2014 (8) TMI 596 - HC - Income Tax

Claim of deduction u/s 80IB(3) Status of SSI ceased in 9th year - When once the eligible business of an assessee is given the benefit of deduction u/s 80IB on the assessee satisfying the conditions mentioned in Sub-sec.(2) of Sec.80IB, can the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, it ceases to be a small scale industry Held that - In the entire provision, there is no indication that these conditions had to be fulfilled by the assessee all the 10 years -When once the benefit of 10 years, commencing from the initial year, is granted, if the undertaking satisfy all these conditions initially, the undertaking is entitled to the benefit of 10 consecutive years - If the object of the Legislature providing for the incentives is kept in mind and when a period of 10 years is prescribed, that is the period, probably, which is required for any industry to stabilize itself - Merely because an industry stabilizes early, makes profits, makes future investment in the said business, and it goes out of the definition of the small scale industry, the benefit u/s 80IB cannot be denied - If such a literal interpretation is placed on the said provion, it would run counter to the very object of granting incentives - the benefit of deduction is given to an assessee who has availed the opportunity given to him under law and has grown in his business - if a small scale industry, in the course of 10 years, stabilizes early, makes further investments in the business and it results in it s going outside the purview of the definition of a small scale industry, that should not come in the way of its claiming benefit u/s 80IB for 10 consecutive years, from the initial assessment year Decided in favour of Assessee.

Summary

Issues:
1. Entitlement to claim deduction under Sec.80IB(3) of the Income Tax Act.
2. Interpretation of conditions for eligibility under Sec.80IB.
3. Denial of benefit due to ceasing to be a small scale industry.

Analysis:
1. The appellant contested the denial of deduction under Sec.80IB(3) by the Commissioner of Income Tax, upheld by the Tribunal, due to the appellant ceasing to be a small scale industry in the 9th year of operation. The Tribunal justified the denial based on the exceeding value of plant and machinery, rendering the appellant ineligible. The High Court was approached to challenge this decision.

2. Sec.80IB provides deductions for profits from industrial undertakings meeting specific conditions. These include not being formed by splitting up existing businesses, employing a minimum number of workers, and manufacturing specific articles. Sub-sec.(3) outlines the eligibility period of 10 consecutive years, subject to additional conditions for small scale industries. The High Court emphasized that if an undertaking fulfills all conditions initially, it is entitled to the 10-year benefit, irrespective of changes in status during this period.

3. The Court highlighted that denying the benefit due to an industry outgrowing small scale status would contradict the legislative intent of incentivizing industrial growth and stability. The judges reasoned that the 10-year period allows industries to stabilize, generate employment, and contribute to economic development. Upholding the denial based on ceasing to be a small scale industry would defeat the purpose of the incentive provision. Therefore, the High Court ruled in favor of the appellant, setting aside the previous orders and restoring the benefit of deduction under Sec.80IB.

In conclusion, the High Court allowed the appeal, overturning the decision to deny the deduction under Sec.80IB(3) and emphasizing the importance of upholding legislative intent in incentivizing industrial growth and stability.