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TMI Blog2013 (11) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... was located in the State of Pondicherry, which was an “industrially backward State” - the assessee’s case was covered by the second limb of proviso to clause (iii) of sub-section (2) of sec.80-IB of the Act - Hence, the words “not being any article or thing specified in the list in the Eleventh Schedule” stands omitted from the language of clause (iii) of the Act - Manufacturing of any article or thing (including those specified in 11th Schedule) was sufficient for claiming deduction u/s.80-IB of the Act in such a case - On this account alone the instant assessee, being located in an “industrially backward State” of Pondicherry, was eligible for deduction u/s.80-IB of the Act - the assessee was located in the State of Pondicherry which was in an industrially backward State - There was no dispute regarding this - Hence, the assessee was eligible for deduction under the sub-section (4) of sec.8O-lB of the Act. The deduction u/s. 80-IB in the case of an industrial undertaking an industrially backward State specified in the Eighth Schedule is governed by the provisions of sub-sec.(4). The only requirement in such cases is that the industrial undertaking should be located in an indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the Assessing Officer, in order to classify an industry as a small scale industry, the assessee should be engaged in manufacturing the items listed in Schedule III of Industries (Development and Regulation Act, 1951 as specified in Licensing Notification S.O.477(E) dated 25.7.1991. Since the assessee is manufacturing item of ophthalmic equipment which is not included in Schedule III of Industries (Development and Regulation Act, 1951, the assessee could not be treated as small scale industry. Therefore, the Assessing Officer felt that the assessee is not covered within the definition of SSI and hence not eligible for deduction under sec.80IB of the Act. 4. On appeal, the Commissioner of Income Tax (Appeals) did not agree with the view of the Assessing Officer that the manufacturers of things or articles specified in XI Schedule are not eligible for deduction under sec.80IB of the Act. The Commissioner of Income Tax (Appeals) held that there are exceptions to the said condition and the exceptions are provided in proviso to clause (iii) of sub sec.(2) of sec.80IB of the Act and even if they are manufacturing items specified in XI Schedule. Against this order of the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od specified in that section; (ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) It manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted. Explanation 1 : For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :- (a) Such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) Such machinery or plant is imported into India from any country outside India; and (c) No deduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2004 : Provided . From the above provisions, it is clear that before claiming the deductions, one has to fulfil the requirements laid down in subsection (2) of Sec.80-IB of the Act. Once the said conditions laid down in the sub-section (2) are fulfilled the assesses are eligible for deduction under various sub-sections (3) to (11B) of sec.80-IB of the Act based on the activities carried out by them. In the instant case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, only the assessees who manufacture things/articles, other than those specified in 11th Schedule, are eligible for deduction u/s.80-IB. However, this condition is not absolute and total. This condition is embedded with certain exceptions, as provided in the proviso. There is a proviso to the clause (iii) provided for certain exceptions, as under : Proviso to clause (iii) of sub-section (2) of sec.80-IB Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted. Thus, there are two exceptions to the conditions laid down in clause (iii) above. One exception is the Small Scale Industries (SSI) and the other exception is industrial undertaking referred to in sub-section (4). The industrial undertaking referred to in subsection (4) means an industrial undertaking situated in an industrially backward State specified in the Eighth Schedule. Thus, in the case of a SSI or industrial undertaking situated in an industrially bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be located in an industrially backward State. It makes no difference whether such undertaking is a small scale industry or not. In other words, once the industrial undertaking is located in an industrially backward State, all units (whether SSI or non-SSI) are equally eligible for deduction u/s.80-lB of the Act. On the other hand, all the Small Scale Industries (SSI) can also take exception to clause (iii) of sub-sec.(2) of sec.8o-IB, i.e. from the words "not being any article or thing specified in the list in the Eleventh Schedule", if they fulfill all the norms prescribed under the SSI guidelines Industries (Development and Regulation) Act 1951. Once the requirements of SSI are fulfilled, the assessee falls under the first limb of exceptions of proviso to clause (iii). In such a case, the assessee is eligible for deduction even if they manufacture items specified in 11th schedule. And they are eligible for deduction irrespective of the location of the undertaking i.e. whether located in an industrially backward State or other states. Thus, the assessees whose industrial undertakings are recognized as "Small Scale Industries" or "located in an industrially bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951). In the instant case, the assessee has been registered as a "Small Scale Industry" (SSI) vide SSI Registration 34/02/00698 on 27.03.2004 by the Director of Industries and Commerce, Pondicherry. Once, the assessee is recognised as a SSI by the concerned authorities, the assessee is eligible for deduction even if it manufactures the things or articles specified in 11th schedule. If the condition of manufacturing the articles "included in schedule-III" of the notification in S.0.477(E) dated 25.07.1991, (of Industries (Development and Regulation) Act, 1951) is to be taken in to consideration, the very purpose of creating exception in the proviso to clause (iii) of 80-IB(2) will be lost. In any case, as the assessee is also eligible for deduction u/s.80-IB(4) of the Act, being 'located in an industrially backward State' of Pondicherry, there is no need to fulfill the requirements of SSI. 8. On going through the order of the Commissioner of Income Tax (Appeals), it can be seen that the Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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