Case: MAHABIR INDUSTRIES Vs. PRINCIPAL COMMISSIONER OF INCOME TAX

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 years.?This provision pertains to those industries which are in the North-Eastern Region.(c) When the deduction is claimed under Section 10C. It is again a special provision in respect of certain industrial undertakings in North-Eastern Region.11. The assessee in the instant case has not got deduction under Section 80-IC for a period of ten years as he started claiming deduction under this provision w.e.f. Assessment Year 2006-07. Situation Nos. (b) and (c) mentioned above would not apply to the assessee as it?s undertaking/enterprise is not established in North-Eastern Region. It is, thus, clear that the High Court has failed to appreciate that the provisions of Section 80-IC(6) of the Act state that the total period of deduction under Section 80-IC and Section 80-IB cannot exceed ten assessment years only if the manufacturing unit was claiming deduction under second proviso to Section 80-IB(4) of the Act i.e. units located in the North-Eastern State.12. The matter can be looked into from another angle. Under Section 80-IA, deduction is provided to such industrial undertakings or enterprises which are engaged in infrastructure development etc. provided they fulfill the conditions mentioned in sub-section (4) thereof. Section 80-IB makes provisions for deduction in respect of those industrial undertakings, other than infrastructure development undertakings, which are enumerated in the said provision. On the other hand, the intention behind Section 80-IC is to grant deduction to the units making new investments in the State by establishing new manufacturing unit or even to the existing manufacturing unit which carried out substantial expansions. The purport behind the three types of deductions specified in Section 80-IA, Section 80-IB and Section 80-IC is, thus, different. Section 80-IC stipulates the period for which hundred per cent deduction is to be given and then deduction at reduced rates is to be given. If the assessee had earlier availed deduction under Section 80-IA and Section 80-IB, that would be of no concern inasmuch as on carrying out substantial expansion, which was carried out and completed in the Assessment Year 2006-07, the assessee became entitled to deduction under Section 80-IC from the initial year. The term ‘initial year? is referable to the year in which substantial expansion has been completed, which legal position is stated by the High Court itself and even accepted by the Department as it has not challenged that part of the judgment. The inclusion of period for the deduction is availed under Section 80-IA and Section 80-IB, for the purpose of counting ten years, is provided in sub-section (6) of Section 80-IC and it is limited to those industrial undertakings or enterprises which are set-up in the North-Eastern Region. By making specific provision of this kind, the Legislature has shown its intent, namely, where the industry is not located in North- Eastern State, the period for which deduction is availed earlier by an assessee under Section 80-IA and Section 80-IB will not be reckoned for the purpose of availing benefit of deduction under Section 80-IC of the Act.13. Learned counsel for the Revenue could not dispute that sub- section (6) of Section 80-IC would get attracted when the industry is located in the North-Eastern Region. Having faced with this situation, he raised an altogether different argument for consideration by referring to Section 15C of the Income Tax Act, 1922 (hereinafter referred to as the ‘1922 Act?), which was also a provision which granted exemption from income in respect of newly established industrial undertaking. He submitted that this Court in Textile Machinery Corporation Limited, Calcutta v. The Commissioner of Income Tax, West Bengal, Calcutta 1 has held that the true test for ascertaining whether industrial undertaking is ‘formed by reconstruction of business already in existence? (which was the expression used in Section 15C of 1922 Act), is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is a new and identifiable undertaking separate and distinct from existing business. In fine, the endeavour of learned senior counsel was that the assessee cannot be treated as an industrial undertaking which has reconstructed the business i.e. made substantial expansion. This argument has to be rejected for at least two reasons: (i) Section 15C of the 1922 Act provided exemption from tax to newly established industrial undertaking if they are not ‘formed by reconstruction of business already in existence?. Thus, under the said provision, if it was found that an industrial undertaking is formed by reconstruction of business already in existence, then it was entitled to any exemption under Section 15C. It is in that context the Court was considering the meaning of reconstruction of business. On the other hand, the words under Section 80-IC are ‘substantial expansion?. Thus, discussion contained in the said judgment would have no application to the instant case.(ii) Insofar as the factum of substantial expansion of the assessee?s unit in the Assessment Year 2006-07 is concerned, the same is not subject matter of any controversy in the instant case. It has been accepted by the Department that assessee had carried out substantial expansion. Precisely, for this reason, the AO had allowed deduction for Assessment Years 2006-07 and 2007-08. Therefore, issue is not as to whether there is a substantial expansion or not. The issue is only as to how a period of ten years is to be calculated, namely, whether those Assessment Years in respect of which deduction under Section 80-IA and Section 80-IB was allowed are to be counted for the purpose of giving deduction under Section 80-IC.14. Thus, we are of the opinion that it was wrong on the part of the AO not to allow deduction to the assessee under Section 80-IC for the Assessment Years 2008-09 and 2009-2010.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]11. The assessee in the instant case has not got deduction under Sectionfor a period of ten years as he started claiming deduction under this provision w.e.f. Assessment YearSituation Nos. (b) and (c) mentioned above would not apply to the assessee as it?s undertaking/enterprise is not established inRegion. It is, thus, clear that the High Court has failed to appreciate that the provisions of Sectionof the Act state that the total period of deduction under Sectioncannot exceed ten assessment years only if the manufacturing unit was claiming deduction under second proviso to Sectionof the Act i.e. units located in the. Learned counsel for the Revenue could not dispute that subsection (6) of Sectionwould get attracted when the industry is located in theRegion. Having faced with this situation, he raised an altogether different argument for consideration by referring to Section 15C of the Income Tax Act, 1922 (hereinafter referred to as the ‘1922 Act?), which was also a provision which granted exemption from income in respect of newly established industrial undertaking.He submitted that this Court in Textile Machinery Corporation Limited, Calcutta v. The Commissioner of Income Tax, West Bengal, Calcutta 1 has held that the true test for ascertaining whether industrial undertaking is ‘formed by reconstruction of business already in existence? (which was the expression used in Section 15C of 1922 Act), is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is a new and identifiable undertaking separate and distinct from existing business. In fine, the endeavour of learned senior counsel was that the assessee cannot be treated as an industrial undertaking which has reconstructed the business i.e. made substantial expansion.This argument has to be rejected for at least two reasons: (i) Section 15C of the 1922 Act provided exemption from tax to newly established industrial undertaking if they are not ‘formed by reconstruction of business already in existence?. Thus, under the said provision, if it was found that an industrial undertaking is formed by reconstruction of business already in existence, then it was entitled to any exemption under Section 15C. It is in that context the Court was considering the meaning of reconstruction of business. On the other hand, the words under Sectionare ‘substantial expansion?. Thus, discussion contained in the said judgment would have no application to the instant case.(ii) Insofar as the factum of substantial expansion of the assessee?s unit in the Assessment Yearis concerned, the same is not subject matter of any controversy in the instant case. It has been accepted by the Department that assessee had carried out substantial expansion. Precisely, for this reason, the AO had allowed deduction for Assessment Years8. Therefore, issue is not as to whether there is a substantial expansion or not. The issue is only as to how a period of ten years is to be calculated, namely, whether those Assessment Years in respect of which deduction under SectionThus, we are of the opinion that it was wrong on the part of the AO not to allow deduction to the assessee under Sectionfor the Assessment Years