[Opinion] New vistas from two significant recent decisions of Apex Court

V. K. Subramani – [2022] 142 taxmann.com 415 (Article)

Decisions rendered by apex court are final and set the binding precedents to be followed by all other courts and appellate authorities. Incidentally, the decisions of Hon’ble Supreme Court make every stakeholder to learn newer dimensions of law and intricate aspects of interpretation. Tax counsels closely follow up with court and appellate decisions for updating their knowledge besides obtaining gainful advantage thereby. This refresher takes note of the two legal decisions which lead us to think differently on those legal provisions thereby open a new approach to understand them.

1.1 Pr. CIT v. Wipro Ltd. [2022] 140 taxmann.com 223/446 ITR 1 (SC)

The assessee-company a 100% EOU eligible for deduction under section 10B filed its return of income for the assessment year 2001-02 on 31st October, 2001 declaring a loss of Rs.1547.77 lakhs. With the ITR, a note was appended stating that the assessee is an eligible unit for availing deduction under section 10B and therefore no loss was carried forward to the subsequent year for set off. Later, the assessee filed a declaration as per section 10B(8) on 24th October, 2002 (after the end of the assessment year) for conveying that it does not seek the benefit of section 10B and accordingly, filed a revised ITR on 23rd December, 2002. It wanted carry forward of loss by filing revised ITR.

In the assessment, the AO rejected the withdrawal of exemption (which was implicitly claimed earlier under section 10B in the original ITR) and denied the benefit of carry forward of loss sought by filing revised ITR. It was on the reasoning that the declaration for withdrawal/non-claim of tax exemption was not filed before the ‘due date’ for filing the ITR which was 31st October,2001 for the assessment year 2001-02. The CIT (Appeals) upheld the order of the Assessing Officer. However, the tribunal decided in favour of the assessee and the High Court dismissed the appeal of the Department.

1.2 Grounds adduced by Revenue

The following grounds were adduced by the Revenue before the apex court:

(i) The tribunal had wrongly noted that the declaration under section 10B(8) was filed before the ‘due date’ when factually, it was filed long after the original ITR was filed.

(ii) The assessee in the revised return did not claim exemption under section 10B and wanted carry forward of loss under section 72 of the Act. A revised return under section 139(5) could be filed to remove any omission and mistake or to correct arithmetical error in the original return. The revised return under section 139(5) cannot be filed for making a new claim. Reliance was placed on the decision in the case of CIT v. Andhra Cotton Mills Ltd. [1996] 88 Taxman 176/219 ITR 404 (AP) wherein the assessee in the original return claimed depreciation and subsequently a revised return was filed to withdraw the same. It was held that the Assessing Officer is bound to allow deduction of depreciation in computing the income from business. Note: Andhra Cotton Mills Ltd’s. case (supra) belongs to the era before mandatory allowance of depreciation was inserted by virtue Explanation 5 to section 32(1) (ii) w.e.f.1.4.2002.

(iii) The filing of revised return was an afterthought and the assessee filed declaration under section 10B(8) belatedly after the ‘due date’ in order to have the benefit of carry forward of loss.

(iv) The assessee must file declaration under section 10B(8) before the ‘due date’ specified in section 139(1) which is mandatory in nature, which the High Court had held that the time limit prescribed for filing, as directory.

(v) Taxing statute should be strictly construed and that the machinery provisions must be construed to effectuate the object and purpose of the statute and the exemption provisions must be strictly interpreted.

1.3 Taxpayer’s contentions

The following were the grounds of the assessee:

• • The declaration is to be filed under section 10B(8) mandatorily but the time limit for filing the declaration is directory in nature. Reliance was placed on CIT v. Moser Baer India Ltd. [IT Appeal No.950 of 2007, dated 14.05.2008] wherein rationale of the Delhi High Court decision supported the contention of the assessee.
  • Section 80 of the Income-tax Act, 1961 requires an assessee to file the ITR for claiming carry forward of loss before the specified date. In this case, it had submitted the ITR declaring loss before the specified date and thus complied with section 80 of the Act. Further, it was not necessary to exercise option under section 10B(8) and that the revised return was filed only to bring to the notice of the Assessing Officer the factum of exercise of option under section 10B(8).
  • Even if the revised return had not been filed and a declaration in writing to the Assessing Officer is furnished during the assessment proceedings, it would have made no difference whatsoever to intimate the exercise of option under section 10B(8) of the Act.
  • Further the accountant’s certificate under section 10B(5) is required only where the claim of deduction under section 10B is preferred. This certificate certifies the profit or loss of section 10B unit and the amount of deduction under section 10B(1), if any. The certificate if already submitted, becomes irrelevant/redundant if the claim is withdrawn under section 10B. The contents of the certificate are not in any way affected by the withdrawal of section 10B claim. The loss set out in section 10B certificate remained exactly the same after withdrawal of the claim under section 10B and making a (fresh) claim for carry forward of loss.
  • Reliance was placed on CIT v. G.M. Knitting Industries (P.) Ltd. [2016] 71 taxmann.com 35/[2015] 376 ITR 456/279 CTR 534 (SC) where the assessee had dispute with regard to additional depreciation under section 32(1)(iia) of the Act. The assessee had to give the option to claim the additional depreciation by filing Form 3AA along with the return of income. The assessee did not file Form 3AA but chose to file the form later but before the assessment was completed. The Revenue rejected the form on the ground that it was not filed along with the ITR. The Court held that the requirement that Form 3AA to be filed along with the ITR was only directory and even though the Form was submitted long after filing of the return, the assessee was entitled to claim additional depreciation.
  • Exactly the same principle as applied in G.M. Knitting Industries (P.) Ltd. (supra) is to be applied for interpretation of section 10B(8) which enables the assessee to file a declaration before last date in which the ITR is required to be filed.
  • Section 10B(8) gives an unequivocal right to avail the benefit by exercising option and to decide not avail the benefit of section 10B in a particular assessment year. For the purpose of section 32(1)(iia) by permitting the assessee to file Form 3AA long after the ITR was filed, the apex court had permitted the assessee to choose one option at the time of filing ITR and changing the option long thereafter but before the assessment is made. That if such change could be permitted under section 32(1)(iia), the case was for permitting it, is far stronger under section 10B(8) where the statute itself expressly gives the assessee the right to change his option.
  • In CIT v. Shivanand Electronics [1994] 75 Taxman 93/209 ITR 63/49 CTR 94 (Bom.) the assessee for the purpose of claiming deduction under section 80HHC had to furnish audit report along with ITR. The asssessee filed the audit report long after filing the ITR. The Bombay High Court held that the filing of audit report was mandatory but the requirement that it should be filed along with the ITR was only directory. This decision was approved by the Apex Court while deciding G.M. Knitting Industries (P.) Ltd. (supra).
  • There are large number of judgments dealing with other sections of the Income-tax Act which expressly provide that a particular deduction would not be allowed if a particular report or certificate was not filed along with the ITR but in each of those cases courts have held that the requirement of submission of document is mandatory, but the stipulation that it should be filed along with ITR, was only directory.

1.4 Issue before the Supreme Court

The Apex Court after hearing the submissions of both Revenue and assessee said that the short-question which requires adjudication pertains to whether for claiming exemption under section 10B whether the assessee is required to fulfil twin conditions, viz. (i) furnishing of declaration to the Assessing Officer in writing that the benefit of section 10B be not made applicable to him by virtue of declaration under section 10B(8) ; and (ii) the said declaration must be furnished before the ‘due date’ of filing the return of income specified in section 139(1) of the Act.

The apex court observed that both the tribunal and High Court have held that for not claiming the exemption/relief under section 10B, furnishing of declaration as per section 10B(8) is mandatory but furnishing the same before the ‘due date’ of filing the ITR under section 139(1) is directory.

The assessee in this case, while filing the original return specifically stated that it is a company and it is 100% EOU eligible to claim exemption under section 10B and therefore no loss is being carried forward. Along with the ITR, the assessee annexed a note stating the same. However, subsequently the assessee filed a declaration after the due date of filing of ITR and filed a revised ITR taking altogether a contrary stand.

1.5 Observations and decision of the Supreme Court

• On plain reading of section 10B(8) the assessee must furnish a declaration in writing that the provisions of section 10B be not applicable to him and it must be furnished before the ‘due date’ of section 139(1). Both the conditions that filing of declaration and timing of its filing before the ‘due date’ are mandatory requirements. It cannot be said that filing of declaration is mandatory but time limit for filing is directory.
• Provisions of taxing statute are to be read as they are, and are to be literally construed, more particularly in the case of exemption sought by the assessee.
• Filing a revised return for getting the benefit of carry forward of loss is not tenable in law when the original ITR does not seek such carry forward claim. Filing a revised return under section 139(5) and taking a contrary stand and withdrawing exemption which was claimed earlier while filing the original ITR, is not permissible.
• Where the assessee filed original return under section 139(1) and not under section 139(3), the Revenue is right in submitting that the revised return filed under section 139(5) can only substitute its original return under section 139(1) and cannot transform it into an ITR under section 139(3) for the purpose of availing the benefit of carry forward of loss for set off by becoming eligible under section 80 of the Act.
• A taxpayer can file a revised return to rectify an omission or wrong statement. A revised return under section 139(5) cannot be filed to withdraw a claim in order to have the benefit of carry forward of loss for set off in future assessment years.
• By filing a revised return, the assessee cannot be permitted to substitute the original return filed under section 139(1) of the Income-tax Act. Therefore, claiming benefit under section 10B and invoking section 10B(8) in the revised return of income which was filed much after the ‘due date’ of filing the original return of income under section 139(1) cannot mean that the assessee has complied with the condition of furnishing the declaration before the ‘due date’ of filing the original return of income under section 139(1) of the Act. As already stated both the conditions viz. furnishing the declaration as per section 10B(8) for not availing section 10B benefit and filing it before the ‘due date’ are both mandatory in nature.
• The submission of the assessee that it was not necessary to exercise the option under section 10B(8) and even without filing the revised return it could have filed a declaration in writing to the Assessing Officer during the assessment proceedings, was negatived by the court.
• The significance of filing a declaration under section 10B(8) can be said to be co-terminus with filing of return under section 139(1), as a check has been put in place by virtue of section 10B(5) to verify the correctness of claim of deduction at the time of filing the return. If the assessee claims an exemption under section 10B, the correctness of the claim is verified under section 10B(5). Therefore, if the claim is withdrawn after the date of filing of return, the accountant’s report under section 10B(5) would become falsified and would stand nullified.
• Chapter III and Chapter VI-A of the Income-tax Act operate in different realms. Principles applicable for Chapter III which deal with ‘incomes which do not form part of total income’ cannot be equated with Chapter VI-A which deals with ‘deductions to be made in computing total income’. Therefore, none of the decisions relied upon by the assessee on interpretation of Chapter VI-A shall be applicable while considering the claim under section 10B of the Income-tax Act.
• The exemption provisions are to be strictly and literally complied with and the same cannot be construed as procedural requirement.
• The twin conditions of furnishing the declaration before the Assessing Officer and that too before the ‘due date’ of filing the original return are to be satisfied and both are mandatorily to be complied with. Thus, the decision was in favour of the Revenue.

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