TaxTMI 
TaxTMI 
2016 (11) TMI 74
X X X X Extracts X X X X
X X X X Extracts X X X X
....essment year. According to ld. Assessing Officer assessee was entitled to claim deduction @25% only. The contention of assessee was that it is entitled to claim deduction 100% of such profit on account of substantial expansion. Claim of the revenue was that the assessee was entitled to claim deduction @100 of its profit only for the first five years in the block of 10 years of tax holiday and in subsequent years @25% even if there is substantial expansion of the industrial undertaking. The argument of the assessee is rejected by both the lower authorities and therefore the assessee is in appeal before us. 3. The ld AR submitted that decision of the Delhi Tribunal in case of Tirupati LPG Industries Ltd. covers the issue in favour of the assessee, Whereas the ld DR submitted that the decision of this bench in Hycron Electronics Vs. ITO 41 ITR(T) 486 that should be applied which has considered the decision cited by the ld. AR. 4. We have carefully considered the rival contentions. We have perused the decision of this bench wherein it has also considered the decision of Delhi Tribunal cited by the ld AR vide para No. 23 to 49 of the above decision which squarely covered the issue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e or unwise, or whether it leads to consequences just or unjust, beneficial or mischievous." The oft-quoted observations of Rowlattt J. in the case of Cape Brandy Syndicate v. IRC [1921] 1 KB 64 ought also to be noticed at this juncture. The learned judge observed (page 71): ". . . in a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." The observations of Rowlatt J. as above stand accepted and approved by the House of Lords in a later decision, in the case of Canadian Eagle Oil also in a manner similar in IRC v. Ros and Coulter (Bladnoch Distillery Co. Ltd. v. The King [1946] Hon'ble Apex Court 119; [1945] 2 All ER 499. Lord Thankerton also in a manner similar in IRC v. Ross and Coulter (Bladnoch Distillery Co. Ltd. [1984] 1 All ER 616 at page 625 observe: "If the meaning of the provision is reasonably clear, the courts have no jurisdiction to mitigate such harshness." The decision of this court in Keshavji Ravji and Co. v. CIT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is an accord with the recent trend in juristic thought not only in western countries but also in India, that the interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. The marginal note to a section cannot be referred to for the purpose of construing the section but it can certainly be relied upon as indicating the drift of the section or to show what the section is dealing with. It cannot control the interpretation of the words of a section, particularly when the language of the section is clear and unambiguous but, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the section." The highlighted portion clearly shows that every material which is logically relevant should be taken into account for ascertaining the true meaning of a particular provision. The same view was taken by Hon'ble Karnataka High Court in the case of CIT v N.K. Vaidya 224 ITR 186 (supra) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nother angel, a circular which is contrary to the statutory provisions has really no existence in law." The above shows that circulars are not binding on the Court but the Court has right to look at the Circular and ultimately meaning of a provision as interpreted by the Court would prevail in comparison to the interpretation given in the circular. Therefore, if Circular is contrary to a provision as interpreted by the Court then the opinion of the Court would prevail. This decision nowhere lays down that circulars cannot be considered for interpretation of a particular provision. 25. In the case of Dinakar Ullal vs CIT 323 ITR 452(Karnataka), the assessee was a Civil contractor and had filed belated return declaring income of Rs. 50,240/- and was claiming refund of Rs. 2,14,505/- on account of tax deducted at source. The last date of filing the return was 31.3.1997 but the return was filed late on 8th September 1997. The assessee sought condonation of delay by an application filed on 21st Sept, 1998 by invoking section 119(2)(b) of the Act which was initially rejected. However, on a writ petition the order for rejection was quashed by a single judge and remitted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n above, let us consider the provision of section 80IC in the light of the above principles laid down by the Hon'ble Supreme Court. Section 80IC reads as under:- "Section 80IC "80-IC (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section(3). (2) This section applies to any undertaking or enterprise,- (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth 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 any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lause (b), of sub-section (2),one hundred per cent of such profit and gains for five assessment years commencing with the initial assessment year and thereafter twenty five per cent (or thirty per cent where the assessee is a company) of the profits and gains. (4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an undertaking which is formed as a result of there-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.- The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (5) Notwithstanding anything contained in any other provision of this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia in the Ministry of Commerce and Industry; (ix) "Substantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken; (x) "Theme 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. 29. Sub section (1) of the above provision is a general provision and does not require any interpretation. Sub Section [2] is the enabling provision which provides for the types of undertakings and circumstances where deduction under section 80IC would be allowed. It allows deduction to various undertakings which have either begun or begins manufacturing of any article or things not being any article or thing specified in Schedule xiii and also undertakes substantial expansion. These deductions were available in different states during different window periods which have been referred to in clause (i), (ii) & (iii) of this sub section. The content....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d capital subsidy were also provided to various industries in the hilly stated comprising states of Himachal Pradesh, Uttaranchal, Sikkim and North- Eastern states to boost the economies of these hilly states. Circular No.7 was issued by the CBDT on 5.9.2003 in this respect and the Circular reads as under:- "Circular No. 7/2003 dated 05.09.2003 49. New provisions allowing a ten years tax holiday in respect of certain undertakings in the States of Himachal Pradesh, Sikkim, Uttaranchal and North-Eastern States. 49.1 The Union Cabinet has announced a package of Fiscal and non-fiscal concessions for the special category States of Himachal Pradesh, Uttaranchal, Sikkim and North- Eastern States, in order to give boost to the economy in these States. With a view to give effect to these new packages a new section 80-IC has been inserted to allow a deduction for ten years from the profits of new undertaking or enterprise or existing undertakings or enterprises on their substantial expansion, in the States of Himachal Pradesh, Uttaranchal, Sikkim and North- Eastern States. For this purpose, substantial expansion is defined as increase in the investment in the plant and machinery by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....B have been made inoperative in respect of the undertakings or enterprises in the State of Himachal Pradesh or in North-Eastern region including Sikkim, with effect from the 1st day of April, 2004. 49.6 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. 31. The circular makes it clear that section 80IC was inserted to give effect to the new package announced by the Union Cabinet. The Circular further clarifies that this section provides for deduction for a period of 10 years from the profits of new undertaking or enterprise or existing undertaking or enterprise on their substantial expansion (see highlighted portion of the circular). The contention of the Ld. Counsel of the assessee was that word "existing" qualifies only the undertaking or enterprises and does not mention any particular date for carrying out substantial expansion. We find no merit in this contention. The word "existing is defined in the dictionaries are as under:- 32. Black Law Dictionary - 6th Edition:- Exist : To live, To have life or animation To be in present force, Activity, or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i) of sub section (3) provides for 100% deduction for a period of 10 assessment years in cases covered by sub clause (i) & (iii) of clause (a) and sub clause (i) & (iii) of clause (b). Now sub clause (i ) and (iii) of clause (a) of sub section (2) refers to the window period in case of State of Sikkim, North-Eastern States whereas sub clause (ii) refers to the window period in case of State of Himachal Pradesh and State of Uttaranchal. Similarly, sub clause (i) & (iii) of clause (b) refers to window period in case of State of Sikkim and North-Easter States whereas sub clause (ii) refers to the window period in case of State of Himachal Pradesh and Uttaranchal. Now clause (ii) of sub section (3) provides for 100% deduction on such profits for five assessment years commencing with initial assessment year and thereafter 25% (or 30% where the assessee is a company) of the profits and gains. Therefore, it is absolutely clear that in case of state of Sikkim and North-Eastern states, Legislature was very clear that in case of new undertaking or in case of substantial expanded undertaking deduction is to be allowed @ 100% for whole of the ten years whereas in case of State of Himachal Prad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lue of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub- section, the condition specified therein shall be deemed to have been complied with." From the above it becomes clear that if 20% of the Machinery from the old unit was used in the new unit then such unit would not be eligible for deduction under this Section that is section 80IC. Now for carrying out substantial expansion the investment in Plant & Machinery is required to be made by atleast 50%. So if 50% fresh machinery is added to the new unit then it will violate Sub Section (4) of Section 80IC, therefore, interpretation canvassed on behalf of the assessee is not possible because Section 80IC(4) would become redundant and such an interpretation is not possible. 35. Further, sub section (6) provides that in no case the total period of deduction could exceed the period of 10 years including deduction availed under sub section (4) of section 80IB and section 10A and 10B. It was contended before us that since there is no restriction in carrying out of substantial expansion in the new units and as such substantial expansion can be carried out any number of times. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking: Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assesee is a companyoperative society) subject to fulfillment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the Ist day of April, 1993 and ending on the 31st day of March, [2004]: Provided further that in the case of such industries in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment y....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... We find no force in this contention. The initial assessment year has been defined and the expression "or" has been used in respect of new units by stating "commences operation" or "complete substantial expansion". Here the expression "or" is to be read as a mutually exclusive expression which refers to a particular situation by excluding the other situation. Therefore, initial assessment year would clearly commence either on commencement of operation or at completion of substantial expansion of existing unit. In any case the word "initial" cannot be used twice by referring to series of events. This can be understood with a very simple example. Let us say a person "A" passes out his examination of LLB and get employed as Legal Officer in an organization. Later on, he quits the job and starts the practice in legal profession and ultimately he is elevated as a Judge. Then in such a situation it cannot be said that initially "A" was working in a organization and then initially he was in the profession and then elevated as a Judge. Initially can be used only once as a matter of usage of English language. Therefore, reading of the above provision clearly shows that intention of the legi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... observed. "While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided." The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the legislature manifest on the statutory language. Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. It the words are plain and clear and directly convey the meaning, there is not need for any interpretation." "We are, however, of the opinion that, on principle, the decision of the Court in Mangalore Chemicals - and in Union of India v. Wood Papers, referred to therein - represents the correct view of law. The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee - assuming that the said principle is good and sound- does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invoking an exception o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o classes of undertakings i.e. new units and old units. Because the old units would be entitled to 100% deduction on expansion for first five years and 25% thereafter whereas the new units would become entitled to deduction for 100% for first five years and again @ 100% on substantial expansion. Such discriminatory intention cannot be imputed to the Legislature. 43. Before us, reliance was also placed on the decision of Delhi Bench of the Tribunal in the case of Triputi LPG Industries Limited Vs. DCIT(supra). In this decision, the Bench has simply observed that main dispute is on the definition of "initial assessment year". The provisions of sub section (2) and sub section (3) as discussed in detail above have been totally ignored and, therefore, this decision, in our opinion, is per inquerim and cannot be followed. 44. The Ld. counsel has also relied on the decision in the case of S.R. Paryavaran Engineers Pvt Ltd (supra) of the Chandigarh Bench. The facts in that case are that assessee has claimed deduction u/s 80IB in assessment year 1999- 2000 @ 100% . The deduction was claimed @ 100% for five years and then deduction was claimed @ 30% on the profits in the ne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stries Ltd v CIT (supra). In this case the deduction u/s 80IC was allowed by the Assessing Officer but later on a revisionary order was passed u/s 263 of the Act. The Bench mainly dealt with the provision of section 263 and in view of the decision of Hon'ble Supreme Court in the case of Malabar Industries Co Ltd v CIT 243 ITR 83 (SC) held that since view taken by the Assessing Officer is also possible view, therefore, assessment order was not erroneous. In fact the Bench referred to the decision of Delhi Bench in the case of Triputi LPG Industries Limited Vs. DCIT (supra) without considering the provision of section 80IC in detail for reaching the conclusion that it is one of the possible view. Since we have already discussed the decision of Triputi LPG Industries Limited Vs. DCIT (supra) and found that all the provisions of the section were not discussed in that section and that is per inquerim, therefore, in our opinion, this order does not help the case of the assessee. 47. The last argument was in respect of column in Form No. 10CCB. The column 25 of Form No. 10CCB reads as under:- "25 (i) Whether the undertaking or enterprise is located in an area notifie....