Income Tax Appellate Tribunal - Bangalore
Karle International P Ltd, Bangalore vs Deputy Commissioner Of Income Tax,, ... on 31 July, 2018
ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 1
IN THE INCOME TAX APPELLATE TRIBUNAL
BENGALURU BENCH 'C', BENGALURU
BEFORE SHRI. INTURI RAMA RAO, ACCOUNTANT MEMBER
AND
SHRI. LALIET KUMAR, JUDICIAL MEMBER
I.T.A No.1270/Bang/2014
(Assessment Year : 2010-11)
I.T.A No.2061/Bang/2017
(Assessment Year : 2011-12)
M/s. Karle International P. Ltd,
No.151, Industrial Suburb, Yeshwantpura,
Bengaluru 560 022
PAN : AADCK4886C .. Appellant
v.
Deputy Commissioner of Income-tax,
Circle - 11 (5), Bengaluru .. Respondent
Assessee by : Shri. H. N. Khincha, CA
Revenue by : Dr. P. V. Pradeep Kumar, Addl. CIT
Heard on : 14.06.2018
Pronounced on : 31.07.2018
ORDER
PER LALIET KUMAR, JUDICIAL MEMBER :
These are cross appeals filed by the assessee for A Y. 2010-11 and 2011-12, on the following grounds of appeal :
ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 2A. Y. 2010-11 :
A. Y. 2011-12 :ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 3
02. Ground nos.1 and 2 for both the years are general needing no adjudication. Ground nos.3.1 and 3.2 for both the years are not pressed by the Ld. AR. Now we are left with ground no.4 for AY 2010-11 and 4.1 for AY 2011-12. These grounds being identical, therefore we shall be deciding these grounds simultaneously in the following paragraphs .
03. Common facts are as under. During the assessment year 2010-11, the profit / loss incurred by all the three units are as under:
S1. no Unit Income / Loss
1 Unit -I 42,33,664
2 Unit-II (EOU) (-) 34,65,337
3 Unit of Karle (-) 27,21,555
International
Pvt. Ltd.,
The assessee has set off the loss of EOU unit, Unit-2 and Unit-3 against the profit of Unit -1(DTA) unit and carried forward the unabsorbed losses to the next assessment year i.e., 2011-12. The AO enquired with the assessee about the allowability of set-off of losses of the EOU against the Domestic Tariff Area (DTA) unit. The assessee submitted in 4.2 of the reply which was reproduced in the assessment order to the following unit :
4.2 In response to above, the assessee submitted as below :
"For the year under consideration, we carried on the business through 3 units viz., Unit 1, Unit II and Karle Exports (Unit of Karle International Pvt. Ltd.). Unit 1 & Karle Exports (Unit of Karle Internationa1 Pvt. Ltd.) were non 10B units i,e, DTA units and unit 11 was 10B unit. Tlie operations of unit U resulted in a profit whereas the operations of unit H and Karle Exports (Unit of Kane International Put. Ltd.) resulted in a lo The losses of unit II and Karle Exports ( Unit of Karle International P Ltd. inn set off against the profit of unit I the remaining loss was carried forward.ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 4
We are now asked to explain why current year losses of 10B unit should not be set off against the profits of non 10B unit.
In this connection, we have to state that for the year the 10B regim e is not applicable to us. We have opted out of this regim e. The fact that the loss is sought to be set off against non 10B income itself suggest that for the year 10B provisions are not applicable. Even otherwise, the applicability of section 10B is conditional upon filing an audit report, what is not done in this case. Therefore loss is to setoff as claimed....( em phasis supplied by Bench) The AO did not accept the contention of the assessee and has not allowed the set off of the losses of Rs.34,65,377/- of 10B unit (Unit-2) against the profit of Unit -1 -DTA unit. For the purposes of clarify, we reproduce herein below para 4.3, 4.4, 4.9 to 4.12 of the assessment order where the assessee officer deals with these issues :
4.3 The assessee's contention is not acceptable for the following reasons. The assessee's contention that for the year under consideration 10B regime is not applicable to it as it opted out of this regime is not acceptable as, as per the provisions of section 10B(1) of the 1.T.Act, the assessee can claim deduction for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking manufacture or produce such article or things or computer software. Hence, the assessee cannot claim to have opted out of this regime just to set off the loss incurred by the 10B Unit against the income of non-10B Unit. It has to be noted that the assessee has not filed audit report for 10B mainly due to the fact that 10B Unit has incurred loss.
This does not preclude the applicability of section 10B in the case of the assessee for the A.Y. under consideration. Moreover, as per the provisions of subsection (8) of section 10B of the I.T. Act, the assessee has to furnish a declaration in writing to the Assessing Officer before the due date of furnishing the return of income u/s.139(1) of the I.T. Act that the provisions of section 10B are not applicable to it for this assessment year, in order to opt ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 5 out of 10B regime. The provisions of sub section (8) of section 10B of the I.T.Act reads as under:
"Notwithstanding anything contained in the foregoing provisions of the section, where the assessee, before the due date of furnish the return of income under sub-section(1) of section 139, furnished to the Assessing Qfficer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for (ink of the relevant assessment year."
But, the assessee company has not filed any such declaration before the Assessing Officer before the due date of furnishing die return of income u/s.139(1) of the I.T.Act for the A.Y.2010- 11 under consideration.
4.4 Section 10B being a special provisions, it has to be considered carefully, it. is relevant to re-produce sub-section(i) and sub- section(6) of section 10B which read as:
Sub-section(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 o r this of computer software, as the case may be, shall be allowed from the total income of the assessee"."
Sub-section(6) "Notwithstanding anything contained in any other provision of this Act, n 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 --
no loss referred to in sub-section 72 or sub-section(1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 6 or set-off where such loss relates to any of the relevant assessment years, ending before the 1 st day of April 2001.
4.5.....
4.6.....
4.7....
4.8....
4.9 From the above, it is clear that the provisions of section 10B are to be applied undertaking wise for a period of 10 consecutive assessment years beginning with the asst. year relevant to the previous year in which the undertaking begins to manufacture or produce such article or things cir computer software. The intention of legislature in amending section 10B(6) 4f the I.T Act. and Board's Circular No.7/2003 dated 05.09.2003 in rationalionizg the provision of section 10A 8G 108 in respect of carry forward of business losses and unabsorbed depreciation in respect of 100% Export Oriented units is to give benefit undertaking wise only. As discussed above, sections 70 & 71 will not come into play and accordingly set-off of losses of 10B units cannot be allowed with the profits of the DTA Units.
4.10 It could not be ascertained whether the case cited by the assessee has reached its finality or department has prepared appeal before higher authorities. The decisions of Bangalore Bench of ITAT in the case of ACIT vs Yokogowa India Ltd., 111 TTJ BANGALORE 546, is relied upon, wherein the issue before the Hon'ble High Court was whether the profit of 10A Unit can be set- off against losses of DTA Unit. Hon'ble ITAT has answered in negative. The same is confirmed by the Hon'ble High Court of Karnataka, vide ITA no.78/2011 in the case of CIT vs. M/s Yokogawa India Ltd, wherein it is held that 10B provisions are exemption provisions and 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.
4.11 From sub-section (1), it is clear that only profits of the unit earned in ten consecutive years is to be allowed as deduction over 10 assessment years. If the losses incurred by a particular unit in first few years are allowed for setoff with other profits and profits earned by ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 7 that unit in subsequent years are allowed as deduction, in a continuum of ten years, deduction allowed u/s.10B would exceed the net profit earned by such unit in this period. This is not the spirit and meaning of the section. Further, sub-section conveys that losses incurred on such units subsequent to A.Y 2001-02 can be carried forward beyond ten relevant assessment years and allowed for setoff in accordance with provisions of Sec.72.
4.12 In view of the above reasons, the similar issue of set off of losses of Units against the profit of DTA Unit for the A.Y.2008-09 in the assessee company's own case was not allowed by the Assessing Officer in the assessment order u/ s.143(3) of the I.T.Act dated 31.12.2010 and this is upheld both by the LC.I.CIT(A) and the Hon'ble ITAT vide its order in ITA. No.381/Bang/2012 dt.12.10.2012. The gist of the said decision contained in the order of Ld.CIT(Appeals) quoted in the ITAT order at page no.4 is as below:
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 10.8(6) places a specific bar or restriction regarding set off of carry forward of the losses or exempted units. Be that as it may, the provisions of section 108(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 had ruled m favour of the appellant by insulating the profits exempted units from adjustment against income of other units as done by the assessing officer. The effect of the installation, since confirmed by the High. Court, is to quarantine the performance of the 10A unit completely. It logically ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 8 follows that the same insulation would prevent the flow of the adjustment in a reverse direction also. Hence, either 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 judgment of the jurisdictional High Court.
4.13 Therefore, the loss of Rs.34,65,377/- of 10B unit i.e. Unit-II is not allowed to he set-off against profit of Unit-I (DTA Unit).
Feeling aggrieved, the assessee filed the appeal before the CIT (A).
04. The CIT (A) after detailed examination of the submissions of the assessee had upheld the decision of the AO. Order of the CIT (A) dealing with the contention of the assessee are reproduced herein below in para 5.5 to 5.9 of the order, as under :
5.5 However, the AO has not accepted the appellant's claim on the ground that:
It has not filed audit report for 108 mainly due to the fact that 10B unit has incurred loss. This does not preclude the applicability of section 10B for the A.Y. under consideration. Further as per the provisions of sub-section (8) of section 10B of the Act, the appellant ought to have furnished a declaration in writing to the Assessing Officer before the due date of furnishing of return of income u/s 139(1) of the Act that provisions of section 10B are not applicable to it for the assessment year under consideration in order to opt out 10B benefit. The finding of the AO is that the appellant has not filed such declaration before the Assessing Officer before the due date of furnishing the return of income u/s 139(1) of the Act for the A.Y 2010-11.
5.6 I find force in the AO's findings. The expression "any" is used in sub section (8) of section 10B of the Act to mean "one or more of several" years. Section 10B(8) mandates the assessee to file the necessary declaration before the due date for furnishing the return of income. The section is clear about the assessment year in relation to which the due date for furnishing the return of income has to be taken into account for filing the declaration. Thus, if the assessee ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 9 seeks to opt out of section 10B for a particular year, the assessee may do so filing a declaration in that regard under sub-section(8) before the due date for furnishing the return of income for that year.
5.7 In CIT vs. Tamil Nadu Jai Bharath Mills Ltd. (2006) 287 ITR 512 (Mad) held that section 10B(8) of the Act which opens with a non obstante clause clearly confers a right on the assessee to declare that the provisions of the Act may not be made applicable to the assessee, provided such a declaration is given on or before the due date for furnishing the return under section 139(1) of the Act. It was therefore, open to the assessee, not withstanding the fact that the assessee had exercise the option to have section 10B made applicable to withdraw that option, provided such withdraw was made on or before the due date for filing the return. The facts discussed above, since the appellant has not filed the necessary declaration before the due date for furnishing the return of income, option to opt out u/s 108 is not made available for the assessment year under consideration.
5.8 As regard the set off of loss of 10B unit against profit non of 10B unit is concern the AO discussed in details in Para 4.10 to 4.12 and same is summarised below:-
In Cit vs. M/s Yokogawa India Ltd. (2011) 341 ITR 385 (Kar), the Hon'ble High Court held that the provisions are exemption provisions and has held that the benefit of set off of loss of eligible unit during the tax holding period has to be carried forward and set off after the tax holiday period.
The appellant's own case for A.Y. 2008-09 in ITA No. 381/Bang/2012 dated 12.10.2012 the Hon'ble ITAT, Bangalore held that neither the income nor the loss -of such as exempted unit can be now adjusted against the results of another unit (whether exempted for not) run by the appellant as per rationale of the judgment of the jurisdictional High Court.
5.9 In view of the legal position cited above, I do not find any reason to interfere, the AO's observation, therefore, the order of the AO is confirmed. The appeal in this ground thus fails.
ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 10Aggrieved by the above order of the CIT (A), assessee is in appeals before us.
05. The Ld. AR for the assessee submitted that the coordinate bench in the matter of Mindtek (India) Ltd v. ITO [15 taxmann.com 335], had examined the decision rendered by the Tribunal in the case of the assessee in 140 ITD 261, as well as the circular issued by the Board on 16.07.2013 and held that the circular issued by the Board is a benevolent circular, that the losses of 10A unit can be set off against the income from other units.
06. Per contra, the Ld. DR relies upon the order of the Tribunal in the case of the assessee for the earlier year and also relies upon the judgment of the Hon'ble Delhi High Court in CIT v. KEI Industries [373 ITR 574], Supreme Court in CIT v. Yokogawa India Ltd (391 ITR 274) and it was submitted that at the time of issuing the circular there was ambiguity in the interpretation of the provisions of Section 10A and 10B of the Act as there were conflicting judgments of the Hon'ble Karnataka High Court in the matter of CIT v. Yokogawa India Ltd [341 ITR 385] as well as of the Bombay High Court in the matter of Hindustan Unilever vs. DCIT [325 ITR 102] and that of Hon'ble Delhi High Court in the matter of CIT v. TEI Technologies P. Ltd [361 ITR 36]. Therefore, the CBDT has issued the circular considering the conflicting the decisions of various High Courts. Further it was submitted by the Ld. DR that the Hon'ble Supreme Court vide its judgment dt.16.12.2016 in CIT v. Yokogawa India Ltd, [77 taxmann.com 41] has finally decided the controversy and held in para 17 and 18 as under :
17. If the specific provisions of the Act provide [first proviso to sections 10A(1) ; 10A(1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 11 undertaking and that is also how the contemporaneous Circular of the Department (No. 794 dated August 9, 2000*) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in sections 70, 72 and 74 of the Act would be premature for application. The deductions under section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income.
The somewhat discordant use of the expression "total income of the assessee" in section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in section 10A as "total income of the undertaking".
18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly.
The Ld. DR had also drawn our attention to para 14 of the above said judgment wherein there is a reference of SLP(C ) 18157/2015, arising out of the Delhi High Court judgment rendered in TEI Technologies (supra) and Commissioner of Income-tax Vs KEI Industries Ltd.* [2015] 57 taxmann.com 412 (Delhi), wherein the Hon'ble Delhi High Court has held that the losses of the eligible undertaking cannot be set off against the income from other units. This is in terms of the judgment rendered in the matter of Yokogawa India Ltd [21 taxmann.com 154]. It was submitted by the Ld. DR that once there is a finding given by the Hon'ble Supreme Court in the matter of ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 12 Yokogawa India Ltd (supra), whereby the Hon'ble Supreme Court has conclusively decided the issue as to the manner in which the income of the eligible undertaking is required to be computed and has also given the manner in which the business income of the assessee is to be computed. In view of the above it was submitted that the assessee cannot take the benefit of the circular which was issued for the intermittent period of the pendency of the order by the Hon'ble Supreme Court and after the passing of the order by the Hon'ble Supreme Court. It was submitted that the issue is now required to be examined in terms of the law laid down by the Hon'ble Supreme Court in the matter of Yokogawa India Ltd (supra). The Hon'ble Delhi High Court in para 14 of TEI Technologies P. Ltd., has laid down as under :
14. The rationale behind both sub-section (4) and sub-section (6) is not far to seek. The legislature obviously wanted to ensure that if the profits from the eligible undertaking are allowed to enjoy the benefits of Section 10A, they should not enjoy any further reliefs or benefits which are available under the provisions of the Act. We have already referred to this aspect when we referred to para 6.6 of the Circular No.308 dated 29.06.1981 (supra) which explained sub-section (4) of Section 10A when the section was introduced by the Finance Act, 1981. The same rationale holds good for sub-section (6) also. If the profits of the eligible undertaking do not enter the field of taxation for a particular period known as the tax holiday period, it stands to reason that when the profits enter the field of taxation after the period of the tax holiday, those profits should not be reduced or set off by other reliefs provided in the Act such as brought forward losses, brought forward unabsorbed depreciation, etc. The mandate of these sub-sections is that all such allowances and reliefs would be deemed to have been exhausted during the tax holiday period itself and no part thereof would survive for consideration after the tax holiday period. The amendment made by the Finance Act, 2003 to sub-section (6) with retrospective effect from 01.04.2001 made a significant departure from the legislative thinking outlined above. It provided that from the assessment year 2001-
02, the right to carry forward the losses will be recognized. The ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 13 result of this retrospective amendment is that even the bar on claiming the benefits of carried forward losses and allowances after the period of tax holiday is over was lifted and from the assessment year 2001-02, irrespective of the fact that the profits from the eligible unit do not enter the field of taxation, the assessee would be still entitled to claim those allowances and reliefs against the profits of the eligible undertaking. This has resulted in the position that a double benefit has been conferred on the eligible profits from the assessment year 2001-02, which the section initially did not want to confer.
08. We have heard the rival contentions and perused the record. The assessee before the AO has submitted in pursuance to the notice that section 10B regime is not applicable as the assessee opted out of this regime and therefore the assessee is entitled to set off losses of the eligible undertaking with non eligible (DT) unit. However, the assessee had failed to produce any document to substantiate this submission either before the lower authorities or before us. Therefore the adverse inference is required to be drawn against the assessee. Accordingly we hold that the assessee has not submitted any application for opting out of the 10B regime.. Having said so, now we are duty-bound to decide whether the losses of the eligible undertaking can be set off against the non-eligible unit (DTA) on the basis of the submission made by the assessee that the issue is covered in favour of the assessee by the decision of the coordinate bench in the matter of Mindtek (supra).
09. Briefly the reliance on the decision of the coordinate bench in the case of Mindtek (supra) by the assessee was on the premise that there are conflicting decisions of various High Courts in so much so in the matter of Yokogawa India Ltd (supra), Hindusthan Unilever (supra) and TEI Technologies P. Ltd (supra). Contrary views were taken as ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 14 mentioned in para 16 of the decision in Mindtek (supra) to the following effect :
16. Before we deal with the aforesaid CBDT Circular, let us ascertain the exact legal position on this issue, as it prevailed prior to the issue of the said Circular, It is pertinent to note in this regard that although section 10A was held to be an exemption provision by the Hon'ble High Court of Karnataka in the case of Yokogawa India Ltd, (supra), a different view was expressed by the Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd., 325 ITR 102, holding that section 10B, the provisions of which are analogous to the provisions of- section IDA, is-no more an exemption provision, but provides for a deduction after its substitution by the Finance Act, 2000 w.e.f. 1.4.2001. In the case of Hindustan Unilever Ltd. (supra), all the four units of the assessee were eligible for deduction u/s. 10B and out of the said four units, three units had returned the profits while the remaining 4 th unit had returned a loss. In these facts and circumstances, the Hon'ble Bombay High Court held that the assessee was entitled to a deduction in respect of the profits of the three eligible units, while the loss sustained by the 4 th unit could be set off against the normal business income.
Before discussing the contrary views of different High Courts in this decision the tribunal mentioned in para10, the CBDT has circular dated 16/07/2013 and held that circular is benevolent in nature therefore it would be applicable in case eligible undertaking suffers losses, it can be adjusted against the income of taxing unit
09. After passing of decision by the coordinate bench in the matter of the Mindtek , Delhi High court in the matter of Kei (supra) on March 13, 2015 decided the issue against the issue and further Hon'ble Supreme Court in Yokogawa India (supra) on December 16, 2016 had referred to the circular relied upon by the assessee in para 9, wherein the Hon'ble Supreme Court mentioned as under :
ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 159. The amendment of section 10A of the Act, by the Finance Act, 2000 with effect from April 1, 2001, specifically uses the words 'deduction of profits and gains derived by an eligible unit . . . from the total income of the assessee'. There are other provisions of section 10A, as amended, which could be suggestive of the fact that by the amendment made by the Finance Act, 2000, section 10A had changed its colour from being an exemption section to a provision providing for deduction. Yet, section 10A continued to remain in Chapter III of the Act which Chapter deals with incomes which do not form part of the total income. There are several Circulars that have been placed before us by the contesting parties to explain the purpose and object of the amendment. Having looked at the aforesaid Circulars, issued from time to time, what we find is a fair amount of ambiguity therein as to the true nature and effect of the amendment. Specifically, we may refer to Circular No. 7 dated July 16, 2013* as well as Circular No. 1 of 2013 dated January 17, 2013** which appear to be conflicting and contradictory to each other ; in the former Circular the provision, i.e., section 10A is referred to as providing for deductions whereas the later Circular uses the expression "exemption" while referring to the provisions of sections 10A and 10B of the Act. Even the Income-tax return forms, i.e., Form No. 1 dated August 17, 2001 and Form No. 6 for the assessment year 2012-13 are equally contradictory. The appellant-
Revenue would, however contend that, ex facie, from the language appearing in section 10A it is crystal clear that the aforesaid provision of the Act, as amended by the Finance Act, 2000 provides for deductions from the gross total income, notwithstanding the use of the words 'total income' in section 10A. Exemptions provided for under the old section 10A have been discontinued by the Legislature. According to the Revenue, where the purport and effect of the statute is clear from the language used there is no scope to turn to Chapter notes or the marginal notes so as to understand section 10A to be an exemption section on the basis that the said provision is still included in Chapter III of the Act. Reliance in this regard has been placed on the decision of this court in Tata Power Co. Ltd. v. Reliance Energy Ltd.*** wherein at page 687, it is held that :
* [2013] 356 ITR (St.) 7.
** [2013] 350 ITR (St.) 34.
*** [2009] 16 SCC 659.ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 16
"89. Chapter headings and the marginal notes are parts of the statute. They have also been enacted by 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 unambiguous, construction of the statute with the aid of "chapter heading" and "marginal note" may not arise. It may be that heading and marginal note, however, are of a very limited use in interpretation because of its necessarily brief and inaccurate nature. They are, however, not irrelevant. They certainly cannot be taken into consideration if they differ from the material they describe."
And thereafter in para 17 and 18 Hon'ble Supreme Court has decided that Section 10A/10B is a deduction and not exemption and further held that " the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI.", .
In nut shell, in our view Hon'ble Supreme Court, held that income of both eligible and non-eligible units should be computed independent of each other . Further losses, deductions etc of each other should be adjusted against each individual undertaking at the undertaking level and not at the assessee level. Therefore if eligible undertaking earned profit it should not be adjusted against the loss of tax eligible unit and similarly if the loss if caused to eligible undertaking than it would be carry forward in subsequent years, as there is no occasion for claiming the deduction and further loss cannot be set off against the income of taxing unit.
If we allow the setting off loss of eligible with taxing unit of the same assessee then the purpose for which the section was incorporated in the statute book would be defeated.
The purpose of insertion of this section is to boost the EOU for export of articles, things, software etc., and with this object in mind the entire ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 17 income of the assessee was eligible for deducted and income ( including losses) of the eligible undertaking is kept separate, from the rest of the business of the assessee . If we allow the set off of losses, may be arising out of depreciation or business losses or any other reason than the assessee will not be able to run the industry for the objective for which it was permitted to be set up by the Union of India. The taxing unit and the eligible undertaking are mutually exclusive units for the purposes of income tax Act and therefore there is separate requirements of installing separate new machines, employees, premises, books of account, inventories, fixed assets , books of account etc. Secondly the Hon'ble Supreme Court in Yokogawa India (supra) had held that Section 10B is a deduction provision and further said judgment also provided the stage at which the deduction would be given for the purposes of computing the gross total income of the eligible undertaking.
In view of the above, we do not find any reason to agree with the argument of the assessee that the losses of the undertaking should be allowed to be adjusted against the profit of the taxing unit.
11. Further from the reading of the circular dt.16.07.2013, it is clear as total income of the assessee is to be computed after aggregating income/ loss from various sources and thereafter if there is any income, than the same is eligible for deduction. However subsequently the Hon'ble Supreme Court in para 18 has held that the stage of deduction would be while computing the total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of total income under Chapter VI.
ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 18Thus in our view, the setting off of the losses of an eligible undertaking with the non eligible unit would not arise as the deduction is required to be given while computing the total income under Chapter IV, whereas the provision for setting off of the losses falls in Chapter VI of the Act, which in our humble understanding would not be a stage of granting the deduction, and in case of loss of eligible unit, the same can be carry forward in term of the section 10A and 10 B of IT ACT. In view of the above, the circular relied upon by the assessee dt.16.07.2013 is no more applicable and the judgment of the coordinate bench in the matter of Mindtek (supra) will not be of any help to the assessee, as both are contrary to the ratio of laid down by Hon'ble SC, in Yokogawa India (supra) .
Further we may mention in In Godrej & Boyce Mfg. Co. Ltd. V. State of Maharashtra reported at (2009)5 SCC 24, the Apex Court held that circulars are administrative in nature and cannot alter the provisions of a statute nor can they impose additional conditions. Similarly in decision of High Court of Gujarat in the case of Astik Dyestuff Pvt Ltd Vs CCE (2014-TIOL-237-HC-AHM-ST) wherein it observed that if there is any conflict between the jurisdictional High Court / supreme court and the CBEC circular, the decision of the jurisdictional High Court is binding on the Department rather than CBEC Circular. Further Hon,ble Supreme court in the matter of Asstt. CIT v. Saurashtra Kutch Stock Exchange Ltd. (2008) 305 ITR 227 (SC). Held as under :
42. In our judgment, it is also well-settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the court to pronounce a "new rule" but to maintain and expound the "old one". In other words, judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 19 discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood.
43. Salmond in his well-known work states ;
" . . . the theory of case law is that a judge does not make law ; he merely declares it ; and the overruling of a previous decision is a declaration that the supposed rule never was law. Hence any inter mediate transactions made on the strength of the supposed rule are governed by the law established in the overruling decision. The over ruling is retrospective, except as regards matters that are res judicatae or accounts that have been settled in the meantime". (emphasis supplied)
12 Further Delhi high court in the matter of C IT Vs KEI ndustries Ltd.* [2015] 57 taxmann.com 412 (Delhi) held as under :
13. This court in TEI Technologies (P.) Ltd. (supra) also ruled out that by virtue of Section 80A (4) the position is any different. It was held that even if Section 10A/ Section 10B are treated as exemption provisions, Section 80A (4) cannot defeat that interpretation. The object of Section 80-A (4) was explained as ensuring that "double benefit does not result to an assessee in respect of the same income, once under Section 10A or Section 10B or under any of the provisions of Chapter VIA and again under any other provision of the Act." It was held that even if Section 10A or Section 10B is construed as exemption provisions, "it is still possible to invoke the sub-section and ensure that the assessee does not obtain a deduction in respect of the exempted income under any other provision of the Act. The only object of the sub-section is to ensure that there is no double benefit arising to the assessee in respect of the same income."
14. In this case, this court is of the opinion that TEI Technologies (P.) Ltd. (supra) applies. The tax-exempt income of the assessee, eligible under Section 10-B could not have been set off against the losses from tax-liable income.
ITA No.1270/Bang/2014, 2064/Bang/2017 Page - 20We may like to point out that the appeal preferred by the assessee in the matter of TEI Technologies (P.) along with appeal in the matter of Yokogowa India Ltd. (supra), was dismissed by the Hon'ble Supreme Court. Hence the principle laid down in TEI Technologies (P.) is required to be followed.
13 In view of the above, we deem it proper to remand the matter to the file of the CIT (A) with a direction to apply the judgment of the Hon'ble Supreme Court in the matter of Yokogawa India Ltd treating the provision of 10 B as deduction and giving the deduction of 10B at the stage of computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI."
14. In the result, cross appeals filed by the assessee are partly allowed.
Order pronounced in the open court on 31st July, 2018.
Sd/- Sd/-
(INTURI RAMA RAO) (LALIET KUMAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Bengaluru
Dated : 31.07.2018
MCN*
Copy to:
1. The assessee
2. The Assessing Officer
3. The Commissioner of Income-tax
4. Commissioner of Income-tax(A)
5. DR
6. GF, ITAT, Bangalore
By order
Senior Private Secretary,
Income Tax Appellate Tribunal,
Bangalore.