Date of manufacture for claiming deduction u/s 10B is not the date of grant of approval as 100 per cent export oriented undertaking-High Court
ABCAUS Case Law Citation:
ABCAUS 2237 (2018) (03) HC
The respondent assessee was established in the year 1950. It was engaged in the manufacture of handicrafts which were exported overseas.
The assessee started claiming the benefit of deduction provided under Section 80HHC from the year 1992. In the year 2003-2004, the assessee started claiming the benefit of 100 per cent deduction of its profits and gains from export under Section 80IC of the Act. The assessee was given the benefit of 100 per cent deduction in terms of Section 80IC for a period of five years.
During the relevant year, the unit was granted approval as a 100 per cent export oriented undertaking, under Section 14 of the Industries (Development and Regulation) Act, 1951. Since, under Section 80IC, the percentage of deduction declines after a period of five years and therefore, the assessee switched over to section 10B of the Act which provides for deduction to 100 per cent export oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years.
The assessee, for the relevant Assessment Year filed its return claiming exemption u/s 10B. However, The Assessing Officer (AO) disallowed the claim on the ground that the deduction u/s 10B could be claimed only for a period of 10 years from the date of commencement of production whereas, the unit of the assessee was established in the year 1950 and had commenced production long time ago far beyond 10 years.
However the assessee was successful before the first appellate authority and again the Tribunal allowed the claim of the assessee.
Before the Hon’ble High Court the Revenue argued that even if it became a 100 per cent export oriented undertaking in terms of the approval given, it would not clothe the assessee with the right to claim deduction under Section 10B having regard to the fact that it was not a new unit, which had commenced production. On the contrary, the unit, was already existent for a long period.
According to the Revenue, both these facts took it outside the scope of Section 10B. It was highlighted that the intention of the Legislature could be gathered from the heading and even if there is no specific reference to the words “new industrial undertaking” in the body of the Section, reference should be made to the heading to resolve the ambiguity, which may arise from the actual wording of the Section
The assessee contended that the assessment is to be carried out year-wise. The unit was, no doubt in existence long back but that is irrelevant for the purpose of claiming benefit under Section 10B. The relevant date to claim benefit under Section 10B is the date on which the undertaking is treated as a 100 per cent export oriented undertaking.
Thus it was argued that irrespective of the fact that the production was commenced much earlier, the assessee must be treated as entitled to the benefit under Section 10B of the Act with reference to the date on which it became a 100 per cent export oriented undertaking and, therefore, production must also be treated as having commenced from the date on which it became a 100 per cent export oriented undertaking.
It was also submitted that it was not a case where the assessee had claimed simultaneously the benefit of deduction under Section 80IC and the benefit of deduction under Section 10B. The assessee also drew support
from CBDT Circular No. 1 of 2005 which stated that eligibility for deduction under Section 10B of the Act shall be on getting approval. It was further submitted that, if the Court does not accept the case of the assessee in regard to Section 10B, the assessee would be entitled to the benefit of Section 80IC, insofar as the assessee had produced the requisite documents.
The Hon’ble High Court noted that simultaneously claiming the benefit of deduction under Section 80IC and Section 10B is not permitted under the Act. Under Section 80IC itself, sub-section (5) provided that simultaneous deduction under Section 80IC and Section 10B was prohibited.
Regarding the circular relied upon by the assessee, the Hon’ble High Court noted that it was specifically clarified that the deduction will be available only for the remaining period of 10 consecutive assessment years, beginning with the assessment year relevant to the previous year in which manufacture was commenced. Further, the illustrations provided in the circular was against the assessee.
The Hon’ble High Court opined that since there is a legal embargo against simultaneously claiming the benefit of deduction under Section 10B and Section 80IC and the fact that the assessee, had not claimed the benefit under Section 80IC, would not be determinative of the issue as to whether the assessee is entitled to the benefit under Section 10B.
The Hon’ble High Court opined that one way to look at the matter was that though it may have been manufacturing and exporting all its production abroad since much prior to the date of approval as a 100 per cent export oriented undertaking, since in law it could claim the benefit of Section 10B only upon it satisfying the requirement that it was approved as a 100 per cent export oriented undertaking, the production and the export which is carried out prior to it is to be obliterated and the Court must interpret this Section as meaning that it is a case of a 100 per cent export oriented undertaking beginning its production only when it became a 100 per cent export oriented undertaking.
The other way was that, having regard to the employment of the words “begins to manufacture”, since, admittedly, the respondent / assessee has began manufacture beyond 10 years, this provision does not leave room for any interpretation.
The Hon’ble High Court answered the question of law in favour of the appellant / revenue and against the respondent / assessee and the order of the Tribunal was set aside. The matter was remitted back to the Assessing Officer for consideration of the case of the assessee under Section 80IC of the Act.