REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 20854 OF 2017 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.4565 OF 2015) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 11 (1), BANGALORE APPELLANT VERSUS M/S. ACE MULTI AXES SYSTEMS LTD. ...RESPONDENTS WITH CIVIL APPEAL NO. 20856 OF 2017 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.8331 OF 2016) WITH CIVIL APPEAL NO. 20857 OF 2017 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.3323 OF 2016) WITH CIVIL APPEAL NO. 20855 OF 2017 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.148 OF 2016) JUDGMENT ADARSH KUMAR GOEL, J. Civil Appeal No. 20854 of 2017 (@ Special Leave Petition(Civil) No.4565 of 2015) 1. Leave granted. This appeal has been preferred against judgment and order dated 28th July, 2014 of High Court of Signature Not Verified Karnataka at Bangalore in Income Tax Appeal No.477 of 2013. Digitally signed by High Court framed following question of law for consideration : MAHABIR SINGH Date: 2017.12.05 15:36:21 IST Reason: 2 When once eligible business of assessee is given benefit of deduction under Section 80 IB on assessee satisfying conditions mentioned in sub-sec. (2) of Section 80 IB, can assessee be denied benefit of said deduction on ground that during said 10 consecutive years, it ceases to be small scale industry? 2. High Court answered question in negative and in favour of assessee. revenue has questioned said view. 3. respondent assessee is engaged in manufacture and sale of components/parts of CNC lathes and similar machines. Its income was assessed for assessment year 2005-2006 at Rs.1,79,82,653/-. However, Commissioner of Income Tax, interfered with assessment under Section 263 to extent it allowed deduction under Section 80 IB(3) of Income Tax Act, 1961 (the Act) and directed fresh decision on said issue vide order dated 16th January, 2009. Thereafter, Assessing authority on 14th December, 2009 disallowed claim of Rs.75,81,910/- towards deduction under Section 80 (B(3). same was upheld by Commissioner in appeal and Income Tax Appellate Tribunal in second appeal. However, High Court has reversed said orders and upheld claim. 4. relevant Section is as follows : 3 80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings - (1) Where gross total income of assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as eligible business), there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, deduction from such profits and gains of amount equal to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all following conditions, namely : (i) it is not formed by splitting up, or reconstruction, of business already in existence: Provided that this condition shall not apply in respect of industrial undertaking which is formed as result of re-establishment, reconstruction or revival by assessee of business of any such industrial undertaking as is referred to in section 33B, in circumstances and within period specified in that section; (ii) it is not formed by transfer to new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in list in Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India : Provided that condition in this clause shall, in relation to small scale industrial undertaking or industrial undertaking referred to in sub-section (4) shall apply as if words "not being any article or thing 4 specified in list in Eleventh Schedule" had been omitted. Explanation 1. For purposes of clause (ii), any machinery or plant which was used outside India by any person other than assessee shall not be regarded as machinery or plant previously used for any purpose, if following conditions are fulfilled, namely : (a) such machinery or plant was not, at any time previous to date of installation by assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under provisions of this Act in computing total income of any person for any period prior to date of installation of machinery or plant by assessee. Explanation 2. Where in case of industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to new business and total value of machinery or plant or part so transferred does not exceed twenty per cent of total value of machinery or plant used in business, then, for purposes of clause (ii) of this sub-section, condition specified therein shall be deemed to have been complied with; (iv) in case where industrial undertaking manufactures or produces articles or things, undertaking employs ten or more workers in manufacturing process carried on with aid of power, or employs twenty or more workers in manufacturing process carried on without aid of power. 5 (3) amount of deduction in case of industrial undertaking shall be twenty-five per cent (or thirty per cent where assessee is company), of profits and gains derived from such industrial undertaking for period of ten consecutive assessment years (or twelve consecutive assessment years where assessee is co-operative society) beginning with initial assessment year subject to fulfilment of following conditions, namely : (i) it begins to manufacture or produce, articles or things or to operate such plant or plants at any time during period beginning from 1st day of April, 1991 and ending on 31st day of March, 1995 or such further period as Central Government may, by notification in Official Gazette, specify with reference to any particular undertaking; (ii) where it is industrial undertaking being small scale industrial undertaking, it begins to manufacture or produce articles or things or to operate its cold storage plant [not specified in sub-section (4) or sub-section (5)] at any time during period beginning on 1st day of April, 1995 and ending on 31st day of March, 2002. (4) to (13) xxx xxx xxx (14) For purposes of this section, (a) "built-up area" means inner measurements of residential unit at floor level, including projections and balconies, as increased by thickness of walls but does not include common areas shared with other residential units; (aa) "cold chain facility" means chain of facilities for storage or transportation of agricultural produce under scientifically controlled conditions including refrigeration and other facilities necessary for preservation of such produce; 6 (ab) "convention centre" means building of prescribed area comprising of convention halls to be used for purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities, as may be prescribed; (b) "hilly area" means any area located at height of one thousand metres or more above sea level; (c) "initial assessment year" (i) in case of industrial undertaking or cold storage plant or ship or hotel, means assessment year relevant to previous year in which industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or cold chain facility or ship is first brought into use or business of hotel starts functioning; (ii) in case of company carrying on scientific and industrial research and development, means assessment year relevant to previous year in which company is approved by prescribed authority for purposes of sub-section (8); (iii) in case of undertaking engaged in business of commercial production or refining of mineral oil referred to in sub-section (9), means assessment year relevant to previous year in which undertaking commences commercial production or refining of mineral oil; (iv) in case of undertaking engaged in business of processing, preservation and packaging of fruits or vegetables or in integrated business of handling, storage and transportation of foodgrains, means assessment year relevant to previous year in which undertaking begins such business; 7 (v) in case of multiplex theatre, means assessment year relevant to previous year in which cinema hall, being part of said multiplex theatre, starts operating on commercial basis; (vi) in case of convention centre, means assessment year relevant to previous year in which convention centre starts operating on commercial basis; (vii) in case of undertaking engaged in operating and maintaining hospital in rural area, means assessment year relevant to previous year in which undertaking begins to provide medical services; (d) "North-Eastern Region" means region comprising States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura; (da) "multiplex theatre" means building of prescribed area, comprising of two or more cinema theatres and commercial shops of such size and number and having such other facilities and amenities as may be prescribed; (e) "place of pilgrimage" means place where any temple, mosque, gurdwara, church or other place of public worship of renown throughout any State or States is situated; (f) "rural area" means any area other than (i) area which is comprised within jurisdiction of municipality (whether known as municipality, municipal corporation, notified area committee, town area committee or by any other name) or cantonment board and which has population of not less than ten thousand according to preceding census of which relevant figures have been published before first day of previous year; or 8 (ii) area within such distance not being more than fifteen kilometres from local limits of any municipality or cantonment board referred to in sub-clause (i), as Central Government may, having regard to stage of development of such area including extent of, and scope for, urbanisation of such area and other relevant considerations specify in this behalf by notification in Official Gazette; (g) "small-scale industrial undertaking" means industrial undertaking which is, as on last day of previous year, regarded as small-scale industrial undertaking under section 11B of Industries (Development and Regulation) Act, 1951 (65 of 1951). 5. Before we consider issue of correct interpretation of above provision, it may be necessary to note observations of statutory authorities and High Court on issue. 6. assessment order dated 14th December, 2009, disallowing deduction is as follows : same is not acceptable on ground that value of plant and machinery has exceeded Rs.1 crores as per depreciation schedule annexed to 3CD report which do not come under purview of definition of small scale industry for year ending 04-05 (A.Y.05-06). In view of above, I am constrained to hold that assessee company is not eligible for claim of 80IB(3) deduction amounting to Rs.75,81,910/- and hence same is disallowed. 7. Commissioner of Income Tax (Appeals) in order dated 15 th February, 2011 observed : 9 I agree with learned CIT who while passing order u/s 263 has pointed out that industrial undertaking, here initially SSI unit, has to fulfil all conditions in each of block years of its entitlement or otherwise such claim has to be denied. He rightly points out that Section 80 IB(3) only forms basis of entitlement and its scope. first condition is that it must be SSI unit in year of claim and entitlement Section 80 IB (14)(g) defines what is SSI and exact date has been prescribed therein so that AO can examine whether on that date it is SSI or not. date is last day of relevant previous year in this case 31.03.2005 and such date is exclusively for purpose of this section only. Admittedly investment in plant and machinery on 31.03.2005 was i.e., Rs.4,05,21,730/- which was more than prescribed limit of that year i.e., 1 crore. Hence it no longer remains SSI and hence disallowance has to be held justified. xxx xxx xxx 17. Summary: Section 80 IB is incentive provision. It stipulates deduction in respect of profits and gains from certain industrial undertakings. Within this section plethora of industries and business types have been given benefit of such deduction if they fulfill conditions mentioned in concerned sub section of Section 80IB of Act. Some of such concerns/industries are ship, hotel multiplex, theatres, housing projects etc. Sub-Section (2) of Section 80IB provides such conditions for industrial undertakings including cold storage and cold chain facility and also Small Scale Industrial undertakings (in short henceforth SSIU). All four conditions mentioned in Section 80IB (2) must be fulfilled to make industrial undertaking eligible for benefit of claim u/s 80IB of I.T. Act. Condition No.1 is that industrial undertaking must not have been formed by splitting up or reconstruction of business already in existence with exception that in case of units specified u/s 33B of I.T. Act this condition will not apply. second condition is that such undertaking must not have 10 been formed by transfer of machinery or plant previously used with exception that value of such machinery and plant previously used must not exceed 20% of value of total cost of plant and machinery of such industrial undertaking. third condition is that industrial undertaking must produce or manufacture any article or thing other than any article or thing specified in Eleventh Schedule. Exception to this third condition is that SSIU can avail 80IB benefit even if manufactures or produces articles or things specified in Eleventh Schedule. fourth condition is that industrial undertaking running with aid of power must not have less than 10 employees and if it is run without power, number of employees must be more than 20 employees. Thus all four conditions narrated above must be fulfilled if industrial undertaking desires to avail benefit u/s 80IB of I.T. Act. For SSIU there is also extra condition i.e., it must be SSI unit as per explanation (g) given in 80IB (14) of I.T. Act which refers to Section 11B of IDR Act 1951 which in turn prescribes limit for investment in plant and machinery to designate industrial undertaking as SSI unit. Thus out of these five conditions, first two conditions may be called static or unchangeable. In other words if in initial year of manufacture or production it is substantiated that it has fulfilled these two conditions A.O. cannot on this ground in subsequent eligible years of block period deny benefit u/s 80IB. rest three conditions are volatile and unstable. industrial undertaking must show in each subsequent year of claim that these three conditions have not been violated. Such claims of assessee has to face analysis and scrutiny of A.O. Thus, since each A.Y. is separate and independent, revenue authorities had every power to examine and analyse facts and figures as well as relevant law points of each year to find out whether all these three conditions are fulfilled or not. It is also ratio of cited case of Natraj Stationery 312 ITR 22 (Delhi) vide page 14 supra. It has been stated in that case that first two 11 conditions have already been satisfied and it is assumed that fourth condition has been fulfilled in that year and hence relief. same is also ratio in case of M/s. Janak Dehydration (P) Limited vs. Asst. CIT (2010) 134 TTJ Ahd. D-Trib-1. facts of that case was that assessee was allowed deduction u/s 80IB from 1993-94 to 2002-03 but in A.Y. 2003-04 claim was disallowed on ground that in initial year industrial unit has been formed by reconstruction or splitting up of existing unit. ITAT held that it is not open to A.O. to doubt earlier acceptance of department in respect of reconstruction and splitting up to deny claim in subsequent year because that violates principles of consistency. But it also laid down that Under I.T. Act each year is separate unit of assessment and taxable income as well as tax liability are to be determined keeping in view of facts prevailing in that year and law as applicable in that year. In light of above legal matrix as elaborated in Para 15 above it can be palpably seen that appellant has violated, mandatory fifth condition. It is not doubted that in initial A.Y. appellant was SSI unit, but in A.Y. 2005-06 investment in plant and machinery has admittedly exceeded prescribed limit of Rs.1 Crore. Therefore, it cannot be held as SSIU. Thus fifth condition being violated openly and admittedly by appellant, relief sought for has to be denied in A.Y. 2005-06. 18. In view of above, addition/disallowance is upheld. Appeal is dismissed. 8. ITAT in its order dated 24th May, 2013 observed : 12 5.3.6. Taking into account all facts and circumstances of issue as discussed in foregoing paragraphs and also, as rightly highlighted by AO, value of plant and machinery had exceeded Rs.1 crore during year under consideration which incidentally deprive assessee to call itself as Small Scale Industry, we are of considered view that authorities below were justified in denying assessee s claim for deduction u/s 80-IB(3) of Act. It is ordered accordingly. 9. Considering question framed by it, High Court held : 5. In entire provision, there is no indication that these conditions had to be fulfilled by assessee all 10 years. When once benefit of 10 years, commencing from initial year, is granted, if undertaking satisfy all these conditions initially, undertaking is entitled to benefit of 10 consecutive years. argument that, in course of 10 years, if growth of industry is fast and it acquires machinery and total value of machinery exceeds Rs.1 crore, it ceases to have said benefit, do not follow from any of provisions. It is true that there is no express provision indicating either way, what would be position if small scale industry ceases to be small scale industry during said period of 10 years. Because of that ambiguity, need for interpretation arises. If we keep in mind object of Legislature providing for these incentives and when period of 10 years is prescribed, that is period, probably, which is required for any industry to stabilize itself. During that period industry not only manufactures products, it generates employment and it adds to wealth of country. Merely because industry stabilizes early, makes profits, makes future investment in said business, and it goes out of definition of small scale industry, benefit under Sec. 80IB cannot be denied. If such literal interpretation is placed on said provision, it 13 would run counter to very object of granting incentives. It would kill industry. Therefore, keeping in mind object with which these provisions are enacted, keeping in mind industrial growth which is required to be achieved, if two interpretations are possible, courts have to lean in favour of extending benefit of deduction to assessee who has availed opportunity given to him under law and has grown in his business. Therefore we are of view, if small scale industry, in course of 10 years, stabilizes early, makes further investments in business and it results in it s going outside purview of definition of small scale industry, that should not come in way of its claiming benefit under Sec.80IB for 10 consecutive years, from initial assessment year. Therefore, approach of authorities runs counter to scheme and intent of Legislature. Thereby they have denied legitimate benefit, incentive granted to assessee. Both said orders cannot be sustained. Therefore substantial question of law is answered in favour of assessee and against Revenue. (emphasis in quotations is ours) 10. Section 80 IB is in Chapter VI of Act which provides for deductions to be allowed from total income which is to be computed under relevant provisions. scheme is to provide incentives for purposes mentioned in different provisions of said Chapter. Section 80 IB provides for deductions of specified percentage from profits and gains of specified industrial undertakings other than infrastructure development undertakings (which are separately dealt with under Section 80 IA). clause relevant for purposes of this appeal is Clause 2 which makes 14 deductions permissible in respect of industrial undertakings fulfilling conditions specified therein. scheme applies to small scale industrial undertakings as defined in Clause 14(g) which in terms refers to Section 11 B of Industries (Development and Regulation) Act, 1951. extent of deduction permissible is mentioned in Clause 3 which is 25% (30% in case of company) of profits and gains derived from such industrial undertakings for 10 consecutive assessment years beginning with initial assessment. initial assessment year is defined in Clause 14 (c) as year in which manufacturing/production commences. 11. As already noted, question for consideration is whether deduction under Clause 3 for 10 consecutive assessment years remains permissible irrespective of compliance of conditions subject to which said deduction is permitted in relevant assessment years. For purposes of deduction, industrial undertakings covered by Section 80 IB are of different categories. Under second proviso to Clause 2, disqualification applicable to industrial undertaking, other than small scale industrial undertakings, i.e., not being in 8th Schedule is not applicable. 15 small scale industrial undertakings eligible are only those which begin manufacture or produce, articles or things during beginning of 1st day of April, 1995 and ending on 31 st day of March, 2002 [Clause 3(ii)]. For other categories of industrial undertakings, different periods are prescribed, e.g. under sub-clause (i) of Clause (3). 12. scheme of statute does not in any manner indicate that incentive provided has to continue for 10 consecutive years irrespective of continuation of eligibility conditions. Applicability of incentive is directly related to eligibility and not de hors same. If industrial undertaking does not remain small scale undertaking or if it does not earn profits, it cannot claim incentive. No doubt, certain qualifications are required only in initial assessment year, e.g. requirements of initial constitution of undertaking. Clause 2 limits eligibility only to those undertakings as are not formed by splitting up of existing business, transfer to new business of machinery or plant previously used. Certain other qualifications have to continue to exist for claiming incentive such as employment of particular number of workers as per sub-clause 4(i) of Clause 2 in 16 assessment year. For industrial undertakings other than small scale industrial undertakings, not manufacturing or producing article or things specified in 8th Schedule is requirement of continuing nature. 13. On examination of scheme of provision, there is no manner of doubt that incentive meant for small scale industrial undertakings cannot be availed by industrial undertakings which do not continue as small scale industrial undertakings during relevant period. Needless to say, each assessment year is different assessment year, except for block assessment 14. observations in impugned order are that object of legislature is to encourage industrial expansion which implies that incentive should remain applicable even where on account of industrial expansion small scale industrial undertakings ceases to be small scale industrial undertakings. We are unable to appreciate logic for these observations. Incentive is given to particular category of industry for specified purpose. incentive meant for small scale industrial undertaking cannot be availed by assessee which is not such undertaking. It does not, in any manner, mean that object of permitting industrial expansion is 17 defeated, if benefit is not allowed to other undertakings. On this logic, incentive must be given irrespective of any condition as incentive certainly helps further expansion by reducing tax burden. concept of vertical equity is well known under which all assessees need not be uniformally taxed. Progressive taxation is well known element of tax policy. Higher slabs of tax or higher tax burden on assessee having higher income or higher capacity cannot in any manner, be considered unreasonable. 15. We may now refer to some of decisions which have been cited at bar. It is submitted on behalf of assessee that provision relating to incentive should be construed liberally to advance objective of provision. Reliance has been placed on Bajaj Tempo Ltd. versus CIT1. Therein assessee claimed exemption meant for new industrial undertaking which had not been formed by transfer of earlier business in terms of Section 15C of Income Tax Act, 1922. After recording finding of fact that assessee was genuine new industrial undertaking, it was observed that provision of taxing statute granting incentive for promoting growth and development should be construed liberally. 1 (1992) 196 ITR 188 (SC) = (1992) 3 SCC 78 18 judgment is distinguishable. Construing liberally does not mean ignoring conditions for exemption. main issue considered in said judgment was that though undertaking was genuine new industrial undertaking which was qualification for exemption, nominal part of undertaking was out of existing undertaking and building of existing undertaking was taken on lease. relevant observations are : 9. Initial exercise, therefore, should be to find out if undertaking was new. Once this test is satisfied then clause (i) should be applied reasonably and liberally in keeping with spirit of Section 15-C(1) of Act. While doing so various situations may arise for instance formation may be without anything to do with any earlier business. That is undertaking may be formed without splitting up or reconstructing any existing business or without transfer of any building material or plant of any previous business. Such undertaking undoubtedly would be eligible to benefit without any difficulty. On other extreme may be undertaking new in its form but not in substance. It may be new in name only. Such undertaking would obviously not be entitled to benefit. In between two there may be various other situations. difficulty arises in such cases. For instance new company may be formed, as was in this case fact which could not be disputed, even by Income Tax Officer. But tools and implements worth Rs 3,500 were transferred to it of previous firm. Technically speaking it was transfer of material used in previous business. One could say as was vehemently urged by learned counsel for department that where language of statute was clear there was no scope for interpretation. If submission of learned counsel is accepted then once it is found that material used in undertaking was of previous business there was end of inquiry and 19 assessee was precluded from claiming any benefit. Words of statute are undoubtedly best guide. But if their meaning gets clouded then courts are required to clear haze. Sub-section (2) advances objective of sub-section (1) by including in it every undertaking except if it is covered by clause (i) for which it is necessary that it should not be formed by transfer of building or machinery. restriction or denial of benefit arises not by transfer of building or material to new company but that it should not be formed by such transfer. This is key to interpretation. formation should not be by such transfer. emphasis is on formation not on use. Therefore it is not transfer of building or material but one which can be held to have resulted in formation of undertaking. In Textile Machinery Corporation Ltd. v. CIT [(1977) 2SCC 368] this Court while interpreting Section 15-C observed : (SCC p. 375, para 18) true test, is not whether new industrial undertaking connotes expansion of existing business of assessee but whether it is all same new and identifiable undertaking separate and distinct from existing business. No particular decision in one case can lay down inexorable test to determine whether given case comes under Section 15-C or not. In order that new undertaking can be said to be not formed out of already existing business, there must be new emergence of physically separate industrial unit which may exist on its own as viable unit. undertaking is formed out of existing business if physical identity with old unit is preserved. Even though this decision was concerned with clause dealing with reconstruction of existing business but expression not formed was construed to mean that undertaking should not 20 be continuation of old but emergence of new unit. Therefore even if undertaking is established by transfer of building, plant or machinery but it is not formed as result of such transfer assessee could not be denied benefit. 16. principle of law considered in Bajaj Tempo (supra) is certainly valid principle of interpretation where there is ambiguity or absurdity or where conditions of eligibility are substantially complied. In present case, scheme of statute is clear that incentive is applicable to small scale industrial undertaking. intention of legislature is in no manner defeated by not allowing said incentive if assessee ceases to be class of industrial undertaking for which incentive is provided even if it was eligible in initial year. Each assessment year is separate unit. 17. In Citizen Cooperative Society Limited versus Assistant Commissioner of Income Tax, Circle-9(1), Hyderabad 2 this Court considered incentive under Section 80-P meant for primary agricultural credit society or primary cooperative agricultural and rural development bank. assessee was held not to be entitled to said incentive as business of assessee was held to be finance business to which incentive was not 2 391 ITR 1 = (2017) 9 SCC 364 21 admissible even though principle of liberal interpretation in terms of Bajaj Tempo (supra) was applied. 18. In State of Haryana versus Bharti Teletech Ltd.3, eligibility of assessee to get benefit of exemption from tax was issue. It was observed that while exemption notification should be liberally construed, beneficiary must fall within ambit of exemption and fulfill conditions thereof. In case such conditions are not fulfilled, issue of application of notification does not arise. principle of interpretation in judgment in Bajaj Tempo (supra) and other judgments was dealt with as follows : 22. We will be failing in our duty if we do not address submission, albeit last straw, of Mr. Jain that any provision relating to grant of exemption, be it under rule or notification, should be considered liberally. In this regard, we may profitably refer to decision in Hansraj Gordhandas v. CCE and Customs [AIR 1970 SC 755] wherein it has been held as follows: (AIR p. 759, para 5) 5. It is well established that in taxing statute there is no room for any intendment but regard must be had to clear meaning of words. entire matter is governed wholly by language of notification. If tax-payer is within plain terms of exemption it cannot be denied its benefit by calling in aid any supposed intention of exempting authority. If such intention can 3 (2014) 3 SCC 556 22 be gathered from construction of words of notification or by necessary implication therefrom, matter is different. 23. In CST v. Industrial Coal Enterprises [(1999) 2 SCC 605], after referring to CIT v. Straw Board Mfg. Co. Ltd. [(1989 (Supp.) 2 SCC 529] and Bajaj Tempo Ltd. v. CIT, Court ruled that exemption notification, as is well known, should be construed liberally once it is found that entrepreneur fulfils all eligibility criteria. In reading exemption notification, no condition should be read into it when there is none. If entrepreneur is entitled to benefit thereof, same should not be denied. 24. In this context, reference to T.N. Electricity Board v. Status Spg. Mills Ltd.[(2008) 7 SCC 353] would be fruitful. It has been held therein: (SCC p. 367, para 32) 32. It may be true that exemption notification should receive strict construction as has been held by this Court in Novopan India Ltd. v. CCE and Customs[ 1994 (Supp) 3 SCC 606], but it is also true that once it is found that industry is entitled to benefit of exemption notification, it would received broad construction. (See TISCO Ltd. v. State of Jharkhand[(2005) 4 SCC 272] and A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala[(2007) 2 SCC 725].) notification granting exemption can be withdrawn in public interest. What would be public interest would, however, depend upon facts of each case. 25. From aforesaid authorities, it is clear as crystal that statutory rule or exemption notification which confers benefit on assessee on certain conditions should be liberally construed but beneficiary should fall within ambit of rule or notification and further if there are conditions and violation thereof are provided, then concept of 23 liberal construction would not arise. Exemption being exception has to be respected regard being had to its nature and purpose. There can be cases where liberal interpretation or understanding would be permissible, but in present case, rule position being clear, same does not arise. 19. Same view was taken in Commissioner of Customs versus M. Ambalal & Co.4 as follows : 16. It is settled law that notification has to be read as whole. If any of conditions laid down in notification is not fulfilled, party is not entitled to benefit of that notification. rule regarding exemptions is that exemptions should generally be strictly interpreted but beneficial exemptions having their purpose as encouragement or promotion of certain activities should be liberally interpreted. This composite rule is not stated in any particular judgment in so many words. In fact, majority of judgments emphasise that exemptions are to be strictly interpreted while some of them insist that exemptions in fiscal statutes are to be liberally interpreted giving apparent impression that they are contradictory to each other. But this is only apparent. close scrutiny will reveal that there is no real contradiction amongst judgments at all. synthesis of views is quite clearly that general rule is strict interpretation while special rule in case of beneficial and promotional exemption is liberal interpretation. two go very well with each other because they relate to two different sets of circumstances. 20. In State of Jharkhand versus Ambay Cements5, question was whether exemption for newly set up industrial units was applicable to assessee therein. High Court having 4 (2011) 2 SCC 74 5 (2005) 1 SCC 368 24 allowed benefit even though assessee did not qualify for same, this Court reversed view of High Court and held that conditions for grant of exemption from tax are mandatory and in absence thereof exemption could not be granted. Distinguishing judgments of this Court in Bajaj Tempo (supra), it was observed : 23. Mr Bharuka further submitted that in taxing statutes, provision of concessional rate of tax should be liberally construed and in respect of above submission, he cited judgment of this Court in CST v. Industrial Coal Enterprises [(1992) 3 SCC 78] and in case of Bajaj Tempo Ltd. v. CIT. We are unable to countenance above submission. In our view, provisions of exemption clause should be strictly construed and if condition under which exemption was granted stood changed on account of any subsequent event exemption would not operate. 24. In our view, exception or exempting provision in taxing statute should be construed strictly and it is not open to court to ignore conditions prescribed in industrial policy and exemption notifications. 25. In our view, failure to comply with requirements renders writ petition filed by respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in case of directory rule. 26. Whenever statute prescribes that particular act is to be done in particular manner and also lays down that failure to comply with said requirement leads to severe consequences, such requirement would be mandatory. It is cardinal rule of interpretation that where statute provides that 25 particular thing should be done, it should be done in manner prescribed and not in any other way. It is also settled rule of interpretation that where statute is penal in character, it must be strictly construed and followed. Since requirement, in instant case, of obtaining prior permission is mandatory, therefore, non-compliance with same must result in cancelling concession made in favour of grantee, respondent herein. 21. In view of above judgments, we do not see any difference in situation where assessee, is not initially eligible, or where assessee though initially eligible loses qualification of eligibililty in subsequent assessment years. In both such situations, principle of interpretation remains same. 22. Thus, while there is no conflict with principle that interpretation has to be given to advance object of law, in present case, assessee having not retained character of small scale industrial undertaking , is not eligible to incentive meant for that category. Permitting incentive in such case will be against object of law. 23. For above reasons, we hold that assessee is not entitled to benefit of exemption if it loses its eligibility as small scale industrial undertaking in particular assessment year even if in initial year eligibility was satisfied. 26 appeal is accordingly disposed of in above terms. Civil Appeal No. 20856 of 2017 (@ Special Leave Petition(Civil) No.8331 of 2016) Civil Appeal No. 20857 of 2017 (@ Special Leave Petition(Civil) No.3323 of 2016) Civil Appeal No. 20855 of 2017 (@ Special Leave Petition(Civil) No.148 of 2016) 24. Leave granted. In view of judgment in main matter, these appeals are disposed of in same terms. 25. assessing authority may pass order of compliance by applying above principle to facts of individual cases. ..J. [RANJAN GOGOI] ..J. [ADARSH KUMAR GOEL] ..J. [NAVIN SINHA] NEW DELHI; 5TH DECEMBER, 2017. Deputy Commissioner of Income-tax, Circle 11(1), Bangalore v. Ace Multi Axes Systems Ltd