Comstar Automative Technologies Private Ltd., (Formerly known as Visteon Powertrain Control Systems India Private Limited) v. The Deputy Commissioner of Income-tax Company Circle-1(3), Chennai
[Citation -2020-LL-0318-32]

Citation 2020-LL-0318-32
Appellant Name Comstar Automative Technologies Private Ltd., (Formerly known as Visteon Powertrain Control Systems India Private Limited)
Respondent Name The Deputy Commissioner of Income-tax Company Circle-1(3), Chennai
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 18/03/2020
Assessment Year 2004-05
Judgment View Judgment
Keyword Tags set off of brought forward loss • unabsorbed depreciation loss • export oriented undertaking • computation of deduction • eligible undertaking • benefit of deduction • dividend received • grant of benefit • unabsorbed loss • export turnover • total turnover • domestic sales • eligible unit
Bot Summary: Learned counsel would further contend that, the total income can be derived after due computation by verifying the profit and loss, thereby since the Assessee wanted to bring forward the unabsorbed depreciation loss of the earlier years, that kind of set off should be first taken care of and thereafter only the final figure of total income can be arrived at and only from that total income, the deduction claimed by the Assessee under Section 10B can be permitted. Whatever the total income arrived at after computation of the same under various provisions of the Act in consonance with Section 5, would be the total income for the purpose of Section 10B deduction also. 228 of 2011 M/s.Comstar Automative Technologies Private Ltd., V. The Deputy Commissioner of Income Tax, Chennai 15/29 for the purpose of determination of the relief under s.80HH of the Act, the gross total income of the assessee has to be worked out after deducting unabsorbed losses and unabsorbed depreciation and the income eligible for deduction under s.80HH will be the net income as computed in terms of the provisions of the Act. The Rajasthan High Court again in the case of CIT vs. Surendra Textiles 172 CTR 555 : 258 ITR 387 ruled that : the gross total income of the assessee has to be worked out after deducting unabsorbed loss and unabsorbed depreciation and the income eligible for deduction under s.80HH of the IT Act, 1961, will be the net income as computed in accordance with the provisions of the Act and not the gross income. 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. The deduction 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.


Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 1/29 IN HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 02.03.2020 Pronounced on: 18.03.2020 CORAM HON'BLE DR.JUSTICE VINEET KOTHARI AND HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case Appeal No.228 of 2011 M/s. Comstar Automative Technologies Private Ltd., (Formerly known as Visteon Powertrain Control Systems India Private Limited) Keelakaranai Village, Malrosapuram Post, Maraimalai Nagar, Chengalpattu District - 603204. Appellant Vs. Deputy Commissioner of Income Tax Company Circle - I (3), 121, Nungambakkam High Road, Chennai - 600034. Respondent Tax Case Appeal filed under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal, 'D' Bench, Chennai, dated 10.12.2010 made in ITA No.301/Mds/2009. For Appellant : Mr.R.Sivaraman For Respondent : Mr.T.Ravikumar Senior Standing Counsel http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 2/29 JUDGMENT R.SURESH KUMAR, J This Appeal is filed under Section 260A of Income Tax Act, 1961 (in short "the Act") against impugned order passed by Income Tax Appellate Tribunal, Chennai in I.T.A.No.301/Mds/2009, dated 10.12.2010. 2. short facts which are required to be referred for disposal of this appeal are as follows : (i) That Assessee is company registered under Companies Act, 1956, which engaged in manufacturing of Starter Motors and Alternator and development of computer software. Assessee is 100% Export Oriented Undertaking (EOU). For Assessment Year 2004-05, Assessee filed Return, declaring taxable income of Rs.Nil after claiming deduction of Rs.29,26,65,024/- under Section 10B of Act. Profit of Rs.1,55,62,609/- was set off against brought forward unabsorbed depreciation loss of Assessment Year 2001-02. (ii) said Return of Assessee was processed by Revenue under Section 143(1) of Act and was selected as case for scrutiny by issuance of http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 3/29 Notice under Section 143(2). Notice under Section 142(1) with questionnaire was issued by Assessing Officer. In response to same, Assessee produced all details. (iii) After consideration, Assessment was completed and order was issued under Section 143(3) of Act on 21.12.2006. In said Assessment Order, Assessing Officer had adjusted brought forward unabsorbed depreciation loss relating to Assessment Year 2001-02 to extent of Rs.22,06,10,631/- and to Assessment Year 2002-03, amounting Rs.8,76,17,002/- against business profits before allowing deduction claimed by Assessee under Section 10B of Act. (iv) said issue along with yet another issue was taken up on Appeal by Assessee before Commissioner (Appeals), before whom, case of Assessee was that, deduction under Section 10B was to be granted prior to set off of brought forward unabsorbed depreciation loss of earlier years. Commissioner (Appeals) having accepted said contention of Assessee, allowed Assessee's Appeal and set off of brought forward unabsorbed depreciation loss of earlier years done by Assessing Officer before granting deduction under Section 10B was set aside. http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 4/29 (v) Aggrieved over said order of Commissioner (Appeals), Revenue preferred said I.T.A.No.301/09 before Income Tax Appellate Tribunal (in short "the ITAT"), where contention of Assessee as well as Revenue were heard and ultimately ITAT by order, dated 10.12.2010 had decided said issue against Assessee and in favour of Revenue, by thus, order of Commissioner (Appeals) was set aside and decision of Assessment Officer was restored. Felt aggrieved over said order of ITAT, dated 10.12.2010, Assessee preferred present Appeal. 3. We have heard Mr.R.Sivaraman, learned counsel appearing for Assessee who would submit that, under Section 10B of Act, Assessee unit is fully eligible to get deduction, since it is 100% Export Oriented Undertaking (EOU). said deduction should have been made prior to set off of brought forward unabsorbed depreciation loss of earlier years, i.e., AY 2001- 02 and 2002-03, as from these two Assessment Years, Assessee brought forward unabsorbed depreciation loss which should be set off only after giving deduction under Section 10B. http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 5/29 4. learned counsel would further contend that, ITAT, on erroneous consideration, mainly relying upon case of Tribunal in case of Sword Global, had allowed Appeal of Revenue, holding that, deduction under Section 10B has to be made only after set off of brought forward unabsorbed depreciation loss of earlier years. 5. learned counsel would further contend that, said view taken by ITAT is erroneous and in support of said contention, learned counsel would rely upon latest decision of Hon'ble Apex Court in matter of Commissioner of Income-tax v. Yokogawa India Ltd., dated 16.12.2016 reported in (2017) 77 taxmann.com 41 (SC). He would also contend that, in said decision of Hon'ble Apex Court, it has been categorically held that, these kind of deductions as contemplated under Section 10A or 10B has to be given prior to set off of brought forward unabsorbed depreciation loss of earlier years. Therefore learned counsel would contend that, issue is squarely covered by said decision of Hon'ble Apex Court, accordingly impugned order is liable to be interfered with and to be set aside. http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 6/29 6. learned counsel for Assessee would also submit that, following dictum of Hon'ble Apex Court in Commissioner of Income-tax v. Yokogawa India Ltd., (cited supra), number of decisions have been made by Hon'ble Apex Court as well as various other High Courts. To be listed some of them, learned counsel relied upon following decisions : 1. Principal Commissioner of Income Tax v. Infosys BPO Ltd., (2019) 107 taxmann.com 57 (SC) 2. Commissioner of Income Tax v. J.P.Morgan Services India Pvt., Ltd., (2017) 393 ITR 24 (SC) 3. Commissioner of Income Tax v. J.P.Morgan Services India Pvt., Ltd., MANU/MH/3184/2016 4. Principal Commissioner of Income Tax v. Rangsons Electronics Pvt., Ltd., (2017) 398 ITR 619 (SC) 5. Principal Commissioner of Income Tax and Ors., v. Making India Private Ltd., (2017) 393 ITR 291 (SC) 6. Principal Commissioner of Income Tax-4, Bangalore and Ors., v. Makino India Pvt., Ltd., MANU/KA/3572/2016 7. Pr.Commissioner of Income Tax, Bangalore v. Rangsons Electronics Pvt., Ltd., http://www.judis.nic.in MANU/KA/3652/2016 Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 7/29 7. Per contra, Mr.T.Ravikumar, learned Senior Standing counsel appearing for Revenue would contend that, Assessee may be 100% EOU and with that capacity, it may be entitled to get deduction under Section 10B of Act, however such kind of deduction would be permissible only from total income of Assessee as defined under Section 2(45) of Act. 8. Learned counsel would further contend that, total income can be derived after due computation by verifying profit and loss, thereby since Assessee wanted to bring forward unabsorbed depreciation loss of earlier years, that kind of set off should be first taken care of and thereafter only final figure of total income can be arrived at and only from that total income, deduction claimed by Assessee under Section 10B can be permitted. 9. In support of his contention, learned counsel for Revenue, has relied upon Division Bench Judgment of Karnatake High Court, in matter of Commissioner of Income Tax v. Himatasingike Seide Ltd., dated 04.08.2006 reported in (2006) 286 ITR 0255. learned counsel would further contend that, view taken by Karnataka High Court though was appealed by Assessee therein to Hon'ble Apex Court, where also, said view has http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 8/29 been confirmed, of course by short order, dismissing Appeal in C.A.No.1501 of 2008 by Hon'ble Apex Court, by order, dated 19.09.2013. Therefore learned counsel for Revenue would contend that, said view expressed by Karnataka High Court in favour of Revenue that, deductions can be made under Section 10B only after set off of brought forward unabsorbed depreciation loss of earlier years, since was holding field even from year 2006 onwards, present order passed by ITAT which is impugned herein, dated 10.12.2010 cannot be found fault with, therefore said order of ITAT can very well be sustained. 10. We have considered said rival submissions made by learned respective counsel for parties and also have perused materials placed before this Court. 11. This Appeal, in fact was admitted by Co-ordinate Bench of this Court, on following Substantial Question of Law : "Whether on facts and in circumstances of case, Income Tax Appellate Tribunal was right in law in holding that relief under Section 10B ought to be granted only after set off of brought forward loss and unabsorbed depreciation of earlier years ?" http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 9/29 12. Since this is only issue, on which Appeal was admitted and arguments were advanced only on same and both sides produced Judgment of Hon'ble Apex Court, we take said issue in given facts and circumstances of present case. 13. Before we delve into said issue, for easy understanding, relevant provision namely Section 10B of Act is extracted hereunder: "Special provisions in respect of newly established hundred per cent export-oriented undertakings. 10B. (1) Subject to provisions of this section, deduction of such profits and gains as are derived by hundred per cent export-oriented undertaking from export of articles or things or computer software for period of ten consecutive assessment years beginning with assessment year relevant to previous year in which undertaking begins to manufacture or produce articles or things or computer software, as case may be, shall be allowed from total income of assessee : Provided that where in computing total income of undertaking for any assessment year, its profits and gains had not been included by application of provisions of this section as it stood immediately before its substitution by Finance Act, 2000, http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 10/29 undertaking shall be entitled to deduction referred to in this sub-section only for unexpired period of aforesaid ten consecutive assessment years :" 14. Section 10B of Act provides deduction of such profits and gains derived by any hundred percent export-oriented undertaking from export of articles or things or computer software for period of ten consecutive assessment years beginning with year of starting of actual manufacture or produce of articles or things or computer software, from total income of assessee. 15. Only in this context, ITAT has taken view, of course by following earlier decision of ITAT, on term "total income" as defined under Section 2(45) of Act. As per said definition, total income means total amount of income referred to in Section 5 computed in manner laid down in Act. Therefore, whatever total income arrived at after computation of same under various provisions of Act in consonance with Section 5, would be total income for purpose of Section 10B deduction also. 16. Here in case in hand, Assessee is entitled to seek exemption by way of deduction under Section 10B, since it is 100% EOU, which is http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 11/29 admitted fact. In that capacity, Assessee claimed exemption / deduction of sum of Rs.29,26,65,024/- from out of profit and gain of business which amounts to Rs.30,82,27,633/-. Also it claimed unabsorbed brought forward depreciation allowances relating to AY 2001-02 to extent of Rs.1,55,62,609/-, thereby shown taxable income as Nil in Return submitted for AY 2004- 05. 17. In this context, Assessing Authority by its Assessment Order, dated 21.12.2006 has computed income of Assessee for AY 2004-05 in following manner : Profit from business 30,82,27,633 LESS : 1. Carry forward depreciation allowance of assessment year 2001-02 22,06,10,631 2. Carry forward depreciation allowance of assessment year 2002-03 8,76,17,002 ----------------- BUSINESS INCOME NIL Income from other Sources : Interest Income 4,63,745 ------------------ Taxable Income 4,63,745 LESS : Set off unabsorbed depreciation from assessment year 2002-03 4,63,745 ------------------- TOTAL INCOME NIL ------------------- http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 12/29 18. By thus, Assessing Officer not allowed deduction to be made under Section 10B of Act before setting off of brought forward unabsorbed depreciation loss of earlier years. Therefore issue is in very narrow point, as to whether deduction or exemption claimed by Assessee under Section 10B to extent of Rs.29,26,65,024/- has to be given prior to carry forward depreciation allowance of previous years or not. 19. In this context, learned counsel for Revenue has heavily relied upon decision of Karnataka High Court in case of Commissioner of Income Tax v. Himatasingike Seide Ltd., (cited supra) 20. In order to appreciate said contention and for ready reference, relevant paras of said decision of Karnataka High Court are quoted below : "8. Several case laws have been placed before us by parties concerned. 9. Distributors (Baroda) (P) Ltd. v. Union of India & Ors. (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) deals with s.80AA of IT Act. In said Judgment, Supreme Court has ruled that insofar as sub-s (1) of s. 80M of IT Act is concerned, deduction required to be allowed under that provision is liable to be calculated http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 13/29 with reference to amount of dividend computed in accordance with provisions of Act and forming part of gross total income and not with reference to full amount of dividend received by assesses. 10. In case of (1978) 113 ITR 84 (SC) [sic-(1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) (supra)], Court considered as under: "The question which arose in Cambay Electric Supply Go's case 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) was whether unabsorbed depreciation and unabsorbed development rebate were liable to be deducted in arriving at figure of profits and gains exigible to deduction of 8 per cent contemplated in sub-s. (1) of s. 80E. argument of assessee was precisely same as one advanced in present case, namely, that words 'such profits and gains' in latter part of sub-s.(1) of s.80E were intended to refer only to category of profits and gains referred to in earlier part of that provision, namely, 'profits and gains attributable to business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of articles or things specified in list in Fifth Schedule' and not to quantum of profits and gains included in total income, so that profits and http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 14/29 gains exigible to deduction of 8 per cent were profits and gains attributable to specified business in their entirety and not profits and gains as computed in accordance with provisions of Act. assessee contended that, in circumstances, unabsorbed depreciation and unabsorbed development rebate were not liable to be deducted from profits and gains attributable to specified business for arriving at figure exigible to deduction of 8 per cent. This argument of assessee was rejected by Court and Court held that profits and gains exigible to deduction of 8 per cent were profits and gains computed in accordance with provisions of Act and forming part of total income and hence unabsorbed depreciation and unabsorbed development rebate were liable to be excluded from profits and gains attributable to specified business in arriving at figure exigible to 8 per cent deduction." 11. In case of CIT v. Virmani Industries (P) Ltd., and Ors. (1995) 129 (CTR (SC) 189 " (1995) 216 ITR 607 (SC), Court considered issue of unabsorbed depreciation in terms of s. 32(2) of IT Act. 12. Rajasthan High Court in case of CIT vs. Sun Stone Engineering Industries (P) Ltd., (1996) 132 CTR (Raj) 2003 : (1996) 220 ITR 182 (Raj), has ruled that : http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 15/29 "for purpose of determination of relief under s.80HH of Act, gross total income of assessee has to be worked out after deducting unabsorbed losses and unabsorbed depreciation and income eligible for deduction under s.80HH will be net income as computed in terms of provisions of Act. Rajasthan High Court again in case of CIT vs. Surendra Textiles (2002) 172 CTR (Raj) 555 : (2002) 258 ITR 387 (Raj) ruled that : "the gross total income of assessee has to be worked out after deducting unabsorbed loss and unabsorbed depreciation and income eligible for deduction under s.80HH of IT Act, 1961, will be net income as computed in accordance with provisions of Act and not gross income." 13. Bombay High Court in case of Indian Rayon Corporation Ltd., v. CIT (2003) 182 CTR (Bom) 247 : (2003) 261 ITR 98 (Bom) has considered depreciation in matter of special deduction. In said case, following reference was made: "Whether on facts and circumstances of this case, Tribunal was justified in coming to conclusion that depreciation allowance ought to be deducted while computing total income for purposes of deduction under s.80HH?" http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 16/29 Bombay High Court noticed case of Cambay Electric Supply Industrial Co. Ltd., v. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC). After noticing Bombay High Court ruled as under: "The scheme of ss.4 and 5 of IT Act does indicate that income-tax is tax in respect of income computed as per provisions of Act. There is distinct dichotomy between cases of computation of normal income under Act de hors Chapter VI-A and computation of taxable income where assessee claims benefit of deduction under Chapter VI-A because legislature has intended that these special deductions should be restricted to profits derived from newly established undertaking." Court ruled ultimately at p.107 reading as under: "That Chapter VI-A, for purposes of computing such deductions, constituted separate code by itself. In order to compute total taxable income of assessee, deductions computed under s.80HH have to be reduced from gross total income of assessee. question basically in this matter is concerning computation of deduction under Chapter VI-A in which s.80HH falls. Profits and gains of newly established undertaking, therefore, have got to be computed as per provisions of s.29 to s.43A and if assessee claims relief under http://www.judis.nic.in Chapter VI-A of Act, then it is not open to Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 17/29 assessee to disclaim depreciation allowance. This is because Chapter VI-A is independent code by itself for computing these special types of deductions. In other words, one must first calculate gross total income from which one must deduct percentage of incomes contemplated by Chapter VI-A. That such special incomes were required to be computed as per provisions of Act, viz., s.29 to s.43A, which included s.32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from newly established undertaking for computing deductions under Chapter VI-A. Therefore, appellant's claim for allowance of deduction under s.80HH, without taking into consideration current depreciation will have to be rejected." 14. All these Judgments would support argument that calculation cannot be at whims and fancies of assessee for exemption of tax. It has to be in accordance with provisions of Act. 15. CIT vs. H.M.T. Ltd. (1992) 108 CTR (Kar) 215 : (1993) 199 ITR 235 (Kar) is pressed into service by Sri. Parthasarathi, learned Counsel. We have carefully gone through said Judgment. In said Judgment, Division Bench of High Court has no doubt ruled that computation of profits and gains of new unit may be http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 18/29 made without deducting depreciation and investment allowance. But facts of present case stands on different footing compared to facts in case on hand. petitioner has chosen to calculate depreciation in such way that he has chosen nil liability. 21. When aforecited Judgment was appealed, Hon'ble Apex Court, by order, dated 19.09.2013, in matter of Himatsingka Seide Ltd., v. Commissioner of Income Tax (cited supra), has made following order : "1. We have heard learned counsel for parties to lis. 2. Having perused records and in view of facts and circumstances of case, we are of opinion that Civil Appeal being devoid of any merit deserved to be dismissed and is dismissed accordingly. Ordered accordingly." 22. In said case, though Karnataka High Court has taken said view that, deductions under Chapter VI has to be made only after or subsequent to brought forward depreciation allowances, said view seems to have been taken because, in that particular case, which according to Karnataka http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 19/29 High Court, stood on different footing, as petitioner in that case had chosen to calculate depreciation in such way that, he has chosen Nil liability. This can be derived from para 15 of said Judgment, which has been quoted herein above. 23. Whereas learned counsel for Assessee has heavily relied upon subsequent decision of Supreme Court in Commissioner of Income-tax v. Yokogawa India Ltd., (cited supra). In that case, though it was issue relates to Section 10A of Act, Hon'ble Supreme Court has made it clear that, decision made in said Judgment pertains to Section 10A would be equally applicable to cases governed by provision of Section 10B also. This can be gained from para 2 of said Judgment, which reads thus : "2. true and correct meaning and effect of provisions of Section 10A of Income Tax Act, 1961 (hereinafter referred to as "the Act") is principal issue arising for determination of Court. At outset, it must be made clear that decision of this Court with regard to provisions of Section 10A of Act would equally be applicable to cases governed by provisions of Section 10B in view of said later provision being pari materia with Section 10A of Act http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 20/29 though governing different situation." 24. question which came up for consideration in said case before Hon'ble Apex Court has been framed as follows at para 3 of Judgment : "3. broad question indicated above may be conveniently dissected into following specific questions arising in cases under consideration. (i) Whether Section 10A of Act is beyond purview of computation mechanism of total income as defined under Act. Consequently, is income of Section 10A unit required to be excluded before arriving at gross total income of assessee ? (ii) Whether phrase "total income" in Section 10A of Act is akin and pari materia with said expression as appearing in Section 2(45) of Act? (iii) Whether even after amendment made with effect from 1.04.2001, Section 10A of Act continues to remain exemption section and not deduction section? (iv) Whether losses of other 10A Units or non 10A Units can be set off against profits of 10A Units before deductions under Section 10A are effected ? http://www.judis.nic.in (v) Whether brought forward business losses and Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 21/29 unabsorbed depreciation of 10A Units or non 10A Units can be set off against profits of another 10A Units of assessee. 25. Having considered said questions, as has been brought before Hon'ble Apex Court for consideration, their Lordships have decided issue in favour of Assessee. relevant portion of order of Apex Court in Commissioner of Income-tax v. Yokogawa India Ltd., are quoted hereunder : "12. We have considered submissions advanced and provisions of Section 10A as they stood prior to amendment made by Finance Act, 2000 with effect from 1-4-2001; amended Section 10A thereafter and also amendment made by Finance Act, 2003 with retrospective effect from 1.4.2001. 13. retention of Section 10A in Chapter III of Act after amendment made by Finance Act, 2000 would be merely suggestive and not determinative of what is provided by section as amended, in contrast to what was provided by un-amended section. true and correct purport and effect of amended section will have to be construed from language used and not merely from fact that it has been retained in Chapter III. introduction of word deduction http://www.judis.nic.in in Section 10A by amendment, in absence of any Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 22/29 contrary material, and in view of scope of deductions contemplated by Section 10A as already discussed, it has to be understood that section embodies clear enunciation of legislative decision to alter its nature from one providing for exemption to one providing for deductions. 14. difference between two expressions 'exemption' and 'deduction', though broadly may appear to be same i.e. immunity from taxation, practical effect of it in light of specific provisions contained in different parts of Act would be wholly different. above implications cannot be more obvious than from case of Civil Appeals Nos. 8563 and 8564 of 2013 and civil appeal arising out of SLP (C) No. 18157 of 2015, which have been filed by loss making eligible units and/or by non-eligible assessees seeking benefit of adjustment of losses against profits made by eligible units. 15. Sub-section (4) of Section 10A 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 eligible unit pertaining to domestic sales would have to enter into computation under head profits and gains from business in Chapter IV and denied http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 23/29 benefit of deduction. provisions of sub-section (6) of Section 10A, as amended by Finance Act of 2003, granting benefit of adjustment of losses and unabsorbed depreciation, etc. commencing from year 2001-02 on completion of period of tax holiday also virtually works as deduction which has to be worked out at future point of time, namely, after expiry of period of tax holiday. absence of any reference to deduction under Section 10A in Chapter VI of Act can be understood by acknowledging that any such reference or mention would have been repetition of what has already been provided in Section 10A. provisions of Sections 80HHC and 80HHE of Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at stage of operation of Chapter VI of Act. retention of said provisions of Act i.e. Sections 80HHC and 80HHE, despite amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by legislature. Such benefit can only be understood by legislative mandate to understand that stages for working out deductions under Sections 10A and 80HHC and 80HHE http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 24/29 are substantially different. This is next aspect of case which we would now like to turn to. 16. From reading of relevant provisions of Section 10A it is more than clear to us that deductions contemplated therein are qua eligible undertaking of 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 individual undertaking and resultantly flows to assessee. This is also more than clear from contemporaneous Circular No. 794 dated 9-8-2000 which states in para 15.6 that, export turnover and total turnover for purposes of Sections 10A and 10B shall be of undertaking located in specified zones or 100% Export Oriented Undertakings, as case may be, and this shall not have any material relationship with other business of assessee outside these zones or units for purposes of this provision . 17. If specific provisions of Act provide [first proviso to Sections 10-A(1); 10-A(1-A) and 10-A(4)] that unit that is contemplated for grant of benefit of deduction is eligible undertaking and that is also how contemporaneous circular of department (No. 794 dated 09.08.2000) understood situation, it http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 25/29 is only logical and natural that stage of deduction of profits and gains of business of eligible undertaking has to be made independently and, therefore, immediately after stage of determination of its profits and gains. At that stage aggregate of incomes under other heads and provisions for set off and carry forward contained in Sections 70, 72 and 74 of Act would be premature for application. deductions under Section 10A 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. somewhat discordant use of expression total income of assessee in Section 10A has already been dealt with earlier and in overall scenario unfolded by provisions of Section 10A aforesaid discord can be reconciled by understanding expression total income of assessee in Section 10A as total income of undertaking . 18. For aforesaid reasons we answer appeals and questions arising therein, as formulated at outset of this order, by holding that though Section 10A, as amended, is provision for deduction, stage of deduction would be while computing gross total income of eligible undertaking under Chapter IV of http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 26/29 Act and not at stage of computation of total income under Chapter VI. All appeals shall stand disposed of accordingly." 26. In aforesaid Judgment, reason for such conclusion arrived at by Hon'ble Apex Court has been explained at para 17 in unequivocal terms. Apex Court has specifically held that, at stage of aggregate of incomes under other heads, provisions for set off and carry forward contained in Sections 70, 72 and 74 of Act would be premature for application. deduction under Section 10A 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. Ultimately, issue has been settled with following words of Hon'ble Apex Court in said decision "the 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." 27. Therefore law has been settled by said decision of Hon'ble Apex Court, where in clear terms, it has been held that, deductions either under Section 10A or 10B would be made while computing gross total income of http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 27/29 eligible undertaking (like Assessee) under Chapter IV of Act and not at stage of computation of total income under Chapter VI of Act. 28. Here in case in hand, total income was first arrived at by Revenue through Assessing Officer in Assessment Order by computing total income by way of brought forward or carry forward depreciation allowance of earlier Assessment Years and set off unabsorbed depreciation first and making return Nil, thereby leaving Assessee in position where it could not claim any deduction under Section 10B as there was no income after set off of carry forward depreciation and unabsorbed depreciation from earlier years. 29. This method of computing income in present case made by Revenue is totally against said law as has been declared by Hon'ble Apex Court in aforesaid decision in Commissioner of Income-tax v. Yokogawa India Ltd., (cited supra). 30. Therefore we have no hesitation to hold that, decision of ITAT, which is impugned herein, would not stand in legal scrutiny, in view of law having been declared by Hon'ble Apex Court. Therefore, we are of view http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 28/29 that, Substantial Question of Law raised in this Appeal is covered by said decision, therefore it can be answered accordingly. 31. In result, Appeal is allowed and Substantial Question of Law raised in this Appeal is answered in favour of Assessee and against Revenue. There shall be however no order as to costs. (V.K.,J.) (R.S.K.,J.) 18-03-2020 Index : Yes Speaking order : Yes tsvn To Deputy Commissioner of Income Tax Company Circle - I (3), 121, Nungambakkam High Road, Chennai - 600 034. http://www.judis.nic.in Judgment in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., V. Deputy Commissioner of Income Tax, Chennai] 29/29 DR.VINEET KOTHARI, J. and R.SURESH KUMAR, J. tsvn Judgment in TCA No.228 of 2011 18-03-2020 http://www.judis.nic.in Comstar Automative Technologies Private Ltd., (Formerly known as Visteon Powertrain Control Systems India Private Limited) v. Deputy Commissioner of Income-tax Company Circle-1(3), Chennai
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