Income Tax Act | Delhi High Court Allows Set-Off Of Loss Of Eligible Unit Against Profits Of Other Non-Eligible Units
The Delhi High Court has held that the loss incurred by a unit eligible for deduction under Section 10B of the Income Tax Act can be set off against the profits of other units of the assessee.
Section 10B provides for deductions in respect of profits derived by eligible 100% export-oriented undertakings from the export of articles, things or computer software.
The Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta held that although profits of each eligible unit are required to be separately calculated for determining the quantum of deduction under Section 10B, such computation does not alter the treatment of the unit's profit or loss for the purpose of computing the assessee's overall income.
The Court was dealing with an appeal filed by an investment and holding entity against an order of the Income Tax Appellate Tribunal relating to the assessment year 2005-06.
The assessee had 10 units engaged in the business of software exports, six of which were export-oriented units. One of its Gurgaon units, eligible for benefits under Section 10B, had incurred a loss of Rs. 1.34 crore. The assessee claimed set off of this loss against the profits of its other undertakings.
The Assessing Officer rejected the claim, holding that income eligible for deduction under Section 10B did not enter the gross total income and that there was no provision permitting the set off or carry forward of losses of an eligible undertaking.
While the Commissioner of Income Tax (Appeals) allowed the assessee's appeal, the Tribunal reversed this finding and held that the loss of the eligible unit could not be set off against income from other eligible or non-eligible units.
Before the High Court, the assessee argued that Section 10B, after its amendment, was a provision for deduction and not exemption.
It relied on the Supreme Court's decision in Commissioner of Income Tax v. Yokogawa India Ltd. (2012), which held that the deduction under the corresponding Section 10A was to be allowed while computing the gross total income of the eligible undertaking under Chapter IV of the Act.
The Court noted that under Section 10B(1), the profit or gain of each eligible unit from export turnover has to be separately calculated only for determining the quantum of deduction under Section 10B.
However it clarified that such separate computation does not affect the application of the provisions governing set off and carry forward of losses.
“Calculation of export profit under Section 10B of the Act of 1961 is confined to Section 10B alone and it does not have any bearing on Section 70/71 or 72 of the Act of 1961. Hence, there cannot be denial of set off of loss or carry forward of the loss of eligible undertaking,” it observed.
The Court further noted that the Supreme Court in Yokogawa India Ltd. had affirmed the Karnataka High Court's view that where an assessee suffers losses, such losses would be subject to inter-source and inter-head set off, with the remaining balance eligible to be carried forward in the normal course.
The Court also referred to a CBDT Circular dated July 16, 2013, which clarified that a loss from an eligible unit, after aggregation of income under Sections 70 and 71, would be eligible for carry forward and set off under Section 72.
As such, the Court allowed the assessee's appeal.
For Appellant: Senior Advocate Ajay Vohra with Advocate Neeraj Jain, Advocate Aniket D Agarwal and Advocate Abhishek Singhvi.
For Respondent: Senior Standing Counsel Siddhartha Sinha with Junior Standing Counsel Easha Gurung.