SAINT GOBAIN CRYSTALS & DETECTORS (I) LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 17TH DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE 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. THE COMMISSIONER OF INCOME TAX-I

BANGALORE

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 THE ASSESSMENT YEAR 2008-09, PRAYING TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (II) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE TRIBUNAL DATED 11-05-2016 PASSED IN ITA NO.708/BANG/2013 (ANNEXURE-C), TO THE EXTENT QUESTIONED HEREIN. (III) PASS SUCH OTHER OR SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT TO PASS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court vide order dated 06.12.2017 on the following substantial question of law:

3 Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the Appellant's Unit 1 was not entitled to deduction under Section 10B for the assessment year 2008-09, on the basis that the ten consecutive assessment years for the purposes of the said provision would begin from the assessment year 1997-98, when the Appellant commenced manufacture, and not from the assessment year 1999-00 when the Appellant actually started claiming the relief under Section 10B of the Act. 2. Facts leading to filing of this appeal briefly stated are that the assessee is a public limited company, which is engaged in the manufacture and sale of radiation detectors and radiation measuring equipment. The assessee has been exporting its product exclusively to United States of America and France. The assessee has two export oriented units situated in Bangalore viz., Unit No.1 and Unit No.2. The assessee filed its revised

4 return of income on 22.02.2010 declaring an 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 the Act. The return of income was taken up for scrutiny assessment under Section 143(3) of the Act. The Assessing Officer by an order dated 15.12.2011 disallowed the claim of deduction under Section 10B of the Act inter alia on the ground that in respect of Unit Nos.1 and 2 the assessee was not engaged in the activity of manufacture but was merely engaged in the 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 the Act has expired as the assessee was given to manufacture the articles in the Assessment Year 1997- 98 itself and therefore, ten year tax holiday period was not available in the Assessment Year in question. The Assessing Officer assessed the total income of the assessee at Rs.4,81,56,287/-.

5 3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 28.02.2013 inter alia held that necessary declaration about opting out of Section 10B for the Assessment Year 1998-99 had been filed for unit No.1 and therefore, upheld the claim of the assessee and held that the assessee was entitled to benefit of deduction under Section 10B of the Act for a period of ten Assessment Years from 1999-00 onwards. The appeal preferred by the assessee was allowed. The revenue approached the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short) by filing an appeal. The tribunal vide order dated 11.05.2016 inter alia held that activity of the assessee amounts to manufacture, however, with regard to claim of the assessee for deduction under Section 10B of the Act to unit No.1, the tribunal set aside the order passed by the Commissioner of Income Tax (Appeals) and upheld the order of the Assessing Officer on the ground

6 that the time limit for claiming the deduction under Section 10B of the Act has expired. In the aforesaid factual background, this appeal has been filed by the assessee. 4. Learned counsel for the assessee submitted that the tribunal erred in holding that the period of 10 consecutive Assessment Years has to be reckoned from Assessment Year, in which production or manufacture of an article or thing was commenced and the period for claiming the benefit of deduction under Section10B of the Act had expired in the Assessment Year 2006-07. It is also contended that the tribunal ought to have appreciated that unit No.1 of the assessee had availed off the benefit under the unamended Section 10B of the Act and therefore, in view of proviso to Section 10B(1) of the Act, the assessee was eligible for deduction under Section 10B for the unexpired period by virtue of amendment to Section 10B of the Act for Assessment Year 1999-00. It is further submitted that the tribunal

7 ought to have appreciated that the assessee had not claimed the relief of deduction under Section 10B of the Act in respect of unit No.1 for the Assessment Year 1998-99 and had opted out of Section 10B for the Assessment Year 1998-99 by filing appropriate declaration in terms of Section 10B(7) of the Act, which was in existence at the relevant time. In support of aforesaid submissions, reliance has been placed on the 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 the other hand, learned counsel for the assessee submitted that the period of eight years commences from the date of manufacture and the assessee has opted 5 years out of 8 years. It is also urged that amendment to Section 10B for years is from

8 the 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 the contention of the assessee is accepted, period of ten years would be more than 10 years from the date of manufacture and in the decision rendered in the case of DSL Software Ltd. supra it has been held that the period of ten years commences from the date of manufacturing. It is also urged that period of ten years start from 1997-98 i.e., the first year of manufacture. 6. We have considered the submissions made by learned counsel for the parties and have perused the record. Section 10B of the Act prior to amendment by Income Tax (second Amendment) Act, 1998 with effect from 01.04.1999 granted tax holiday for a period of five years falling within a period of eight years beginning with the Assessment Year in which the manufacture / production of article or things has begun. Once an assessee began manufacture, it could choose the year

9 from which it would start claiming deduction and from that year, it would be entitled for deduction for five consecutive years within a period of eight years. The relevant extract of Section 10B(3) of the Act prior to its amendment reads as under: 10B(3) The profits and gains referred to in sub-Section (1) shall not be included in the total income of the assessee in respect of any five consecutive Assessment Years, falling within a period of eight years beginning with the Assessment Year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things, specified by the assessee at his option. After the amendment with effect from 01.04.1999, the period of tax holiday was extended for a period of ten years. The amended Section 10B(3) reads as under: 10B(3) The profits and gains referred to in sub-Section (1) shall not be included in the total income of the assessee in respect of any ten consecutive Assessment Years beginning

10 with the Assessment Year relevant to the Previous Year in which the undertaking begins to manufacture or produce articles or things. 7. The assessee started manufacture in the Assessment Year 1997-98 but did not claim deduction under Section 10B of the Act, for that year as well as subsequent Assessment Year viz., 1998-99. For the first time, the claim for deduction under Section 10B of the Act was made for the Assessment Year 1999-2000. This court in CYPRESS SEMI CONDUCTOR supra has held that ten year period would begin from the year in which assessee first claimed the deduction. In the aforesaid decision, the 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 the decision rendered in CYPRESS SEMI CONDUCTOR has been upheld by the Supreme Court as SLP preferred against the decision in the 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, the substantial question of law framed by a bench of this court is answered in favor of the assessee and against the revenue in the result, the order of the tribunal insofar as it holds that unit No.1 of the assessee is not entitled to deduction under Section 10B of the Act is hereby quashed. In the result, the appeal is allowed. Sd/- JUDGE Sd/- JUDGE ss