, SCHUELE & SOMAPPA (P.) LTD. V. SECOND ITO [1976] 102 ITR 320 WHERE THE POSITION WAS SUMMED UP AS UNDER: - '( A ) ANY AMOUNT IN RESPECT OF WHICH DEDUCTION IS CLAIMED UNDER ANY OF THE PROVISIONS IN SECTIONS 80C TO 80V IS ALREADY INCLUD ED IN THE GROSS TOTAL INCOME OF THE ASSESSE E AND, THEREFORE, CANNOT BE STATED TO BE NOT INCLUD IBLE IN THE INCOME OF THE ASSESSEE. ( B ) THE EXPRESSION 'NOT INCLUDIBLE' MEANS NOT CAPABLE O F BEING INCLUDED. IT CANNOT REFER TO AN AMOUNT WHICH ALREADY FORMED PART OF THE TOTAL INCOME. IT REFERS TO THE CLASSES OF INCOME, WHICH CHAP. III DIRECTS, 'SHALL NOT BE INCLUDED' IN THE TOTAL INCOME OF THE ASSESSEE. ( C ) THE CONCEPT OF DEDUCTIONS BY WAY OF EXPENSES, REBAT ES, ALLOWANCES, ETC., UNDER CHAPS. IV & VI-A IS TOTALLY DIFFERENT FROM TH AT OF NON-INCLUSION.' 24. THUS INCOMES WHICH ARE ENUMERATED IN CHAPTER III O F THE ACT HAVE TRADITIONALLY BEEN CONSIDERED AS INCOMES WHICH ARE EXEMPT FROM TAX RATHER THAN AS DEDUCTIONS IN THE COMPUTATION OF THE TOTAL INCOM E. THE ESSENTIAL DIFFERENCE BETWEEN AN EXEMPTION AND DEDUCTION SEEMS TO BE THAT AN EXEMPT INCOME DOES NOT ENTER THE COMPUTATION OF TOTAL INCOME AT ALL, WHERE AS A DEDUCTION, IN THE VERY NATURE OF THINGS, IS FIRST INCLUDED IN THE TOTAL IN COME AND GIVEN A DEDUCTION SUBJECT TO FULFILLMENT OF SEVERAL CONDITIONS. THE FACT THAT THE DEDUCTION MAY BE GIVEN IN RESPECT OF THE ENTIRE INCOME DOES NOT NECESSARILY M EAN THAT IT IS AN EXEMPT INCOME. AT THE SAME TIME, THE FACT THAT A PARTICULA R CLASS OF INCOME IS ONLY PARTIALLY EXEMPT FROM TAXATION DOES NOT NECESSARILY MEAN THAT IT IS ONLY A DEDUCTION. IN A RECENT JUDGMENT, THE SUPREME COURT HAS ELUCIDATED ON THE SUBJECT - CIT V. WILLIAMSON FINANCIAL SERVICES [2008] 297 ITR 17/[2007] 165 TAXMAN 638 WHERE IT WAS OBSERVED AS UNDER: - 'AT THIS STAGE WE HAVE TO ANALYSE CHAPTER III WHICH DEALS WITH INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME. SECTION 10 GROUPS IN ONE PLACE VARIOUS INCOMES WHICH ARE EXEMPT FROM TAX. THE INCOMES ENUM ERATED IN SECTION 10 ARE NOT ONLY EXCLUDED FROM THE TAXABLE INCOME OF THE AS SESSEE BUT ALSO FROM HIS TOTAL INCOME. THE EXEMPTION EMBODIED IN SECTION 10 CAN BE DIVIDED INTO TWO ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 12 OF 14 CATEGORIES, NAMELY, EXEMPTION TO WHICH CERTAIN CLAS SES OF INCOME FROM THEIR VERY NATURE ARE ENTITLED AND THE SECOND CATEGORY CO NCERNS EXEMPTION WHICH THE CHARACTER OF THE ASSESSEE ENTITLES HIM TO CLAIM. IN THE FIRST CATEGORY IS AGRICULTURAL INCOME WHEREAS IN THE SECOND CATEGORY OF EXEMPTED INCOME IS THE INCOME OF LOCAL AUTHORITIES AND DIPLOMATIC OFFICERS . WE ARE CONCERNED WITH THE FIRST CATEGORY. IN ADDITION TO THE ABOVE TWO CATEGORIES THERE IS A THIRD KIND OF INCOME. THESE INCOMES ARE WHOLLY OR PARTLY TAX-FREE INCOMES ON AC COUNT OF SPECIAL DEDUCTIONS UNDER CHAPTER VI-A. WE ARE ESSENTIALLY C ONCERNED WITH THESE TAX- FREE INCOMES.' 25. AGAIN AT PARAGRAPH 40 AT PAGE 34 OF THE REPORT IT WAS OBSERVED AS UNDER: - 'AS STATED ABOVE, THERE IS A VITAL DIFFERENCE BETWE EN INCOME NOT CHARGEABLE TO TAX AND NOT INCLUDIBLE IN THE TOTAL INCOME (FOR EXAMPLE , AGRICULTURAL INCOME) AND INCOME WHICH FORMS PART OF TOTAL INCOME BUT WHICH I S MADE TAX-FREE. DEDUCTIONS UNDER CHAPTER VI-A FALL IN THE CATEGORY OF TAX-FREE INCOMES. IN FACT, HISTORY SHOWS THAT SOME OF THE INCOMES IN CHAPTER VI-A HAVE BEEN TRANSFERRED FROM CHAPTER VII TO CHAPTER VI-A. CHAPTER VII HAS BEEN DELETED. HOWE VER, AT THE RELEVANT TIME CHAPTER VII REFERRED TO INCOMES FORMING PART OF TOT AL INCOME ON WHICH NO TAX WAS PAYABLE. THAT IS WHY WE HAVE STATED THAT THERE IS A DIFFERENCE BETWEEN 'EXEMPTED INCOMES' AND 'TAX-FREE INCOMES'. THIS DIS TINCTION IS OF SOME IMPORTANCE. AS STATED ABOVE, SECTION 5 PROVIDES WHA T THE 'TOTAL INCOME' SHALL INCLUDE. CHAPTER III REFERS TO 'INCOMES WHICH DO NO T FORM PART OF TOTAL INCOME'. CHAPTER IV DEALS WITH 'COMPUTATION OF TOTAL INCOME' . IT CLASSIFIES THE 'INCOME' UNDER DIFFERENT HEADS AND THE DEDUCTIONS TO BE MADE IN RESPECT OF EACH OF THE DIFFERENT HEADS OF INCOME. IN THE INCOME-TAX ACT, T HE EXPRESSION 'INCOME INCLUDIBLE IN THE TOTAL INCOME' HAS A DEFINITE CONN OTATION. SIMILARLY, THE EXPRESSION 'DEDUCTION AND ALLOWANCES' HAVE PARTICUL AR CONNOTATION. THEREFORE, ON THE ONE HAND WE HAVE 'AGRICULTURAL INCOME' WHICH IS NEITHER CHARGEABLE NOR INCLUDIBLE IN THE TOTAL INCOME AND ON THE OTHER HAN D WE HAVE 'INCOMES' UNDER CHAPTER VI-A WHICH ARE PART OF TOTAL INCOME BUT WHI CH ARE TAX-FREE.' 26. IN THE CASE OF TATA POWER COMPANY LTD. V. RELIANCE ENERGY LTD. (JT) 2009 (8) SC 562, THE SUPREME COURT WAS CONFRONTED WITH T HE QUESTION WHETHER CHAPTER HEADINGS AND MARGINAL NOTES SHOULD BE TAKEN INTO CO NSIDERATION FOR THE PURPOSE OF INTERPRETATION OF THE MAIN PROVISIONS. IT WAS HELD THAT CHAPTER HEADINGS ARE PARTS OF THE STATUTE AND HAVE BEEN ENACTED BY THE PARLIAM ENT AND, THEREFORE, THEY CAN BE USED AS AN AID TO CONSTRUCTION IN CASE OF AMBIGUITY AND DOUBT. THE FOLLOWING OBSERVATIONS ARE PERTINENT: - '114. CHAPTER HEADINGS AND THE MARGINAL NOTE ARE PA RTS OF THE STATUTE. THEY HAVE ALSO BEEN ENACTED BY THE PARLIAMENT. THERE CANNOT, THUS, BE ANY DOUBT THAT IT CAN BE USED IN AID OF THE CONSTRUCTION. IT IS, HOWEVER, WELL SETTLED THAT IF THE WORDINGS OF THE STATUTORY PROVISION ARE CLEAR AND UNAMBIGUOU S, CONSTRUCTION OF THE STATUTE WITH THE AID OF 'CHAPTER HEADING' AND 'MARGINAL NOT E' MAY NOT ARISE. IT MAY BE THAT HEADING AND MARGINAL NOTE, HOWEVER, ARE OF A VERY L IMITED USE IN INTERPRETATION BECAUSE OF ITS NECESSARILY BRIEF AND INACCURATE NAT URE. THEY ARE, HOWEVER, NOT ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 13 OF 14 IRRELEVANT. THEY CERTAINLY CANNOT BE TAKEN INTO CON SIDERATION IF THEY DIFFER FROM THE MATERIAL THEY DESCRIBE.' 27. AFTER REFERRING TO THE VIEWS OF THE LEARNED AUTHOR S IN 'INTERPRETATION OF STATUTES' BY VEPA P. SARATHI (4TH EDITION) AND 'PRI NCIPLES OF STATUTORY INTERPRETATION' BY JUSTICE G. P. SINGH ON THE RELEV ANCE OF CHAPTER HEADING, THE SUPREME COURT SUMMARISED THE POSITION AS UNDER: - '120. CHAPTER HEADING, THEREFORE, IS A PERMITTED TO OL OF INTERPRETATION. IT IS CONSIDERED TO BE A PREAMBLE OF THAT SECTION TO WHIC H IT PERTAINS. IT MAY BE TAKEN RECOURSE TO WHERE AN AMBIGUITY EXISTS. HOWEVE R, WHERE THERE DOES NOT EXIST ANY AMBIGUITY, IT CANNOT BE RESORTED TO. CHAP TER HEADING AND MARGINAL NOTE, HOWEVER, CAN BE RESORTED TO FOR THE PURPOSE O F RESOLVING THE DOUBTS.' 28. IN MAKING THE AFORESAID OBSERVATIONS THE COURT NOT ED THAT ' THERE IS A DRIFT FROM THE OLD VALUES IN RECENT TIMES, SUGGESTING THAT THE COURTS ARE INCREASINGLY ACCEPTING THE CHAPTER HEADINGS AS AN AID TO CONSTRU CTION OR INTERPRETATION IN CASE OF AMBIGUITY '. THE CAVEAT, HOWEVER, IS THAT WHERE THE STATUTE I S CLEAR AND UNAMBIGUOUS THAT SHOULD PREVAIL. IN INTERPRETING SU B-SECTION (1) OF 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, BECAU SE OF THE LANGUAGE USED, AS TO WHETHER THE SUB-SECTION PROVIDES FOR AN EXEMPTION O R A DEDUCTION. WE HAVE EARLIER REFERRED TO THE DIFFICULTY CAUSED BY THE LA NGUAGE WHICH SAYS THAT THE DEDUCTION SHALL BE MADE FROM THE TOTAL INCOME, WHEN THE ACT CONTAINS NO PROVISION TO ALLOW ANY DEDUCTIONS FROM THE TOTAL IN COME. THE SECTION HAS BEEN INTERPRETED BY THE KARNATAKA HIGH COURT ( SUPRA ) AS AN EXEMPTION PROVISION WHEREAS THE BOMBAY HIGH COURT HAS UNDERSTOOD THE SA ME AS A DEDUCTION SECTION, THOUGH THE ULTIMATE RESULT DID NOT MAKE ANY DIFFERE NCE TO THE ASSESSEE'S CLAIM IN BLACK & VEATCH CONSULTING ( SUPRA ). THEREFORE, IT CANNOT BE DENIED THAT THERE IS UNCERTAINTY AND LACK OF CLARITY OR PRECISION IN THE LANGUAGE EMPLOYED IN SUB- 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 APPRECIATIN G THE DIFFERENCE BETWEEN A PROVISION WHICH EXEMPTS AN INCOME AND A PROVISION W HICH PROVIDES FOR A DEDUCTION OF THE INCOME OR A PART THEREOF IN COMPUT ING THE TOTAL INCOME OF THE ASSESSEE. WE HAVE ATTEMPTED TO OUTLINE THE DIFFEREN CE 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 CEMENT (BHARAT) LTD. ( SUPRA ): - 'IN THE PROCESS OF JUDICIAL ASSESSMENT OF SUCH CONF LICTING INTERPRETATIONS, THERE IS NO SENSITIVE BALANCE WITH WHICH TO WEIGH THE PRO S AND CONS AND DETERMINE WITH SCIENTIFIC ACCURACY WHICH SIDE IS THE WEIGHTIE R AND, PERHAPS IN THE DRAWING OF THE ULTIMATE INFERENCE ONE WAY OR THE OT HER, THE SUBJECTIVE ELEMENT IS NOT ALTOGETHER EXCLUDED.' 30. WITH THIS CAUTION OR DISCLAIMER IN MIND WE ARE INC LINED TO HOLD THAT SECTION 10A IS A PROVISION EXEMPTING A PARTICULAR KIND OF I NCOME EVEN IN ITS PRESENT FORM, THAT IS TO SAY, EVEN AFTER BEING AMENDED BY THE FIN ANCE ACT, 2000 W. E. F. ITA NO 766 OF 2015 INDUS BUSINESS SYSTEMS LTD HYDER ABAD PAGE 14 OF 14 01.04.2001. WE ARE INCLINED, WITH RESPECT, TO AGREE WITH THE VIEW TAKEN BY THE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. ( SUPRA ). AS NOTICED, THE BOMBAY HIGH COURT REACHED THE SAME CONCLUSION WHICH THE KARNATAKA HIGH COURT REACHED IN THE CASE OF YOKOGAWA INDIA LTD. ( SUPRA ), IN ITS JUDGMENTS IN HINDUSTAN UNILEVER LTD. ( SUPRA ) AND BLACK & VEATCH CONSULTING (P.) LTD. ( SUPRA ), DESPITE TAKING THE VIEW THAT THE SECTION PROVIDES FOR A DED UCTION AND NOT AN EXEMPTION. THIS JUDGMENT HAS BEEN PASSED AFTER CONSIDERING THE OTHER PRECEDENTS ON THE ISSUE. IN VIEW OF THE SAME, WE AR E OF THE OPINION THAT THE DECISION OF THE HON'BLE HIGH COURT S OF DELHI, KARNATAKA AND BOMBAY (CITED SUPRA) ARE APPLICABLE T O THE CASE BEFORE US. RESPECTFULLY FOLLOWING THE SAME, WE QUAS H THE ORDER OF THE CIT AS THE ASSESSMENT ORDER IS NOT ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE, 2016. S D/ - (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 17 TH JUNE,2016. VNODAN/SPS COPY TO: 1. P.R. DATLA & CO. CAS, 6-3-788/A/9, FIRST FLOOR, DUR GA NAGAR, AMEERPET, HYDERABAD 500016 2. IOTO WARD 2(1) 8 TH FLOOR, C BLOCK IT TOWERS, AC GUARDS, HYDERABAD 3. PRINCIPAL COMMISSIONER OF INCOME TAX-2 HYDERABAD 4. ADD. COMMISSIONER OF INCOME TAX RANGE-2 HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER