TMI Blog2013 (4) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision unworkable which could never have been the intention of the legislature. - Decided in favor of revenue and against the assessee. - TAX APPEAL NO. 104 OF 2000 - - - Dated:- 25-6-2012 - AKIL KURESHI AND MS. HARSHA DEVANI, JJ. R.K. Patel for the Appellant. Manish Bhatt for the Respondent. JUDGMENT Ms. Harsha Devani, J . - The appellant - assessee has challenged the order dated 15th December, 1999 passed by the Income Tax Appellate Tribunal, Rajkot Bench (hereinafter referred to as 'the Tribunal') in ITA No.1382/Ahd/93. 2. Having regard to the controversy involved in the present case, it would be necessary to refer to the facts in some detail including the facts relating to the previous assessment years. The assessment year is 1990-91 and the relevant accounting period is the year ended on 31st March, 1990. The assessee, a partnership firm, is engaged in the manufacture of corrugated boxes having its factory in the Kandla Free Trade Zone. The assessee firm was formed on 21st October, 1981 and commenced manufacturing activities on 20th July, 1982. Its first previous year was the year that ended on 31st December, 1981. The assessee filed its return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilised the option provided under section 10A(7) of the Act and as such, the Assessing Officer was not justified in framing assessment order under section 10A of the Act. It was, however, observed that the observations made by the Commissioner (Appeals) that the assessee shall be entitled to the benefit of section 10A for five years from assessment years 1986-87 to 1990-91 was uncalled for as the claim of the assessee for those years was not a matter in issue before him. 3. For the assessment year 1985-86, the assessee filed its return of income on 9th September, 1985 declaring the total income at nil. In the statement of income filed with the original return, the assessee had shown the total income at Rs. 1,05,564/- and the entire income was claimed as exempt under section 10A of the Act. Subsequently, pursuant to a notice dated 28th January, 1991 issued under section 148 of the Act, the assessee filed return of income on 28th February, 1991 in which it withdrew its claim for exemption under section 10A of the Act and declared total income of Rs. 1,05,564/-. The Assessing Officer, however, made assessment on protective basis as the assessee had offered the entire income to tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 1984-85 itself. The Assessing Officer, accordingly, disallowed the claim of the assessee for exemption under section 10A of the Act. The assessee carried the matter in appeal before the Commissioner (Appeals) who accepted the contention of the assessee that for assessment year 1984-85, the income was returned at loss and hence, no declaration was made in respect of that year and that for the year 1985-86, the assessee had made a declaration before the Income Tax Officer during the course of hearing of assessment proceedings for the year that it was desirous of getting tax benefits under section 10A of the Act for subsequent five years, that is, assessment years 1986-87, 1987-88, 1988-89, 1989-90 and 1990-91. That in view of the fact that it had commenced its manufacturing or production activity on 20th July, 1982, in terms of the amended provisions of section 10A of the Act, the eight years' block would be required to be worked out in such a manner so as to cover these five assessment years, that is, assessment years 1986-87 to 1990-91 The Commissioner (Appeals), accordingly, allowed the claim for exemption under section 10A of the Act. 6. Against the order of Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the contention of the assessee that it had withdrawn its claim under section 10A of the Act in respect of assessment year 1985-96, the Tribunal observed that the scheme of section 10A is that the assessee who avails of the benefit of the concession thereunder will not be eligible for the other tax concessions in relation to the industrial undertakings in the free-trade zone either during the course of the five year tax-holiday period or at any time after the end of the tax-holiday period. A special provision has been made under sub-section (7) of section 10A of the Act, to give an option to an assessee who derives profits and gains from an industrial undertaking situated in a free trade zone not to avail of this concession. Such an assessee will be required to furnish a declaration in writing before the expiry of the time allowed under section 139(1) or under section 139(2) of the Act, whether fixed originally or on extension, to furnish the return of income for the first assessment year for which the tax-holiday under the new scheme is available to him, that the provisions of the section may not be made applicable to him and if he does so, the provisions of section 10A will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1990-91 ignoring the fact that the assessee had already been granted exemption for the period under 1986-87 to 1989-90. It was urged that the amendment whereby sub-section (3) of section 10 came to be substituted with effect from 1st April, 1987 pertains to procedural law and is, therefore, applicable retrospectively. The Tribunal was, therefore, not justified in ignoring the findings recorded by it in the assessee's own case for assessment year 1984-85. It was submitted that section 10A is a beneficial provision and as such, has to be construed liberally. Accordingly, sub-section (3) of section 10A of the Act as amended with effect from 1st April, 1987 is required to be given retrospective effect. In support of his submission, the learned counsel placed reliance upon the decision of the Supreme Court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 wherein the court was called upon to decide as to whether omission (deletion) of the second proviso to section 43B of the Act, by the Finance Act, 2003, operated with effect from April 1, 2004 or whether it operated retrospectively with effect from April 1, 1998. The court held that when a proviso in a section is inse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot make any provision for opting for any particular assessment year or for opting out of the scheme for a particular year. Under sub-section (7) of section 10A of the Act, the assessee, if it did not desire to avail of the exemption under section 10A, was required to file a declaration within the time stipulated thereunder to the effect that it did not desire to avail of the benefit under the scheme. If such option was exercised, the assessee, thereafter, would not be entitled to the benefit of exemption under section 10A of the Act for any of the relevant assessment years. In the facts of the present case, as the assessee had not opted out of the scheme by making a declaration under section 10A(7) of the Act, the provisions of section 10A would become applicable with effect from assessment year 1984-85 which was the assessment year relatable to the year in which the assessee firm started its manufacturing activities. Therefore, the period of five assessment years is required to be computed from assessment years 1984-85 and as such, the assessee was entitled to exemption only till the year 1988-89 and no further. It was submitted that in the year 1989-90, the entire block of five y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year commencing on or after the 1st day of April, 1981, in any free trade zone; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation: The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance under section 32, the written down value of any asset used for the purposes of the business of the industrial undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment years. (5) and (6)** ** ** (7) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income furnishes to the Income-tax Officer a declaration in writing that the provisions of this section shall not apply to him for any of the relevant assessment years. Explanation: For the purposes of this section,- (i) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; (ii) "relevant assessment years" means the five consecutive assessment years specified by the assessee at his optio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 35 and clause (ix) of section 36 is deemed to have been given full effect to for that assessment year itself; (ii) the assessee shall not be entitled to carry forward loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74 or deficiency referred to in sub-section (3) of section 80J; (iii) shall not be allowed deduction under section 80HH or section 80HHA or section 80I or section 80J in relation to such industrial undertaking; and (iv) shall not be entitled to claim depreciation under section 32 of the Act in respect of the assets of the industrial undertaking. 12. Sub-section (7) of section 10A of the Act makes provision for opting out of the scheme where an assessee does not want the provisions of section 10A to be made applicable to him in which case, the assessee is required to file a declaration in writing to the Income Tax Officer before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 whether fixed originally or on extension, for furnishing the return of income for the initial assessment year. To put it differently, if the assessee wanted to opt out of the exemption under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee commenced its manufacturing activities in the previous year relevant to assessment year 1984-85. At the relevant time, the old sub-section (3) was in force under which, an industrial undertaking falling within the ambit of sub-section (2) of section 10A of the Act was entitled to avail of the benefit of section 10A from "the initial assessment year" namely, the assessment year relatable to the previous year in which the manufacturing commenced. Thus, by operation of the provisions of sub-section (3) of section 10A of the Act as it stood at the relevant time, the initial assessment year in the case of the assessee would be 1984-85 and accordingly the assessee was entitled to the benefit of exemption under section 10A for the initial assessment year and the four immediately succeeding assessment years, that is 1984-85 to 1988-89. The application of section 10A of the Act in the case of such an undertaking meeting with the requirements of sub-section (2) of section 10A of the Act was automatic, that is by the operation of law the assessee would be entitled to the benefit of exemption under the said provision from the initial assessment year. However, if the assessee did not des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80J of the Act etc. in relation to the industrial undertaking for any assessment year. Thus, if an assessee is of the view that availing of exemption under section 10A is less beneficial than the tax concessions under the aforesaid provisions of the Act, he may make a declaration under sub-section (7) within the time prescribed for furnishing the return under sub-section (1) or sub-section (2) of section 139 as originally fixed or on extension, of the initial assessment year. Thus, such declaration was required to be made in respect of the initial assessment year. If no such declaration was made in the initial assessment year, section 10A would automatically operate and the profits and gains derived by the assessee from the industrial undertaking for the initial assessment year and four immediately succeeding assessment years would be exempt from income tax. Under the circumstances, if the said declaration made by the assessee as aforesaid, were to be treated as having been made under section 10A(7) of the Act, then the assessee would have totally opted out of the scheme of section 10A and would thereafter not be entitled for the benefit there under for any of the relevant ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputedly, the assessee did not file any declaration as contemplated under sub-section (7) of the Act within the time limit prescribed thereunder or even thereafter during the initial assessment year choosing to opt out of the scheme. Moreover, it is not even the case of the assessee that it had any intention of not availing the benefit under section 10A of the Act. The case of the assessee is that it had made a declaration that it would not like to avail of the benefit of section 10A of the Act for assessment years 1984-85 and 1985-86 but would prefer to avail of the said benefit for the subsequent five assessment years. However, as noticed earlier, at the relevant time no such option was available to the assessee inasmuch as there was no provision which permitted the assessee to choose the assessment years in relation to which it desired to avail of the benefit under section 10A of the Act. Hence, the provisions of section 10A would automatically apply from the initial assessment year being the assessment year relevant to the previous year in which the manufacturing had commenced and the four immediately succeeding years, that is, the assessment year 1984-85 being the initial as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of sub-section (3) of section 10A of the Act should be construed as having retrospective effect. Reliance has been placed upon the decision of the Supreme Court in the case of Alom Extrusions Ltd. (supra) wherein the court was dealing with the question as to whether omission (deletion) of the second proviso to section 43B of the Income Tax Act, 1961 by the Finance Act, 2003, operated with effect from April 1, 2004, or whether it operated retrospectively with effect from April 1, 1988. The court observed thus: 17. We find no merit in these civil appeals filed by the Department for the following reasons: firstly, as stated above, Section 43-B (main section), which stood inserted by the Finance Act, 1983, with effect from 1-4-1984, expressly commences with a non obstante clause, the underlying object being to disallow deductions claimed merely by making a book entry based on mercantile system of accounting. At the same time, Section 43-B (main section) made it mandatory for the Department to grant deduction in computing the income under Section 28 in the year in which tax, duty, cess, etc. is actually paid. However, Parliament took cognizance of the fact that accounting year of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question that arises for consideration is as to whether it is possible to give retrospective operation to sub-section (3) of section 10A of the Act as substituted with effect from 1st April, 1987. As noted earlier, in the present case, sub-section (3) of section 10A either before or after its substitution does not contemplate a break in the five succeeding assessment years in relation to which an assessee is entitled to avail of benefit under section 10A of the Act. Thus, in case of an assessee who had already started availing the benefit of section 10A of the Act in any assessment year prior to the coming into force of the substituted sub-section (3), there is no manner in which he could exercise option under section (3) of the Act inasmuch as there is no provision under the Act which permits the assessee to withdraw the benefit of concession already availed by it and claim the benefit under section 10A for the subsequent assessment years. Permitting an assessee to exercise option even after he has started to avail of the benefit of section 10A of the Act would either amount to breaking the block of five consecutive assessment years or permitting the assessee to withdraw benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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