TMI Blog2012 (4) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... ons would be admissible in respect of unit no. 3 and unit no. 4 as well for ten years from the year of start of production in these new units since these units were separate and independent production units. - Decided in favor of assessee. Deduction u/s 10B(4) on export incentives - held that:- Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. - the undertaking is eligible for deduction on export incentive received by it in terms of provisions of Section 10B(1) read with Section 10B(4) of the Act - Decided in favor of assessee. - IT Appeal NOS. 777 & 900 (IND.) of 2004 AND 295 & 356 (IND.) of 2006 - - - Dated:- 28-3-2012 - G. E. Veerabhadrappa And G. C. Gupta And R. C. Sharma, JJ. ORDER Per Bench This Special Bench is constituted by Hon'ble President under section 255(3) of the Income Tax Act, 1961 for deciding the following qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny exceeded its claim beyond permissible limit of 5 consecutive years out of eight years. He further held that this claim was overstitched to separate Units III and IV set up in assessment year 1996-97 and 1999-2000 resulting into extended claim up to assessment year 2005-06 and 2008-09 respectively. As per the Assessing Officer, the unit Nos. III and IV are interdependent and complementary to each other, therefore, those could not be held to be independent new units entitled for claim of exemption u/s 10B of Income-tax Act, 1961. Thereafter, relying upon the decision of Hon'ble Kolkata Tribunal reported in Tata Tea Limited v. Jt. CIT , 87 ITD 351 (Kol), the Assessing Officer concluded that the assessee company was entitled for exemption up to assessment year 1999-2000 only and its claim of exemption in subsequent years was not tenable and, therefore, the same was rejected. 4. By the impugned order, the ld. CIT(A) allowed assessee's claim of deduction u/s 10-B after observing that the case of Tata Tea is related to assessment year 1998-99, whereas Section 10B was amended w.e.f. 1.4.99, thereby extending the period of exemption from 5 years to 10 years and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 1998-99. He further observed that the case of the present assessee before him is that of assessment year 2001-02 to which the provisions of substituted Section 10B apply. The Hon'ble I.T.A.T., Kolkata Bench had no occasion to discuss the newly substituted S. 10B as applicable for the assessment year 2001-02, which is the relevant year in this case and it had discussed only the amendments made effective from 01.04.1999 which are not relevant for the assessment year under consideration. 5. The learned Commissioner of Income Tax (Appeals) further observed that the law as applicable to any particular assessment year can only be applied for that assessment year, nothing is to be read in, and nothing is to be implied. The appellant company has not claimed that the provisions of substituted Section 10B are retrospective in nature. The amended provisions are applicable w.e.f. 01.04.1999 and those substituted are applicable w.e.f. 01.04.2001 and the appellant's claim under the said Section is as per these amended/substituted provisions, as applicable to the respective assessment year. There is no restriction on the existing units for claiming the exemption fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. The first proviso to sec 10B(1) reads as under :- Provided that wherein in computing the total income of the undertaking in any assessment year, its profits and gains had not been included by application of the provisions of this Section as it stood immediately before its substitution by the Finance Act 2000, an undertaking shall be entitled to the deduction referred to in this sub Section only for the unexpired period of aforesaid ten consecutive assessment years. It will not be out of place to mention here the sequence of amendments/substitutions made to Section 10B which was initially inserted by the Finance Act, 1988, w.e.f. 1.4.89 to provide for a complete tax holiday to 100 % Export Oriented Undertakings for a period of five consecutive assessment years falling within the block of eight assessment years, subject to fulfillment of certain conditions. (a) The Finance Act 1993 amended Section 10B(4)(iii) with retrospective effect from 01.04.91 to provide that an undertaking availing of the benefits of deductions u/s 10B shall not be eligible to claim deduction u/s 80IA. (b) By the Finance Act, 1994, the tax holiday u/s 10B was restricted to the EO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Others , (60 ITR 392, 400) ( S.C). C. Smt. Tarulata Shyam v. CIT , (IT 108 ITR) 345, 357) (S.C.). Had it been the intention of the law makes to restrict the tax holiday period to five years in respect of the existing undertakings, the same would have been brought out in the Section clearly and specifically as had been done earlier in Section 80HH(2)(1), 80HHA, 80I(IA), 80IB etc. If any particular amendment is intended to be made applicable only for specific units, such intention is always clearly spelled in the statute, as is also evident from sub Section (2)((ia) appearing in the old sec10B which was applicable specifically to units commencing production on or after 01.04.1994. 'Statement of Objects and Reasons' as reported in 245 ITR (Statutes) page 34 with specific reference to clauses 15.3 and 15.14 of Circular No. 794 dated 9th August, 2000, reads as under :- . thus an undertaking set up on or before 31.03.2000 shall be entitled to the deduction for a period of ten years, that set up during the period 01.04.2000 to 31.03.2001 for a period of nine years, that set up in 2001-02 for a period of eight years and so on. The existing units will get the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Date of Commercial Production Relevant Assessment Year Exemption u/s 10B claimed up to AY A. Original Unit 01.02.1992 1992-93 2001-02 B. Spinning Unit No. III 01.06.1995 1996-97 2005-06 C. Spinning Unit No. IV 19.08.1998 1999-00 2008-09 10. Learned CIT DR further submitted that crucial question is whether the assessee as an undertaking which has started production in A.Y. 1992-93 can get benefit upto 10 years i.e. upto A.Y. 2001-02 or it can extend that period beyond 10 years as a result of some expansion in its production capacity by way of establishing unit III IV. Section 10B of I.T. Act do not provide for any exemption beyond 10 years to the same undertaking. The new units no. III and IV are not registered as new undertaking, but merely an expansion of old undertaking. In present case undertaking came into existence and started production in A.Y. 1992-93. The same undertaking cannot be stated to start once again in A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00. There was no change in the product line of manufacturing. The assessee company had not got permission to set up a new industrial undertaking but the permission was granted for increase in capacity from 39088 spindles to 89088 spindles. 14. Reliance was also placed on decision of Hon'ble Kerala High Court in the case of Canara Wire Wire Products Limited, (1992) 196 ITR 426 (Ker). He submitted that in this case deduction u/s 80J of the I.T. Act was denied on the ground that industrial unit set up must be new and though new plant machinery are erected for producing either same commodities or some distinct commodities, it should not be a case of reconstruction of old business. It is not sufficient that assessee has invested large amounts new installations have contributed to increase production capacity of the assessee. Most of cases decided are on section 80J which is materially different from section 10B. Section 80J says:-where gross total income of an assessee includes any profits and gains derived from an industrial undertaking , a deduction from such profits and gains of so much of amount thereof as does not exceed the amount calculated at rate of 6% per ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Act. As per the learned CIT DR, the Tribunal has to decide both of them together u/r 12 of the ITAT rule, 1946 as held in the case of Hukumchand Mills Ltd. 63 ITR 232 (SC). 17. With regard to the eligibility of assessee for deduction on export incentive received by it in terms of provisions of Section 10-B(1) read with Section 10-B(4) of the Act, the contention of ld. CIT DR was that Section 10B of the I.T. Act uses the words derived . However, export incentives cannot be said to be derived from the assessee's undertaking. 18. The ld. CIT DR placed reliance on the decision of Hon'ble Supreme Court in the case of Liberty India, 317 ITR 218, wherein Hon'ble Supreme Court defined the term 'derived' in para 14 by using the expression 'derived from' Parliament intended to cover sources not beyond the first degree. 19. He further contended that the issue of import license sale was considered by Hon'ble Apex Court in Sterling foods 237 ITR 579 (SC) and it was decided that same cannot form part of export turnover for calculation of deduction u/s 80HHC. 20. Reliance was also placed on the observation of Madras High Court in the case of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Thereafter IT Amendment Act, 1998 extended the period of benefit from five years to ten years with effect from 1.4.1999. Proviso to section 10B(3) was also omitted which stipulated that the period of five assessment years shall not be extended to cover any period after the expiry of the said period of eight years. Since the assessee has not claimed any deduction in the initial three assessment years, for the first time it started claim of deduction with effect from the assessment year 1995-96 till 1999-00. Since the amendment was made with effect from 1.4.1999, all the three units of the assessee became entitled to the benefit of section 10B for ten years starting from the year of commencement of production. Our attention was invited to Circular No. 794 dated 9.8.2000 containing explanatory notes to the amendment brought by the Finance Act, 2000 which clarified that an undertaking set up before 31st March, 2000 shall be entitled to deduction for a period of ten years from the year in which the undertaking begins manufacture or produces articles or things. He further submitted that applying the aforesaid settled legal position, once in the assessment year 1999-2000, the amended l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. Infact, in the aforesaid decision the Court went on to hold that even if the period of five years has expired as on the date of amended provisions but the period of ten years is still running, the assessee cannot be denied benefit. 27. As per the Ld. Counsel for the assessee, the aforesaid solitary/only decision of the Hon'ble Karnataka High Court is binding on the Hon'ble Special Bench in view of the settled principles of judicial propriety discussed infra. Further reliance was placed on the following decisions: The Mumbai Bench of the Tribunal in the case of Consindia (P) Ltd in ITA No. 8270/Mum/2004, similarly held that the assessee was eligible for deduction under section 10A of the Act for the extended period of ten years. In that case, the eight year period expired in the assessment year 2000-01. The Delhi Bench of the Tribunal in the case of Tech Books Electronics Services (P) Ltd v. ACIT : 100 ITD 125 held likewise. In that case, again, neither the five year period nor the block period of eight year had expired before the amended provisions became applicable and accordingly the Tribunal was pleased to hold that the assessee was eligible for ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Limited : AIR 1992 SC 711 - Khalid Automobiles v. UOI [1995] 4 SCC (Supl) 653 - Jain Exports v. UOI [1988] 3 SCC 579 - Berger Pains India Limited : 266 ITR 99 (SC) - Asst. CCE v. Dunlop India Ltd. : 154 ITR 172 (SC). - Aggarwal Warehousing Leasing Limited : 257 ITR 235 (MP) - CIT v. Akshay Kumar Jain : 281 ITR 431(MP) - SAE Head Office Monthly Paid Employees Welfare Trust : 271 ITR 159 (Del) - Bank of Baroda v. H.C. Shrivatsava : 256 ITR 385 (Bom) - Voesta- Alphine Ind. Gmbh v. ITO : 246 ITR 745 (Cal.) - Nikko Corporation Ltd. v. CIT 251 ITR 791 (Cal.) - KN. Agrawal v. CIT : 189 ITR 769 (All.) - CIT v. Sarabhai Sons Ltd. : 143 ITR 473, 486 (Guj) - L.G. Ramamurthi : 110 ITR 453 (Mad.) - CIT v. S. Devraj : 73 ITR 1 (Mad.) - Pearl Polymers Limited : 80 ITD 1 (Del.) (SB): If subsequent to SB there is some decision of the High Court or the Supreme Court, then Division Bench would be at liberty to take an independent view. 32. In support of the proposition that spinning units III and IV were also eligible for claim of deduction u/s 10B reliance was placed upon the decision of the Hon'ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent claimed relief under section 15C of the Indian Income-tax Act, 1922, in respect of the additional investments in the form of extensions to the existing factory premises, installation of new plant and machinery, etc., at Belur and Alupuram. The assessing officer refused to allow the relief and the Commissioner of Income Tax (Appeals) dismissed the respondent's appeal. On further appeal, the Tribunal noted that (i) during the previous year, production of aluminium ingots went up by double, that the additional units set up by the respondent cost over ₹ 50 lakhs at Belur and about the same figure or a little more, at Alupuram, (ii) in view of the nature of the substantial investments, it could not be said that the units were not new industrial units by themselves. The Tribunal held that these units had been set up side by side with the old ones and had added to the respondent's total output of aluminium ingots. The Tribunal, accordingly, held that the respondent was entitled to the relief under section 15C of the 1922 Act. The Supreme Court following the law laid down in the decision in the case of Textile Machinery ( supra ) upheld the aforesaid findings of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annum. 5. New unit resulted in total addition to gross block of fixed assets by ₹ 69.43 crores as against 121.01 crores at opening of year. 6. Turnover of company increased to ₹ 224.5 crores as against ₹ 158.37 crores in preceding year. 7. Around 570 workers and staff were recruited during the financial year 1998-99 39. As per the Ld.Counsel for the assessee the new units were duly approved as 100% EOUs by the competent authorities. The permission dated 31.03.1995 bearing No. 141/EOB/61/95 issued by the Ministry of Industry, Department of Industrial Development, Government of India was received for setting up new unit. However, due to certain discrepancies in the permission dated 31.03.1995 the assessee, vide letter dated 27.04.1995, pointed out the same, necessary corrections whereof were carried out vide letter dated 31.05.1995. Thereafter, the assessee filed request letter dated 14.04.1998 before the competent authority for enhancement of licensed capacity which was granted vide letter dated 02.06.1998. 40. Reliance was also placed decision of the Pune Bench of the Tribunal in the case of Patni Computer Systems Ltd. v. DCIT : ITA No. 426 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the effect that the aforesaid income was treated as business income of the assessee on which deduction u/s 10B cannot be denied in view of the provisions of section 10B(1) read with section 10B(4) of the Act. 44. He further submitted that the decision of the Supreme Court in the case of Liberty India and others v. CIT : 317 ITR 218 relied upon by Revenue is not applicable to the facts of the present case. In that case, the issue before the Supreme Court was with regard to the eligibility of duty drawback for claiming deduction under section 80IB of the Act. The Supreme Court, making a reference to its own decision in the case of Sterling Food ( supra ), held that duty drawback could not be held to be income derived from the specified business and was therefore, not eligible for deduction under section 80IB of the Act. 45. As noticed above, there is no similar formula prescribed in sections 80IA/80IB to arrive at the profits derived from the business of eligible undertaking and therefore, the aforesaid decision rendered in context of section 80IB would not be applicable in case of deduction under sections 10A/10B of the Act. 46. In view of the above discussion, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year relevant to the previous year in which the undertaking starts its production. As the relevant provisions of exemption u/s 10-B, had undergone various changes, it is worthwhile to narrate the relevant provisions of law as applicable from the year in which this Section was brought into statute. (a) Section 10B was initially inserted by the Finance Act, 1988, w.e.f. 1.4.1989 to provide for a complete tax holiday to 100 % E.O.U. for a period of five consecutive assessment years falling within the block of eight assessment years, subject to fulfillment of certain conditions. (b) The Finance Act 1993 amended Section 10B(4)(iii) with retrospective effect from 01.04.91 to provide that an undertaking availing of the benefits of deductions u/s 10B shall not be eligible to claim deduction u/s 80IA. (c) By the Finance Act, 1994, the tax holiday u/s 10B was restricted to the EOUs exporting at least 75 % of their turnover. Such restriction was specifically and prospectively made applicable to 100 % EOUs which commenced production on or after 1st April 1994. It is pertinent to note here that a specific mention was made that the said restriction will apply only to new units comi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he newly substituted Section 10B(1) categorically allows exemption to the existing units for the unexpired period of ten years. Even the Explanatory note relating to the said enactment as reported at 245 ITR St 34 states that an undertaking set up before 31.03.2000 shall be entitled to the deduction for a period of ten years. Though this amendment is effective from 01.04.2001, it specifically allows exemption to existing unit for a period of ten years. 49. Applying the relevant provisions as discussed above, prior to amendment by Income Tax (Amendment) Act, 1998, the assessee was eligible for deduction u/s 10B of the I.T. Act for five consecutive years out of 8 years beginning with the assessment years in which undertaking began manufacturing i.e. from A.Y. 1992-93. From 1 April, 1998 the law was amended and 8 years were substituted by 10 years, in section 10B(3) of the I.T. Act. The restraint of exemption upto 8 years was also withdrawn. The only question which is to be answered is whether amendment of Finance Act, 1998 will apply to new units established after 01.04.1998 or they will apply to existing E.O.U.s also. To put it differently whether the Finance Act has given bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Tata Tea Limited as relied on by the Assessing Officer. 53. The facts in the case of Tata Tea Limited ( supra ) were that the assessee had started eligible unit in assessment year 1989-90. Deduction under section 10B of the Act was availed by the assessee for five consecutive years i.e. assessment years 1992-93 to 1996-97. The assessee had exhausted its five year tax holiday period available for claiming exemption under section 10B of the Act in the assessment year 1996-97. In the appeal for the assessment year 1997-98, the assessee, however, sought to claim deduction under section 10B of the Act by relying upon the provisions of the said section as amended subsequently by Income-tax (Second Amendment) Act, 1998, w.e.f. 1.4.1999. It was the contention of the assessee that the law, as amended by the I.T. (Second Amendment) Act, 1998 extending the period of tax holiday from five years to ten years, was merely c1arificatory in nature and also applied to the assessee, even though the assessee admittedly and undisputedly had already exhausted its tax holiday period available under the pre-amended law and prior to the amendment, which was, in any case not applicable to the year un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n asst. yr. 2000-01, whereas the amendment was carried out w.e.f. 1st April, 1999. We therefore hold that the learned CIT(A) was justified in denying the benefit of deduction under s. 1OA. On perusal of the aforesaid, it may be noticed that in the aforesaid case- ( i ) the assessee had claimed and been allowed deduction for five consecutive assessment years, viz, assessment years 1992-93 to 1996-97. ( ii ) even the eight years block period for claiming tax holiday for a continuous period of five years had already exhausted in the assessment year 1996-97. ( iii ) the amendment in section 10B was applicable from the assessment year 1999-2000 and not retrospectively. 55. It is in these circumstances, that the Tribunal held that the assessee was not eligible for claiming tax holiday for the extended period of ten years. It is, however, important to note that in the aforesaid decision the Tribunal also observed that had it been a case where the five years period had not expired at the time of applicability of the amended law, the assessee would have been entitled to deduction for the larger period under the amended law. The pertinent observations of the Tribunal are rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of 5 years automatically, should get the benefit of 10 years if other conditions are fulfilled. The other condition to be fulfilled is ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture. Therefore, the object with which this amendment was introduced is to extend the benefit of tax holiday for a period of 10 consecutive years from the date of commencement of manufacture or production. Before an assessee can claim the benefit of tax holiday, the said law governing the tax holiday should be in force on the first day of the relevant year. Then only he would be entitled to the said benefit. On 01.04.1999 when the amended provision came into force by virtue of said provision the assessee would be entitled to the benefit of tax holiday for 10 consecutive years from the date of production. If the assessee already availed the benefit under the unamended provision and the 10 consecutive years would fall prior to 01.04.1999, then the assessee would not be entitled to the said benefit. If the said 10 consecutive years from the date of production has not expired, prior to 01.04.1999, for the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing cases :- Supreme Court in the case of Dunlop India Ltd.: 154 ITR 172 @ 181: We desire to add and as was said in Cassell and Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never he necessary for us to say so again that in the hierarchical system of courts which exists in our country, it is necessary for each lower tier , including the High Court, to accept loyally the decisions of the higher tiers . It is inevitable in a hierarchical system of courts that there are decisions of the supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary ...... But the judicial system only works if some one is allowed to have the last word and that last word, once spoken, is loyally accepted (See observations of Lord Hailsham and Lord Diplock in Broome v. Cassell ). The better wisdom of the court below must yield to the higher wisdom of the court above. That is the strength of the hierarchical judicial system. In Cassell v. Broome [1972] AC 1027, commenting on the Court of Appeal's comment that Rookes v. Barnard [1964] AC 1129, was rendered per incuriam, Lord Diplock observed (p. 1131). The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the year in which amendment became effective and operative, the assessee will be entitled to the extended period of exemption because the period of five years had not exhausted up to assessment year 1999-2000. Since the right of the assessee was continuing in the year of amendment and was not lost on the date when the amendment came into existence, the view taken by the learned CIT(A) cannot be upheld. 10.9 So far as the objections of the learned CIT(A) regarding conduct of the assessee-firm in not claiming the exemption in earlier year is concerned, the approach of the learned CIT(A) raising this objection, cannot be legally justified because if the assessee is entitled to any benefit under any statutory provision then the past conduct cannot be relevant particularly when reference to such conduct is not made in the Act. The eligibility of the assessee has to be seen in the year in which the claim is preferred and if in earlier years the assessee waived his right then he cannot be stopped in claiming the benefit in the subsequent years. 10.10 The learned CIT(A) has also observed that the assessee did not file declaration exercising option prior to the due date for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the designated authority. 61. Applying the relevant provisions of law as applicable during the years, under consideration, and also the judicial pronouncements, as discussed above, we can safely hold that in the assessment year 1999-00 when the period of exemption was extended from five years to ten years, all the three units of the assessee were eligible for deduction u/s 10B of the Act. Each of the units were eligible for exemption under section 10B of the Act, both under the pre-amended law when the exemption was available for five years out of eight years as well as under the amended law when the exemption was extended to ten consecutive assessment years. As the amendment came into force in the assessment year 1999-00, the amended laws became applicable to the assessee according to which all the three eligible units of the assessee became entitled for deduction for a period of ten consecutive assessment years from the date of commencement of manufacture/production by the said eligible undertaking. Furthermore, there is no question of claiming the provision of section 10B to be prospective or retrospective since what the assessee is simply claiming is that the exemption shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been defined u/s 10B of the Act. The said expression has been explained by the Courts in the context of similar other provisions of IT Act viz. section 15C of 1922 Act, section 80J, 80HH, 80I, 80IA and 80IB of 1961 Act. Hon'ble Supreme Court in the case of Textile Machinery Corporation Limited v. CIT 107 ITR 195 held that the true test is whether the unit claiming deduction is a new and identifiable undertaking separate and distinct from the existing business. It was further held that manufacture or production of articles yielding additional profit attributable to the new outlay of capital is a separate and distinct unit is the heart of the matter, to earn benefit from the exemption of tax liability. Following observations of the Court are very much pertinent :- The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under section 15C or not. In order that the new undertaking can be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, in the instant case, there is no formation of any industrial undertaking out of the existing business since that can take place only when the assets of the old business are transferred substantially to the new undertaking. There is no such transfer of assets in the two cases with which we are concerned. 63. At page 206 the Hon'ble Supreme Court has summarised the requirements to be satisfied by a new industrial undertaking to enjoy the tax holiday as under :- However, in order to be entitled to the benefit under section 15C, the following facts have to be established by the assessee, subject always to time-schedule in the section: (1) investment of substantial fresh capital in the industrial undertaking set up, (2) employment of requisite labour therein, (3) manufacture or production of articles in the said undertaking, (4) earning of profits clearly attributable to the said new undertaking, and (5) above all, a separate and distinct identity of the industrial unit set up. It is clear from the above that the Hon'ble Supreme Court has pointed out that new industrial undertaking should emerge as physically separate industrial unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arments per annum. The turnover of the company reached to ₹ 121.72 crores from ₹ 67.26 crores in the immediately preceding year and the profits before depreciation took quantum leap of 3.37 crores. In Unit No. 4, additional 16128 spindles were installed which enhanced the installed capacity to 54528 spindles. 12 circular knitting machines were imported and installed. A power plant of 4.25 MV capacity was set up. The facilities to manufacture readymade garments were set up to manufacture 6 lacs additional garments per annum and the new unit resulted into total addition of gross block of fixed assets by ₹ 69.43 crores as against 121.01 crores at the beginning of the year. The turnover of the company also increased to ₹ 224.5 crores as against 158.37 crores in the preceding year. Thus, on the facts of the case, both the new spinning units of the assessee have their independent and separate existence which is evident from the copy of invoices along with packing list placed in the paper book which shows that identifiable and marketable products were manufactured by these units. The raw material issue slips also show that the raw material is issued and recorded un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the permission dated 13.3.1995 were also carried out by the Ministry vide letter dated 31.5.1995. The assessee had also filed letter dated 14.4.1998 before the competent authority for enhancement of the licence capacity which was also granted on 2.6.1998. In view of these documentary evidences, we hold that fresh permission was granted for a new unit where the competent authority extended the benefit available to 100% export oriented unit for substantial extension of the existing undertaking. 70. The decision relied upon by the learned CIT DR in the case of State of Gujarat v. Saurashtra Cement Chemical Industries ; 260 ITR 181 is distinguishable on facts insofar as it was held by the Hon'ble Supreme Court that admittedly the alleged new unit was using the existing crushers, grains, raw mills, packing machines and old cement mils to complete the process of manufacture of cement. It was thus held that new unit was not totally independent viable unit, therefore, not eligible for claim of exemption from electricity duty u/s 3(2)(vii)(b) of the Bombay Electricity Duty Act, 1958. However, in the instant case before us, the aforesaid two units viz. unit no. 3 and 4 were separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her units/business ( b ) employment of independent infrastructure and separate plant and machinery etc. ( c ) substantial capital investment ( d ) new employees and ( e ) Identifiable output (even though same product) and profits thereto can be determined. 73. Similar issue has been dealt with by the I.T.A.T., Pune Bench, in the case of Patni Computer Systems Ltd. v. DCIT : ITA No. 426 and 1131/PN/06, wherein assessee's claim for deduction under section 10A of the Act in respect of three units was disallowed by the Assessing Officer on the ground that three units were not new units but mere expansion of existing unit on the basis of approval letters received from STPI. The Tribunal held that the manner of granting approval was not relevant for adjudicating the claim of deduction under section 10A. The relevant observations and findings of the Tribunal were as under :- 41. The only plea of the Revenue is that in the approvals granted by the STPI, the three units have been referred to as an expansion of the corresponding old units. The moot question is as to whether such a plea of the Revenue is potent to effect the assessee's entitlement for deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity for claim of deduction u/s 10A of the Act in respect of three units. What is really to be examined is as to whether the three units are independent units and that they fulfill the conditions prescribed u/s 10A(2) of the Act. It was, therefore, held that the mere fact that the requisite permissions from STPI refer them as expansions of the existing units would not disentitle the assessee from the claim of deduction under section 10A of the Act. 75. In view of the above decision of the coordinate Bench, the plea of the learned CIT DR will not disentitle the assessee from claiming deduction u/s 10B in respect of two new units since these units were set up in a newly constructed building by installing additional spindles, new plant and machinery, new power plant and new manufacturing facilities which resulted into increased turnover by almost double, recruitment of new manpower/employees, manufacturing of new identifiable and marketed products, maintenance of separate books of account for each unit, obtaining separate approvals for new spinning units and permission for enhanced capacity. It is pertinent to mention here that new, separate and independent units were set up which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertakings 10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years : [Provided further that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.] ** ** ** Explanation 2. -For the purposes of this section,- ( i ) computer software means- ( a ) any computer programme recorded on any disc, tape, perforated media or other information storage device; or ( b ) any customized electronic data or any product or service of similar nature as may be notified by the Board, which is transmitted or exported from India to any place outside India by any means; ( ii ) convertible foreign exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder or any other corresponding law for the time being in force; ( iii ) export turnover means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. In case of Liberty India, the Hon'ble Supreme Court has dealt with the provisions of section 80IA of the Act wherein no formula was laid down for computing the profits derived by the undertaking which has specifically been provided under sub-section (4) of section 10B while computing the profits derived by the undertaking from the export. Thus, the decision of the Hon'ble Supreme Court is of no help to the revenue in determining the claim of deduction u/s 10B in respect of export incentives. 78. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :- Profit of the business of the Undertaking X Export turnover Total turnover of business carried out by the undertaking 79. Thus, sub-section (4) of section 10B stipulated that deduction under t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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