Commissioner Of Income Tax Del-Iii v. Unipatch Rubber Ltd

$~R-1 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 38/2000 Decided on : 05.01.2015 COMMISSIONER OF INCOME TAX DEL-III..... Appellant Through:Mr.Balbir Singh, Sr.Standing Counsel versus UNIPATCH RUBBER LTD. ..... Respondent Through:Mr.Prakash Kumar, Advocate. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE R.K. GAUBA MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1.The question of law framed in this case by order dated 22.09.2000 is as follows:- “Whether assessee is entitled to deduction/benefit underSection 80-I on the gross income without excluding/reducingdeduction allowed under Section 80-HH?” 2.The facts necessary for deciding this appeal under Section 260-A ofthe Income Tax Act, 1961 are that for the period 01-01-1988 to 31-03-1989,relevant for the assessment year 1989-90, the return of income was filed bythe respondent-assessee declaring Rs.53,93,390/- as income. The assesseemanufactured and sold rubber patches for tyre, tubes, uniseals etc. By orderdated 13-03-1992 the Assessing Officer inter alia held that deduction underSection 80-I could be allowed on the balance amount of income after it suffers a deduction under Section 80-HH. This view was affirmed by theCommissioner of Income Tax (Appeals) who was of the opinion that bothSections i.e., Sections 80-HH and 80-I were independent provisions andconsequently, the assessee was entitled to deduction under Section 80-I onthe total amount without it having suffered any deduction under Section 80-HH. The Revenue unsuccessfully appealed to the ITAT and consequentlyhas approached this Court. 3.It is argued on behalf of the Revenue that the ITAT as well as theCommissioner (Appeals) completely overlooked Section 80-HH (9) which isin imperative terms and stipulates expressly that before the benefit ofSection 80-I could be claimed, or some other benefit – under Section 80-J,could be claimed – the total profits had to be deducted in the mannerprovided in the Section i.e. in terms of Section 80-HH (I). The submission ofthe Revenue in this regard may be noticed by its contention in the groundsof appeal to the following effect:- “The language of Section 80-HH(9) is clear and specificallystipulates that where the assessee is entitled to deduction u/s 80-HH and 80-I, the assessee is first entitled to deduction u/s 80-HHand thereafter deduction will be allowed u/s 80-I.” 4.The CIT(A) reasoned that the deduction under Section 80-I and 80-HH had to be with reference to gross total income independent to oneanother, relying on the language with reference to Section 80-I. The ITATapparently endorsed this opinion in the following terms:- “The next grievance is against the direction of the Ld.CIT(A) toallow deduction u/s 80I on the same income on which deductionu/s 80HH has been allowed i.e. on the gross income. The assessee claimed deductions u/s 80HH & 80I on the grossincome. The issue is covered by the order dated 5.11.96 of DelhiBench ‘B’ in ITA No.5730/Del/91 in assessee’s own case.Reliance on the orders of the Karnataka High Court andAllahabad High Court reported in 203 ITR 811 and 140 ITR 745have been placed. The ITAT had held in asstt. Year 1988-89 inthis very case that the deduction u/s 80I must be allowed withouttaking into account other deductions permissible under Chapter6 of the Act.Thus the relief under sec. 80HH and 80I wereadmissible on gross income. Following the order of the ITAT wedismiss the revenue’s ground.” 5.The relevant provisions are as follows:- “Section 80-HH(1) – Where the gross total income of anassessee includes any profits and gains derived from anindustrial undertaking, or the business of a hotel, to which thissection applies, there shall, in accordance with and subject to theprovisions of this section, be allowed, in computing the totalincome of the assessee, a deduction from such profits and gainsof an amount equal to twenty per cent thereof. xxxxxxxxxxxxxxx 5.The relevant provisions are as follows:- “Section 80-HH(1) – Where the gross total income of anassessee includes any profits and gains derived from anindustrial undertaking, or the business of a hotel, to which thissection applies, there shall, in accordance with and subject to theprovisions of this section, be allowed, in computing the totalincome of the assessee, a deduction from such profits and gainsof an amount equal to twenty per cent thereof. xxxxxxxxxxxxxxx Section 80 HH(9) – In a case where the assessee is entitled alsoto the deduction under [section 80-I or] section 80J in relation tothe profits and gains of an industrial undertaking or the businessof a hotel to which this section applies, effect shall first be givento the provisions of this section. [Deduction in respect of profits and gains from industrialundertakings after a certain date, etc. 80-I. (1) Where the gross total income of an assessee includesany profits and gains derived from an industrial undertaking ora ship or the business of a hotel [or the business of repairs toocean-going vessels or other powered craft], to which thissection applies, there shall, in accordance with and subject tothe provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gainsof an amount equal to twenty per cent thereof : Provided that in the case of an assessee, being a company, theprovisions of this sub-section shall have effect [in relation toprofits and gains derived from an industrial undertaking or aship or the business of a hotel] as if for the words “twenty percent”, the words “twenty-five per cent” had been substituted.[(1A) Notwithstanding anything contained in sub-section (1), inrelation to any profits and gains derived by an assessee from— (i) an industrial undertaking which begins to manufacture orproduce articles or things or to operate its cold storage plant orplants; orproduce articles or things or to operate its cold storage plant orplants; 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 ofApril, 1991], there shall, in accordance with and subject to theprovisions of this section, be allowed in computing the totalincome of the assessee, a deduction from such profits and gainsof an amount equal to twenty-five per cent thereof :April, 1991], there shall, in accordance with and subject to theprovisions of this section, be allowed in computing the totalincome of the assessee, a deduction from such profits and gainsof an amount equal to twenty-five per cent thereof : Provided that in the case of an assessee, being a company, theprovisions of this sub-section shall have effect in relation toprofits and gains derived from an industrial undertaking or aship or the business of a hotel as if for the words “twenty-fiveper cent”, the words “thirty per cent” had been substituted.]provisions of this sub-section shall have effect in relation toprofits and gains derived from an industrial undertaking or aship or the business of a hotel as if for the words “twenty-fiveper cent”, the words “thirty per cent” had been substituted.] (2) This section applies to any industrial undertaking whichfulfils all the following conditions, namely :—fulfils all the following conditions, namely :— (i) it is not formed by the splitting up, or the reconstruction, of abusiness already in existence;business already in existence; (ii) it is not formed by the transfer to a new business ofmachinery or plant previously used for any purpose;machinery or plant previously used for any purpose; (2) This section applies to any industrial undertaking whichfulfils all the following conditions, namely :—fulfils all the following conditions, namely :— (i) it is not formed by the splitting up, or the reconstruction, of abusiness already in existence;business already in existence; (ii) it is not formed by the transfer to a new business ofmachinery or plant previously used for any purpose;machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not beingany article or thing specified in the list in the EleventhSchedule, or operates one or more cold storage plant or plants,in any part of India, and begins to manufacture or producearticles or things or to operate such plant or plants, at any timewithin the period of [ten] years next following the 31st day ofMarch, 1981, or such further period as the Central Governmentmay, by notification in the Official Gazette, specify withreference to any particular industrial undertaking; (iv) in a case where the industrial undertaking manufactures orproduces articles or things, the undertaking employsten ormore workers in a manufacturing process carried on with theaid of power, or employs twenty or more workers in amanufacturing process carried on without the aid of power : Provided that the condition in clause (i) shall not apply inrespect of any industrial undertaking which is formed as aresult of the re-establishment, reconstruction or revival by theassessee of the business of any such industrial undertaking as isreferred to in section 33B, in the circumstances and within theperiod specified in that section : Provided further that the condition in clause (iii) shall, inrelation to a small-scale industrial undertaking, apply as if thewords “not being any article or thing specified in the list in theEleventh Schedule” had been omitted. Explanation 1.—For the purposes of clause (ii) of this sub-section, any machinery or plant which was used outside Indiaby any person other than the assessee shall not be regarded asmachinery or plant previously used for any purpose, if thefollowing conditions are fulfilled, namely :— (a) such machinery or plant was not, at any time previous to thedate of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from anycountry outside India; and (c) no deduction on account of depreciation in respect of suchmachi-nery or plant has been allowed or is allowable under theprovisions of this Act in computing the total income of anyperson for any period prior to the date of the installation of themachinery or plant by the assessee. Explanation 2.—Where in the case of an industrial undertaking,any machinery or plant or any part thereof previously used forany purpose is transferred to a new business and the total valueof the machinery or plant or part so transferred does not exceedtwenty per cent of the total value of the machinery or plant usedin the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to havebeen complied with. Explanation 3.—For the purposes of this sub-section, “small-scale industrial undertaking” shall have the same meaning asin clause (b) of the Explanation below sub-section (8) of section 80HHA. (3) This section applies to any ship, where all the followingconditions are fulfilled, namely :— (i) it is owned by an Indian company and is wholly used for thepurposes of the business carried on by it; (ii) it was not, previous to the date of its acquisition by theIndian company, owned or used in Indian territorial waters bya person resident in India; and (iii) it is brought into use by the Indian company at any timewithin the period of [ten] years next following the 1st day ofApril, 1981. (4) This section applies to the business of any hotel, where allthe following conditions are fulfilled, namely :— Explanation 3.—For the purposes of this sub-section, “small-scale industrial undertaking” shall have the same meaning asin clause (b) of the Explanation below sub-section (8) of section 80HHA. (3) This section applies to any ship, where all the followingconditions are fulfilled, namely :— (i) it is owned by an Indian company and is wholly used for thepurposes of the business carried on by it; (ii) it was not, previous to the date of its acquisition by theIndian company, owned or used in Indian territorial waters bya person resident in India; and (iii) it is brought into use by the Indian company at any timewithin the period of [ten] years next following the 1st day ofApril, 1981. (4) This section applies to the business of any hotel, where allthe following conditions are fulfilled, namely :— (i) the business of the hotel is not formed by the splitting up, orthe reconstruction, of a business already in existence or by thetransfer to a new business of a building previously used as ahotel or of any machinery or plant previously used for anypurpose; (ii) the business of the hotel is owned and carried on by acompany registered in India with a paid-up capital of not lessthan five hundred thousand rupees; (iii) the hotel is for the time being approved for the purposes ofthis sub-section by the Central Government; (iv) the business of the hotel starts functioning after the 31st dayof March, 1981, but before the 1st day of April[1991]. [(4A) This section applies to the business of repairs to ocean-going vessels or other powered craft which fulfils all thefollowing conditions, namely :— (i) the business is not formed by the splitting up, or thereconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business ofmachinery or plant previously used for any purpose; (iii) it is carried on by an Indian company and the work by wayof repairs to ocean-going vessels or other powered craft hasbeen commenced by such company after the 31st day of March,1983, but before the 1st day of April, 1988; and (iv) it is for the time being approved for the purposes of this sub-section by the Central Government.]section by the Central Government.] (5) The deduction specified in sub-section (1) shall be allowedin computing the total income in respect of the assessment yearrelevanttothepreviousyearinwhichtheindustrialundertaking begins to manufacture or produce articles orthings, or to operate its cold storage plant or plants or the shipis first brought into use or the business of the hotel starts functioning [or the company commences work by way of repairstoocean-goingvesselsorotherpoweredcraft](suchassessment year being hereafter in this section referred to asthe initial assessment year) and each of the seven assessmentyears immediately succeeding the initial assessment year : Provided that in the case of an assessee, being a co-operativesociety, the provisions of this sub-section shall have effect as iffor the words “seven assessment years”, the words “nineassessment years” had been substituted : [Provided further that in the case of an assessee carrying onthe business of repairs to ocean-going vessels or other poweredcraft, the provisions of this sub-section shall have effect as if forthewords“sevenassessmentyears”,thewords“fourassessment years” had been substituted:] [Provided also that in the case of— (i) an industrial undertaking which begins to manufacture orproduce articles or things or to operate its cold storage plant orplants; orproduce articles or things or to operate its cold storage plant orplants; or (ii) a ship which is first brought into use; or (iii) the business of a hotel which starts functioning, [Provided further that in the case of an assessee carrying onthe business of repairs to ocean-going vessels or other poweredcraft, the provisions of this sub-section shall have effect as if forthewords“sevenassessmentyears”,thewords“fourassessment years” had been substituted:] [Provided also that in the case of— (i) an industrial undertaking which begins to manufacture orproduce articles or things or to operate its cold storage plant orplants; orproduce articles or things or to operate its cold storage plant orplants; 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 ofApril, 1991], provisions of this sub-section shall have effect asif for the words “seven assessment years”, the words “nineassessment years” had been substituted :April, 1991], provisions of this sub-section shall have effect asif for the words “seven assessment years”, the words “nineassessment years” had been substituted : Provided also that in the case of an assessee, being a co-operative society, deriving profits and gains from an industrialundertaking or a ship or a hotel referred to in the third proviso,the provisions of that proviso shall have effect as if for thewords “nine assessment years”, the words “eleven assessmentyears” had been substituted.] (6) Notwithstanding anything contained in any other provisionof this Act, the profits and gains of an industrial undertaking ora ship or the business of a hotel [or the business of repairs toocean-going vessels or other powered craft] to which theprovisions of sub-section (1) apply shall, for the purposes ofdetermining the quantum of deduction under sub-section (1) fortheassessmentyearimmediatelysucceedingtheinitialassessment year or any subsequent assessment year, becomputed as if such industrial undertaking or ship or thebusiness of the hotel [or the business of repairs to ocean-goingvessels or other powered craft] were the only source of incomeof the assessee during the previous years relevant to the initialassessment year and to every subsequent assessment year up toand including the assessment year for which the determinationis to be made. (7) Where the assessee is a person other than a company or aco-operative society, the deduction under sub-section (1) fromprofits and gains derived from an industrial undertaking shallnot be admissible unless the accounts of the industrialundertaking for the previous year relevant to the assessmentyear for which the deduction is claimed have been audited byan accountant, as defined in the Explanation below sub-section(2) of section 288, and the assessee furnishes, along with hisreturn of income, the report of such audit in the prescribed formduly signed and verified by such accountant. (8) Where any goods held for the purposes of the business of theindustrial undertaking or the hotel or the operation of the ship[or the business of repairs to ocean-going vessels or otherpowered craft] are transferred to any other business carried onby the assessee, or where any goods held for the purposes ofany other business carried on by the assessee are transferred tothe business of the industrial undertaking or the hotel or theoperation of the ship [or the business of repairs to ocean-going vessels or other powered craft] and, in either case, theconsideration, if any, for such transfer as recorded in theaccounts of the business of the industrial undertaking or thehotel or the operation of the ship [or the business of repairs toocean-goingvesselsorotherpoweredcraft]doesnotcorrespond to the market value of such goods as on the date ofthe transfer, then, for the purposes of the deduction under thissection, the profits and gains of the industrial undertaking orthe business of the hotel or the operation of the ship [or thebusiness of repairs to ocean-going vessels or other poweredcraft] shall be computed as if the transfer, in either case, hadbeen made at the market value of such goods as on that date : vessels or other powered craft] and, in either case, theconsideration, if any, for such transfer as recorded in theaccounts of the business of the industrial undertaking or thehotel or the operation of the ship [or the business of repairs toocean-goingvesselsorotherpoweredcraft]doesnotcorrespond to the market value of such goods as on the date ofthe transfer, then, for the purposes of the deduction under thissection, the profits and gains of the industrial undertaking orthe business of the hotel or the operation of the ship [or thebusiness of repairs to ocean-going vessels or other poweredcraft] shall be computed as if the transfer, in either case, hadbeen made at the market value of such goods as on that date : Provided that where, in the opinion of the [Assessing] Officer,the computation of the profits and gains of the industrialundertaking or the business of the hotel or the operation of theship [or the business of repairs to ocean-going vessels or otherpowered craft] in the manner hereinbefore specified presentsexceptional difficulties, the [Assessing] Officer may computesuch profits and gains on such reasonable basis as he maydeem fit.Explanation.—In this sub-section, “market value”, in relationto any goods, means the price that such goods would ordinarilyfetch on sale in the open market. (9) Where it appears to the [Assessing] Officer that, owing tothe close connection between the assessee carrying on thebusiness of the industrial undertaking or the hotel or theoperation of the ship [or the business of repairs to ocean-goingvessels or other powered craft] to which this section appliesand any other person, or for any other reason, the course ofbusiness between them is so arranged that the businesstransacted between them produces to the assessee more thanthe ordinary profits which might be expected to arise in thebusiness of the industrial undertaking or the hotel or the operation of the ship [or the business of repairs to ocean-goingvessels or other powered craft], the[Assessing] Officer shall, incomputing the profits and gains of the industrial undertaking orthe hotel or the ship [or the business of repairs to ocean-goingvessels or other powered craft] for the purposes of thededuction under this section, take the amount of profits as maybe reasonably deemed to have been derived therefrom. (10) The Central Government may, after making such inquiry asit may think fit, direct, by notification in the Official Gazette,that the exemption conferred by this section shall not apply toany class of industrial undertakings with effect from such dateas it may specify in the notification.] 6.This Court notices that the question of law framed has now beenanswered in a series of decisions. In the first case i.e. J.P.Tobacco ProductsPvt. Ltd vs Commissioner of Income Tax; (1998)229 ITR 123, the MadhyaPradesh High Court, after noticing that sub-Section 9 of Section 80-HH wasamended by Act No.30 of 1981, nevertheless, in relation to assessment year1985-86, proceeded to hold that the benefits under Section 80-HH andSection 80-I were independent and consequently, there was no question ofgiving effect to Section 80-HH(9) and thereafter proceeding to bring thebalance amount for the purposes of tax or benefit under Section 80-I. 7.The view in J.P. Tobacco (supra) was followed by several other HighCourtsi.e., Gujarat High Court, Allahabad High Court, Rajasthan HighCourt, the Punjab and Haryana High Court and even by a Division Bench ofthis Court [in CIT vs S.A. Engineering Pvt. Ltd. (2006) 285 ITR 423 (Del)].Ultimately this view was affirmed by the Supreme Court in JointCommissioner of Income Tax vs. Mandideep Engineering and Packaging Ind. Pvt. Ltd. (2007) 292 ITR (1) SC. The relevant part of the discussion bythe Supreme Court is as follows:- 7.The view in J.P. Tobacco (supra) was followed by several other HighCourtsi.e., Gujarat High Court, Allahabad High Court, Rajasthan HighCourt, the Punjab and Haryana High Court and even by a Division Bench ofthis Court [in CIT vs S.A. Engineering Pvt. Ltd. (2006) 285 ITR 423 (Del)].Ultimately this view was affirmed by the Supreme Court in JointCommissioner of Income Tax vs. Mandideep Engineering and Packaging Ind. Pvt. Ltd. (2007) 292 ITR (1) SC. The relevant part of the discussion bythe Supreme Court is as follows:- “2.TheMadhyaPradeshHighCourtinJ.P.TobaccoProducts P. Ltd. v. CIT reported in [1998] 229 ITR 123 took theview that both the sections are independent and, therefore, thedeductions could be claimed both under sections 80HH and 80Ion the gross total income. Against this judgment a special leavepetition was filed in this court which was dismissed on theground of delay on July 21, 2000 (see[2000] 245 ITR (St.) 71).The decision in J.P.Tobacco Products P. Ltd. [1998] 229 ITR123 (MP) was followed by the same High Court in the case ofCIT v. Alpine Solvex P. Ltd. in I.T.A. No. 92 of 1999 decided onMay 2, 2000.Special leave petition against this decision wasdismissed by this court on January 12, 2001, (see [2001] 247 ITR(St.) 36). This view has been followed repeatedly by differentHigh Courts in a number of cases against which no special leavepetitions were filed meaning thereby that the Department hasaccepted the view taken in these judgments.See CIT v. NimaSpecific Family Trust reported in [2001] 248 ITR 29 (Bom); CITv. Chokshi Contacts P. Ltd. [2001] 251 ITR 587 (Raj); CIT v.Amod Stamping [2005] 274 ITR 176 (Guj.); CIT v. MittalAppliances P. Ltd. [2004] 270 ITR 65 (MP); CIT v. Rochiramand Sons [2004] 271 ITR 444 (Raj.); CIT v. Prakash ChandraBasant Kumar [2005] 276 ITR 664 (MP); CIT v. S. B. OilIndustries P. Ltd. [2005] 274 ITR 495 (P&H); CIT v. SKGEngineering P. Ltd. [2005] 119 DLT 673 and CIT v. LuckyLaboratories Ltd. [2006] 200 CTR 305 (All). Since the special leave petitions filed against the judgment ofthe Madhya Pradesh High Court have been dismissed and theDepartment has not filed the special leave petitions against thejudgments of different High Courts following the view taken bythe Madhya Pradesh High Court, we do not find any merit in thisappeal. The Department having accepted the view taken in thosejudgments cannot be permitted to take a contrary view in thepresent case involving the same point. Accordingly, the civilappeal is dismissed. No costs.” 8.In view of the above position in law, the question of law framed inthis appeal is answered in terms of the law declared by the Supreme Court inMandideep Engineering and Packaging Ind. Pvt. Ltd. (supra) and againstthe Revenue. The appeal is accordingly dismissed. S. RAVINDRA BHAT(JUDGE)R.K.GAUBA(JUDGE)JANUARY 05, 2015mb