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TMI Blog2009 (12) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... should be extended to the assessee. Held that- the order of the Tribunal allowing the benefit is correct. - 1154 and 1204 and 793 of 2009 and others - - - Dated:- 23-12-2009 - A. K. SIKRI and SIDDHARTH MRIDUL JJ. Ms. Sonia Mathur for the Department. C. S. Aggarwal with Prakash Kumar for the assessee. JUDGMENT A .K. SIKRI, J. - ITA Nos. 1154/2009 and 1204/2009 were heard on 25th November, 2009 and judgment reserved. Within few days other three ITAs were heard on 9th December, 2009. Though the assessees are different in the two sets of appeals, questions of law are common. In fact, ITA Nos. 1154/2009 and 1204/2009 are filed by the Revenue as the Income Tax Appellate Tribunal (ITAT) has decided the matter in favour of the assessee. On the other hand, in other appeals it is the assessee who is the appellant and is aggrieved by the order of the ITAT. For this reason we deem it proper to decide all these appeals by one common judgment. Of course at the same time we shall take up both sets of appeals separately for discussions. ITA No. 1154/2009 and ITA No. 1204/2009 2. The assessee M/s Nestor Pharmaceuticals Limited is in the business of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the assessee, a deduction from such profits and gains of an amount equal to hundred per cent of profits and gains derived from such business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and thereafter, twenty-five per cent of the profits and gains for further five assessment years: Provided that where the assessee is a company, the provisions of this sub-section shall have effect as if for the words "twenty-five per cent", the words "thirty per cent" had been substituted." 4. There is no quarrel that the assessee qualifies as the industrial undertaking as specified in the said Section for the purpose of deriving benefit of the said provision. This provision allows deduction from profits and gains of an amount equal to hundred per cent of profits and gains derived from such business for the first five assessment years commencing at the time during the periods as specified in Sub-section (2) and the dispute is as to which are the first five assessment years. These five years are to commence at any time during the periods as specified in Sub-section (2). Sub-section (2) mentions "beginning from the year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee did not even have the requisite minimum number of employees employed in the previous year relevant to assessment year 1998-99. As against this, the plea of the Revenue is that closing stock of finished goods of given unit as on 31st March, 1998 was shown by the assessee-company at Rs.1,49,405/- and there was no commercial production as claimed by the assessee, how the closing stock of finished goods could be valued at the aforesaid figure. 8. We are of the opinion that merely because some closing stock was shown as on 31st March, 1998, would not lead to the conclusion that there was commercial production as well. Naturally, even for the purpose of trial production material would be needed and there would be production which will result in stock of finished goods. Otherwise, there is overwhelming evidence produced by the assessee, and accepted by the Tribunal as well, from which it is clear that there was only a trial production in the assessment year 1998-99 and commercial and full-fledged production commenced only in the year 1999-2000. Therefore, we proceed further with the discussion on this basis. 9. The controversy, thus, boils down to the limited sphere namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose was the same. This Section 15C also provided tax exemptions to certain industrial undertakings who "has begun or begins to manufacture or produce articles . ." The court was of the opinion that the provision must be interpreted having regard to the object for which the section was enacted namely to encourage the establishment of new industrial undertakings by granting exemption from tax on profits derived from such undertakings during the first five years. The court in that case was also confronted with the situation where trial production had started during the particular assessment year but commercial production commenced only in the next assessment year. The court was of the opinion that merely trial production will not be regarded as beginning to manufacture or produce articles. Relevant portion discussing this aspect runs as under (page 552): "The question that arises for consideration in this case depends upon the correct interpretation of the expression "has begun or begins to manufacture or produce articles" used in section 15C(2)(ii). The first question that arises for consideration will be whether a were trial production will be regarded as beginning to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achine, whether for trial production or commercial production, it would amount to a manufacture for the purpose of the said sub-section, is incorrect, as being inconsistent with the view expressed by this court in the aforesaid decision. In the present case, however, we find that no material whatsoever has been produced by the assessee before any of the income-tax authorities, including the Tribunal, to show that the production made by the assessee in the calendar year 1951 was merely a trial production and that the goods produced were not for commercial sale but were merely for testing or sampling purposes, as in the case before the Division Bench of this court referred to above. As the Tribunal has pointed out, it was admitted by the assessee that it had commenced production in 1951, the contention of the assessee merely being that the said production was a trial production. As no material has been produced by the assessee at any stage to justify that contention, it must be taken as established that the assessee did not prove that the said production in 1951 was merely a trial production. The assessee must, therefore, be held to have commenced production in 1951 and was not entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in December, 1963, but on commercial basis, this started only in January, 1964, which would be in the assessment year 1965-66. The controversy that seems to have arisen was whether the experimental portion of manufacture was to be considered as a period during which "manufacture" had taken place for the purpose of applying section 84(7)." 17. We may note here that learned counsel for the Revenue had made a fervent plea before us to discard the aforesaid interpretation in view of the Supreme Court judgment in Commissioner of Income Tax vs. Sesa Goa Ltd. , 271 ITR 331. In that case the question was as to whether extraction and processing of ore amounts to production or not within the meaning of Section 32A of the Income Tax Act. The court was thus called upon to decide as to what is the meaning of production. It was in all together in different context. On the other hand question before us is not as to whether a particular activity amounts to manufacture or not but issue is what would be the initial year of production for the purpose of Section 80I. 18. We, thus, answer the question against the Revenue and in favour of the assessee and as consequence dismiss these appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of grant of deduction u/s 80-IA for all times, and (ii) which have to be examined from year to year. It may happen that the unit is otherwise eligible for deduction as once for all conditions have been satisfied and subsequently or even in the very first year some other criteria of number of employees etc. is not satisfied. This would mean that the unit is eligible for deduction u/s 80-IA, but the exemption for that year cannot be granted. Therefore, the argument of the ld. Counsel, based upon aforesaid provision, has no bearing on the issue of the determination of the initial year of "manufacture of articles or things". Thus, we are of the view that assessment year 1998-99 was the initial year as defined in section 80-IA(12) and consequently, this year is the third year of exemption u/s 80-IA." 20. Thus, the distinguishing feature is that after the production, commercial sale also took place as well before on 31st March, 1998. In this factual scenario following question of law was framed in these appeals: "Whether the ITAT was correct in law and on facts to hold that sale of one water cooler and one air-conditioner as on 31.03.1998 for the purposes of obtaining regis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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