TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 1285
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....17 OF 2018 MISC. APPLICATION NO. 2976 OF 2018 CIVIL APPEAL NO. 7223 OF 2018 CIVIL APPEAL NO(S). 1795 OF 2019 (ARISING OUT OF SLP (C) NO. 2296 OF 2019) CIVIL APPEAL NO(S).1796 OF 2019 (ARISING OUT OF SLP (C) NO. 1983 OF 2019) CIVIL APPEAL NO(S). 1797 OF 2019 (ARISING OUT OF SLP (C) NO. 3278 OF 2019) AND CIVIL APPEAL NO(S). 1798 OF 2019 (ARISING OUT OF SLP (C) NO. 4483 OF 2019) JUSTICE A. K. SIKRI, JUSTICE A. ABDUL NAZEER And JUSTICE M. R. SHAH JUDGMENT A. K. Sikri, J. SLP(C) Nos. 23172 of 2018, 23176 of 2018, 23179 of 2018, 24678 of 2018, 23414 of 2018, 24679 of 2018, 2296 of 2019, 1983 of 2019, 3278 of 2019 and 4483 of 2019 : Leave granted. 2. Origin of these appeals can be traced to the judgment dated 28th November, 2017 rendered by High Court of Himachal Pradesh in a batch of appeals. Vide the said judgment, the High Court decided many issues. However, in these proceedings we are concerned with only one question of law which is formulated in the following terms: "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 ....
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....s for determination. Factual background in which this question of law arises for consideration has been taken note of in the judgment dated 20th August, 2018 which may again be reiterated, in order to understand the niceties of this issue: 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 Civil Appeal No. 7208 OF 2018 & Ors. Page 4 of 17 of 100% of profits and gains for five assessment years commencing with t....
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....nt portion of this provision: "[80-IC. 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,- (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 2 [1st day of April, 2007], in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or....
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....ed 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. (8) For the purposes of this section,- xxx xxx xxx (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; xxx xxx xxx (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. 8. This section makes special provisions in respect of certain undertakings or enterprises in certain special category States. Section 80-IC was inserted by the Finance Act, 2003 w.e.f. Civil Appeal No. 7208 OF 2018 & Ors. Page 12 of 17 April 1, 2004. As per th....
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....n (2) of Section 80-IC become entitled to deduction under this provision. (b) This deduction is allowable from the initial Assessment Year. 'Initial Assessment Year' is defined in Section 80-IB(14)(c) of the Act. (c) The deduction is @ 100% of such profits and gains for first 5 Assessment Years and thereafter a deduction is permissible @ 25% (or 30% where the assessee is a company). (d) Total period of deduction is 10 years, which means 100% deduction for first 5 years from the initial Assessment Year and 25% (or 30% where the assessee is a company) for the next 5 years. 11.In the judgment dated 20th August, 2018, while holding that deduction @ 100% cannot be allowed for more than 5 years from the 'initial assessment year', the reasoning that was given is contained in paragraph 20 of the judgment. Which reads as under: "When we keep in mind the aforesaid scheme and spirit behind this provision, such a situation cannot be countenanced where an Civil Appeal No. 7208 OF 2018 & Ors. Page 14 of 17 assessee is able to secure deduction @ 100% for the entire period of 10 years. If that is allowed it will amount to doing violence to the provisions of sub-section (3) read with s....
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.... sub-section, in any case, does not deal with the 'initial assessment year'. 13.Learned counsel appearing for the assessees pointed out before us that clause (v) of sub-section (8) of Section 80-IC is the concerned provision which provides definition of 'initial assessment year', for the purpose of this very Section, i.e., Section 80-IC, which was not noticed while pronouncing the judgment in Commissioner of Income Tax vs. M/s. Classic Binding Industries case. We find substance in this submission of the assessees. We have no hesitation to accept this mistake which occurred in the aforesaid judgment. The Court specifically dealt with 'initial assessment year' and came into conclusion that there cannot be two initial assessment years within a span of 10 years which is the maximum period for allowing deduction as per sub-section (6) of Section 80-IC. As the issue directly concerned with initial assessment year, its definition contained in that very Section was missed out. To that extent, there is an error in the judgment dated 20th August, 2018 in Classic Binding Industries case. 14.In the aforesaid conspectus, the focus has to be on the question as to whether definition of 'initial....
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....80-IC of the Act. As a result, they became entitled to avail the concession provided in the said provision. It is also an admitted fact that after five years and before the expiry of 10 years, the assessees had carried substantial expansion of their units in terms of the aforesaid definition. When we consider the definition of 'initial assessment year', keeping in view these factors, we find substance in the submissions made by the learned counsel for the assessees and are inclined to accept that there can be another 'initial assessment year' on the fulfillment of the condition mentioned in the said definition, namely, completion of substantial expansion of the existing unit. 18.The Court is supposed to give effect to the provisions of Section 80-IC by reading various provisions conjointly. For the purpose of these cases, relevant provisions are sub-section (2)(a)(ii), sub-section 3(ii), sub-section (6) and sub-section (8)(v) and (ix). Clause (ii) of sub-section (2) provides that in case an undertaking or enterprise sets up a unit of the nature specified therein in the State of Himachal Pradesh or the State of Uttaranchal between the 7th January, 2003 and 1st April, 2015, such an ....
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....nclusion would be to grant 100% deduction of the profits and gains even from the year when there is substantial expansion in the existing unit. After all, this substantial expansion involves great deal of investment which has to be, at least 50% in the plant and machinery, of the book value thereof before taking depreciation in any year. With an expansion of such a nature not only there would be increase in production but generation of more employment as well, which would benefit the local populace. It is for this reason, carrying out substantial expansion by itself is treated as 'initial assessment year'. It would mean that even when an old unit completes substantial expansion, such a unit also becomes entitled to avail the benefit of Section 80-IC. If that is the purpose of the legislature, we see no reason as to why 100% deduction of the profits and gains be not allowed to even those units who had availed this deduction on setting up of a new unit and have now invested huge amount with substantial expansion of those units. We would like to reproduce following discussions from the Constitution Bench judgment in Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Company ....
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....oversial questions of construction. The process of construction combines both literal and purposive approaches. In other words, the legislative intention i.e. the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed." "28. The decision of this Court in Punjab Land Development and Reclamation Corpn. Ltd. v. Labour Court [Punjab Land Development and Reclamation Corpn. Ltd.v. Labour Court, (1990) 3 SCC 682 : 1991 SCC (L&S) 71] , made the said distinction, and explained the literal rule: (SCC p. 715, para 67) "67. The literal rules of construction require the wording of the Act to be construed according to its literal and grammatical meaning, whatever the result may be. Unless otherwise provided, the same word must normally be construed throughout the Act in the same sense, and in the case of old statutes regard must be had to its contemporary meaning if there has been no change with the passage of time." That strict interpretation does not encompass strict literalism into its fold. It may b....
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....ollowing manner: "A taxing statute is to be strictly construed. The well-established rule in the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury [Ed.: Tennant v. Smith, 1892 AC 150 at p. 154] and Lord Simonds [Ed.: St Aubyn v. Attorney General, 1952 AC 15 at p. 32 (HL)] , means: '"The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words."' In a classic passage Lord Cairns stated the principle thus: 'If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute.' Viscount Simon quoted [Ed.: Canadian Eagle Oil Co. Ltd. v....
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....ay 18, 2018 would, in fact, help the assessee. The fine distinction pointed out in Classic Binding Industries elopes thereby. To recapitulate, in Mahabir Industries, it was held that if an assessee get 100% exemption under Section 80-IB of the Act for five years and thereafter carries out the substantial expansion because of which said assessee becomes entitled to exemption under the new provision i.e. Section 80-IC of the Act, the assessee would be entitled to deduction @ 100% even after five years. This ruling was predicated on the ground that there can be two initial assessment years, one for the purpose of Section 80-IB and other for the purposes of Section 80-IC of the Act. Once we find that there can be two initial assessment years, even as per the definition thereof in Section 80-IC itself, the legal position comes at par with the one which was discussed in Mahabir Industries. 24. The aforesaid discussion leads us to the following conclusions: (a) Judgment dated 20th August, 2018 in Classic Binding Industries case omitted to take note of the definition 'initial assessment year' contained in Section 80-IC itself and instead based its conclusion on the definition contained ....