Summary
A 100% export-oriented unit filed its return for AY 2001-02 on the due date declaring a loss, claiming exemption under Section 10B of the Income Tax Act and stating that no loss was being carried forward. A year later it filed a declaration under Section 10B(8) opting out of Section 10B and a revised return claiming carry forward of the loss under Section 72. The Assessing Officer and CIT(A) rejected the belated option; the ITAT and the Karnataka High Court allowed it, holding that filing the declaration is mandatory but the time limit is directory. The Supreme Court reversed. Section 10B(8) is clear and unambiguous: the declaration must be furnished before the due date for the return under Section 139(1), and both conditions, worded alike, are mandatory; an exemption provision must be strictly and literally complied with.
Issues
- Whether the requirement in Section 10B(8) of the Income Tax Act, 1961 that the declaration opting out of Section 10B be furnished before the due date for filing the return under Section 139(1) is mandatory or merely directory.
- Whether a revised return under Section 139(5) can be used to withdraw an exemption claimed in the original return and make a fresh claim to carry forward losses.
- Whether decisions treating the time limit for filing forms or audit reports as directory in deduction cases under Chapter VI-A, such as G.M. Knitting Industries, apply to the exemption under Section 10B.
Provisions considered
- Section 10B(8), Income Tax Act, 1961Where the assessee, before the due date for furnishing the return under Section 139(1), furnishes a written declaration that Section 10B shall not apply, the section does not apply for the relevant years. The wording is clear and unambiguous; the twin conditions of furnishing the declaration and doing so before the due date use the same language and both are mandatory. The declaration filed on 24.10.2002, after the due date of 31.10.2001, did not satisfy the provision. (¶¶ 5, 8, 9, 14)
- Section 139(5) read with Sections 139(1) and 139(3), Income Tax Act, 1961A revised return may correct an omission or wrong statement but cannot be used to withdraw a claim specifically made and take a contrary stand, nor can it convert a return under Section 139(1) into one under Section 139(3) so as to carry forward losses under Section 80. (¶ 9)
- Section 10B(5), Income Tax Act, 1961The accountant's report verifies the correctness of the Section 10B claim at the time of filing the return; the significance of the Section 10B(8) declaration is co-terminous with the return, and withdrawal of the claim after the due date would falsify and nullify that report. (¶ 10)
- Section 72 (carry forward of business loss), Income Tax Act, 1961The claim to carry forward the loss of Rs 15.47 crore, raised for the first time in the revised return after opting out of Section 10B, was disallowed since the opt-out was not validly exercised. (¶¶ 2.1, 14)
Held
- In a taxing statute the provisions are to be read as they are and literally construed, more particularly where an assessee seeks exemption. Section 10B(8) cannot be read so that one of its two conditions is mandatory and the other directory when the words used for both are the same. The High Court's contrary view was erroneous and contrary to the unambiguous language. (¶¶ 8, 14)
- The submission that the declaration could have been filed at any time during assessment proceedings even without a revised return has no substance; the opt-out must precede the due date because the accountant's certificate under Section 10B(5) has already verified the exemption claim at the time of the return. (¶ 10)
- Section 10B is an exemption provision in Chapter III, which operates in a different realm from the deductions in Chapter VI-A; G.M. Knitting Industries (Form 3-AA for additional depreciation) and the Chapter VI-A audit-report cases are therefore inapplicable, and the asserted substantive right to opt out cannot override a condition that must be strictly complied with. (¶¶ 11, 12)
- The withdrawal of the Revenue's special leave petition against Moser Baer for low tax effect, with the question of law kept open, cannot be held against the Revenue. (¶ 13)
Result
Appeal allowed; the orders of the Karnataka High Court dated 30.11.2020 and the ITAT dated 25.11.2016 set aside; the assessee held not entitled to the benefit of Section 10B(8) for non-compliance with its twin mandatory conditions, and the question of law answered in favour of the Revenue. No order as to costs.