Ita 81/15 v. Shri Renugatextiles Mills Ltd.[366 Itr 649 (Madras

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY, THE 11TH DAY OF DECEMBER 2017/20TH AGRAHAYANA, 1939 ITA.No. 81 of 2015 () ---------------------- AGAINST THE ORDER/JUDGMENT IN ITA 456/COCH/2013 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 24-09-2014 APPELLANT(S)/APPELLANT/RESPONDENT/REVENUE: ---------------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/RESPONDENT/APPELLANT/ ASSESSEE: --------------------------------------------- M/S.ALL KOSHYS ALL SPICES, BLOCK NO.18/609/6, PAKKIL P.O., NATTAKOM, KOTTAYAM, PIN - 686 012. BY ADV. SRI.S.ARUN RAJ BY ADV. SMT.C.T.SUJA THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 11-12-2017, THECOURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA 81/15 APPENDIX APPELLANT'S ANNEXURES ANNEXURE-A :COPY OF ASSESSMENT ORDER U/S 143(3) OF INCOME TAXACT 1961 DATED 24.12.2010. ANNEXURE-B :COPY OF CIT(A)'S ORDER NO.T-63&64/KTM/CIT(A) 2010-2011 DATED 11.04.2013. ANNEXURE-C :COPY OF ITAT'S ORDER IN ITA 456/COCH/2013 DATED24.9.2014. ANNEXURE-D :COPY OF ORDER OF PUNJAB AND HARYANA HIGH COURTREPORTED IN (2008) 175 TAXMAAN 257. ANNEXURE-E :COPY OF CBDT CIRCULAR NO.1/2005 DATED 6.1.2005. //TRUE COPY// jg-21/12 PS TO JUDGE. K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- ITA No.81 of 2015 ------------------------------------------- Dated this the 11[th] day of December, 2017 J U D G M E N T Vinod Chandran, J. The Revenue is in appeal from the order of the Income TaxAppellate Tribunal on an interpretation of Section 10B of the IncomeTax Act, 1961. Section 10B, which provides special provisions inrespect of newly established 100% export-oriented undertakings, tothe extent it is relevant in the instant case, is extracted hereinbelow:- “10B.(1) Subject to the provisions of this section,a deduction of such profits and gains as arederived by a hundred per cent export-orientedundertaking from the export of articles or thingsor computer software for a period of tenconsecutive assessment years beginning withthe assessment year relevant to the previousyear in which the undertaking begins tomanufacture or produce articles or things orcomputer software, as the case may be, shall beallowed from the total income of the assessee.” 2.On facts, suffice it to notice that the assessee was a sole proprietorship firm, which commenced its manufacturing businessin the year 1997-98. Later, it was converted into a partnership firmand was also issued with a certificate of it being a 100% export-oriented unit in the year 2000-2001, specifically on 24.9.1999.Whether the assessee would be entitled to claim exemption underSection 10B from assessment year 2000-2001, the previous yearbeing its year of inception as a 100% export-oriented undertakingor whether it has to be from the 1997-1998, the year on which themanufacture was commenced. 3.The learned Senior Counsel, Department of Taxes,Government of India relied on Annexure-D, a judgment of thePunjab and Haryana High Court, and the decision in Sami Labs Ltd.-v. Assistant Commissioner of IncomeTax([2011] 334 ITR 157).The learned counsel appearing for the respondent-assessee reliedon the decision in Commissioner of Income Tax v. Shri RenugaTextiles Mills Ltd.[366 ITR 649 (Madras)]. 4.Annexure-D judgment of the Punjab and Haryana HighCourt dealt with the issue as to whether the assessee therein was anewly established undertaking or not. The assessee therein had 3.The learned Senior Counsel, Department of Taxes,Government of India relied on Annexure-D, a judgment of thePunjab and Haryana High Court, and the decision in Sami Labs Ltd.-v. Assistant Commissioner of IncomeTax([2011] 334 ITR 157).The learned counsel appearing for the respondent-assessee reliedon the decision in Commissioner of Income Tax v. Shri RenugaTextiles Mills Ltd.[366 ITR 649 (Madras)]. 4.Annexure-D judgment of the Punjab and Haryana HighCourt dealt with the issue as to whether the assessee therein was anewly established undertaking or not. The assessee therein had commenced operation of development of software from 1998-1999and was registered with Software Technology Park from 24.03.2000.The assessee claimed exemption for the first time in the assessmentyear 2000-2001. The High Court found that there is no questionarising as to whether the assessee is a newly establishedundertaking or not under Section 10B and the assessee havingclaimed the benefit within the period of 10 years from itscommencement there can be no denial. The decision lays down onlythat there is no requirement for an assessee to claim benefit underSection 10B, to prove that it is a newly established undertaking.There can be no dictum deduced from the facts to find that theCourt also laid down that the claim can only be fromcommencement of operations. 5. Sami Labs's case (supra) considered the question as towhether the assessee, who did not satisfy the test of a 100% export-oriented undertaking in the first assessment year, could claim suchexemption in the subsequent years. The High Court ruled againstthe assessee and in favour of the Revenue. A Division Bench of thePunjab and Haryana High Court in the decision in Commissioner of Sami Labs's case (supra) considered the question as to Income Tax v. Mahavir Spinning Mills Limited[2008 (303) ITR 353]refused to interfere with an order of the Tribunal grantingexemption under Section 10B to a unit which commenced operationin an earlier year but got recognition as a 100% exported orientedunit in a subsequent year. The appeal of the revenue was dismissedsince no question of law arose; which again can have no persuasiveeffect on us to decide the question raised here. Shri RenugaTextiles's case was also in circumstances of a subsidiary company,which was a 100% export-oriented unit, merging with the holdingcompany. The claim under Section 10B was raised only for the unitof the amalgamated company, which was declined by theDepartment alleging a transfer of plant and machinery. The Courtheld that amalgamation of a subsidiary company will not result intransfer of plant and machinery or commencement of a newbusiness. We are of the opinion that none of the decisions apply onfacts to the case in hand. 6.Section 10B(1) speaks of exemption being available to a100% export-oriented undertaking for a period of 10 consecutiveassessment years beginning with the assessment year relevant to 6.Section 10B(1) speaks of exemption being available to a100% export-oriented undertaking for a period of 10 consecutiveassessment years beginning with the assessment year relevant to the previous year, in which the undertaking begins to manufactureor produce articles or things or computer software. The provisionread as a whole, can only be understood as, the manufacturereferred to, is one commenced pursuant to the certification of 100%export-oriented undertaking. The exemption is made available to a100% export-oriented undertaking and the same is available for tenyears, beginning with the assessment year relevant to the previousyear in which manufacturing is commenced. In the present case itcannot be said that the assessee, a 100% export-oriented unit iseligible from the year in which they commenced manufacture, sincein that relevant year the assessee was not a 100% export-orientedunit. The benefit being conferred only on a 100% export-orientedunit, the exemption could commence only from its certification, assuch a unit and if there is no manufacture at the time ofcertification, from the time of commencement of manufacture. Thebenefit conferred is for the activity of export and if it is not relatedto the time from commencement of manufacture then a registeredexport-oriented unit, if for any reason commences manufacturelater, then it could lead to the benefit being reduced since the ITA 81/15 income derived will only be on manufacture and for the period inwhich there is no business, it would be illusory. 7.As has been found in Annexure-D judgment, there is norequirement that the export-oriented unit be newly established. Thebenefits have to be, hence, applied from the date of commencementof the export-oriented undertaking, which in the present casecoincides with the manufacturing too. On the above reasoning, we answer the question in favour of the assessee and against the Revenue and reject the Income TaxAppeal. No order as to Costs. K.V INOD CHANDRAN Judge ASHOK MENON Judge jg