2013 (3) TMI 488 - HC - Income Tax

Deduction U/s 80IB 4 of the Income Tax Act, 1961 - Commenced business before grant of Factory License - Held that - In so far as present assessee is concerned, material on record is insufficient to ascertain as to in which category the case would fall. The date of application for grant of Factories license is not available on record. We notice that in our Order dated 17th January 2012, in case of this very assessee in Tax Appeal No. 2016 of 2010, we had placed the proceedings before the Assessing Officer for verifying the facts and deciding the same on the basis of findings given by us in the said judgment. The order of the Tribunal is set-aside; proceedings are placed before the Assessing Officer for ascertaining the facts in light of the observations made above and decide the claim of deduction under Section 80IB of the Act of the assessee afresh.

Summary

Issues involved:
Interpretation of conditions for claiming deduction under Section 80IB of the Income Tax Act, 1961 based on the requirement of obtaining a factory license before commencing industrial production.

Analysis:
The case involved a dispute regarding the eligibility of an assessee to claim a deduction under Section 80IB of the Income Tax Act, 1961, based on the condition that manufacturing or production activities must commence before a specified date. The assessee had set up a factory and claimed to have started commercial production before the deadline but had obtained the factory license after the specified date. The Assessing Officer denied the deduction on this basis, leading to an appeal by the assessee. The Tribunal dismissed the Revenue's appeal, emphasizing that the absence of a factory license before the deadline was not relevant for the deduction under Section 80IB.

In a previous decision, the Court had ruled that for assessees who had not even applied for a factory license before the specified date, the deduction could not be granted. However, for those who had applied before the deadline and obtained the license shortly thereafter, any breach was considered technical, and the deduction could not be withheld. The Court highlighted the significance of obtaining a factory license under the Factories Act before commencing manufacturing activities, as it is a legal requirement and failure to do so is both prohibited and a penal offense.

The Court differentiated between cases where the manufacturing activity was fundamentally unlawful or prohibited by law and those where the breach was technical in nature. It was held that the commencement of industrial activity must be lawful for the deduction under Section 80IB to apply. The judgment also addressed specific scenarios where assessees had not applied for a factory license before the deadline, leading to the reversal of the Tribunal's decision in favor of the Revenue. Conversely, cases where the application for a license was made before the deadline and granted shortly thereafter resulted in the dismissal of the appeals.

For cases where the date of application for a factory license was not clear, the Court directed the proceedings to be reviewed by the Assessing Officer to determine the eligibility for the deduction under Section 80IB based on the observations made in the judgment. The Court emphasized the importance of complying with legal requirements, such as obtaining a factory license, before commencing industrial activities to qualify for tax deductions under the Income Tax Act.

Overall, the judgment clarified the significance of adhering to legal procedures and obtaining necessary licenses before starting industrial operations to claim deductions under the Income Tax Act, ensuring compliance with statutory provisions and upholding the rule of law in tax matters.