Comstar Automative Technologies Vs DCIT (Madras High Court)
Conclusion: Deductions either under Section 10A or 10B would be made while computing the gross total income of the eligible undertaking and not at the stage of computation of the total income.
Held: Assessee was a 100% Export Oriented Undertaking (EOU). For the Assessment Year 2004-05, assessee filed a Return, declaring the taxable income of Rs.Nil after claiming deduction under Section 10B. Profit was set off against the brought forward unabsorbed depreciation loss of Assessment Year 2001-02.The question arose for consideration was whether relief under Section 10B ought to be granted only after the set off of brought forward loss and unabsorbed depreciation of the earlier years ? The law was settled by Madras High Court that the deductions either under Section 10A or 10B would be made while computing the gross total income of the eligible undertaking (like the Assessee) under Chapter IV and not at the stage of computation of the total income under Chapter VI of the Act. Here in the present case, the total income was first arrived at by the Revenue through AO in the Assessment Order by computing the total income by way of brought forward or carry forward the depreciation allowance of the earlier Assessment Years and set off the unabsorbed depreciation first and making the return Nil, thereby leaving assessee in a position where it could not claim any deduction under Section 10B as there was no income after set off of carry forward depreciation and unabsorbed depreciation from earlier years. This method of computing the income in the present case made by the Revenue was totally against the said law as has been declared in the decision in Commissioner of Income-tax v. Yokogawa India Ltd.,.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This Appeal is filed under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the impugned order passed by the Income Tax Appellate Tribunal, Chennai in I.T.A.No.301/Mds/2009, dated 10.12.2010.
2. The short facts which are required to be referred for the disposal of this appeal are as follows :
(i) That the Assessee is a company registered under the Companies Act, 1956, which engaged in the manufacturing of Starter Motors and Alternator and development of computer software. The Assessee is a 100% Export Oriented Undertaking (EOU). For the Assessment Year 2004-05, the Assessee filed a Return, declaring the taxable income of Rs.Nil after claiming deduction of Rs.29,26,65,024/- under Section 10B of the Act. Profit of Rs.1,55,62,609/- was set off against the brought forward unabsorbed depreciation loss of Assessment Year 2001-02.
(ii) The said Return of the Assessee was processed by the Revenue under Section 143(1) of the Act and was selected as a case for scrutiny by issuance of Notice under Section 143(2). A Notice under Section 142(1) with questionnaire was issued by the Assessing Officer. In response to the same, the Assessee produced all the details.
(iii) After consideration, the Assessment was completed and order was issued under Section 143(3) of the Act on 21.12.2006. In the said Assessment Order, the Assessing Officer had adjusted the brought forward unabsorbed depreciation loss relating to the Assessment Year 2001-02 to the extent of Rs.22,06,10,631/- and to the Assessment Year 2002-03, amounting Rs.8,76,17,002/- against the business profits before allowing the deduction claimed by the Assessee under Section 10B of the Act.
(iv) The said issue along with yet another issue was taken up on Appeal by the Assessee before the Commissioner (Appeals), before whom, the case of the Assessee was that, the deduction under Section 10B was to be granted prior to the set off of the brought forward unabsorbed depreciation loss of the earlier years. The Commissioner (Appeals) having accepted the said contention of the Assessee, allowed the Assessee’s Appeal and the set off of the brought forward unabsorbed depreciation loss of the earlier years done by the Assessing Officer before granting deduction under Section 10B was set aside.
(v) Aggrieved over the said order of the Commissioner (Appeals), the Revenue preferred the said I.T.A.No.301/09 before the Income Tax Appellate Tribunal (in short “the ITAT”), where the contention of the Assessee as well as the Revenue were heard and ultimately the ITAT by order, dated 10.12.2010 had decided the said issue against the Assessee and in favour of the Revenue, by thus, the order of the Commissioner (Appeals) was set aside and the decision of the Assessment Officer was restored. Felt aggrieved over the said order of the ITAT, dated 10.12.2010, the Assessee preferred the present Appeal.
3. We have heard Mr.R.Sivaraman, learned counsel appearing for the Assessee who would submit that, under Section 10B of the Act, the Assessee unit is fully eligible to get deduction, since it is a 100% Export Oriented Undertaking (EOU). The said deduction should have been made prior to the set off of the brought forward unabsorbed depreciation loss of the earlier years, i.e., AY 2001-02 and 2002-03, as from these two Assessment Years, the Assessee brought forward the unabsorbed depreciation loss which should be set off only after giving deduction under Section 10B.
4. The learned counsel would further contend that, the ITAT, on an erroneous consideration, mainly relying upon the case of the Tribunal in the case of Sword Global, had allowed the Appeal of the Revenue, holding that, the deduction under Section 10B has to be made only after the set off of the brought forward unabsorbed depreciation loss of the earlier years.
5. The learned counsel would further contend that, the said view taken by the ITAT is erroneous and in support of the said contention, the learned counsel would rely upon a latest decision of the Hon’ble Apex Court in the matter of Commissioner of Income-tax v. Yokogawa India Ltd., dated 16.12.2016 reported in (2017) 77 taxmann.com 41 (SC). He would also contend that, in the said decision of the Hon’ble Apex Court, it has been categorically held that, these kind of deductions as contemplated under Section 10A or 10B has to be given prior to the set off of brought forward unabsorbed depreciation loss of the earlier years. Therefore the learned counsel would contend that, the issue is squarely covered by the said decision of the Hon’ble Apex Court, accordingly the impugned order is liable to be interfered with and to be set aside.
6. The learned counsel for the Assessee would also submit that, following the dictum of the Hon’ble Apex Court in Commissioner of Income-tax v. Yokogawa India Ltd., (cited supra), a number of decisions have been made by the Hon’ble Apex Court as well as various other High Courts. To be listed some of them, the learned counsel relied upon the following decisions:
1. Principal Commissioner of Income Tax v. Infosys BPO Ltd., (2019) 107 taxmann.com 57 (SC)
2. Commissioner of Income Tax v. J.P.Morgan Services India Pvt., Ltd., (2017) 393 ITR 24 (SC)
3. The Commissioner of Income Tax v. J.P.Morgan Services India Pvt., Ltd., MANU/MH/3184/2016
4. The Principal Commissioner of Income Tax v. Rangsons Electronics Pvt., Ltd., (2017) 398 ITR 619 (SC)
5. Principal Commissioner of Income Tax and Ors., v. Making India Private Ltd., (2017) 393 ITR 291 (SC)
6. Principal Commissioner of Income Tax-4, Bangalore and Ors., v. Makino India Pvt., Ltd., MANU/KA/3572/2016
7. Pr.Commissioner of Income Tax, Bangalore v. Rangsons Electronics Pvt., Ltd., MANU/KA/3652/2016000000
7. Per contra, Mr.T.Ravikumar, learned Senior Standing counsel appearing for the Revenue would contend that, the Assessee may be a 100% EOU and with that capacity, it may be entitled to get deduction under Section 10B of the Act, however such kind of deduction would be permissible only from the total income of the Assessee as defined under Section 2(45) of the Act.
8. Learned counsel would further contend that, the total income can be derived after due computation by verifying the profit and loss, thereby since the Assessee wanted to bring forward the unabsorbed depreciation loss of the earlier years, that kind of set off should be first taken care of and thereafter only the final figure of total income can be arrived at and only from that total income, the deduction claimed by the Assessee under Section 10B can be permitted.
9. In support of his contention, the learned counsel for the Revenue, has relied upon a Division Bench Judgment of the Karnatake High Court, in the matter of Commissioner of Income Tax v. Himatasingike Seide Ltd., dated 04.08.2006 reported in (2006) 286 ITR 0255. The learned counsel would further contend that, the view taken by the Karnataka High Court though was appealed by the Assessee therein to the Hon’ble Apex Court, where also, the said view has been confirmed, of course by a short order, dismissing the Appeal in C.A.No.1501 of 2008 by the Hon’ble Apex Court, by order, dated 19.09.2013. Therefore the learned counsel for the Revenue would contend that, the said view expressed by the Karnataka High Court in favour of the Revenue that, the deductions can be made under Section 10B only after the set off of brought forward unabsorbed depreciation loss of the earlier years, since was holding the field even from the year 2006 onwards, the present order passed by the ITAT which is impugned herein, dated 10.12.2010 cannot be found fault with, therefore the said order of the ITAT can very well be sustained.
10. We have considered the said rival submissions made by the learned respective counsel for the parties and also have perused the materials placed before this Court.
11. This Appeal, in fact was admitted by a Co-ordinate Bench of this Court, on the following Substantial Question of Law :
“Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that relief under Section 10B ought to be granted only after the set off of brought forward loss and unabsorbed depreciation of the earlier years ?”
12. Since this is the only issue, on which the Appeal was admitted and the arguments were advanced only on the same and both sides produced the Judgment of the Hon’ble Apex Court, we take the said issue in the given facts and circumstances of the present case.
13. Before we delve into the said issue, for the easy understanding, the relevant provision namely Section 10B of the Act is extracted hereunder:
“Special provisions in respect of newly established hundred per cent export-oriented undertakings. 10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented 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 undertaking 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 :
Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years :”
14. Section 10B of the Act provides a deduction of such profits and gains derived by any hundred percent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the year of starting of the actual manufacture or produce of articles or things or computer software, from the total income of the assessee.
15. Only in this context, the ITAT has taken the view, of course by following the earlier decision of the ITAT, on the term “total income” as defined under Section 2(45) of the Act. As per the said definition, the total income means the total amount of income referred to in Section 5 computed in the manner laid down in the Act. Therefore, whatever the total income arrived at after computation of the same under various provisions of the Act in consonance with Section 5, would be the total income for the purpose of Section 10B deduction also.
16. Here in the case in hand, the Assessee is entitled to seek exemption by way of deduction under Section 10B, since it is a 100% EOU, which is an admitted fact. In that capacity, the Assessee claimed exemption / deduction of a sum of Rs.29,26,65,024/- from out of the profit and gain of the business which amounts to Rs.30,82,27,633/-. Also it claimed unabsorbed brought forward depreciation allowances relating to AY 2001-02 to the extent of Rs.1,55,62,609/-, thereby shown the taxable income as Nil in the Return submitted for the AY 2004- 05.
17. In this context, the Assessing Authority by its Assessment Order, dated 21.12.2006 has computed the income of the Assessee for the AY 2004-05 in the following manner :
