Backward area declared u/s 80HH not apply to section 80-IA, both are separate & independent provisions

Backward area declared u/s 80HH(2) do not apply to section 80-IA(2)(iv)(c) as both sections are separate and have independent provisions

ABCAUS Case Law Citation:
ABCAUS 3238 (2020) (01) HC

Important case law relied upon by the parties:
Ace multi axes systems limited’, (2017) 88 taxmann.com 69 (SC).
Commissioner of Income Tax vs. J.h. Gotla’, (1985) 23 Taxman 14j (SC)
State of Jharkhand vs. Tata Cumins Ltd.,’ (2006) 4 SCC 57)
CCE  VS.  Ginni Filaments Ltd. (2005) 3 SCC 378

In this case the appeal was filed at the behest of the Revenue under section 260-A of the Income Tax Act, 1961 (the Act) to allow the appeal and set aside the order passed by the ITAT confirming the order of the CIT(A) on the issue claim of deduction under Section 80IA(2)(iv)(c) of the Act.

The assessee was engaged in the business of manufacturing and sale and had claimed deduction under Section 80IA(2)(iv)(c) of the Act.

Being aggrieved with the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) who inter alia held that assessee’s manufacturing unit was located in a backward area and therefore, the claim under  Section 80IA of the Act was made. It was further held that when the Notification came in October 1997 declaring the backward area, the assessee’s unit did not fall within the backward area. Therefore, the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue as the Assessment Unit did not fall within the backward area for claiming eligible deduction under Section 80IA of the Act. In the result, the claims  made  under  Section 80IA of the Act were disallowed.

Being aggrieved, the assessee approached the Income Tax Appellate Tribunal (Tribunal). The Tribunal, inter alia, held that the declaration of the area for claiming the  relief under  Section  80IA  of  the  Act  was  not  made  under Notification with retrospective effect,  which was not within the knowledge of the assessee. Therefore, assessee was entitled to claim deduction under  Section 80IA of the Act.

Aggrieved with the order of the Tribunal, the Revenue had preferred appeal before the Hon’ble High Court.

The Hon’ble High Court opined that admittedly the unit of the assessee was not situated within the backward District as specified in the Official Gazette. Therefore, the Tribunal had grossly erred in setting aside the order passed by the Commissioner of Income Tax (Appeals) and in holding that the assessee was entitled to the benefit of 80IA of the Act.

On the other hand, the assessee submitted that once the area in which the unit of the assessee is situated was declared to be backward area by a Notification issued under Section 80HH(2) of the Act and therefore, the same has to be taken as Industrial Backward Area for the purposes of this Act.

It was also urged that the assessee was entitled to parity in the matter of deduction as the area in which the industry was situated, had already been declared to be a backward area under Section 80HH(2) of the Act.

It was also urged that though equity and taxation are considered to be strangers but, an attempt should be made to ensure that they do not remain so always and if a construction, which results in equity rather than any injustice, then such construction should be preferred to the literal construction.

The Hon’ble High Court observed that it is well settled in law that when  an exemption is granted with a beneficent object i.e., to encourage production or setting up an industry in backward area in terms of Industrial Policy,  the provision relating to exemption has to be liberally construed. It is equally well settled legal proposition that if the tax payer is within the plain terms of the exemption Notification, he cannot be denied the benefit calling in aid in supposed intention, and the language of the Notification has to be given effect to.

The Hon’ble High Court also noted that as held by Hon’ble Supreme Court an exemption Notification has to be read strictly in so-far-as it pertains to eligibility criteria.

The Hon’ble High Court observed that the Industrial Undertaking of the appellant-assessee was not located in the Industrial Backward District, which had been mentioned in the Notification issued by the Central Government. It was also not in dispute that the assessee had set up the industry before coming into force of the Industry Notification.  Therefore, the condition mentioned in Section 80-IA(2)(iv)(c) of the Act that an industrial undertaking should be located within such   Industrial   Backward   District   had not admittedly been fulfilled by the assessee.

The Hon’ble High Court stated that in order to claim the deduction, the assessee has to satisfy the requirements   mentioned   under   the   provision, which admittedly the assessee had not fulfilled. Therefore, the assessee was not entitled to claim deduction under Section 80-IA(2)(iv)(c).

The Hon’ble High Court opined that Section 80HH and Section 80-IA(2)(iv)(c) are two different and independent provisions. The decision of Hon’ble Rajasthan High Court relied upon by the assessee was of no assistance to the assessee as the aforesaid decision was based on the concession that once an area is declared to be Industrially Backward Area under Section 80HH(2) of the Act, the same has to be taken under Industrial Backward Area for the purposes of this Act. In other words, said decision was based on the concession  and  there  had  been  no  deduction  on  the issue.

Therefore, the Hon’ble High Court expressed disagree with the view taken by the Honb’le High Court of Rajasthan insofar as it took a view that once the area declared as backward area under Section 80HH(2) of the Act, the same has to be taken as Industrially Backward Area for the purposes of the Act as Section 80HH(2) and 80-IA(2)(iv)(c) are separate and independent provisions.

Accordingly, the order passed by the Income Tax Appellate Tribunal was set aside.

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