IMPORTANT POINT
The assessee is not entitled to benefit of exemption if it loses its eligibility as a small scale industrial undertaking in a particular assessment year even if in initial year eligibility was satisfied.

Headnote:Income Tax act, 1961 – Section 80IB(3) – Incentive to Small Scale Industries (SSI) for 10 years – Incentive is given to a particular category of industry for a specified purpose – There is no provision that the incentive shall continue irrespective of change of status of the undertaking – The undertaking has to be eligible, i.e., a SSI in each assessment year when claim for deduction is made – Each assessment year is a separate unit – No difference in the situation where assessee is not initially eligible or where the assessee though initially eligible loses the qualification of eligibility in subsequent assessment years. (Para 12, 13, 14, 16, 22)
       (1992) 196 ITR 188 (SC) : (1992) 3 SCC 78; 391 ITR 1 : (2017) 9 SCC 364; (2014) 3 SCC 556; (2011) 2 SCC 74; (2005) 1 SCC 368 – Relied upon
       Facts of the case:
       The question : “When once the eligible business of an assessee is given the benefit of deduction under Section 80IB on the assessee satisfying the conditions mentioned in sub-sec. (2) of Section 80IB, can the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, it ceases to be a small scale industry?” arose before the High Court.
       The High Court answered the question in the negative and in favour of the assessee.
       Finding of the Court:
       The assessee is not entitled to benefit of exemption if it loses its eligibility as a small scale industrial undertaking in a particular assessment year even if in initial year eligibility was satisfied.
       Result: Appeals disposed of.

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 the judgment and order dated 28th July, 2014 of the High Court of Karnataka at Bangalore in Income Tax Appeal No.477 of 2013. The High Court framed the following question of law for consideration :

“When once the eligible business of an assessee is given the benefit of deduction under Section 80IB on the assessee satisfying the conditions mentioned in sub-sec. (2) of Section 80IB, can the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, it ceases to be a small scale industry?”

2. The High Court answered the question in the negative and in favour of the assessee. The revenue has questioned the said view.

3. The respondent assessee is engaged in manufacture and sale of components/parts of CNC lathes and similar machines. Its income was assessed for the assessment year 2005-2006 at Rs.1,79,82,653/-. However, the Commissioner of Income Tax, interfered with the assessment under Section 263 to the extent it allowed deduction under Section 80IB(3) of the Income Tax Act, 1961 (the Act) and directed fresh decision on the said issue vide order dated 16th January, 2009. Thereafter, the Assessing authority on 14th December, 2009 disallowed the claim of Rs.75,81,910/- towards deduction under Section 80B(3). The same was upheld by the Commissioner in appeal and the Income Tax Appellate Tribunal in second appeal. However, the High Court has reversed the said orders and upheld the claim.

4. The relevant Section is as follows :

“80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings –
(1) Where the gross total income of an 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 the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an 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 the following conditions, namely :-
(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:
Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;
(ii) it is not formed by the transfer to a 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 the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India :
Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted.
Explanation 1.- For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :-
(a) such machinery or plant was not, at any time previous to the date of the installation by the 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 su

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2017 Supreme(SC) 1152

IMPORTANT POINTThe assessee is not entitled to benefit of exemption if it loses its eligibility as a small scale industrial undertaking in a particular assessment year even if in initial year eligibility was satisfied.

Cases Referred (5)

IMPORTANT POINT
The assessee is not entitled to benefit of exemption if it loses its eligibility as a small scale industrial undertaking in a particular assessment year even if in initial year eligibility was satisfied.