The Income Tax Appellate Tribunal (ITAT), Bangalore bench ruled that the deductions under Section 10A be made from Gross Total Income and not from Total Income.
The assessee, Ocwen Financial Solutions Pvt. Ltd. is engaged in the business of providing IT-enabled services (ITES), i.e., providing backend operations like payroll processing, document imaging, loan accounting, etc., to its Associated Enterprises (AE). The assessee herein is a wholly-owned subsidiary of M/s Ocwen Asia Holdings Limited, Mauritius.
The AO viewed that the deduction under section 10A of the Act is given to the “profits and gains derived by an undertaking”, whereas the “income tax liability” is fastened upon the assessee, which owns those undertakings. He noticed that the interest income has accrued/received to/by the assessee from the deposits kept with the bank for availing bank guarantees and those bank guarantees have been given in favor of the Income-tax department towards the income tax liability of the assessee. Accordingly, the AO took the view that the interest income is not related to any particular undertaking and hence it cannot be considered as income derived from “anyone undertaking”.
The assessee has challenged the action of the AO in setting off of brought forward losses prior to computing deduction under section 10AA of the Act. The ld A.R submitted that the Hon’ble Supreme Court has held in the case of Yokogawa India Ltd has held that the stage of deduction u/s 10A would be while computing the gross total income of eligible undertaking under Chapter IV of the Act and not a the stage of computation of total income.
The coram headed by the Vice-President, N.V. Vasudevan, and Accountant Member, B.R. Baskaran relied on the decision of the Supreme Court in the case of Yokogawa India Ltd wherein it was held that the deduction under section 10A has to be made independently and immediately after the stage of determination of its profits and gains. It further held that at that stage, the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in sections 70, 72, and 74 of the Act would be premature for application. Accordingly, the Supreme Court held that the deductions under Section 10A therefore 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. In the present case, the deduction claimed by the assessee is under section 10AA, which is akin to the deduction allowed u/s 10A of the Act.
The ITAT directed the AO to allow deduction u/s 10AA without setting off or bringing forward losses.
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