TMI Blog2016 (5) TMI 950X X X X Extracts X X X X X X X X Extracts X X X X ..... per the directions and guidelines given by the Tribunal in assessee's case in assessment year 2010-11. As regards the dividend we agree with the findings of the CIT(A) that dividend has to be specificall y charged under the head "income from other sources" u/s 56 of the Act. Furthermore, in view of the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd Vs. CIT (2003 (11) TMI 23 - MADRAS High Court ), and Liberty India Ltd. Vs. C IT (2009 (8) TMI 63 - SUPREME COURT ), the dividend received by the assessee has no direct nexus with the profits and gains derived from the manufacturing activity and industrial undertaking. Hence, this amount is not allowable for computation of profits for claiming deduction u/s 80IC of the Act. Disallowance u/s 14A - Held that:- Hon'ble Punjab & Haryana High Court in the case of C IT v Deepak Mittal (2013 (9) TMI 764 - PUNJAB & HARYANA HIGH COURT)held that the disallowance u/s 14A requires findings of incurring of expenditure where it is found that for earning exempt income, no expenditure has been incurred, disallowance u/s 14A cannot stand. When the assessee claims that he had not made any expenditure on earning exempt incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;qualifying expansion'. IV. Making a narrow interpretation of the provision of section 80-IC of the Income Tax Act, 1961 which was introduced as a welfare legislation for providing stimulus to the economy of industrially backward states such as Himachal Pradesh. 4. Briefly stated, the facts of the case are that assessee derives income from manufacturing of assemblies and sub assemblies for electronics energy meters and allied produces. The Assessing officer noted that the assessee started its manufacturing activities w.e.f. 17.1.2014, i.e. during the financial year 2003-04 and had been claiming deduction u/s 80IC of the Income-tax Act, 1961 (in short 'the Act') from assessment year 2004-05 which was the first year of claiming the deduction u/s 80IC. The assessee had already claimed 100 % deduction u/s 80IC upto assessment year 2008-09. It is stated that in the financial year 2008-09 relevant to assessment year 2009-10, the assessee had made substantial expansion in the plant and machinery and started claiming 100% deduction u/s 80IC treating the assessment year 2009-10 as initial year again and treating it to first year of claim of deduction u/s 80IC of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and intended what it has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should not lead to absurd or mischievous results. If the language of this sub-section be not controlled by some of the other provisions of the statute. It must, since, its language is plain and unambiguous, be enforced and your Lordships' House sitting judicially is not concerned with the question whether the policy it embodies is wise or unwise, or whether it leads to consequences just or unjust, beneficial or mischievous. The oft-quoted observations of Rowlattt J. in the case of Cape Brandy Syndicate v. IRC [1921] 1 KB 64 ought also to be noticed at this juncture. The learned judge observed (page 71): . . . in a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. The observations of Rowlatt J. as above stand accepted and approved by the House of Lords in a later decision, in the case of Canadian Eagle Oil also in a manner similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s intention of the legislature and produce a rational construction. LUKE V. IRC [1963] HON'BLE APEX COURT 557; [1964] 54 ITR 692 (HL) followed. Speeches made by the members of the legislature on the floor of the House when the Bill is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for its introduction can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is an accord with the recent trend in juristic thought not only in western countries but also in India, that the interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. The marginal note to a section cannot be referred to for the purpose of construing the section but it can certainly be relied upon as indicating the drift of the section or to show what the section is dealing with. It cannot control the interpretation of the words of a section, particularly when the language of the section is cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at form another angel, a circular which is contrary to the statutory provisions has really no existence in law. The above shows that circulars are not binding on the Court but the Court has right to look at the Circular and ultimately meaning of a provision as interpreted by the Court would prevail in comparison to the interpretation given in the circular. Therefore, if Circular is contrary to a provision as interpreted by the Court then the opinion of the Court would prevail. This decision nowhere lays down that circulars cannot be considered for interpretation of a particular provision. 25. In the case of Dinakar Ullal vs CIT 323 ITR 452(Karnataka), the assessee was a Civil contractor and had filed belated return declaring income of ₹ 50,240/- and was claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision is required to be interpreted, it should be interpreted after reading the whole provision and not the parts of a particular section. However, a provision has to be read in context of the overall scheme of the Act. It is also well settled that no provision can be interpreted in such a way which would render parts of the section otiose or meaningless. 28. Having considered the principles of interpretation above, let us consider the provision of section 80IC in the light of the above principles laid down by the Hon'ble Supreme Court. Section 80IC reads as under:- Section 80IC 80-IC (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub- section(3). (2) This section applies to any undertaking or enterprise,- (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction referred to in sub-section (1) shall be - (i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub- section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub- clause (ii) of clause (b), of sub-section (2),one hundred per cent of such profit and gains for five assessment years commencing with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains. (4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an undertaking which is formed as a result of there-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment Centre means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government (vii) North-Eastern States means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura; (viii) Software Technology Park means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry; (ix) Substantial expansion means increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken; (x) Theme Park means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government. 29. Sub section (1) of the above provision is a general provision and does not require any interpretation. Sub Section [2] is the enabling provision which provides for the types of undertakings an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be said that section has some confusion and some effort is required to understand the correct intention of the Legislature by keeping various principles of interpretation. Therefore, various principles of interpretation needs to be looked into. This provision was brought into the statute indisputably in the light of the incentive package announced by the Union Cabinet. Through this incentive package not only income tax concession but excise concessions and some subsidies like transport subsidy and capital subsidy were also provided to various industries in the hilly stated comprising states of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern states to boost the economies of these hilly states. Circular No.7 was issued by the CBDT on 5.9.2003 in this respect and the Circular reads as under:- Circular No. 7/2003 dated 05.09.2003 49. New provisions allowing a ten years tax holiday in respect of certain undertakings in the States of Himachal Pradesh, Sikkim, Uttaranchal and North-Eastern States. 49.1 The Union Cabinet has announced a package of Fiscal and non-fiscal concessions for the special category States of Himachal Pradesh, Uttaranchal, Sikkim and No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing or enterprise. 49.5 A new Thirteenth Schedule has been inserted in the Income-tax Act to specify the list of articles and things, which are ineligible for the purpose of deduction under section 80-IC. Further, a new Fourteenth Schedule has also been inserted, which specifies the list of articles and things, being thrust sector industries, which are eligible for the purposes of availing deduction under this section. Consequent to theses amendments, the provisions of section 10C and sub-section(4) of section 80-IB have been made inoperative in respect of the undertakings or enterprises in the State of Himachal Pradesh or in North- Eastern region including Sikkim, with effect from the 1st day of April, 2004. 49.6 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. 31. The circular makes it clear that section 80IC was inserted to give effect to the new package announced by the Union Cabinet. The Circular further clarifies that this section provides for deduction for a period of 10 years from the profits of new undertaking or enterprise or existing undertaking or enterp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above controversy is ignored regarding existing unit, the intention of the Legislature become absolutely clear when sub section (2) is read alongwith sub-section (3) of section 80IC. As noted earlier, sub section (2) is enabling provision which provides for deduction in certain kind of undertakings, i.e. new unit set up or the existing units which carries out substantial expansion during the particular window period which are given in clauses (i), (ii) (iii) of sub section (2). The sub section (3) provides for rates of deduction. It is useful to note that clause (i) of sub section (3) provides for 100% deduction for a period of 10 assessment years in cases covered by sub clause (i) (iii) of clause (a) and sub clause (i) (iii) of clause (b). Now sub clause (i ) and (iii) of clause (a) of sub section (2) refers to the window period in case of State of Sikkim, North-Eastern States whereas sub clause (ii) refers to the window period in case of State of Himachal Pradesh and State of Uttaranchal. Similarly, sub clause (i) (iii) of clause (b) refers to window period in case of State of Sikkim and North-Easter States whereas sub clause (ii) refers to the window period in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o new business of machinery or plant previously used for any purpose. Further the explanation to this Sub Section makes it clear that Explanation 1 2 of Sub Section (3) of Section 80IA are applicable in this respect. Explanation 2 of Sub Section (3) of Section 80 IA reads as under: Explanation 2- Where in the case of an [undertaking] , any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. From the above it becomes clear that if 20% of the Machinery from the old unit was used in the new unit then such unit would not be eligible for deduction under this Section that is section 80IC. Now for carrying out substantial expansion the investment in Plant Machinery is required to be made by atleast 50%. So if 50% fresh machinery is added to the new unit then it will violate Sub Section (4) of Section 80IC, therefore, interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We may clarify that reference to these cases is made because of particular contention and we are not expressing any opinion on the merits of these appeals here). Therefore, the contention of the assessee that any number of expansions are allowed is not possible in view of the restriction given in section 80IC(6). 36. The above situation as pointed by the Revenue also becomes clear if the provision of section 80IC is compared to the provision of section 80IB(4). Relevant provision of Section 80IB (4) reads as under:- (4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking: Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assesee is a company-operative society) subject to fulfillment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking or enterprise under section 80-IC, - where the total period of deduction inclusive of the period of deduction - - under section 80-IC, or - under the second proviso to section 80-IB(4) or - under section 10C as the case may be, exceeds 10 assessment years. 39. Lastly, it was contended that initial assessment year as defined in clause (v) of sub section (8) of section 80IC uses the expression 'or' therefore, it can be construed that it relates to both situations separately i.e. for new unit and substantial expanded unit. We find no force in this contention. The initial assessment year has been defined and the expression 'or' has been used in respect of new units by stating 'commences operation' or 'complete substantial expansion'. Here the expression 'or' is to be read as a mutually exclusive expression which refers to a particular situation by excluding the other situation. Therefore, initial assessment year would clearly commence either on commencement of operation or at completion of substantial expansion of existing unit. In any case the word 'initial' cannot be used twice by referring to ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Shri Narasimhamurty again relied on certain observations in CCE v. Parle Exports (P)Ltd. [1989] 1 SCC 345, in support of strict construction of a provision concerning exemptions. There is support of judicial opinion to the view that exemptions from taxation have a tendency to increase the burden on the other un-exempted class of tax payers and should be construed against the subject in case of ambiguity. It is an equally well known principle that a person who claims an exemption has to establish his case. Indeed, in the very case of Parle Exports (P) Ltd. relied upon by Shri Narasimhamurthy, it was observed. While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided. The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the legislature manifest on the statutory language. Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. It th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As observed in case of M/s Novapan India Ltd v Collector of Central Excise and Customs (supra) the burden was on the assessee to show under which clause he was entitled to the deduction but assessee is simply asserting before us that there is no restriction for deduction in case of substantial expansion of new units. In our opinion, that is not enough because absence of restriction does not mean that particular deduction was allowable. 42. We also find force in the submissions of Ld. CIT-DR that if interpretation given by the assessee is to be accepted, the provision would become discriminatory for two classes of undertakings i.e. new units and old units. Because the old units would be entitled to 100% deduction on expansion for first five years and 25% thereafter whereas the new units would become entitled to deduction for 100% for first five years and again @ 100% on substantial expansion. Such discriminatory intention cannot be imputed to the Legislature. 43. Before us, reliance was also placed on the decision of Delhi Bench of the Tribunal in the case of Triputi LPG Industries Limited Vs. DCIT(supra). In this decision, the Bench has simply observed that main dispute i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y. 2014-15 since the initial assessment year was A.Y. 2010-11 and claim of deduction cannot be denied merely on the ground of expansion of manufacturing capacity so long it is not a case of restructuring of business already in existence. However, the question whether the assessee shall be entitled to deduction of 100% of its profit even after A.Y. 2014-15 i.e. for 2 more years beyond A.Y. 2014-15 is left open and not decided by the AAR. Therefore this decision is totally distinguishable and does not help the case of the assessee. 46. The last decision relied on was in the case of Sintex Industries Ltd v CIT (supra). In this case the deduction u/s 80IC was allowed by the Assessing Officer but later on a revisionary order was passed u/s 263 of the Act. The Bench mainly dealt with the provision of section 263 and in view of the decision of Hon'ble Supreme Court in the case of Malabar Industries Co Ltd v CIT 243 ITR 83 (SC) held that since view taken by the Assessing Officer is also possible view, therefore, assessment order was not erroneous. In fact the Bench referred to the decision of Delhi Bench in the case of Triputi LPG Industries Limited Vs. DCIT (supra) without consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a new business? Column (d) clearly ask the assessee whether existing business has undertaken substantial expansion, therefore, there are two categories of business and substantial expansion is possible only in case of existing business. In our opinion, the Ld. CIT(A) has correctly adjudicated this issue. 49. In view of the above detailed discussion we hold that the assessee before us i.e. M/s Hycron Electronics in ITA No. 798/Chd/2012 is entitled to only 25% of deduction during the present year because the assessee has already availed the period of full deduction @ 100% in the earlier five years i.e. from assessment years 2004-05 to 2008-09. In this background, we find nothing wrong with the order of Ld. CIT(A) and we uphold the same. Accordingly, assessee's appeal is dismissed. The facts of the preset case are similar to that of the case of Hycron Electronics Vs. ITO referred to above. Respectfully following the order of the Tribunal referred to above, we reject ground No.2 of the appeal. 7. Ground No.3 of the appeal reads as under:- 3. Under the facts and circumstances of the case and in law, Ld. CIT (Appeals). Shimla has erred in affirming the order of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business has different meaning than manufacturing. Moreover as per specific provisions u/s 56 of Income Tax Act, the interest earned on securities shall be chargeable as 'income from other source'. Similarly the dividend has to be specifically charged under the head 'income from other sources' u/s 56. 6.2 The assessee has claimed an income of ₹ 7,99,987/- on account of profit on fluctuation in foreign exchange part of profits derived from manufacturing activity for the purpose of section 80IC. Assessing officer relying on judgment of M/s. Liberty India and others Vs. CIT (317 ITR 218), CIT Vs. Sterling Food (SC) 237 ITR 579, Pandian Chemicals Limited Vs. CIT (Mad) 270 ITR 448 held that in the present set of facts the profit cannot be attributed to manufacturing activity of an industrial undertaking. Hence this amount is not eligible for computation of profits for claiming deduction u/s 80IC. During appellate proceedings assessee has simply stated that the exchange rate fluctuation forms part of purchase transactions and when the payment of import purchase is made in convertible foreign exchange, the rupee equivalent of import purchase is liable to vary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Tribunal in assessee's own case in ITA No. 374/Chd/2012 for the assessment year 2010-11. In that year also, the assessee has shown other income amounting to ₹ 19,75,825/- as per the following details:- Particulars Amount (Rs.) Interest received on margin Money 2,85,876 Interest received on other 70,328 Foreign exchange fluctuation 15,46,066 Miscellaneous income back 73,542 Sundry credit balances written back 13 The Tribunal relying on the decisions of the Hon'ble Supreme Court the case of Pandian Chemicals v CIT (2003) 262 ITR 278 (SC) and Liberty India Ltd v C IT (supra) held that expression 'derived from' has been used in section 80IC also, therefore, as far as interest received on margin money and interest received on other amounting to ₹ 2,85,876/- and ₹ 70,328/- are not entitled for deduction us/ 80IC of the Act. The Tribunal further observed that as far as the issue regarding M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 10,50,047/-, which is unjustified, unwarranted and bad in law. 14. During the year under consideration, the assessee had shown investments of ₹ 10,22,04,600/- as on 31.3.2011 in preferences equity shares. The Assessing officer asked the assessee to show cause as to why necessary disallowance should not be made u/s 14A of the Act. The assessee submitted a detailed reply vide its letter dated 2.1.2014 which is reproduced by the Assessing officer in the assessment order at pages 12 to 14 of the assessment order. The Assessing officer did not accept the contention of the assessee as stated in the reply dated 2.1.2014 and worked out the disallowance u/s 14A read with Rule 8-D of the I.T. Rules, 1962 and made the disallowance of ₹ 5,55,241/- 15. On appeal, the CIT(A) confirmed the order of the Assessing officer holding that the provisions of section 14A(3) and section 14A(2) are attracted in this case. He further observed that these provisions shall apply to a case where the assessee claims that no expenditure has been incurred by it with respect to the exempt income. 16. We have considered the rival submissions and have also perused the materials available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment. 17. In view of the decisions of Hon'ble Punjab Haryana High Court in the case of Bright Enterprises Pvt Ltd. V C IT (supra), we are of the view that no disallowance u/s 14A on account of interest can be made. We may also add here that the Hon'ble Delhi High Court in the case of Cheminvest Ltd v CIT in ITA No. 749/2014 dated 2.9.2015 held as under;- 23. In this context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression does not form part of the total income in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Similarly, the Hon'ble Punjab Haryana High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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