The CBDT has issued a
Circular dated 16th July 2013 giving its view on the controversial issue as to
whether the profit of a unit eligible for deduction u/s 10A/ 10B has to be
first set-off against the loss suffered by an ineligible unit before computing
the available deduction u/s 10A/10B. The CBDT has expressed the view that as s.
10A/10B is now a "deduction" provision, first, the income/loss from
various sources i.e. eligible and ineligible units, under the same head have to
be aggregated in accordance with s. 70 of the Act and thereafter, the income
from one ahead has to be aggregated with the income or loss of the other head
in accordance with section 71 of the Act. If after giving effect to the
provisions of sections 70 and 71 there is any income (where there is no brought forward loss to be
set off in accordance with the provisions of section 72 of the Act) and the
same is eligible for deduction in accordance with the provisions of Chapter
VI-A or sections 10A, 10B etc, the same shall be allowed in computing the total
income of the assessee.
Contrast with the view
taken in Scientific Atlanta vs. ACIT
129 TTJ 273 (Che)(SB), CIT vs. Yokogawa India Ltd 341
ITR 385 (Kar), CIT vs. Black & Veatch Consulting 348 ITR 72 (Bom), CIT vs. TEI Technologies 78 DTR 225
(Del) and other
judgements
(Departmental
View)
File No:
279/Misc./M-116/2012-ITJ
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct
Taxes
New Delhi, the 16th July'
2013
Sub: Circular on
Sections 10A, 10AA, 10B and 10BA.
It has been brought to
the notice of the Board that the provisions of 10A/10AA/10B/10BA of the
Income-tax Act, with regard to applicability of Chapter TV of the Act and set
off and carry forward of losses, are being interpreted differently by the
Officers of the Department as well as by different High Courts.
2. The two sections 10A
and 10B of the Act were initially placed on statute in 1981 and 1988
respectively, and continued with some modifications and amendments till
31.03.2001. Section 10A as inserted by Finance Act, 1981 read as under:
"Section
10A. Special provision in respect of newly established industrial undertakings
in the free trade zones.- (1) Subject to the provisions of this section, any
profits and gains derived by an assessee from an industrial undertaking to
which this section applies shall not be included in the total income of the
assessee."
2.1. Similarly section 10B
as inserted by Finance Act, 1988 read as under:
"10B:
Special provision in respect of newly established hundred percent export
oriented undertakings.- Subject to the provisions of this section, any profits
and gains derived by an assessee from a hundred per cent export oriented undertaking
(hereafter in this section referred to as the undertaking) to which this
section applies shall not be included in the total income of the
assessee."
3. Vide Finance Act, 2000
section 10A and 10B of the Act were substituted. Section 10A as substituted by
Finance Act, 2000 reads as under:-
"Section
10A.(1) Subject to the provisions of this section, a deduction of such profits
and gains as are derived by an undertaking from the export of articles or
things or computer software for a period of ten consecutive assessment years
beginning with the assessment year relevant to the previous year in which the
undertaking begins to manufacture or produce such articles or things or
computer software, as the case may be, shall be
allowed from the total income of the assessee...:
3.1 Similarly, section
10B as substituted by Finance Act, 2000 reads as under:-
"10B. (1)
Subject to the provisions of this section, a deduction of such profits and
gains as are derived by a hundred per
cent export-oriented undertaking from the export of articles or things or
computer software for a period of ten consecutive assessment years beginning
with the assessment year relevant to the previous year in which the undertaking
begins to manufacture or produce articles or things or computer software, as
the case may be, shall be allowed from the total income of the
assessee...."
3.2 The effect of the
substitution of section 10A and 10B of the Act has been elaborated in Circular
No. 794 dated 9.8.2000 which clearly provides that the new provisions provide for deduction in respect of profits and
gains derived by an undertaking from export of articles or things or computer
software.
4. Sub-sections (6) of
sections 10A and 10B were amended by Finance Act, 2003 with retrospective
effect from 1. 4. 2001. Circular no.7/2003 dated 5.9.2003 explains the
amendments brought by Finance Act, 2003. The relevant paragraph is reproduced
below:
"20.
Providing for carry forward of business losses and unabsorbed depreciation to
units in Special Economic Zones and 100% Export Oriented Units
20.1 Under the
existing provisions of sections 10A and 10B, the undertakings operating in a
Special Economic Zone (under section 10A) and 200% Export Oriented Units (EOU's) (under section
10B) are not permitted to carry forward their business losses and unabsorbed
depreciation.
20.2 With a view
to rationalize the existing tax incentives in respect of such units,
sub-section (6) in sections 10A and 10B has been amended to do away with the
restrictions on the carry forward of business losses and unabsorbed
depreciation.
20.3 The
amendments have been brought into effect retrospectively from 1-4-2001 and have
been made applicable to business losses or unabsorbed depreciation arising in the assessment year 2001-02 and subsequent
years."
5. From the above it is
evident that irrespective of their continued placement in Chapter III, section
10A and 10B as substituted by Finance Act, 2000 provide for deduction of the
profits and gains derived from the export of articles or things or computer
software for a period of 10 consecutive assessment years beginning with the
assessment year relevant to the previous year in which the undertaking begins
to manufacture or produce such article or thing or computer software. The
deduction is to be allowed from the total income of the assessee. The term
'total income' has been defined in section 2 (45) of the IT Act and it means
the total amount of income referred to in section 5, computed in the manner
laid down in the Income-tax Act.
5.1 All income for the
purposes of computation of total income is to be classified
under the following heads
of income and computed in accordance with the provisions of Chapter IV of the
Act-
• Salaries
• Income from house
property
• Profits and gains of
business and profession
• Capital gains
• Income from other
sources
5.2 The income computed
under various heads of income in accordance with the provisions of Chapter IV
of the IT Act shall be aggregated in accordance with the provisions of Chapter
VI of the IT Act, 1961. This means that first the income/loss from various
sources i.e. eligible and ineligible units, under the same head are aggregated
in accordance with the provisions of section 70 of the Act. Thereafter, the
income from one ahead is aggregated with the income or loss of the other head
in accordance with the provisions of section 71 of the Act. If after giving
effect to the provisions of section 70 and 71 of the Act there is any income (where there is no brought
forward loss to be set off in accordance with the provisions of section 72 of
the Act) and the same is eligible for deduction in accordance with the
provisions of Chapter VI-A or section 10A, 10B etc. of the Act, the same shall
be allowed in computing the total income of the assessee.
5.3 If after aggregation
of income in accordance with the provisions of section 70 and 71 of the Act,
the resultant amount is a loss (pertaining to AY 2001-02 and any subsequent
year) from eligible unit it shall be eligible for carry forward and set off in
accordance with the provisions of section 72 of the Act. Similarly, if there is
a loss from an ineligible unit, it shall be carried forward and may be set off
against the profits of eligible unit or ineligible unit as the case may be, in
accordance with the provisions of section 72 of the Act.
6. The provisions of
Chapter IV and Chapter VI shall also apply in computing the income for the
purpose of deduction under section 10AA and 10BA of the Act subject to the
conditions specified in the said sections.
S/d
(Hemant Gupta)
Under Secretary to the
Govt. of India
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