2018 (5) TMI 1278 - SC - Income Tax

Entitlement to deduction u/s 80IC - industrial undertakings or enterprises which are set-up in the North-Eastern Region - determination of period of ten years - Held that - The assessee in the instant case has not got deduction under Section 80-IC for a period of ten years as he started claiming deduction under this provision w.e.f. Assessment Year 2006-07. Situation Nos. (b) and (c) mentioned above would not apply to the assessee as it s undertaking/enterprise is not established in North-Eastern Region. It is, thus, clear that the High Court has failed to appreciate that the provisions of Section 80-IC(6) of the Act state that the total period of deduction under Section 80-IC and Section 80-IB cannot exceed ten assessment years only if the manufacturing unit was claiming deduction under second proviso to Section 80-IB(4) of the Act i.e. units located in the North-Eastern State. The inclusion of period for the deduction is availed under Section 80-IA and Section 80-IB, for the purpose of counting ten years, is provided in sub-section (6) of Section 80-IC and it is limited to those industrial undertakings or enterprises which are set-up in the North-Eastern Region. By making specific provision of this kind, the Legislature has shown its intent, namely, where the industry is not located in North- Eastern State, the period for which deduction is availed earlier by an assessee under Section 80-IA and Section 80-IB will not be reckoned for the purpose of availing benefit of deduction under Section 80-IC of the Act. Thus, it was wrong on the part of the AO not to allow deduction to the assessee under Section 80-IC for the Assessment Years 2008-09 and 2009-2010. - Decided in favour of assessee.

Summary

Issues Involved:

1. Applicability of Section 80-IC(6) of the Income Tax Act to the assessee.
2. Interpretation of the term "initial assessment year" under Section 80-IC.
3. Calculation of the ten-year period for deductions under Sections 80-IC, 80-IB, and 10C.
4. Entitlement of the assessee to deductions under Section 80-IC for the Assessment Years 2008-09 and 2009-10.

Issue-wise Detailed Analysis:

1. Applicability of Section 80-IC(6) of the Income Tax Act to the Assessee:
The central question was whether the assessee was entitled to deductions under Section 80-IC despite the limitations imposed by Section 80-IC(6). The High Court had ruled that the total period for which deductions could be claimed under Sections 80-IC, 80-IB, or 10C should not exceed ten years. However, the Supreme Court found that Section 80-IC(6) specifically pertains to undertakings in the North-Eastern Region, which was not applicable to the assessee whose unit was in Himachal Pradesh. Therefore, the High Court's interpretation was incorrect as the ten-year cap under Section 80-IC(6) did not apply to the assessee.

2. Interpretation of the Term "Initial Assessment Year" under Section 80-IC:
The High Court had interpreted that the term "initial assessment year" referred to the year in which substantial expansion was completed. The Supreme Court upheld this interpretation, agreeing that the year in which substantial expansion occurs should be considered as the initial assessment year for the purpose of claiming deductions under Section 80-IC. This interpretation was crucial because it determined the starting point for the five-year period of 100% deduction under Section 80-IC.

3. Calculation of the Ten-Year Period for Deductions under Sections 80-IC, 80-IB, and 10C:
The Supreme Court clarified that the ten-year period mentioned in Section 80-IC(6) should be calculated only if the unit is located in the North-Eastern Region, as specified in the second proviso to Section 80-IB(4) and Section 10C. Since the assessee's unit was not in the North-Eastern Region, the ten-year cap did not apply to the deductions claimed under Section 80-IC. The Supreme Court emphasized that the legislative intent was to limit the ten-year period only for units in the North-Eastern Region, thereby allowing the assessee to claim deductions under Section 80-IC without including the years for which deductions were claimed under Sections 80-IA and 80-IB.

4. Entitlement of the Assessee to Deductions under Section 80-IC for the Assessment Years 2008-09 and 2009-10:
The Supreme Court concluded that the assessee was entitled to claim deductions under Section 80-IC for the Assessment Years 2008-09 and 2009-10. The High Court had erred in denying these deductions based on the ten-year cap, which was not applicable to the assessee. The Supreme Court set aside the High Court's judgment on this aspect, thereby allowing the appeals and granting the deductions for the disputed assessment years.

Conclusion:
The Supreme Court's judgment clarified that the ten-year cap under Section 80-IC(6) applies only to units in the North-Eastern Region and not to those in other regions like Himachal Pradesh. The initial assessment year for substantial expansion under Section 80-IC is the year in which the expansion is completed. Consequently, the assessee was entitled to claim deductions under Section 80-IC for the Assessment Years 2008-09 and 2009-10, and the appeals were allowed.