LexPR. COMMISSIONER OF INCOME TAX SHIMLA versus M/S AARHAM SOFTRONICS
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PR. COMMISSIONER OF INCOME TAX, SHIMLA
v.
M/S. AARHAM SOFTRONICS
(Civil Appeal No. 1784 of 2019)
FEBRUARY 20, 2019
[A. K. SIKRI, S. ABDUL NAZEER AND M. R. SHAH, JJ.]
Income Tax Act, 1961 – ss.80-IA, 80-IB, 80-IC – ‘Initial
Assessment Year’ u/s.80-IC – U/s.80-IC an undertaking or enterprise,
in certain special category states, which has inter alia, begun or
begins to manufacture or produce any article or thing by setting up
a new factory in the area specified therein, is allowed, deduction
from profits and gains u/sub-s.(3) of s.80-IC– Sub-s.(3) of s.80-IC
inter alia states that a category of undertakings or enterprises
(present cases belong to this category) are allowed exemption @
100% of profits and gains for five assessment years commencing
with the initial assessment year and @ 25% of profits and gains for
the next five years, thus deduction being for a total of 10 years –
Deduction was also provided to existing units if substantial expansion
thereof was carried out – Assessees set up new industrial units and
availed 100% deduction for 5 years and after carrying out
“substantial expansion” claimed deduction @ 100% instead of 25%
for another 5 years – If entitled to – High Court answered in
affirmative – Held: Sub-sec.(6) of s.80-IC puts a cap of 10 years,
which is the maximum period for which the deduction can be allowed
to any undertaking or enterprise under this section, starting from
the initial Assessment Year – Clause (v) of sub-sec.(8) of s.80-IC
provides definition of ‘initial assessment year’, for the purpose of
this very section, i.e.s.80-IC – As per this definition, there can be
‘initial assessment year’, relevant to previous year, in any of the
following contingencies:(i) the previous year in which the
undertaking or the enterprise begins to manufacture or produce
article or things; or (ii) completes substantial expansion – Thus,
benefit of s.80-IC is admissible not only when an undertaking or
enterprise sets up new unit and starts manufacturing or producing
article or things but, is also accrued to those existing units, if they
carry out “substantial expansion” of their units by investing required
[2019] 4 S.C.R. 409
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SUPREME COURT REPORTS
[2019] 4 S.C.R.
capital, in the assessment year relevant to the previous year – Thus,
definition of ‘initial assessment year’ contained in clause (v) of sub-
sec.(8) of s.80-IC can lead to a situation where there can be more
than one “initial assessment year” within the period of 10 years –
Judgment in Classic Binding Industries holding that there cannot
be two assessment years within a span of 10 years u/sub-sec.(6) of
s.80-IC does not lay down correct law – No reason as to why 100%
deduction of the profits and gains be not allowed to even those
units who availed this deduction on setting up a new unit and have
now invested huge amount with substantial expansion of those units.
Income Tax Act, 1961 – ss.80-IB(14) and 80-IC –
Held: s. 80-IB(14) starts with the words ‘for the purpose of this
section’ – Thus, ‘initial assessment year’ defined therein is relatable
only to the deductions that are provided under the provisions of
s.80-IB – s.80-IB is materially different from s.80-IC.
Income Tax Act, 1961 – s.80-IC – Purpose of – Explained.
Disposing of the appeals, the Court
HELD: 1.1 Sub-section (2) of Section 80-IC, Income Tax
Act, 1961 applies to an undertaking or enterprise which has, inter
alia, begun or begins to manufacture or produce any article or
thing by setting up a new factory in the area specified therein
which includes State of Himachal Pradesh as well. Sub-section
(3) of Section 80-IC inter alia states that a category of
undertakings or enterprises (present cases belong to that
category) where the exemption is at the rate of 100% of profits
and gains for five assessment years commencing with the initial
assessment year and, thereafter, 25% of profits and gains. Total
exemption, thus, is for a period of 10 years, namely, @100% for
1st five years and @ 25% for remaining five years. 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.
[Paras 8, 9][417-F-H; 418-A, B; 421-D, E]
1.2 Sub-sectiExcerpt shown. Read the full judgment & AI analysis in Lexace.