1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 17TH DAY OF NOVEMBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.441 OF 2016 BETWEEN: SAINT GOBAIN CRYSTALS & DETECTORS (I) LIMITED SY. NO.171/2, MARUTHI INDUSTRIAL ESTATE HOODI RAJAPALYA WHITEFIELD MAIN ROAD BANGALORE 560048 REP. HEREIN BY ITS MANAGER-FINANCE & TAXATION MR. MANJUNATHASWAMY K.R. ... APPELLANT (BY SRI. T. SURYANARAYANA, ADV.,) AND: 1. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6(1)(1). (FORMERLY DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(3). BMTC BUILDING, II FLOOR ROOM NO.237, 80 FT. ROAD KORAMANGALA, BANGALORE-560095. 2. COMMISSIONER OF INCOME TAX-I BANGALORE 2 BMTC BUILDING, II FLOOR 80 FT. ROAD, KORAMANGALA BANGALORE-560095. ... RESPONDENTS (BY SRI. K.V. ARAVIND, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 11.05.2016 PASSED IN ITA NO.708/BANG/2013 FOR ASSESSMENT YEAR 2008-09, PRAYING TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (II) ALLOW APPEAL AND SET ASIDE ORDER OF TRIBUNAL DATED 11-05-2016 PASSED IN ITA NO.708/BANG/2013 (ANNEXURE-C), TO EXTENT QUESTIONED HEREIN. (III) PASS SUCH OTHER OR SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT TO PASS ON FACTS AND IN CIRCUMSTANCES OF CASE AND IN INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by assessee. subject matter of appeal pertains to Assessment year 2008-09. appeal was admitted by bench of this Court vide order dated 06.12.2017 on following substantial question of law: 3 Whether on facts and in circumstances of case Tribunal was right in holding that Appellant's Unit 1 was not entitled to deduction under Section 10B for assessment year 2008-09, on basis that ten consecutive assessment years for purposes of said provision would begin from assessment year 1997-98, when Appellant commenced manufacture, and not from assessment year 1999-00 when Appellant actually started claiming relief under Section 10B of Act. 2. Facts leading to filing of this appeal briefly stated are that assessee is public limited company, which is engaged in manufacture and sale of radiation detectors and radiation measuring equipment. assessee has been exporting its product exclusively to United States of America and France. assessee has two export oriented units situated in Bangalore viz., Unit No.1 and Unit No.2. assessee filed its revised 4 return of income on 22.02.2010 declaring income of Rs.7,57,274/- after claiming deduction of Rs.1,44,11,1999/- for Unit No.1 and Rs.3,29,87,814/- for Unit No.2 under Section 10B of Act. return of income was taken up for scrutiny assessment under Section 143(3) of Act. Assessing Officer by order dated 15.12.2011 disallowed claim of deduction under Section 10B of Act inter alia on ground that in respect of Unit Nos.1 and 2 assessee was not engaged in activity of manufacture but was merely engaged in activity of processing and assembling. In respect of unit No.1, it was also held that time limit for claiming deduction under Section 10B of Act has expired as assessee was given to manufacture articles in Assessment Year 1997- 98 itself and therefore, ten year tax holiday period was not available in Assessment Year in question. Assessing Officer assessed total income of assessee at Rs.4,81,56,287/-. 5 3. assessee thereupon filed appeal before Commissioner of Income Tax (Appeals) who by order dated 28.02.2013 inter alia held that necessary declaration about opting out of Section 10B for Assessment Year 1998-99 had been filed for unit No.1 and therefore, upheld claim of assessee and held that assessee was entitled to benefit of deduction under Section 10B of Act for period of ten Assessment Years from 1999-00 onwards. appeal preferred by assessee was allowed. revenue approached Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short) by filing appeal. tribunal vide order dated 11.05.2016 inter alia held that activity of assessee amounts to manufacture, however, with regard to claim of assessee for deduction under Section 10B of Act to unit No.1, tribunal set aside order passed by Commissioner of Income Tax (Appeals) and upheld order of Assessing Officer on ground 6 that time limit for claiming deduction under Section 10B of Act has expired. In aforesaid factual background, this appeal has been filed by assessee. 4. Learned counsel for assessee submitted that tribunal erred in holding that period of 10 consecutive Assessment Years has to be reckoned from Assessment Year, in which production or manufacture of article or thing was commenced and period for claiming benefit of deduction under Section10B of Act had expired in Assessment Year 2006-07. It is also contended that tribunal ought to have appreciated that unit No.1 of assessee had availed off benefit under unamended Section 10B of Act and therefore, in view of proviso to Section 10B(1) of Act, assessee was eligible for deduction under Section 10B for unexpired period by virtue of amendment to Section 10B of Act for Assessment Year 1999-00. It is further submitted that tribunal 7 ought to have appreciated that assessee had not claimed relief of deduction under Section 10B of Act in respect of unit No.1 for Assessment Year 1998-99 and had opted out of Section 10B for Assessment Year 1998-99 by filing appropriate declaration in terms of Section 10B(7) of Act, which was in existence at relevant time. In support of aforesaid submissions, reliance has been placed on decisions in 'COMMISSIONER OF INCOME-TAX VS. DSL SOFTWARE LTD.', (2012) 18 TAXMANN.COM 151 (KARANTAKA) and 'THE COMMISSIONER OF INCOME TAX AND ANOTHER VS. M/S CYPRESS SEMI CONDUCTOR', ITA NO.1016/2018 AND CONNECTED MATTERS DECIDED ON 07.11.2014. 5. On other hand, learned counsel for assessee submitted that period of eight years commences from date of manufacture and assessee has opted 5 years out of 8 years. It is also urged that amendment to Section 10B for years is from 8 date of manufacture and not from first year of claim of five years out of eight years as per amended provisions. It is also contended that if contention of assessee is accepted, period of ten years would be more than 10 years from date of manufacture and in decision rendered in case of DSL Software Ltd. supra it has been held that period of ten years commences from date of manufacturing. It is also urged that period of ten years start from 1997-98 i.e., first year of manufacture. 6. We have considered submissions made by learned counsel for parties and have perused record. Section 10B of Act prior to amendment by Income Tax (second Amendment) Act, 1998 with effect from 01.04.1999 granted tax holiday for period of five years falling within period of eight years beginning with Assessment Year in which manufacture / production of article or things has begun. Once assessee began manufacture, it could choose year 9 from which it would start claiming deduction and from that year, it would be entitled for deduction for five consecutive years within period of eight years. relevant extract of Section 10B(3) of Act prior to its amendment reads as under: 10B(3) profits and gains referred to in sub-Section (1) shall not be included in total income of assessee in respect of any five consecutive Assessment Years, falling within period of eight years beginning with Assessment Year relevant to previous year in which undertaking begins to manufacture or produce articles or things, specified by assessee at his option. After amendment with effect from 01.04.1999, period of tax holiday was extended for period of ten years. amended Section 10B(3) reads as under: 10B(3) profits and gains referred to in sub-Section (1) shall not be included in total income of assessee in respect of any ten consecutive Assessment Years beginning 10 with Assessment Year relevant to Previous Year in which undertaking begins to manufacture or produce articles or things. 7. assessee started manufacture in Assessment Year 1997-98 but did not claim deduction under Section 10B of Act, for that year as well as subsequent Assessment Year viz., 1998-99. For first time, claim for deduction under Section 10B of Act was made for Assessment Year 1999-2000. This court in CYPRESS SEMI CONDUCTOR supra has held that ten year period would begin from year in which assessee first claimed deduction. In aforesaid decision, decision of this court in DSL Software Ltd. has also been considered. It is also pertinent to mention here that CYPRESS SEMI CONDUCTOR supra, this court has relied on DSL Software Ltd supra and decision rendered in CYPRESS SEMI CONDUCTOR has been upheld by Supreme Court as SLP preferred against decision in case of CYPRESS SEMI 11 CONDUCTOR has been dismissed vide order dated 01.11.2017 passed in SLP (C) No.21341/2012. In view of preceding analysis, substantial question of law framed by bench of this court is answered in favor of assessee and against revenue in result, order of tribunal insofar as it holds that unit No.1 of assessee is not entitled to deduction under Section 10B of Act is hereby quashed. In result, appeal is allowed. Sd/- JUDGE Sd/- JUDGE ss Saint Gobain Crystal & Detectors (I) Limited v. Deputy Commissioner of Income-tax, Circle-6(1)(1) (Formerly DCIT, Circle - 12(3), Bangalore / Commissioner of Income-tax-I, Bangalore