Allahabad High Court
M/S ... vs The Commissioner Of Incom-Tax on 5 October, 2015
Bench: Tarun Agarwala, Surya Prakash Kesarwani
HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
Reserved
Income Tax Appeal No.1 of 2000
M/s U.P. Transformers (India) Private Ltd..........Appellant
Vs.
The Commissioner of Income Tax. ........... Respondent
(Central), Kanpur
Connected with
Income Tax Appeal No.211 of 2012
M/s U.P.Transformers (India) Private Ltd...........Appellant
Vs.
The Commissioner of Income Tax. ........... Respondent
(Central), Kanpur
Connected with
Income Tax Appeal No.212 of 2012
M/s U.P.Transformers (India) Private Ltd...........Appellant
Vs.
The Commissioner of Income Tax ...........Respondent
(Central), Kanpur
Connected with
Income Tax Appeal No.213 of 2012
M/s U.P.Transformers(India)Private Ltd........Appellant
Vs.
The Commissioner of Income Tax ........Respondent
(Central), Kanpur
Connected with
Income Tax Appeal No.214 of 2012
M/s U.P.Transformers(India) Private Ltd........Appellant
Vs.
TheCommissioner of Income Tax...........Respondent (Central), Kanpur
Hon'ble Tarun Agarwala, J.
Hon'ble Surya Prakash Keserwani, J.
(Per: Tarun Agarwala, J.)
The present appeals relate to the assessment years 1985-86, 1987-88, 1988-89, 1989-90 and 1990-91. The appellant is a private limited company and started its business activity during the previous years relevant to the assessment year 1980-81. In that year, the appellant derived its income from job work of repairing of transformers inasmuch as the appellant could not carry its manufacturing activity as it did not get any order for manufacture and supply of transformers. For all the above assessment years, the Assessing Officer in his assessment order disallowed the claim under Section 80HH and 80J of the Income Tax Act (hereinafter referred to as the Act). The appellant, being aggrieved, filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax for the assessment year 1985-86 and 1987-88 allowed the appeal and remanded the matter to the Assessing Officer to make a fresh assessment. Based on the said direction, a fresh assessment order was passed in both the assessment years i.e. 1985-86 and 1987-88 in which the claim of the appellant under Sections 88HH and 80I of the Act was allowed. Subsequently, the Commissioner of Income Tax issued a notice under Section 263 of the Act and, after considering the objection, passed an order setting aside the assessment order and directed the Assessing Officer to make a fresh assessment order. The assessee, being aggrieved, filed an appeal before the Tribunal, which was dismissed.
2. For the assessment years 1987-88, 1988-89 and 1990-91 the assessing authority disallowed the claim under Section 80HH and 80I of the Act, against which an appeal was preferred, which was allowed by the Commissioner of Income Tax (Appeals) and the appellant was granted a deduction under Sections 80HH and 80I of the Act. Against the appellate order, the Department filed a second appeal before the Tribunal, which was allowed and the order of the Commissioner was set aside. The assessee, being aggrieved, has filed the present appeals before this Court. In this manner all the five appeals are being decided together.
3. We have heard Sri R.S.Agrawal, the learned counsel for the appellant and Sri Ashok Kumar along with Sri Shubham Agrawal, the learned counsel for the Department.
4. Section 80I of the Act was inserted by the Finance (No.2) Act, 1980 w.e.f. 1.4.1981. For facility, the extract of the provision is extracted hereunder:
"80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel [or the business of repairs to ocean-going vessels or other powered craft], to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof :
Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect [in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel] as if for the words "twenty per cent", the words "twenty-five per cent" had been substituted.
[(1A) Notwithstanding anything contained in sub-section (1), in relation to any profits and gains derived by an assessee from--
(i) an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold storage plant or plants; or
(ii) a ship which is first brought into use; or
(iii) the business of a hotel which starts functioning, on or after the 1st day of April, 1990, [but before the 1st day of April, 1991], there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty-five per cent thereof :
Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel as if for the words "twenty-five per cent", the words "thirty percent" had been substituted.]
(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :--
(i) it is not by the splitting, or the, of a business already in existence;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;
(ii) 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, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of [fourteen] years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette,specify with reference to any particular industrial undertaking;
(iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power :
Provided that the condition in clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section :
Provided further ....................................................
Explanation 1.........................................................
Explanation 2.--Where in the case of an industrial 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 plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.
Explanation 3.........................................................
(3)..........................................................................
(4)..........................................................................
(4A)........................................................................
(5) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning [or the company commences work by way of repairs to ocean-going vessels or other powered craft] (such assessment year being hereafter in this section referred to as the initial assessment year) and each of the seven assessment years immediately succeeding the initial assessment year.
Provided..............................................................."
5. The Finance Minister in his Budget Speech indicated the reason for insertion of Section 80I indicating that this provision was inserted to promote new investment in the industry and to give a tax holiday in respect of new industrial undertaking for a limited period on specified percentage of income. It was indicated that the concession could be availed where Small Scale Industry starts production after 31st, March,1981. The relevant portion of the Budget Speech is extracted hereunder:
"It is essential to promote new investment in industry. At the same time, the fiscal system should not lead to a bias in favour of capital-intensive techniques. Keeping these twin objectives in view, I propose to continue the tax holiday in respect of new industrial undertakings, ships and hotels, but in a modified form. Under my proposal, tax holiday will be available in respect of new industrial undertakings, ships or approved hotels with reference to a specified percentage of the income derived from these sources. In the case of companies, 25 percent of the profits derived from these sources will be exempt for a period of seven years. In the case of non-corporate taxpayers, the percentage of exempted profits will be 20 percent. In the case of co-operative societies, the tax holiday will be available for a period of ten years as against seven years in the case of other categories of taxpayers. This concession will be available in the case of all small-scale industrial undertakings which go into production after 31st March, 1981, but, before Ist April, 1985, that is, till the end of the new Five-Year Plan period For other industrial undertakings, the concession will apply only where they do not produce articles or things listed in the Eleventh Schedule to the Income-tax Act. The concession will also be available in the case of approved hotels which start functioning or new ships which are acquired during that period."
6. In K.P.Varghese Vs. Income-tax Officer, Ernakulam and another, AIR 1981 Supreme Court 1922, the Supreme Court held that speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the movers of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted.
7. In the light of the aforesaid, the speech given by the Minister while introducing a provision in Income-tax Act could be used as an external aid to find out the purpose for introduction of the section. From a perusal of Section 80I of the Act read with speech of the minister, it is apparently clear that the provision is applicable to a new industrial unit, which came into existence after 1.4.1981. Such industries, which came into existence after 1.4.1981 would be given a tax holiday of a specified percentage of the income for a period of seven years where such new undertaking come into production after 31.3.1981.
8. In the light of the aforesaid, admittedly, the appellant's unit came into existence in the assessment year 1980-81 prior to the insertion of Section 80I of the Act, which came into effect from 1.4.1981. Consequently, we are of the opinion that since the appellant's industry was already existing prior to insertion of Section 80I of the Act, the benefit of the provision of Section 80I could not be given to the appellant as it was not a new industry, which came into existence after 1.4.1981. Consequently, the appellant is not entitled for any deduction under Section 80I of the Act.
9. The relevant portion of Section 80HH of the Act, as existed in the relevant assessment year is extracted hereunder:
"80HH. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof.
(2) This Section applies to any industrial undertaking which fulfils all the following conditions, namely:-
(i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970 [but before the 1st day of April, 1990], in any backward area;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence in any backward area :
Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such
industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area;
(iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power.
Explanation.--Where any machinery or plant or any part thereof previously used for any purpose in any backward area is transferred to a new business in that area or in any other backward area 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 plant used in the business, then, for the purposes of clause (iii) of this sub-section, the condition specified therein shall be deemed to have been fulfilled.
(3) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely :--
(i) the business of the hotel has started or starts functioning after the 31st day of December, 1970 [but before the 1st day of April, 1990], in any backward area;
(ii) the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence;
(iii) the hotel is for the time being approved for the purposes of this sub-section by the Central Government.
(4) The deduction specified in sub section (1) shall be allowed in computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or the business of the hotel starts functioning.
Provided............................................................................................................................
[(11) For the purposes of this section, "backward area" means such area as the Central Government may, having regard to the stage of development of that area, by notification in the Official Gazette, specify in this behalf :
Provided that any notification under this sub-section may be issued so as to have retrospective effect to a date not earlier than the 1st day of April, 1983.]"
10. Section 80 HH was inserted w.e.f.1.4.1974, where incentives were given for establishing a new industrial undertaking in a backward area. Sub-clause (ii) of Section 80HH of the Act laid down certain conditions which were required to be fulfilled before claiming deduction. In this regard, one such condition was that the industrial undertaking has begun or begins to manufacture or produce articles after 31.12.1970. In the instant case, admittedly, the appellant's unit came into existence and started business in the assessment year 1980-81 by doing job works i.e. repair of transformers but started manufacturing activity from the assessment year 1985-86 and, consequently, claimed deduction under Section 80HH of the Act from that assessment year onwards. The Tribunal including the authorities rejected the claim of the assessee-appellant on the ground that the appellant's undertaking was not a new undertaking in the year of claim of deduction and was a old undertaking. The Tribunal and the subordinate authorities rejected the claim of the appellant on the presumption that the establishment of the industrial undertaking and the manufacturing activity are required to start simultaneously in the same assessment year. The Tribunal also gave a finding that since the appellant had carried on repair works for more than one year they were not entitled for deduction.
11. In our opinion, the reasoning adopted by the Tribunal is patently erroneous. The Tribunal has not considered sub-clause (iv) of Section 80HH of the Act, which only allows the assessee to claim deduction from that assessment year in which the industrial undertaking began to manufacture or produce the articles. From this provision, it is apparently clear that even though the undertaking came into existence from the assessment year 1980-81, but started the manufacturing process in the assessment year 1985-86, it would be entitled for deduction under Section 80HH from that year, namely, 1985-86. The finding that the appellant's unit was not a new unit in the year from which it started manufacturing is erroneous and misconceived. Section 80HH does not provide that the industrial undertaking should be a new undertaking and starts manufacturing from that year itself. The essential requirement is, the year in which the manufacturing activity starts and, consequently, appellant cannot be non-suited on the ground that its unit was not the new unit when it started its manufacturing activity.
12. In the light of the aforesaid, we are of the opinion that the appellant was entitled for deduction under Section 80HH of the Act and the Tribunal as well as the subordinate authorities committed a manifest error in rejecting the claim of the appellant on this aspect.
13. Upon a perusal of the order of the Commissioner of Income Tax, we find that a specific finding has been recorded that the assessment was erroneous and prejudicial to the interest of the revenue. The learned counsel for the appellant could not point out anything to the contrary. Consequently, we are of the opinion that once a specific finding has been recorded by the Commissioner that the assessment order was erroneous and prejudicial to the interest of the revenue, the Commissioner had validly passed an order under Section 263 of the Act.
14. In the light of the aforesaid, the appeals are partly allowed. The question of law, as referred above, are answered accordingly. The appellant is entitled for deduction under Section 80HH of the Act and in the event consequential assessment orders have been passed by the Assessing Officer pursuant to the order passed by the Commissioner under Section 263 of the Act, the said assessment order shall be modified, accordingly.
Dt: 05.10.2015
MAA/-
(Surya Prakash Kesarwani,J.) (Tarun Agarwala,J.)
