Pr. Commissioner Of Income Tax Shimla v. M/S Aarham Softronics

[2019] 4 S.C.R. 409 PR. COMMISSIONER OF INCOME TAX, SHIMLA M/S. AARHAM SOFTRONICS (Civil Appeal No. 1784 of 2019) FEBRUARY 20, 2019 [A. K. SIKRI, S. ABDUL NAZEER AND M. R. SHAH, JJ.] Income Tax Act, 1961 – ss.80-IA, 80-IB, 80-IC – ‘InitialAssessment Year’ u/s.80-IC – U/s.80-IC an undertaking or enterprise,in certain special category states, which has inter alia, begun orbegins to manufacture or produce any article or thing by setting upa new factory in the area specified therein, is allowed, deductionfrom profits and gains u/sub-s.(3) of s.80-IC– Sub-s.(3) of s.80-ICinter alia states that a category of undertakings or enterprises(present cases belong to this category) are allowed exemption @100% of profits and gains for five assessment years commencingwith the initial assessment year and @ 25% of profits and gains forthe next five years, thus deduction being for a total of 10 years –Deduction was also provided to existing units if substantial expansionthereof was carried out – Assessees set up new industrial units andavailed 100% deduction for 5 years and after carrying out“substantial expansion” claimed deduction @ 100% instead of 25%for another 5 years – If entitled to – High Court answered inaffirmative – Held: Sub-sec.(6) of s.80-IC puts a cap of 10 years,which is the maximum period for which the deduction can be allowedto any undertaking or enterprise under this section, starting fromthe initial Assessment Year – Clause (v) of sub-sec.(8) of s.80-ICprovides definition of ‘initial assessment year’, for the purpose ofthis very section, i.e.s.80-IC – As per this definition, there can be‘initial assessment year’, relevant to previous year, in any of thefollowing contingencies:(i) the previous year in which theundertaking or the enterprise begins to manufacture or producearticle or things; or (ii) completes substantial expansion – Thus,benefit of s.80-IC is admissible not only when an undertaking orenterprise sets up new unit and starts manufacturing or producingarticle or things but, is also accrued to those existing units, if theycarry out “substantial expansion” of their units by investing required 409 409 Acapital, in the assessment year relevant to the previous year – Thus,definition of ‘initial assessment year’ contained in clause (v) of sub-sec.(8) of s.80-IC can lead to a situation where there can be morethan one “initial assessment year” within the period of 10 years –Judgment in Classic Binding Industries holding that there cannotbe two assessment years within a span of 10 years u/sub-sec.(6) ofBs.80-IC does not lay down correct law – No reason as to why 100%deduction of the profits and gains be not allowed to even thoseunits who availed this deduction on setting up a new unit and havenow invested huge amount with substantial expansion of those units. Income Tax Act, 1961 – ss.80-IB(14) and 80-IC –CHeld: s. 80-IB(14) starts with the words ‘for the purpose of thissection’ – Thus, ‘initial assessment year’ defined therein is relatableonly to the deductions that are provided under the provisions ofs.80-IB – s.80-IB is materially different from s.80-IC. Income Tax Act, 1961 – s.80-IC – Purpose of – Explained.DDisposing of the appeals, the Court