TMI Blog2017 (12) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied. - CIVIL APPEAL NO. 20854 OF 2017, (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.4565 OF 2015), CIVIL APPEAL NO. 20856 OF 2017, (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.8331 OF 2016) - - - Dated:- 5-12-2017 - Mr. Ranjan Gogoi, Mr. Adarsh Kumar Goel And Mr. Navin Sinha CIVIL APPEAL NO. 20857 OF 2017, (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.3323 OF 2016) And CIVIL APPEAL NO. 20855 OF 2017, (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.148 OF 2016) JUDGMENT ADARSH KUMAR GOEL, J. Civil Appeal No. 20854 of 2017 (@ Special Leave Petition(Civil) No.4565 of 2015) 1. Leave granted. This appeal has been preferred against the judgment and order dated 28th July, 2014 of the High Court of Karnataka at Bangalore in Income Tax Appeal No.477 of 2013. The High Court framed the following question of law for consideration : When once the eligible business of an assessee is given the benefit of deduction under Section 80 IB on the assessee satisfying the conditions mentioned in sub-sec. (2) of Section 80 IB, can the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words not being any article or thing specified in the list in the Eleventh Schedule had been omitted. Explanation 1.-For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities for storage or transportation of agricultural produce under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce; (ab) convention centre means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities, as may be prescribed; (b) hilly area means any area located at a height of one thousand metres or more above the sea level; (c) initial assessment year - (i) in the case of an industrial undertaking or cold storage plant or ship or hotel, means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the cold chain facility or the ship is first brought into use or the business of the hotel starts functioning; (ii) in the case of a company carrying on scientific and industrial research and development, means the assessment year relevant to the previous year in which the company is approved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the stage of development of such area including the extent of, and scope for, urbanisation of such area and other relevant considerations specify in this behalf by notification in the Official Gazette; (g) small-scale industrial undertaking means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951). 5. Before we consider the issue of correct interpretation of the above provision, it may be necessary to note the observations of the statutory authorities and the High Court on the issue. 6. The assessment order dated 14th December, 2009, disallowing the deduction is as follows : The same is not acceptable on the ground that the value of plant and machinery has exceeded ₹ 1 crores as per the depreciation schedule annexed to the 3CD report which do not come under the purview of the definition of small scale industry for the year ending 04-05 (A.Y.05-06). In view of the above, I am constraine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such undertaking must not have been formed by transfer of machinery or plant previously used with the exception that the value of such machinery and plant previously used must not exceed 20% of the value of the total cost of the plant and machinery of such industrial undertaking. The third condition is that the industrial undertaking must produce or manufacture any article or thing other than any article or thing specified in the Eleventh Schedule. Exception to this third condition is that an SSIU can avail the 80IB benefit even if manufactures or produces articles or things specified in Eleventh Schedule. The fourth condition is that the industrial undertaking running with the aid of power must not have less than 10 employees and if it is run without power, the number of employees must be more than 20 employees. Thus all the four conditions narrated above must be fulfilled if the industrial undertaking desires to avail benefit u/s 80IB of the I.T. Act. For a SSIU there is also an extra condition i.e., it must be an SSI unit as per explanation (g) given in 80IB (14) of I.T. Act which refers to Section 11B of the IDR Act 1951 which in turn prescribes a limit for investment in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery has admittedly exceeded the prescribed limit of ₹ 1 Crore. Therefore, it cannot be held as an SSIU. Thus the fifth condition being violated openly and admittedly by the appellant, the relief sought for has to be denied in the A.Y. 2005-06. 18. In view of the above, addition/disallowance is upheld. Appeal is dismissed. 8. The ITAT in its order dated 24th May, 2013 observed : 5.3.6. Taking into account all the facts and circumstances of the issue as discussed in the foregoing paragraphs and also, as rightly highlighted by the AO, the value of plant and machinery had exceeded ₹ 1 crore during the year under consideration which incidentally deprive the assessee to call itself as a Small Scale Industry, we are of the considered view that the authorities below were justified in denying the assessee s claim for deduction u/s 80-IB(3) of the Act. It is ordered accordingly. 9. Considering the question framed by it, the High Court held : 5. 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, commencing from the initial year, is granted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the Revenue. (emphasis in quotations is ours) 10. Section 80 IB is in Chapter VI A of the Act which provides for deductions to be allowed from total income which is to be computed under the relevant provisions. The scheme is to provide incentives for purposes mentioned in different provisions of the said Chapter. Section 80 IB provides for deductions of specified percentage from the profits and gains of the specified industrial undertakings other than infrastructure development undertakings (which are separately dealt with under Section 80 IA). The clause relevant for purposes of this appeal is Clause 2 which makes the deductions permissible in respect of industrial undertakings fulfilling the conditions specified therein. The scheme applies to small scale industrial undertakings as defined in Clause 14(g) which in terms refers to Section 11 B of the Industries (Development and Regulation) Act, 1951. The extent of deduction permissible is mentioned in Clause 3 which is 25% (30% in the case of a company) of the profits and gains derived from such industrial undertakings for 10 consecutive assessment years beginning with the initial assessment. The initial assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period. Needless to say, each assessment year is a different assessment year, except for block assessment 14. The observations in the impugned order are that the object of legislature is to encourage industrial expansion which implies that incentive should remain applicable even where on account of industrial expansion small scale industrial undertakings ceases to be small scale industrial undertakings. We are unable to appreciate the logic for these observations. Incentive is given to a particular category of industry for a specified purpose. An incentive meant for small scale industrial undertaking cannot be availed by an assessee which is not such an undertaking. It does not, in any manner, mean that the object of permitting industrial expansion is defeated, if benefit is not allowed to other undertakings. On this logic, incentive must be given irrespective of any condition as the incentive certainly helps further expansion by reducing the tax burden. The concept of vertical equity is well known under which all the assessees need not be uniformally taxed. Progressive taxation is a well known element of tax policy. Higher slabs of tax or higher tax burden on an assessee havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technically speaking it was transfer of material used in previous business. One could say as was vehemently urged by the learned counsel for the department that where the language of statute was clear there was no scope for interpretation. If the submission of the learned counsel is accepted then once it is found that the material used in the undertaking was of a previous business there was an end of inquiry and the assessee was precluded from claiming any benefit. Words of a statute are undoubtedly the best guide. But if their meaning gets clouded then courts are required to clear the haze. Sub-section (2) advances the objective of sub-section (1) by including in it every undertaking except if it is covered by clause (i) for which it is necessary that it should not be formed by transfer of building or machinery. The restriction or denial of benefit arises not by transfer of building or material to the new company but that it should not be formed by such transfer. This is the key to the interpretation. The formation should not be by such transfer. The emphasis is on formation not on use. Therefore it is not transfer of building or material but the one which can be held to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o which the incentive was not admissible even though the principle of liberal interpretation in terms of Bajaj Tempo (supra) was applied. 18. In State of Haryana versus Bharti Teletech Ltd. (2014) 3 SCC 556, eligibility of an assessee to get benefit of exemption from tax was an issue. It was observed that while the exemption notification should be liberally construed, the beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof. In case such conditions are not fulfilled, the issue of application of the notification does not arise. The principle of interpretation in the judgment in Bajaj Tempo (supra) and other judgments was dealt with as follows : 22. We will be failing in our duty if we do not address a submission, albeit the last straw, of Mr. Jain that any provision relating to grant of exemption, be it under a rule or notification, should be considered liberally. In this regard, we may profitably refer to the decision in Hansraj Gordhandas v. CCE and Customs [AIR 1970 SC 755] wherein it has been held as follows: (AIR p. 759, para 5) 5. It is well established that in a taxing statute there is no room for any i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case, the rule position being clear, the same does not arise. 19. Same view was taken in Commissioner of Customs versus M. Ambalal Co (2011) 2 SCC 74 as follows : 16. It is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. The rule regarding exemptions is that exemptions should generally be strictly interpreted but beneficial exemptions having their purpose as encouragement or promotion of certain activities should be liberally interpreted. This composite rule is not stated in any particular judgment in so many words. In fact, majority of judgments emphasise that exemptions are to be strictly interpreted while some of them insist that exemptions in fiscal statutes are to be liberally interpreted giving an apparent impression that they are contradictory to each other. But this is only apparent. A close scrutiny will reveal that there is no real contradiction amongst the judgments at all. The synthesis of the views is quite clearly that the general rule is strict interpretation while special rule in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein. 21. In view of the above judgments, we do not see any difference in the situation where the assessee, is not initially eligible, or where the assessee though initially eligible loses the qualification of eligibililty in subsequent assessment years. In both such situations, principle of interpretation remains the same. 22. Thus, while there is no conflict with the principle that interpretation has to be given to advance the object of law, in the present case, the assessee having not retained the character of small scale industrial undertaking , is not eligible to the incentive meant for that category. Permitting incentive in such case will be against the object of law. 23. For the above reasons, we hold that the assessee is not entitled to benefit of exemption if it loses its eligibility as a small scale industrial undertaking in a particular assessment year even if in initial year eligibility was satisfied. The appeal is accordingly disposed of in the above terms. Civil Appeal No. 20856 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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