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2015 (8) TMI 616 - PUNJAB & HARYANA HIGH COURT

2015 (8) TMI 616 - PUNJAB & HARYANA HIGH COURT - TMI - Entitlement to benefit under section 80-IB - whether the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, it ceases to be a small scale industry? - Held that:- Section 80-IB is an incentive provision. It provides deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. For an industrial undertaking to be elig .....

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bilizes early, makes further investments in the business and it results in it's going outside the purview of the definition of a small scale industry, that should not come in the way of its claiming benefit under section 80-IB for 10 consecutive years, from the initial assessment year. Therefore the approach of the authorities runs counter to the scheme and the intent of the Legislature. Thereby they have denied the legitimate benefit, an incentive granted to the assessee . See Ace Multi Axes Sy .....

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e Tribunal raise common questions of law and are, therefore, disposed of by this common order and judgment. The facts are noticed from ITA-242-2012, which pertains to the assessment year 2007-08. 2. The appellant contends that the following substantial questions of law arise in this case:- "(i) Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in allowing the deduction u/s 80IB during the year under consideration i.e. 2007-08 when the assessee lost the statu .....

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tantial question of law No.(i) raised above. Question (ii) does not raise a substantial question of law as we will demonstrate later. We have dismissed the appeal in this regard. 4. Section 80-IB(3) and 14(g) of the Income Tax Act, 1961 reads as under:- "Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. 80-IB. ............................ (3) The amount of deduction in the case of an industrial undertaking shal .....

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ing, it begins to manufacture or produce articles or things or to operate its cold storage plant [not specified in sub-section (4) or sub-section (5)] at any time during the period beginning on the 1st day of April, 1995 and ending on the 31st day of March, 2002." "(14) For the purposes of this section,- (a) to (f) ................. (g) "small-scale industrial undertaking" means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-s .....

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le industrial undertakings need supportive measures, exemptions or other favourable treatment under this Act to enable them to maintain their viability and strength so as to be effective in:- (a) promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and (b) securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good, specify, having regard to the factors mentione .....

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under Section 80-IB(3)(ii). By a notification dated 10.12.1997 issued in exercise of powers conferred by Section 11B(1) and Section 29B(1) of the IDR Act, the Central Government specified the factors on the basis of which an industrial undertaking would be regarded as a small scale industrial undertaking for the purpose of IDR Act. One of the conditions for considering an industrial undertaking to be regarded as a small scale industrial undertaking was that its investment in fixed assets in plan .....

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and "for a period of ten consecutive assessment years". The respondent-assessee was, therefore, allowed a deduction under Section 80-IB for the assessment years 2002-03 to 2005-06. 7. By a further notification dated 24.12.1999 issued under the IDR Act, the earlier notification dated 10.12.1997 was amended inter alia by substituting the words "rupees three crores" with the words "rupees one crore". The assessee, therefore, did not make a claim for deduction for the a .....

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). The authorities proceeded on the basis that the notification dated 29.09.2006 issued under the MSMED Act was applicable for determining whether an assessee was a small scale industry within the meaning of Section 80-IB(14)(g). The department contended that once the link had been broken the assessee was not entitled to claim a deduction on account of its fixed assets being in excess of the amount stipulated in the notification and it was not entitled to a deduction under Section 80-IB even if .....

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r the notification dated 29.09.2006 is relevant or not. However, considering the view that we have taken, it is not necessary to do so. 9. Mr. Alok Mittal, the learned counsel appearing on behalf of the assessee, rightly contended that once an assessee is entitled to a deduction under Section 80-IB, the assessee is entitled to the same for ten consecutive years. Sub-section (3) of Section 80-IB entitles the assessee to the deduction "for a period of ten consecutive assessment years … .....

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such a condition even assuming we are entitled to do so. Had that been the intention, the legislature would have undoubtedly specified the same. 10. Mr. Mittal's reliance upon a judgment of the Karnataka High Court in Ace Multi Axes Systems Ltd. vs. Deputy Commissioner of Income Tax, [2014] 367 ITR 266 (KAR) is well founded. The Division Bench held: "2. The substantial question of law that arises for our consideration in this appeal is as under: "When once the eligible business of .....

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ings. For an industrial undertaking to be eligible for the said deduction, it has to fulfill all the conditions mentioned under sub-section (2) of section 80-IB. The four conditions which are stipulated therein are, firstly, the industrial undertaking must not have been formed by splitting up or reconstruction of a business already in existence. The second condition is, such an undertaking is not formed by transfer of machinery or plant previously used for any purpose. The third condition is tha .....

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rkers in a manufacturing process carried on with the aid of power or employs 20 or more workers in a manufacturing process carried on without the aid of power. Once these four conditions are fulfilled, the assessee is entitled to the benefit under section 80-IB of the Act. sub-section (3) of section 80-IB provides the extent of deduction eligible under section 80-IB and also the number of years such a deduction is available to such an undertaking. Sub-section (3) mandates that the industrial und .....

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2002. This is a condition which a small scale industry has to fulfill in addition to the conditions mentioned in subsection (2) of section 80-IB . Once all these conditions are fulfilled, a small scale industry is entitled to the benefit of deduction for a period of 10 consecutive years beginning with the initial assessment year. In the entire provision, there is no indication that these conditions had to be fulfilled by the assessee all the 10 years. When once the benefit of 10 years, commenci .....

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e position if the small scale industry ceases to be a small scale industry during the said period of 10 years. Because of that ambiguity, a need for interpretation arises. If we keep in mind the object of the Legislature providing for these incentives and when a period of 10 years is prescribed, that is the period, probably, which is required for any industry to stabilize itself. During that period the industry not only manufactures products, it generates employment and it adds to the wealth of .....

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