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2020 (11) TMI 948 - HC - Income TaxEntitled to deduction u/s 10B - Tribunal held that the Appellant's Unit 1 was not entitled to deduction for the assessment year 2008-09, on the basis that the ten consecutive assessment years for the purposes of the said provision would begin from the assessment year 1997-98, when the Appellant commenced manufacture, and not from the assessment year 1999-00 when the Appellant actually started claiming the relief under Section 10B - HELD THAT - Section 10B of the Act prior to amendment by Income Tax (second Amendment) Act, 1998 with effect from 01.04.1999 granted tax holiday for a period of five years falling within a period of eight years beginning with the Assessment Year in which the manufacture / production of article or things has begun. Once an assessee began manufacture, it could choose the year from which it would start claiming deduction and from that year, it would be entitled for deduction for five consecutive years within a period of eight years. The assessee started manufacture in the Assessment Year 1997-98 but did not claim deduction under Section 10B of the Act, for that year as well as subsequent Assessment Year viz., 1998-99. For the first time, the claim for deduction under Section 10B of the Act was made for the Assessment Year 1999-2000. Ten year period would begin from the year in which assessee first claimed the deduction. Substantial question of law framed by a bench of this court is answered in favor of the assessee and against the revenue in the result, the order of the tribunal insofar as it holds that unit No.1 of the assessee is not entitled to deduction under Section 10B of the Act is hereby quashed.
Issues:
1. Interpretation of Section 10B of the Income Tax Act, 1961 regarding entitlement to deduction. 2. Commencement of the period for claiming deduction under Section 10B. 3. Assessment of manufacturing activity for eligibility of tax holiday benefits. Analysis: Issue 1: Interpretation of Section 10B The appeal involved a substantial question of law regarding the interpretation of Section 10B of the Income Tax Act, specifically focusing on the entitlement of the appellant's Unit 1 to deduction for the assessment year 2008-09. The primary contention was whether the ten consecutive assessment years for claiming the deduction should begin from the assessment year in which the appellant commenced manufacture or from the year when the appellant started claiming the relief under Section 10B. Issue 2: Commencement of Deduction Period The court analyzed the provisions of Section 10B both before and after the amendment by the Income Tax (Second Amendment) Act, 1998. Prior to the amendment, the tax holiday period was for five years falling within eight years from the assessment year in which manufacturing began. Post-amendment, the period was extended to ten consecutive assessment years. The court noted that the appellant started manufacturing in the assessment year 1997-98 but did not claim the deduction until the assessment year 1999-2000. The court relied on precedents to determine that the ten-year period for claiming deduction under Section 10B starts from the year when the deduction is first claimed, not from the commencement of manufacturing activity. Issue 3: Assessment of Manufacturing Activity The court examined the nature of the appellant's manufacturing activity to determine eligibility for tax holiday benefits. The Assessing Officer had disallowed the deduction under Section 10B on the grounds that the appellant was not engaged in manufacturing but in processing and assembling. The Commissioner of Income Tax (Appeals) upheld the claim, stating that the appellant was entitled to the deduction for ten assessment years from 1999-00 onwards. The tribunal, however, set aside the order, citing the expiry of the time limit for claiming the deduction. Ultimately, the court ruled in favor of the appellant, quashing the tribunal's decision and allowing the appeal, affirming the eligibility of Unit 1 for deduction under Section 10B of the Act. In conclusion, the judgment clarified the interpretation of Section 10B, emphasizing the significance of the year in which the deduction is first claimed for determining the ten-year period. The court's decision favored the appellant, establishing the eligibility of Unit 1 for deduction under Section 10B for the assessment year 2008-09.
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