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TMI Blog2015 (7) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... ade substantial expansion in the assessment year 2006-07 and started claiming deduction u/s. 80IC(2)(a)(ii) from the initial assessment year 2006-07 onwards u/s. 80IC(3) (ii) read with 80IC(8)(v) of the I.T. Act 1961." 3. After hearing both the parties we find that during the assessment proceedings AO noticed that assessee's undertaking started operation on 18/05/1997 and claimed deduction under section 80IB(4) for Assessment Year 1998-99 to 2005-06, thereafter substantial expansion was carried out in FY 2005-06 and assessee again claimed deduction under section 80IC from AY 2006-07. AO noticed that present year is the 11th year for operation of the Unit and therefore, no deduction was allowable under section 80IC in view of the specific provisions of 80IC(6) and accordingly denied the claim of deduction 4. On appeal the action of AO was confirmed by the Ld. CIT(A). 5. Before us Ld. Counsel for the assessee submitted that section 80IC sub section 6 cannot be applied to the undertaking in State of Himachal Pradesh because sub section 6 was applicable to the Unit locked in North East States. 6. On the other hand Ld. DR submitted that the issue is squarely covered against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01] AC 102 (HL) stated the law in the manner following: "a court of law, has nothing to do with the reasonableness or unreasonableness of a provision of a statute except so far as it may h old it in interpreting what the Legislature has said. If the language of a statute be plain, admitting of only one meaning, the Legislature must be taken to have meant 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: "...in a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the court may modify the language used by the legislature or even do some violence to it, so as to achieve the obvious 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proposition that circular cannot be considered for the purpose of interpreting the particular provision. 27. It will be useful to state another very well settled principle of interpretation i.e. whenever the particular 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States. (3) The 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 percent 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 percent of such profit and gains for five assessment years commencing with the initial assessment year and thereafter twenty-five percent (or thirty percent 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hings, or commences operation or completes substantial expansion; (vi) "Integrated Infrastructure Development 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 percent 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become eligible for deduction under this section. 30. At this stage, it 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 speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to the profits and gains of the undertaking 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 these 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 enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 of State of Himachal Pradesh and Uttaranchal. Now clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 80IA 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 percent 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, interpretation canvassed on behalf of the assessee is not possible because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 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 percent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five percent (or thirty percent 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 assessee is a company-operative society) subject to fulfillment of the condition that it begins to manufacture or produce articles or things or to ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 series of events. This can be understood with a very simple example. Let us say a person 'A' passes out his examination o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trict 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 the words are plain and clear and directly convey the meaning, there is not need for any interpretation." "We are, however, of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 v. DCIT(supra). In this decision, the Bench has simply observed that main dispute is on the definition of 'initial assessment year'. The provisions of sub section (2) and sub section (3) as discussed in detail above have been totall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 v. DCIT (supra) without considering the provision of section 80IC in detail for reaching the conclusion that it is one of the possible view. Since we have already discussed the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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