2020 (1) TMI 1068 - HC - Income Tax

Deduction u/s 80IA(2)(iv)(c) - Industrially Backward Area or not - entitled to claim deduction relying upon the notification bearing No.714E dated 07.10.1997 - HELD THAT - In order to avail benefit of deduction twin conditions have to be satisfied namely that industry should be located in Industrial Backward District as prescribed by the Central Government vide Notification in the Official Gazette and the aforesaid Industry has to commence the production during the period beginning from 1st October 1994 and ending on 31st March 1999. Admittedly in the instant case the industrial undertaking of the appellant-assessee is not located in the Industrial Backward District which has been mentioned in the Notification issued by the Central Government. It is pertinent to note here that the first Notification was issued by the State Government on 03rd September 1997 whereas the second Notification was issued on 07th October 1997. In both the aforesaid Notifications the District in which the industry of the assessee is located has not been mentioned as Industrially Backward District. It is also not in dispute that the assessee had set up the industry before coming into force of the Industry Notification. Therefore the condition mentioned in Section 80-IA(2)(iv)(c) of the Act that an industrial undertaking should be located within such Industrial Backward District as the Central Government vide Notification prescribed has not admittedly been fulfilled by the assessee. In order to claim the deduction the assessee has to satisfy the requirements mentioned under the provision which admittedly the assessee does not fulfill. Therefore the assessee is not entitled to claim deduction under Section 80-IA(2)(iv)(c) is concerned the same is sans substance. Section 80HH and Section 80-IA(2)(iv)(c) are two different and independent provisions. The decision of TRINITY HOSPITAL. 2003 (1) TMI 29 - RAJASTHAN HIGH COURT relied upon by respondent is of no assistance to the assessee in the fact situation of the case as the aforesaid decision was based on the concession that once an area is declared to be Industrially Backward Area under Section 80HH (2) of the Act the same has to be taken under Industrial Backward Area for the purposes of this Act. In other words the aforesaid decision is based on the concession and there has been no deduction on the issue. Therefore we do not agree with the view taken by the Honb le High Court of Rajasthan insofar as it takes a view that once the area declared as backward area under Section 80HH(2) of the Act the same has to be taken as Industrially Backward Area for the purposes of the Act as Section 80HH(2) and 80-IA(2)(iv)(c) are separate and independent provisions. Appeal allowed.

Summary

Issues Involved:
- Claim of deduction under Section 80IA(2)(iv)(c) of the Income Tax Act, 1961 based on a specific notification dated 07.10.1997.

Analysis:

Issue 1: Claim of Deduction under Section 80IA(2)(iv)(c) of the Income Tax Act
The case involved two appeals concerning the deduction claimed under Section 80IA(2)(iv)(c) of the Income Tax Act for Assessment Years 2004-2005 and 2005-2006. The appellant, engaged in manufacturing zirconium silicate, colors, and frits, claimed the deduction based on the location of their manufacturing unit in a backward area. The Commissioner of Income Tax (Appeals) disallowed the claim as the unit did not fall within the backward area specified in the notification dated 07.10.1997. However, the Income Tax Appellate Tribunal held that the assessee was entitled to the deduction as the area declaration was not made with retrospective effect, which the assessee was unaware of. The main contention was whether the appellant was eligible for the deduction under Section 80IA of the Act.

Issue 2: Interpretation of Statutory Provisions
The legal arguments revolved around the interpretation of Section 80-IA(2)(iv)(c) of the Act, which required the industry to be situated in an industrially backward district as specified by the Central Government through a notification. The provision also mandated that the industry should commence production between 01.10.1994 and 31.03.1999. The court emphasized the importance of strict compliance with the conditions for availing exemptions and deductions under the law. It was noted that the appellant's industrial unit did not fall within the backward district specified in the notifications issued by the government, rendering them ineligible for the claimed deduction.

Issue 3: Legal Precedents and Case Law
The arguments presented by both parties relied on legal precedents to support their respective positions. The appellant's counsel cited a decision of the Hon'ble High Court of Rajasthan to argue for parity in claiming the deduction based on a backward area declaration under a different provision of the Act. However, the court differentiated between Section 80HH and Section 80-IA(2)(iv)(c), emphasizing their independent nature and distinct requirements for claiming deductions. The court also referred to various Supreme Court decisions emphasizing the strict interpretation of exemption notifications and conditions for tax benefits.

Conclusion:
After considering the submissions and legal principles, the court concluded that the appellant did not fulfill the conditions stipulated in Section 80-IA(2)(iv)(c) of the Act for claiming the deduction. The court set aside the order of the Income Tax Appellate Tribunal and allowed the appeals, thereby denying the appellant's claim for deduction under Section 80IA(2)(iv)(c) of the Income Tax Act.