Income Tax Appellate Tribunal - Delhi
Moser Baer India Ltd. vs Joint Cit, Spl. Range-4 on 30 November, 2006
Equivalent citations: [2007]108ITD80(DELHI), (2007)110TTJ(DELHI)807
ORDER
N.K. Karhail, Judicial Member
1. These appeals of the assessee are directed against the orders passed by the Commissioner (Appeals), New Delhi for the assessment years 1996-97, 1997-98 and 1998-99. Since common issue is involved in these appeals, we dispose of these appeals by this composite order for the sake of convenience.
2. The common issue involved in these appeals relate to the order confirming the action of the assessing officer in thrusting exemption under Section 10B of the income-tax Act, 1961 (hereinafter referred to as the Act) in respect of Floppy Unit II when the claim for exemption under the said section in respect of the said unit was withdrawn.
3. Briefly stated facts are that the assessee is a company manufacturing floppy discs. The assessee-company claimed exemption to the income of Floppy Unit II in assessment year 1994-95 as the initial year for claim of this exemption. In the present assessment year the assessee again claimed exemption under Section 10B but at the same time it had claimed depreciation of this unit from the total income. When the assessee was asked to explain the reason to claim depreciation, the assessee submitted on 8-1-1999 that it was a clerical mistake that the depreciation as per Income Tax Act on Unit II had been reduced in the computation of income but this addition and reduction was not to be made as the profit/losses of Floppy Unit II were exempt under Section 10B. The assessee filed another letter on 8-2-1999 wherein it was stated that the assessee was withdrawing its claim of deduction under Section 10B with respect to the Floppy Unit II for assessment year 1996-97. It was added that since the Floppy Unit II had incurred losses it could not be covered by the provisions of section IOB which were meant to cover only profit and gains to the unit. The assessee also furnished a declaration stating that the exemption shall not be claimed in respect of Floppy Unit II in assessment year 1996-97 and in the coming years. The assessee also quoted decisions of Ahmedabad Bench in the case of Income Tax Officer v. Expo Packaging (1995) 78 Taxman 212 stating that it was not mandatory to furnish declaration as required by Sub-section (7) of Section 10A and the declaration could also be filed by the assessee during the course of assessment proceedings. A reliance was also placed upon a decision in 63 lTD 293 emphasizing that the benefit under Section 10B should not be restrict by a very rigid consideration of the different provision of the Act. The assessing officer referred to the provisions of Sub-section (7) of Section 10B according to which where an assessee does not want to avail of the exemption under the aforesaid section it has to furnish to the assessing officer, a declaration in writing to this effect before the due date for furnishing of return of income under Section 139(l). According to the assessing officer since Section 1OB(7) begins with a non obstante clause the direction contained in the said section is mandatory in nature inasmuch as it provides the cut-of f date for filing the declaration. He distinguished the fact of the present case by saying that in the Ahmedabad case the assessee had not claimed any deduction to begin with and had filed the declaration during the course of assessment proceedings. However, in the present case, the appellant had claimed the deduction specifically in the computation filed along with the return as well as in the letter dated 8-1-1999. He also highlighted that such deduction had also been claimed in the assessment years 1994-95 and 1995-96. He observed that in view of the specific provisions of Section 10B(7) the assessee could not retract its claim which was made in the assessment years 1994-95 and 1995-96. He was of the view that once the option of claim under Section 1 OB was exercised this had to continue for five consecutive assessment years unless revoked as provided under subsection (7) of Section 10B. He also pointed out that the only reason for retraction was that it would help the assessee in getting the benefit of depreciation of this floppy unit in assessment year 1995-96 to set it off against the current year's income as the allowance of current depreciation.
4. On appeal the learned CIT has held thus
4. I have given careful thought to the matter. I have also gone through the provisions of Section 10B, various judicial pronouncements and Board's circular relied upon by the appellant. The first question which is to be answered in this case is whether this section applies to an undertaking making profits only and not losses. Section (2) of Section 10B specifies undertakings to which the provisions of Section 10B applied. Profit making is not one of them. it is true that Sub-section (1) talks of exclusion of profits and gains derived from such undertaking but it does not lead to the conclusion that provisions of Section 10B would not apply to an undertaking making losses in a particular year even if it fulfilled the conditions laid down in Sub-section (2). Then I move on to Sub-section (3) which provides that profits and gains of any five consecutive years specified by the assessee falling within a period of eight years beginning with the assessment year in which manufacturing etc. starts shall not be included in the income. It means that this section applies to a block of five consecutive assessment years selected by an assessee out of the initial ii-A ~tight years of the undertaking. This sub-section also reinforces my interpretation about loss making units inasmuch as whether an undertaking makes a profit or loss in any of those five consecutive assessment years, the block of five assessment years remain intact and the provisions of this sections shall apply to all the five consecutive assessment years constituting the block. Sub-section (7) gives an option to an assessee that before the due date for furnishing the return of his income under Sub-section (1) of Section 139 to furnish to the assessing officer a declaration that the provisions of this section may not be made applicable to him and on doing o, the provisions of Section 10B would not apply to him for any of the relevant assessment years. "Relevant Assessment Years"have been defined to be five consecutive years specified by the assessee at his option under Sub-section (3) (supra). The procedure is thus clear - any undertaking 'falling under Section 10B has to specify the block of any five consecutive years falling in the initial eight years for the purpose of availing the exemption under Section 10B. In case, an assessee does not want to avail of the exemption under this sub-section at all then he has to file a declaration before the assessing officer before the due date of filing the return for the first assessment year. This is clear from the Board's Circular No. 308, dated 29-6-1988 issued in connection with the provisions of Section 10B which are at pari materia with Section 10B. To quote- .
A special provision has been made in Sub-section (7) of the new Section 10B to give an option to an assessee who derives profits and gains from an industrial undertaking situated in the free trade zone not to avail of this tax concession. Such an assessee will be required to furnish a declaration in writing before the expiry of the time allowed under Section 139(1) or under Section 139(2) whether fixed originally or on extension, to furnish the return of income for the first assessment year for which the tax holiday under the new scheme is available to him that the provisions of this section may not be made applicable to him and if he does so, the provisions of this Section 10A will not apply to him for any of the five assessment years for which the tax holiday provisions would have normally applied to him.
5. In the present case, the appellant claimed the deduction in assessment year 1994-95. He, thus, opted for a block of five consecutive assessment years starting from assessment year 1994-95 in favour of availing the exemption under Sub-section (10). He, therefore, cannot opt out of this provision mid-way and the provisions of the section shall apply to him from assessment years 1994-95 to 1998-99. Thus, whether the claim in the return for assessment year 1996-97 was made under mistake or not, oiwhether the letter dated 8th February, 1999 can be said to have been filed within the time allowed for assessment year 1996-97 are questions which are irrelevant. In this view of the matter, the decisions cited by the appellant are also of no avail.
6. In the result the appeal is dismissed.
5. Before us the learned Counsel for the assessee has submitted that Section 10B of the Act, prior to its substitution by the Finance Act, 2000 with effect from 1-4-2001 was inserted by Finance Act, 1988 with eff ect IF rorn 1-4-1989 as a special provision in respect of new established 100 per cent ECUs. He has referred to the relevant provisions of the said section prior to its amendment by the Income-tax (Second Amendment) Act, 1998 with effect from 1-4-1999. He has submitted that Sub-section (1) of Section 10B of the Act provides that any profits and gains derived by an assessee from a 100 per cent EOU shall not be included in the total income of the assessee. Sub-section (3) of Section 10B as applicable up to assessment year 1998-99, provided that the profits as aforesaid shall not be included in the total income of the assessee in respect of any five consecutive assessment years fallingwithin the block of eight years, beginning with the previous year in which the undertaking begins to manufacture or produce articles or things. Sub-section (7) provided that where the assessee furnishes a declaration to opt out of the provisions of Section 10B before the due date of furnishing the return of income, then, the provisions of Section 10B shall not apply to the assessee for any of the relevant assessment years. Explanation (ii) to Section 10B defines the "relevant assessment years" to mean the five consecutive assessment years. The learned Counsel has pointed out that the expression 'Five consecutive assessment years' in Sub-section (3) and the expression 'of the relevant assessment years' in section (7) of Section 10B of the Act are preceded by the word ,any'. The word'any'has various shades and has to be given a meaning to the context in which the term is used. According to Ramanatha Aiyer's Law Lexicon, the word'any'may mean 'all', 'each', 'every', 'some','one or more out of several'. Thus it become important to analyze whether in the context of Section 10B of the Act, the word 'any'would mean 'all'or'one or more out of several'. The word 'any' in Section 10B of the Act is succeeded by the words 'consecutive' which as per Rarnanatha A iyer's, Law Lexicon means "Following in uninterrupted succession". K.J. Aiyar's Judicial Dictionary (13th Edition) defines the expression 'consecutive period of three years' as under:
In Section 168 of the M.P. Land revenue Code, 1959, the consecutive period of three years'm cans a period of three years without any break or interval, following in succession one after another, or uninterrupted time of three years (Kashirame v. State ).
6. Thus, the expression 'five consecutive assessment years' means five continuous years, without any break or interruption failing within the period of 8 years as specified by the assessee, beginning with the previous year in which undertaking begins manufacture or production.
7. The learned Counsel has further submitted that there are two possibilities (a) once the assessee opts for Section 10B, the assessee would be bound by the option exercised and would accordingly be disentitled to opt out of the provision of that section during the entire period of entitlement, (b) during the period of entitlement, the assessee may opt out of the provisions of Section 10B of the Act by filing a declaration under Sub-section (7) thereof. If the intention of the Legislature were to disentitle the assessee to opt out of the provisions of Section 10B of the Act, once the assessee opts for the benefit available under the said section, there was no requirement for the Legislature to have qualified the expression'five consecutive assessment years' in Sub-section (3) and the expression 'of the relevant assessment years' in Sub-section (7) of Section 10B of the Act by the word 'any'. According to the learned Counsel, the Legislature has deliberately qualified the expression 'five consecutive assessment years'in Sub-section (3) and the expression 'of the relevant assessment years' in Sub-section (7) of Section 10B by the word'any'so as to confer on the assessee the flexibility to opt out of the provision of Section 10B during any of the years in which the assessee is eligible to claim exemption under that section. If the attention of the Legislature had been to deny the benefit of exemption under Section 10B of the Act, once the declaration filed under Sub-section (7) of that section, the Legislature would have unambiguously and unequivocally stated that 'provision of section shall not apply to him for all the relevant assessment years'or alternatively that'provision of section shall not apply to him for each of the relevant assessment years'. Thus, if the interpretation /contention of the lower authorities were to be accepted, the simultaneous use of the words 'any' and 'consecutive' to convey such meaning is beyond comprehension. The word 'any' in that case, has to be treated as otiose since the allowance of exemption for five consecutive years would have meant that the exemption has to be compulsorily allowed for an interrupted period of five years, whether the same is to the benefit or detriment of the assessee. Thus, the argument of the lower authorities would render the use of the word 'any' in subsections (3) and (7) of Section 10B of the Act otiose/redundant, which is not permitted in law. Thus, the word 'any'has been used in sub-sections (3) and (7) of Section 10B to mean 'one or more out of several' years.
8. The learned Counsel has submitted that the reliance by Commissioner (Appeals) on Circular No. 308 of CBDT was totally misplaced. The said circular, in fact, supports the claim of the assessee since that circular was issued in the context of Section 10A of the Act as it stood up to assessment year 1986-87. During the said period in the said Section 10A, there was a mandatory requirement to file the declaration in the initial year. The said requirement was dispensed with subsequently and not such requirement existed in Section 10B of the Act.
9. The learned Counsel has further submitted that the requirement of filing declaration under Section 10B(7) of the Act along with the return of income is directory and not mandatory and as such the same can be filed during the course of assessment proceedings. A reliance is placed upon the decision in the case of Dixon Utilities & Exports Ltd. v. Dy. CIT, New Delhi, (ITA No. 2053 /Delhi/ 2000) and Income Tax Officer v. Expo Packaging (1995) 51 TTJ 1741 (Ahd.). The learned Counsel has pointed out that similar provisions are contained in sections 11, 32AB and 80HHC of the Act regarding the requirement of filing audit report/certificates/declaration along with the return of income. Such requirement has been held to be directory and not mandatory by various courts. Thus, he has urged that since the assessee has opted out of the provision of Section 10B during the course of assessment proceedings for the year under consideration, the revenue cannot thrust upon the exemption under Section 10B on the assessee in respect of Floppy Unit II. He has, therefore, submitted that the income of Floppy Unit II is required to be computed under the normal provisions of the Act. A reliance is placed upon the decision in the case of Navin Bharat Industries Ltd v. Dy. CIT(2004) 90 ITD I (Mum.) (TM).
10. The learned DR, on the other hand has submitted that the assessee had claimed the exemption under Section 10B of the Act in the initial assessment year ie., 1994-95 and in its letter dated 8-1-1999 it claimed that income of floppy unit is exempt under Section 10B of the Act. Thus, any subsequent claim to opt out of the provision of Section 10B must be made by way of filing revised return of income within the period prescribed under Section 139(l) of the Act in view of decision of the Apex court in the case of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323. Since the subsequent claim to opt out of the provisions of Section 10B was not made within period prescribed under Section 139(l), the assessee cannot claim the same during the assessment proceedings. He has further argued that in view of the rule of the harmonious construction, the learned Commissioner (Appeals) was justified to hold that in case the assessee does not want to avail of the exemption under Section 10B, then he has to file a declaration before the due date of filing the return for the first assessment year. Thus, he has supported the order passed by the Commissioner (Appeals). In reply the learned Counsel for the assessee has submitted that the decision of the Apex court in the case of Goetze cannot he applied in the case of the assessee as the assessee is seeking withdrawal of exemption under section i6B and not claiming exemption /deduction in the assessment proceedings. Hence, the said decision is distinguishable from facts.
11. We have heard the parties and perused the material as well as the case law to which our attention was draw during the course of hearing. The ass essee -company is engaged in the manufacture of compact discs and floppy discs. The assessee owned 100 per cent export oriented unit, namely, Floppy II Unit, which is eligible for claiming exemption under Section 10B of the Income Tax Act, 1961. The said unit started manufacturing operation during the previous year relevant to assessment year 1994-95. During the assessment year 1994-95, the assessee claimed ex-emption under Section 10B of the Act for the first time in respect of profit derived from the Floppy II Unit. In the assessment year 1995-96 the exemption under Section 10B was claimed by the assessee in respect of the profit of the Floppy Unit II and the same was allowed by the assessing officer.
12. In the assessment year 1996-97 though the exemption under Section 10B of the Act was claimed by the assessee in respect of profit of the Floppy Unit II in the return of income, however, the assessee decided to withdraw the same during the assessment proceedings and claimed that income of the Floppy Unit II be computed as per other provisions of the Act. The assessing officer, however, has held that in view of specific provision of Section 10B(7), the assessee cannot retract its claim which was made in assessment years 1994-95 and 1995-96. He is of the view that once the option of claim under Section 10B is exercised this has to be continued for five consecutive assessment years unless revoked as provided under section IOB(7) of the Act. According to the Commissioner (Appeals) in case, an assessee does not want to avail of the exemption under this section at all then he has to file a declaration before the assessing officer before the due date of filing the return for the first assessment year. In this connection he has made reference to CBDT's Circular No. 308, dated 29-6-1988 issued in connection with Section 10B of the Act, which is pari materia of Section 10B of the Act. Since the assessee has claimed the exemption under Section 10B in assessment year 1994-95, thus the assessee has opted for availing the exemption for block of five consecutive assessment years starting from 1994-95. Hence the assessee cannot opt out of this provision in the year under consideration and as such the provision of Section 10B shall apply to assessee from assessment years 1994-95 to 1998-99. Thus he has held that the issue whether the requirement of filing the application for opting out of Section 10B along with return of income was mandatory or not, was not relevant.
13. The questions that arise for consideration in these appeals are whether it is open to the assessee to opt out of the provisions of Section 10B of the Act for any one of the relevant assessment years falling within the block of fivu years by filing a declaration under Section 10B of the Act and whether the declaration under Section 10B(7) of the Act can be filed for the first time during the relevant assessment proceeding or not ?
14. The Section 10B of the Act is code itself. It contains scheme of taxation formulated by Government of taxability of units set up in the export processing zone. The exemption under Section 10B is available for five consecutive assessment years falling within the block of eight years beginning with the year in which the undertaking commences commercial production, specified by the assessee at his option. Once the assessee has specified five consecutive assessment years for which the benefit is to be made available, that decision is irrevocable and the assessee cannot thereafter seek change/shift the five years period. Further, the benefit cannot in any case extend beyond eight years from the initial assessment year. It is seen that the expression 'five consecutive assessment years' in Sub-section (3) and the expression 'of the relevant assessment years' in Sub-section (7) of Section 10B are preceded by the word'any, ' According to Ramanathan Aiyers Law Lexicon the word 'any' means 'all', 'each', some''one or more out of several'. Further one of the meanings given of the word'any'in Webster's Dictionary is'even one, last amount or number of'. Thus, we find in agreement with the submission of the learned Counsel for the assessee that the expression 'any' used in sub-sections (3) and (7) of Section 10B of the Act to mean 'one or more out of several'years. Section 10B(7) of the Act mandates the assessee to file the necessary declaration before the due date for furnishing the return of income. It may be mentioned that the said section is silent about the assessment year in relation to which the due date for furnishing the return of income has to be taken into account for filing the declaration. In our view the Legislature purposely did not specify the year of furnishing the declaration so as to confer benefit to the assessee to opt out of Section 10B of the Act in any of the assessment years falling within the block of five years. Thus, if the assessee seeks to opt out of Section 10B of the Act, for a particular year, the assessee may do so by filing a declaration in that regard under subsection (7) of the Act before the due date for furnishing return of income for that year. Thus the expression'any'cannot be read as'all'as in that case the exemption granted in the earlier year have to be withdrawn in case the assessee file the declaration under Section 10(7) say in third year of the block period of five years.
15. It may be mentioned that Section 10B of the Act makes available tax exemption to units set up in Software Technology Park (STP unit). The scheme of Section 10B and the language of the said section is pari materia with the Section 10B of the Act. It may be mentioned that up to assessment year 1986-87, the exemption under Section 10B of the Act was available for the first year in which undertaking began manufacturing/ production ie., initial year and four years immediately succeeding the initial year. If the assessee wanted to opt out of Section 10A of the Act, the assessee was mandated to file declaration in that regard in the initial assessment year. It is in the context of said provision of Section 10B (viz., sub-sections (3) and (7)) the Circular No. 308 was issued by CBDT requiring the assessee to file declaration in the first year itself. Section 1 OA was, thereafter amended by Taxation Law (Amendment & Miscellaneous Provisions) Act, 1986 with effect from 1-4-1987 to the effect that exemption was available for any five consecutive assessment years falling within the period of 8 years. It was further provided that assessee may furnish the declaration stating that the provision of Section 10A of the Act may not be made applicable to him before the due date for filing of return of income. Thus, from assessment year 1987-88, there is no reference to'initial assessment year' in Sub-section (7) of Section 10A of the Act and the Sub-section (7) was silent about the assessment year in relation to which the due date for furnishing the return has to be taken into account for filing the declaration. Thus, the scheme of allowance of exemption under Section 10B is similar to amend Section 10A of the Act.
16. The Hon'ble Apex court in the case of Bajaj Tempo Ltd. v. CIT has held that the provision for incentive for growth and development should be interpreted liberally. It should be construed so as Packging Ltd. (supra). It may als6 be mentioned that the reliance placed by the learned DR upon the decision in the case of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323- is misplaced inasmuch as the said decision has been given in the different context inasmuch as the income of the export processing zone are assessable as perprovisions of Section 10A/10B of the Act, which is a code itself.
19. In view of the foregoing discussion, we are of the view that it is open to ' an assessee not to claim tax holiday benefit under Section 10A/ 10B of the Act for any one year or more of the relevant block of five assessment years by filing declaration under Sub-section (7) of that section before the due date of filing the return of income for the said assessment years. Since in the instant case the assessee has opted out of the provisions of Section 10B of the Act by filing the declaration under Section 10(7) of the Act during the course of assessment proceedings of the relevant assessment year, revenue cannot thrust exemption provided under Section 10B of the Act upon the assessee.
20. The second common issue raised in these appeals is against the order in not allowing the loss incurred in respect of Floppy Unit II to be set off against the taxable profit of other units for the respective assessment year. Since the sufficient material is not on record, this issue is set aside and restored to the file of the assessing officer who may examine the matter afresh in accordance with law after affording a reasonable opportunity of being heard to the assessee.
21. The, third common issue raised in assessment years 1997-98 and 1998-99 is regarding the disallowance of depreciation in respect of various assets forming part of Floppy Unit II. For the same reason this issue is also set aside and restored to the file of the assessing officer for fresh examination in accordance with the law after affording a reasonable opportunity of being heard to the assessee.
22. There is another issue involved in assessment year 1998-99 being the third ground of appeal which reads as under -.-
That the Commissioner (Appeals) erred on f acts and in law in not adjudicating the ground raised by appellant, challenging the action of the assessing officer in not allowing miscellaneous income and interest amounting to Rs,4,66,506 in respect of Floppy Unit III on the ground that the same were not derived from business of Floppy Unit IIV
23. Since the necessary details of Miscellaneous income and nature of interest income is not there on record, this ground of appeal is set aside and restored to the file of the assessing officer who may examine the matter afresh in accordance with the law after affording a reasonable opportunity of being heard to the assessee.
24. In the result, these appeals of the assessee are partly allowed.