The deductions under Section 10A 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 Bench said.
The Supreme Court, in CIT vs M/S Yokogawa India Ltd, has held that Section 10A of the Income Tax Act is a provision for deduction and not exemption.
However, the court clarified that the stage of deduction would be while computing the gross total income of the eligible undertaking and not at the stage of computation of the total income.
The bench headed by Justice Ranjan Gogoi observed that introduction of the word ‘deduction’ in Section 10A by the amendment embodies a clear enunciation of the legislative decision to alter its nature from one providing for exemption to one providing for deductions. The court also said that though the difference between the two expressions ‘exemption’ and ‘deduction’, may appear to be the same i.e. immunity from taxation, the practical effect of it would be wholly different.
The court also observed that retention of Section 80HHC and 80HHE of the Income Tax Act, despite the amendment of Section 10A, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by the legislature.
The court held that deductions contemplated in Section 10A is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee.
The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee, the bench said.
The court also said that the expression “total income of the assessee” in Section 10A may be understood as ‘total income of the undertaking’.
“It is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains,” the bench said.
Read the Judgment here.