INCOME TAX ACT, 1961

Deduction under section 10B- 100 per cent export oriented undertakings-Assessee filed return of loss without making any claim for deduction under section 10B-Carry forward and set-off of loss

Assessee-company filed its original return of income declaring total income after claiming exemption under section 10B. AO issued notice under section 148. Meanwhile, the assessee filed a rectification petition under section 154 seeking rectification of intimation to give effect to retrospective amendment to section 1OB(6)(i)(ii). The assessee claimed inter-head set off of business loss against income from other sources as permissible under section 71. A revised return was also filed declaring loss to be carried forward after setting off the income of other sources. AO concluded that the business income as returned by the assessee was loss. The assessee had earned certain income, which was not eligible for deduction under section 10B. The same was treated as business income chargeable under the Act. He also taxed income from other sources as declared by the assessee. As per CIT (A) interest income was not eligible for exemption under section 1OA/10B. The assessee submitted that interest income was inextricably linked to EOU as deposits were pledged with the bank for credit facility and bank guarantee margin. Thus, the same was to be treated as income derived from the eligible unit. He further submitted that there was loss in the unit eligible for deduction under section 1OA/10B. AO was of view that income by way of interest was business income but not set off the loss of such business income against the other business income. Held:Section 1OB(1) provides that subject to the provision of this section, a deduction of such profits and gains as are derived by 100 per cent export oriented undertaking from the export of articles or things, or computer software, shall be allowed from the total income of the assessee. In the present case, there was loss in the unit eligible for deduction under section 10B. Thus, the business income could be computed only after set off of business loss against the business income in the same year as per provisions of section 70. Similarly, after setting off of the business loss against the business income, there was still a loss and such loss has to be set off against income from officer sources in the same year as per the provisions of section 71. The income of unit eligible for deduction under section 10B is merely a deduction from income and not exemption. Therefore, the assessee was eligible to set off the loss of such unit under sections 70 and 71. AO was directed to set off the loss and compute the income.

Income Tax Act, 1961 Sections 10B(6)(ii)

Decision: In favour of Assessee.

Mindtree Consulting (P) Ltd. v. Asstt. CIT