CONTRAVERSY ON 10A/10B JUDGEMENTS

[pawansingla]

375. S. 10A : Exemption – Export Oriented Unit – Computation – Brought
forward loss and Unabsorbed Depreciation
Brought forward loss and unabsorbed depreciation of earlier years to
be set off before allowing deduction under section 10A.
Intellinet Technologies India P. Ltd. vs. ITO (2010) 5 ITR 96 (Bang.)
(Trib.)
376. S. 10B : Exemption – Computation – Set off of Unabsorbed
Depreciation
Benefit of section 10B has to be allowed to the assessee before
setting off of brought forward unabsorbed depreciation.
Patspin India Ltd vs. CIT (2010) 42 DTR 550 (Coch.)(Trib.)
There are many judgements including special bench in case of Specfic
Atlanat which have held that exemption under section 10A/ 10B are
units specfic. Hence loss from non EOU/STPI unit cannot be adjusted
against the profits of 10A/10B units.
On the contrary there are judgements including Bombay High court in
case of Hindustan unilever v/s DCIT.191 taxman 119(2010) which have
held that loss from 10A/10B units can be set off against the normal
business income.
Thus , assesse is put in a very benficial position in both the stage.
If he has loss from 10A/10B , same will be set off against the normal
business income.
On the other hand , if he has profit from 10A/10B units , he will
claim deduction independently on units without setting off the loss if any from the normal business.
Absurd situation. But that how is the section has been interpreated by
the appellte authorities.The assessee has been benfitted in both the situations
I request all of you to explain the reason for the same. I am not able to understand the reason for the same.

[satyanveshi]

I have been observing the controversy in this regard. Both the situations given by the courts which are in favour of the assessee are correct. First of all, Sec 10A, 10B are brought into the statute as exemptions.From and for the A.Y. 2001-02, the benefit conferred under these sections were transformed as deductions. See, normally, all the deductions are dealt in Chapter VIA. But the legislature had forgotten to bring these sections also into chapter VIA and accordingly, they were retained in Chapter III which is meant for exemptions. There lies the problem. You see section 80AB which says that the deductions in Chapter VIA(c) should be calculated as per the provisions of the Act Which includes carry forward losses also. The essence of which is that the deduction conferred through these sections should be computed only after computing the income as per the provisions of Act which includes carry forward losses. This view has been upheld by even Apex Court in various cases i.e. 266 ITR 521 & 291 ITR 380 and 293 ITR 1 etc.etc., However, section 80AB is not covering section 10A/section 10B since these sections are not deductions under chapter VIA(c). So there was no need to calculate the income as per the provisions of the Act and accordingly, carry forward losses will not be adjusted before computing  the deductions available under these sections.

                 So far as second issue with regard to the losses of 10A units to be adjusted against the taxable income of the assessee also, the view taken by the courts appears to be correct. As narrated above, if it is an exemption, then one can argue that the loss incurred is exempted and such exempted loss cannot be set off because exempted income, if any, is not taxable. But here in the instant case, the benefit under these provisions is not exemption and a deduction as per amended provisions. Moreover, till 2001 the losses incurred by these units are not eligible to be set off or allowed to be carry forward to future years. As per the amended provisions of Sec. 10A(6)(ii) the losses incurred by these units are allowed to be set off and carry forward ( is it correct intention of the legislature or not ? please see the circular explanatory memorandum to the relevant finance act.).  Whether it is intentionally done or it escaped the attention of law makers nobody knows. Accordingly, I see no infirmity in the orders of the courts. The courts will interpret the provisions as they appear from the language. Since no other logic can be inferred from these provisions,  the courts are giving judgments in favour of the taxpayers in both the situations. I think, it is high time that the sections like Sec.10A or any other deduction like sec 10A/10B which are now in Chapter III must be lifted from there and brought into chapter VIA to neutralize the undue(?) benefit granted. Unless this change is made, the situation remains the same and it continues to looks awkward atleast for the people like U.

Have a nice time.