Case: Deputy Commissioner of Income-Tax, Circle 11 (1), Bangalore Vs. M/s. Ace Multi Axes Systems Ltd

thereof, the same should not be denied.24. In this context, reference to T.N. Electricity Board v. Status Spg. Mills Ltd.[(2008) 7 SCC 353] would be fruitful. It has been held therein: (SCC p. 367, para 32)"32. It may be true that the exemption notification should receive a strict construction as has been held by this Court in Novopan India Ltd. v. CCE and Customs[ 1994 (Supp) 3 SCC 606], but it is also true that once it is found that the industry is entitled to the benefit of exemption notification, it would received a broad construction. (See TISCO Ltd. v. State of Jharkhand[(2005) 4 SCC 272] and A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala[(2007) 2 SCC 725] .) A notification granting exemption can be withdrawn in public interest. What would be the public interest would, however, depend upon the facts of each case."25. From the aforesaid authorities, it is clear as crystal that a statutory rule or an exemption notification which confers benefit on the assessee on certain conditions should be liberally construed but the beneficiary should fall within the ambit of the rule or notification and further if there are conditions and violation thereof are provided, then the concept of liberal construction would not arise. Exemption being an exception has to be respected regard being had to its nature and purpose. There can be cases where liberal interpretation or understanding would be permissible, but in the present case, the rule position being clear, the same does not arise." 19. Same view was taken in Commissioner of Customs v. M. Ambalal & Co., (2011) 2 SCC 74 as follows : "16. It is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. The rule regarding exemptions is that exemptions should generally be strictly interpreted but beneficial exemptions having their purpose as encouragement or promotion of certain activities should be liberally interpreted. This composite rule is not stated in any particular judgment in so many words. In fact, majority of judgments emphasise that exemptions are to be strictly interpreted while some of them insist that exemptions in fiscal statutes are to be liberally interpreted giving an apparent impression that they are contradictory to each other. But this is only apparent. A close scrutiny will reveal that there is no real contradiction amongst the judgments at all. The synthesis of the views is quite clearly that the general rule is strict interpretation while special rule in the case of beneficial and promotional exemption is liberal interpretation. The two go very well with each other because they relate to two different sets of circumstances." 20. In State of Jharkhand v. Ambay Cements, (2005) 1 SCC 368 , the question was whether exemption for newly set up industrial units was applicable to the assessee therein. The High Court having allowed the benefit even though the assessee did not qualify for the same, this Court reversed the view of the High Court and held that the conditions for grant of exemption from tax are mandatory and in absence thereof exemption could not be granted. Distinguishing the judgments of this Court in Bajaj Tempo (supra), it was observed : "23. Mr Bharuka further submitted that in taxing statutes, provision of concessional rate of tax should be liberally construed and in respect of the above submission, he cited the judgment of this Court in CST v. Industrial Coal Enterprises [(1992) 3 SCC 78] and in the case of Bajaj Tempo Ltd. v. CIT. We are unable to countenance the above submission. In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption was granted stood changed on account of any subsequent event the exemption would not operate.24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications.25. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule.26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein." 21. In view of the above judgments, we do not see any difference in the situation where the assessee, is not initially eligible, or where the assessee though initially eligible loses the qualification of eligibililty in subsequent assessment years. In both such situations, principle of interpretation remains the same.22. Thus, while there is no conflict with the principle that interpretation has to be given to advance the object of law, in the present case, the assessee having not retained the character of `small scale industrial undertaking, is not eligible to the incentive meant for that category. Permitting incentive in such case will be against the object of law.23. For the above reasons, we hold that the assessee is not entitled to benefit of exemption if it loses its eligibility as a small scale industrial undertaking in a particular assessment year even if in initial year eligibility was satisfied. 24.

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

Explanation:
1[ds]13. On examination of the scheme of the provision, there is no manner of doubt that incentive meant for small scale industrial undertakings cannot be availed by industrial undertakings which do not continue as small scale industrial undertakings during the relevant period. Needless to say, each assessment year is a different assessment year, except for block assessment.14. The observations in the impugned order are that the object of legislature is to encourage industrial expansion which implies that incentive should remain applicable even where on account of industrial expansion small scale industrial undertakings ceases to be small scale industrial undertakings. We are unable to appreciate the logic for these observations. Incentive is given to a particular category of industry for a specified purpose. An incentive meant for small scale industrial undertaking cannot be availed by an assessee which is not such an undertaking. It does not, in any manner, mean that the object of permitting industrial expansion is defeated, if benefit is not allowed to other undertakings. On this logic, incentive must be given irrespective of any condition as the incentive certainly helps further expansion by reducing the tax burden. The concept of vertical equity is well known under which all the assessees need not be uniformally taxed. Progressive taxation is a well known element of tax policy. Higher slabs of tax or higher tax burden on an assessee having higher income or higher capacity cannot in any manner, be considered unreasonable.The principle of law considered in Bajaj Tempo (supra) is certainly a valid principle of interpretation where there is ambiguity or absurdity or where conditions of eligibility are substantially complied. In the present case, the scheme of the statute is clear that the incentive is applicable to a small scale industrial undertaking. The intention of legislature is in no manner defeated by not allowing the said incentive if the assessee ceases to be the class of industrial undertaking for which the incentive is provided even if it was eligible in the initial year. Each assessment year is a separate unit.In view of the above judgments, we do not see any difference in the situation where the assessee, is not initially eligible, or where the assessee though initially eligible loses the qualification of eligibililty in subsequent assessment years. In both such situations, principle of interpretation remains the same.22. Thus, while there is no conflict with the principle that interpretation has to be given to advance the object of law, in the present case, the assessee having not retained the character of `small scale industrial undertaking, is not eligible to the incentive meant for that category. Permitting incentive in such case will be against the object of law.23. For the above reasons, we hold that the assessee is not entitled to benefit of exemption if it loses its eligibility as a small scale industrial undertaking in a particular assessment year even if in initial year eligibility was satisfied.