AI Drafter 
TaxTMI 
TaxTMI 
2016 (5) TMI 950
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.... II. Misinterpreting the provisions of section 80-IC of the Act which provides for substantial expansion to be undertaken during the period beginning on 7th January 2003 and ending before 1st April 2012 and erroneously upholding that the benefit of 100% deduction u/s 80-IC of the Act for first five years in case of substantial expansion is available only to the units that existed and were operational as on 07.01.2003 and such benefit is not at all meant for the units that came into being on or after the introduction of the scheme of such deduction. III. Upholding that once an 'initial assessment year 1 is determined in case of an undertaking claiming benefit u/s 80- IC of the Act, it cannot be changed even if such undertaking completes substantial expansion and again qualifies for deduction under the said section on the basis of 'qualifying expansion'. IV. Making a narrow interpretation of the provision of section 80-IC of the Income Tax Act, 1961 which was introduced as a welfare legislation for providing stimulus to the economy of industrially backward states such as Himachal Pradesh. 4. Briefly stated, the facts of the case are that asses....
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.... of interpretations. This is clear from the observations made by 'Hon'ble Apex Court' in the case of Orissa State Warehousing Corporation Vs. CIT 237 ITR 607 wherein it has been observed at page 604 & 605 of the report as under:- "Let us, however, at this juncture, consider some of the oft cited decisions pertaining to the interpretation of the fiscal statutes being the focal point of consideration in these appeals. Lord Halsbury as early as 1901, in Cooke v. Charles A. Vogeler Company [1901] AC 102 (HL) stated the law in the manner following: "a court of law, has nothing to do with the reasonableness or unreasonableness of a provision of a statute except so far as it may h old it in interpreting what the Legislature has said. If the language of a statute be plain, admitting of only one meaning, the Legislature must be taken to have meant and intended what it has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should not lead to absurd or mischievous results. If the language of this sub-section be not controlled by some of the other provisions of the statute. It must, since, its language is plain and unambiguous....
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....e bad laws". However, if some ambiguity is there in the language of a particular statute because of various reasons, the same is required to be construed so as to find out the real intention of the Legislature and then every possible material should be considered to find out the real intention of the Legislature. In this regard, the observation of the Hon'ble Supreme Court in the celebrated judgement of K.P. Vergese 131 ITR 598 (supra) are relevant. We extract the Head note which reads as under:- "A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the court may modify the language used by the legislature or even do some violence to it, so as to achieve the obvious intention of the legislature and produce a rational construction. LUKE V. IRC [1963] HON'BLE APEX COURT 557; [1964] 54 ITR 692 (HL) followed. Speeches made by the members of the legislature on the floor of the House when the Bill is being debated are inadmissible f....
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....d not be considered for interpretation of a particular provision. As far as the decision in the case of Commissioner of Central Excise Vs. M/s Rattan Melting & Wire (supra) is concerned, this does not support the proposition made by the Ld. Counsel for the assessee. In that case the question was whether a circular issued by the Department which is generally binding on the authorities would take precedence over the interpretation made by the Supreme Court or High Court in respect of particular provision. The Para 6 of this judgment make this point absolutely clear and reads as under:- "6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are no....
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.... of the Act? (ii) Whether in the facts and circumstances, the respondent was justified in denying interest on belated refund claimed for the assessment year 1995-96, by the order impugned." 26. The Hon'ble Court discussed the matter and ultimately held that assessee was entitled to interest u/s 244A and Circular No. 670 was contrary to the provisions of section 244A. The court also observed that circular could be issued to clarify the provisions for removing the difficulties. Therefore, it is clear that question whether a circular can be considered in interpretation of a particular provision was never before the Court and therefore, in our opinion, this judgement does not support the proposition that circular cannot be considered for the purpose of interpreting the particular provision. 27. It will be useful to state another very well settled principle of interpretation i.e. whenever the particular provision is required to be interpreted, it should be interpreted after reading the whole provision and not the parts of a particular section. However, a provision has to be read in context of the overall scheme of the Act. It is also well settled that no p....
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...., as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in any of the North-Eastern States; (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operations specified in that Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1st day of April, [2007], in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States. (3) The deduction referred to in sub-section (1) shall be - (i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of claus....
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....on,- (i) "Industrial Area" means such areas, which the Board, may, be notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; (ii) "Industrial Estate" means such estates, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government. (iii) "Industrial Growth Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; (iv) "Industrial Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; (v) "Initial assessment year" means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufactures or produce articles or things, or commences operation or completes substantial expansion; (vi) "Integrated Infrastructure Development Centre" means such centres, which the Board, may, by notification in the Official Ga....
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.... undertakes substantial expansion during the period beginning........". This would naturally refer to the undertaking which were already existing. If it is read the way the Ld. counsel of the assessee would like us to read then the provision would become unworkable because if there is an undertaking which is established during the window period then the same cannot possibly undertakes substantial expansion also simultaneously. The expression 'and" would refer to the cumulative condition that is both parts of the conditions need to be complied. The expression 'and' can be joined only with the expression 'begun'. This is because 'begun' refers to something which has already started in the past whereas 'begins' connotes something which would commence in the present. Therefore, the expression 'and' can be correlated only with existing unit because as we have already seen a new unit which has been set up and begins production cannot simultaneously undergo substantial expansion also so as to become eligible for deduction under this section. 30. At this stage, it can be said that section has some confusion and some effort is required to....
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....l be available to thrust sector industries, as specified in the Fourteenth Schedule. 49.3 The amount of deduction in case of undertakings or enterprises in the States of Sikkim, and the North-Eastern States shall be one hundred per cent of the profits of the undertaking for ten assessment years. The amount of deduction in case of undertakings or enterprises in the States of Uttaranchal, Himachal Pradesh shall be one hundred per cent of the profits of the undertaking for five assessment years, and thereafter twenty-five per cent (thirty per cent for companies ) for the next five assessment years. 49.4 The section also provides that no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section or under section 80-IB or under section 10C, as the case may be, exceeds ten assessment years. Further, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or 10B, in relation to the profits and gains of the undertaking or enterprise. 49.5 A new Thirteenth Schedule h....
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....cult situation or with very little money: We existed on a diet of rice. They can't exist on the money he's earning The above definition clearly shows that 'exist' would refer to something which is in force presently. 'Exist' would generally and in common sense refers to something which is already there. With reference to this provision, this would refer to an undertaking which was already present on the date when this provision was introduced. In any case the notification issued by the Govt. of India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion which is published in the Gazette of India removed all the doubts. This notification is relevant because this was issued with reference to same package announced by the Union Cabinet of India for the development of the hilly states. Section 5, reads as under;- "Definitions: (a) ..... (b) ..... (c) Existing Industrial Unit' means an industrial unit existing as on 7 t h January 2003. (d) .......... (e) ............. (f) ..." Thus the definition given above makes it clear that existing Industrial Unit....
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....ars. The concept of substantial expansion remains same under sub section (2) for both types of states i.e state of Sikkim and North-Eastern states and State of Himachal Pradesh and Uttranchal. If the extended benefit of substantial expansion was to be separately allowed in case of State of Himachal Pradesh and State of Uttaranchal, then meaning of substantial expansion as given under sub section (2) which is same for the state of Sikkim and North-Eastern states become redundant. As noted earlier, the provision cannot be interpreted in such a way that part of the section becomes redundant or otiose. Therefore, whatever doubts may be there in sub section (2) when it is read with sub section (3), those doubts are totally removed and it become absolutely clear that rate of deduction has to be 100% for first 5 years and 25% thereafter. 34. There is a force in the contention of Ld. CIT/DR that if the interpretation contended on behalf of the assessee was to be adopted then Sub Section (4) of Section 80IC would also become redundant. Sub Section (4) clearly provides that the deduction is available to any undertaking or enterprise which is not formed by splitting or reconstruction....
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....become almost perceptual as long as the assessee has carried out substantial expansion but in that case sub section (6) would loose its meaning. Such an unlimited period of deduction would not be in consonance of law. At the cost of repetition, we would like to emphasize that no principle of interpretation can be adopted which leads to a situation where a particular part of the section becomes totally redundant. In fact though it was contended that in the present case (i.e. in case of Hycron Electronics) deduction has been claimed only of 10 years but on the date of hearing some other appeals were also listed wherein the deduction was claimed for more than 10 years adopting the same contention which has been made before us. In case of M/s Mahavir Industries (ITA No. 127/Chd/2011 and ITA No. 791/Chd/2012) though those cases were adjourned because some other issues were also there but in those two cases assessee had commenced the operation on 8.5.1997 and claimed deduction u/s 80IB from assessment years 1998-99 to 2005-06. Later on, substantial expansion was carried out in assessment year 2005-06 and on the basis of the contention that assessee is allowed to carry out any number of e....
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....ion will be available only u/s 80IC. The sub section further makes it clear that deduction would be @ 100% for the first five years and thereafter @ 25%. Further, the first proviso makes it clear that deduction will not exceed 10 consecutive assessment years. The second proviso further makes it clear that in the case of states of North-Eastern regions, the deduction would be @ 100% for all the 10 years. Thus, even in the earlier provision only in case of North-Easter states, the deduction of 100% was allowable for 10 years whereas in the case of states of Himachal Pradesh, the deduction was allowable @ 100% for first five years and 25% for next five years. 38. Further, it should be noted that sub section (6) starts with non obstante clause and therefore, in no case the deduction could be for period exceeding 10 years and in this regard we may note that even the Ld. authors in their Commentary of Income Tax Laws By Chaturvedi & Pithisaria's - Sixth Edition has expressed the same opinion. The relevant extract at pages 6351 of the commentary reads as under;- "No deduction possible for more than 10 assessment years.- Section 80-IC(6) also opens with a non obstante....
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....her, it was contended with reference to the decision of M/s Novapan India Ltd vs Collector of Central Excise and Customs (supra) by the Revenue is not correct because that provision was rendered under Indirect Tax Act. We find no force in these submissions. Every decision of the Hon'ble Supreme Court or for that matter of any High Court has to be seen for the ratio laid down in a particular decision and it does not matter under which particular Act such principles has been decided. No doubt the incentive provisions are required to be interpreted liberally but in case of M/s Novapan India Ltd v Collector of Central Excise and Customs (supra), it was observed as under:- "The learned counsel for the appellant then contended that since there is an ambiguity about the meaning and purport of item-6 of the table appended to the Exemption Notification, the benefit of such ambiguity should go to the assessee manufacturer and the entry must be construed as taking in the MFPBs as well. It is not possible to agree with this submission. In Mangalore Chemicals& Fertilizers Ltd.. v. Deputy Commissioner of Commercial Taxes & Ors., [1992) Suppl. 1 S.C.C, 21, a Bench of this Co....
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....e, the same goes in favour of the assessee, but the fact remains and the law is well- settled on this score that in the matter of interpretation of the taxing statutes the law courts would not be justified in introducing some other expressions which the legislature thought fit to omit. In the present context, there is no doubt as to the meaning of the words used in the section by reason of the language used, neither there is any difficulty in ascertaining the statutory intent. Incidentally, it cannot but be said that an exemption is an exception to the general rule and since the same is opposed to the natural tenor of the statute, the entitlement for exemption, therefore, ought not to be read with any latitude to the tax-payer or even with a wider connotation." 41. Therefore, it becomes clear that liberal interpretation of an incentive provision is possible if there is any doubt. As we have seen above that if various sub sections of section 80IC are read carefully it leaves no doubt that deduction was meant only for new units or in case of old units if substantial expansion was carried out in such old units and deduction was available only for a period of 10 years. Therefo....
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....ection. On the appeal filed by Revenue, the deduction was held to be allowable because substantial expansion was carried out in a unit which was already in existence as on 7.1.2003. Therefore, in our opinion, this decision does not provide any assistance to the case of the assessee. 45. The Ld. Counsel has also relied on the decision of Abhishek Bhargav AAR No. 1097 of 2011 (supra). The facts in that case are that a partnership firm namely M/s. Himachal Power Products was formed on 23.05.2009. The firm commenced commercial production in March, 2010. Shri Abhishek Bhargav while planning to join the firm as partner by acquiring 20% share of profit and enhancing additional manufacturing facility by undertaking substantial expansion sought advance ruling on the issue whether the introduction of new partner would be treated as reconstruction of the existing business or the firm will be entitled to the benefit of substantial expansion as per the provisions of section 80IC(2)(a)(ii) if it starts commercial production before 01.04.2012. The Authority held that the assessee was entitled to the benefit of substantial expansion in terms of and to the extent provided by section 80IC o....
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....terprise :-------------------- (Also indicate the Board's Notification No. ) (c) If the eligible business is new, please give the date of commencement of production or manufacture of article or thing. :--------------------- (d) If the existing business has undertaken substantial expansion, please specify,- :---------------------- (i) The date of substantial expansion (ii) The total book value of plant and machinery (before taking depreciation in any year)as on first day of the previous year in which sub-stantial expansion took place. :---------------------- (iii) Value of increase in the plant and machinery in the year of substantial expansion. :---------------------- (e) Does the undertaking or enterprise manufacture or produce any article or thing specified in the Thirteenth Schedule. :---Yes ---No (If yes, please specify the article or thing) :----------------------- (f) Does the undertaking or enterprise manufacture or Produce any article or t....
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....bsp; 21,84,505/- 9. The Assessing officer required the assessee to explain as to why deduction u/s 80IC of the Act on the above amount should not be disallowed as this income has not been derived by 'industrial undertaking' and has no Ist degree nexus with the manufacturing activities. In response to the query raised by the Assessing officer, the assessee furnished its reply dated 2 n d January, 2014 stating that the entire income is eligible for deduction u/s 80IC of the Act being derived from manufacturing activities. The Assessing officer rejected the said contention of the assessee in view of the ratio laid down by the Hon'bl e Supreme Court in the case of Pandian Chemical v CIT (2003)262 ITR 278 (SC) and Liberty India Ltd. Vs. CIT (2009) 317 ITR 218((SC). Accordingly, the Assessing officer disallowed a sum of Rs. 21,84,505/- and added back the same to the total taxable income of the assessee. 10. On appeal, the CIT(A) upheld the order of the Assessing officer, observing as under:- "6.1 During appellate proceedings, assessee submitted that the interest has been earned on FDR for letter of credit and bank guarantees with is part and parcel of income....
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....dustrial undertaking. Rather than establishing the nexus between profits on foreign exchange and manufacturing, assessee has been arguing that this fluctuation is on account of purchase transaction and imports. However, no evidence at any stage, establishing the above mentioned nexus, has been given by the assessee. The assessee failed to discharge primary onus of establishing the nexus between earning on foreign exchange fluctuation with sufficient evidence. Moreover, the case laws referred to by the assessee are distinguishable on facts as under:- 1. Godavori Drugs Ltd. vs. JCIT (2004) 89 TTJ (Hyd) 518, the main issue was claim of deduction u/s 80HHC not 80IA as assessee was an exporter. But in present case assessee has claimed foreign exchange fluctuation on account of purchase. 2. ACIT Vs. P.S. Apparels pertains to an assessee who is engaged in the export of readymade garments and was able to establish nexus between foreign exchange receipts and the manufacturing activity. Thus in absence of duly evidenced nexus between profits on foreign exchange fluctuation, and manufacturing activity of industrial undertaking, and interest, dividend, misc. receipts....
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....n exchange fluctuation, amounting to Rs. 7,99,987/-, we are following the order of the Tribunal passed in ITA No.374/Chd/2014 relating to assessment year 2010-11 and set aside the order of C IT(A) and remand the issue to the file of the Assessing officer to decide the issue as per the directions and guidelines given by the Tribunal in assessee's case in assessment year 2010-11. As regards the dividend of Rs. 10,50,047/-, we agree with the findings of the CIT(A) that dividend has to be specificall y charged under the head "income from other sources" u/s 56 of the Act. Furthermore, in view of the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd Vs. CIT (supra), and Liberty India Ltd. Vs. C IT (supra), the dividend received by the assessee has no direct nexus with the profits and gains derived from the manufacturing activity and industrial undertaking. Hence, this amount is not allowable for computation of profits for claiming deduction u/s 80IC of the Act. 13. Ground No.4 of the appeal reads as under;- 4. Under the facts and circumstances of the case and in law, Ld. CIT(Appeals) Shimla has erred in affirming the order of Ld. ITO, Baddi in....
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....tments as on 31.3.2011 were Rs. 102.2 lakhs against the partners funds of Rs. 121.74 lakhs. Thus, the investments were covered by partners funds which were interest free funds and have no nexus with the borrowed funds and the investments. It appears that both the authorities below have not considered the above contentions of the assessee. In the case of Hero Cycles Ltd. Vs. ACIT in ITA No. 192/Chd/2013 relating to assessment year 2008-09, the Tribunal vide its order dated 29.10.2015 held that if own funds and reserves of the assessee are more than sufficient to cover the investments made during the year, it can be very conveniently presumed that all the investments have been made out of own funds. While taking the above view, the Tribunal relied on the judgement of Hon'ble Punjab & Haryana High Court in the case of Bright Enterprises Pvt. Ltd. Vs. C IT in ITA No. 624 of 2013 dated 24.7.2015 (O&M), wherein the Hon'ble High Court has observed as under:- "16. As we have noted earlier, the funds / reserves of the appellant were sufficient to cover the interest free advances made by it of Rs. 10.29 crores to its sister company. We are entirely in agreement with the judg....