Case Law Details

Case Name : Karle International Pvt. Ltd. Vs The Assistant Commissioner of Income Tax (ITAT Bangalore), ITA No. 381/Bang/2012
Appeal Number : 12/10/2012
Date of Judgement/Order : 2007- 08
Related Assessment Year :
Courts : All ITAT (4212) ITAT Bangalore (191)

IN THE ITAT BANGALORE BENCH ‘A’

Karle International (P.) Ltd.

Versus

Assistant Commissioner of Income-tax

IT APPEAL NO. 381 (BANG.) OF 2012

[Assessment year 2008-09]

OCTOBER 12, 2012

ORDER

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 income of Rs. 12,89,760/-. The Assessee had three units. Unit-I is a Domestic Tariff Area (DTA) Unit. This unit was not entitled to any exemption. We will refer to this as a non-eligible unit. Unit II and Unit III were 100% Export Oriented Units eligible for exemption u/s.10-B of the Act. These units will be referred to as eligible units. The position of income and loss of the three 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 profits of Unit-I, i.e., Rs. 6,78,13,152-6,65,23,391 (Rs. 6,22,40,143 + Rs. 42,83,248) and offered the balance sum of Rs. 12,89,761 to tax.

3. The AO held that income of eligible units that are 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 the 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 Asstt. CIT v. Yokogawa India Ltd. [2007] 13 SOT 470 (Bang.) 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 the 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 that when there are losses in the eligible units they cannot be set off against the taxable profits of the non-eligible unit. 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 raised by the appellant and perused the case laws adduced in support of the claim. At the outset, I may mention that the root of the issue concerns the placement of the exemptions allowed under section 10A, with respect to whether these are in the nature 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 section 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 Income Tax Vs M/S Yokogawa India Ltd. After an exhaustive discussion on the legal provisions involved, the court found that the income of a 10A unit has to be excluded at the source itself before arriving at the gross total income and that since this income is not to be included in the income of the assessee at all, there was no occasion to set off the losses of the assessee in respect of his other business against the profits of the exempted units. The salient findings of the honorable Court are as below:

As the income of 10-A unit has to be excluded at 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. The loss incurred by the assessee under the head profits and gains of business or profession 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 all, 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 per Section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current years depreciation under Section 32(2) is to be set off As deduction under Section 10-A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profit and game of the undertaking would not arise. In that view of the matter, the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of Section 10-A to the assessee. Hence, the main substantial question of law is answered in favor 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 appellant’s business. In view of the findings of the court, it becomes academic as to whether the provisions of section l0B(6) places a specific bar or restriction regarding set off of carry forward of the losses of exempted units. Be that as it may, the provisions 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 fact 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 Karnataka High Court was hearing an appeal against the order of the Appellate Tribunal which had ruled in favor of the appellant by insulating the profits of the exempted units from adjustment against 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 logically follows that the same insulation would prevent the flow of the adjustment in a reverse direction also. Hence, neither the income nor the loss of such an exempted unit can be now adjusted against the results of another unit (whether exempted or not) run by the appellant, as per the rationale of the judgement of the jurisdictional High Court.

5.4. In view of the above, and respectfully following the rationale of the order of the Honorable High Court of Karnataka as detailed in the preceding paragraphs, I am unable 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 interference. As such, the appeal is dismissed.”

5. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. The grounds of appeal raised by the Assessee reads as follows:

“1.  The learned Assessing Officer had erred in passing the order in the manner passed by him and the learned Commissioner of Income tax (Appeals) has also erred in confirming the same. The orders passed being bad in law are liable to be quashed.

 2.  In any case and without prejudice, the authorities below have erred in not allowing the set off losses of units, whose profits are entitled for exemption u/s. 10B of I.T. Act, 1961 against profits of DTA Unit. The action of authorities 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 appreciating the facts that for the year, the erstwhile firm had not claimed deduction U/s. l0B of the I.T. Act, for Units-II and 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 Units-I (DTA Units) and same is to be allowed.

 4.  The appellant denies the liability to pay interest U/s. 234B and 234D of 1.T. Act. The interest having been levied 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 orders 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 counsel for the Assessee. It was submitted by him that the decision of the Hon’ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd. [2012] 341 ITR 385 does not lay down that the provisions of Sec.10B are 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 which does not form part of the total income under Chapter-III of the Act (i.e. exemption provision), do not enter the computation of total income at all. Sec. 4 of the Act creates charge of income-tax 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 additional 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, computed 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 income. 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 heads of income – Salaries, income from house property, profits and gains of business or profession, capital gains, income from other sources. Chapter V then brings income of other persons, which are to be included in the total income of an Assessee and this is contained in section 60 to 65 of the Act. 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 reads as under:-

“Total income – in computing the total income of an assessee, there shall be included all income on which no income-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, Section 11 etc., falling under Chapter III. This position is made clear by s. 66 itself as it speaks only of “incomes on which tax is not payable” and similar words are used in Chapter VII only thus leaving out by implication incomes 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 clear that both profit as well as loss which is negative profit must enter into 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 satisfy two conditions. Firstly, it must comprise the “total amount of income, profits and gains.” Secondly, it must be “computed in the manner laid down in the Act”. If either of these conditions fails, the income will not 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 the 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 the gain nor loss would be considered for computation of total income. (Emphasis supplied).

8. The Hon’ble Supreme Court in CIT v. Harprasad & Co. (P) Ltd. [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 the loss against the profits of a subsequent year. It presupposes the permissibility and possibility of the carried forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that, if such set-off is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be ‘carried forward’. Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried 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 would 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 observed that – “from the charging provisions of the Act, it is discernible that the words ‘income’ or ‘profits and gains’ should be understood as including losses also, so that, in one sense ‘profits and gains’ represent ‘plus’ income whereas losses represent ‘minus’ income. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter 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 source 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 forward. It is for this reason that the Supreme Court has held in the case of Harprasad & Co. (P.) Ltd. (supra), that – “if the loss is from the source or head of income not liable to tax or congenitally exempt from income-tax, neither the assessee is required to show the same in the return nor is the Income-tax Officer under any obligation to compute or assess it much less for the purpose of carry forward”.

11. The submission of the learned counsel for the Assessee was that the Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) has only laid down that income of Sec.10-A unit has 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 amendment 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 Sec.10-B unit enjoys tax benefits, the Assessee incurs loss, then those loss will be eligible for carry forward and set off against any other income. In this regard our attention was drawn to certain passages from the decision of the Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (supra).

13. Reliance was also placed on the following decisions of the Hon’ble 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. v. Dy. CIT [2010] 325 ITR 102/191 Taxman 119 (Bom).

  –  CIT v. Galaxy Surfactants Ltd. [2012] 343 ITR 108/206 Taxman 22 (Mag.)

  –  CIT v. Black & Veatch Consulting (P.) Ltd [2012] 208 Taxman 144 (Mag.)

14. In final conclusion it was submitted that (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 will have to be set off income if any of the non-eligible unit.

15. The learned DR placed strong reliance on the reasoning of the CIT(A) based on the decision of the Hon’ble Karnataka 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 already set out the reason why the above distinction will be material in the earlier part of this order. In short, the reason is that if the provisions are considered as exemption provisions then they will not enter the computation of total income and therefore the loss of the eligible unit cannot be set off against the profits of the non-eligible unit. This issue has already been settled by the Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (supra). The CIT(A) has already referred to the portion of the High Court’s judgment dealing with the above issue. The learned counsel for the Assessee however submitted before us that the Hon’ble 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 after computing the gross total income. It has been his further submission that (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 will have to be set off against income if any of the non-eligible unit. We will therefore consider the claim of the Assessee as aforesaid and as to whether the same flows from the judgment of the Hon’ble Karnataka High Court.

17. The Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (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 which deduction u/s. 10B was to be allowed. The Hon’ble Court in para 10 to 20 of its judgment dealt with the issue. The Hon’ble Court noticed that Sec.10-A(1) of the Act (which is in pari materia with Sec.10-B of the Act) read as follows:

“10B. Special provisions in respect of newly established 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 assessment years beginning with the assessment year relevant to the Previous-year in which the under-taking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :” (Emphasis supplied)

The expression “Deduction” and “shall be allowed from the total income of the Assessee” used in the aforesaid provisions was considered by the Hon’ble 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 Act but that expression means “profits and gains of the STP undertaking as understood in its commercial sense or the total income of the STP unit. Thus the view expressed is that income of the STP undertaking gets quarantined and will not be allowed to be set off against loss of either another STP undertaking or a non STP undertaking. The Hon’ble Court thereafter held that though the expression used in Sec. 10A was “Deduction” but in effect it was only an exemption section. These conclusions clearly emanate from para 17 of the Hon’ble Court’s judgment.

18. We are therefore unable to accept the plea of the learned counsel for the Assessee that the Hon’ble 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 after computing the gross total income.

19. As far as the plea of the Assessee that (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, then that will have to be set off against income if any of the non-eligible unit. It is no doubt true that the Hon’ble Karnataka High Court in the case of Yokogawa (supra) was concerned with situation (a) as set out above. But the second substantial question of law dealt with by the Hon’ble 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. This aspect has been dealt with by the Hon’ble Karnataka High Court in para 21 to 33 of its order. The Hon’ble High Court in para 21 noticed that the provisions of Sec.10B(6) of the Act as it existed prior to its amendment 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 Hon’ble Court noticed that after the amendment the position as follows:

“21. Prior to the introduction of sub-s. (6) of s. 10A and s. 10B by the Finance Act, 2000, which came into effect from 1st April, 2001, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment 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 deduction. Similarly no loss as referred to in sub-s. (1) or in s. 72 or sub-s. (1) or sub-s. (3) of s. 74 insofar as such loss relates to the business of the undertaking was permitted to be carried forward or set off where such loss relates to any of the relevant 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) of sub-s. (6) restricting the disallowance only upto the first day 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 effect from 1st April, 2001 by lifting the embargo in the aforesaid clauses in respect of depreciation and business loss relating to the asst. yr. 2001-02 on wards. The amendment indicates the legislative intention of providing the benefit of carry forward of depreciation and business loss relating to any year of the tax holiday period to be set off against income of any year post tax holiday. This is supported by Circular No. 7 of 2003 [(2003) 184 CTR (St) 33] wherein the board has stated that the purpose of amendment is to entitle an assessee to the benefit of carry forward of depreciation and loss suffered during the tax holiday period. The circular dt. 5th Sept., 2003 reads as under :

“20. Providing for carry forward of business losses and unabsorbed depreciation to units in Special Economic Zones and 100 per cent export oriented units.

20.1 Under the existing provisions of ss. 10A and 10B, the undertakings operating in a Special Economic Zone (under s. 10A) and 100 per cent export oriented units (under s. 10B) are not permitted to carry forward their business losses and unabsorbed depreciation.

20.2 With a view to rationalize the existing tax incentives in respect of such units sub-s. (6) in ss. 10A and 10B has been amended to do away with the restrictions on the carry forward of business losses 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 respect of profits of certain undertakings in north eastern region. This makes clear the legislative intention of providing relaxation wherever 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 proposition 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 of allowing the carry forward of depreciation and loss suffered in respect of any year during the tax holiday for being set off against income post tax holiday, it is necessary that the notional computation of business income and the depreciation as per the provisions of the Act should be made for each year of the tax holiday period. While so computing, attention will have to be given to provisions of ss. 70, 71, 72 and s. 32(2). The amount of depreciation and business loss remaining unabsorbed at the end of the 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 explained by the Hon’ble 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 entitled 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 the eligible unit u/s.10-B of the Act during the period it claims exemption without opting out of those provisions will only remain in suspension to be revived immediately after the tax holiday period. Therefore the set off of the 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 this year cannot be allowed and has been rightly not allowed by the Revenue authorities.

21. If the claim of the Assessee is accepted then that would mean that the Assessee will have two benefits u/s.10B. The first benefit is an exemption of the commercial profits during the tax holiday period on a stand-alone basis without the threat of those profits being set off against loss of any other undertaking of the Assessee which may be another eligible undertaking or non-eligible business of the Assessee. The second benefit is that its losses during the tax holiday period can be set off against the income of the non-eligible undertaking. In our opinion, the second benefit is not available during the tax holiday period 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 of the Assessee in the present case was rightly not accepted by the revenue authorities.

22. The learned counsel for the Assessee has placed reliance on the decisions of the Hon’ble Bombay High Court in the following cases, for the proposition that loss of the eligible unit can be set off against the profits of the non eligible units:-

Hindusthan Unilever Ltd.’s case (supra)

Galaxy Surfactants Ltd.’s case (supra)

Black & Veatch Consulting (P.) Ltd.’s case (supra).

23. We have considered those decisions and find that the Hon’ble Bombay High Court was concerned in all the three cases with a claim of the Assessee for set off the eligible unit loss against the profits of the non- eligible unit. The claim of the Assessee was allowed holding that the provisions of Sec.10A/10B of the Act were deduction provisions and therefore the loss or profit in eligible business will enter the computation of total income. This is contrary to the view expressed by the Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) in which it was held that those provisions were exemption provisions. We have already set out in the earlier part of the order the consequences of treating the provisions as exemption provision. If according to the Hon’ble Karnataka High Court the provisions are exemption provisions, then the loss will not enter the computation at all. To this extent there is a conflict of opinion between the Hon’ble Karnataka High Court and the Hon’ble Bombay High Court.

24. In a recent decision of the Hon’ble Delhi High Court in ITA No.347/2001 & 2067/2010 dated 27.8.2012, this conflict has been noticed and the Hon’ble Delhi High Court has agreed with the view of the Hon’ble Karnataka High Court that the provisions of Sec.10-A/10B are exemption provisions and not deduction provisions. The Hon’ble 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 Hon’ble Court:

“28. … In interpreting sub-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, because of the language used, as to whether the sub-section provides for an exemption or a deduction. We have earlier referred to the difficulty caused by the language 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 income. The section has been interpreted by the Karnataka High Court (supra) as an exemption provision whereas the Bombay High Court has understood the same as a deduction section, though the ultimate result did not make any difference 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 appreciating the difference between a provision which exempts an income and a provision which provides for a deduction of the income or a part thereof in computing the total income of the assessee. We have attempted to outline the difference between the two kinds of provisions in the light of the authorities cited above. 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 conflicting interpretations, there is no sensitive balance with which to weigh the pros and cons and determine with scientific 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 particular kind of income even in its present form, that is to say, even after being amended by the Finance Act, 2000 w. e. f. 01.04.2001. We are inclined, with respect, to agree with the view taken by the Karnataka High Court in the case of CIT v. Yokogava (supra). As noticed, the Bombay High Court reached the same conclusion which the Karnataka High Court reached in the case of CIT v. Yokogava (supra), in its judgments in Hindustan Unilever Ltd. (supra) and CIT v. Black & Veatch Consulting Pvt. Ltd. (supra), despite taking the view that the Section provides for a deduction and not an exemption.”

25. Before us, the learned counsel for the Assessee made a point that the Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) in para-26 approved the view of the Hon’ble Bombay High Court in the case of Hindustan Unilever Ltd. (supra). In our view, those observations have to be construed in the light of Hon’ble Court’s observations in para-24 of its order where the Court has held that the benefit of set off of loss of eligible unit during the tax holiday period has to be carried forward for set off in accordance with law after the tax holiday period.

26. For the reasons given above we confirm the order of the CIT(A) and dismiss the appeal of the Assessee.

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