REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO(S). 7208 of 2018 COMMISSIONER OF INCOME TAX .....APPELLANT(S) VERSUS M/S. CLASSIC BINDING INDUSTRIES .....RESPONDENT(S) WITH CIVIL APPEAL NO(S). 7223 of 2018 CIVIL APPEAL NO(S). 7220 of 2018 CIVIL APPEAL NO(S). 7215 of 2018 CIVIL APPEAL NO(S). 7230 of 2018 CIVIL APPEAL NO(S). 7216 of 2018 Signature Not Verified Digitally signed by SUSHIL KUMAR CIVIL APPEAL NO(S). 7232 of 2018 RAKHEJA Date: 2018.08.21 11:13:03 IST Reason: CIVIL APPEAL NO(S). 7233 of 2018 Civil Appeal No. 7208 OF 2018 & Ors. Page 1 of 17 CIVIL APPEAL NO(S). 7224 of 2018 CIVIL APPEAL NO(S). 7214 of 2018 CIVIL APPEAL NO(S). 7213 of 2018 CIVIL APPEAL NO(S). 7212 of 2018 CIVIL APPEAL NO(S). 7231 of 2018 CIVIL APPEAL NO(S). 7211 of 2018 CIVIL APPEAL NO(S). 7229 of 2018 CIVIL APPEAL NO(S). 7228 of 2018 CIVIL APPEAL NO(S). 7227 of 2018 CIVIL APPEAL NO(S). 7226 of 2018 CIVIL APPEAL NO(S). 7234 of 2018 CIVIL APPEAL NO(S). 7238 of 2018 CIVIL APPEAL NO(S). 7210 of 2018 CIVIL APPEAL NO(S). 7217 of 2018 Civil Appeal No. 7208 OF 2018 & Ors. Page 2 of 17 CIVIL APPEAL NO(S). 7218 of 2018 CIVIL APPEAL NO(S). 7219 of 2018 CIVIL APPEAL NO(S). 7239 of 2018 CIVIL APPEAL NO(S). 7221 of 2018 CIVIL APPEAL NO(S). 7222 of 2018 CIVIL APPEAL NO(S). 7209 of 2018 CIVIL APPEAL NO(S). 7236 of 2018 AND CIVIL APPEAL NO(S). 7225 of 2018 JUDGMENT A.K.SIKRI, J. neat question of law which arises in these appeals revolve around Section 80-IC of Income Tax Act, 1961 (hereinafter referred to as Act ). High Court by its impugned judgment dated 28th November, 2017 has discussed various aspects and nuances of aforesaid provisions which had Civil Appeal No. 7208 OF 2018 & Ors. Page 3 of 17 arisen because of varied kinds of issues raised in batch of appeals filed by assessees before High Court. We are not concerned with all those issues. only question which needs to be answered in these appeals is as follows: Whether assessee who sets up new industry of kind mentioned in sub-section (2) of Section 80-IC of Act and starts availing exemption of 100 per cent tax under sub-section (3) of Section 80-IC (which is admissible for five years) can start claiming exemption at same rate of 100% beyond period of five years on ground that assessee has now carried out substantial expansion in its manufacturing unit? 2. To understand aforesaid question of law in clear terms, it may be mentioned at this stage itself that sub-section (2) of Section 80-IC applies to undertaking or enterprise which has, inter alia, begun or begins to manufacture or produce any article or thing by setting up new factory in area specified therein which includes State of Himachal Pradesh as well. Sub-section (3) of Section 80-IC is in two parts: in certain cases, exemption from income is provided at rate of 100% of such profits and gains earned from aforesaid undertaking or enterprise for 10 assessment years commencing with initial assessment year. present appeals do not fall in that category. Other clause relates to another category of undertakings or enterprises (these cases belong to that category) where exemption is at rate Civil Appeal No. 7208 OF 2018 & Ors. Page 4 of 17 of 100% of profits and gains for five assessment years commencing with initial assessment year and, thereafter, 25% of profits and gains. Total exemption, thus, is for period of 10 years, namely, @100% for 1 st five years and @ 25% for remaining five years. In these cases, all assessees started claiming exemption @ 100% on profits and gains and availed it for period of five years. During this period these assessees carried out substantial expansion and they claimed that, on that basis, they should be allowed exemption from profits and gains for another five years @ 100% instead of 25% from 6 th to 10th year as well. Interestingly, they admit that total period during which they are entitled to exemption would not exceed 10 years, as per mandate of sub-section (6). In this backdrop, question is as to whether assessees can again start claiming 100% exemption for next five years from profits and gains after availing same for first five years on ground that they have now carried out substantial expansion. High Court has answered question in affirmative and for this reason, it is department which has come up to this Court challenging said decision by filing these appeals. 3. Though, aforesaid question of law is identical in all aforesaid cases and arises in same fact situation mentioned Civil Appeal No. 7208 OF 2018 & Ors. Page 5 of 17 above, for sake of convenience, we may record facts of Civil Appeal No. 16851 of 2018 (@ SLP(C) 16851 of 2018). 4. Section 80-IA was inserted by Finance (No. 2) Act, 1991, with effect from 1st April, 1991. By virtue of said Section, gross total income (profits and gains) of assessee derived from any business of industrial undertaking, so specified therein, was entitled to certain deductions for period commencing from 1 st April, 1993. With effect from 1 st April, 2000, said provision was bifurcated with insertion of another Section, i.e., 80-IB, dealing with certain industrial undertakings other than infrastructure development undertakings. Thereafter, Legislator, in its wisdom, enacted special provision, in respect of units established in certain special category States. Thus, Section 80-IC came to be inserted by virtue of Finance Act, 2003, applicable with effect from 1 st April, 2004. At this point., It may only be noticed that correspondingly certain provisions of Section 80-IB were also amended/repealed. Deductions under said Section were discontinued for Assessment Years commencing from 1st April, 2004 (Sub-section (4) of Section 80- IB). Civil Appeal No. 7208 OF 2018 & Ors. Page 6 of 17 5. assessee firm derives income from manufacturing of printed embossed book binding cover material of cotton in sheet from and security fiber of dual coloured combination. assessee firm comprised of nine partners during relevant assessment year. assessee started its business activity/operation on 11 th July, 2005 and initial Assessment Year for claim of deduction under Section 80-IC of Act was Assessment Year 2006-07. assessee had already claimed deduction under Section 80- IC to extent of 100% eligible profit for five Assessment Years 2006-07 to Assessment Year 2010-11. However, it was noticed that assessee firm had again claimed 100% deduction against eligible profits in relevant Assessment Year 2012-13 which is seventh year of production for firm by claiming substantial expansion in Financial Year 2010-11. 6. Return declaring income of Rs. 27,93,410/- after claiming deduction under Section 80-IC of Rs. 12,62,77,168/- was e-filed by assessee firm on 28 th September, 2012. case was selected from scrutiny through CAS and accordingly, statutory notices under Section 143(2)/142(1) were issued by Income Tax Office (ITO) Ward-I, Solan. Civil Appeal No. 7208 OF 2018 & Ors. Page 7 of 17 7. assessee was asked to furnish reasons and justification for said claim of 100% as against eligible norm of 25%. assessee vide letter dated 12th January, 2015 submitted its reasons for claim stating that assessee fulfills all conditions for claim of 100% deduction. 8. Assessing Officer found that in view of provisions of Section 80-IC of Act assessee firm had already claimed deduction under Section 80-IC of Act at rate of 100% for five years from Assessment Year 2006-07 to Assessment Year 2010-11, i.e., from date of setting up of industrial undertaking and in view of same, it would be eligible for claim of deduction @ 25% of its eligible business profits for remaining five years, i.e., from Assessment Year 2011-2012 to Assessment Year 2015-2016. Assessing Officer denied claim of enhanced deduction in view of substantial expansion was claimed by assessee and, accordingly, restricted deduction to 25% of eligible profits for assessment year under Consideration. 9. Aggrieved by order of Assessing Officer dated 27 th February, 2015, assessee preferred appeal on 6 th April, 2015. Civil Appeal No. 7208 OF 2018 & Ors. Page 8 of 17 10. CIT(A) following decision of jurisdictional tribunal in case of M/s. Hycron Electronics Vs. ITO and other related cases, upheld order of Assessing Officer and dismissed appeal of assessee for 100% deduction. Feeling aggrieved, assessee filed further appeal before ITAT. 11. While observing that both parties agreed that issue involved in appeals, was squarely covered against assessee in view of decision of coordinate bench of ITAT in case of Hycron Electronics, dismissed appeals by composite order dated 11th August, 2016 for Assessment Year 2011-12 and Assessment Year 2012-13 by holding that assessee is eligible for deduction under Section 80 of Act @ 25% of profit derived from industrial undertaking for these years and not @ 100% of deduction claimed by assessee. 12. Dissatisfied with aforesaid order dated 11 th August, 2016, assessee filed appeal under Section 260A of Act, 1961 before High Court of Himachal Pradesh, Shimla raising therein substantial questions of law. result of other assessees was also on almost same pattern, who filed their respective appeals as well. High Court has decided issue in composite judgment, in favour of all these assessees. High Court held Civil Appeal No. 7208 OF 2018 & Ors. Page 9 of 17 that there is no restriction that undertaking or enterprise established after 7th January, 2003 cannot carried out Substantial Expansion cannot be carried out more than once as long as period of eligibility for claiming deduction under Section 80-IC of Act. High Court further held that since language of Section is very clear, reliance cannot be placed on Circular No. 7 of 2003 issued by CBDT on this issue substantial questions of law were answered in favour of assessee and appeals were allowed with direction that with respect to each of assessees Assessing Officer shall carry out fresh assessment and pass appropriate orders. 13. With aforesaid factual background, we now proceed to answer question of law formulated above. 14. gist of legislative history and purpose behind insertion of Section 80-IA, 80-IB and 80-IC has already been mentioned above. We have to keep in mind that these cases are confined to Section 80-IC alone. As mentioned above, sub-section (2) of Section 80-IC provides for tax benefit to those undertakings or enterprises which had set up their manufacturing units in certain specified areas including State of Himachal Pradesh to which this case is belonged. Civil Appeal No. 7208 OF 2018 & Ors. Page 10 of 17 15. It also gives benefit to these undertakings and enterprises which have undertaken substantial expansion during periods mentioned therein. As there is no dispute that all these assessees are covered by provisions of sub-section (2), that aspect need not be stated in detail. We, thus, reproduce those portions of provision which are relevant for our discussion: S.80-IC. Special Provisions in respect of certain undertakings or enterprises in certain special category States. (1) Where gross total income of assessee includes any profits and gains derived by undertaking or enterprise from any business referred to in sub-section (2), 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, as specified in sub-section (3). xxx xxx xxx (3) deduction referred to in sub-section (1) shall be- (I) in case of any undertaking or enterprise referred to in sub-clauses (I) and (iii) of clause (a) or sub-clauses (I) and (iii) or clause (b), of sub-section (2), one hundred per cent, of such profits and gains for ten assessment years commencing with initial assessment years; (ii) in case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with initial assessment year and thereafter, twenty-five per cent. (or thirty per cent where assessee is company) of profits and gains. (6) Notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking or enterprise under this section, where total period of deduction inclusive of period of deduction under this section, or under second proviso to sub-section (4) of section 80- Civil Appeal No. 7208 OF 2018 & Ors. Page 11 of 17 IB or under section 10C, as case may be, exceeds ten assessment years .. 16. essence of Section 3 as well as Section 6 have already been reproduced above. Whereas exemption is provided @ 100% of such profits and gains for five assessment years commencing with initial assessment years and, thereafter, 25% (or 30% where assessee is company) of profits and gains for next five years. deduction is limited to period of 10 years. 17. In this backdrop, question is as to whether these assessees, who had availed deductions @ 100% for first five years on ground that they had set up manufacturing unit as prescribed under sub-section (2) of Act, can start claiming deductions @ 100% again for next five years as they had undertaking substantial expansion during period mentioned in sub- section (2)? answer has to be in negative for following reasons: 18. We are dealing with deductions in respect of profits and gains under Section 80-IC of Act. No other provision is involved. This section makes special provisions in respect of certain undertakings or enterprises in certain special category States. Section 80-IC was inserted by Finance Act, 2003 w.e.f. Civil Appeal No. 7208 OF 2018 & Ors. Page 12 of 17 April 1, 2004. As per this provision, certain undertakings or enterprises in certain special category States are allowed deduction from such profits and gains, as specified in sub-section (3) of Section 80-IC. provisions of Section 80-IC provided deduction to manufacturing units situated in State of Sikkim, Himachal Pradesh and Uttaranchal and North-Eastern States. deduction was provided to new units established in aforesaid States, and also to existing units in those States if substantial expansion was carried out. deduction was available @ 100% for ten Assessment Years for units located in North-Eastern and in State of Sikkim and for units located in Himachal Pradesh, deduction was available @ 100% for five years and @ 25% for next five years. 19. In instant case, we are concerned with assessees who had established their undertakings in State of Himachal Pradesh. Sub-section (3), as noted above, mentions period of 10 years commencing with initial Assessment Year. Sub- section (6) puts cap of 10 years, which is maximum period for which deduction can be allowed to any undertaking or enterprise under this section, starting from initial Assessment Year. Another significant feature under sub-section (3) is that Civil Appeal No. 7208 OF 2018 & Ors. Page 13 of 17 deduction allowable is 100% of such profits and gains from undertaking or enterprise for five Assessment Years commencing with initial Assessment Year and thereafter deduction is allowable at 25% (or 30% where assessee is company) of profits and gains. Cumulative reading of these provisions brings out following aspects: (a) Those undertakings or enterprises fulfilling conditions mentioned in sub-section (2) of Section 80-IC become entitled to deduction under this provision. (b) This deduction is allowable from initial Assessment Year. Initial Assessment Year is defined in Section 80-IB(14)(c) of Act. (c) deduction is @ 100% of such profits and gains for first 5 Assessment Years and thereafter deduction is permissible @ 25% (or 30% where assessee is company). (d) Total period of deduction is 10 years, which means 100% deduction for first 5 years from initial Assessment Year and 25% (or 30% where assessee is company) for next 5 years. 20. When we keep in mind aforesaid scheme and spirit behind this provision, such situation cannot be countenanced where Civil Appeal No. 7208 OF 2018 & Ors. Page 14 of 17 assessee is able to secure deduction @ 100% for entire period of 10 years. If that is allowed it will amount to doing violence to provisions of sub-section (3) read with sub-section (6) of Section 80-IC. pragmatic and reasonable interpretation of Section 80-IC would be to hold that once initial Assessment Year commences and assessee, by virtue of fulfilling conditions laid down in sub-section (2) of Section 80-IC, starts enjoying deduction, there cannot be another Initial Assessment Year for purposes of Section 80-IC within aforesaid period of 10 years, on basis that it had carried substantial expansion in its unit. 21. We are conscious of our recent judgment rendered by this very Bench in Mahabir Industries v. Principal Commissioner of Income Tax (Civil Appeal Nos. 4765-4766 of 2018 decided on May 18, 2018). However, fine distinction needs to be noted between two sets of cases. In Mahabir Industries, assessees had availed initial deduction under different provision, namely, Section 80-IA of Act, i.e. by fulfilling conditions mentioned in sub-section (4) of Section 80-IA. Those conditions are altogether different. Deduction in respect of profits and gains under said provision is admissible when these Civil Appeal No. 7208 OF 2018 & Ors. Page 15 of 17 profits and gains are from industrial undertakings or enterprises engaged in infrastructure development etc. Even this availment started at time when Section 80-IC was not even on statute book. As mentioned above, Section 80-IC was inserted by Finance Act, 2003 with effect from April 01, 2004. assessees in those cases had started claiming and were allowed deductions from Assessment Years 1998-99 and 1999-2000 under Section 80-IA and from Assessment Year 2000-01 to Assessment Year 2005-06 under Section 80-IB of Act. deduction was, thus, claimed by assessees in those appeals under new provision i.e. Section 80-IC on fulfilling conditions contained in sub-section (2) of Section 80-IC for first time for Assessment Year 2006-07. Thus, insofar as those cases are concerned, initial Assessment Year under Section 80-IC started only from Assessment Year 2006-07. In contrast, position here is altogether different. These assessees have availed deduction under Section 80-IC alone. Initially, they claimed deduction on ground that they had set up their units in State of Himachal Pradesh and after availing deduction @ 100% they want continuation of this rate of 100% for next 5 years also under same provision on ground that they have made substantial expansion. As pointed out above, Civil Appeal No. 7208 OF 2018 & Ors. Page 16 of 17 once assessees had started claiming deduction under Section 80-IC and initial Assessment Year has commenced within aforesaid period of 10 years, there cannot be another initial Assessment Year thereby allowing 100% deduction for next 5 years also when sub-section (3), in no uncertain terms, provides for deduction @ 25% only for next 5 years. It may be asserted again that assessees accept legal position that they cannot claim deduction of more than 10 years in all under Section 80-IC. 22. In view of aforesaid discussion, we hold that after availing deduction for period of 5 years @ 100% of such profits and gains from units , assessees would be entitled to deduction for remaining 5 Assessment Years @ 25% (or 30% where assessee is company), as case may be, and not @ 100%. question of law is, thus, answered in favour of Revenue thereby allowing all these appeals. No order as to costs. .......J. (A.K. SIKRI) ......J. (ASHOK BHUSHAN) NEW DELHI; AUGUST 20, 2018. Civil Appeal No. 7208 OF 2018 & Ors. Page 17 of 17 Commissioner of Income-tax v. Classic Binding Industrie