Two issues where before the High Court for AY 2001‐02 & onwards, (i) Whether the loss incurred by
a non‐eligible unit & (ii) whether the brought forward unabsorbed loss & unabsorbed depreciation
of the eligible unit has to be set‐off against the profits of the eligible unit before allowing deduction
u/s 10A/ 10B.
Held that (a) S. 10A allows deduction “from the total income”. The phrase “total income” in s. 10A
means “the total income of the STP unit” and not “total income of the assessee“. Consequently, s.
10A deduction has to be given before computing the “profits & gains of business” under Chapter IV.
Though s. 10A was amended to make it a “deduction” provision, it continues to remain in Chapter III
and was not moved to Chapter VI‐A. The result is that even now s. 10A is in the nature of an
“exemption” provision and the profits of the eligible unit have to be deducted at source level and do
not enter into the computation of income.
(b) S. 10A(6) as amended by the FA 2003 w.e.f. 1.4.2001 provides that depreciation and business
loss of the eligible unit relating to the AY 2001‐02 & onwards is eligible for set‐off & carry forward
for set‐off against income post tax holiday. This amendment does not militate against the
proposition that the benefit of relief u/s 10A is in the nature of exemption with reference to
commercial profits. However, to give effect to the legislative intention of allowing the carry forward
of depreciation and loss suffered in respect of any year during the tax holiday for being set off
against income post tax holiday, it is necessary that a notional computation of business income and
the depreciation should be made for each year of the tax holiday period. Such loss is eligible to be
carried forward. But, as the income of the 10A unit has to be excluded at source itself before arriving
at the gross total income, the question of setting off the loss of the current year’s or the brought
forward business loss (and unabsorbed depreciation) against the s. 10A profits does not arise.
CIT v Yokogawa India Ltd. (Karn) (High Court)