It Had No Exemptincome?" v. Yokogawa India Limited(2012) 21 Taxmann.com 154 (Kar).However, The.aforesaid Decision Was Reversed On The Issue Of The!Nature Of Provision Namely Section 10A An

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12[TH|]DAY OF JANUARY 2071 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’‘’BLE MR. JUSTICE NATARAJ RANGASW A 1T.A. NO.416 OF 2014 BETWEEN: BIOCON LIMITED 20TH KM, HOSUR ROADELECTRONICS CITY P.O.| BANGALORE-560100 REP. HEREIN BY ITS.DEPUTY GENERAL MANAGER,TAX & COMPLIANCEMR. B. SHIVADUTT.. (BY MR. SURYANARAYANA T, ADVOCATE) .... APPELLAN/ AND* 1.|THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(2), C.R. BUILDING QUEENS ROAD, BANGALORE-560001.. 2 |THE COMMISSIONER OF INCOME-TA® LTU, JSS TOWERS, 100 FEET RING ROAD. BANASHANKARI 3RD STAGE. BANGALORE-560085. (BY MR. K.V. ARAVIND, ADVOCATE) .. RESPONDENTS. THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 30.04.2014 PASSEDIN ITA NO.369/BANG/2010 FOR THE ASSESSMENT YEAR 2004-05,PRAYING TO: | (i) FORMULATE THE SUBSTANTIAL QUESTION OF LAW.STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE,ITAT DATED 30.04.2014 IN ITA NO.369/BANG/2010 (ANNEXURE-‘C’) TO THE EXTENT QUESTIONED HEREIN. THIS I.7T.A. COMING ON FOR’ HEARING, THIS’ DAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260-A of the Income Tax Act, 1961 (nereinafter referred to as the Act, for snort)nas been filed by the assessee. Tne subject matter ofthe appeal pertains to the Assessment Year 2004-05.The appeal was admitted by a Bench of this Court vide order dated 01.12.2014 on the following substantial| questions of law:| ‘1, The Tripunal was rignt in noiding tnatthe appellant was not entitled to deductionunder Section 35(2AB) of the Act to theextent the expenses eligible for deductionunder the said provisions pertained to unitentitled for deduction under Section 10B ofthe Act? 2. The Tribunal was right in holaing thatSection 14A of the Act was applicable tothe appellant although it had no exemptincome?" 2. Facts leading to filing of this appeal brieflystated are that the assessee is a company engaged in|the manufacture and sale of biotechnological products inPharmaceuticalandenzymesectors through|fermentation based technology. The assessee filed its |return of Income for the Assessment Year 2004-05.declaring a total income of Rs.50,65,18,080/- after|claiming various deductions which included deduction|under Section 10B as well as under Section 35(2AB) oftne Act. The Assessing Officer, Dy an order dated29.12.2006,inter allaheld that since the assessee hasclaimed deduction under Section 10B of the Act,therefore, it is not entitled to claim deduction under.Section 35(2AB) of the Act. The aforesaid order was.affirmed by the Commissioner of Income Tax (Appeals) by an order dated 13.11.2009. Thereupon, the assesseefiled an appeal before the Tribunal. The Tribunal, by an.order dated 30.04.2014, affirmed the order passed bythe Commissioner of Income Tax (Appeals) as well as.the Assessing Officer. In the aforesaid factual|background, the assessee Nas approached this Court. 3 Learned counsel for the assessee submitted thatSection 10A as well as Section 1OB of the Act are not'exemption provisions but are deduction provisions andthe deduction have to be given effect to at the stage of computation of profits and gains of business or'profession under Chapter IV-D of the Act. It is furtnerSuDmitted thnat the Tribunal nas relied on tne decision otthis Court tn"CIT Vs. YOKOGAWA INDIA LIMITED(2012) 21 TAXMANN.COM 154 (KAR).However, the.aforesaid decision was reversed on the issue of the!nature of provision namely Section 10A and Section 10B.of the Act, by the Supreme Court in"CIT Vs. 3 Learned counsel for the assessee submitted thatSection 10A as well as Section 1OB of the Act are not'exemption provisions but are deduction provisions andthe deduction have to be given effect to at the stage of computation of profits and gains of business or'profession under Chapter IV-D of the Act. It is furtnerSuDmitted thnat the Tribunal nas relied on tne decision otthis Court tn"CIT Vs. YOKOGAWA INDIA LIMITED(2012) 21 TAXMANN.COM 154 (KAR).However, the.aforesaid decision was reversed on the issue of the!nature of provision namely Section 10A and Section 10B.of the Act, by the Supreme Court in"CIT Vs. YOKOQGAWAINDIALIMITED.(2017)JL.TAXMANN.COM 41 (SC)and it was held that Section|10A and Section 10B of the Act are the provisions with|regard to deduction. In this connection, our attention|was invited to paragraph 18 of the judgment. It is also|Submitted that deduction under Section 10B of the Act Isqua the undertaking and is given in respect of the profits|of business of the undertaking whereas deduction under|Section 35(2AB) of the Act is given effect to a laterstage while computing the total income of the assessee|at the entity level. Therefore, the deductions granted|under Section 10B as well as Section 35(2AB) of the Actare independent and the deduction under Section35(2AB) of the Act is an expenditure based deduction.whereas deduction under Section 10B of tne Act Is ansincome based deduction and are independent provisions.4. Our attention nas also been Invited to sub-Section (6) of Section 10B as amended by Finance Act, 2003 with effect from 01.04.2001 which provides thatafter 01.04.2001, the units are entitled to deduction.under Section 10B of the Act are to be treated on parwith other units and will also be entitled to deductions|available under the Act under Sections 32, 35, etc. Itis—also urged that prior to amendment of sub-Section (6)|of Section 10B by the Finance Act, 2003, the intention.was to curtail the other tax concessions under the Act tothe eligidle units whicn is evident from the CircularNo.794 dated 09.08.2000. It is also submitted that tin.order to eliminate the restrictions contained In sub-Section (6) of Section 10B, the aforesaid provision was.amended by Finance Act, 2003, by which, phrase“ending before the 1st day of April, 2001 was insertedwhicn means that after 01.04.2001, the restrictions on.other tax concessions or deductions are not been iInexistence. In this connection, our attention has been.drawn to the Circular No.7 of 7003 dated 05.09.7003. It!is also contended tnat Section 10B of the Act Is a code In. itself and deduction under the said provision will have to.be computed in accordance with the formula prescribedin sub-Section (4) on commercial profits and therefore,reducing profits on a notional basis, attributing some|profits to the expenses eligible for weighted reduction|under Section 35(2AB), amounts to tinkering with the|formula. It is also urged that the Tribunal grossly erredin relying on Section 14A of the Act to uphold the|disallowance. It ts furtner submitted tnat Section 14A|applies only to exempt incomes and since Section 10B ofthe Act is not an exemption provision as has been held.by the Supreme Court inCIT Vs. YOKOGAWALIMITED,SUPIa,the aforesaid provision does not apply|to the fact situation of the case. In support of aforesaidsubmission, rellance has Deen placed on the decisions in.'KARLE INTERNATIONAL PRIVATE LTD. Vs. ACIT'dated 07.09.2020 itn ITA No.377/2012, ‘VIJAYINDUSTRIES Vs. CIT’ (2019) 103 TAXMANN.COM454, REDINGTON (INDIA) LTD. Vs. ACIT [(2017) 77 TAXMANN.COM 257 (MAD)], ‘CHEMINVEST LTD.Vs. CIT’ [(2015) 61 TAXMANN.COM 118 (DEL)]AND 'PCIT Vs. GVK PROJECT AND TECHNICAL|SERVICES LTD." (2019) 106 TAXMANN.COM 181.(SC). 77 TAXMANN.COM 257 (MAD)], ‘CHEMINVEST LTD.Vs. CIT’ [(2015) 61 TAXMANN.COM 118 (DEL)]AND 'PCIT Vs. GVK PROJECT AND TECHNICAL|SERVICES LTD." (2019) 106 TAXMANN.COM 181.(SC). 5. On the other hand, learned counsel for the|revenue submitted that the assessee Is not entitled to.deduction of expenditure both under Sections 37 and35(2AB) specifically in view of Section 35(2) of the Act.It is also Submitted that it is never the Intention of the|legislature nor there is any provision in the Act which|confers the benefit of double deduction to the extent of 250%. It is also submitted that restriction imposed.under Section 35(2) of the Act equally applies to theexpenditure for computing deduction under Section 10B|of the Act and the Supreme Court in paragraph 11 of thedecision tn.CIT Vs. YOKOGAWA, SUDIa,has held that.deduction under Section 35 is deemed to have been|claimed which includes deduction under Section 35(2AB). of the Act. It Is also submitted that deduction under|Section 10B is arrived at after allowing the deduction.and undertaking is eligible for deduction under Section|35(2AB) and the same is being claimed and therefore,|once again assessee is not entitled to claim deduction|for 100% expenditure and all deductions are deemed to.have been claimed in view of Section 10A(6) of the Act.It is also urged that profits of a unit Nave to be|computed on stand alone basis without reference toother eligible or non-eligible units or undertaking of the|assessee. In this connection, our attention has been.invited to paragraph 16 of the decision of the Supreme|Court inYOKOQGAWA INDIA LTDJSUPIa 6. We nave considered the SUDMISSIONS made on|both sides and have perused the record. Beforeproceeding further, it is apposite to take note of therelevant extract of Section 10B and Section 35(2AB) ofthe Act, wnicn reads as under: "10B. Special provisions in respect ofnewly established hundred per cent export-oriented undertakings (1) Subject to the provisions of this|section, a deduction of such profits and gainsas are derived by a nunared per cent export-oriented undertaking from the export of.articles or things or computer software for a.period of ten consecutive assessment yearsbeginning with the assessment year relevant.CO theprevious.YedlIn|whichtheundertaking|begins|CO manufacture|Orproduce articles or things or computer|software, as the case may be, shall beallowed from the total Income of thedSSCSSCEC, 35(2AB)(1) Where a company engaged|in the business of bDio-technology or in anybusiness of manufacture or proaduction ofany article or thing, not being an article orthing specified in the list of the Eleventh.Schedule incurs any expenditure on scientificresearcn (not being expenditure in thenature of cost of any land or buliding) on in-nouse research and development facility as approved by the prescribed authority, then,there shall be allowed a deduction of a sum.equal to one and one-half times of theexpenditure so incurred. (2) No deduction shall be allowed in|respect of the expenditure mentioned inclause (1) under any other provision of this-Act 7. A Division Bench of this Court InCIT Vs.YOKOQGAWA LTDJSUPTIaheld that Section 10B of theAct is in the nature of an exemption provision. It ispertinent to mention here that the Tribunal by placing|rellance on decision of this Court tnYOKOQGAWA INDIALTD.,SUPIa, held that Section 10B of the Act is in the}nature of the exemption provision and therefore, theAssessing Officer was right in reducing the profits of theunits eligible for deduction under Section 10B to the|extent of additional 509% deduction available underSection 35(2AB) of the Act. However, it is pertinent to.mention here that subsequently the decision of this (2) No deduction shall be allowed in|respect of the expenditure mentioned inclause (1) under any other provision of this-Act 7. A Division Bench of this Court InCIT Vs.YOKOQGAWA LTDJSUPTIaheld that Section 10B of theAct is in the nature of an exemption provision. It ispertinent to mention here that the Tribunal by placing|rellance on decision of this Court tnYOKOQGAWA INDIALTD.,SUPIa, held that Section 10B of the Act is in the}nature of the exemption provision and therefore, theAssessing Officer was right in reducing the profits of theunits eligible for deduction under Section 10B to the|extent of additional 509% deduction available underSection 35(2AB) of the Act. However, it is pertinent to.mention here that subsequently the decision of this Court In-YOKQGAWA INDIA LTD.ffSUPIainsofar as itpertains to nature of provision of Section 10B of the Actis concerned, was reversed by the Supreme Court inCIT|VS. YOKOGAWAffSUDIaand it was held that Section|10B of the Act is in the nature of deduction provision. It|is also pertinent to mention here that Section 10B is aprovision which deals with deduction of income whereasSection 35(2AB) deals with deduction on expenditure. 8.)It is also relevant here to mention that the|restriction contained in sub-Section (6) of Section 10B ofthe Act operate only upto 1st day of April 2001.Tnerefore, the restrictions contained in sub-Section (6)of Section 10B of the Act nave no application to theobtaining factual matrix of the case as the AssessmentYear is subsequent to ist April 2001. It is alsonoteworthy that the bar contained in Section 35(2AB)(2).does not apply to the fact situation of the case as thesame provides that no deduction shall be allowed inrespect of expenditure mentioned in clause(1) under any provisions of the Act. As stated supra, the deduction.under Section 10B of the Act Is on the Income and not.on the expenditure. The Supreme CourtIn ‘CIT VS.WALFORT SHARE AND STOCK BROKERS (P). LTD,(2010) 326 ITR 1.has held that mandate of Section14A is clear and the same is aimed to curb the practice|to claim deduction of expenses incurred in relation toexempt income against taxable income and at the same|time, avail of the tax incentive by way of exemption ofexempt income without making apportionment. ofexpenses incurred in relation to exempt income. In theinstant case, no exempt income has accrued to theassessee, therefore, the provisions of Section 14A of theAct are not attracted. In view of preceding analysis, the substantialquestion of law framed in this appeal are answered in.favour of the assessee and against the revenue. In theresult, the impugned order dated 30.04.2014 passed bythe tribunal insofar as it pertains to the finding that the assessee Is not entitled to claim deduction under Section35(2AB) of the Act to the extent expenses eligible fordeduction under the said provision in relation to units.entitled to deduction under Section 10B of the Act js/hereby quashed. In the result, the appeal is disposed of. Sd/-JUDGE Sd/-—JUDGE RV/SS