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CALCUTTA HIGH COURT
RAJESH BINDAL, CJ, RAJARSHI BHARADWAJ, J
PRINCIPAL COMMISSIONER OF INCOME TAX, KOLKATA 2, KOLKATA – Appellant
Versus
V.N. ENTERPRISES LIMITED – Respondent
ITAT 129 of 2016 | ITA 34 of 2014
For the Respondents:J.P. Khaitan, Senior Advocate, Ms. Swapna Das, Mr. Siddharth Das, Pratyush Jhunjhunwala, Advocates, Mr. P.K. Bhaumick, Mr. Debasish Chowdhuri, Advocates, Mr. Arati Agarwal, Mr. Avra Mazumder, Ms. Rosy Banerjee, Advocates
The Court affirmed that blending tea does not constitute manufacturing under Section 10B of the Income Tax Act, establishing strict interpretation for tax exemptions.
Headnote:(A) Income Tax Act, 1961 - Section 10B - Exemption for newly established 100% export-oriented undertakings - Claim for exemption denied; Tribunal's ruling on blending of tea as not constituting manufacture is upheld - Court finds that Section 10B does not include 'processing' as eligible for exemption (Paras 6, 41, 50).
(B) Assessments - Burden of proof rests on the assessee to demonstrate entitlement to exemption - Strict interpretation of exemption provisions means ambiguity benefits revenue, not assessee (Paras 66.1, 66.2, 66.3).
Facts of the case:
Appeals relate to exemption claims under Section 10B for businesses involved in blending tea, with disputes surrounding whether the activity constitutes manufacturing (Paras 2, 4, 5).
Findings of Court:
The Tribunal's findings were consistent with previous rulings that tax exemption requires clear evidence of manufacturing validity. Court reinforces that blending tea is not manufacturing, thus disallowing claims (Paras 41, 43).
Issues: Main questions include whether blending tea qualifies under manufacturing provisions of Section 10B and implications of legal precedent on current tax exemptions (Paras 6, 51).
Ratio Decidendi: The court reiterates that Section 10B’s framework does not accommodate 'processing' within its definition of manufacture; thus, appellants fail to meet necessary legal criteria for exemption (Paras 38, 66).
Result: Appeals are dismissed.
| Table of Content |
|---|
| 1. basic case facts and issues in appeals. (Para 1 , 2 , 3) |
| 2. court's reframing of legal questions and final ruling. (Para 4 , 5 , 9 , 22 , 45) |
| 3. asserts the nature of business and exemption eligibility. (Para 6 , 7 , 10 , 11 , 19) |
| 4. interpretive guidelines for tax exemption. (Para 36 , 40 , 44) |
| 5. final comments on the importance of legal interpretation. (Para 46) |
O R D E R
1. This order will dispose of two appeals bearing Nos. ITAT 129 of 2016 and ITA 34 of 2014.
2. ITA 34 of 2014 has been filed against the order passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Kolkata (for short ‘the Tribunal’) in I.T.A. No. 698/Kol/ 2009 for the Assessment Year 2004-05 raising the following substantial questions of law.
“A) Whether in the facts and circumstances of the instant case the Learned Tribunal erred in not appreciating that the business of the assessee did not involve any manufacturing process and thus the deduction of 3,72,40,380/- ought to have been disallowed under Section 10B of the said Act?
B) Whether in the facts and circumstances of the instant case the Learned Tribunal ought to have appreciated that the said Commissioner correctly applied the provisions of Section 263 of the said Act and suitably revised the order dated 15.12.2006 passed by the assessing officer inasmuch as the same had been found to be erroneous?”
3. ITAT 129 of 2016 has been filed against the order passed by Income Tax Appellate Tribunal ‘C’ Bench, Kolkata in I.T.A. No. 1777/Kol/2008 I.T.A. No. 1379/Kol/2008 and I.T.A. No. 1761/Kol/2009 for the assessment years 2002-03, 2003-04 and 2005-06, respectively raising the following substantial questions of law.
“A) Whether on the facts and in the circumstances of the case the learned Tribunal was justified in law to allow the benefits of Section 10B to the assessee;
B) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in making a statement being patently wrong that the appeal of the revenue is dismissed as not pressed despite the fact that the assessee chose not to contest the ground taken before the Tribunal and arriving at a wrong conclusion in the revenue’s appeal;
C) Whether on the facts and in the circumstances of the case the Tribunal was justified in law to rely upon a Special Bench decision of Kolkata Tribunal in Madhu Jayanti case ignoring the Apex Court decision in the case of Tara Agency reported in 292 ITR 444 holding, inter-alia, that the blending of tea was not constituting manufacture nor production;
D) Whether on the facts and in the circumstances of the case the Tribunal was justified in law to hold that for the assessment year 2003-04 the assessee formed a new set up with a 100% export oriented undertaking for eligible business and thus entitled to have the benefit under Section 10B of the said Act;”
4. At the very outset, it is agreed by learned Counsel for the parties that the tax effect in ITAT 129 of 2016 for the assessment year 2005-06 is less than 1 crore. Hence, the appeal pertaining to assessment year 2005-06 be dismissed as withdrawn, however, leaving the substantial questions of law raised therein, open. As single appeal has been filed for the assessment years 2002-03, 2003-04, 2005-06, appeal pertaining to assessment 2005-06 is dismissed as withdrawn. The legal issues for the assessment years 2002-03, 2003-04 in ITAT 129 of 2016 are being considered.
5. In our view, the substantial question of law which arises for determination in the present appeals needs to be reframed, as under:
i) Whether in the facts and circumstances of the case the assessee will be entitled to exemption under Section 10B of the Income Tax Act for business of blending of tea being carried on by it by taking aid from provisions of other statutes and the policies?
6. The learned Counsel for the revenue submitted that while allowing the claim of the assessee, the Tribunal had followed its earlier order in the case of the assessee in ITA No. 1189/Kol/20
