Calcutta High Court
Kolkata-Xi vs M.K. Industries on 24 January, 2024
Author: Rajarshi Bharadwaj
Bench: Rajarshi Bharadwaj
OD-12 & 13
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (Income Tax)
ORIGINAL SIDE
ITA/113/2012
COMMISSIONER OF INCOME TAX,
KOLKATA-XI
-Versus-
M.K. INDUSTRIES
ITA/38/2014
COMMISSIONER OF INCOME TAX,
KOLKATA-XI, KOLKATA
-Versus-
M.K. INDUSTRIES
BEFORE :
THE HON'BLE JUSTICE SURYA PRAKASH KESARWANI
And
THE HON'BLE JUSTICE RAJARSHI BHARADWAJ
Date : 24th January, 2024
Appearance:
Mr. Aryak Dutt, Adv.
...for the appellant in ITA/113/2012.
Mr. Tilak Mitra, Adv.
...for the appellant in ITA/38/2014.
Mr. J. P. Khaitan, Sr. Adv.
Ms. Swapna Das, Adv.
Mr. Siddharth Das, Adv.
...for the respondent.
1. Heard Mr. Aryak Dutt, learned senior standing counsel for the
appellant/revenue in ITA/113/2012 relating to assessment year 2002-03
and Mr. Tilak Mitra, learned standing counsel for the appellant/revenue
in ITA/38/2014 for the assessment years 2001-02, 2003-04, 2004-05
and 2005-06. Also heard Mr. J.P. Khaitan, learned Senior Counsel
assisted by Ms. Swapna Das and Mr. Siddhartha Das, learned advocates
for the respondent/assessee.
2. Mr. Dutt, senior standing counsel for the appellant in ITA/113/2012
submits as under :-
(i) The controversy involved in the present appeal is squarely
covered by a co-ordinate Bench judgment of this Court in
Principal CIT v. V.N. Enterprises Ltd. (2021) 439 ITR 624
(Calcutta), wherein it has been held that blending of tea did not
amount to manufacture. Hence a tea-blending unit is not
entitled to exemption from tax on income under the amended
Section 10B of the Act, 1961. He, therefore, submits that since
the only question of availability of exemption under Section 10B
of the Act, 1961 is in issue in the present appeal and the issue
itself being covered by a co-ordinate Bench judgment in the
case of V.N. Enterprises Ltd. (supra), this appeal deserves to be
allowed.
(ii) Section 10B of the unamended provision provides for exemption
to 100% export oriented undertakings and defines the word
"manufactures" whereas section 10B as amended by Finance
Act, 2000 although uses the words "manufactures or
produces", but intentionally did not provide the definition of
the word "manufacture" and thus there was clear intention to
exclude "process". Manufacture in its ordinary sense does not
include process. Therefore, there is no ambiguity between the
unamended provision and the amended provision of Section
10B. "Process" having been specifically excluded by deletion of
the definition "manufacture" in Section 10B, there is a clear
intention of legislature not to include process for the purpose of
Section 10B of the Act, 1961.
(iii) In support of submissions, reliance is placed upon the
judgments of Hon'ble Supreme Court in the case of
Commissioner of Income Tax, Kerala Vs. Tara Agency
reported in (2007) 6 SCC 429 (Paragraphs 12, 19, 20 and
37); Durga Tea Industries (P) Ltd. Vs. State of Assam & Ors.
reported in (2016) 9 SCC 519 (Paragraph 23) and judgments
of this Court in Apeejay Pvt. Ltd. Vs. CIT reported in (1994)
206 ITR 367 (Cal) (Paragraphs 36 and 45); Brooke Bond
India Ltd. Vs. CIT reported in (2004) 269 ITR 232 (Cal)
(Paragraph 11) and Principal Commissioner of Income Tax
Vs. V.N. Enterprise Ltd. reported in (2021) 439 ITR 624 (Cal).
3. Mr. Tilak Mitra, learned counsel on behalf of the appellant in
ITA/38/2014 submits as under :
(i) Particulars regarding blending of tea were not fully disclosed by
the assessee before the assessing officer at the time of regular
assessment proceeding under Section 143(3) of the Act, 1961
and, as such, the assessing officer was not informed that the
assessee is engaged in processing by blending of tea which does
not qualify for exemption under Section 10B of the Act, 1961.
Therefore, the assessing officer has lawfully and correctly
invoked Sections 147/148 of the Act, 1961.
(ii) Even if it is assumed that the facts of blending of tea were
disclosed by the assessee before the assessing officer, still the
proceedings under Sections 147/148 of the Act, 1961 initiated
by the assessing officer is valid inasmuch as the assessee was
not entitled for exemption under the amended provision of
Section 10B of the Act, 1961 and the exemption was wrongly
granted to the assessee by the assessing officer while passing
the regular assessment order.
(iii) For the assessment year 2005-06, the tax effect is below the
limit prescribed for filing of appeal in Circular No. 17/2019
dated 08.08.2019.
4. Mr. J.P. Khaitan, learned senior advocate for the respondent assessee
submits as under:-
i) The co-ordinate Bench judgment in the case of V.N. Enterprises
Ltd. (supra) requires reconsideration inasmuch as firstly, it
misread the Constitution Bench judgment in the case of
Commissioner of Customs (Import), Mumbai v. Dilip Kumar and
Company and Others (2018) 9 SCC 1 [paragraphs 52, 53 and 65];
secondly, the ambiguity being in principal legislation i.e. amended
Section 10B, the benefit must go to the subject/assessee and not
to the revenue and it is only when ambiguity is in a subordinate
legislation i.e. exemption notification that benefit of ambiguity has
to be conferred to the revenue; thirdly, the judgment in Dilip
Kumar and Company's case (supra) with respect to the ambiguity
was clarified by a subsequent judgment of Hon'ble Supreme Court
in Government of Kerala and Another v. Mother Superior
Adoration Convent (2021) 5 SCC 602 [paragraphs 19-27] but the
co-ordinate Bench judgment of this Court in V.N. Enterprises Ltd.
(supra) had not noticed that judgment and fourthly, since no
contrary intention appears in the amended provision than the
unamended provision, therefore, in the absence of definition of
'manufacture' in the amended provision, the same meaning as
provided in the unamended provision has to be attached to the
words used in the amended provision of Section 10B as held by
Hon'ble Supreme Court in Chariman, Indore Vikas Pradhikaran v.
Pure Industrial Coke & Chemicals Ltd. (2007) 8 SCC 705
[paragraphs 70 and 71].
ii) Unamended Section 10B specifically provided for exemption of
income of an assessee which is a 100% export oriented
undertaking and fulfils the conditions provided under sub-section
(2). The first condition under sub-section (2) is that it
manufactures or produces any article or thing. In explanation (iii),
the word 'manufacture' was defined to include process or
assembly or recording of programme on any disk, tape, perforated
media or other information storage devices. The word 'produce'
has been defined in explanation (iv). In the amended provision of
Section 10B (amended by Finance Act, 2000), the words
'manufactures' and 'produces' have been used. However, the
definition of 'manufacture' as given in explanation (iii) appended to
the unamended provision does not find place in the amended
provision of Section 10B as amended by Finance Act, 2000.
Under the circumstances, the meaning of 'manufacture' or
'produce' has to be understood in the same manner as was
provided under the unamended provision, particularly when the
definition of 'manufacture' has not been given in the Act 1961.
Even in ordinary sense, the words 'manufactures' or 'produces'
would include 'process' inasmuch as the word 'produces' is much
wider than the word 'manufacture'.
iii) Apart from the above, even in the absence of any definition of
'manufacture' in the unamended Section 10B, the exemption
which stood conferred upon the respondent assessee prior to the
coming into force of the amended Section 10B stands saved by the
first proviso to the amended Section 10B, which runs as under:-
Provided that where in computing the total income of the
undertaking for any assessment year, its profits and gains
had not been included by application of the provisions of
this section as it stood immediately before its substitution
by the Finance Act, 2000, the undertaking shall be entitled
to the deduction referred to in this sub-section only for the
unexpired period of aforesaid ten consecutive assessment
years.
iv) The afore-noted points were neither noticed nor considered by the
co-ordinate Bench while passing the judgment in the case of V.N.
Enterprises Ltd. (supra).
v) As per paragraph 99 of the Finance Minister's Budget Speech
1988-89, a five-year tax holiday then available for units in free
trade zone was also extended to 100% export oriented units. As
per paragraph 19 of the Memorandum explaining the provisions in
Finance Bill 1988, similar benefit which was not available to 100%
export oriented units was provided to 100% export oriented units
for earning foreign exchange and accordingly, it was proposed to
exempt such units from tax for a consecutive period of five years
out of eight years in the same manner as is for the income of a
newly established undertaking in free trade zone. The CBDT
issued a circular No.528 dated 16.12.1988 and in clause 18.2
thereof, it was provided that with a view to provide further
incentive, for earning foreign exchange, a new Section 10B has
been inserted by the Act so as to secure that the income of a
100% export oriented undertaking shall be exempt from tax for a
period of five consecutive assessment years falling within the block
of eight assessment years. The said clause of the circular also
provided that the term 'manufacture' will include any processing
or assembling or recording of programme on any disc, tape,
perforated media or other information storage device. Thus, the
aim and object of enactment of Section 10B by the Finance
Act, 1988 was absolutely clear that an exemption has been
granted by Section 10B to 100% export oriented undertakings for
a period of five consecutive years falling within the block of eight
assessment years and the term 'manufacture' will include any
processing or assembling. This exemption was brought by the
legislature to earn foreign exchange.
vi) Allured with these provisions, the respondent assessee established
a 100% export oriented undertaking i.e. tea blending which is
'manufacture' within the meaning of Section 10B of the Act 1961.
Prior to enactment of amended Section 10B by the Finance Act,
2000, the respondent assessee had established its unit which
came into production but it generated profit in the next year i.e.
financial year 2000-01 relevant to the assessment year 2001-02.
Since the respondent assess undertaking has become entitled for
exemption and complied with all the conditions of exemption as
provided in the then existing provision of Section 10B
(unamended), therefore, the amended Section 10B as amended by
the Finance Act, 2000 cannot be said to take away the exemption
benefit, particularly when the object of even the unamended
Section 10B remained one and the same and more particularly
when the exemption to undertakings which became eligible under
the unamended Section 10B was saved by the first proviso to the
amended Section 10B(1) of the Act 1961.
vii) That apart, 100% export oriented units were established under the
policy/resolution of the Government of India on account of
increasing deficit in balance of trade and running down of
exchange reserve, so that growth in export may take place and for
that purpose, it was decided to give such units certain
concessions to enable them to meet rigours of foreign demand in
terms of pricing, quality, precision etc. On account of this
policy/resolution, the exemption in the form of Section 10B was
inserted by Parliament in the Act 1961. The list of industries as
provided under the aforesaid policy/resolution of the Government
of India included "packaged tea i.e. tea packed in consumer packs
of a size upto 1 kg. and instant tea" as is evident from Annexure-I
to Appendix-23 to the Ministry of Commerce Resolution/Policy
dated 31.12.1980.
viii) In the light of these facts, if the judgment of Hon'ble Supreme
Court in Dilip Kumar & Company's case (supra) [paragraphs 52,
53, 55, 65) is read, then the only conclusion that can be drawn is
that firstly there is no ambiguity in unamended and amended
provisions and tea processing / tea blending is an activity of
manufacture liable for exemption under Section 10B; and
secondly if any ambiguity is inferred on account of absence of
definition of 'manufacture' in the amended Section 10B, then the
benefit must necessarily go in favour of the assessee since the
ambiguity is in the exemption provision i.e. in the principal
legislation and not in exemption notification. But the co-ordinate
Bench of this Court in V.N. Enterprises Ltd. (supra) has neither
considered the aforesaid facts nor correctly read the judgment in
Dilip Kumar & Co.'s case (supra) and it is on misreading that the
co-ordinate Bench has taken an incorrect view in V.N. Enterprises
Ltd.(supra). This inference is also supported by the law laid down
by the Hon'ble Supreme Court in the subsequent judgment in the
case of Mother Superior Adoration Convent (surpa) wherein,
Hon'ble Supreme Court while dealing with the exemption
provision, has held that if any ambiguity arises in construction,
benefit of such ambiguity must go in favour of that assessee.
ix) Consideration of unamended Section 10B was left by the Division
Bench in V.N. Enterprises Ltd. (supra) while reframing the
substantial question of law and answered that the assessee would
not be entitled to exemption under Section 10B of the Act, 1961
for the business of blending of tea being carried on by it by taking
aid from the other provisions of statutes and the policies.
x) Judgment in the case of V.N. Enterprises Ltd. (supra) is per
incuriam or sub-silentio.
xi) The judgment of this Court in PCIT Vs. A.P. Export, reported at
(2019) 410 ITR 168 (Cal.) (AY. 2004-05) was in favour of the
respondent/assessee and yet the Division Bench in V.N.
Enterprises Ltd. (supra) took a contrary view by reframing the
question. In the event the co-ordinate Bench was in disagreement
with another co-ordinate Bench decision in the case of A.P. Export
(supra) then the course open to it was to refer the question to a
larger Bench but it could not have taken a contrary view.
Therefore, for this reason also, the matter deserves to be referred
to a larger Bench.
xii) The judgments relied upon by the learned counsel for the
appellants have no bearing or relevance on facts of the present
case inasmuch as those judgments relate to provisions of other
statutes and not Section 10B of the Act, 1961.
Reassessment
xiii) In the case of the respondent/assessee the assessment was
completed under Section 143(3) of the Act, 1961 for the
Assessment Year 2001-02 in which the question of validity of
reassessment is involved in the present appeal. For the aforesaid
assessment year, the assessment was completed under Section
143(3) of the Act, 1961. The notice under Section 148 was issued
on 8.12.2006 i.e. after more than four years of the expiry of the
Assessment Year 2001-02. Thus, it was barred by limitation and
consequently without jurisdiction. Necessary requirement of the
proviso to Section 147 of the Act, 1961 is that the income
chargeable to tax must have escaped assessment for such
assessment year by reason of the failure on the part of the
assessee to make a return under Section 139 or in response to a
notice to sub-section 1 of Section 142 or Section 148 or to
disclose fully or truly all materials facts necessary for his
assessment, for that assessment year. Since there was no
failure on the part of the respondent/assessee to disclose truly or
fully all materials facts, therefore, the initiation of reassessment
proceeding under Section 147 of the Act, 1961 by the assessing
officer was without jurisdiction. In this regard, the Tribunal has
recorded the finding in paragraph 6 of the impugned order dated
19.12.2006 relating to Assessment Year 2001-02. The finding on
facts based on consideration of relevant evidences and records has
not been disputed by the appellants herein. The reassessment
done by the assessing officer was without jurisdiction.
Revision under Section 263 - A.Y. 2002-03 and 2003-04
xiv) For the Assessment Years 2002-03 and 2003-04, the assessing
officer has allowed exemption to the respondent/assessee under
Section 10B of the Act, 1961. The Commissioner of Income Tax
revised it exercising the powers under Section 263 of the Act, 1961
on the ground that the assessment order was erroneous and
prejudicial to the interest of the revenue. It is settled law that in
the event two views are possible and the income tax officer has
taken one view with which the Commissioner does not agree, it
cannot be treated as an erroneous order prejudicial to the interest
of the revenue, unless the view taken by the income tax officer is
unsustainable in law. The submission is supported by the law laid
down by the Hon'ble Supreme court in Malabar Industrial Co. Ltd.
Vs. Commissioner of Income Tax, reported at (2000) 243 ITR 83
(at page 88) and the relevant portion of the judgment is
reproduced below :
"The phrase "prejudicial to the interests of the Revenue" has to
be read in conjunction with an erroneous order passed by the
Assessing Officer. Every loss of revenue as a consequence of an
order of the Assessing Officer cannot be treated as prejudicial
to the interests of the Revenue. For example, when an Income-
tax Officer adopted one of the courses permissible in law and it
has resulted in loss of Revenue; or where two views are
possible and the Income-tax Officer has taken one view with
which the Commissioner does not agree, it cannot be treated as
an erroneous order prejudicial to the interests of the Revenue,
unless the view taken by the Income-tax Officer is
unsustainable in law. It has been held by this Court that where
a sum not earned by a person is assessed as income in his
hands on his so offering, the order passed by the Assessing
Officer accepting the same as such will be erroneous and
prejudicial to the interests of the Revenue. Rampyari Devi
Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi
Agarwal v. CIT [1973] 88 ITR 323 (SC)".
xv) Thus, the impugned order of the Tribunal setting aside the
revisional order under Section 263 for the aforesaid two
assessment years does not suffer from any illegality.
xvi) The impugned orders of the Tribunal in both the appeals do not
suffer from any illegality. The appeals filed by the revenue are
totally meritless and, therefore, both the appeals deserve to be
dismissed.
5. Both the learned counsels for the parties have concluded their
submissions. No other arguments have been advanced by the learned
counsels for the parties.
6. Judgment/order reserved.
(SURYA PRAKASH KESARWANI, J.)
(RAJARSHI BHARADWAJ, J.)
As/S.Kumar/S.Das
