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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL  NO. 8498 OF 2013

C.I.T. & ANR.       APPELLANT(s)

VERSUS

M/S YOKOGAWA INDIA LTD.        RESPONDENT(s)

WITH

CIVIL  APPEAL  Nos.  8496/2013,  8497/2013, 8502/2013,  8508/2013,  8511/2013,  8512/2013, 8514/2013,  8516/2013,  8517/2013,  8520/2013, 8925/2013,  8926/2013,  8928/2013,  8788/2012, 8790/2012,  8534/2013,  8563/2013,  8564/2013, 8923/2013,  8924/2013,  8930/2013,  8931/2013, 8232/2015,  9253/2015,  CIVIL  APPEAL No.12253/2016  (arising  out  of  S.L.P.(C)  No. 36441/2013),  CIVIL  APPEAL  No.12252/2016 (arising  out  of  S.L.P.(C)  No.  36442/2013),  CIVIL APPEAL No.12205/2016 (arising out of S.L.P.(C) No. 977/2014), CIVIL APPEAL No.12207/2016 (arising out  of  S.L.P.(C)  No.  2328/2014),  CIVIL  APPEAL No.12250/2016  (arising  out  of  S.L.P.(C)  No. 10261/2014),  CIVIL  APPEAL  No.12254/2016 (arising  out  of  S.L.P.(C)  No.  8391/2015),  CIVIL

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APPEAL  No.12206/2016   (arising  out  of  S.L.P.(C) No.  13840/2015),  CIVIL  APPEAL  No.12251/2016 (arising  out  of  S.L.P.(C)  No.  18157/2015),   CIVIL APPEAL  No.12208/2016   (arising  out  of  S.L.P.(C) No.  26484/2015),  CIVIL  APPEAL  No.12203/2016 (arising  out  of  S.L.P.(C)  No.  1652/2013),  CIVIL APPEAL  No.12204/2016   (arising  out  of  S.L.P.(C) No.  13861/2016)  and  CIVIL  APPEAL No.12255/2016  (arising  out  of  S.L.P.  (C)  No. 33728/2016).

J U D G M E N T

RANJAN GOGOI, J.

Leave granted in all the special leave petitions.

2. The true and correct meaning and effect of the provisions

of  Section  10A  of  the  Income  Tax  Act,  1961  (hereinafter

referred  to  as  “the  Act”)  is  the  principal  issue  arising  for

determination of  the Court.  At the outset,  it  must be made

clear  that  the  decision  of  this  Court  with  regard  to  the

provisions  of  Section  10A  of  the  Act  would  equally  be

applicable to cases governed by the provisions of Section 10B

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in  view  of  the  said  later  provision  being  pari  materia with

Section 10A of the Act though governing a different situation.

3. The broad question indicated above may be conveniently

dissected into the following specific  questions arising in the

cases under consideration.  

(i) Whether  Section  10A  of  the  Act  is  beyond  the

purview  of  the  computation  mechanism  of  total

income as defined under the Act. Consequently, is

the  income  of  a  Section  10A unit  required  to  be

excluded before arriving at the gross total income of

the assessee?

(ii) Whether the phrase “total income” in Section 10A of

the  Act  is  akin  and  pari  materia with  the  said

expression as appearing in Section 2(45) of the Act?

(iii) Whether even after the amendment made with effect

from 1.04.2001, Section 10A of the Act continues to

remain an exemption section and not a deduction

section?

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(iv) Whether losses of other 10A Units or non 10A Units

can be set off against the profits of 10A Units before

deductions under Section 10A are effected?

(v) Whether  brought  forward  business  losses  and

unabsorbed depreciation of 10A Units or non 10A

Units can be set off against the profits of another

10A Units of the assessee.

4. At the very outset, Section 10A of the Act as it existed

prior to its amendment by the Finance Act of 2000 with effect

from 1.04.2001; subsequent to the aforesaid amendment and

the provisions of Section 10A of the Act, as further amended

by  the  Finance  Act,  2003  with  retrospective  effect  from

1.04.2001 may be conveniently set out below.

5. Section  10A  of  the  Act,  as  it  stood  prior  to  the

amendment  made  by  the  Finance  Act,  2000,  (amendment

effective from 1.4.2001) was as follows:

“10A.  (1) Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this

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section  applies  shall  not  be  included  in  the total income of the assessee.

(2)  This  section  applies  to  any  industrial undertaking  which  fulfils  all  the  following conditions, namely:—

(i) ...  (ia)  in relation to an undertaking which begins

to manufacture or produce any article or thing  on  or  after  the  1st  day  of  April, 1995,  its  exports  of  such  articles  or things are not less than seventy-five per cent of the total sales thereof during the previous year;

(ii) … Provided … (iii) …  

(3)    The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any ten consecutive assessment  years,   beginning  with  the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things.

(4)   Notwithstanding  anything  contained  in  any other provision of this Act,  in computing the total  income of  the  assessee  of  the  previous year  relevant  to  the  assessment  year immediately succeeding the last of the relevant assessment  years,  or  of  any  previous  year, relevant to any subsequent assessment year,—

(i) section  32,  section  32A,  section  33, section 35 and clause (ix) of sub-section (1)  of  section 36 shall  apply as if  every

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allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any  building,  machinery,  plant  or furniture  used  for  the  purposes  of  the business of the industrial undertaking in the  previous  year  relevant  to  such assessment  year  or  any  expenditure incurred  for  the  purposes  of  such business in such previous year had been given  full  effect  to  for  that  assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii)  of sub-section (2)  of  section  33,  sub-section  (4)  of section 35 or the second proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;

(ii) no loss referred to  in sub-section (1)  of section  72  or  sub-section  (1)  or sub-section  (3)  of  section  74  and  no deficiency referred to in sub-section (3) of section  80J,  in  so  far  as  such  loss  or deficiency relates to the business of  the industrial  undertaking,  shall  be  carried forward or set off where such loss, or, as the case may be, deficiency relates to any of the relevant assessment years;

(iii) no  deduction  shall  be  allowed  under section  80HH  or  section  80HHA  or section  80-I  or  section  80-IA or  section 80-IB  or  section  80J  in  relation  to  the profits  and  gains  of  the  industrial undertaking; and

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(iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business  of  the  industrial  undertaking shall be computed as if the assessee had claimed  and  been  actually  allowed  the deduction  in  respect  of  depreciation  for each of the relevant assessment years.

(5) …

(6) The  provisions  of  sub-section  (8)  and sub-section (9) of section 80-I shall, so far as may  be,  apply  in  relation  to  the  industrial undertaking referred to in this section as they apply  for  the  purposes  of  the  industrial undertaking referred to in section 80-I.

(7) …

(8) …  

6. Section 10A was substituted by the Finance Act,  2000

with effect from 1.4.2001 in the following terms:

“10A. (1) Subject to the provisions of this section, a deduction of  such  profits  and  gains  as  are derived by an undertaking from the export of articles or  things or computer software for  a period  of  ten  consecutive  assessment  years beginning with the assessment year relevant to the  previous  year  in  which  the  undertaking begins  to  manufacture  or  produce  such articles or things or computer software, as the case may be, shall  be allowed from the total income of the assessee:

Provided  that  where  in  computing  the  total income of the undertaking for any assessment

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year,  its  profits  and  gains  had  not  been included  by  application  of  the  provisions  of this section as it stood immediately before its substitution  by  the  Finance  Act,  2000,  the undertaking  shall  be  entitled  to  deduction referred  to  in  this  sub-section  only  for  the unexpired  period  of  the  aforesaid  ten consecutive assessment years:

Provided further  that where an undertaking initially located in any free trade zone or export processing zone is  subsequently located in a special economic zone by reason of conversion of  such free  trade  zone or  export  processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the undertaking was first set up in such free trade zone or export processing zone:

Provided  also  that  the  profits  and  gains derived from such domestic sales of articles or things or computer software as do not exceed twenty-five  per  cent  of  total  sales  shall  be deemed  to  be  the  profits  and  gains  derived from  the  export  of  articles  or  things  or computer software.

Provided  also that  no  deduction  under  this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April,  2010 and subsequent years.

(2) This section applies to any undertaking which fulfils all the following conditions, namely :—

(i) …

(a) …

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(b) …

(c) …

(ii)   …

(3) …

(4) For the purposes of sub-section (1), the profits derived  from  export  of  articles  or  things  or computer software shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such articles  or  things or  computer  software bears  to  the  total  turnover  of  the  business carried on by the assessee.

(5) …

(6) Notwithstanding  anything  contained  in  any other provision of this Act,  in computing the total  income of  the  assessee  of  the  previous year  relevant  to  the  assessment  year immediately succeeding the last of the relevant assessment  years,  or  of  any  previous  year, relevant to any subsequent assessment year,—

(i) Section  32,  section  32A,  section  33, section 35 and clause (ix) of sub-section (1)  of  section 36 shall  apply as if  every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any  building,  machinery,  plant  or furniture  used  for  the  purposes  of  the business  of  the  undertaking  in  the previous  year  relevant  to  such assessment  year  or  any  expenditure incurred  for  the  purposes  of  such business in such previous year had been

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given  full  effect  to  for  that  assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii)  of sub-section (2)  of  section  33,  sub-section  (4)  of section 35 or the second proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;

(ii) no loss referred to  in sub-section (1)  of section  72  or  sub-section  (1)  or sub-section (3) of section 74 in so far as such loss relates to the business of  the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years;

(iii)  no  deduction  shall  be  allowed  under section  80HH  or  section  80HHA  or section  80-I  or  section  80-IA  or  section 80-IB in relation to the profits and gains of the undertaking; and

(iv)  in  computing  the  depreciation  allowance under section 32, the written down value of any asset used for the purposes of the business  of  the  undertaking  shall  be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year.

(7) The  provisions  of  sub-section  (8)  and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes  of  the  undertaking  referred  to  in section 80-IA.”

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7. Section 10A  was further amended by the Finance Act of

2003  with  retrospective  effect  from  1.04.2001.  For  the

purposes  of  the  present  case,  the  amendments  introducing

Section (1A); making the provisions of sub-section (4) subject

to  the  provisions  of  Sections  (1)  and  (1A)  and  making  the

benefit  of  the  provisions  of  Sections  32,  32A,  33,  35  and

clause (ix) of Section 36(1) and also Sections 72(1) and 74(1)

and (3) operative from the assessment year 2001-2002 alone

would be significant.

8. The  cardinal  principles  of  interpretation  of  taxing

statutes  centers  around  the  opinion  of  Rowlatt,  J.  in  Cape

Brandy Syndicate vs.  Inland Revenue Commissioner1 which

has  virtually  become the  locus  classicus2.  The  above  would

dispense with the necessity of any further elaboration of the

subject  notwithstanding  the  numerous  precedents  available

1  (1921) 1 KB 64

2  A classical passage : a standard passage Important for the elucidation of a word  or subject [See : Webster’s Third New International Dictionary Vol. II Pg. 1329]

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inasmuch as the evolution of all such principles are within the

four corners of the following opinion of Rowlatt, J.

“…in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There  is  no  equity  about  a  tax.  There  is  no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

9. The amendment of Section 10A of the Act, by the Finance

Act,  2000  with  effect  from  1.4.2001,  specifically  uses  the

words ‘deduction of  profits  and gains derived by an eligible

unit …… from the total income of the assessee’.   There are

other provisions of Section 10A, as amended, which could be

suggestive of the fact that by the amendment made by Finance

Act, 2000, Section 10A had changed its colour from being an

exemption section to a provision providing for deduction.  Yet,

Section  10A  continued  to  remain  in  Chapter  III  of  the  Act

which Chapter deals with incomes which do not form part of

the total income.  There are several Circulars that have been

placed  before  us  by  the  contesting  parties  to  explain  the

purpose and object of the amendment.  Having looked at the

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aforesaid Circulars, issued from time to time, what we find is a

fair amount of  ambiguity therein as to the true nature and

effect of the amendment.  Specifically, we may refer to Circular

No. 7 dated 16.07.2013 as well as Circular No. 01/2013 dated

17.01.2013 which appear to be conflicting and contradictory

to each other; in the former Circular the provision, i.e., Section

10A is  referred  to  as  providing  for  deductions  whereas  the

later Circular uses the expression “exemption” while referring

to the provisions of Sections 10A and 10B of the Act.  Even the

Income Tax Return Forms i.e. Form No. 1 dated 17.08.2001

and Form No. 6 for the assessment year 2012-13 are equally

contradictory.   The  appellant  Revenue  would,  however

contend that, ex facie, from the language appearing in Section

10A it is crystal clear that the aforesaid provision of the Act, as

amended by Finance Act, 2000 provides for deductions from

the gross total income, notwithstanding the use of the words

‘total income’ in Section 10A.  Exemptions provided for under

the old Section 10A have been discontinued by the Legislature.

According to the Revenue, where the purport and effect of the

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statute is clear from the language used there is no scope to

turn  to  Chapter  notes  or  the  marginal  notes  so  as  to

understand Section 10A to be an exemption section on the

basis that the said provision is still included in Chapter III of

the  Act.   Reliance  in  this  regard  has  been  placed  on  the

decision of this Court in Tata Power Co. Ltd.  vs.  Reliance

Energy Ltd.3 wherein at page 687, it is held that:

“89. Chapter headings and the marginal notes are parts of the statute. They have also been enacted by Parliament. There cannot, thus, be any doubt that it can  be  used  in  aid  of  the  construction.  It  is, however,  well  settled  that  if  the  wordings  of  the statutory  provision  are  clear  and  unambiguous, construction of the statute with the aid of “chapter heading” and “marginal note” may not arise. It may be that heading and marginal note, however, are of a very limited use in interpretation because of  its necessarily  brief  and inaccurate nature.  They are, however,  not  irrelevant.  They  certainly  cannot  be taken  into  consideration  if  they  differ  from  the material they describe.”

10. The  Revenue  further  contends  that  by  virtue  of  the

amendment  made  by  Finance  Act,  2000,  deductions  under

Section 10A are required to be made and allowed at the stage

of computation of total income under Chapter VI of  the Act

3  (2009) 16 SCC 659

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notwithstanding  the  absence  of  any  specific  provision  in

Chapter VI to the said effect.  In fact, the Revenue contends

that in view of the clear language of Section 10A, as brought

about  by  the  amendment,  a  parallel  or  consequential

amendment in Chapter VI of the Act was wholly unnecessary.  

11. On  the  other  hand,  on  behalf  of  the  assessees,  it  is

contended  that  though  there  may  be  some  features  of

deduction brought in by the amendment to Section 10A, as for

example, disallowance of profits in regard to domestic sales,

the legislative intent in retaining Section 10A in Chapter III of

the Act would clearly demonstrate the true nature of the said

provision  of  the  Act  even  after  amendment  thereof  by  the

Finance Act of 2000. Deductions from the total income which

is nowhere envisaged under the Act and the reference to the

total  income of  the undertaking,  referred to in several  sub-

sections of Section 10A, would indicate that the total income

referred  to  in  Section  2(45)  has  no  application  to  the

computation under Section 10A and the reference therein is

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only to the total income of the eligible unit/undertaking. The

provisions of  Section 10A(6),  as amended by Finance Act of

2003 retrospectively with effect from 1.4.2001, has also been

stressed upon to contend that with effect from the assessment

year 2001-02 losses and unabsorbed depreciation of eligible

units would be allowable for set off immediately on the expiry

of the period of tax holiday i.e. 10 years.  The provisions of

Sections 32,  32A,  33,  35 and part  of  36 do  not  separately

apply  to  an  eligible  unit  during  the  period  of  tax  holiday.

During  the  said  period  the  deduction  under  the  aforesaid

sections of the Act are deemed to have been made.  Similarly,

under Section 10A(6)(ii)  losses referred to in Section 72(1) or

74(1) and 74(3) are also eligible to be carried forward to the

assessment  year  following  the  end  of  the  holiday  period

commencing from the assessment year  2001-02.  All  these,

according to the learned counsels for the assessees, suggest

that, though heterogeneous elements exist in Section 10A, the

provision  is  really  an  exemption  provision.  Alternatively,

according  to  the  learned  counsels,  even  if  Section  10A  is

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understood to be providing for deductions, the stage of such

deductions would be immediately after computation of profits

and gains  of  business  and before  the  aggregate  of  incomes

under  different  heads of  other  loss making eligible  units  or

non-eligible units of the assessee are taken into account. In

other words, it is immediately after the computation of profits

and gains of business of the undertaking that the deduction

under  Section  10A  is  required  to  be  made.  There  is  no

question of such deductions being computed at the stage of

application of provisions of Chapter VI of the Act.

12. We have considered the submissions advanced and the

provisions of Section 10A as it stood prior to the amendment

made  by  Finance  Act,  2000  with  effect  from 1.4.2001;  the

amended  Section  10A  thereafter  and  also  the  amendment

made  by  Finance  Act,  2003  with  retrospective  effect  from

1.4.2001.

13. The retention of  Section 10A in Chapter  III  of  the  Act

after the amendment made by the Finance Act, 2000 would be

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merely suggestive and not determinative of what is provided by

the Section as amended, in contrast to what was provided by

the un-amended Section.  The true and correct purport and

effect of the amended Section will have to be construed from

the language used and not merely from the fact that it has

been retained in Chapter  III.   The introduction of  the word

‘deduction’ in Section 10A by the amendment, in the absence

of  any  contrary  material,  and  in  view  of  the  scope  of  the

deductions contemplated by Section 10A as already discussed,

it  has  to  be  understood  that  the  Section  embodies  a  clear

enunciation of the legislative decision to alter its  nature from

one providing for exemption to one providing for deductions.   

14. The difference between the two expressions ‘exemption’

and ‘deduction’, though broadly may appear to be the same

i.e.  immunity  from taxation,  the practical  effect  of  it  in the

light of the specific provisions contained in different parts of

the  Act  would  be  wholly  different.   The  above  implications

cannot be more obvious than from the case of  Civil  Appeal

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Nos.  8563/2013, 8564/2013 and civil  appeal  arising out of

SLP(C) No. 18157/2015, which have been filed by loss making

eligible  units  and/or  by  non-eligible  assessees  seeking  the

benefit of adjustment of losses against profits made by eligible

units.

15. Sub-section 4 of Section 10A which provides for pro rata

exemption,  necessarily  involving  deduction  of  the  profits

arising  out  of  domestic  sales,  is  one  instance  of  deduction

provided  by  the  amendment.   Profits  of  an  eligible  unit

pertaining  to  domestic  sales  would  have  to  enter  into  the

computation under the head “profits and gains from business”

in  Chapter  IV  and  denied  the  benefit  of  deduction.   The

provisions of Sub-section 6 of Section 10A, as amended by the

Finance  Act  of  2003,  granting  the  benefit  of  adjustment  of

losses and unabsorbed depreciation etc. commencing from the

year 2001-02 on completion of the period of tax holiday also

virtually works as a deduction which has to be worked out at a

future point of time, namely, after the expiry of period of tax

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holiday.   The  absence  of  any  reference  to  deduction  under

Section 10A in Chapter VI of the Act can be understand by

acknowledging that any such reference or mention would have

been a repetition of what has already been provided in Section

10A.  The provisions of Sections 80HHC and 80HHE of the Act

providing  for  somewhat  similar  deductions would be  wholly

irrelevant  and  redundant  if  deductions  under  Section  10A

were to be made at the stage of operation of Chapter VI of the

Act. The retention of the said provisions of the Act i.e. Section

80HHC and 80HHE, despite the amendment of Section 10A, in

our  view,  indicates  that  some additional  benefits  to  eligible

Section 10A units, not contemplated by Sections 80HHC and

80HHE, was intended by the legislature.  Such a benefit can

only  be  understood by  a  legislative  mandate  to  understand

that the stages for working out the deductions under Section

10A and 80HHC and 80HHE are substantially different.  This

is the next aspect of the case which we would now like to turn

to.

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16. From a reading of the relevant provisions of Section 10A

it is more than clear to us that the deductions contemplated

therein 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.  This is also more than

clear  from  the  contemporaneous  Circular  No.  794  dated

9.8.2000 which states in paragraph 15.6 that,  

“The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100%  Export  Oriented  Undertakings,  as  the case  may  be,  and  this  shall  not  have  any material  relationship with the other business of the assessee outside these zones or units for the purposes of this provision.”

17. If the specific provisions of the Act provide [first proviso

to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is

contemplated for grant of benefit of deduction is the eligible

undertaking  and  that  is  also  how  the  contemporaneous

Circular  of  the  department  (No.794  dated  09.08.2000)

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understood the situation, 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.  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.  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.  The somewhat discordant use of the expression “total

income of the assessee” in Section 10A has already been dealt

with  earlier  and  in  the  overall  scenario  unfolded  by  the

provisions  of  Section  10A  the  aforesaid  discord  can  be

reconciled by understanding the expression “total income of

the  assessee”  in  Section  10A  as  ‘total  income  of  the

undertaking’.

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18. For the aforesaid reasons we answer the appeals and the

questions arising therein, as formulated at the outset of this

order, by holding that though Section 10A, as amended, is a

provision for deduction, the stage of deduction would be while

computing the gross total income of the eligible undertaking

under  Chapter  IV  of  the  Act  and  not  at  the  stage  of

computation of  the total  income under Chapter VI.   All  the

appeals shall stand disposed of accordingly.  

……………….....................,J. (RANJAN GOGOI)

……………….....................,J. (PRAFULLA C. PANT)

NEW DELHI DECEMBER 16, 2016.