BY TIOL News Service

NEW DELHI, MAY 18, 2018: THE ISSUE BEFORE THE COURT is - Whether if an industrial undertaking avails benefits under Ss 80-IA and 80-IB, it becomes disentitiled to avail Sec. 80-IC benefits. And the verdict is NO.

Facts of the case:

The assessee company, engaged in manufacturing polythene and had its factory in Shimla, Himachal Pradesh. It returned income for the relevant AY. During the assessment proceeding, the AO noted that the activity undertaken by the assessee, an industrial undertaking, qualified for exemption from tax u/s 80-IA which it started availing from the AY 1998-99. This deduction u/s 80-IA was claimed and allowed for two AYs i.e. 1998-99 and 1999-2000. It was further noticed that the assessee had carried out substantial expansion in the AY 2006-07 and, hence, claimed exemption u/s 80-IC for AY 2006-07 onwards. However, thereafter, deductions for the AYs 2008-09 and 2009-2010 were rejected by the AO by stating that this was 11th and 12th year of deduction and as per Sec. 80-IC(6), total deductions under Ss 80-IC and 80-IB could not exceed the total period of 10 years. On appeal, both CIT(A) and the ITAT confirmed the action of the AO.

On further appeal, the High Court held that 10 years period had to be counted from the AY 1998-99 i.e., when the assessee had claimed the deduction for the very first time u/s 80-IA. Therefore, deductions for the AYs 2008- 09 and 2009-2010 would not be allowed.

Apex Court held that,

++ under Sec. 80-IA, deduction is provided to such industrial undertakings or enterprises which are engaged in infrastructure development provided they fulfill the conditions mentioned in sub-section (4). Sec. 80-IB makes provisions for deduction in respect of those industrial undertakings, other than infrastructure development undertakings, which are enumerated in the said provision. On the other hand, the intention behind Sec. 80-IC is to grant deduction to the units making new investments in the State by establishing new manufacturing unit or even to the existing manufacturing unit which carried out substantial expansions. The purport behind the three types of deductions specified in Ss 80-IA, 80-IB and 80-IC is, thus, different;

++ Sec. 80-IC stipulates the period for which 100% deduction is to be given and then deduction at reduced rates is to be given. If the assessee had earlier availed deduction under Ss 80-IA and 80-IB, that would be of no concern inasmuch as on carrying out substantial expansion, which was carried out and completed in the AY 2006-07, the assessee became entitled to deduction u/s 80-IC from the initial year. The term 'initial year' is referable to the year in which substantial expansion has been completed, which legal position is stated by the High Court itself and even accepted by the Department as it has not challenged that part of the judgment;

++ the inclusion of period for the deduction is availed under Ss 80-IA and 80-IB, for the purpose of counting ten years, is provided in u/s 80-IC(6) and it is limited to those industrial undertakings or enterprises which are set-up in the N-E region. By making specific provision of this kind, the Legislature has shown its intent, namely, where the industry is not located in N-E State, the period for which deduction is availed earlier by an assessee under Ss 80-IA and 80-IB will not be reckoned for the purpose of availing benefit of deduction u/s 80-IC. It was wrong on the part of the AO not to allow deduction to the assessee u/s 80-IC for the AYs 2008-09 and 2009-2010. As a result, the judgment of the High Court on this aspect is set aside.

(See 2018-TIOL-204-SC-IT)