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TMI Blog2013 (4) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income for assessment year 1982-83 declaring nil income. Since the assessee had not commenced manufacture or production of articles or things, the provisions of section 10A of the Act were not applicable to it in the said assessment year. By an application dated 1st February, 1983, the assessee applied for permission to change the previous year and to complete the books of account on 30th June, 1983 relevant to the assessment year 1984-85. Thereafter, the assessee filed its return of income for assessment year 1984-85 on 30th June, 1984 declaring loss of Rs. 1,69,890/-. On 24th November, 1986, during the course of the assessment proceedings, the assessee gave a declaration in writing to the effect that the provisions of section 10A of the Act may not be made applicable for the previous year ending on 30th June, 1983, that is, for assessment year 1984-85 and also for assessment year 1985-86 ending on 30th June, 1984 and that the same may be made applicable for assessment years 1986-87 to 1990-91. The Assessing Officer observed that a declaration under section 10A(7) of the Act has to be filed before the expiry of the time allowed under sub-section (2) of section 139 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. 4. In respect of assessment years 1987-88 and 1988-89, the income was assessed at nil. In respect of assessment year 1989-90, the Assessing Officer held that since the initial year for availing of exemption under section 10A of the Act was 1984-85, the period of five years came to an end in assessment year 1988-89 and hence, the assessee was not entitled to exemption under section 10A of the Act beyond assessment year 1988-89. The assessee carried the matter in appeal before the Commissioner (Appeals) who followed his earlier order and allowed the ground of appeal. Revenue went in appeal to the Tribunal. Before the Tribunal, the representatives of both the parties submitted that the controversy involved stands covered in favour of the assessee by the order passed by the Tribunal in ITA No. 3005/Ahd/1990 dated 11th November, 1994 in the assessee's own case. The Tribunal, accordingly, without discussing the merits of the case rejected the said ground of appeal by following its earlier order. 5. For assessment year 1990-91, which is the year under consideration in the present appeal, the assessee filed its return of income on 9th November, 1990 declaring total income of Rs. 7,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner (Appeals), the revenue went in appeal to the Tribunal. The Tribunal, in the impugned order has observed that the provisions of section 10A of the Act would apply to all industrial undertakings set up in the free trade zone, during the previous year relating to assessment year 1981-82 or any subsequent assessment year unless the assessee opts out of the scheme by making a declaration under sub-section (7) of section 10A within the time limit under that sub-section. That as per the amended Act with effect from 1st April, 1987, it has been provided in sub-section (3) of section 10A that a tax payer would be entitled to avail of tax exemption, at his option, in respect of any five consequent assessment years falling within a period of eight years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. The Tribunal referred to the explanation to the section wherein the expression 'relevant assessment year' has been defined to mean five years or less consecutive assessment years specified by the assessee at his option, within a period of eight years commencing from the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t apply to him for any of the five assessment years for which the tax-holiday provision would be normally applied to him. The Tribunal, accordingly, was of the view that if it was the case of the assessee that it had exercised option under section 10A(7) during the course of assessment for assessment year 1985-86, the assessee would have opted out of the scheme of section 10A of the Act and would not be entitled to exemption thereunder for any of the assessment years and, accordingly, held that the assessee was entitled to exemption under section 10A of the Act for the assessment years 1984-85 to 1988-89 only and accordingly dismissed the ground of appeal. The assessee is, therefore, in appeal before this court. 7. While admitting this appeal, this court had, by an order dated 4th September, 2000, formulated the following substantial question of law:- "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the exemption under section10A of the I.T. Act is to be given for initial five years and the assessee cannot exercise its option for any five consecutive years within the statutory period of eight years in view of the amendment t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to remedy the unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read as retrospective in operation, particularly to give effect to the section as a whole. 8.1 Referring to the contents of the Departmental Circular No.469, dated 23rd September, 1986, it was pointed out that the amendment in sub-section (3) of section 10A was brought about in view of representations made by various trade associations that such undertakings in the free trade zones do not always earn profit during all the five initial years. In such cases they cannot avail of the full tax benefit and in order to get over the problem, the exemption for five years has been permitted to be availed of within a longer time framed as per the Amending Act by providing in sub-section (3) that a tax payer would be entitled to avail of the exemption, at his option, in respect of any five consecutive assessment years falling within a period of eight years beginning with the assessment year relevant to the previous year in which the industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been exhausted and as such, the assessee having once availed of the benefit under section 10A of the Act for the initial assessment years, cannot now be permitted to push back the years of exemption. Reliance was placed upon the decision of this court in the case of Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980] 123 ITR 669, for the proposition that without disturbing the relief granted in the initial year, the Income Tax Officer cannot examine the question and decide to withhold or withdraw the relief already granted. It was submitted that in the facts of the present case, the amendment in sub-section (3) of section 10A was brought into force with effect from 1st April, 1987 and as such, the assessee prior to such amendment, having already availed of the benefit under section 10A of the Act in respect of the earlier years, it is now not open to it to contend that it would give up the relief granted in the earlier years and avail of the benefit in the subsequent years. The exemption for the subsequent years from 1986-87 to 1990-91 as claimed by the assessee cannot be granted without disturbing the relief granted in the initial year. It was submitted that prior to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (3) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things (such assessment year being hereafter in this section referred to as the initial assessment year) and each of the four assessment years immediately succeeding the initial assessment year. (4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,- (i) section 32, section 32A, section 33, section 35 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any building, machinery, plant or furniture us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant assessment years" means the five consecutive assessment years specified by the assessee at his option under sub-section (3). (iii) "manufacture" includes any - (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage device. 11. Thus, section 10A of the Act as it stood at the relevant time prior to its amendment in 1986 was applicable in respect of profits and gains derived by an assessee from an industrial undertaking in any free trade zone as described under clause (i) of the Explanation thereto, which commenced manufacture or production of articles or things during the previous year relevant to the assessment year commencing on or after the first day of April, 1981. Sub-section (2) thereof, made provision for the conditions precedent for being entitled to the benefits under the said section. Sub-section (3) of section 10A, postulated that the profits and gains referred to in sub-section (1) of section 10A shall not be included in the total income of the assessee in respect of the assessment year relevant to the previous year in which the industrial undertaking began to manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the initial assessment year. To put it differently, if the assessee wanted to opt out of the exemption under section 10A, it was required to make a declaration under section 10A(7) of the Act before the expiry of the time for furnishing a return for the initial assessment year. Clause (ii) of the Explanation to section 10A defines "relevant assessment years" to mean the initial assessment year and four assessment years immediately succeeding the initial assessment year. Thus, on a reading of section 10A of the Act as it stood at the relevant time as a whole, it is apparent that the same contemplated that the assessee should avail of the benefit of exemption from "the initial assessment year" namely the assessment year relevant to the previous year in which the manufacture or production of articles or things commenced and for four assessment years immediately succeeding the said assessment year. 13. By the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, with effect from 1st April, 1987, sub-section (3) of section 10A came to be substituted. The amended sub-section (3) of section 10A reads as under:- (3) The profits and gains referred to in sub-section (1) shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of exemption under the said provision from the initial assessment year. However, if the assessee did not desire to avail of the exemption under section 10A of the Act, it was required to file a declaration under section 10A(7) of the Act within the period prescribed therein. In the present case, it is an admitted position that no such declaration was filed by the assessee within the prescribed period. For the assessment year 1984-85, the assessee had claimed that since it had declared a loss, the provisions of section 10A would not be applicable to the relevant assessment year and had succeeded till the Tribunal. For the assessment year 1985-86, the assessee had initially filed a return of income claiming exemption under section 10A of the Act on 9th September, 1985 but later on had given a declaration in writing on 24th November, 1986 to the effect that the provisions of section 10A may not be made applicable for the previous year ending on 30th June, 1983, that is, for 1984-85 and also to assessment year 1985-86 ending on 30th June, 1984 and that the same may be applicable for assessment years 1986-87 to 1990-91. Thereafter, pursuant to a notice issued under section 148 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scheme of section 10A and would thereafter not be entitled for the benefit there under for any of the relevant assessment years. However, except for sub-section (7) of section 10A of the Act which gave an option to the assessee to opt out of the scheme of section 10A of the Act, at the relevant time there was no provision under section 10A of the Act akin to the substituted sub-section (3) which permitted the assessee to choose the assessment years in respect of which it desired to avail of exemption under section 10A of the Act. Thus, the declaration made by the assessee did not have any statutory basis. 16. As noted earlier, upon its substitution with effect from 1st April, 1987, the concept of "initial assessment year" as envisaged under sub-section (3) of section 10A, which prior to such substitution was the starting point for getting the benefit of exemption under section 10A of the Act, came to be done away with. Prior to the substitution of sub-section (3), the benefit of section 10A of the Act was available for the initial assessment year namely, the assessment year relatable to the previous year in which the manufacturing or production had commenced and four immediately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad commenced and the four immediately succeeding years, that is, the assessment year 1984-85 being the initial assessment year and assessment years 1984-85, 1986-87, 1987-88 and 1988-89 being the four immediately succeeding assessment years. However, on facts, insofar as the assessment year 1984-85 is concerned, the assessee had succeeded till the Tribunal, though on a wrong interpretation of section 10A(7) of the Act. Under the circumstances, the said order of the Tribunal has attained finality and as such, assessment year 1984-85 cannot be taken into consideration for the purpose of computing the period of five assessment years for the purpose of availing of benefit under section 10A of the Act. In relation to assessment year 1985-86, the assessee withdrew the claim of exemption made by it while filing return in pursuance of notice under section 148 of the Act, which admittedly was not within the time limit prescribed under sub-section (7) of section 10A. Even otherwise, the same appears to have been filed under a misconception of law inasmuch as noted earlier, the assessee did not desire to opt out of the scheme but merely wanted to postpone the assessment year in which it wante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x, duty, cess, etc. is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, the Municipal Corporation Act (octroi) and other tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the Income Tax Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. 18. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first ..... X X X X Extracts X X X X X X X X Extracts X X X X
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