2013 (4) TMI 232 - HC - Income Tax

Exemption under section10A - computation of five consecutive years - amendment to section 10A(3) - whether retrospective or prospective - The case of the assessee is that it had made a declaration that it would not like to avail of the benefit of section 10A of the Act for assessment years 1984-85 and 1985-86 but would prefer to avail of the said benefit for the subsequent five assessment years. Held that The first question that arises for consideration is as to whether it is possible to give retrospective operation to sub-section (3) of section 10A of the Act as substituted with effect from 1st April, 1987. - Permitting an assessee to exercise option even after he has started to avail of the benefit of section 10A of the Act would either amount to breaking the block of five consecutive assessment years or permitting the assessee to withdraw benefit granted in the earlier assessment years without there being any statutory basis therefor. - Thus, on the contrary if sub-section (3) of section 10A of the Act is construed to be retrospective in effect it would make the provision unworkable which could never have been the intention of the legislature. - Decided in favor of revenue and against the assessee.

Issues Involved:
1. Applicability of Section 10A of the Income Tax Act for the assessment year 1990-91.
2. Interpretation of the term "initial assessment year" under Section 10A.
3. Retrospective application of the amended sub-section (3) of Section 10A.
4. Validity of the assessee's declaration under Section 10A(7).
5. Tribunal's decision on the applicability of Section 10A for the assessment years 1984-85 to 1988-89.

Detailed Analysis:

1. Applicability of Section 10A for the Assessment Year 1990-91:
The assessee, a partnership firm engaged in manufacturing corrugated boxes in the Kandla Free Trade Zone, claimed exemption under Section 10A for the assessment year 1990-91. The Assessing Officer disallowed the claim, stating that the initial assessment year was 1984-85, and the exemption period had expired. The Commissioner (Appeals) allowed the claim, but the Tribunal upheld the Assessing Officer's decision, stating that the assessee was only entitled to exemption till 1989-90.

2. Interpretation of "Initial Assessment Year":
The Tribunal held that the initial assessment year under Section 10A is the year in which the manufacturing or production commenced, which in this case was 1984-85. The Tribunal concluded that the assessee was entitled to exemption for five consecutive years starting from 1984-85 to 1988-89.

3. Retrospective Application of the Amended Sub-section (3) of Section 10A:
The assessee argued that the amended sub-section (3) of Section 10A, effective from 1st April 1987, which allowed opting for any five consecutive years within an eight-year period, should be applied retrospectively. The court, however, held that the amended sub-section (3) does not contemplate a break in the five consecutive assessment years and cannot be applied retrospectively. The court stated that applying it retrospectively would make the provision unworkable.

4. Validity of the Assessee's Declaration under Section 10A(7):
The assessee had filed a declaration in 1986 stating that the provisions of Section 10A should not apply for the assessment years 1984-85 and 1985-86 but should apply for 1986-87 to 1990-91. The Tribunal found this declaration invalid because Section 10A(7) only allows opting out of the scheme entirely, not selectively for certain years. Therefore, the declaration had no statutory basis.

5. Tribunal's Decision on the Applicability of Section 10A for 1984-85 to 1988-89:
The Tribunal, based on the facts and the statutory provisions, held that the assessee was entitled to exemption under Section 10A only for the assessment years 1984-85 to 1988-89. The court upheld this decision, stating that the period for availing the benefit under Section 10A begins from the initial assessment year and runs consecutively for five years without any break.

Conclusion:
The court dismissed the appeal, affirming the Tribunal's decision that the assessee was entitled to exemption under Section 10A only for the assessment years 1984-85 to 1988-89. The court held that the amended sub-section (3) of Section 10A does not apply retrospectively and that the assessee's declaration under Section 10A(7) was invalid. The appeal was dismissed with no order as to costs.

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