LexCOMMISSIONER OF INCOME TAX versus M/S. CLASSIC BINDING INDUSTRIES
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949
COMMISSIONER OF INCOME TAX
v.
M/S. CLASSIC BINDING INDUSTRIES
(Civil Appeal No. 7208 of 2018)
AUGUST 20, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
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]
949
[2018] 9 S.C.R. 949
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SUPREME COURT REPORTS
[2018] 9 S.C.R.
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 80-
IC 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.
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Case Law Reference
2018 (7) SCALE 618
distinguished
Para 21
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7208
of 2018.
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