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C.I.T. & Anr. V. Yokogawa India Ltd. - (Supreme Court) (16 Dec 2016)

Deduction under Section 10A would be made while computing gross total income of eligible undertaking under Chapter IV of Act


Direct Taxation

The true and correct meaning and effect of provisions of Section 10A of Income Tax Act, 1961 is the principal issue arising for determination. Appellant-Revenue contended that, ex facie, from language appearing in Section 10A of Act, it is crystal clear that provision of Act, as amended by Finance Act, 2000 provides for deductions from gross total income, notwithstanding use of words ‘total income’ in Section 10A of Act. Exemptions provided for under old Section 10A of Act have been discontinued by Legislature.

True and correct purport and effect of amended Section will have to be construed from the language used and not merely from the fact that it has been retained in Chapter III. Introduction of the word ‘deduction’ in Section 10A of Act by the amendment, in absence of any contrary material, and in view of scope of deductions contemplated by Section 10A of Act, it has to be understood that, Section embodies a clear enunciation of legislative decision to alter its nature from one providing for exemption to one providing for deductions. Difference between two expressions ‘exemption’ and ‘deduction’, though broadly may appear to be the same i.e. immunity from taxation, the practical effect of it in light of the specific provisions contained in different parts of Act would be wholly different.

Sub-section 4 of Section 10A of Act which provides for pro rata exemption, necessarily involving deduction of profits arising out of domestic sales, is one instance of deduction provided by amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into computation under head “profits and gains from business” in Chapter IV and denied benefit of deduction. Provisions of Sub-section 6 of Section 10A of Act, as amended by Finance Act of 2003, granting benefit of adjustment of losses and unabsorbed depreciation etc. commencing from year 2001-2002 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after expiry of period of tax holiday. Retention of said provisions of Act i.e. Sections 80HHC and 80HHE of Act, despite amendment of Section 10A of Act, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE of Act, was intended by legislature. Such a benefit can only be understood by a legislative mandate to understand that, stages for working out deductions under Section 10A and 80HHC and 80HHE of Act are substantially different.

Provisions of Section 10A of Act makes it clear that, deductions contemplated therein is qua the eligible undertaking of an Assessee standing on its own and without reference to other eligible or non-eligible units or undertakings of Assessee. Benefit of deduction is given by Act to the individual undertaking and resultantly flows to Assessee. Stage of deduction of profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after stage of determination of its profits and gains. Deductions under Section 10A f Act therefore would be prior to commencement of exercise to be undertaken under Chapter VI of Act for arriving at total income of Assessee from gross total income. Though Section 10A of Act, as amended, is a provision for deduction, stage of deduction would be while computing gross total income of eligible undertaking under Chapter IV of Act and not at stage of computation of total income under Chapter VI. Appeals disposed off accordingly.

Relevant : Section 10A of Income Tax Act, 1961


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