Income Tax Act, 1961: s.80-IC – Whether an assessee who sets up a new industry of a kind mentioned in sub-section (2) of s.80-IC of the Act and starts availing exemption of 100% tax under sub-section (3) of s.80-IC (which is admissible for five years) can start claiming the exemption at the same rate of 100% beyond the period of five years on the ground that the assessee has now carried out substantial expansion in its manufacturing unit – Held: A pragmatic and reasonable interpretation of s.80-IC is that once the initial Assessment Year commences and an assessee, by virtue of fulfilling the conditions laid down in sub-section (2) of s.80-IC, starts enjoying deduction, there cannot be another “Initial Assessment Year” for the purposes of s.80-IC within the said period of 10 years, on the basis that it had carried substantial expansion in its unit – Thus, after availing deduction for a period of 5 years @ 100% of such profits and gains from the ‘units’, the assessees would be entitled to deduction for remaining 5 Assessment Years @ 25% (or 30% where the assessee is a company), as the case may be, and not @ 100%.
Income Tax Act, 1961: ss.80-IA, 80-IB and 80-IC – Gist of the legislative history and purpose behind the insertion of ss.80-IA, 80-IB and 80-IC – Discussed.
Allowing the appeals, the Court
HELD: 1.1 Sub-section (2) of Section 80-IC provides for tax benefit to those undertakings or enterprises which had set up their manufacturing units in certain specified areas including State of Himachal Pradesh to which this case is pertaining. It also gives benefit to these undertakings and enterprises which have undertaken substantial expansion during the periods mentioned therein. [Paras 14, 15] [955-B]
1.2 Section 80-IC of the Act makes special provisions in respect of certain undertakings or enterprises in certain special category States. Section 80-IC was inserted by the Finance Act, 2003 w.e.f. April 1, 2004. As per this provision, certain undertakings or enterprises in certain special category States are allowed deduction from such profits and gains, as specified in sub-section (3) of Section 80-IC. The provisions of Section 80IC provided deduction to manufacturing units situated in the State of Sikkim, Himachal Pradesh and Uttaranchal and North-Eastern States. The deduction was provided to new units established in the aforesaid States, and also to existing units in those States if substantial expansion was carried out. The deduction was available @ 100% for ten Assessment Years for the units located in North-Eastern and in the State of Sikkim and for the units located in Himachal Pradesh, the deduction was available @ 100% for five years and @ 25% for next five years. [Para 18] [956-E-G]
1.3 This deduction is allowable from the initial Assessment Year. “Initial Assessment Year” is defined in Section 80-IB(14)(c) of the Act. (c) The deduction is @ 100% of such profits and gains for first 5 Assessment Years and thereafter a deduction is permissible @ 25% (or 30% where the assessee is a company).
(d) Total period of deduction is 10 years, which means 100% deduction for first 5 years from the initial Assessment Year and 25% (or 30% where the assessee is a company) for the next 5 years. Keeping in mind the said scheme and spirit behind this provision, such a situation cannot be countenanced where an assessee is able to secure deduction @ 100% for the entire period of 10 years. If that is allowed it will amount to doing violence to the provisions of sub-section (3) read with sub-section (6) of Section 80-IC. Once the assessees had started claiming deduction under Section 80-IC and the initial Assessment Year has commenced within the aforesaid period of 10 years, there cannot be another initial Assessment Year thereby allowing 100% deduction for the next 5 years also when sub-section (3), in no uncertain terms, provides for deduction @ 25% only for the next
5 years. [Paras 19, 20, 21] [957-C-F; 958-E-F] Mahabir Industries v. Principal Commissioner of Income Tax 2018 (7) SCALE 618 – distinguished.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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