[Opinion] Supreme Court: Exemption Provisions to be Strictly Construed

Rohan Sogani – [2022] 140 taxmann.com 298 (Article)

1. Introduction

1.1. As per Section 10B of the Income Tax Act, 1961 (“ITA”), profits and gains derived by a 100% Export Oriented Unit from the export of article or things or computer software, is eligible for deduction under such section, for a period of ten consecutive assessment years. Benefit of Section 10B cannot be claimed from Assessment Year 2012-13. Section 10B(8) provides that an assessee can choose to not apply the provisions of Section 10B for any assessment year by filing a declaration in this regard to the Assessing Officer before the due date of furnishing Return of Income (“ROI”) under Section 139(1), in which case provisions of Section 10B would not apply.

1.2. Supreme Court, in the case of Pr. CIT v. Wipro Limited, [2022] 140 taxmann.com 223 (SC), vide order dated 11.07.2022, rejected the claim of the assessee made by way of revised return with respect to exemption claimed under Section 10B and carry forward of losses. Supreme Court in clear terms held that for claiming exemption under Chapter III of the ITA, the requirements as provided therein, have to be complied with strictly.

1.3. The proposition that certain procedural requirements, such as of filing declarations, forms by the assessee, for claiming exemption, being declaratory in nature, was rejected. Supreme Court also reiterated the position that revision of return of income is only possible in case of error or omission on the part of the assessee and not otherwise.

2. Facts of the Case

2.1. In this case, assessee was a 100% Export Oriented Unit, engaged in the business of running a Call Centre and IT Enabled and Remote Processing Services. Assessee was thus entitled to claim exemption under Section 10B of the ITA. Assessee filed its ROI for AY 2001-02, within the time limit prescribed under Section 139(1) (“original return“). In such original return, exemption under Section 10B was claimed by the assessee and accordingly, no loss was carried forward.

2.2. Subsequent to filing the original return, but before completion of the assessment, assessee filed a declaration before the Assessing Officer, in terms of Section 10B(8), wherein, exemption claimed under Section 10B was withdrawn. Thereafter, a revised ROI was filed by the assessee, in which exemption under Section 10B was not claimed. This resulted into loss being claimed by the assessee in the revised ROI, which was sought to be carried forward under Section 72.

2.3. Claim of the assessee by way of revised return and also carry forward of losses was denied during assessment proceedings and also in the first appellate proceedings, for the reason that the declaration under Section 10B(8) was filed after the due date of filing the return of income. However, such claim was allowed by Income Tax Appellate Tribunal and by the High Court. Thereafter, appeal was preferred by the Department before the Supreme Court.

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