1. Dispute over carry forward of losses under Section 72 of the Income Tax Act, 1961, following a belated declaration to opt out of Section 10B exemption. (Para 1 , 2 )
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2022 Supreme(SC) 1960
SUPREME COURT OF INDIA
M.R. SHAH, B.V. NAGARATHNA, JJ.
Principal Commissioner of Income Tax-III, Bangalore and Another - Appellants
Versus
M/s Wipro Limited - Respondent
Civil Appeal No. 1449 Of 2022 (Arising out of SLP(Civil) No. 7620 Of 2021)
Decided On : 11-07-2022
Important Points
For claiming benefits under Section 10B(8) of the Income Tax Act, the twin conditions—furnishing a written declaration to the Assessing Officer and doing so before the due date for filing the return under Section 139(1)—are mandatory. Exemption provisions must be strictly and literally construed.
Subject
Tax Law - Income Tax Appeals
Act Referred
Headnote
(A) Income Tax Act, 1961 - Section 10B(8) - Requirement of filing a declaration is mandatory and must be done before the due date of filing the return of income under Section 139(1) - Revenue appeals against High Court's ruling allowing carry forward of losses despite late declaration - Assessee's non-filing of the declaration before the due date disqualifies the claimed benefits. (Paras 6, 14)
(B) Tax Compliance - Any exemption can only be claimed if all conditions are strictly adhered to - Filing of revised return post the due date does not permit a withdrawal of a previous claim for exemption. (Paras 9, 13)
Facts of the case:
The Appellants contested the assessment of the Respondent's claims for carry forward of losses under Section 72, arguing that they failed to provide the necessary declaration required under Section 10B(8) of the IT Act in compliance with the stipulated deadlines, thus diminishing any right to exemptions or carry forwards.
Findings of Court:
The court found that the Respondent failed to comply with essential statutory requirements under Section 10B(8), ruling both elements of the declaration were mandatory, leading to disallowance of carry forward losses.
Issues: Whether the requirement for the declaration under Section 10B(8) is mandatory in nature and if the time limit for its filing is mandatory or directory.
Ratio Decidendi: The court ruled that both conditions under Section 10B(8) are mandatory, emphasizing strict adherence to taxation statutes. The timing of the declaration must align precisely with statutory requirements to maintain eligibility for benefits.
Result: Appeal allowed.
(B) Tax Compliance - Any exemption can only be claimed if all conditions are strictly adhered to - Filing of revised return post the due date does not permit a withdrawal of a previous claim for exemption. (Paras 9, 13)
Facts of the case:
The Appellants contested the assessment of the Respondent's claims for carry forward of losses under Section 72, arguing that they failed to provide the necessary declaration required under Section 10B(8) of the IT Act in compliance with the stipulated deadlines, thus diminishing any right to exemptions or carry forwards.
Findings of Court:
The court found that the Respondent failed to comply with essential statutory requirements under Section 10B(8), ruling both elements of the declaration were mandatory, leading to disallowance of carry forward losses.
Issues: Whether the requirement for the declaration under Section 10B(8) is mandatory in nature and if the time limit for its filing is mandatory or directory.
Ratio Decidendi: The court ruled that both conditions under Section 10B(8) are mandatory, emphasizing strict adherence to taxation statutes. The timing of the declaration must align precisely with statutory requirements to maintain eligibility for benefits.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether the time limit for filing a declaration under Section 10B(8) of the Income Tax Act is mandatory or directory for claiming carry forward of losses. (Para 3 , 4 )
3. Exemption provisions require strict literal construction; revised returns cannot be used to withdraw claims and subsequently claim carry forward of losses after the original return's due date. (Para 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 )
4. Both the requirement to furnish a written declaration and the stipulation to do so before the return's due date under Section 10B(8) are mandatory. (Para 8 , 14 )
5. Appeal allowed; orders of the High Court and ITAT set aside; assessee denied benefit under Section 10B(8) for non-compliance with mandatory conditions. (Para 14 )
6. Is the time limit for filing a declaration under Section 10B(8) of the Income Tax Act directory?
No. The court held that both the furnishing of the declaration in writing and the requirement that it be furnished before the due date for filing the return under Section 139(1) are mandatory conditions. (Para 8 , 14 )
7. Can a revised return under Section 139(5) be used to withdraw an exemption claim and subsequently claim carry forward of losses?
No. A revised return can only correct omissions or mistakes; it cannot be used to withdraw a claim and subsequently claim carry forward or set-off of losses if the original return was filed under Section 139(1). (Para 9 )
8. How should exemption provisions in a taxing statute be construed?
Exemption provisions must be strictly and literally construed. The assessee claiming an exemption must strictly comply with the provisions, and procedural time elements in such provisions are not merely directory. (Para 8 , 11 , 12 )
JUDGMENT :
(M.R. Shah, J.)
1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 30.11.2020 passed by the High Court of Karnataka at Bengaluru in Income Tax Appeal No. 462/2017, by which the High Court has dismissed the said appeal preferred by the Revenue and has confirmed the judgment and order dated 25.11.2016 passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘C’, Bangalore (for short, ‘ITAT’), allowing the assessee’s claim for carry forward of losses under Section 72 of the INCOME TAX ACT , 1961 (for short, ‘IT Act’), the Revenue has preferred the present appeal.
2. The respondent-assessee is a 100% export-oriented unit and engaged in the business of running a call centre and IT Enabled and Remote Processing Services. Assessee filed its return of income on 31.10.2001 for Assessment Year 2001-2002, declaring loss of Rs.15,47,76,990/-and claimed exemption under Section 10(b) of the IT Act. Along with the original return filed on 31.10.2001, the assessee annexed a note to the computation of income in which the assessee clearly stated that the company is a 100% export-oriented unit and entitled to claim exemption under Section 10(b) of the IT Act and therefore no loss is being carried forward. That thereafter, the assessee filed a declaration dated 24.10.2002 before the Assessing Officer (AO) stating that the assessee does not want to avail the benefit under Section 10(b) of the IT Act for A.Y. 2001-02 as per Section 10(b) (8) of the IT Act. The assessee filed the revised return of income on 23.12.2002 wherein exemption under Section 10(b) of the IT Act was not claimed and the assessee claimed carry forward of losses.
2.1 Assessing Officer passed an order dated 31.03.2004 rejecting the withdrawal of exemption under Section 10(b) of the IT Act holding that the assessee did not furnish the declaration in writing before the due date of filing of return of income, which was 31.10.2001. Thereby, the AO made the addition in respect of denial of claim of carrying forward of losses under Section 72 of the IT Act.
2.2 Assessee filed an appeal before the Commissioner of Income Tax (Appeals), New Delhi (for short, ‘CIT(A)’). By order dated 19.01.2009, the CIT(A) upheld the order passed by the Assessing Officer making addition in respect of denial of claim of carrying forward of losses under Section 72 of the IT Act.
2.3 Aggrieved by the order passed by the CIT(A), the assessee filed an appeal before the ITAT. Vide order dated 25.11.2016, the ITAT decided the issue in favour of the assessee stating that the declaration requirement under Section 10B (8) of the IT Act was filed by the assessee before the AO before the due date of filing of return of income as per Section 139(1) of the IT Act. ITAT allowed the assessee’s claim for carrying forward of losses under Section 72 of the IT Act.
2.4 Feeling aggrieved and dissatisfied with the order passed by the ITAT, allowing the assessee’s claim for carrying forward of losses under Section 72 of the IT Act, the Revenue preferred an appeal before the High Court. By the impugned judgment and order, the High Court has dismissed the said appeal. Hence, the Revenue is before this Court by way of present appeal.
3. Shri Balbir Singh, learned Additional Solicitor General of India appearing for the Revenue has vehemently contended that in the present case, as the conditions mentioned in Section 10B (8) of the IT Act are not complied with, inasmuch as the declaration was not filed before the due date of filing of return, both, the ITAT and the High Court have committed a grave error in allowing the assessee’s claim for carrying forward of losses under Section 72 of the IT Act.
3.1 It is submitted that in the present case, the original return of income was filed on 31.10.2001, which was the due date for filing return of income. The assessee filed a declaration on 24.10.2002 before the AO stating that the assessee does not want to avail the benefit under Section 10(b) of
