Exemption u/s 80IB ineligible if undertaking do not remain SSI in a particular assessment year even if in initial year eligibility was satisfied.-Supreme Court
ABCAUS Case Law Citation:
ABCAUS 2143 (2017) (12) SC
The instant appeal was filed by the Income Tax Department (the Revenue/Department) against the order/judgment passed by the High Court reversing the order of the Income Tax Appellate Tribunal (ITAT) on the issue of eligibility of deduction u/s 80IB of the Income Tax Act, 1961 (the Act).
Important Case Laws Cited/relied upon by the parties:
Bajaj Tempo Ltd. versus CIT (1992) 196 ITR 188 (SC) = (1992) 3 SCC 78
Citizen Cooperative Society Limited versus ACIT 391 ITR 1 = (2017) 9 SCC 364
State of Haryana versus Bharti Teletech Ltd (2014) 3 SCC 556
Commissioner of Customs versus M. Ambalal & Co (2011) 2 SCC 74
State of Jharkhand versus Ambay Cements (2005) 1 SCC 368
Brief Facts of the Case:
The income of the respondent assessee company was assessed for the relevant assessment year after allowing the deduction u/s 80IB of the Act. However, the Commissioner of Income Tax noticed that as per the depreciation schedule annexed to the 3CD report for the relevant assessment year, the value of plant and machinery had exceeded Rs.1 crores. The CIT was of the view that for the above reason alone the assessee did not come under the purview of the definition of small scale industry. Accordingly he interfered with the assessment under invoking his powers under section 263 to the extent of allowance deduction under Section 80IB(3) of the (the Act) and directed fresh decision on the said issue. Finally, the Assessing Officer (AO) disallowed the claim of the assessee towards deduction under Section 80(B(3).
The disallowance was upheld by the CIT-Appeals and also by the Income Tax Appellate Tribunal (ITAT) in second appeal.
However, the High Court reversed the said orders and upheld the claim of the assessee. The High Court opined that under the provisions of section 80IB, when once the benefit of 10 years, commencing from the initial year, is granted, if the undertaking satisfy all these conditions initially, the undertaking is entitled to the benefit of 10 consecutive years. The High Court noted that there is no there indication that these conditions had to be fulfilled by the assessee all the 10 years.
The High Court answered the question framed in favour of the assessee holding that if a small scale industry, in the course of 10 years, stabilizes early, makes further investments in the business and it results in it’s going outside the purview of the definition of a small scale industry, that should not come in the way of its claiming benefit under Sec.80IB for 10 consecutive years, from the initial assessment year.
Aggrieved by the order of the High Court, the Revenue had approached the Hon’ble Supreme Court by way of the present appeal.
Observations made by the Supreme Court:
The Hon’ble Supreme Court observed that the scheme of deduction u/s 80IB of the Act did not in any manner indicate that the incentive provided had to continue for 10 consecutive years irrespective of continuation of eligibility conditions.
The Hon’ble Supreme Court opined that applicability of incentive is directly related to the eligibility and not de hors the same. If an industrial undertaking does not remain small scale undertaking or if it does not earn profits, it cannot claim the incentive.
The Hon’ble Supreme Court clarified that though certain qualifications are required only in the initial assessment year, e.g. requirements of initial constitution of the undertaking., certain other qualifications have to continue to exist for claiming the incentive such as employment of particular number of workers, for industrial undertakings other than small scale industrial undertakings, not manufacturing or producing an article or things specified in 8th Schedule is a requirement of continuing nature.
The Hon’ble Supreme Court opined that there is no doubt that incentive meant for small scale industrial undertakings cannot be availed by industrial undertakings which do not continue as small scale industrial undertakings during the relevant period as under the Act, each assessment year is a different assessment year, except for block assessment.
The Hon’ble Supreme Court, expressing its dissent with the order of the High Court clarified that incentive is given to a particular category of industry for a specified purpose. An incentive meant for small scale industrial undertaking cannot be availed by an assessee which is not such an undertaking.
The Hon’ble Supreme Court explained that it does not mean that by denial of incentive to undertakings other than SSI, the object of permitting industrial expansion gets defeated,. As, going by that logic, incentive must be given irrespective of any condition as the incentive certainly helps further expansion by reducing the tax burden.
The Hon’ble Supreme Court pointed out that the concept of vertical equity is well known under which all the assessees need not be uniformally taxed. Progressive taxation is a well known element of tax policy. Higher slabs of tax or higher tax burden on an assessee having higher income or higher capacity cannot in any manner, be considered unreasonable.
The Hon’ble Supreme Court thus opined that the assessee having not retained the character of ‘small scale industrial undertaking’, was not eligible to the incentive meant for that category as permitting incentive in such case will be against the object of law.
Their Lordship’s held that the assessee was not entitled to benefit of exemption u/s 80IB if it loses its eligibility as a small scale industrial undertaking in a particular assessment year even if in initial year eligibility was satisfied.