2018 (1) TMI 1340 - HC - Income Tax

Grant of deduction under Section 80-IB - conditions for qualifying as a small scale industry was to be fulfilled in the initial year alone and not on year to year basis for grant of deduction - Held that - The impugned order of the Tribunal dismissed the Revenue s Appeal by following the decision of the Karnataka High Court in M/s. Ace Multi Axes Systems Ltd Vs. DCIT (2014 (8) TMI 596 - KARNATAKA HIGH COURT) holding that the deduction under Section 80IB cannot be denied to an assessee who has been granted its benefit in the earlier years of assessment during the span of 10 years when exemption is available thereunder. The learned counsel for the parties very fairly point out that the decision of the Karnataka High Court in the case of M/s. Ace Multi Axes Systems (Supra) has now been reverted by the Apex Court in Deputy Commissioner of Income Tax Vs. ACE Multi Axes Systems Ltd. (2017 (12) TMI 372 - SUPREME COURT OF INDIA). Thus the condition of Section 80 - 1B of the Act are required to be satisfied on year to year basis. - Decided against assessee.

Summary

Issues:
Interpretation of conditions for qualifying as a small scale industry under Section 80-IB of the Income Tax Act, 1961.

Analysis:
The High Court of Bombay heard an appeal challenging an order by the Income Tax Appellate Tribunal related to the Assessment Year 2009-10. The Revenue questioned whether the conditions for qualifying as a small scale industry under Section 80-IB needed to be fulfilled on a year-to-year basis for the deduction. The appeal was admitted based on this substantial question of law.

The impugned order of the Tribunal, which was based on a decision by the Karnataka High Court, held that the deduction under Section 80-IB cannot be denied to an assessee who had previously benefited from it during the 10-year exemption period. However, it was noted that the decision of the Karnataka High Court had been overturned by the Supreme Court in a subsequent case. The Supreme Court ruled that the conditions of Section 80-IB must be satisfied on a year-to-year basis.

Consequently, the High Court answered the substantial question of law in the negative, favoring the Revenue and disfavoring the Assessee. The Appeal was allowed based on this interpretation, highlighting the importance of fulfilling the conditions of Section 80-IB on an annual basis to claim the deduction.