Whether The Tribunal Erred In Not Followingthe Decision In Cit v. Himatasingike Seide Ltd. (Kar)286 Itr 255 Which Was Upheld By The Hon'ble Supremecourt In 48 Taxmann.com 357(Sc)?

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 08.10.2020 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYANT.C.A.Nos.395 to 398 & 400 of 2019andC.M.P.Nos.13142, 13150, 13157 & 13162 of 2019 Principal Commissioner of Income Tax 2,No.63, Race Course Road,Coimbatore – 641 018 .. Appellant in all T.C.AsVersus M/s.SKM Egg Products Export India LtdNo.185, Chennimalai Road,Erode 638 001.PAN:AAC CS 7106 G .. Respondent in all T.C.As Prayer in T.C.A.No.395 of 2019:- Tax Case Appeal filed underSection 260-A of the Income Tax Act, 1961, against the order ofthe Income Tax Appellate Tribunal, Madras 'B' Bench, Chennaidated 12.11.2018 made in I.T.A.No.384/Chny/2018 relating to theAssessment Year 2003-04. Prayer in T.C.A.No.396 of 2019:- Tax Case Appeal filed underSection 260-A of the Income Tax Act, 1961, against the order ofthe Income Tax Appellate Tribunal, Madras 'B' Bench, Chennaidated 12.11.2018 made in I.T.A.No.385/Chny/2018 relating to theAssessment Year 2004-05. Prayer in T.C.A.No.397 of 2019:- Tax Case Appeal filed underSection 260-A of the Income Tax Act, 1961, against the order ofthe Income Tax Appellate Tribunal, Madras 'B' Bench, Chennaidated 12.11.2018 made in I.T.A.No.387/Chny/2018 relating to theAssessment Year 2006-07. Prayer in T.C.A.No.398 of 2019:- Tax Case Appeal filed underSection 260-A of the Income Tax Act, 1961, against the order ofthe Income Tax Appellate Tribunal, Madras 'B' Bench, Chennaidated 12.11.2018 made in I.T.A.No.386/Chny/2018 relating to theAssessment Year 2005-06. Prayer in T.C.A.No.400 of 2019:- Tax Case Appeal filed underSection 260-A of the Income Tax Act, 1961, against the order ofthe Income Tax Appellate Tribunal, Madras 'B' Bench, Chennai https://hcservices.ecourts.gov.in/hcservices/ dated 12.11.2018 made in I.T.A.No.383/Chny/2018 relating to theAssessment Year 2002-03 against the order dated 27/11/2017 inAppeal No.116/17-18, 117-17-18, 115/17-18, 118/17-18, C 114/17-18 in PAN/TAN/GIR No. for the assessment year 2006-2007, 2005-2006, 2004-2005, 2003-2004, 2002-2003 respectively. For Appellant:Mr.T.R.Senthil Kumar Senior Standing counsel Assisted by M/s.K.G.Usha Rani [In all appeals] For Respondent : Mr.M.P.Senthil Kumar [In all appeals]JUDGMENT [Common Judgment was delivered by T.S.Sivagnanam,J.] 2. The Revenue has raised the following SubstantialQuestions of Law for consideration: 1. Whether the Tribunal was justified in holdingthat deduction u/s 10B of the Income Tax Act shouldfirst be excluded from the profits of the year, beforeset off “brought forward unabsorbed depreciation” ascurrent year depreciation as per Section 32[2]pertaining to the said Export Oriented Unit? 2.Whether the Appellate Tribunal is not correctlyinterpreting the judgement of the Supreme Court in thecase of Yokogawa India ltd (2017) 391 ITR 274 whereinit is held that “the stage of deduction would be whilecomputing the gross total income of the eligibleundertaking under Chapter IV of the Act and not at the https://hcservices.ecourts.gov.in/hcservices/ stage of computation of the total income under ChapterVI of the Act? 3. Whether on the facts and circumstances of thecase and in law the ITAT is correct in allowingdeduction u/s.10B to the assessee, when the A.O. hadrightly followed the Supreme Court judgement in thecase of Yokogawa India Ltd by calculating the incomefrom business (from the eligible undertaking) underSection 28 in accordance with provisions contained inSection 30 to 43D of Chapter IV of the Act? 4. Whether the Tribunal erred in not followingthe decision in CIT Vs Himatasingike Seide Ltd. (Kar)286 ITR 255 which was upheld by the Hon'ble SupremeCourt in 48 taxmann.com 357(SC)? https://hcservices.ecourts.gov.in/hcservices/ stage of computation of the total income under ChapterVI of the Act? 3. Whether on the facts and circumstances of thecase and in law the ITAT is correct in allowingdeduction u/s.10B to the assessee, when the A.O. hadrightly followed the Supreme Court judgement in thecase of Yokogawa India Ltd by calculating the incomefrom business (from the eligible undertaking) underSection 28 in accordance with provisions contained inSection 30 to 43D of Chapter IV of the Act? 4. Whether the Tribunal erred in not followingthe decision in CIT Vs Himatasingike Seide Ltd. (Kar)286 ITR 255 which was upheld by the Hon'ble SupremeCourt in 48 taxmann.com 357(SC)? 3. We have heard Mr.T.R.Senthil Kumar, learned SeniorStanding counsel assisted by M/s.K.G.Usha Rani, learned counselfor the Revenue and Mr.M.P.Senthilkumar, learned counselappearing for the respondent/assessee. 4. It is not disputed before us that the above referredSubstantial Questions of law have been answered in favour of theassessee in the case of M/s.Comstar Automative TechnologiesPrivate Limited., Vs. The Deputy Commissioner of Income TaxCompany Circle – I (3) in T.C.A.No.228 of 2011 dated 18.03.2020,which was followed by this Court in the case of The Commissionerof Income Tax Vs. M/s.Comstar Automotive Technologies Pvt. Ltd.,in T.C.A.No.301 of 2019 dated 06.07.2020. 5. The operative portion of the judgment in the case ofM/s.Comstar Automative Technologies Private Limited., Vs. TheDeputy Commissioner of Income Tax Company Circle – I (3) (citedsupra) reads as follows: “25. Having considered the said questions, as hasbeen brought before the Hon'ble Apex Court forconsideration, their Lordships have decided the issue infavour of the Assessee. The relevant portion of theorder of the Apex Court in Commissioner of Income-tax v.Yokogawa India Ltd., are quoted hereunder : "12. We have considered the submissions advancedand the provisions of Section 10A as they stood prior tothe amendment made by the Finance Act, 2000 with effectfrom 1-4-2001; the amended Section 10A thereafter andalso the amendment made by the Finance Act, 2003 withretrospective effect from 1.4.2001. https://hcservices.ecourts.gov.in/hcservices/ the Act after the amendment made by the Finance Act,2000 would be merely suggestive and not determinative ofwhat is provided by the section as amended, in contrastto what was provided by the un-amended section. The trueand correct purport and effect of the amended sectionwill have to be construed from the language used and notmerely from the fact that it has been retained inChapter III. The introduction of the word “deduction” inSection 10A by the amendment, in the absence of anycontrary material, and in view of the scope of thedeductions contemplated by Section 10A as alreadydiscussed, it has to be understood that the sectionembodies a clear enunciation of the legislative decisionto alter its nature from one providing for exemption toone providing for deductions. 14. The difference between the two expressions'exemption' and 'deduction', though broadly may appearto be the same i.e. immunity from taxation, thepractical effect of it in the light of the specificprovisions contained in different parts of the Act wouldbe wholly different. The above implications cannot bemore obvious than from the case of Civil Appeals Nos.8563 and 8564 of 2013 and civil appeal arising out ofSLP (C) No. 18157 of 2015, which have been filed by lossmaking eligible units and/or by non-eligible assesseesseeking the benefit of adjustment of losses againstprofits made by eligible units. 14. The difference between the two expressions'exemption' and 'deduction', though broadly may appearto be the same i.e. immunity from taxation, thepractical effect of it in the light of the specificprovisions contained in different parts of the Act wouldbe wholly different. The above implications cannot bemore obvious than from the case of Civil Appeals Nos.8563 and 8564 of 2013 and civil appeal arising out ofSLP (C) No. 18157 of 2015, which have been filed by lossmaking eligible units and/or by non-eligible assesseesseeking the benefit of adjustment of losses againstprofits made by eligible units. 15. Sub-section (4) of Section 10A which providesfor pro rata exemption, necessarily involving deductionof the profits arising out of domestic sales, is oneinstance of deduction provided by the amendment. Profitsof an eligible unit pertaining to domestic sales wouldhave to enter into the computation under the head“profits and gains from business” in Chapter IV anddenied the benefit of deduction. The provisions of sub-section (6) of Section 10A, as amended by the FinanceAct of 2003, granting the benefit of adjustment oflosses and unabsorbed depreciation, etc. commencing fromthe year 2001-02 on completion of the period of taxholiday also virtually works as a deduction which has tobe worked out at a future point of time, namely, afterthe expiry of period of tax holiday. The absence of anyreference to deduction under Section 10A in Chapter VIof the Act can be understood by acknowledging that anysuch reference or mention would have been a repetitionof what has already been provided in Section 10A. Theprovisions of Sections 80HHC and 80HHE of the Actproviding for somewhat similar deductions would be wholly irrelevant and redundant if deductions underSection 10A were to be made at the stage of operation ofChapter VI of the Act. The retention of the saidprovisions of the Act i.e. Sections 80HHC and 80HHE,despite the amendment of Section 10A, in our view,indicates that some additional benefits to eligibleSection 10A units, not contemplated by Sections 80HHCand 80HHE, was intended by the legislature. Such abenefit can only be understood by a legislative mandateto understand that the stages for working out thedeductions under Sections 10A and 80HHC and 80HHE aresubstantially different. This is the next aspect of thecase which we would now like to turn to. 16. From a reading of the relevant provisions ofSection 10A it is more than clear to us that thedeductions contemplated therein are qua the eligibleundertaking of an assessee standing on its own andwithout reference to the other eligible or non-eligibleunits or undertakings of the assessee. The benefit ofdeduction is given by the Act to the individualundertaking and resultantly flows to the assessee. Thisis also more than clear from the contemporaneousCircular No. 794 dated 9-8-2000 which states in para15.6 that, “The export turnover and the total turnover for thepurposes of Sections 10A and 10B shall be of theundertaking located in specified zones or 100% ExportOriented Undertakings, as the case may be, and thisshall not have any material relationship with the otherbusiness of the assessee outside these zones or unitsfor the purposes of this provision”. “The export turnover and the total turnover for thepurposes of Sections 10A and 10B shall be of theundertaking located in specified zones or 100% ExportOriented Undertakings, as the case may be, and thisshall not have any material relationship with the otherbusiness of the assessee outside these zones or unitsfor the purposes of this provision”. 17. If the specific provisions of the Act provide[first proviso to Sections 10-A(1); 10-A(1-A) and 10-A(4)] that the unit that is contemplated for grant ofbenefit of deduction is the eligible undertaking andthat is also how the contemporaneous circular of thedepartment (No. 794 dated 09.08.2000) understood thesituation, it is only logical and natural that the stageof deduction of the profits and gains of the business ofan eligible undertaking has to be made independentlyand, therefore, immediately after the stage ofdetermination of its profits and gains. At that stagethe aggregate of the incomes under other heads and theprovisions for set off and carry forward contained inSections 70, 72 and 74 of the Act would be premature forapplication. The deductions under Section 10A thereforewould be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving atthe total income of the assessee from the gross totalincome. The somewhat discordant use of the expression“total income of the assessee” in Section 10A hasalready been dealt with earlier and in the overallscenario unfolded by the provisions of Section 10A theaforesaid discord can be reconciled by understanding theexpression “total income of the assessee” in Section 10Aas “total income of the undertaking”. 18. For the aforesaid reasons we answer the appealsand the questions arising therein, as formulated at theoutset of this order, by holding that though Section10A, as amended, is a provision for deduction, the stageof deduction would be while computing the gross totalincome of the eligible undertaking under Chapter IV ofthe Act and not at the stage of computation of the totalincome under Chapter VI. All the appeals shall standdisposed of accordingly." 26. In the aforesaid Judgment, the reason for suchconclusion arrived at by the Hon'ble Apex Court has beenexplained at para 17 in unequivocal terms. The ApexCourt has specifically held that, at the stage of theaggregate of the incomes under other heads, theprovisions for set off and carry forward contained inSections 70, 72 and 74 of the Act would be a prematurefor application. The deduction under Section 10Atherefore would be prior to the commencement of theexercise to be undertaken under Chapter VI of the Actfor arriving at the total income of the Assessee fromthe gross total income. Ultimately, the issue has beensettled with the following words of the Hon'ble ApexCourt in the said decision "the stage of deduction wouldbe while computing the gross total income of theeligible undertaking under Chapter IV of the Act and notat the stage of computation of the total income underChapter VI." 27. Therefore the law has been settled by the saiddecision of the Hon'ble Apex Court, where in clearterms, it has been held that, the deductions eitherunder Section 10A or 10B would be made while computingthe gross total income of the eligible undertaking (likethe Assessee) under Chapter IV of the Act and not at thestage of computation of the total income under ChapterVI of the Act. 28. Here in the case in hand, the total income wasfirst arrived at by the Revenue through the Assessing 27. Therefore the law has been settled by the saiddecision of the Hon'ble Apex Court, where in clearterms, it has been held that, the deductions eitherunder Section 10A or 10B would be made while computingthe gross total income of the eligible undertaking (likethe Assessee) under Chapter IV of the Act and not at thestage of computation of the total income under ChapterVI of the Act. 28. Here in the case in hand, the total income wasfirst arrived at by the Revenue through the Assessing Officer in the Assessment Order by computing the totalincome by way of brought forward or carry forward thedepreciation allowance of the earlier Assessment Yearsand set off the unabsorbed depreciation first and makingthe return Nil, thereby leaving the Assessee in aposition where it could not claim any deduction underSection 10B as there was no income after set off ofcarry forward depreciation and unabsorbed depreciationfrom earlier years. 29. This method of computing the income in thepresent case made by the Revenue is totally against thesaid law as has been declared by the Hon'ble Apex Courtin the aforesaid decision in Commissioner of Income-taxv. Yokogawa India Ltd., (cited supra). 30. Therefore we have no hesitation to hold that,the decision of the ITAT, which is impugned herein,would not stand in the legal scrutiny, in view of thelaw having been declared by the Hon'ble Apex Court.Therefore, we are of the view that, the SubstantialQuestion of Law raised in this Appeal is covered by thesaid decision, therefore it can be answeredaccordingly.”6. Thus, following the above decision, the Tax Case Appealsare dismissed and the Substantial Questions of Law are answeredagainst the Revenue. No costs. Consequently, connectedmiscellaneous petitions are closed. Sd/- Asst.Registrar (CS IV ) /true copy/Sub Asst. Registrar To1.The Income Tax Appellate Tribunal,'B' Bench, Chennai. 2.The Commissioner of Income Tax(Appeals-1) Coimbatore 3.The Assistant Commissioner of Income TaxCircle-I, Erode +5 ccs to M/s.G.Baskar Advocate sr33596,3359533594,33593,33598 +1 cc to M/s.T.R.senthil kumar Advocate sr33402 T.C.A.Nos.395 to 398 & 400 of 2019 vsnII(co)aa17/03/2021