Case Law Details
CIT Vs. Yokogawa India Ltd (Karnataka High Court)- The High Court had to consider two issues for AY 2001-02 & on wards: whether
(i) the loss incurred by a non-eligible unit &
(ii) the brought forward un absorbed loss & un absorbed depreciation of the eligible unit has to be set-off against the profits of the eligible unit before allowing deduction u/s 10A/ 10B.
As the relief under Section 10A of the Act is in the nature of exemption although termed as deduction, such income is neither subject to charge of income tax nor is includible in the total income and accordingly such income is not liable to be computed under Chapter IV of the Act. Hence, the correct view would be that relief under Section 10A of the Act will have to be given prior to Chapter IV, dealing with computation of income under various heads. This proposition is also in line with the form of return. The fact that even after its recast, the relief has been retained in Chapter III indicates that the intention of the Parliament is to regard it as exemption and not a deduction. The Parliament, despite being conversant, with the implications of this Chapter, has consciously chosen to retain Section 10A of the Act in Chapter III. It is clear that the income of the 10A unit has to be excluded before arriving at the gross total income. The income of 10A unit has to be deducted at source itself, and not after computing the gross total income. Hence, the income eligible for exemption under Section 1 0A of the Act would not enter into computation as the same has to be deducted at source level.
On the second substantial question of law, it was observed that the provisions of Section 1 0A and 1 0B of the Act were amended to enable the benefit of carry forward of depreciation and business losses relating to any year of the tax holiday period to be set-off against the income of any year, post the tax holiday. This has been supported vide Circular7 of 2003 dated 5 September 2003 issued by Central Board of Direct Taxes. Hence to give effect to above legislative intent, notional computation of business income and depreciation has to be made for each of the tax holiday years. Reliance has been placed on the Mumbai High Court’s ruling in the case of Hindustan Unilever Ltd v. DCIT and Ors [2010] 325 ITR 102 (Bom) and the Madras High Court in the case of Madras Machinery Tools Manufacturers Ltd v. CIT [1975] 98 ITR 119 (Mad) and the Forms listed in Income-tax Rules 1962 to conclude that where the taxpayer has more than one undertaking for the purposes of Section 10A of the Act, it is the profit derived from exports from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income. As the income of the 10A unit has to be excluded at source itself, before arriving at the gross total income, the loss of non 1 0A unit cannot be set-off against the income of the 10A unit under Section 72 of the Act. Similarly, the question of unabsorbed business loss being set-off against profits and gains of the undertaking would not arise.
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