A two-judge bench of the Madras High Court has held that the deductions under sections 10A and 10B of the Income Tax Act, 1961 should be calculated while the computation of gross total income and not while the computation of total income.
The High Court allowed the appeal filed by the M/s. Comstar Automotive Technologies Private Limited, a company engaged in the manufacturing of Starter Motors and Alternator and development of computer software.
The Assessee is a 100% Export Oriented Undertaking (EOU). For the Assessment Year 2004-05, the Assessee filed a Return, declaring the taxable income of Rs. Nil after claiming deduction under Section 10B of the Income Tax Act, 1961. Profit was set off against the brought forward unabsorbed depreciation loss of Assessment Year 2001-02.
The total income was first arrived at by the Revenue through the Assessing Officer in the Assessment Order by computing the total income by way of brought forward or carry forward the depreciation allowance of the earlier Assessment Years and set off the unabsorbed depreciation first and making the return Nil, consequently leaving the Assessee in a position where it could not claim any deduction under Section 10B of the Income Tax Act, 1961.
The division bench consisting of Justice Vineet Kothari and Justice R. Suresh Kumar allowed the appeal by observing that “in the present case, the total income was first arrived at by the Assessing Officer in by computing the total income by way of brought forward or carry forward the depreciation allowance of the earlier Assessment Years and set off the unabsorbed depreciation first and making the return Nil, thereby leaving the Assessee in a position where it could not claim any deduction under Section 10B as there was no income after set off of carrying forward depreciation and unabsorbed depreciation from earlier years.”
The bench in the light of the decision of the Supreme Court of India in the case of Commissioner of Income-tax v. Yokogawa India Ltd. held that the method of computing the income of the assessee by the Revenue is totally against the law.
“The deductions either under Section 10A or 10B would be made while computing the gross total income of the eligible undertaking and not at the stage of computation of the total income,” the bench said.
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