2017 (12) TMI 1359 - HC - Income Tax

Section 10B(1) eligibility - Held that - The exemption is made available to a 100% export-oriented undertaking and the same is available for ten years, beginning with the assessment year relevant to the previous year in which manufacturing is commenced. In the present case it cannot be said that the assessee, a 100% export-oriented unit is eligible from the year in which they commenced manufacture, since in that relevant year the assessee was not a 100% export-oriented unit. The benefit being conferred only on a 100% export-oriented unit, the exemption could commence only from its certification, as such a unit and if there is no manufacture at the time of certification, from the time of commencement of manufacture. The benefit conferred is for the activity of export and if it is not related to the time from commencement of manufacture then a registered export-oriented unit, if for any reason commences manufacture later, then it could lead to the benefit being reduced since the income derived will only be on manufacture and for the period in which there is no business, it would be illusory. As has been found in Annexure-D judgment, there is no requirement that the export-oriented unit be newly established. The benefits have to be, hence, applied from the date of commencement of the export-oriented undertaking, which in the present case coincides with the manufacturing too. On the above reasoning, we answer the question in favour of the assessee

Summary

Issues: Interpretation of Section 10B of the Income Tax Act, 1961 regarding exemption for newly established 100% export-oriented undertakings.

In this judgment, the High Court of Kerala addressed the issue of whether a sole proprietorship firm, later converted into a partnership firm and certified as a 100% export-oriented unit, could claim exemption under Section 10B of the Income Tax Act from the assessment year 2000-2001 or from the year the manufacturing business commenced in 1997-1998. The court considered relevant precedents and interpretations of the law to make its decision.

The court analyzed the interpretation of Section 10B, which provides for a deduction of profits and gains for 100% export-oriented undertakings. The key question was whether the exemption should be available from the year of inception as a 100% export-oriented unit or from the year manufacturing commenced. The court examined the certification process and the timing of when the unit became eligible for the exemption.

The court reviewed a judgment from the Punjab and Haryana High Court, which clarified that there is no requirement for an assessee to prove it is a newly established undertaking to claim benefits under Section 10B. Another case discussed was about an assessee not meeting the criteria in the first assessment year but claiming exemption in subsequent years, with differing outcomes in various judgments.

The court interpreted Section 10B(1) to mean that the exemption is available for 100% export-oriented undertakings for ten consecutive assessment years from the year manufacturing begins as a certified unit. The court emphasized that the benefit is specifically for such units and should start from the certification date or commencement of manufacturing if no certification existed at the time.

Based on the analysis, the court concluded that the exemption should apply from the date of commencement of the export-oriented undertaking, which aligned with the manufacturing commencement in this case. Therefore, the court ruled in favor of the assessee and rejected the Income Tax Appeal, emphasizing that the benefits should be applied from the start of the export-oriented activity.