Case Of Commissioner Of Income Tax v. Yokogawa India Limited[[1]], Andalso The Decision Of The Delhi High Court In Case Of Cit V. Teitechnologies Pvt. Ltd.[[2

THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTAANDTHE H0N’BLE SRI JUSTICE K.C.BHANU I.T.T.A. Nos. 360 OF 2011, 407 of 2010, 279 of 2012, 361 of 2011 and 362of 2011 COMMON JUDGMENT: (Per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) All these appeals raise one common question of law i.e. whetherdeduction under Section 10B of the Income Tax Act, 1961 (for short,‘the Act’) is required to be allowed before adjusting brought forwardlosses and unabsorbed depreciation. 2. To clarify this, we are to examine whether the profits andgains as are derived from 100% export oriented undertaking from theexport of articles, is allowable before computing income for the purposeof taxation. 3. Learned counsel for the appellants submits that Chapter-IIIof the Act, which makes Section 10B as a part thereof, makes it clearabout incomes which do not form part of total income, and the effect ofSection 10B of the Act remains same irrespective of amendment ofSection 10 B of the Act. According to him, before computation of totalincome, the deduction as mentioned in Section 10B of the Act has to beexcluded first and thereafter the income has to be computed followed bydeductions allowable under the law, one of which is losses of businessof the previous years. He has also drawn our attention to Return ofIncome (ITS-1)- Form No.1 to support his contention. His furthercontention is that even the Guidelines given to file return in this regardby the Department also support the view that this income should not bebrought for the purpose of computation. In support of his legalsubmission, he has relied upon decision of the Karnataka High Court in case of Commissioner of Income Tax v. Yokogawa India Limited[[1]], andalso the decision of the Delhi High Court in case of CIT v. TeiTechnologies Pvt. Ltd.[[2]]. 4. On the other hand, Mr. J.V. Prasad, learned counselappearing for Revenue, while supporting the Judgment of the learnedTribunal, submits that all incomes as mentioned in Section 14 of the Actconstitute income for the purpose of computation of total income. Section 14D of the Act deals with the head ‘profits and gains ofbusiness or profession’ and that this income has been derived in thecourse of business and the provision of Section 10B of the Act has tobe read subject to Section 14 of the Act, and that under the provision of Section 10B, income deduction has to be given as it is allowable in theordinary course of business. According to him, no special treatment isenvisaged while dealing with the export income as it is essentiallyincome from business. He has also referred to Section 28 of the Act,which provides a complete and exhaustive mechanism for takingincome from profits and gains of business or profession, and furtherdeduction is allowable under the said Section. According to him, theincome from profit and gains is merely an exemption, if Section 10B isread carefully. In support of his contention, he relied on a decisionreported in case of Commissioner of Income Tax v. HimatasingikeSeide Ltd.[[3]]. 5. We, after hearing them, examine when deduction of exportprofit under Section 10B is to be allowed. Section 14 of the Actprovides ‘Heads of Income’. Under this Section, profits and gains ofbusiness or profession is one of the heads which is required to becomputed for the purpose of taxation. Whereas Section 10B of the Actis a provision for deduction of such profits and gains as are derived by100% export oriented undertaking from the export of articles, beforecomputing income for the purpose of taxation. Section 10B is a part ofChapter-III. It appears this Chapter is introduced for special purposeas it starts with words “Incomes which do not form part of total income”. 6. ‘Total Income’ has been defined under Section 2 (45) of theAct, which reads as follows:Act, which reads as follows: “the total amount of income referred to in section 5, computedin the manner laid down in this Act.”in the manner laid down in this Act.” 6. ‘Total Income’ has been defined under Section 2 (45) of theAct, which reads as follows:Act, which reads as follows: “the total amount of income referred to in section 5, computedin the manner laid down in this Act.”in the manner laid down in this Act.” 7. Section 5 of the Act provides as follows: “Scope of total income.(1) Subject to the provisions of thisAct, the total income of any previous year of a person who is aresident includes all income from whatever source derivedwhich- (a)is received or is deemed to be received in India in suchyear by or on behalf of such person; oryear by or on behalf of such person; or (b)accrues or arises or is deemed to accrue or arise to him inIndia during such year; orIndia during such year; or (c)accrues or arises to him outside India during such year; Provided that, in the case of a person not ordinarily residentin India within the meaning of sub-section (6) of section 6, theincome which accrues or arises to him outside India shall notbe so included unless it is derived from a business controlledin or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non resident includesall income from whatever source derived which- (a) is received or is deemed to be received in India insuch year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise tohim in India during such year.”him in India during such year.” This Section relates to the total income of any assessee. 8. Total income has to be understood in the context of Section14 of the Act. Aggregate income out of all the heads are mentioned inthe heads of income under the said Section. Section 14 of the Actprovides as follows :- Heads of income. 14. Save as otherwise provided by this Act, all income shall, for thepurposes of charge of income-tax and computation of total income,be classified under the following heads of income-purposes of charge of income-tax and computation of total income,be classified under the following heads of income- A-Salaries. B- (***) C-Income from house property D-Profits and gains of business or profession E-Capital gains F-Income from other sources. Language of Section 14 of the Act starts with words ‘Save asotherwise provided by this Act.’ Therefore, what is required to be foundout is whether any income is kept outside the purview of taxableincome. 9. As we have indicated supra, Chapter-III provides ameasure where incomes are not included in the total income. We areof the view that Section 10B of the Act, which is a part of Chapter-III, isto be governed by this Chapter alone and the intention of the Legislatureis very clear that any incomes within this Chapter are not to be includedin total income. Total income means an aggregate figure computed forthe purpose of taxation. Thus, we conclude that Section 14 of the Acthas to be read subject to Section 10 which is a special provision, andby the provision of Section 14, this Chapter has been saved. Therefore, the argument of Mr. J.V.Prasad that income as mentionedin Section 10B of the Act has to be brought in the formula of generalprovision under Section 14 of the Act and also Section 28of the Act andother provisions, is not acceptable. This question came up forconsideration before the Karnataka High Court in the case of YokogawaIndia Limited (1 supra). In paragraph no.29 of the report, the Karnataka High Court took the view as follows: High Court took the view as follows: “After making all such computations, the assessee would beentitled to the benefit of set off or carry forward of loss asprovided under Section 72 of the Act. That is the benefit whichis given to the assessee under the Act irrespective of thenature of business which he is carrying on. The said benefit isavailable even to undertakings under Section 10B of the Act. The expression ‘deduction of such profits and gains as derivedby an undertaking shall be allowed from the total income of theassessee’ has to be understood in the context with which thesaid provision is inserted in Chapter-III of the Act. Sub-Section(4) of Section 10-A clarifies this position. It provides that theprofits derived from export of articles or things from computersoftware shall be the amount which bears to the profits of thebusiness of the undertaking, the same proportion as the exportturnover in respect of such articles or things or computersoftware bears to the total turnover of the business carried onby the undertaking”entitled to the benefit of set off or carry forward of loss asprovided under Section 72 of the Act. That is the benefit whichis given to the assessee under the Act irrespective of thenature of business which he is carrying on. The said benefit isavailable even to undertakings under Section 10B of the Act. The expression ‘deduction of such profits and gains as derivedby an undertaking shall be allowed from the total income of theassessee’ has to be understood in the context with which thesaid provision is inserted in Chapter-III of the Act. Sub-Section(4) of Section 10-A clarifies this position. It provides that theprofits derived from export of articles or things from computersoftware shall be the amount which bears to the profits of thebusiness of the undertaking, the same proportion as the exportturnover in respect of such articles or things or computersoftware bears to the total turnover of the business carried onby the undertaking” It is further observed in paragraph no.31 that as the income of 10-A unit has to be excluded as source itself before arriving at the grosstotal income, the loss of non 10-A unit cannot be set off against theincome of 10-A unit under Section 72 of the Act. 10. The Delhi High Court in case of Tei Technologies Pvt. Ltd.,(2 supra), while following the above judgment of the Karnataka HighCourt in the case of Yokogawa India Limited (1 supra), held inparagraph no.30 that Section 10A is a provision exempting a particularkind of income even in its present form, that is to say, even after beingamended by the Finance Act, 2000. 11. From the aforesaid discussion, we are of the view that theaforesaid principle is squarely applicable in case of Section 10B of theAct and that the principle laid down for deciding the matter relatable to Section 10A of the Act is also to be applicable in case of Section 10Bof the Act. The Department has not kept the provision ambiguous andunexplained. Schedule-B of Form No.1 viz. Return of Income (ITS-1)provides profits and gains of business or profession. In Item No.18thereof, it is mentioned as follows. “Is section 10A/10B/10C applicable in your case ? If yes, have you opted out by filing declaration prescribed u/s10A (8)/10B(8)/10C (6) ?” The instructions issued by the Department to fill up the formmade the position clear. It has been clarified with regard to item No.18as follows: “Sections 10A, 10B and 10C permit the claiming of deductionfrom incomes of some specified businesses. This item is meantto eliminate such income (s) from the computation ofprofits/gains.” “Is section 10A/10B/10C applicable in your case ? If yes, have you opted out by filing declaration prescribed u/s10A (8)/10B(8)/10C (6) ?” The instructions issued by the Department to fill up the formmade the position clear. It has been clarified with regard to item No.18as follows: “Sections 10A, 10B and 10C permit the claiming of deductionfrom incomes of some specified businesses. This item is meantto eliminate such income (s) from the computation ofprofits/gains.” Thus, from a reading of the aforesaid stand of the Department, itis clear that the provision of Section 10B, amongst others, is not treatedto be any head of income and it cannot be brought within the purview ofcomputing income for the purpose of taxation. We, therefore, holdaccordingly that the Department has to exclude this portion of theincome first at the threshold and thereafter proceed to compute theincome for the purpose of taxation and then usual deductions under theother provisions of law have to be given. 12. In view of our findings, we do not find that the decision ofKarnataka High Court in case of Himatasingike Seide Ltd, cited byMr.J.V.Prasad is applicable. This decision helps the assessee, whichobserved that it is an exemption provision and nothing has been decidedwith regard to this issue in the judgment. 13. So far as second point in other matters viz., ITTA Nos. 360of 2011 and 279 of 2012, whether the entire proceedings are liable to beset aside as the notice for the re-assessment is time barred as beingbeyond the period of 4 years from the relevant assessment year in thelight of the fact that appellant not having failed to disclose any relevantparticulars in its return of income is concerned, we find from theimpugned judgment of the Tribunal that this issue has not been broughtbefore the Tribunal by either of the parties for decision. TheCommissioner of Income Tax (Appeals) decided the first issue thoughthe appeal was preferred on both the issues by the assessee. Hence,we hold that when no appeal was preferred before the Tribunal by theassessee with regard to this point, question of being aggrieved by nonrendering the decision does not and cannot arise. Naturally, we cannotexamine this point when it was not raised before the Tribunal. 14. Accordingly, the appeals are allowed to the extentindicated above. No order as to costs. Miscellaneous petitions, if any,pending in these appeals shall stand closed. _____________________ K.J. SENGUPTA, CJ _______________ K.C.BHANU, J THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTAAND THE H0N’BLE SRI JUSTICE K.C.BHANU I.T.T.A. Nos. 360 OF 2011, 407 of 2010, 279 of 2012, 361 of 2011 and 362of 2011 (Per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) 20.08.2013 [2](2013) 259 CTR (Del) 186(2013) 259 CTR (Del) 186 [3](2006) 286 ITR 255 (Karn.)(2006) 286 ITR 255 (Karn.)