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TMI Blog2016 (5) TMI 950X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act which provides for substantial expansion to be undertaken during the period beginning on 7th January 2003 and ending before 1st April 2012 and erroneously upholding that the benefit of 100% deduction u/s 80-IC of the Act for first five years in case of substantial expansion is available only to the units that existed and were operational as on 07.01.2003 and such benefit is not at all meant for the units that came into being on or after the introduction of the scheme of such deduction. III. Upholding that once an 'initial assessment year 1 is determined in case of an undertaking claiming benefit u/s 80- IC of the Act, it cannot be changed even if such undertaking completes substantial expansion and again qualifies for deduction under the said section on the basis of 'qualifying expansion'. IV. Making a narrow interpretation of the provision of section 80-IC of the Income Tax Act, 1961 which was introduced as a welfare legislation for providing stimulus to the economy of industrially backward states such as Himachal Pradesh. 4. Briefly stated, the facts of the case are that assessee derives income from manufacturing of assemblies and sub assemblies for elec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; in the case of Orissa State Warehousing Corporation Vs. CIT 237 ITR 607 wherein it has been observed at page 604 & 605 of the report as under:- "Let us, however, at this juncture, consider some of the oft cited decisions pertaining to the interpretation of the fiscal statutes being the focal point of consideration in these appeals. Lord Halsbury as early as 1901, in Cooke v. Charles A. Vogeler Company [1901] AC 102 (HL) stated the law in the manner following: "a court of law, has nothing to do with the reasonableness or unreasonableness of a provision of a statute except so far as it may h old it in interpreting what the Legislature has said. If the language of a statute be plain, admitting of only one meaning, the Legislature must be taken to have meant and intended what it has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should not lead to absurd or mischievous results. If the language of this sub-section be not controlled by some of the other provisions of the statute. It must, since, its language is plain and unambiguous, be enforced and your Lordships' House sitting judicially is not concerned with the question whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to find out the real intention of the Legislature and then every possible material should be considered to find out the real intention of the Legislature. In this regard, the observation of the Hon'ble Supreme Court in the celebrated judgement of K.P. Vergese 131 ITR 598 (supra) are relevant. We extract the Head note which reads as under:- "A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the court may modify the language used by the legislature or even do some violence to it, so as to achieve the obvious intention of the legislature and produce a rational construction. LUKE V. IRC [1963] HON'BLE APEX COURT 557; [1964] 54 ITR 692 (HL) followed. Speeches made by the members of the legislature on the floor of the House when the Bill is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for its introduction can certainly be referred to for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the proposition made by the Ld. Counsel for the assessee. In that case the question was whether a circular issued by the Department which is generally binding on the authorities would take precedence over the interpretation made by the Supreme Court or High Court in respect of particular provision. The Para 6 of this judgment make this point absolutely clear and reads as under:- "6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at form another angel, a circular which is contrary to the statutory pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter and ultimately held that assessee was entitled to interest u/s 244A and Circular No. 670 was contrary to the provisions of section 244A. The court also observed that circular could be issued to clarify the provisions for removing the difficulties. Therefore, it is clear that question whether a circular can be considered in interpretation of a particular provision was never before the Court and therefore, in our opinion, this judgement does not support the proposition that circular cannot be considered for the purpose of interpreting the particular provision. 27. It will be useful to state another very well settled principle of interpretation i.e. whenever the particular provision is required to be interpreted, it should be interpreted after reading the whole provision and not the parts of a particular section. However, a provision has to be read in context of the overall scheme of the Act. It is also well settled that no provision can be interpreted in such a way which would render parts of the section otiose or meaningless. 28. Having considered the principles of interpretation above, let us consider the provision of section 80IC in the light of the above principles l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operations specified in that Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1st day of April, [2007], in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States. (3) The deduction referred to in sub-section (1) shall be - (i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub- section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub- clause (ii) of clause (b), of sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial Growth Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; (iv) "Industrial Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; (v) "Initial assessment year" means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufactures or produce articles or things, or commences operation or completes substantial expansion; (vi) "Integrated Infrastructure Development Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government (vii) " North-Eastern States" means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura; (viii) " Software Technology Park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry; (ix) "Substantial expansion" m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulative condition that is both parts of the conditions need to be complied. The expression 'and' can be joined only with the expression 'begun'. This is because 'begun' refers to something which has already started in the past whereas 'begins' connotes something which would commence in the present. Therefore, the expression 'and' can be correlated only with existing unit because as we have already seen a new unit which has been set up and begins production cannot simultaneously undergo substantial expansion also so as to become eligible for deduction under this section. 30. At this stage, it can be said that section has some confusion and some effort is required to understand the correct intention of the Legislature by keeping various principles of interpretation. Therefore, various principles of interpretation needs to be looked into. This provision was brought into the statute indisputably in the light of the "incentive package" announced by the Union Cabinet. Through this incentive package not only income tax concession but excise concessions and some subsidies like transport subsidy and capital subsidy were also provided to various indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter twenty-five per cent (thirty per cent for companies ) for the next five assessment years. 49.4 The section also provides that no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section or under section 80-IB or under section 10C, as the case may be, exceeds ten assessment years. Further, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or 10B, in relation to the profits and gains of the undertaking or enterprise. 49.5 A new Thirteenth Schedule has been inserted in the Income-tax Act to specify the list of articles and things, which are ineligible for the purpose of deduction under section 80-IC. Further, a new Fourteenth Schedule has also been inserted, which specifies the list of articles and things, being thrust sector industries, which are eligible for the purposes of availing deduction under this section. Consequent to theses amendments, the provisions of section 10C and sub-section(4) of section 80-IB have been made inoperative in respect of the undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial Policy and Promotion which is published in the Gazette of India removed all the doubts. This notification is relevant because this was issued with reference to same package announced by the Union Cabinet of India for the development of the hilly states. Section 5, reads as under;- "Definitions: (a) ..... (b) ..... (c) Existing Industrial Unit' means an industrial unit existing as on 7 t h January 2003. (d) .......... (e) ............. (f) ..." Thus the definition given above makes it clear that existing Industrial Unit would mean an unit which existed on 7.1.2003. 33. Even if the above controversy is ignored regarding existing unit, the intention of the Legislature become absolutely clear when sub section (2) is read alongwith sub-section (3) of section 80IC. As noted earlier, sub section (2) is enabling provision which provides for deduction in certain kind of undertakings, i.e. new unit set up or the existing units which carries out substantial expansion during the particular window period which are given in clauses (i), (ii) & (iii) of sub section (2). The sub section (3) provides for rates of deduction. It is useful to note that clause (i) of sub sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (2) when it is read with sub section (3), those doubts are totally removed and it become absolutely clear that rate of deduction has to be 100% for first 5 years and 25% thereafter. 34. There is a force in the contention of Ld. CIT/DR that if the interpretation contended on behalf of the assessee was to be adopted then Sub Section (4) of Section 80IC would also become redundant. Sub Section (4) clearly provides that the deduction is available to any undertaking or enterprise which is not formed by splitting or reconstruction of the business already in existence or it is not formed by transfer to new business of machinery or plant previously used for any purpose. Further the explanation to this Sub Section makes it clear that Explanation 1 & 2 of Sub Section (3) of Section 80IA are applicable in this respect. Explanation 2 of Sub Section (3) of Section 80 IA reads as under: "Explanation 2- Where in the case of an [undertaking] , any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same contention which has been made before us. In case of M/s Mahavir Industries (ITA No. 127/Chd/2011 and ITA No. 791/Chd/2012) though those cases were adjourned because some other issues were also there but in those two cases assessee had commenced the operation on 8.5.1997 and claimed deduction u/s 80IB from assessment years 1998-99 to 2005-06. Later on, substantial expansion was carried out in assessment year 2005-06 and on the basis of the contention that assessee is allowed to carry out any number of expansions, deduction was claimed for the 12 t h year for assessment year 2009-10 (We may clarify that reference to these cases is made because of particular contention and we are not expressing any opinion on the merits of these appeals here). Therefore, the contention of the assessee that any number of expansions are allowed is not possible in view of the restriction given in section 80IC(6). 36. The above situation as pointed by the Revenue also becomes clear if the provision of section 80IC is compared to the provision of section 80IB(4). Relevant provision of Section 80IB (4) reads as under:- "(4) The amount of deduction in the case of an industrial undertaking in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arts with non obstante clause and therefore, in no case the deduction could be for period exceeding 10 years and in this regard we may note that even the Ld. authors in their Commentary of Income Tax Laws By Chaturvedi & Pithisaria's - Sixth Edition has expressed the same opinion. The relevant extract at pages 6351 of the commentary reads as under;- "No deduction possible for more than 10 assessment years.- Section 80-IC(6) also opens with a non obstante clause " Notwithstanding anything contained in",and provides that no deduction shall be allowed to any undertaking or enterprise under section 80-IC, - where the total period of deduction inclusive of the period of deduction - - under section 80-IC, or - under the second proviso to section 80-IB(4) or - under section 10C as the case may be, exceeds 10 assessment years." 39. Lastly, it was contended that initial assessment year as defined in clause (v) of sub section (8) of section 80IC uses the expression 'or' therefore, it can be construed that it relates to both situations separately i.e. for new unit and substantial expanded unit. We find no force in this contention. The initial ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the meaning and purport of item-6 of the table appended to the Exemption Notification, the benefit of such ambiguity should go to the assessee manufacturer and the entry must be construed as taking in the MFPBs as well. It is not possible to agree with this submission. In Mangalore Chemicals& Fertilizers Ltd.. v. Deputy Commissioner of Commercial Taxes & Ors., [1992) Suppl. 1 S.C.C, 21, a Bench of this Court comprising M.N. Venkatachaliah, J. (as the learned Chief Justice then was) and S.C Agrawal, J. stated the relevant principle in the following words: "Shri Narasimhamurty again relied on certain observations in CCE v. Parle Exports (P)Ltd. [1989] 1 SCC 345, in support of strict construction of a provision concerning exemptions. There is support of judicial opinion to the view that exemptions from taxation have a tendency to increase the burden on the other un-exempted class of tax payers and should be construed against the subject in case of ambiguity. It is an equally well known principle that a person who claims an exemption has to establish his case. Indeed, in the very case of Parle Exports (P) Ltd. relied upon by Shri Narasimhamurthy, it was observed. "While int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral interpretation of an incentive provision is possible if there is any doubt. As we have seen above that if various sub sections of section 80IC are read carefully it leaves no doubt that deduction was meant only for new units or in case of old units if substantial expansion was carried out in such old units and deduction was available only for a period of 10 years. Therefore, there is no question of giving any interpretation much less liberal interpretation to section 80IC when the reading of whole section makes the provision very clear. As observed in case of M/s Novapan India Ltd v Collector of Central Excise and Customs (supra) the burden was on the assessee to show under which clause he was entitled to the deduction but assessee is simply asserting before us that there is no restriction for deduction in case of substantial expansion of new units. In our opinion, that is not enough because absence of restriction does not mean that particular deduction was allowable. 42. We also find force in the submissions of Ld. CIT-DR that if interpretation given by the assessee is to be accepted, the provision would become discriminatory for two classes of undertakings i.e. new units an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction of the existing business or the firm will be entitled to the benefit of substantial expansion as per the provisions of section 80IC(2)(a)(ii) if it starts commercial production before 01.04.2012. The Authority held that the assessee was entitled to the benefit of substantial expansion in terms of and to the extent provided by section 80IC of the Act if it starts commercial production in the substantially expanded unit before 01.04.2012. In this case the assesse shall be entitled to deduction of 100% of its profits upto A.Y. 2014-15 since the initial assessment year was A.Y. 2010-11 and claim of deduction cannot be denied merely on the ground of expansion of manufacturing capacity so long it is not a case of restructuring of business already in existence. However, the question whether the assessee shall be entitled to deduction of 100% of its profit even after A.Y. 2014-15 i.e. for 2 more years beyond A.Y. 2014-15 is left open and not decided by the AAR. Therefore this decision is totally distinguishable and does not help the case of the assessee. 46. The last decision relied on was in the case of Sintex Industries Ltd v CIT (supra). In this case the deduction u/s 80IC was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; :---Yes ---No (If yes, please specify the article or thing) :----------------------- (f) Does the undertaking or enterprise manufacture or Produce any article or thing specified in the Fourteenth Schedule. :---Yes ---No (If yes, please specify the article or thing or operation) :-------------------" 48. The careful reading of the form in a serial order would clearly show that the assessee is required to inform the location of the Industry and column (c) specifically ask the assessee to state whether business is a new business? Column (d) clearly ask the assessee whether existing business has undertaken substantial expansion, therefore, there are two categories of business and substantial expansion is possible only in case of existing business. In our opinion, the Ld. CIT(A) has correctly adjudicated this issue. 49. In view of the above detailed discussion we hold that the assessee before us i.e. M/s Hycron Electronics in ITA No. 798/Chd/2012 is entitled to only 25% of deduction during the present year because the assessee has already availed the period of full deduction @ 100% in the earlier five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring appellate proceedings, assessee submitted that the interest has been earned on FDR for letter of credit and bank guarantees with is part and parcel of income of industrial undertaking having direct nexus. Assessee's contention that these FDRs are essential for business, thus, interest on these FDRs should be treated as income of the industrial undertaking, is not acceptable as these FDRs are not essential for carrying out manufacturing activity. The term business has different meaning than manufacturing. Moreover as per specific provisions u/s 56 of Income Tax Act, the interest earned on securities shall be chargeable as 'income from other source'. Similarly the dividend has to be specifically charged under the head 'income from other sources' u/s 56. 6.2 The assessee has claimed an income of Rs. 7,99,987/- on account of profit on fluctuation in foreign exchange part of profits derived from manufacturing activity for the purpose of section 80IC. Assessing officer relying on judgment of M/s. Liberty India and others Vs. CIT (317 ITR 218), CIT Vs. Sterling Food (SC) 237 ITR 579, Pandian Chemicals Limited Vs. CIT (Mad) 270 ITR 448 held that in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits on foreign exchange fluctuation, and manufacturing activity of industrial undertaking, and interest, dividend, misc. receipts etc. to be specifically charged under the head 'other sources' as discussed above and not having first degree nexus with manufacturing activity, the action of the Assessing officer is upheld and this ground of assessee is dismissed." 11. It is observed that a similar issue came up for consideration before this Tribunal in assessee's own case in ITA No. 374/Chd/2012 for the assessment year 2010-11. In that year also, the assessee has shown other income amounting to Rs. 19,75,825/- as per the following details:- Particulars Amount (Rs.) Interest received on margin Money 2,85,876 Interest received on other 70,328 Foreign exchange fluctuation 15,46,066 Miscellaneous income back 73,542 Sundry credit balances written back 13 The Tribunal relying on the decisions of the Hon'ble Supreme Court the case of Pandian Chemicals v CIT (2003) 262 ITR 278 (SC) and Liberty India Ltd v C IT (supra) held that expression 'derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and in law, Ld. CIT(Appeals) Shimla has erred in affirming the order of Ld. ITO, Baddi in disallowing of Rs. 5,55,241/- U/s 14-A r.w.r. 8D of the IT Act 1961, without proving nexus between expenditure disallowed and exempted dividend income amounting to Rs. 10,50,047/-, which is unjustified, unwarranted and bad in law. 14. During the year under consideration, the assessee had shown investments of Rs. 10,22,04,600/- as on 31.3.2011 in preferences equity shares. The Assessing officer asked the assessee to show cause as to why necessary disallowance should not be made u/s 14A of the Act. The assessee submitted a detailed reply vide its letter dated 2.1.2014 which is reproduced by the Assessing officer in the assessment order at pages 12 to 14 of the assessment order. The Assessing officer did not accept the contention of the assessee as stated in the reply dated 2.1.2014 and worked out the disallowance u/s 14A read with Rule 8-D of the I.T. Rules, 1962 and made the disallowance of Rs. 5,55,241/- 15. On appeal, the CIT(A) confirmed the order of the Assessing officer holding that the provisions of section 14A(3) and section 14A(2) are attracted in this case. He further observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores to its sister company. We are entirely in agreement with the judgement of the Bombay High Court in Commissioner of Income Tax Vs. Reliance Utilities & Power Ltd (2009) 313 ITR 340, Para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment." 17. In view of the decisions of Hon'ble Punjab & Haryana High Court in the case of Bright Enterprises Pvt Ltd. V C IT (supra), we are of the view that no disallowance u/s 14A on account of interest can be made. We may also add here that the Hon'ble Delhi High Court in the case of Cheminvest Ltd v CIT in ITA No. 749/2014 dated 2.9.2015 held as under;- "23. In this context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression "does not form part of the total income" in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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