Commissioner Of Income Tax, Chennai v. M/S.s.r.a.systems Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM: THE HON'BLE MR.JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI Commissioner of Income Tax,Chennai.... Appellant in all 3 TCAsVs. M/s.S.R.A.Systems Ltd.,No.100, Valluar Kottam High Road,Nungambakkam, Chennai.... Respondent in all 3 TCAs Prayer:- Appeals preferred under Section 260A of the Income Tax Act,1961, against the orders of the Income Tax Appellate Tribunal,Madras, “A” Bench, dated 18.12.2009 in ITA.Nos.1497, 1498,1499/Mds/2009, Assessment Year 2000-01, 2001-02 and 2002-03. Against the Order of the Commissioner of the Income Tax(Appeals)-V, Chennai-34 in ITA.Nos.235, 236, 237/07-08 dated26.09.2008, in PAN.No.AAABCS7014H for the Assessment Year 2001-01, 2001-2002 and 2002-2003 respectively, against the AssistantCommissioner of Income Tax Company Circle VI(1), Chennai-34,dated 17.12.2007. For Respondent : Mr.R.Sivaraman(in all 3 TCA) The above appeals have been filed by the Departmentchallenging the order passed by the Income Tax AppellateTribunal in I.T.A.Nos.1497 to 1499/Mds/2009 for the AssessmentYears 2000-01 to 2002-03. https://hcservices.ecourts.gov.in/hcservices/ 2.The brief facts necessary for the disposal of the appealsare as follows: (i)The Assessing Officer, while completing the assessmentunder Section 143(3) r/w 147 of the Income Tax Act for theAssessment Years 2000-01 and 2001-02, disallowed the claim ofdeduction made by the assessee under Section 10A and 10B on theground that an undertaking was formed by splittingup/reconstruction of the business already in existence. Whilecompleting the assessment under Section 143(3) r/w 263(3) forthe Assessment Year 2002-03, the Assessing Officer disallowedthe claim under Section 10A on the ground that an undertakingwas formed by splitting up/reconstruction of the businessalready in existence among others. The Assessing Officer foundthat the assessee was claiming the deduction with respect of thesame unit for earlier year under Section 80HHE. (ii)The Assessing Officer was of the view that the Clauses -ia, ii, iii of Sub Section 2 of Section 10B was not satisfied bythe assessee for the Assessment Year 2001-02. The AssessingOfficer was of the view that Section 10A(2)(ii) was notsatisfied by the assessee for the Assessment Year 2001-02 and2002-03 and levied interest under Section 234D. (iii)Aggrieved by the assessment order, the assessee filedappeals before the Commissioner of Income Tax (Appeals). TheAppellate Authority allowed the appeals for the Assessment Year2000-01 and 2001-02 by following the order of the Tribunal inI.T.A.No.2255/Mds/06 dated 16.05.2008. For the Assessment Year2002-03, the Appellate Authority held that the order of the CIT(A) under Section 263 was set aside by the Tribunal inI.T.A.No.2255/Mds/06 dated 16.05.2008 and therefore, held thatthe order of the Assessing Officer passed under Section 143(3)r/w 263 became void ab initio. The Appellate Authority, whiledealing with the levy of interest under Section 234D, held thatthe said Section comes into effect only after the commencementof Assessment Year and interest could be levied only for theAssessment Year 2004-05 and therefore, deleted the interest forthe Assessment Years 2000-01, 2001-02 and 2002-03. (iv)Aggrieved over the order of the Commissioner of IncomeTax (Appeals), the Department filed appeals before the IncomeTax Appellate Tribunal and the Tribunal confirmed the order ofthe Appellate Authority and dismissed the appeals. Whiledismissing the appeals, the Tribunal held that the interestunder Section 234D cannot be levied for the Assessment Years2000-01, 2001-02 and 2002-03. Further, the Tribunal whiledismissing the appeals, followed the order in I.T.A.No.2255/Mds/06 dated 16.05.2008. Challenging the order passed by theIncome Tax Appellate Tribunal, the Department has filed the above Tax Case Appeals. (iv)Aggrieved over the order of the Commissioner of IncomeTax (Appeals), the Department filed appeals before the IncomeTax Appellate Tribunal and the Tribunal confirmed the order ofthe Appellate Authority and dismissed the appeals. Whiledismissing the appeals, the Tribunal held that the interestunder Section 234D cannot be levied for the Assessment Years2000-01, 2001-02 and 2002-03. Further, the Tribunal whiledismissing the appeals, followed the order in I.T.A.No.2255/Mds/06 dated 16.05.2008. Challenging the order passed by theIncome Tax Appellate Tribunal, the Department has filed the above Tax Case Appeals. 3.The above appeals were admitted on the followingsubstantial questions of law: “(i)Whether on the facts and circumstances of thecase, the Tribunal was right in holding that theassessee is entitled for deduction under Section 10Bfor the Assessment Year 2000-01? (ii)Whether on the facts and circumstances of thecase, the Tribunal was right in holding that theassessee is entitled for deduction under Section 10Afor the Assessment Year 2001-02 and 2002-03? (iii)Whether on the facts and circumstances ofthe case, the Tribunal was right in holding that theinterest under Section 234B is leviable only after theAssessment Year 2004-05 prospectively and therefore,interest is not leviable for the Assessment Years2000-01, 2001-02 and 2002-03?” 4.The above appeals have been filed by the Departmentchallenging the order passed by the Income Tax AppellateTribunal in respect of the Assessment Years 2000-01, 2001-02 and2002-03. For the Assessment Years 2000-01 and 2001-02, thescrutiny assessment orders were re-opened in terms of provisionsof Section 147 and re-assessment was carried out by withdrawingthe claim of deduction under Section 10A. For the AssessmentYear 2002-03, the CIT, Chennai-II, passed an order under Section263, setting aside the issue of deduction under Section 10A anddirected the Assessing Officer to decide the issue de novo. 5.As the issue of allowability of deduction under Section10A is common to all the three Assessment Years, all the threeTax Appeals are taken up together and disposed of by this commonjudgment. For the Assessment Year 2000-01, the assessee hadfiled its return of income on 29.11.2000. The assessee claimedthat it was eligible for deduction under Section 10B. The returnwas processed on 28.03.2002. Subsequently, the Assessing Officerhad reason to believe that income chargeable to tax had escapedassessment on account of the assessee Company being ineligiblefor deduction under Section 10A. Subsequently, a notice dated22.03.2007 was issued under Section 148 and after giving anopportunity of hearing, the scrutiny assessment order was passedon 17.12.2007, disallowing the entire claim of deduction underSection 10B. Further, the expenditure incurred for therenovation and repairs of the rented premises of the assesseeCompany was disallowed by the Assessing Officer on the groundthat such expenses were in the nature of capital expenditure. https://hcservices.ecourts.gov.in/hcservices/ The Assessing Officer in his re-assessment order noted that interms of Section 10B(ii) an undertaking in order to be eligiblefor deduction under Section 10B must not be formed by splittingup or reconstruction of a business already in existence.Further, the Assessing Officer held that deduction under Section10B was not available to the assessee Company in view of theprovisions of Section 10B(iii) which stipulate that eligiblebusiness is not formed by transfer to a new business of plantand machinery previously used for any purpose. The AssessingOfficer found that the assessee had not complied with both theseconditions, hence, it was not entitled to any deduction underSection 10B. https://hcservices.ecourts.gov.in/hcservices/ The Assessing Officer in his re-assessment order noted that interms of Section 10B(ii) an undertaking in order to be eligiblefor deduction under Section 10B must not be formed by splittingup or reconstruction of a business already in existence.Further, the Assessing Officer held that deduction under Section10B was not available to the assessee Company in view of theprovisions of Section 10B(iii) which stipulate that eligiblebusiness is not formed by transfer to a new business of plantand machinery previously used for any purpose. The AssessingOfficer found that the assessee had not complied with both theseconditions, hence, it was not entitled to any deduction underSection 10B. 6.For the Assessment Year 2002-03, in the case of theassessee Company itself, the Income Tax Appellate Tribunal “C”Bench, Chennai had dealt with the applicability of Clauses (ii)and (iii) of Section 10A(2) in its order dated 16.05.2008 inI.T.A.No.2255/Mds/06. The Tribunal, after taking intoconsideration the decision of Apex Court reported in 107 ITR 195[Textile Machinery Corporation Limited Vs. CIT] held as follows:“... this is not a case of setting up of a newbusiness, but only transfer of business place ofexisting business to a new place located in STPI areaand thereafter, getting the approval from theauthorities, the assessee become entitled to deductionunder Section 10A. Merely because by shifting thebusiness from one place to another and keeping some ofthe plant and machinery as those are bearing charge offinancial institution, does not violate Clause (ii)and (iii) of Sub Clause (2) to Section 10A of theIncome Tax Act.” 7.The order passed by the Income Tax Appellate Tribunal waschallenged by the Department in T.C.A.No.1916 of 2008 and theHon'ble Division Bench of this Court by its judgment dated26.10.2018 confirmed the order of the Income Tax AppellateTribunal dated 16.05.2008 made in I.T.A.No.2255/Mds/06 for theAssessment Year 2002-03 and dismissed the appeal. In view of thejudgment of the Hon'ble Division Bench of this Court, it isclear that the applicability of Clauses (ii) and (iii) of SubClause (2) to Section 10B of the Act, the impugned order passedby the Income Tax Appellate Tribunal is proper. In view of theorder passed by the Income Tax Appellate Tribunal dated16.05.2008 in I.T.A.No.2255/Mds/06 and the judgment passed bythe Hon'ble Division Bench of this Court on 26.10.2018 in TaxCase Appeal No.1916 of 2008, the assessee Company would beentitled to deduction under Section 10A and disallowance made bythe Assessing Officer was not correct. Since the order passedunder Section 263 itself has been set aside, the cause of actionfor re-assessment does not survive. 8.So far as the levy of interest under Section 234D isconcerned, Mr.J.Narayanasamy, the learned Standing Counsel forthe appellant submitted that the Department is entitled to claiminterest retrospectively though the said Section was insertedonly on 01.06.2003. In support of his contentions, the learnedStanding Counsel relied upon a judgment reported in [2014] 49taxmann.com 221 (Gujarat) [Commissioner of Income Tax-II Vs.Gujarat State Financial Services Ltd.] wherein following thejudgment of the Bombay High Court reported in [2012] 210 Taxman466/25 taxmann.com 284 [CIT Vs. Indian Oil Corpn. Ltd.] heldthat in all those matters where excess refund has been grantedby the Revenue, the provision of Section 234D of the Act willapply even in the case of the earlier Assessment Years where theassessments were framed after 01.06.2003, the interest will bechargeable in accordance with law. 9.Mr.R.Sivaraman, learned counsel appearing for therespondent submitted that the provisions of Section 234D whichcame into force on 01.06.2003 would only operate prospectivelyand not retrospectively. The learned counsel submitted that thesaid provision is applicable only from the Assessment Year 2004-05. In support of his contention, the learned counsel reliedupon a judgment reported in [2012] 21 taxmann.com 514(Karnataka) [Commissioner of Income Tax Vs. Fanuc India Ltd.]wherein the Hon'ble Division Bench of the Karnataka High Courtheld as follows: “... 9. It is in this context, it is useful to referto the Constitution Bench of the apex Court in thecase of J.K. Synthetics Ltd. v. CTO [1994] 119 CTR(SC) 222/[1994] 94 STC 422 (SC) where it has been heldas under : "It is well known that when a statute levies a taxit does so by inserting a charging section by whicha liability is created or fixed and then proceedsto provide the machinery to make the liabilityeffective. It, therefore, provides the machineryfor the assessment of the liability already fixedby the charging section, and then provides the modefor the recovery and collection of tax, includingpenal provisions meant to deal with defaulters.Provision is also made for charging interest ondelayed payments, etc. Ordinarily the chargingsection which fixes the liability is strictlyconstrued but that rule of strict construction isnot extended to the machinery provisions which areconstrued like any other statute. The machineryprovisions must, no doubt, be so construed as wouldeffectuate the object and purpose of the statuteand not defeat the same. [See Whitney v. IRC [1926] AC 37, CIT v. Mahaliram Ramjidas [1940] 8 ITR 442(PC), India United Mills Ltd. v. CEPT [1955] 27 ITR20 (SC)/[1955] 1 SCR 810 and Gursahai Saigal v. CIT[1963] 48 ITR 1 (SC)/[1963] 3 SCR 893.] But it mustalso be realised that provision by which theauthority is empowered to levy and collectinterest, even if construed as forming part of themachinery provisions, is substantive law for thesimple reason that in the absence of contract orusage interest can be levied under law and itcannot be recovered by way of damages for wrongfuldetention of the amount [See Bengal Nagpur RailwayCo. Ltd. v. Ruttanji Ramji AIR 1938 PC 67 and Unionof India vs. A.L. Rallia Ram [1964] 3 SCR 164 and185 to 190]. Our attention was, however, drawn byMr. Sen to two cases. Even in those cases, CIT v.M. Chandra Sekhar [1985] 44 CTR (SC) 110 /[1985]151 ITR 433 (SC); and Central Provinces ManganeseOre Co. Ltd. v. CIT [1986] 58 CTR (SC) 112/[1986]160 ITR 961 (SC), all that the Court pointed outwas that provision for charging interest was, itseems, introduced in order to compensate for theloss occasioned to the Revenue due to delay. Butthen interest was charged on the strength of astatutory provision, may be its objective was tocompensate the Revenue for delay in payment of tax.But regardless of the reason which impelled thelegislature to provide for charging interest, theCourt must give that meaning to it as is conveyedby the language used and the purpose to beachieved. Therefore, any provision made in astatute for charging or levying interest on delayedpayment of tax must be construed as a substantivelaw and not adjectival law. So construed andapplying the normal rule of interpretation ofstatutes, we find, as pointed out by us earlier andby Bhagwati, J. in the Associated Cement Co.'s case(supra) that if the Revenue's contention isaccepted it leads to conflicts and creates certainanomalies which could never have been intended bythe legislature." 10. Therefore, in the absence of any expresswords used in the provision making the levy ofinterest retrospective, it is only prospective i.e.from the day it came into force i.e., 1st June, 2003.In fact, this view also finds support from thejudgment of the Delhi High Court, in the case ofDirector of IT v. Jacabs Civil Incorporated andMitsubishi Corporation (2010) 235 CTR (Delhi) 123/(2010) 45 DTR (Delhi) 163/(2011) 330 ITR 578 (Delhi). 11. Yet another judgment of the ConstitutionBench of the apex Court in the case of KarimtharuviTea Estate Ltd. v. State of Kerala [1966] 60 ITR 262(SC) where it has held as under : "It is well-settled that the IT Act, as itstands amended on the first day of April of anyfinancial year must apply to the assessments ofthat year. Any amendments in the Act which comeinto force after the first day of April of afinancial year, would not apply to the assessmentfor that year, even if the assessment is actuallymade after the amendments come into force." 12. In that view of the matter, the appellateauthorities were justified in holding that theassessee is not liable to pay tax from the date ofrefund and the liability is only from 1st June, 2003when s. 234D came into force. Accordingly, we answerthis point in favour of the assessee and against theRevenue. Ordered accordingly. No costs.” 10.In the judgment reported in [2001] 117 TAXMAN 320 (Mad)[Ayyappan Textiles Ltd. and ors. Vs. Commissioner of IncomeTax], the Hon'ble Division Bench of this Court held that the lawapplicable for assessment is the law applicable as on the dateof commencement of the Assessment Year and not the change in thelaw amended subsequent to that date. 11.As already stated, the subject matter of the aboveappeals are relating to the Assessment Years 2000-01, 2001-02and 2002-03. Section 234D came to be inserted by the FinanceAct, 2003 with effect from 01.06.2003. Prior to the introductionof Section 234D, no interest was payable on refund in the eventof an order for refund is set aside and the assessee is made topay the same from the date of rectification order or the orderspassed by the Appellate Authorities. A reading of the provisionsof Section 234D makes it clear that there is no indication inthe language employed in the entire Section that the Parliamentintended to make this levy of tax on excess refundretrospectively. On the contrary, after inserting this provisionin the Act, it is specifically stated that it comes into effectfrom 01.06.2003. Though the amendment is by insertion, theParliament has expressly stated that the amendment comes intoeffect from 01.06.2003. The Parliament has made its intentionclear and unambiguous. In other words, it is not retrospective.Merely because the order of assessment was passed subsequent tothe insertion of the said provision in the Act, would not makethe said provision retrospective. The provision providingimposition of interest is a substantive provision. It is settledlaw that in the absence of any express words used in theprovision making levy of interest retrospective, it can only be prospective (i.e.) from the date on which it came into force(i.e.) 01.06.2003. 12.The Constitution Bench of the Apex Court in the case of[Karimtharuvi Tea Estate Ltd. Vs. State of Kerala] reported in1966 60 ITR 262 SC held as follows: “...It is well settled that the Income Tax Act asit stands amended on the First Day of April of anyFinancial Year must apply to the assessments of thatyear. Any amendments in the Act which comes into forceafter the First Day of April of a Financial Year,would not apply to the assessment for that year evenif the assessment is actually made after theamendments come into force.” prospective (i.e.) from the date on which it came into force(i.e.) 01.06.2003. 12.The Constitution Bench of the Apex Court in the case of[Karimtharuvi Tea Estate Ltd. Vs. State of Kerala] reported in1966 60 ITR 262 SC held as follows: “...It is well settled that the Income Tax Act asit stands amended on the First Day of April of anyFinancial Year must apply to the assessments of thatyear. Any amendments in the Act which comes into forceafter the First Day of April of a Financial Year,would not apply to the assessment for that year evenif the assessment is actually made after theamendments come into force.” 13.The amended provision shall come into force only afterthe commencement of the Assessment Year and cannot be appliedretrospectively unless it is specifically mentioned. Therefore,the law to be applied is the law as on the date of commencementof the Assessment Year and not the change in law amendedsubsequent to that date. Section 234D having come into forceonly on 01.06.2003 (i.e.) after the commencement of theAssessment Year, interest could be levied only from 01.04.2004(i.e.) from the Assessment Year 2004-05 and no interest underSection 234D could be chargeable prior to the Assessment Year2004-05. Since all the three Assessment Years are prior to theAssessment Year 2004-05, the provisions of Section 234D cannotbe applied. 14.Following the judgment of the Constitution Bench of theHon'ble Supreme in Karimtharuvi Tea Estate Ltd. Vs. State ofKerala reported in 1966 60 ITR 262 SC (cited supra), we are ofthe considered view that the provisions of Section 234D cannotbe applied to the case of the assessee in respect of theAssessment Years 2000-01, 2001-02 and 2002-03 which are prior tothe insertion of Section 234D. 15.For the reasons stated above, we do not find any groundmuch less any substantial question of law to interfere with theorders passed by the Income Tax Appellate Tribunal. The appealsare liable to be dismissed. Accordingly, the Tax Case Appealsare dismissed. No costs. Sd/- Assistant Registrar(CCC) //True Copy// va Sub Assistant Registrar https://hcservices.ecourts.gov.in/hcservices/ To 1.The Registrar,Income Tax Appellate Tribunal, Chennai, “A” Bench.Income Tax Appellate Tribunal, Chennai, “A” Bench. 2.The Commissioner of Income Tax Appeals V,Chennai-34.Chennai-34. 3.The Assistant Commissioner of Income Tax,Circle VI(1), Chennai-34.Circle VI(1), Chennai-34. +1cc to Mr.J.Narayanasamy, Standing Counsel, S.R.No.2776 T.C.A.Nos.1470 to 1472 of 2010 PPA(CO)CS/05/02/2021