TaxTMI 
TaxTMI 
2017 (12) TMI 69
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.... Commissioner of Income Tax Mr. Justice Sanjay Karol, ACJ And Mr. Justice Ajay Mohan Goel, JJ. For the Appellants : Mr. Bishwajit Bhattacharyya, Senior Advocate, with Mr. Gaurav Jain, Mr. Vishal Mohan, Mr. C.N. Singh, Mr. Rakesh Kumar Thakur, Mr. Gaurav Sharma, and Mr. Anuj Nag, Advocates For the Respondents : Mr. Vinay Kuthiala, Senior Advocate, with Ms Vandana Kuthiala & Mr. Diwan Singh Negi, Advocates JUDGMENT Sanjay Karol, Acting Chief Justice The moot issue involved in these appeals, inter alia, is as to whether an "undertaking or an enterprise" (hereinafter referred to as the Unit), established after 7th January, 2003, carrying out "substantial expansion" within the specified window period, i.e. between 7.1.2003 and 1.4.2012, would be entitled to deduction on profits @ 100%, under Section 80-IC of the Income Tax Act. Also, if so, then for what period. 2. Since it is a legal issue, by consent, only brief facts of ITA No.20 of 2015, titled as M/s Stovekraft India v. Commissioner of Income Tax, are being referred to. 3. Appellant M/s Stovekraft India (hereinafter referred to as the assessee) started its business activity/came into operation with effect fr....
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....essment year'. 9. Vide order dated 14.8.2014 (Page-43), the Commissioner of Income Tax (Appeals), Shimla, Himachal Pradesh (hereinafter referred to as the Appellate Authority), concurred with the findings of the Assessing Officer. 10. The Income Tax Appellate Tribunal vide order dated 27.5.2015 (Annexure A-3, Page 60) not only affirmed such findings but also supplemented the reasons, by holding that the assessee's claim being allowed would only render the provisions of sub-section (6) of Section 80-IC of the Act to be otiose. 11. Assessee lays challenge to such findings, by filing the present appeal, under Section 260A of the Act, which stands admitted on the following substantial questions of law: "i) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that benefit of deduction under Section 80IC @100% of profit was not available to units set up after 7.1.2003, on undertaking substantial expansion from the year of completion of substantial expansion? ii) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that units set up after 7.1.2003 would not be entitled to enlar....
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....IB) 17. For the purpose of ready reference, and proper understanding of the issue, we deem it appropriate to reproduce the relevant clauses of Section 80-IC, itself, which read as under: "80IC. Special provisions in respect of certain undertakings or enterprises in certain special category States :- (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,- .............. (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 operation specified in that Schedule and undertakes substantial expansion during the period beginning- (i) on t....
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....thing contained in this Act, 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 the second proviso to sub-section (4) of section 80-IB or under section 10C, as the case may be, exceeds ten assessment years. (7) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section. (8) For the purposes of this section,- ................ (v) "initial assessment year" means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion; ................... (vii) "North-Eastern States" means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura; .................. (ix) "substantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent of the book value of p....
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.... is only for the purpose of this Section. Now, "initial assessment year" has been held to mean the assessment year relevant to the previous year in which the "Unit" begins to manufacture or produce article or thing or commences operation or completes substantial expansion. Significantly, the Act does not stipulate that only units established prior to 7.1.2003 shall be entitled to the benefits under Section 80-IC. The definition of "initial assessment year" is disjunctive and not conjunctive. The initial assessment year has to be subsequent to the year in which the "Unit" completes substantial expansion or commences manufacturing etc., as the case may be. 22. A bare look at Explanation (b) of Section 80-IB (11C) and Section 80-IB(14)(c) would reflect that, earlier [till Section 80-IC was inserted w.e.f. 1.4.2004], "substantial expansion" was not included in the definition of "initial assessment year". Earlier definition had used words "starts functioning", "company is approved", "commences production", "begins business", "starts operating", "begins to provide services". But Section 80-IC (8)(v) changed wordings [of "initial assessment year"] to "begins to manufacture", "commences....
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....d thereto. For what is important, in our considered view, is not the number of expansions, but the period within which such expansions can be carried out within the window period [7.1.2003 to 1.4.2012], and it is here we find the words "begun" or "begins" and "undertakes substantial expansion" during the said period, as stipulated under clause (b) sub-section 2 of Section 80- IC, to be of significance. The only rider imposed is by virtue of sub-section (6) of Section 80-IA, which caps the deduction with respect to Assessment Years to which a unit is entitled to. 28. Of course, one thing is certain. Also, we are clear that under no circumstances, an assessee can claim deductions, be it under Section 80-IC, 80-IB or 10-C of the Act, for a period exceeding ten years, as is sought to be urged by some of the assessees. 29. What was the intent and the object sought to be achieved by the Legislature by inserting the new Section. To our mind, it was to promote and enhance activities envisaged under the Fourteenth Schedule, which could also be by carrying out substantial expansion of the "Unit". It is to give incentives to "Units" for setting up or expanding in special category States....
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....n the statute to observe or when read literally it leads to manifest injustice or absurdity." 35. The Court was dealing with the provisions of laws relating to urban development, unlike the taxing statute, in relation to which the Apex Court, in another Report, has held that equity and taxation are often strangers and if construction results in equity rather than injustice, then such construction should be preferred to the literal construction. (Commissioner of Income Tax v. J.H. Gotla, (1985) 4 SCC 343). 36. Further, Mr. Kuthiala invites our attention to another Report, which we find profitable to reproduce the following observations made by the Apex Court in State of W.B. v. Kesoram Indjustries Ltd. and others, (2004) 10 SCC 201: "138.It is well settled that it is for the legislature to draft a piece of legislation by making the choicest selection of words so as to give expression to its intention. The ordinary rule of interpretation is that the words used by the legislature shall be given such meaning as the legislature has chosen to in absence thereof the words would be given such meaning as they are susceptible of in ordinary parlance, maybe, by having recourse ....
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....he expression of human thought and as pointed out by Lord Denning, it would be idle to expect every statutory provision to be "drafted with divine prescience and perfect clarity." We can do no better than repeat the famous words of Judge Learned Hand when he laid: " .....it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning"" (Emphasis laid by underlining the portion) 40. In our considered view, circulars are no more than external aids in interpretation of a statute. Insofar as interpreting the statute is concerned, we are not obliged to even look into the same, for language of the Section is simple, clear and unambiguous. 41. We may notice that the Act does not create distinction between the old units, i.e the units which stand ....
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.... moment "substantial expansion" is completed as per Section 80-IC (8)(ix), the statutory definition of "initial assessment year" [Section 80-IC(8)(v)] comes into play. And consequently, Section 80-IC(3)(ii) entitles the unit to 100% deduction for five years commencing with completion of "substantial expansion", subject to maximum of ten years as per Section 80-IC(6). 47. A unit that started operating/existed before 7.1.2003 was entitled to 100% deduction for first five years under Section 80-IB(4). If this unit completes substantial expansion during the window period (7.1.2003 to 31.3.2012), it would be eligible for 100% deduction again for another five years under Section 80-IC(3)(ii), subject to ceiling of ten years as stipulated under Section 80-IC(6). 48. Applying the aforesaid interpretation, we find there can be different fact situations, some of which, we have tried to illustrate; (i) a "Unit" established prior to 7.1.2003, claiming deduction under Section 80-IB, post insertion of Section 80-IC carries out substantial expansion, would be entitled to deduction only under Section 80-IC, at the admissible percentage, for the remaining period, which in any case when combin....
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....f sub- section (8) of Section 80-IC, cannot be disputed, for there is increase in the investment in the plant and machinery by at least 50% of the Book Value of the plant and machinery than the first day of the previous year in which such investment was made. Eligibility of benefits to the unit under Section 80-IC is not in dispute. 52. Both the Assessing Officer as well as the Appellate Authority(s)/Tribunal erred in not appreciating as to what was the intent and purpose of insertion of Section 80 IC. 53. In fact, we find that the conclusions arrived at by the Assessing Officer as well as the Appellate Authority/ Tribunal are not based on correct appreciation and interpretation of the statutory provisions. While arriving at their respective conclusions, in interpreting Section 80 IC, they have relied upon Notifications under the Central Excise Laws as well as Ministry of Commerce and Industry (Department of Industrial Policy and Promotion), Government of India and Department of Income Tax. While doing so, the said authorities erred in not appreciating that Section 80 IC of the Act is a self contained and a complete code in itself, which, for the purpose of its interpretation....