Karnataka High Court
M/S Sami Labs Limited vs Assistant Commissioner Of Income Tax ... on 30 December, 2010
Bench: Manjula Chellur, Aravind Kumar
4. Agg1'ieved by the same, assessee preferred an
appeal before Commissioner of Income Tax (Appeals)~IIl,
Bangalore, and the appellate authority by ordefdated
17/2/2005, dismissed the same and
order of Assessing Officer.
5. Being aggrieved by the said oifdezfl asseussee
preferred an appeal b€3fOqIl'l€'/k"-Ehe Ilrieomee
Tribunal, Bangalore l air:-.. No.
484/BANG/2005 arid _o 't£;i'b1i;n:aI so_Iv'1,:L "considering the
contentions J rais_ed dismissed the
appeal t.h.€:: orders passed by the
Assessii1g4'A.uthworit.y as the Appellate Authority.
It is l,l1lS o1"('ie;j"of the tribunal dated 9/9/2005 which
ijuestioned in this appeal by the assessee and
substantial question of law being
answered"i'h favour of the assessee.
V 8. Heard Sri Sarangan, learned Senior Counsel
_m_appeari11g on behalf" of Ms. Vani H. and Sri E. R. lnder
Kumar, learned Senior Counsei appearing for the
respondent, Revenue.
7. Sri Sarangan would contend thatV=._iss1,ie
pertains to claim of exemption/deductidns"Athe
income of the assessee from the profits and as p_,6r"
Sec.10~B of the Act. He wou1d:'con:tenrd
dispute with regard to the£a_ssesse--e'being L'
oriented unit and wou1d_____Vc'a,ntend that egicernption
claimed by the assessee was resepe»ciL--.. of profit derived
by it in the accounting "year relevant tdassessment year
nameiy Kizriigal unit and assessee had
made 's:ubsta11tvia1A:_ijaddition' to its plant and machinery
dt'1ri:'1g year in question and the
Asst-;ssii*:g Offi'(:e.ij___o_u.ght to have considered the return
droiivn of the plant and machinery which also
' "of't~t'Irj;e machinery acquired from M/ s. Kanfa
thse_.a(:co1,:11t,iz1g year relevant to the assessment: year and
C'}1_einov_Ord'ga'r1i(: Ltd, which amounted only 14.22% and
as $1.1..Csi121.1V1C extent of n1ach.inery was than 20% in
ta.
fig.
-5-
thus exemption U / s. 10-B of the Act ought to have been
granted to the assessee. It is contended.'"by.._l'i'«(Ii'.
Sarangan that assessee has to satisfy i.h_a't---- plant"
machinery installed in the unit~to._whi.ch VeXern;5tioVn's'1s ll
claimed U/s.iO-B was the neiv
insofar as assessee is concerned and 'this f'ac't'"haVing"
not been taken noteof byl-~~tii'e--.authonties.. below, has
resulted in denial of as such he
seeks for al.loiM'icng"Vcllain1ed by the
assessee
__ -He'--",wfouild'«elaborate his submissions and
contend"w--that While' .interpreting a beneficial provision
like_§dSec. 10MB"; construction is to be adopted and
. a.proVis.io.n7i.n a taxing statute which grants incentives
growth. and development of trade &
ind'ust.':fi/l shotild be construed liberally and restriction
'' cifnit has to be so construed so as to advance the
"objective of the provision with which it was enacted and
u "not: to frustrat.e it. He would submit: iihait a reading of
M
_()-
(8) 15}. ITR 381 ELEC'I'ROi\TIC CORPORATION or? INDEA
LIFE). vs. CoMM1ss1oNr:R or INCOME»
TAX. ANDHRA PRADIZSH, T T
iI.Yi3E:RArsA£)
He would aiso draw the attention of
circuiar No. 1/2005 dated 6/ ],.tf»')
buttress his argument that assessiee \vo1,b11'z;1_'be" entitvleoip
for exemption available to Is. 10~VB.o't" any
of the financial yea.i"*~r_eie%JantA.ti1e a.ssessn1ent year
which would be subject satisfying the
conditions 2§tiI'?Li1atéd i:U:%'B;.._...VfAThus, he would
contend that::_u_in assessee satisfying the
eriteriya ._inVV'a;1'1y:7ac'c.oi;intir1g year relevant to the
assessmietnts yea1f,4V'as'se'ssee would be entitled to claim
deduction. Efhus would contend that assessee
» haviiig the same for the assessment year 2002~
H ._oi'y:=.benefit flowing from See.10--B is erroneous.
' "Per contra, Sri. Ender Kuinar, learned Senior
AC'()-anisel appea1'i1'1g for the Revenue, wouid support the
"orders passed by the authorities as aiso tribunai and
$5
~ It}-
contends, exeinption provision has to be construed
strictly and while so interpreting the natural meaning as
assigned in the language of the section should. aiomvbe
adopted. He would contend that in interprei§li11g"za'
statute, Courts should refrain itself V. it
upon either adding, altering
language used in the statutory p'r.ovision ur;1.ess" it'Ie'ar;lsp
to unreasonable or Linworkablity of" the said lprovvislion if"
it is to be so read and that strict
Construction of the l'ai_nguage 1:.1secl__ "the section is to be
made. -------- \ilvi'o,i.w1.lci'--..delabo'1'r'at-ell his submissions by
contending 'th_at:"ass»es'see in question had commenced
its prodr1c.tio'r3 the'a.ylear 1996 by purchasing land,
plant"&---.--n1achinery worth Rs.5.2() crores and
V valne & machinery purchased was Rs.2.60
c1"ores ar1d._=the assessee had to satisfy the condition
stipt:laltA(:d under Sec.lO~B in the first year of
corriijneilceariierit, of productior; which according to him is
the plain and n11a1nbigt1ot:1s language employed in
4/,
He would submit: that Sec.80--J(4][ii) came tip for
Consideration before this Court in the case of"CI--T"--vs.
Nippon Electronics reported in (1990)
whereu11de1' it was held that a.ss»es.see"1i,otVV1"u'1:fil1ie,dV'
the stipulated condition U/s.
year of ma.m:facture behest . 'vjreliei'
U/s.80--J in the suvbs.equentuV:§2eai"*-.1inciei"consideration
namely 197344 to enunciated
therein was facts of the
present for answering the
substvantiait «i'n"i'ai§rour of the Revenue and
against the j'SV.?-tq.)poi"f: of his submissions, he
relies upon. tf1e_fl-)1io--v»vii'i'g judgments apart from the one
aL{oiz'e;»_reieir1'ec£ tor" """
T. 3163 KANHIYALAL RAMESHWAR DAS VS.
COMMISSIONER OF INcoME:~'I'Ax
(2)__w 23.7 817 COMMISSEONER OF INCOME TAX VS.
SUBRAMANIAN & Co.
(3) " 2__i1~i ITR 646 COMMISSIONER OF INCOME TAX vs.
I.\/{AYUR LAMINATORS
W 41 STC 409 POLES"i'AR E1.,i=:c'1'RoNI(: [P\/T.) LTD.
vs. A1)D1'1.'IC)NAL C()MMISSI()NEL'R,
SALES TAX & A.N()'i*i-H212
V X5] 48 STC 239 ASSIESSENG ALJTE--IORI'I'Y (rum E>«:(::s£:«:
ék/,
& TAXATION OFFICER, GURGAON 8:
AN<)'m1«:R Ex-\s'r INDIA C(_)'7~*I'()£\}
MFG. CO. Ina).
(6) I 18 ITR 45 COMMESSIONER 01+' IN'(:(>M.::.5'fA,'§£es. .,
BOMBAY» 1 vs. Suessx;v;"'1'I:x*;':1_,:«;s,__
BALL BEARING 8.: PR()1)_i.}C'R'.~3.V[P.) --
LTD. .. . --
(7) 714 ITR 734 PHAG00 M}5J.'C":-AN';f V s
Cc>MM1ssz_;>NsR err 'm%com--=mx, :, A
P/~\'.1'IALA ' V ' _ -. «.
(8) 91 ITR 566 CAPsu.1A'1'1oN.vSi:Rv1<:.13s Li;'D.% V
vs. CQ:v;£\4Iss1()NER..oi: IN:eeME--TAx.'
BOMBAY.CrryI ' V;
(9) 101 STC 1 .zS'1~A-pg:"Z:L,;:.VE:I;'CQMM1'i*1"'£:E"&
' ---- }1No*i1'HEj2. Vs,' ORGARDSHAMMAR
H'sI'[A)IA'L':£'I§)V.
(10) 139 ITR 85 _--"'STATE o;=.eJHAR1»{HAND & OTHERS vs.
AMBA¥.C'eI1yzr;N'1's& ANOTHER
10. 4Ir1."'0Vr."de--;: ,td-.is'a1§'preeiétf:e-the rival contentions,
we are of vtiiiie...eC»nsider.e_d-- View that same has to be
examined under the foflowing headings:
' "[1] Pr0'vi.sViVOVns of law
{2} A1 of Horfble Supreme Court and
Courts
A (3) *F of the present case
(4) Din' discussions and findings
V The assessee has claimed deduCt;i011 of its income
10~B in respect. of its Kunigal Unit and claim for
-"~'(jCd{,1(_'.U.()I'1 has been disailowed by the Assessing Oificer.
2""
E
'I'ribt1na.1 has examined the provision of Sec.80~J(4)(ii
while considering the grounds urged by the assessee in
the appeal memoranciurn. Explanation I 8: :?fi.o"fShu.b--
sec.[2) of Sec.80««I having been made
clause (iii) of Sub-sec.[1} of Sec.10--B;""s.arne"w.:is--_
extracted. Hence, these provijsioiis a,1~e to,_b-3
considered by us for answering th__e:'sVubstai_1ti'ai question u
of law formulated herein al:)oV.e and thesev-._prt)Vi'sio'ns as"
was prevailing during the assess:r1_1ent"'year in? question
are extracted as under':~i.
(1) PROVISIONS-12oF 1.AI§:"-ff V
Sec, protfisioris in respect of
newly T.estaEiisfie£:i ._ v:'I1"1i'1n'oV::;.i1-ed percent export-
Ioriexiteid. v11.Iiid.ert1ai:i;1gs -
(1)VV"St1bject._"tIQ_ provisions of this section, a
dedactivon of such profits and gains as are
Vderivedvvhyi a hundred per cent export--oriented
from the export of articles or
V ' or computer software for a period of ten
"consecut.iVe assessment years beginning with
the assessment year relevant to the previous
year in which the undertaking begins to
manufacture or produce articles or things or
computer software. the case may be, shaii
We
be allowed from the total income of the
assessee:
Provided that where in co1nputi.n_g__'4the:a:tot.al
income of the undertaking for any"
year, its profits and yAAygains'."had:t'_" *
included by application jjthe
this section as stood'v.irrimediat.ely*befor§.j.its-,p
substitution by Act ._lC},_ the".
undert.aking shal1y_'en'titled. to --t,he_deduction
referred _this;;_vsiib§se'ottion only for the
unexpired period .-fi;Lfo'1'~esa.i_d_'i:en consecutive
asse'ssr_nen§L
"also" ~t_ha't inofldeduction under this
.allov§§*ed to any undertaking
'_forlI.[t.h§ii.%.;ise.eSsment year beginning on the 15%-
: 4day.of".April«,.. and subsequent years:
that for the assessment year
begieiiiiing ion the 1st day of April, 2003, the
"deduction under this sub--section shall be
per cent of the profits and gains
it 'iv-V'tjclei"ived by an undertaking from the export of
it ' {2}
"such articles or things or computer software.
Tliis section applies to any undertaking which
fulfils all the following conditions, namely:--~
+l(1-
it maI1L1fact1.1res or produces any articles
or things or computer software; "
it is not formed by the splitt.ing_,' tip-,Vi_'or."'t,he
reconstructioii. of a b13siness""aflreati§«;__In
existence:
Provided that this co11cli't'io--nf» s'i'1Va.i'l_ r:._ot"
apply in respect. out any «t_;1'l.dertaki«_ng which
is formed as {a 5:-esu.1t, "of" the...'
establishment, recon"st1*L1ct.io'n " or r'eVival,
by the asseissee of '-the VbLiS_'lIlf3SS_VO.l: any,'
such 'underta;king as 'is "-reierried to in
Section 33-B,_____in..v_th.e circurnstazizees and
within. 'the period ssjpecified in that section:
it is n6i:.e'fo1*m_l':eti {lite transfer to a
new bus_iiiess__ of "ma'e.};--i21ery or plant
ypraiviojisly '1;.se_d«..for any purpose.
of Explanation 1
subsection {2} of
._ apply for the purposes of
'c1ausel'¢"€41'i} --tliislsubwsection as they apply for
lfhel'purpos_es'*'of clause {ii} of that sub--section.
~ir1 respect of profits and gains from newly
I .Al.i'v-indusiiriezl undertakings or shops or hotel
bu'sine_ss ~1'I«=_1" certain cases -
sect 80J
E1] 1; x x
(1A)xxx
"{4} This section applies to any industrial
undermking, which fulfils all the fol,_lowi11g
conditions. namely:
[i] it is not formed by splitting
reeoiistniction, of a b11s1r1essalready"ln'--eXis'tenee;»l.
[ii] it is not formed by -.m..
business of rnachinerype or p1ant'--preVio1':;sly "';1sed"=for--..
any purpose: b _ __ V
Explanation 2 w Where o«f:anVpvVihdustrial
undertaking, or any part
thereof previously fog?' purpose is
transferredgto a the total value of
the orppliant -..or:Ivpar'tms0 transferred does
ietthe total value of the
r11ach.in'e'ryV in the business, then, for
(ii) of this subsection, the
eondit-ion' speci'§i._ed~.-'therein shall be deemed to have
.§¥.bVee'n Co.n'ipEied_.witoh and the total value of the
nilsaeliijnery or plant or part so transferreci shall not
Vbfir"5:£1l{Efi71_.:~'l1'lJ[0 account in Computing the capital
it emplojzoed in the industrial undertaking."
301(2)
V 'A "E.icplanation 1 -- For the purposes of clause (ii) of
fithfs SL1b-S€;'CljiOI1, any machinery or plant which was
used. outside India by any person other than the
$6..
._}»x
_]3-
assessee shall not be regarded as machinery or
plant previously used for any purpose, the
following conditions arefulfilled, r1arnely:;t..__ " . _
m; such machinery or plant was not, at__VVai'iy..tir:ie
previous to the date of the ir'1stalla'tio'n by the "
assessee, used in Inclia; ' ~ _ V
it»; such machinery or planigisliniportedlintc-_Iridigf
jrom any country Voutside"1'nd'ia; and' A . V f V
{{7} no deduction on account of 'depreciation in
respect of such mac_h'iner_i,{ of plant has been
allowed or iis~..ValloLvab'ie 1' under the 'provisions
of this Act in .contnu;.i'ing"--.the"total income of
any person for any'vpei'iod_ to the date of
the i.nstallatio'n=oj' thefrnachinery or plant by
tl1e§~a;3se'.ssee. ' ' "
Expliana4tion"2. §""§li571ere:.:in'=.the case of an industrial
itndertafcirigtjfi-1 "a.ny.;"n1ach'inery or plant" or any part
thereof' = used for any purpose is
t'rans)'erred- to"a ne"u)44lJusiness and the total value of
5 the znacltinery or plant or part so transferred does
exceed' ltweniy percent of the total value of the
~.jAn1achVir1er'y or plant. used in the business, then, for
of clause (ii) of this sub»section_. the
cojn'd.~it«ior1 specified therein shall be deemed to have
lo-e__e'n complied u2it"h."
"=_.Sec.80vJ was the su't3_ject.--matter of consideration by
fa Coordinzne Bench of this Court: in Nippon
-$9»
Electronics reported in 181 ITR 518 and it was also
Considered by the Horfble Madras High Cout£e..VVinfi".the
case of Gopal Plastics reported in 215
these two cases, the stlbstantial»g_t1est.i0f1"of:'laWV.which"'V
came to be formuiated by the ;*C0u_j'rt.s' are 'e>_<'t.raete.ei"=:iE11
comparison table below:
Nippon Electron-ies
'll ' '-- ll' 'Gopal 'Plastics
Whether on the facts"--ai1d
in the circumstances 'of
right in _. l.aw_ holditrgg
that " the _
stipulated hunder
[4?,{ii} were tile':-fttlfii-led in
it
fdisen«titlejda to relief under
the ease, the_'i'n_c0me~tae;.'«
Appellate ;""I'rtb.t1nali 2:1-sf
n0tWith'standifi'g_ the" faet '
cojndi'tioms~"
W88
S.er:_.80;J.Va}th0ugh the old
"mael11ne;2"y was less than
,;thje prescribed percentage
that the assess-ee of "200/0 during the
entitled t.O~.tget*--i;;the --.__1*e.l__i'ef «--..trVe1evant year, but in
under "-]SVec.'i_ .4 excess of 20% in an
' earlier year?
initial year? H .
the ease of Nippon Electronics has
rt'-:'"1"e.1".1'e:(:l. Textile Machinery Corporation Ltd. vs.
" (vI'£;--.)77) 107 {TR 195 (SC) whereunder the object of
A7-Vehaetmetlt of See.80»~J came to be eonsicieired, analysed
and explained by the Horfble Supreme Court wherein it
has been held to encourage setting up of new iiidustriai
uiadertakiiigs, the said provision was bro11;_gjijt_l"i1jil*.._by
offering tax iricentives and the relief is .
the said provision in respect ofprofits _aiid'g_aiiis of azii"
undertaking to the extent whieh i'iot"~
amount calculated at the 6% ..eetpitai=.l'
employed in such indfipistriailo_t.1iidert.eki1ig;A held in
the Nippon's case }
"There vC41fi.I:'l€':.__l'LU0:'eI,§1't)e":'l:i(;i."_,§l 'to-_t)eVl~notieed in this
conriec§*.tioreie§i'l:'._V_ pereeritoge is to be
iuorlcedi:_o!;it on depending on the
the preoious year in which
is employed in the
unldertcikihgll rate of 6 percent. The
l"second" islltlhat the capital employed in the
tiiiidertakingljllldiiring the previous year relevant
it T. fissessment year has to be computed. in
ilie.V--V'i:'_1oj'ilr1er' specified in, the provision. or under
i~--he"lliiles, as the case may be. After the
edpital is so computed, tax relief to the extent
of 6 percent or 71/2 percent thereof' is to be
allowed. The expression "per armurrf' cannot'
be understood in contrast with any broken
-7"
and applied to the facts of a case. Hence, these
decisions are extracted helein below:
in the case of Polestar Electronic
Additional Commissioner, Sales
reported in 41 !TR 409, it lies :L1:Iu"V1't"ll€E'lV".
"A statutory enactrnent'._ lfnust 'vC.ll'-£Il'vlil(1J"ll1g_. "be
construed according '!'o'i.he plain nat'iiral{ meaning of L'
its language and nollrwords he added,
altered or lTlOd§l'lC<'(_i plainlgnecessary io
do so in order 4"to_e.'pr9eIi=ent from being
unintelligible, a.r'5s'urd;, unworkable or
totally: of the statute.
is firmly established
:"and' recognition in numerous
"Whe.na'ihe're"'_are two expressions which might
' " haoelu-sed convey a cert'air*
athoseé expressions will convey that intention more
"clearlg:'t=Iian the other, it is proper to conclude that,
u7.tl1e;=."legislature used that one of the two
expressioris which would convey the intention less
it clearly, it does not intend to convey that intention at
all.
XXX
ini"ntion, but one of
In construing a taxing statute "one must have
regard to the strict letter of the law and noirfnerely
to the spirit of the statute or the tile
law". If the legislature has failed
meaning by use of appropriate
benefit must go to the taixpayer}
any doubt as to inte,rp_retatioAn;'w--ti' mus'i.be zresjobiutiea
infavour of the sul:je::'i'.».f'.
b) In the case of Assa.$sin.g Eitcise and
Taxation Officer,' hanother vs. East
India Cotton Mfg; seoj; Ltci;iereg3ob;t¢t«ii':n 43 rm 239,
Horfble l:ié'}ci--~2;is under:
according to its
fiplarin it neither should anything be
nor'b':shouI;d'4anythmg be subtracted unless
_ _ there. are Vq,:zequa:é grounds to justify the inference
the "iegis__ta:ure clearly so intended".
Ir_1vi'A'ce;se of State of Jharkhand and others vs.
V".(:$:e~II1ents 8: another reported in 139 ITR.
' ' Supreme Court has held as under:
it it Mr. Bharukha further submitted that in taxing
statutes, provision of concessional rate of tax
should be liberaliy construed and in respect
5%,,
of the above submission, he cited the
judgment: of this Court in Comrni'.ssioner of
Sales Tax v. Industrial Coal Enterprises
(2992) 2 sec 607' and in the C£1S€vv.(}j.».l}l'f.3'C§fC'lj
Tempo Ltd. U, Comrntssioner of
(1999; 3 sec 78. l l ll
eoun tenance the above, . .$ub--r*nis"s.
view, the provisions of. fie.l>te.nn1ottof1"felaztse
should be stric_tly lconstruedfi.and
condition ur1der'v--,ttLti5hici1 the 'e2_&ernptton was
granted stood Achdnged.._ on aceourlt of any
subsequent}eoe_nt';_ 'the'V--_lex:enj,z3tion would not
operate.
Outfllviétifll anekceptton or an exempting
l' l_ "taxing statute should be
"cor1st'rLlted" .s"trictly and it is not open to the
.. Indus Policy and
'0Zt_Fl to ignore the conditions prescribed in the
the
F)'
exemption
l not-Ifieattorts.
our view, the failure to comply with the
requirements renders t.he writ petitionftled by
the respondent" liable to be dismissed. While
mandatory rule must be strictly observed,
§,
We are " unabllle T. Vfiol' *
1'n otirl»
gt-' " the
1
I»)
'J!
subst"ant:ial compliance might suffice in the
case Qfa directory rule.
26. \/Vhenever the statute prescrthesltl'
particular act is to be dor1e~'-"in particul_arw.
manner and also lays _dou2r1 t'l1at:jat.lttre to
comply with the said r'eautrefi1er'tt.
severe cortselquenees, such'
would be martdatolru, It is theeardtfilal rule of
the irtterpretatitorg. atvl"ttt;;;,.t{"..,.LUhereA a statute
provides that al'V'vpart1_'<:_ularvhthing should be
it tn the manner
rgotfo' other way. It is
1 Vctilsaselttlelduruleliofirtterpretatton that where a
llll H character, it must be
strictly.:Corts.tru.ed and followed. Since the
in the instant case, of obtaining
p:'iorperr11ission is mandatory, therefore, nort~
ecompltalrtce of the same must result in
eahcelltrlg the concession made in favour of
V A j_ grantee M the respondent herein."
J:i3)e1v:1«:N'r"s RELIED UPON BY Assmssm
ti) "IfI01'1'bIe Madras High Court in the case of C.I.'£'. vs.
9' Gopal Plastics (P.) Ltd., while exami11ing the Claim
of assessee to the relief under Sec.8{)«~J of the Act
answering the substantial question of law extiseted
herein above has held as follows:
"The Supreme Court has approuedlli .
judgment, a judgment of the l'
Court in CIT v.SaiI1th:a and'
(1971) 82 rm 778 and tl'1at'o#_)i."lthe'.if?iAJ..r;jab efmrlr
Haryana High ~..i_'n theV__coseiv.vof._;Phagloo
Mal Sant Ram 13. [:'l',:9't?!9x} 74' rI}n73é;; to the
extent that l in other
business cannot narrowly
as the assessee
onig d'isa'orJrovedifg' the illéornbay view that
Fm; '_ is established in
V on lease, then, it always
V of the undertaking by
'transfer'V.'of ~.tl1e.-tbuildirlg previously used. The
'V testllithatvfollows from this judgment is, is the
V Eausiness or the undertaking the same old one
or it changed beyond recognition and
is it a new business and a new
undertaking, to which of course some old
plant or machine is transferred, but such
transfer has a nominal effect, i.e., it is within
fig/_
the limits as indicated in the Exptanation
ajorequoted. ' it
For the reasons above, we are in.c_li'ned- 't~o" 3
agree with the Gigjarat High Court.'--s 'vie-tit?' * V'
hold accordingly in t:'he_x:éas_e ofth.e'
before its that it has niade:-oat i
undertaking is a, smatt'----.sca.le i
that in the year 'gdretvious to of
assessment, it flag V. the " r*equirement's
of section 8i)JR:{4}A (iii) The reference
is answered__order as to
it V
Their' agreed with the View
i¢io'n_'_i§1e_'Gujarat High Court in the
ease of C_.V.I;»'"_Ihj.._hirs.g:i'S«a;=teHite Engineering 2{.td., 113
_ ITIx{'«2O8V Vat1A':3ar1:ie also having been pressed into
vstervicehh"by_____iearned Counsel for the appellant,
a-ssessee. same is extracted herein below:
2 V";tC,}cx the taxing authority was required
gtiolg determine whether in the year of its
fohrrtiation, that is say, coming into existence
by incorporation or otherwise, the newly
estiablished industrial undertaking satisfied
the conditions jor the applicability of the
% tttt
provisions of section 84. Alternatively, it was
urged. that the latest point of time by ref'er'eriee
to which the applicability
ascertained was the date 1 V'
commencement of i7iar1iyf'aLftrtir'e.'or'"p--tOduet'tor1
by such undertaking. . . . ii}. i. y f
satisfied either in, the yea'r_ offoIT:nation'=--4orr V
latest in the ye%:_--..,,,4.Qr iio:nr;zggf:;;e'n§;ént of
rnanufacture or pzjodticttion new
business the it would be
available in relevant to
the_.p5ev*_ious;_ rnanufacture
the H irnrnediately four
____ years. If, however,
the not satisfied in any of those
two ="t'he benefit of tax holiday
if/ouldy note available, even if by subsequent
addit'ion__ ____ _o_;' an entirely new building,
ntatjhiriery or plant or part thereof in the
of any of the succeeding four years,
total value of the previously used
building, machinery or plant, still in the
employment of the new undertaking, fell
below the statutory percentage. The
submission in other words was that the
')()
condition 'for earning tax holiday was
inextricably linked up with the previous
relevant to the assessment year in u.:h._ich'tslie
new undertaking was formed. or ii began-to. V'
manufacture or produce. ,__articles;"Utjhai' Vlitgs
satisfaction or otlterivise ho.-d to be lcori-sidle-r_ed;;~
at that point of time' aloneand iih.-gii ii u5'as<
not so satisfied. ihue"i--i,beneji«i: lcouldlfriolf be
claimed in the SLiCC€€}dl?'lg'_fb_LlF gears. x x
x x x For the 84{2)(ii} all
that whether the
p--roi;iuctli:oeVll apparatus of a
inclufslrial undertaking or,
in'~ aWpre~exisi'ing industrial
'unde_ri'al<:ir1g.._.that. of its new business, is
farmed' _ of: ° .th:at' is to say. consists of
prei)'io_uslg used building, machinery or plant
transferred to such new undertaking or
l"-v.,_:il34us:ir'iess. The point of time for the
V' 7apb¥.icabilit.y of section 84 is prescribed in
. s-i;ib-sectiori {7} and, accordingly, in relaiion to
" a new industrial undertaking, the said section
is _/irst attracted in the assessment gear
relevant to the previous year in which the
undertakirig begins to mani_i]'acture or
v3l)~
produce articles. Therefore, it is in the course
of assessment to incomemtax for H such
assessment year that the taxing authori4ty:'i;aill Vi"
have to considerjor the first time V'
new industrial ur1derta_k.it.i,g_z.vc;s,"ciuréng' the
relevant previous year, by.'trdnsfiér,___oj7;;v, it
building, machinery or"---plant ugfliicgh' 'warts.
previously used hfor-v..;(ng,; purpose, so,
whether the condition ltoggstiatutorg
percentage iri"v--t,iviei'p,roviso to sub»--
section {3} '°AV.'rieu;«V"business, at
the ,st'c:ge--oj' cotning&:'inito. egtistence and long
l),ejot_eV"~~tl_teV or production
V ____ _,coi??,ttien_g;es, flarfie axcquired or be
pOssle:sseVd.goflprepiouslg used building, plant
or rnachiriery--~._:u;'hich might constitute but a
j"r'ecitiionV entire building, plant or
maclitI'--1erg___'wliich it requires in order to start
;"'.l:irian_u]acture or production. By the time the
' v.'H.stageV.:of' manufact'ure or production arrives,
_,hou:euer, it might acquire and instal new
plant" or machinery of substantial value and
l in that manner, the whole manufacturing unit
might. b e set up at a subsequent stage, that
is to say. not in the gear of birth but in the
éf
year of commencement of manufact'w'e or
production. Could it ever be said in siic{h*.a
case, inspite of the clear terms of subM--sec'tio*ril'~~.,
(7') read which caluse (ii) of'sizb~sectio----r'1(2f}: ~
the explanation to subsection."I3}--~::t'hai». the
benefit of tax holiday
to such new industrial u':1de.rtaking'?" «In o.u'r._ l'
opinion, therefore, "must
be rejected out'r1'ght:,_....l:'~_ ' hi
X x x _e:'cpiain-edit'earlier._ the scheme of
the statute is_to'l' avaitlab'te__i1he benefit of
tax 3 hol.ict'ag la '_j_of cofrisecutive years,
the 1E3Oll'fll' of such period being
____ relevant to the previous
_yea1¥ginViuii.ic'h__ the industrial undertaking
'*Vbegins_.'to'V_n*tarii,;lacture or produce articles.
Acco'rolin.gl'~.i'o"...~this scheme, there are two
limit'aiioris___on the claim of a new industrial
ur1*dertakiI1g to the benefit of tax holiday: first,
benefit will be available for a total of
period would be the year in which the
rnanufaciure or production of the article
begins. x x x Therefore, in each assessment
gear falling within the fiuegear period, the
question. will arise whether the new industrial
3:
undertaking. which claims the benefit of tax
holiday, satisfies the conditions laid down in
clause {ii} of sulrseciton (2). In other words,
according to the legislative scheme,"
apparent that in each assessm_en._lt'
cornmencing from the assessr;je'nt'~,:gearV_l_'i it
relevant to the previous....y.ear it
new industrial bcglinst:iVs'
manufacture or; _ production lthe:
authority will have'-to-lconsider'
industrial undertakin:gv--.u}as forrned, the
transfer to of building,
machinery or 'used for any
purpose;-and, if 'z;ohe':'her_Hthe total value of
Vtr.an.sjerr'ed asset exceeded 20% of the
V total building, machinery or plant
used in, business of such undertaking
'V during-wthe__rclevant year. if the new industrial
Diindertaking, which has not satisfied such
any of the earlier assessment years
_.lco.jmiprised in the fiveeyear period, acquires
new building, machinery or plant during any
one of the succeeding assessment years and
as a result of such acquisition the condition
prescribed in clause (ii) of sub-section {2} is
-33-
fulfilled, then. asjrom the assessment year in
which such condition is satisfied. the be:_1_efit
of tax holiday will be available to V.
remaining period ofthefive-year terhi. ,\<_}ie-it V'
The view which we are _inclined"to'_jt'alCe"as
aforesaid on the plain lar1g:u.ag»e 'q;"z;-he. statute ;v i .i
is supported alsoby the ohjectbehtrld the V
enactment and avoids the such
object. We .haveVAo.already_ advert.ed_.:§to the
object' of the 'e.r?JaCtmeij_Krtvil. to encourage
the setting up_ §¥nd:ii.slt1';ial_l-undertakings
in rmgrei investment of
legislature could not have
V ____ that this of substantial capital
for't}:z2..Vpi.:,rp«ose,l__of new machinery, plant or
'building':_sho'u_ld~.necessarily be in the very
Vyear, the commencement of
niariufocture or production. In fact, there are
many industrial units which add to their
or machinery or plant as the business
_ 'gs:-gangs and more capital becomes available. if
the construction for which the revenue
contends were accepted, such industrial units
would be denied the benefit. of tax holiday.
even though they are still going through the
,-34-
teething trouble and are still in their infancy.
Such a construction would totally riullify the
object. of the enactment. A converse case..than._
the one illustrated above would, ll{)LL3t:';"iS-'£'.lF_f,V'..S_:lfll~l,I
clearly show how the corisiructiioriforvivhich'
the revenue contends will" lead -to al"rnanife_sAt
contradiction of the ap15are;r'iiA.piiipose' :the"i.T
enactment. Take.=ihe of" an"'indiistrialll
undertaking LL'hiChllllif1:.Vll.l1€ it
undertakes V or begins l.rrianuj""act'ure or
production, enacted in
section .84(2){ii}'-- read' lijilll I the 'ifbqjllanation but
in year adds to
machinery or
plan'i'-".iial_i'i"eJ1'=has__ been previously used and
ratio of the new and old
assets. _'{f the only point of time at which the
V condliti'on,__as.to the applicability of the relevant
.Ap.r4§jvisions has to be satisfied is which the
it WT-neiv~..undertaking starts the manufacturing
. .activity, fsuch an industrial undertaking which
l';_subsequent'ly adds used assets to its new
l business will continue to have the tax holiday
for the full period o/'five years even though it
has in fact and reality ceased to be a new
5%
industrial undertaking. Could it ever have
been intended by the legislature that :'the
benefit of tax holiday should still be
to such an industrial iir1dertakir1g.."'i}-1 *
subsequent years ever1_gtAhough'.'th'e .4
condition for earning the
satisfied in those g.asses'smeI1t yet1:"s?v ' Itfiis, 'V
well settled that ve'v_iegin.._if the l'cg;;g;.of' a
statute in its Aordgiriary rneaningii and
grammatical 1str_uc;tion to a manifest
contradiction t'he.'Va;ipcreriAi'.i'V_'p_urpose of the
ena;.:tn1e"nt, Lori: Vgvhirlconvertience or
iryustice, presumably
may be put upon
it. u}lt.'i:fl1_ 'modifies meaning of the words, and
ueven the sentences {See Tirath
Sirtgh . VD",-BAa--c'hit'tar Sigh, AIR 1955 sceso).
.n_ot_a case where the meaning of the
is to be modified or the structure of the
' ...,"j~.sVerftt'ence is to be changed to achieve the
.'le'gislaiive object. At the highest, this is a
case where the language employed by the
legislature might be capable of bearing more
than one Construction and, in such a case, in
arriving at the true meaning. regard must be
had to the jact that such construction is not
adopted which defeats the very purpose'l'_:for
uahich the enactment was made.
opinion. therefore, even the '
submission made on behalf off't.lie~--lfeo'enue '4
must be rejected
(iii) Sri Sarangan, 1earned_v"'S_enioAr'~ .3als0=il'
pressed into service, thel'judgment* Apex
Court in the Cause-t_0f C.I.T.
(SC) reported in it '_:1:l8"£$V.L§vif;ereunder it is
held aSVfrj:liQWS::'.l~~-.~, g ,
should be to
find was a new one.
_v s_atisf1'ed, then clause (i)
shouldbfe. 'reasonably and liberally in
keeping spirit of section 150(1) of the
doing so, various situations may
arise, forWinst'ance, the formation may be
anything to do with any earlier
'V l That is, the undertaking may be
without splitting up or reconstructing
it :any existing business or without transfer of
any building, material or plant of any
previous business. Such an undertaking
undoubtedly would be eligible to the benefit
without any dtfliculty. On the other extreme
may be an undertaking. new in its _form}bt:t
not in substance. It may be new in r1an1e.oVt1l.y; *
Such an undertaking would obvtottsty 1 "
entitled to the benefit. _In. _l_9et'u;elen"
there may be various .-other'... 's_it'uation_s.'V:.;V. O
Dtfltcttlty arises only in such (?ases.O' For?
instance, a new Congjarty ntay as
in this case__..-- a cou1.d not be
disputed. eue«nT'b_y 'thej_ Officer. But
tools and tntplements were
trartsfetrkéd :=to .; previous firnt
T:eclin.:ca'l*ly V spe.akVirt_a,"t._V ttj_ ' was transfer of
_ .... ..n1ate'rtaE;;,__used.__tn "a..__prevtous business. One
vehemently urged by
learned" for the Department, that
wherethe Alanguage of the stature was clear,
there"u.~.as___r:o scope for interpretation. If the
A s.ub--missior1 of learned counsel is accepted,
Vb 1 once it is found that the material used in
..t.ne'ur1de:'t'akir1g was of a previous business,
there was an end of the inquiry and the
assessee was precluded from ciatmtng any
benefit. The u.=ords of a statute are
undoubtedly the best guide. But. if their
-33-
meaning geiis clouded, then the courts are
required to clear the haze. Sub--sect'ioriig".'}2)
advances the objective of subsection
including in it. every undertaking except ~
covered by clause (i) for iuliicii it ii
that it should not be j;b'g
building or niacliirzergb resVi;;n}etio'nlV
denial of benefit arises n'c«z, b-g_1iransj?2'r" "of
building or n_1aterial____t_o'~tlfie__»I1eu:' but
that it sl1oiild..._zr':1'*3t' bfie'by_ such transfer.
This is thew .-'inte'1%pV(etaiion. The
jornzation slioiild transfer. The
jorrnatiobn not on use.
____ 'it:__'i1stA'nc;.t' transfer of building
one which can be held to
__hai>e' in formation of the
Ltl'l(1,éf'1(X}$Tifl'g.h.V ' "
v R1%:i;sE.n..U1=oN BY REVENUE
Kumar, learned Senior Counsel
ap§3'e.a'Ifing for the Revenue. has pressed into
.<,-;erv1~£°:e several decisions and in particular has
n relied upon the following decisions:
(a) Kanhiyalal Rameshwar Das vs. C.I.T. (Raj.)
(1985) 156 {TR 463
"A little deliberation on the other wording
of subsection (4) {ii} would con/irm
correctness of our reading of this siib;se£§ti0h..
as discussed above. Mindjul oj".-the '
meaning of the languages ernplol}ed.:bgl"'it "in
enacting subesection {4J{ii} ganfd u'consc_iou.s..i_ Qt] f
the fact that the. said4Ylahguagel."_;takes l'
machinery prevwiislg'iisedlhjbr' agrig
no matter Lzvhether....sAuch".._guse.l 'uzas the
assessee or Aii:1_irc3iv;;filér:so}f'l;.g the Legislature
took Care to use words "(not
being"aljbuilblinglitakelnvlllorjihrent or lease)" in
» excleptiran in respect of a
____ even if previously
used.jorla,r1y« burpose by the lessor would still
entiitleggtiie to tax relief in respect of
the ca;§i~tal'..Vem;ologed in acquiring the lease.
it Houl}leuer,_ ____ the building transferred to the
r1_e"iv_ business is not a building taken on rent
lf~le,ase by the assessee, the capital
_.lefi_i;iloi;ed. on the acquisition of such a
building, if it happens to be a previously used
building, would not qualyyfor tax relief under
s.8OJ, subwsection (4). We may further
mention here that sub--section {4} {it} has been
W,
-- 4%} -
amended since 19?6 in that the words "a
building {not being a building taken on reritor
lease)" have been omitted from it
second proviso and the .
reproduced in an earlier part of it
have been inserted in y"Wejitdre'i'ri'ot
upon 'for the purpose Q)" this re_fere.neeVt'o.pV"
express any opinio.n*~r_,):1 the.__ l'q:f""'these
arnendrnents on th_e:=,_t'ransj'ler new
business of 'preliriioyusly used for
any purpose "
V;,ise:::i" machinery is
'.noj.'Vchanye in subsection
{4}~_(i'i) of its amendment in
E2§plai2.atioI1s which were inserted
_int'o L{;ub4s§c«:ion in 19?6 would. however,
_furtherVysV-_how if an industrial undertaking
jorrne,d___l:1y the transfer to it of machinery
preinlously used jor any purpose. the capital
On the acquisition of such
.'lrn_acliinery would not qualify for tax relief
under section 80.}. Explanation] deals with
machinery or plant used outside India. If the
assessee acquires such machinery, the
capital employed on such acquisition would
e
....-4.1V
qualify _/or tax relief if the machinery had
been under use by a person other tihan,_t:'7.e
assessee. Had subsection {4} V.
intended. to mean that machinerygoreuiottsly.1 V'
used by a person OII'hE3If_,i'}.1(J_t_Tl ti:le%t'¢¢ss¢ssee';+. K"
acquired by the a.ssesseez§'for' ,,.iii.s"rv'r'2ei,ia,.'
business, uiouidV9.qual§fij----Ap]br the
Legislature would n-.ot"-have felt necessity
of inserting. this
Explanation 'beer: inserted by
way of an excep.tton to "'svrvtb:..Section (4}{iiJ to
pr'oi5ide_tax reiief.t=o who acquires
oldtine!'Q-;]'i'o.nft""another person who had
_____ ' V VVV+_Tj.{'sub~section {4)(ii} was
to provide tax relief to an
VVassessee_h:V' of acquisition of used
rnachineryh another person, Explanation
uJo'uld_ ____ become redundant. We cannot
cithtrtbute redundancy to the Legislature".
. " vs. Mayur Lamitors
' £13995) 21 1 ITR 646
A "The burden is on the assessee when a
deduction is claimed by him to prove that he
is entitled to the said deduction. The object' of
section 80} may be"/"or industriai growth, but
E
*1
the relief can be given only when the
assesseejalls within the four corners of labia.
On an interpretation which is not sAi.1p_lport'eoI
by law, the scope of this section V'
eniarged. The assessee; r:ar_u1ot_--'be "eniitled"to
the relief in accord ance gwiiht ihisitesectioriit Vanda, .A
if the assessee does lnotflfall _ulI:i.th'iri V
purview of the exeinptiovr1,'--. . the
purpose of.' benefiifent leglislatiortl the
extended 'given. In these
circunist.'ances,V_]L_ue o'f'~.the':Vv.u-iew that the
assessee that. the
been contemplated
.... of Explanations 1
A°Clai,iseV___t'4)_'of Section 80.1 has been
~Tnere_fore, the Tribunal was
not J'ust§,fiect_hl inltholdblg that if used and old
n1aclh.'i:ieVry__&is purchased from the open market
~i'hejorI71ation of an industrial undertaking
1 abitl.:~~;1oi be a disqualification under section
. .E5:QJl:;{4) (ii) of the Income-tax Act, 1961. for the
purpose of deduction under section 8OJ of the
V l Act".
ti"
V
(3) FACTS OF Tim CASE:
The assessee is carrying on the busine-.s_se_in
manufacturing and export of fine chen1i(:a1__;§ind.,'_n.ef":;.s.i«_
medicines. It has units at Kunigal (Tuxizviniri'fiistrioifiv.
and Neiarnangala (Bangalorefl D»i'st1;'icAt*e}..
assessment year in question narneiy
assessee claimed to be anV__eiigibE.e undiertakifig under
Section 1013. The ass'essee'.Infacie .Ac'iaim in the return
for deductionéef '--uij1ii:..:fes"}.;)ect of Kunigal
unit from€.i't;s' In No.5{3G enclosed
to o:f*§:,in.cofne tiriefolioxaring qualification was
indiceiteci . %
_ " "me assessieeeontends that the plant and
vniachiaeryvvacqazred from M/s Kanfa Chemo
, _vsO:fg_a}iz3;: Limited amoumling to Rs.5.20 Crores
fall under Section lOA(2}(3) as the
S,<1iCi'1-.v.:nachinery was not previously used by
,. Vine Vassessee for any purpose which however,
not veryiable by us"
-44-
In View of this endorsement made or qualification
made in form No.56~G, the Assessing Oiiice'r.vwd;C:x_ibted
the assessee's claim to its cntitlemeiit foi:
under Section 1013. In
assessee through its audito1"s. sft1bii1itt;£:d &Vv}i=itte.r1
representation c0ntending_v""~.1;hat Kunigavi "§__i'1'nit Was» V
purchased from KanfavVv:A"'L1_nd_er agreement dated
28~3~1996 and entii*e'.id.n.it'- and building
was pu1~chag¢q'--for anw§Rs.5.20 crores
and the of this 14 items
value of the plant and
machi'neij_r w. It was contended
that afteVrt"acq11isition" intddthe year 1996 the assessee has
'~ _ Eccoiisiderable--additions to new unit by way of plant
ancitcpniachineiy of which major additions were made
aecotintirig year ending 31-3-2002 and the
machineiy acquired from M / s. Kanfa as a percentage of
t.he°'A_totaI plant and machinery as on 31w3~2002 at the
I7{u1'1iga1 unit forms only 14.22% of the written down
Q/.
vaiue of the total piant and machinery of the Kuniga}
unit and as such it was contended that disqu_al.i_fi~cat_ien
which was present at the initiai st.age_'-'stani;'.sf -.f{1l-Eye--.p
removed in the assessment ye_e1f.. 2002~éO3","-.x§ehich'_'=-in a
question and as such 21ssesseeV;'~wa1;:[3j"
deduction under Section
the assessing officer plent and
machinery acquired crores from
M/s Kanfa we:r'e.__ the earlier unit
and sub ciause
[iii] flc'O'rr:p}}ied and accordingly
exemvfatttdn Adihsallowed. This order of
assessment 'cam_e 't0"~.5e questioned by the assessee
and the first appeilate authority
the View of the Assessing Officer by
Nippon's case reported in 181 ITR 518
and ciismissed the appeal of the assessee. The assessee
pufsued the matter unsuccessfully before the Tribtznai
in ETA No.484/sang/2005 which held that the eligibility
"45.
criteria has to be seen in the first year itself, rejected the
plea of the assessee that subsequent fulfillniefi. of
criteria by way of investment in new machinery'i§'ro'u_Id.
not be construed as sufficient compliance . an'c'i--..
accordingly rejected the appeal 4'
(4) OUR DISCUSSIONS 8: Fimnnios:
The eligibility ciii_¢ria="t3;'s;'8VoJ(1) of""the Act is
provided in Sec.8OJ(4'}V(ii'}:'offthte condition is
that the tbeen fonned by
transfer to "n'ew"'hjisiness'=_of machinery or plant
previiousiyxAus'ed__V:'for'4.ai:y"_ purpose. As against words
"used 'fox; in the 1961 Act, the words
that were usec__i 'unc1'.3r 1922 Act was "previously used
'in: oiher business". Thus, framers of the
H ~.e'nahctVnie_1_'i.t 'have consciously omitted to use the words
"iii anyiither business" and have used the words
t""pr_evV'VibusIy used for any purpose". No doubt, plant
machinery which may be installed by an assessee
'insofar as that, plant or unit and machinery secured
-47-
during the year of Commencement. of production may
become "new" insofar as the assessee is
However. the assessee also has to
deinonstrate that. said n1achine1fy...0r_ "'
not previously used for any :"beii71g
instalied or being put into't'is'e....l:)y ti'1-enewl'
the eligibility is claimed for.
This aspect will '-in mind while
examining pressed into
service and from total
incoine into service eligibility
criteria. 10-- B.
_ _11. ijeadingyoffiec. 10~B{1), it wouid emerge that
it a;-special iirbvision extended to newly established
"_'_.Oriented Unit {ECU} which. entitles the
said claim deduction of its profits and gains
Ade1'iv"ed_d'by it from the export of its articles or things or
i' L:9_11_i.--pt1tie1* software. The period for which the assessee
V. ,,_..'W()tElCl be entitled to claim deduet.io1"is of such profits is
$5
-48"
not eternal. It is for a "fixed period of "ten consecutive
years" in which the undertaking begins to man1,1factu_re
or produce articles or things or computer
depending upon the activity ofth.e__assessee:'_':Thus,
would emerge that an assesses would 1il:;e"~ei1titl'ed"*t:o
claim deduction of such and
and it would be entitled dedyucytion for a
period of 10 the date of
commenceznent; envisaged in the
section '*~A__dyocates"VVappearing for the
assessee have canvassed and
addressed to contend that assessee
would be "er1t'it1e('l deduction in any of these 10
W.e arehr'e'q'dired to examine in the instant case
en:t.'it1ement. of the assessee to claim deduction
of._its incorne earned from its Kunigal unit from out of its
AAttotalvi_.AI;1co111e for the assessment year 2002-03 which
i' been negatived by the Assessing Officer on the
..n§grour1d that plant and machinery purchased by the
-49-
assessee was already put to use by the said concern
namely M/ s. Kanfa Chemo Organic Ltd.
this narrow sphere ie., whether the said
Assessing Officer as confirmed,
authorities which are fact»~ifindi_ngV
required to be affirmed or V
12. It would emerge AfroinL':rea4;l.ing' of vSec;ilO-B that
following conditionsl'l"vy_oul'd_Vffby to claim
deduction un.tler--.the;:'sVaid 2 " it
[a] . newly established 100%
I[b)_ haVe_ derived profits and gains by
A ' such unit
would be"ent'itled tlcylseek deduction for ten consecutive
yeai*'s;'_'--.i.:froin *** "day the undertaking begins to
_ "H1anu£aactui1<eV"or produce as the case may be. This
means_ in a given case, if the assessee were to
coninience its manufacture, say for instance in the year
it wouid be entitled to claim 100% deduction from
___out of its total income in respect of profits and gains
%/
- so -
derived by it in the assessment. year relevant to the
previous year for 10 consecutive years. This _.p.ri'p_ci~ple
would be applicable in normal (:i1'cumstan__cc--.s. pletl ~
us take another example __.wh_ere the'e..fV»assesse.e it
Commenced production or ma;1uif_ac;ture-- pi**?§d.l_ic--e
articles or things or COII1p1ll;€::l" ~v.s%oftvA{fare in lVt;he':..y'ear "jl995" V
and would be unable to d-erilife. j:.rofitsl'an.d..~§a.ins for
three consecutive yelarsgg' bt1ti:f,:voliildv"beVable to derive
profit in the then it would
arise as t<J'\aFt_1et?:1e'1f ass--es's;:.eei_W'o_:u1d be entitled to claim
for the"bralargcellperiodArernai'ni1i§ in the 10 year period
so fixed. ll would not be entitled to
claim delductioezip financial year which it had
p1fofitsll'Van--~d~gains, would render the provision
itself r;.-iigatory'- in as much as its is a special provision
rnade _to'r"?.e1icoL1rage the export. oriented 'unit. and
part.1c:tiIar1y when such EOUS would be able to earn
f€>_re'ifgn exchange for the cotmtry.
.
-5]-
13. A situation arose where the assessees had setup their units in Domestic Tariff Area (DTA) 'ii-ilqich was subsequemly approved as 100% EOU appointed by the Centre} Government..i.ri_u_:'*e;f{ercise of, powers conferred U/ S. 14 of the :.iAndiJ.rst:j:'ies» & Reguiations} Act, 1951, Va'r1c_1 the"qt:'estion*'V--i,gh:1ch before the Central Governn1eri:_Wa_s, Whether such £:§ir;.i_ VQTA wouid be eligible for deduction U./53;} .
The Board has1issuedHeii~eu3ar"'$io.,_V10'/20005 dt. 6/ 1/2005 (F No. 149 ciarified as under:
":4. beeri examined and it is heirgbby undertaking set up in Domestic' Tar§[]7.V_Are0a {DTA) and deriving profit vex1:§ort:__ofé.articles or things or computer 0 Softguiarev manufactured or produced by it, which _ V'0"u3.:VSubSeq'uer1tly converted into a EOU, shall be eligibie for deduction under section 10B of the income Tax Act, on getting approval as 100% " * 4_ export oriented undertaking. In such a case. the deduction shall be available onlu from the wear in which it has got the approval as 100% EOU ex"
and shall be available only for the remaining period of ten consecutive assessment t[€(155.fS.l",. beainnina with the assessment uear releigAa}1t'i§_§'~Vl.~l"~.. the previous wear in which the LiI1Cl:.éI"l'Cil:i'lll_:til it. begins to manufacture or .._o.roe_:_luce_V'ar'i*ieles":or_ things or computer software f Further, in the year of: approa;-->al;». the shall be restricted to ib.:e"~--proji't's.. exports, from and. a]'terl.-t..hle'vda.ie of approtiial of the UTA unit 00??/ti .:'M_oreouer, the ciecluetion to sucheealriits :anfyeea§se'-l"will not be available after assess.fi1en.t"i}ea,r_.2009~l O. "
(I by us} Thus;,lblllibtllvWo:nV1dfroinllllreading of Section 10.3 together' with by the Board above refewed :5 theirv'--in"'.a""given case, if an assessee was . 'opserati;n_g":-is a had commenced production and :w_a,lsi' lvbleovnverted into EOU, would be eligible for s.1.0~B from the year in which it has got the e.p.}5rova1 as 100% EOU and this deduction to be "t.vl(t:l3.i1"r1eci by an assessee would be available to it for .fe1z1iming the benefit for remaining' period out of 10 it consecutive assessment years beginning with the assessment year relevant to the previous year_"'s,:s/h.ich the uzideitaking had commenced to man1_izfaetii're produce articles or things or (_:o.r.r1_put.e.r""s'oftwai"e_'asza"
DTA unit. A combined reading O;
I & II to Sec.80~I and aboire"'~referred_ virould-it emerge that even inppcase.--oi:"pan"--».assesSeve,. which was operating in Domestie Eater on was converted be eligible to claim rue" Sec.10--B for the remaii1i'i'ig. years. Say for instance, the assessee" in Domestic Tariff Area (DTA) in 'asse_ssifrie'nt, year 199596 and converts the into in the assessment year 1998»99, "would be entitied to claim the benefit iioixiizig I;roi_r1i::Sec. 10~B for the remaining period of seven years_'_A'1exc1uding 199596 to 1997398 [3 years). However, the question that would arise would be favhether the condition prescribed under Sec.10-13(1) 7VS4VV namely "undertaking begins to manufacture" is to be taken or the date on which unit got itself "1600/0 EOU from DTA is to be taken is to be this jtmcture itself, it. would be _]'1.€(3CSSa"I"i/'H'f(j':§XlfE1¢l.Vlihfillll judgment, of Nippon Elect,1"onics=.Arefe1%ted"~t;o"
{TR 518), which reads as "The word 'j'bmied" VAalso'v--_st--:ggests--that the transfer cont'ernpla'ted'l--_Lisp' the time of formation of the nets u,I1.Clt?lll'(1lC2lT1lg-;~:l._.:Tl'l€ eligibility for exen1p'tiio'r~1 in the initial V" ,_ the exemption b_e.._j"al5'ailal":)VleV.:' if, in the initial asse.sstnentV_ proportion of old assets transferred for the new business is _aboue*.. 20 _peArc_er't~t:l Of the total investment, in"--Vany_'subsequent year, even 3' it be ualithinijiue years, new investment is made so as proportion of the value of the old 'lbelow 20 percent. Therefore, the elig_iblilit.y stands determined in the initial ' assessment year of manufacture. such benefit Vlcould be availed of in any of the succeedingfour years. In the present case. admittedly. the ossessee being not eligible in the initial year, the question of granting exemption in subsequent:
years does not arise. We, therefore, respeciful__l_y disagree with the decision of the Gujarat Court and answer the question in the and in favour of the Revenue."
14. A conjoint reading ofI_the_'abjoire Sec.1()-B as also the ci1*cular_.dat<§d__l6/ l / emerge that assessee in a Case: entitled to claim deduction of.._suchl__ p1j_ofits_'and gains derived by it as a 100% EOU be'?1'--n_rfiingAyiritiithelfassessment year releVa1'1't"etolAl.th.e V izvhich, "the undertaking beginsto 4ma.nu§actu,rle-.,.or produce articles or things or computer"-soi°tware;1.asathe case may be". Thus, year of ce$ii::I1?,eneemeVhtv~ ----- -of manufacture would be the 'e.fi:1:Vn"one else. At. this juncture it would be of henefit_tolr:e:;tract the decision of I"'IOI1'b1€ Supreme Court in th'eLcase of State of Jharkhand 8: Others vs. Ambay L_et;1ents 8: Another reported in 139 ITR '74 wherein it h is V held 'under:
-56-
"23. Mr. Bharitkha further submitted that in taxing statutes, provision concessional rate Of tax should. be construed and in respect of the-'..':.abotue-ht submission, he cited U18_Jj.t.t,dg!T1€fTtt';Qir:
Court in Commissioner ?__of' t-Saites, Industrial Coal Eriterprises (E3922) 2 :'6{')7°': h and in the case Of Commissioner offfncontewtax (1.999) 3 'SOC';/"8. We are unabte~..V:to_ the above submission. In t'he"proDisions of exemption clause stzriutd construed and; .Vcon.ditrToii_ 'han(ier which the exemmp né: : gran tood changed on Kaccounti-3 .Su_bsequent' event the exe mp tion . not operate.
in o,itr'~~--"oiew. an exception or an exempting provision in a taxing statute should 'construed strictly and it is not open to the .11_r;r1ore the conditions prescribed in the Irtdttstriat Policy and the exemption .. notifications.
25. In our view, the failure to comply u:it:'h the requirements renders the writ petition filed by the respondent liable to be I dismissed. While mandatory rule must' be strictly observed, substantial compliance might stifltee in the case Qfa directory rule.
26. Whenever the st.ai.ute preser'.ibe.s"._ that a particular act is to be particular manner and. also lays doiiin . t':'1a'i:
failure to comply with ihe~~s.r:iid. leads to severe conseqiiejiieesh, requirement would Vbea mandatory. , U18:
cardinal rule of the iriterpretation_ a statute provtfdes «t.tlt'a--t"L_:'a"partteutar «thing should be dorie,:iA'jit:' in the manner p_rescribed_a.I1d. not 'in. drug' other way. Vi1set'tted:: riile"'wo:]"':.int'eI;oretation that It is where'l5iipenal in character. it must be' and followed. Since the Feefu«if€fl1éI'it, in instant case, of obtaining it prior permiss_io,n is mandatory, therefore, non- leornbliartce of the same must result in the concession made in favour of the ijrdritee-tlie respondent herein a Sri Sarangan, learned Sr. Counsel appearing 'fo1"f't.he has pressed into service. Gopal .. .,,__.P1ast:.i(:'s case whereunder the scheme of Sec.80--J came -58- up for consideration to distingiiish. the decision of this Court in Nippon Electronics. The su'ost.antial_;qtiestion of law which Came to be formulated th_€5I{Tf3lI1i under:
Whether it was entitlediio although the old machinery-._vya.s ite:ss..;thaVn§ the prescribed peroen.tage'of 20%,. the relevant year, "brat iz1""exeess"t'Qf 20%" iii an earlieryear? _ C 'V While answeifirig the"»--sfuh'sta1itial.:'q£,iestion of law formulated. High Court has referre__d_ CIT vs. Satellite Engiia_ee:'inLgV by Gujarat High Court reported'i.;j1ll{197_é)t.l.1"J.:$= mg 208 which had taken the Vievyj that «VI,1ri_(__lertal<1'r1g which did not fulfil the »eonditions.:"fo_r the relief in the first year of eommezfierlieiét of production, but subsequently during the pei'iotl of tax holiday fulfilled the Conditions, enjoys tlie«.betiei'it of Se<:.8~<l (new Sec.80~J}. in these two Cases iiamely Gopal Plastics and Satellite Exigineering, what came to be corzsidered was the erititlemerlt of the assessee to claim deduction U/s.84(2.}['ii_):"<«.._'r/w Explanation to Subwsee.{3) on the the period of tax holiday, it ha_d~~a.cquiretd'viandé it .VvL new machinery and as such xvasentiitiéd._. no deduction. It is to be,:"noticed.__that'-.1iVri""'Sat.e}1ite" Engineering's case, it wasi--awease-.oywherethe}assessee through its factory on and with effect from and reality, manufactytiiiryg be commenced or started 2:11 the component parts required' of switches were not procured "and its products were not produced in its til} the'"=riew machinery was installed and contended that the first year of the forn121t:i(w1i'to:i"riew undertaking should be construed to be the yeaii in which the assessee setup its entire unit a..lon'f with new machine . This contention of the V' _assessee had been Ilegatix.-*ed by the Assessing Officer ~ (30 ~ and on exe1mi11at.i.0:o. of facts it was found by the 'I'ribuna.i, the assessee in the said case in th.:-)._}":-ear. of assessment had satisfied the corlditions _1-aid Sec.84[2](ii) and time Sal:e1li.t.e _E.11ginee_1"el'ca?§e .tE:1:rnVe'e-to be followed in Gopal Plastics. I211 it is opined that startingggoint of theiipiieiayuperiodi7 would be the yea; in "Elie ixianufacture or production of the there is no dispute on it would be of rlecessitygiio pertion of the judgment in SateE1ite"1E11Vg°i:neér'.ing Lt'd;~-vilherein it has been held as und_ef:
_"AccordingVV scheme, there are two ..«.{:.iiniitationS'*--V ovnfléethe claim of a new industrial ui1dett'a.l§ir1g to the benefit of tax holiday: first. will be available 'for a total period t' , Qffioe:g:onsecutive years only and, secondly, that it Starting point of such period would be the year in which the manufacture or
-Flproduction of the article begins". [Emphasis supplied by us) i
-6]-
When these two decisions are examined with reference to Nippon E1eei:r0nie's case, we find that e1igibiil_iiy:l't.est has to be in the iriitial assessment year and reason like not earning pr0fits__a.m_:i ga§.1lis"'i'r"Qvthe ,ir1Vitiii«;l1 V' years on account of its i11i'2inCy"'::'1nClAi0f1 EiL",CACA')'._1'r1f.' stabilization of its unit, as ifie case may not V be able to derive the benefit.s3fiOWi.I1g fr'o'm._ASei3.1O-B in that year, but would "be iei1igil:i'1e} te';3:Va£ii*» the same in any of the sueceeai1i_g y{_:iirs;"V:1J:1:eeV:f-iet isyfbund eligible in the initigfl" v~ci_,'i' .rna.iiufae'tfire,V_' It is held in Nippon EIeCti'OI1i£:S"jaS «i:i:1de'1~.:._ "':Iheré;'a5ie.i eliqibilitu stands dei'e.rrnirieLi .ifie:iniiial assessment uear and "mice an fridiisiriai undertaking is found ' _e'§igib.le in initial uear of manufacture, 'V _ "b.erie['ii could be availed of in any of the sueeeediriq four uears. In ihe present': case, admiiiedly, the assessee being not eligible in the initial year the question of granting exemption in subsequent years does not arise".
{ElTIpl'1CLSiS supplied by us)
16. The contention of the assessee is tliat in the case of Satellite Engineering and Suzane Textiles of Gujarat High Court and Orissa Cement I_.jt'ti';«' High Court by relying upon Bajaj 196.
ITR 188 (SC). it has been held=.y:tl1e-teen} installed machinery at a subseq1ie,nt pe1'i'od];iev._V, d.uring the period of holiday and year in which benefit is clainied if able to satisfy the co11ditions.laid it should not be deprived not be applicable to the facts'7of.eythe p.1jes_ent case. In the instant case, what his to be that Sec.lO--B stands on a sepa1'ate~and distiyiic-t"'*footi1'1g wiiereuticier the special projvision eexteiided to newly established 100% EOUS whiei1:,,yt.c4Aw£iu1d xlraecesysarily mean that they would be V exchange which would be the yardstick H .fo'r._V1<neas_u.rin;g"national economy. Hence, we are unable t,o"'e.cc:ed(:.to the prayer made by the learned Counsel for the t:hat: the provisions of Sec.80-J[4)[ii} and
-6.13- explanation provided thereunder has to be read in conjunction with Sec.iO--B, though appears at blush deserves to be accepted. it since the provision of See.10wB_"is a sgiecrialj,p$i'oViVs1on"
extended t.0 100% EOUS.
limitation for claiming th€'>}:3_§;:3'i1.(3fif. 'flooring would commence from the.t:u:ye_ai'.._VLAof.htxttanufaeture or production of the Condition is not satis1ied_::«'i.:i ezornrneneement of production; ' to claim such dedu s"tt.hsVed1Je*n.tvfiyears unless the said initiaiitest starting point of limitation had been'=«sdaitisfiedA.1, View of ours is fortified from '~ _ tllfeideeision oafi.hve..H'on'b1e Supreme Court in the ease of Corporation Ltd. vs. CIT (1977) (SC) which has also been referred to in Nippon'1.EIectronics India [Pvt] Ltd. by Coordinate of this Court, as also in the circular issued by ___ithe Board dated 6/1/2005.
+641-
17. Yet few other facts which requires to be noticed by us are as under:
{a} in the judgriients relied upon by learned'*Coi,ii;i1s§eAlw~. for the assessee namely Gopal Pigisti_(:sl'3bnd.'l Satellite Engineering, V.-rwh«21,t. 'éulfav./_jj.foi~:A consideration was int.erpéfet2itior1 oiT'Sec'.80giie---an?ci:
84 and what we are.consic}_erii1g i,r1"bt'he_ instant _ case is Sec.10~B those.2°decis'1ons, the issue rega1*ding "stairt'ing§'--;§oint of' 'Li'init'{:iti01l" t.o claim the b'e1'ietit-- _ under active consideration " 'fulfillment of cr'i-teriiaf officer sought for reply from dscsessee the benefit claimed by ' V yyeissdesseye not to be disallowed, a reply came to yysubrriified by the assessee through its Accountant dated 28/ 1/2005 VV'Vtir.l'ieretivi1de1' assessee has enclosed the V-._°Va3tiati()n report: of the Valuer and it is stated it vvytnerein as under:
W, "7.
S'1'A'I'US oar mi: U'2\JI'1': The unit which started production in 1994--~ja5.sby M/s. Iianpha Organics ltd,-' lwas " _ ' .
dtlrixtg "' running co1;eiiti.onf', [c] Even under Explanations. of' Sec:80.r.f jarhich is Mutatis Muiartd};"s_made' ajjptiictable to clause (iii) of Sub§sec.(2]A...of"_Sec.,1§)~I"§'~.Vi§.,fi;g;._to be noticed that &5machi11'e1jf'i-i_'sho;§1d not have been "u5sed:_'foi*-v'a1iy'pu_rpo_s'e""'sotransferred to a new V..bu_sin_ess:;,:and_:'in:V'the..,i1f1stant case it is not by t1_~_ann5fg;.i___V()fe p.ofti_on j"piant 8: machinery" to 'assesseeis..:11eW__tmit from M/s. Kanfa Chemo, boft~.a"d.efVi1nc_t as a whole has been taken Vtover by"-assesvsee as is evidenced from Valuation and there was no existing unit at T' belonging to the assessee. Hence, even v.o1ii'f;1'1:is count assessee would not be entitied to "the it according to assessee itself, the percentage benefit flowing from Sec.10~B. Even yea1"--wise is as under:
by . .. .. Sami"
Cilierniealse «I£xVti'acts"'. 11996,...' is ":~..,._iii--:. w {)5 A Siatelnent. s1'10wi1'2g S:,1mn1.:«1ry of Km1igal Unci<~3.1't.a.king -- Piam & Machirwrjy Part.ic*11§ars Kanyha Labs Additions by SAM} ' 'ojsal. WDHV-' 0/0 For the t'.1"ld(3(§ 31.03.97 year 27.362456 F .3;2~";< 5,57 1f_ ;3b.*€I42,é2v7:
the ended 3 E .0398 For ye ar 20.524.092 1v1g3:8_.V597 ,842.:~689.
'--~_54;45<)/0 For the ended 3 .1. .0399 year 15,393.05?"
'":5,679.5E';.7 ' "
3'1,07§2,.624 49.54% For the yam"
encled 3i.03.2000 1--LS;-14,800 V .i 3;--7_:._z .73 _1 25,296,531.
45.64% For ended 5 1 3: .03_2Q0z?:._ £1 16: " 3»'¥;!a11"' 9._,65:'s.6E)0 ' * _'1*3?;s~1.7.5.§o0 22.2'?6;5OO 38.87% F131' "E1113 I'. yeai1:'I '' éiyded' V 3:.03.2--002' _ '. 4;sj5'8,055"_ ' '"2fl9.311,583 34, 169.848 14.22%
aA:'11cTi'~.A_§:ven vhhhtherwise, the value of plant & as on the date of commencement of pf(§dj_;1.étion ie., 1996 was more than 20% and z Explanation-2 would also not come to the "rescue of assessee £0 claim the benefit under SeC.1.0--B. E)?
18. In View of the above disoi.issio1'1. we are of the Considered View that the si1bsi;ami2.11 question of iaw formuiated herein above deserves to be aiisweied i:17'r_i'1e negative against the assessee and in iavo_i';'i"'oijtifie:_. Revenue. Accordingly the following oifder is ORDER 9 ' ' V Appeal is dismissed. i3._e:"si1bsiai_1.tAi'a.i '~ V question of law is answefe-'d_M in fh.e 11eg'ati&fe""' ie., in favour of the Revenudeivariwriv assessee and the ;iassed" ~13_'_')".:.f§"~!efi' Income Tax Appellate T riba1j_1a1_, A, mi, tea vnpf '€84/BANCVQOOS (fined 9/ "ai'fi1~med. Costs made easy' . . 7 " g ' sa/--
JUDGE Sd/-
JUDGE " \ ._ ..