×Latest Case Laws on Income Tax by Supreme Court of India
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20-08-2018, CLASSIC BINDING, Section 80-IC, 80, 260A, SUPREME COURT OF INDIA
A neat question of law which arises in these appeals revolve around Section 80-IC of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). The High Court by its impugned judgment dated 28th November, 2017 has discussed various aspects and nuances of the aforesaid provisions which had arisen because of varied kinds of issues raised in a batch of appeals filed by the assessees before the High Court. We are not concerned with all those issues. The only question which needs to be answered in these appeals is as follows:
“Whether an assessee who sets up a new industry of a kind mentioned in sub-section (2) of Section 80-IC of the Act and starts availing exemption of 100 per cent tax under sub-section (3) of Section 80-IC (which is admissible for five years) can start claiming the exemption at the same rate of 100% beyond the period of five years on the ground that the assessee has now carried out substantial expansion in its manufacturing unit?”
2. To understand the aforesaid question of law in clear terms, it may be mentioned at this stage itself that sub-section (2) of Section 80-IC applies to an undertaking or enterprise which has, inter alia, begun or begins to manufacture or produce any article or thing by setting up a new factory in the area specified therein which includes State of Himachal Pradesh as well. Sub-section (3) of Section 80-IC is in two parts: in certain cases, exemption from income is provided at the rate of 100% of such profits and gains earned from the aforesaid undertaking or enterprise for 10 assessment years commencing with the initial assessment year.
The present appeals do not fall in that category. Other clause relates to another category of undertakings or enterprises (these cases belong to that category) where the exemption is at the rate of 100% of profits and gains for five assessment years commencing with the initial assessment year and, thereafter, 25% of profits and gains. Total exemption, thus, is for a period of 10 years, namely, @100% for 1st five years and @ 25% for remaining five years. In these cases, all the assessees started claiming exemption @ 100% on profits and gains and availed it for a period of five years. During this period these assessees carried out “substantial expansion” and they claimed that, on that basis, they should be allowed exemption from profits and gains for another five years @ 100% instead of 25% from 6th to 10th year as well. Interestingly, they admit that the total period during which they are entitled to exemption would not exceed 10 years, as per the mandate of sub-section (6). In this backdrop, the question is as to whether the assessees can again start claiming 100% exemption for the next five years from profits and gains after availing the same for first five years on the ground that they have now carried out substantial expansion. The High Court has answered the question in affirmative and for this reason, it is the department which has come up to this Court challenging the said decision by filing these appeals.
3. Though, the aforesaid question of law is identical in all the aforesaid cases and arises in the same fact situation mentioned above, for the sake of convenience, we may record the facts of Civil Appeal No. 16851 of 2018 (@ SLP(C) 16851 of 2018).
4. Section 80-IA was inserted by the Finance (No. 2) Act, 1991, with effect from 1st April, 1991. By virtue of said Section, the gross total income (profits and gains) of an assessee derived from any business of an industrial undertaking, so specified therein, was entitled to certain deductions for a period commencing from 1st April, 1993. With effect from 1st April, 2000, the said provision was bifurcated with the insertion of another Section, i.e., 80-IB, dealing with “certain industrial undertakings other than infrastructure development undertakings.” Thereafter, the Legislator, in its wisdom, enacted a special provision, in respect of “units” established in certain special category States. Thus, Section 80-IC came to be inserted by virtue of Finance Act, 2003, applicable with effect from 1st April, 2004. At this point., It may only be noticed that correspondingly certain provisions of Section 80-IB were also amended/repealed. Deductions under the said Section were discontinued for the Assessment Years commencing from 1st April, 2004 (Sub-section (4) of Section 80- IB).
5. The assessee firm derives income from manufacturing of printed embossed book binding cover material of cotton in sheet from and security fiber of dual coloured combination. The assessee firm comprised of nine partners during the relevant assessment year. The assessee started its business activity/operation on 11th July, 2005 and initial Assessment Year for claim of deduction under Section 80-IC of the Act was Assessment Year 2006-07. The assessee had already claimed deduction under Section 80- IC to the extent of the 100% eligible profit for five Assessment Years 2006-07 to Assessment Year 2010-11. However, it was noticed that the assessee firm had again claimed 100% deduction against eligible profits in the relevant Assessment Year 2012-13 which is seventh year of production for the firm by claiming substantial expansion in Financial Year 2010-11.
6. Return declaring income of Rs. 27,93,410/- after claiming deduction under Section 80-IC of Rs. 12,62,77,168/- was e-filed by the assessee firm on 28th September, 2012. The case was selected from scrutiny through CAS and accordingly, statutory notices under Section 143(2)/142(1) were issued by Income Tax Office (ITO) Ward-I, Solan.