Maral Overseas Ltd. v. Addl. CIT

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The Tax Publishers2012 TaxPub(DT) 2211 (Ind-Trib) : (2012) 046 (II) ITCL 0314 : (2012) 136 ITD 0177 : (2012) 146 TTJ 0129 : (2012) 070 DTR 0170 : (2012) 016 ITR (Trib) 0565 INCOME TAX ACT, 1961 --Deduction under section 10B--Allowability Extended period of 10 years vis-a-vis effect of amendment with effect from 1-4-1999--The assessee was a company engaged in the manufacture and mainly export of cotton yarn, grey & finished knitted cotton fabrics & readymade garments. During the assessment year 2001-02, the assessee has claimed income exempt under section 10B for three units, namely, original unit which started production from assessment year 1992-93, spinning unit No. III which started production from assessment year 1996-97 and spinning unit No. IV which started production from assessment year 1999-2000. During course of assessment, the assessing officer observed that the first year of operation of original unit was assessment year 1992-93 and as there was loss, as per provisions of section 10B(3), the assessee company exercised its option not to avail exemption under section 10B, for assessment years 1992-93, 1993-94 and 1994-95. As such, the first year of its claim under section 10B was assessment year 1995-96 and the same was admissible up to assessment year 1999-2000 only since the assessee was entitled for deduction only for five consecutive years out of eight years. As per the assessing officer, the assessee went ahead further and claimed exemption under section 10B for assessment year 2000-01 and assessment year 2001-02 also. As per the assessing officer, the assessee company exceeded its claim beyond permissible limit of 5 consecutive years out of eight years. He further held that this claim was overstitched to separate Units III and IV set up in assessment year 1996-97 and 1999-2000 resulting into extended claim up to assessment year 2005-06 and 2008-09 respectively. As per the assessing officer, the Unit Nos. III and IV are inter-dependent and complementary to each other, therefore, those could not be held to be independent new units entitled for claim of exemption under section 10B of Income Tax Act, 1961. Thereafter, relying upon the decision of Kolkata Tribunal reported in Tata Tea Limited v. Jt. CIT, 2003 TaxPub(DT) 750 (Kol-Trib) : (2003) 87 ITD 351 (Kol-Trib), the assessing officer concluded that the assessee company was entitled for exemption up to assessment year 1999-2000 only and its claim of exemption in subsequent years was not tenable and, therefore, the same was rejected. By the impugned order, the Commissioner (Appeals) allowed assessee's claim of deduction under section 10-B after observing that the case of Tata Tea is related to assessment year 1998-99, whereas section 10B was amended with effect from 1-4-1999, thereby extending the period of exemption from 5 years to 10 years and accordingly, benefit of 10 year exemption is available from assessment year 1999-2000 onwards only and not from assessment year 1998-99 as claimed by Tata Tea. Tata Tea had already exhausted benefit of 5 years exemption on the basis of relevant and operative provisions before assessment year 1998-99. Held: As the amendment came into force in the assessment year 1999-00, the amended laws became applicable to the assessee according to which all the three eligible units of the assessee became entitled for deduction for a period of ten consecutive assessment years from the date of commencement of manufacture/production by the said eligible undertaking. Furthermore, there is no question of claiming the provision of section 10B to be prospective or retrospective since what the assessee is simply claiming is that the exemption should be allowed as per the provisions of section 10B as applicable in the relevant assessment year. Once that is done, no question arises for denying exemption to the assessee during the relevant assessment years under consideration. Applying the relevant provisions of law as applicable during the years, under consideration, and also the judicial pronouncements, it can safely hold that in the assessment year 1999-00 when the period of exemption was extended from five years to ten years, all the three units of the assessee were eligible for deduction under section 10B. Each of the units were eligible for exemption under section 10B, both under the pre-amended law when the exemption was available for five years out of eight years as well as under the amended law when the exemption was extended to ten consecutive assessment years. As the amendment came into force in the assessment year 1999-00, the amended laws became applicable to the assessee according to which all the three eligible units of the assessee became entitled for deduction for a period of ten consecutive assessment years from the date of commencement of manufacture/production by the said eligible undertaking. Furthermore, there is no question of claiming the provision of section 10B to be prospective or retrospective since what the assessee is simply claiming is that the exemption should be allowed as per the provisions of section 10B as applicable in the relevant assessment year. Once that is done, no question arises for denying exemption to the assessee during the relevant assessment years under consideration. It is pertinent to mention here that in the assessment year 1999-00 the assessee was duly allowed deduction as per the then applicable law whereunder the eligible undertaking is allowed such deduction for a period of ten consecutive years. Now in the assessment year 2000-01 the assessee had claimed deduction in respect of its eligible units which was also not disputed by the assessing officer. The assessing officer in his order for the assessment year 2000-01 has given a finding that Unit Nos. III and IV were entitled for exemption upto the assessment year 2005-06 and 2008-09 respectively. (Para 61) The Commissioner has revised the above order of the assessing officer by exercising his power under section 263 of the Act on the issue of allowability of deduction under section 10B on the aforesaid units. This order of the CIT was quashed by the Tribunal and subsequently appeal filed by the revenue was also dismissed by the High Court. (Para 61) All the conditions are satisfied in the two new spinning units viz. Unit Nos. 3 and 4, which were set up by the assessee as a separate and independent production units, by making substantial investment in new building, plant and machinery, etc. wherein distinct and marketable produce are manufactured. In respect of unit no. 3 it was set up in a newly constructed building by installing additional 16224 spindles which enhanced the total capacity to 38400 spindles from the existing 22,176 spindles. It is also found that four new knitting machines were installed. The facilities to manufacture additional 6 lacs per annum pieces of garments were put as against earlier installed capacity of 13.6 lacs garments per annum. The turnover of the company reached to Rs. 121.72 crores from Rs. 67.26 crores in the immediately preceding year and the profits before depreciation took quantum leap of 3.37 crores. In Unit No. 4, additional 16128 spindles were installed which enhanced the installed capacity to 54528 spindles. 12 circular knitting machines were imported and installed. A power plant of 4.25 MV capacity was set up. The facilities to manufacture readymade garments were set up to manufacture 6 lacs additional garments per annum and the new unit resulted into total addition of gross block of fixed assets by Rs. 69.43 crores as against 121.01 crores at the beginning of the year. The turnover of the company also increased to Rs. 224.5 crores as against 158.37 crores in the preceding year. Thus, on the facts of the case, both the new spinning units of the assessee have their independent and separate existence which is evident from the copy of invoices along with packing list placed in the paper book which shows that identifiable and marketable products were manufactured by these units. The raw material issue slips also show that the raw material is issued and recorded unitwise. The wage registers also show that separate workers were engaged and wages were paid and recorded separately. The flow chart of spinning process clearly indicates that each unit is separately set up. The loan sanction letters issued by bank also evidenced sanction of separate term loan to show that the funds were borrowed for new units and the assessee has maintained separate books of accounts for each unit. All these documentary evidences clearly establish that the assessee has undertaken substantial expansion by setting up new units, viz., Unit Nos. 3 and 4 which were separate and independent production units eligible for claim of deduction under section 10B for ten years from the year of start of production in each of the units. (Para 67) In this regard the contention of the Commissioner Departmental Representative was that the assessee had just carried out capacity extension which could not be regarded as a separate industrial undertaking for making it eligible for the claim of deduction under section 10B insofar as the assessee was only granted certificate for enhanced capacity and not for the new industrial undertaking. The objection of the Commissioner Departmental Representative was also that the permission for enhancement of capacity was merely by way of amendment in the original certificate and not in the form of any new permission/certificate. In this regard one find that section 10B does not stipulate for issue of separate approval for each unit from the competent authority. The only requirement under the said section is that the undertaking should be approved. The definition of '100% export undertaking' as provided in clause (iv) of Explanation 2 to section 10B. (Para 68) From record the new spinning unit set up by the assessee was duly approved as 100% EOU by the concerned Government department. The relevant permission dated 13-3-1995 bearing No. 144/EOB/61/95 issued by the Ministry of Industries, Department of Industrial Development, Government of India, was received for setting up new unit. Necessary corrections in the permission dated 13-3-1995 were also carried out by the Ministry vide letter dated 31-5-1995. The assessee had also filed letter dated 14-4-1998 before the competent authority for enhancement of the licence capacity which was also granted on 2-6-1998. In view of these documentary evidences, fresh permission was granted for a new unit where the competent authority extended the benefit available to 100% export oriented unit for substantial extension of the existing undertaking. (Para 69) The plea of the Commissioner Departmental Representative will not disentitle the assessee from claiming deduction under section 10B in respect of two new units since these units were set up in a newly constructed building by installing additional spindles, new plant and machinery, new power plant and new manufacturing facilities which resulted into increased turnover by almost double, recruitment of new manpower/employees, manufacturing of new identifiable and marketed products, maintenance of separate books of account for each unit, obtaining separate approvals for new spinning units and permission for enhanced capacity. It is pertinent to mention here that new, separate and independent units were set up which were distinct from other existing unit eligible for deduction under section 10B. (Para 75) The undertaking existing prior to 1-4-1999 claiming exemption under section 10B would be entitled to exemption for the extended period of ten years and deduction under the said sections would be admissible in respect of unit No. 3 and unit No. 4 as well for ten years from the year of start of production in these new units since these units were separate and independent production units. (Para 76) SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2211 (Ind-Trib) : (2012) 046 (II) ITCL 0314 : (2012) 136 ITD 0177 : (2012) 146 TTJ 0129 : (2012) 070 DTR 0170 : (2012) 016 ITR (Trib) 0565

INCOME TAX ACT, 1961

--Deduction under section 10B--Allowability Extended period of 10 years vis-a-vis effect of amendment with effect from 1-4-1999--The assessee was a company engaged in the manufacture and mainly export of cotton yarn, grey & finished knitted cotton fabrics & readymade garments. During the assessment year 2001-02, the assessee has claimed income exempt under section 10B for three units, namely, original unit which started production from assessment year 1992-93, spinning unit No. III which started production from assessment year 1996-97 and spinning unit No. IV which started production from assessment year 1999-2000. During course of assessment, the assessing officer observed that the first year of operation of original unit was assessment year 1992-93 and as there was loss, as per provisions of section 10B(3), the assessee company exercised its option not to avail exemption under section 10B, for assessment years 1992-93, 1993-94 and 1994-95. As such, the first year of its claim under section 10B was assessment year 1995-96 and the same was admissible up to assessment year 1999-2000 only since the assessee was entitled for deduction only for five consecutive years out of eight years. As per the assessing officer, the assessee went ahead further and claimed exemption under section 10B for assessment year 2000-01 and assessment year 2001-02 also. As per the assessing officer, the assessee company exceeded its claim beyond permissible limit of 5 consecutive years out of eight years. He further held that this claim was overstitched to separate Units III and IV set up in assessment year 1996-97 and 1999-2000 resulting into extended claim up to assessment year 2005-06 and 2008-09 respectively. As per the assessing officer, the Unit Nos. III and IV are inter-dependent and complementary to each other, therefore, those could not be held to be independent new units entitled for claim of exemption under section 10B of Income Tax Act, 1961. Thereafter, relying upon the decision of Kolkata Tribunal reported in Tata Tea Limited v. Jt. CIT, 2003 TaxPub(DT) 750 (Kol-Trib) : (2003) 87 ITD 351 (Kol-Trib), the assessing officer concluded that the assessee company was entitled for exemption up to assessment year 1999-2000 only and its claim of exemption in subsequent years was not tenable and, therefore, the same was rejected. By the impugned order, the Commissioner (Appeals) allowed assessee's claim of deduction under section 10-B after observing that the case of Tata Tea is related to assessment year 1998-99, whereas section 10B was amended with effect from 1-4-1999, thereby extending the period of exemption from 5 years to 10 years and accordingly, benefit of 10 year exemption is available from assessment year 1999-2000 onwards only and not from assessment year 1998-99 as claimed by Tata Tea. Tata Tea had already exhausted benefit of 5 years exemption on the basis of relevant and operative provisions before assessment year 1998-99. Held: As the amendment came into force in the assessment year 1999-00, the amended laws became applicable to the assessee according to which all the three eligible units of the assessee became entitled for deduction for a period of ten consecutive assessment years from the date of commencement of manufacture/production by the said eligible undertaking. Furthermore, there is no question of claiming the provision of section 10B to be prospective or retrospective since what the assessee is simply claiming is that the exemption should be allowed as per the provisions of section 10B as applicable in the relevant assessment year. Once that is done, no question arises for denying exemption to the assessee during the relevant assessment years under consideration.

Applying the relevant provisions of law as applicable during the years, under consideration, and also the judicial pronouncements, it can safely hold that in the assessment year 1999-00 when the period of exemption was extended from five years to ten years, all the three units of the assessee were eligible for deduction under section 10B. Each of the units were eligible for exemption under section 10B, both under the pre-amended law when the exemption was available for five years out of eight years as well as under the amended law when the exemption was extended to ten consecutive assessment years. As the amendment came into force in the assessment year 1999-00, the amended laws became applicable to the assessee according to which all the three eligible units of the assessee became entitled for deduction for a period of ten consecutive assessment years from the date of commencement of manufacture/production by the said eligible undertaking. Furthermore, there is no question of claiming the provision of section 10B to be prospective or retrospective since what the assessee is simply claiming is that the exemption should be allowed as per the provisions of section 10B as applicable in the relevant assessment year. Once that is done, no question arises for denying exemption to the assessee during the relevant assessment years under consideration. It is pertinent to mention here that in the assessment year 1999-00 the assessee was duly allowed deduction as per the then applicable law whereunder the eligible undertaking is allowed such deduction for a period of ten consecutive years. Now in the assessment year 2000-01 the assessee had claimed deduction in respect of its eligible units which was also not disputed by the assessing officer. The assessing officer in his order for the assessment year 2000-01 has given a finding that Unit Nos. III and IV were entitled for exemption upto the assessment year 2005-06 and 2008-09 respectively. (Para 61) The Commissioner has revised the above order of the assessing officer by exercising his power under section 263 of the Act on the issue of allowability of deduction under section 10B on the aforesaid units. This order of the CIT was quashed by the Tribunal and subsequently appeal filed by the revenue was also dismissed by the High Court. (Para 61) All the conditions are satisfied in the two new spinning units viz. Unit Nos. 3 and 4, which were set up by the assessee as a separate and independent production units, by making substantial investment in new building, plant and machinery, etc. wherein distinct and marketable produce are manufactured. In respect of unit no. 3 it was set up in a newly constructed building by installing additional 16224 spindles which enhanced the total capacity to 38400 spindles from the existing 22,176 spindles. It is also found that four new knitting machines were installed. The facilities to manufacture additional 6 lacs per annum pieces of garments were put as against earlier installed capacity of 13.6 lacs garments per annum. The turnover of the company reached to Rs. 121.72 crores from Rs. 67.26 crores in the immediately preceding year and the profits before depreciation took quantum leap of 3.37 crores. In Unit No. 4, additional 16128 spindles were installed which enhanced the installed capacity to 54528 spindles. 12 circular knitting machines were imported and installed. A power plant of 4.25 MV capacity was set up. The facilities to manufacture readymade garments were set up to manufacture 6 lacs additional garments per annum and the new unit resulted into total addition of gross block of fixed assets by Rs. 69.43 crores as against 121.01 crores at the beginning of the year. The turnover of the company also increased to Rs. 224.5 crores as against 158.37 crores in the preceding year. Thus, on the facts of the case, both the new spinning units of the assessee have their independent and separate existence which is evident from the copy of invoices along with packing list placed in the paper book which shows that identifiable and marketable products were manufactured by these units. The raw material issue slips also show that the raw material is issued and recorded unitwise. The wage registers also show that separate workers were engaged and wages were paid and recorded separately. The flow chart of spinning process clearly indicates that each unit is separately set up. The loan sanction letters issued by bank also evidenced sanction of separate term loan to show that the funds were borrowed for new units and the assessee has maintained separate books of accounts for each unit. All these documentary evidences clearly establish that the assessee has undertaken substantial expansion by setting up new units, viz., Unit Nos. 3 and 4 which were separate and independent production units eligible for claim of deduction under section 10B for ten years from the year of start of production in each of the units. (Para 67) In this regard the contention of the Commissioner Departmental Representative was that the assessee had just carried out capacity extension which could not be regarded as a separate industrial undertaking for making it eligible for the claim of deduction under section 10B insofar as the assessee was only granted certificate for enhanced capacity and not for the new industrial undertaking. The objection of the Commissioner Departmental Representative was also that the permission for enhancement of capacity was merely by way of amendment in the original certificate and not in the form of any new permission/certificate. In this regard one find that section 10B does not stipulate for issue of separate approval for each unit from the competent authority. The only requirement under the said section is that the undertaking should be approved. The definition of '100% export undertaking' as provided in clause (iv) of Explanation 2 to section 10B. (Para 68) From record the new spinning unit set up by the assessee was duly approved as 100% EOU by the concerned Government department. The relevant permission dated 13-3-1995 bearing No. 144/EOB/61/95 issued by the Ministry of Industries, Department of Industrial Development, Government of India, was received for setting up new unit. Necessary corrections in the permission dated 13-3-1995 were also carried out by the Ministry vide letter dated 31-5-1995. The assessee had also filed letter dated 14-4-1998 before the competent authority for enhancement of the licence capacity which was also granted on 2-6-1998. In view of these documentary evidences, fresh permission was granted for a new unit where the competent authority extended the benefit available to 100% export oriented unit for substantial extension of the existing undertaking. (Para 69) The plea of the Commissioner Departmental Representative will not disentitle the assessee from claiming deduction under section 10B in respect of two new units since these units were set up in a newly constructed building by installing additional spindles, new plant and machinery, new power plant and new manufacturing facilities which resulted into increased turnover by almost double, recruitment of new manpower/employees, manufacturing of new identifiable and marketed products, maintenance of separate books of account for each unit, obtaining separate approvals for new spinning units and permission for enhanced capacity. It is pertinent to mention here that new, separate and independent units were set up which were distinct from other existing unit eligible for deduction under section 10B. (Para 75) The undertaking existing prior to 1-4-1999 claiming exemption under section 10B would be entitled to exemption for the extended period of ten years and deduction under the said sections would be admissible in respect of unit No. 3 and unit No. 4 as well for ten years from the year of start of production in these new units since these units were separate and independent production units. (Para 76)