Holding

Section 1OA, as amended, provides for a deduction, and the deduction must be taken while computing the gross total income of the eligible undertaking under Chapter IV, not at the stage of computing total income under Chapter VI.

Summary

The Supreme Court examined the true nature of Section 1OA of the Income‑Tax Act, 1961, as amended by the Finance Acts of 2000 and 2003, to determine whether it confers an exemption or a deduction and at what stage the benefit should be applied. The Court considered whether the provision falls within the computation of total income, whether the term “total income” in Section 1OA aligns with Section 2(45), and whether losses of other units can be set off against profits of a 1OA unit. It held that the amendment introduced the word “deduction” and that the provision must be construed as a deduction, not an exemption. The deduction is to be made while computing the gross total income of the eligible undertaking under Chapter IV, prior to the computation of total income under Chapter VI. Consequently, the appeals were dismissed and the contempt petitions were also dismissed.

Issues considered

Whether Section 1OA is outside the computation mechanism of total income under the Act.
Whether the phrase “total income” in Section 1OA is identical to that in Section 2(45).
Whether, after the 2000 amendment, Section 1OA remains an exemption provision.
Whether losses of other 1OA or non‑1OA units can be set off against profits of a 1OA unit before the deduction under Section 1OA is effected.
Whether brought‑forward business losses and unabsorbed depreciation of 1OA units can be set off against profits of another 1OA unit.

Legislation cited

Finance Act, 2000
Finance Act, 2003
Income Tax Act, 1961s. 1OA, s. 1OB, s. 2(45), s. 32, s. 32A, s. 33, s. 35, s. 36, s. 70, s. 72, s. 74, s. 80H1, s. 80HH, s. 80HHA, s. 80HHC, s. 80HHE, s. 80IA, s. 80IB, s. 80J

Subjects

Income TaxSection 1OADeduction vs ExemptionTotal IncomeTax HolidayEligible UnitStatutory InterpretationSupreme Court

Judgment

i111f!
iii"I
162 SUPREME COURT REPORTS [2016] 9 S.C.R.
T I
'I

'
(2016) 9 S.C.R. 163
••
••'
II
A increments. It is only the regularisation in service which would entail
grant of increments etc. in the pay-scale.
C.I.T. & ANR. A
v.

II 24. In view of the aforesaid, we do not find any substance in the MIS YOKOGAWA INDIA LTD.
! contentions raised by the petitioners in these contempt petitions. We are
conscious of the fact that in some cases, on earlier occasions, the State (Civil Appeal No. 8498 of201J)
i B Government while fixing the pay scale, granted increments as well. B
!. DECEMBER 16, 2016
i
I
However, if some peisons are given the benefit wrongly, that cannot
[RANJAN GOGOi AND PRAFULLA C. PANT, JJ.]
fonn the basis of claiming the same relief. It is trite that right to equality
under Article 14 is not in negative terms (See Indian Council of l11come Tax Act, 1961: s.JOA (as amended) - Deduction or
A1:ricultural Researcfl & Anr. v. T.K. Suryanarayan & Ors. 9). Exemption - Held: The introduction of the word
'
'deduction' in s. l OA
.

C 25. These contempt petitions are, accordingly, dismissed. ,. by the amendment, clearly enunciates the legislative decision to alter c
its nature from one providing for exemption to one providing for
Nidhi Jain
Contempt Petitions dismissed. deductions - Though s.lOA, 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 Vl D
Disposing of the appeals, the Court
HELD:l. The amendment of Section lOAoftheAct, by the
/1111 ~
Finance Act, 2000 with effect from 1.4.2001, specifically uses the
11 words 'deduction of profits and gains derived by an eligible unit E
lI! ...... from the total income of the assessee'. There are other
provisions of Sectio·n JOA, as amended, which could be suggestive
ii Ill
i
I ~ of the fact that by the amendment made by Finance Act, 2000,
Section• JOA had changed its colour from being an-exemption
section to a provision providing for deduction. Yet, Section JOA.
illll I i
'
I.
continued to remain in Chapter III of the Act which Chapter deals F
with incomes which do not form part of the total income. A look
i/11 at the Circulars issued from time to time shows a fair amount of
~
ambiguity therein as to the true nature and effect of .the
amendment. Specifically, Circular No. 7 dated 16.07.2013 as well
i as Circular No. 01/2013 dated 17.01.2013 which appear to be G
conflicting and contradictory to each other; in the former Circular
the provision, i.e., Section JOA is referred to as providing for
deductions whereas the later Circular uses the expression
'..
'"I
"exempti~n" while referring to the provisions of Sections JOA
I
and ton of the Act. Even the Income Tax Return Forms i.e.
'!1997) 6 sec 766 H
163

-------~~-
164 SUPREME COURT REPORTS [2016) 9 S.C.R.

A Form No. 1 dated 17.08.2001 and Form No. 6 for the assessment
year 2012-13 are equally contradictory. [Para 9) [173-C-F]
2. The retention of Section lOA in Chapter III of the Act
after the amendment made by the Finance Act, 2000 would be
merely suggestive and not determinative of what is provided by
B the Section as amended, in contrast to what was provided by the
no-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
lOA by the amendment, in the absence of any contrary material,
c and in view of the scope of the deductions contemplated by Section
lOA it has to be understood that the Section embodies a clear
enuneiation of the legislative decision to alter its nature from
one providing for exemption to one providing for deductions.
The difference between the two expressions 'exemption' and
D 'deduction', though broadly may appear to be the same i.e.
immunity from taxa1ion, the practical effect of it in the light of the
specific provisions contained. in different parts of the Act would
be wholly different. [Paras 13, 14) [175-F-H; 176-A-B]
3. Sub-section (4) of Section lOA which provides for pro
E 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
F (6) of Section lOA, 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 W-Orked out at a future point of time,
G namely, after the expiry of period of tax holiday. The absence of
any reference to deduction under Section lOA 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 lOA. The provisions of Sections
80HHC and 80HHE of the Act providing for somewhat similar
H
C.l.T. & ANR. v. MIS YOKOGAWA INDIA LTD. 165

deductions would be wholly irrelevant and redundant if deductions A
under Section lOA 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 SOHHC and SOHHE, despite the amendment of
Section lOA indicates that some additional benefits to eligible
Section lOA units, not contemplated by Sections SOHHC and
B
SOHHE, was intended by the legislature. Such a benefit can only
be !,lnderstood by a legislative mandate to understand that the
stages for working out the deductions under Section lOA and
SOHHC and SOHHE are substantially different. [Para 15) [176-
C-G] '
4. The deductions contemplated in Section lOA is qua the
c
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. If the specific provisions of the
Act provide [first proviso to Sections lOA(l); lOA (lA) and lOA
(4)) that the unit that is contemplated for grant of benefit of D
lleduction is the eligible undertaking and that is also how the
contemporaneous Circular of the department (No.794 dated
09.08.2000) 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 E
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 lOA therefore would
be prior to the commencement of the exercise to be undertaken F
under Chapter VI of the Act for arriving at the total income of the
assessee from the gross total income. (Paras 16, 17) (176-H;
177-A-B, C-EJ
Cape Brandy Syndicate v. Inland Revenue
Commissioner (1921) 1 KB 64; Tata Power Co. Ltd. v. G
Reliance Energy Ltd. 2009 (9) SCR 625 : (2009) 16
sec 659 - referred to. '
Case Law Reference
(1921) 1 KB 64 referred to Paras
2009 (9) SCR 625 referred to Para9 H
166 SUPREME COURT REPORTS [2016) 9 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 849_8
of2013.
From the Judgment and Order dated 09.08.2011 of the High Court
ofKarnataka at Bangalore in ITA No. 248 of2007
WITH
B C.A.Nos.8925,8926,8534,8514,8512,8563,8564,8517,8520,
8931, 8511, 8930, 8928, 8508, 8516, 8923, 8502, 8924, 8496, 8497 of
2013
C.A. Nos. 8790, 8788 of2012
C.A. Nos. 9253, 8232 of2015
c C.A. Nos.12203, 12204, 12206, 12207, 12205, 12208, 12250, 12251,
12252, 12254, 12253, 12255 of2016.
Percy. J. Pardiwalla, S. Ganesh, M.S. Syali, Ajay Vohra, Arvind P.
Datar, Sr. Advs., Arijit Prasad, Ms. Rekha Pandey, S.W.A. Qadri,
Ms: N. Annapoorani, Mrs. Anil Katiyar, Farrokh Irani, K. V. ~ohan,
D K.V. Balakrishnan, R.K. Raghavan, Satyen Sethi, A.T. Panda,
Rameshwar Prasad Goyal, Senthil Jagadeesan, T. Suryanarayan,
Yugandhara Pawan Jha, Ms, Tanmayee Rajkumar, Kuna) Verma,
Mukesh Butani, Vishal Kalra, S.S. Tomar, Gaurav Gupta, Anil Kumar
Gautam, Aditya B. Harech, Sandeep Devashish Das, Avinash Kr.
E Lakhanpal, Yoginder Handoo, Sobhagya Aggarwal, Darpan Sachdeva,
F.V. Irani, Rustom B. Hathikhanawala, Rajesh Mahale, Krutin R. Joshi,
K.T.Anantharaman, Vasudevan Raghavan, Santosh Paul, Joseph Aristotle
S., Ms. PriyaAristotle, Ms. Swati Sinth, Ms. Sheena S., Rajesh Kumar
Singh, Ms. Vanita Bhargava, Ajay Bhargava, Jeevan B. Panda, Aseem
Chatrvedi, (For Mis. Khaitan & Co.),' Ranjit B. Rat, Ms. Bina Gupta,
F Ms. Surbhi Kapoor, Srinivas Rao, Mrs. Sudha Gupta, Ms. Pritha Srikumar _
Iyer, Ms. Nayantara Narayan, Nikhil Nayyar, Satyen Sethi, A.T. Panda,
Rameshwar Prasad Goyal, Mayank Nagi, Ms. Humal Syali, Tarun Singh,
Ms. Meera Mathur, Tarun Gulati, Kishore Kuna!, Manish Rastogi, Pranav
Bansal, Rahul Jain, Ms. Rachana Yadav, Anupam Mishra, Nageswar
G Rao, Ambhoj Kumar Sinha, Sandeep S. Karhail, Sumit Goel,
Ms. Sreeparna Basak, (Mis. Parekh & Co.), Ram Lal Roy, Sanjay Kumar,
R. N. Keshwani, Ms. Kavita Jha, Udit Naresh, Pratap Venugopal,
Ms. Surekha Raman, Anuj Sarma, Ms. Niharika, Aman Shukla, (For
Mis. K. J. John & Co.), R.N. Karanjawala, Debmalya Banerjee, Jasmeet
Singh, A.S. Aman, Mani sh Sharma, Ms. Manik Karanjawala, (For Mis.
H Karanjawala & Co.), Jeetender Gupta, Pankaj Kumar Singh, Ms. Rinku
C.I.T. & ANR. v. M/S YOKOGAWA INDIA LTD. 167

Mishra, Ms. Varsha Rana, Satpal Singh, Ms. Vandana Anand, Dheeraj A
Nair, Mohit Chaudhal)', Ms. Puja Sharma, Ms. Damini Chawla, Kuna!
Sachdeva, Imran Ali, Balwinder Sri, Jay Savla, Ms. Renka Sahu, Abhinav
Sharma, Nageswar Rao, Sandeep Kaarhail, Pukhrambam Ramesh
Kumar, Sumit Kumar, S. Sukumaran, Anand Sukumar, Bhupesh Kumar
Pathak, K.K. Chythanya, Sachit Jolly, Gautam Swarup, Ms. B.
B
Vijayalakshmi Menon, Siddhartha Singh, V. Balachandran, (Mis KSN
& Co.) Ms. Prema Mehta, Advs., for the appearing parties.
The Judgment of the Court was delivered by
RANJAN GOGOi, J. I .. Leave granted in all the special leave
petitions. c
2. The true and correct meaning and effect of the provisions of
Section JOA 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 1OA of the Act would equally. be D
applicable to cases governed by the provisions of Section 1OB in view of
the said later provision being pari materia with Section I OA 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 E
consideration.
(i) Whether Section 1OA of the Act is beyond the purview of
the computation mechanism oftotal income as defined under
the Act. Consequently, is the income of a Section I OA unit
required to be excluded before arriving at the gross total F
income of the assessee?
(ii) Whether the phrase "total income" in Section 1OA 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 G
1.04.2001, Section IOA of the Act continues to remain an
exemption section and not a deduction section?
(iv) Whether losses of other 1OA Units or non 1OA Units can
be set off against the profits of 1OA Units before deductions
under Section 1OA are effected? H
168 SUPREME COURT REPORTS [2016] 9 S.C.R.

A (v) Whether brought forward business losses and unabsorbed
depreciation of 1OA Units or non 1OA Units can be set off
against the profits of another 1OA Units of the assessee.
4. At the very outset, Section 1OA of the Act as it existed prior to
its amendment by the Finance Act of 2000 with effect from 1.04.2001;
B subsequent to the aforesaid amendment and the provisions of Section
1OA 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 1OA of the Act, as it stood prior to.the amendment
made by the Finance Act, 2000, (amendment effective from 1.4.2001)
c was as follows:
"I OA. (I) Subject to the provisions of this section, any profits and
gains derived by an assessee from an industrial undertaking to
which this section applies shall not be included in the total income
of the assessee.
D (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
E
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) ...

F
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
G assessment year relevant to the previous year in which the
industrial undertaking begins to manufacture or proouce articles
or things.
(4) Notwithstanding anything contained in any other provision of
th is Act, in computing the total income of the assessee of the
H
C.l.T. & ANR. v. MIS YOKOGAWA INDIA LTD. 169
[RANJAN GOGOi, J.]

previous year relevant to the assessment year immediately A
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 B
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
forthe 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 c
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- D
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 E
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 F
80HHA or section 80-l or section 80-JA or section 80-IB
or section 80J in relation to the profits and gains of the
industrial undertaking; and
(iv)in computing the depreciation allowance under section 32,
the written down value of any asset used for the purposes G
of the business of the industrial undertaking shall be
computed as ifthe assessee had claimed and been actually
allowed the deduction in respect of depreciation for each
of the relevant assessment years.

H
170 SUPREME COURT REPORTS [2016] 9 S.C.R.

A (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
B 80-I.
(7)
(8)
6. Section 1OA was substituted by the Finance Act, 2000 with
c effect from 1.4.200 I in the following terms:
"lOA. (I) 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
D 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 year, its profits and gains had
E
not been included by application of the provisions ofthis 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:
F
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 often consecutive assessment years
G 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
pxocessing zone:
Provided also that the profits and gains derived from such
H domestic sales of articles or things or computer software as
C.l.T. & ANR. v. MIS YOKOGAWA IND1A LTD. 171
· [RANJAN GOGOi, J.]

do not exceed twenty-five per cent oftotal sales shall be deemed A
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
allow~d to any undertaking for the assessment year beginning
on the I st day of April, 20 IO and subsequent years. B
(2) This section applies to any undertaking which fulfils all the -
following conditions, namely : -
(i) ...
(a) c
(b)
(c)
(ii)
0) D
(4) For the purposes of sub-section (I), 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 E
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 F
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 (I) of section 36 shall apply as if every G
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
H
172 SUPREME COURT REPORTS [2016] 9 S.C.R.

A 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-
B
section (I) 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 (I) or sub-section (3) of section 74 in so far as such
loss relates to the business of the undertaking, shall be
c 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 80-1 or section 80-IA or section 80-IB in
relation to the profits and gains of the undertaking; and
D
(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
E l!Ssessment 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."
F
7. Section 1OA was further amended by the Finance Act of2003
with retrospective effect from 1.04.200 I. For the purposes of the present
case, the amendments introducing Section (I A); making the provisions
of sub-section (4) subject to the provisions of Sections (I) and (IA) and
making the benefit of the provisions of Sections 32, 32A, 33, 35 and
G clause (ix) ofSection 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 ofRowlatt, J. in Cape Brandy Syndicate vs. Inland
Revenue Commissioner' which has virtually become the locus
H ' (1921) I KB 64
C.I.T. & ANR. v. MIS YOKOGAWA INDIA LTD. 173
[RANJAN GOGOi, J.]

classicus1 • The above would dispense with the necessity of any further A
elaboration of the subject notwithstanding the numerous precedents
available inasmuch as the evolution of all such principles are within the
four corners of the following opinion ofRowlatt, 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 B
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 JOA of the Act, by the Finance Act,
2000 with effect from 1.4.2001, specifically uses the words 'deduction c
of profits and gains derived by an eligible unit ...... from the total income
of the assessee'. There are other provisions of Section l OA, as amended,
which could be suggestive of the fact that by the amendment made by
Finance Act, 2000, Section I OA had changed its colour from being an
exemption section to a provision providing for deduction. Yet, Section
I OA continued to remain in Chapter III of the Act which Chapter deals D
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 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
E
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 I OA is referred to as providing for
deductions whereas the later Circular uses the expression "exemption"
while referring to the provisions of Sections 1OA and l OB of the Act. F
Even the Income Tax Return Forms i.e. Form No. I dated 17.08.2001
and Fonn No. 6 for the assessment year 2012-13 are equally contradictory.
The appellant Revenue would, however contend that, exfacie, from the
language appearing in Section I OA it is crystal clear that the aforesaid
provision of the Act, as amended by Finance Act, 2000 provides for
G
deductions from the gross total income, notwithstanding the use of the
words 'total income' in Section I OA. Exemptions provided for under the
old Section I OA have been discontinued by the Legislature. According
to the Revenue, where the purport and effect of the statute is clear from
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] H
174 SUPREME COURT REPORTS [2016) 9 S.C.R.

A the language used there is no scope to tum to Chapter notes or the
marginal notes so as to understand Section JOA 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:
B
"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
c 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
D material they describe." -
I 0. The Revenue further contends that by virtue of the amendment
made by Finance Act, 2000, deductions under Section I OA are required
to be made and allowed at the stage of compu!ation of total income
under Chapter Vf of the Act notwithstanding the absence of any specific
provision in Chapter VI to the said effect. In fact, the Revenue contends
E
that in view of the clear language of Section I OA, 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
F amendment to Section I OA, as for example, disallowance of profits in
regard to domestic sales, the legislative intent in retaining Section IOA 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
G envisaged under the Act and the reference to the total income of the
undertaking, referred to in several sub- sections of Section JOA, would
indicate that the total income referred to in Section 2(45) has no application
to the computation under Section IOA and the reference therein is only
to the total income of the eligible unit/undertaking. The provisions of
Section I OA(6), as amended by Finance Act of 2003 retrospectively
H ' (2009) 16 sec 659
C.I.T. & ANR. v. M/S YOKOGAWA INDIA LTD. 175
[RANJAN GOGOI, J.]

with effect from 1.4.2001, has also been stressed upon to contend that A
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 B.
deduction under the aforesaid sections of the Act are deemed to have ·
been made. Similarly, under Section IOA(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 c
elements exist in Section 1OA, the provision is really an exemption
provision. Alternatively, according to the learned counsels, even if Section
1OA is 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
D
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 1OA 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. E
12. We have considered the submissions advanced and the
provisions of Section IOA as it stood prior to the amendment made by
Finance Act, 2000 with effect from 1.4.200 I; the amended Section 1OA
thereafter and also the amendment made by Finance Act, 2003 with
retrospective effect from 1.4.2001. F
13. The retention of Section 1OA in Chapter III of the Act after
the amendment made by the Finance Act, 2000 would be 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
0

correct purport and effect of the ame nded Section will have to be
G
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 I OA by the amendment, in the absence of any contrary material,
and in view of the scope of the deductions contemplated by Section JOA
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 H
176 SUPREME COURT REPORTS [2016] 9 S.C.R.

A 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 ofit in the light of the specific provisions
contained in different parts of the Act would be wholly different. The
B above implications cannot be more obvious than from the case of Civil
Appeal Nos. 8563/2013, 8564/2013 and civil appeal arising out ofSLP(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 1OA which provides for pro rata
c 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
D provisions of Sub-section 6 of Section 1OA, as amended by the Finance
Act of2003, granting the benefit ofadjustment oflosses 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 holiday. The absence of any reference to deduction under
E
Section I OA 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 JOA. The
provisions of Sections 80HHC and 80HHE of the Act providing for
somewhat similar deductions would be wholly irrelevant and redundant
F if deductions under Section I OA 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 1OA,
in our view, indicates that some additional benefits to eligible Section
I OA units, not contemplated by Sections 80HHC and 80HHE, was
intended by the legislature. Such a benefit can only be understood by a
G
legislative mandate to understand that the stages for working out the
deductions under Section I OA and 80HHC and 80HHE are substantially
different. This is the next aspect of the case which we would now like to
turn to.
16. From a reading of the relevant provisions of Section I OA it is
H more than clear to us that the deductions contemplated therein is qua the
C.I.T. & ANR. v. M/S YOKOGAWA INDIA LTD. 177
[RANJAN GOGOI, J.]

eligible undertaking of an assessee standing on its own and without A
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,
B
"The· export turnover and the total turnover for the purposes of
sections I OA and I OB shall be of the undertaking located in
specified zones or I 00% 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." c
17. If the specific provisions of the Act provide [first proviso to
Sections JOA(!); I OA (IA) and 1OA (4)] thatthe 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) understood the situation, it is only logical and natural that D
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
E
Section I OA 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 I OA has already been dealt with earlier and in the overall F
scenario unfolded by the provisions of Section I OA the aforesaid discord
can be reconciled by understanding the expression "total income of the
assessee" in Section JOA as 'total income of the undertaking'.
18. For the aforesaid reasons we answer the appeals and the
questions arising therein, as formulated at the outset of this order, by
G
holding that though Section 1OA, 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.
Devika Gujral Appeals disposed of. H