M/s Maral Overseas Ltd., V. The Addl. CIT. R. 5,

ITA 777/IND/2004

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7528 (ITAT-INDORE)
• Duration Of Justice: 7 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-05-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 22-09-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Keywords: Business income; Depreciation; Retrospective amendment; Question of law; Competent authority
• Section: 80HHC; 80IB; 10B; 37; 263; 139

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI G.E. VEERABHADRAPPA, PRESIDENT SHRI G.C. GUPTA,VICE PRESIDENT AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NOS. 777/IND/2004 AND 295/IND/2006 A.YS. 2001-02 AND 2002-03 M/S MARAL OVERSEAS LIMITED MARAL SAROVAR KHALBUJURG, KASRAWAD KHARGONE PAN AACCM0230B :: APPELLANT VS ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 5 INDORE :: RESPONDENT ITA NOS. 900/IND/2004 & 356/IND/2006 A.YS. 2001-02 & 2002-03 ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 5 INDORE :: APPELLANT VS M/S MARAL OVERSEAS LIMITED KHARGONE :: RESPONDENT 2 ASSESSEE BY SHRI AJAY VOHRA AND SHRI AJAY TULSIYAN DEPARTMENT BY SHRI KESHAV SAXENA , CIT DR DATE OF HEARING 6.12.2011 DATE OF PRONOUNCEMENT .0 3 .2012 O R D E R PER BENCH THIS SPECIAL BENCH IS CONSTITUTED BY HON'BLE PRESI DENT UNDER SECTION 255(3) OF THE INCOME TAX ACT, 1961 FOR DECI DING THE FOLLOWING QUESTIONS OF LAW : - 1. WHETHER, AN UNDERTAKING CLAIMING EXEMPTION U/S 10B OF THE INCOME-TAX ACT, 1961, AS IT EXISTED PRIOR TO 1.4.1999 WOULD BE ENTITLED FOR EXEMPTION/DEDUCTION U/S 10B FOR EXTENDED PERIOD OF TEN YEARS AS PER THE AMENDED PROVISIONS OF LAW BROUGHT ON STATUTE WITH EFFECT FROM 01.04.1999 ? 2. WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE UNDERTAKING IS ELIGIBLE FOR DEDUCTION ON EXPORT INCENTIVE RECEIVED BY IT IN TERMS OF PROVISIONS OF SECTION 10B(1) READ WITH SECTION 10B(4) OF THE ACT ? 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFACTURE AND MAINLY EXPORT OF COT TON YARN, GREY & FINISHED KNITTED COTTON FABRICS & READYMADE GARMENTS. DURING THE ASSESSMENT YEAR 2001-02, THE ASSESSEE HA S CLAIMED INCOME EXEMPT U/S 10B OF I.T. ACT FOR THREE UNITS N AMELY 3 ORIGINAL UNIT WHICH STARTED PRODUCTION FROM A.Y. 19 92-93, SPINNING UNIT NO. III WHICH STARTED PRODUCTION FROM A.Y. 1996- 97 AND SPINNING UNIT NO. IV WHICH STARTED PRODUCTIO N FROM A.Y. 1999-2000. THIS IS GIVEN BELOW IN TABULAR FORM:- E.O.U. DATE OF COMMERCIAL PRODUCTION RELEVANT ASSESSMENT YEAR EXEMPTION U/S 10B CLAIMED UP TO AY A.ORIGINAL UNIT 01.02.1992 1992 - 93 2001 - 02 B.SPINNING UNIT NO. III 01.06.1995 1996 - 97 2005 - 06 C.SPINNING UNIT NO. IV 19.08.1998 1999 - 00 2008 - 09 3. DURING COURSE OF ASSESSMENT, THE ASSESSING OFFICE R OBSERVED THAT THE FIRST YEAR OF OPERATION OF ORIGIN AL UNIT WAS ASSESSMENT YEAR 1992-93 AND AS THERE WAS LOSS, AS P ER PROVISIONS OF SECTION 10B(3), THE ASSESSEE COMPANY EXERCISED ITS OPTION NOT TO AVAIL EXEMPTION U/S 10B OF INCOME-TAX ACT, 1961, FOR ASSESSMENT YEARS 1992-93, 1993-94 AND 1994-95. AS SUCH, THE FIRST YEAR OF ITS CLAIM U/S 10B WAS ASSESSMENT YEAR 1995-96 AND THE SAME WAS ADMISSIBLE UP TO ASSESSMENT YEAR 1 999-2000 ONLY SINCE THE ASSESSEE WAS ENTITLED FOR DEDUCTION ONLY FOR FIVE CONSECUTIVE YEARS OUT OF EIGHT YEARS. AS PER THE AS SESSING OFFICER, THE ASSESSEE WENT AHEAD FURTHER AND CLAIME D EXEMPTION U/S 10B FOR ASSESSMENT YEAR 2000-01 AND ASSESSMENT YEAR 2001-02 ALSO. AS PER THE ASSESSING OFFICER, THE ASS ESSEE 4 COMPANY EXCEEDED ITS CLAIM BEYOND PERMISSIBLE LIMIT OF 5 CONSECUTIVE YEARS OUT OF EIGHT YEARS. HE FURTHER HE LD THAT THIS CLAIM WAS OVERSTITCHED TO SEPARATE UNITS III AND IV SET UP IN ASSESSMENT YEAR 1996-97 AND 1999-2000 RESULTING INT O EXTENDED CLAIM UP TO ASSESSMENT YEAR 2005-06 AND 20 08-09 RESPECTIVELY. AS PER THE ASSESSING OFFICER, THE UNI T NOS. III AND IV ARE INTERDEPENDENT AND COMPLEMENTARY TO EACH OTH ER, THEREFORE, THOSE COULD NOT BE HELD TO BE INDEPENDEN T NEW UNITS ENTITLED FOR CLAIM OF EXEMPTION U/S 10B OF INCOME-T AX ACT, 1961. THEREAFTER, RELYING UPON THE DECISION OF HON'BLE K OLKATA TRIBUNAL REPORTED IN TATA TEA LIMITED VS. JT. CIT, 87 ITD 351 (KOL), THE ASSESSING OFFICER CONCLUDED THAT THE AS SESSEE COMPANY WAS ENTITLED FOR EXEMPTION UP TO ASSESSMENT YEAR 1999-2000 ONLY AND ITS CLAIM OF EXEMPTION IN SUBSEQ UENT YEARS WAS NOT TENABLE AND, THEREFORE, THE SAME WAS REJECT ED. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) ALLOWED ASSES SEES CLAIM OF DEDUCTION U/S 10-B AFTER OBSERVING THAT TH E CASE OF TATA TEA IS RELATED TO ASSESSMENT YEAR 1998-99, WHEREAS SECTION 10B WAS AMENDED W.E.F. 1.4.99, THEREBY EXTENDING THE PE RIOD OF EXEMPTION FROM 5 YEARS TO 10 YEARS AND ACCORDINGLY BENEFIT OF 10 YEAR EXEMPTION IS AVAILABLE FROM ASSESSMENT YEAR 19 99-2000 ONWARDS ONLY AND NOT FROM ASSESSMENT YEAR 1998-99 A S CLAIMED 5 BY TATA TEA. TATA TEA HAD ALREADY EXHAUSTED BENEFIT OF 5 YEARS EXEMPTION ON THE BASIS OF RELEVANT AND OPERATIVE PR OVISIONS BEFORE ASSESSMENT YEAR 1998-99. THE CIT(A) ALSO OBS ERVED THAT THE FACTS IN THE CASE OF TATA TEA LIMITED WERE AS U NDER :- THE ASSESSEE- COMPANY HAD AN EOU KNOWN AS INSTANT TEA DIVISION IN RESPECT OF WHICH EXEMPTION U/S 10B WAS CLAIMED FOR THE YEAR 1998-99, EVEN THOUGH THE ASSESSEE HAD ALREADY AVAILED OF THE BENEFIT OF SECTION 10B FOR FIVE CONSECUTIVE YEARS IN TERMS OF SECTION 10B(3) AS IT STOOD IN THE SAID RELEVANT ASSESSMENT YEAR. THE ASSESSEES CLAIM WAS THAT IN VIEW OF AMENDMENT IN SECTION 10B WITH EFFECT FROM 1.4.1999, THE BENEFIT WAS AVAILABLE FOR TEN CONSECUTIVE YEARS AND SINCE THE ASSESSEE HAD COMPLETED ONLY FIVE YEARS OF EXEMPTION U/S 10B, THE ASSESSEE WAS ALSO ELIGIBLE FOR FURTHER EXEMPTION FOR NEXT FIVE YEARS. THAT CLAIM WAS DECLINED BY THE ASSESSING OFFICER BY OBSERVING THAT THE AMENDMENT, ENHANCING THE NUMBER OF ELIGIBLE ASSESSMENT YEARS TO TEN DID NOT PROVIDE FOR RETROSPECTIVE OPERATION AND, ACCORDINGLY, THE BENEFIT OF TEN YEARS COULD NOT BE GRANTED IN THE ASSESSMENT YEAR IN QUESTION. THE CIT(A) FURTHER STATED THAT IN THE LIGHT OF THE ABOVE FACTS, THE HON'BLE I.T.A.T. HAS CONCLUDED AS UNDER :- IN VIEW OF THE ABOVE DISCUSSION, WE SEE NO MERIT IN ASSESSEES GRIEVANCE. IN OUR CONSIDERED VIEW, THE ASSESSEE HAVING ALREADY AVAILED SECTION 10B BENEFIT OF 5 CONSECUTIVE ASSESSMENT YEARS, WAS NOT ELIGIBLE FOR EXEMPTION U/S 10B, ANY FURTHER, SO FAR AS ASSESSMENT YEAR 1998-99 IS CONCERNED. ACCORDINGLY, WE CONFIRM THE CONCLUSIONS ARRIVED BY THE AUTHORITIES BELOW AND DECLINE TO INTERFERE IN THE MATTER. 6 AS PER THE CIT(A), THE VERDICT IN THE CASE RELIED O N BY THE ASSESSING OFFICER HAS BEEN RESTRICTED TO ASSESSMENT YEAR 1998- 99, TO WHICH THE PROVISIONS OF PRE-AMENDED SECTION 10B APPLIED. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FU RTHER STATED THAT IT HAS ALSO BEEN OBSERVED BY THE HON'BLE BENC H THAT THE QUESTION OF EXTENDING THE TAX HOLIDAY PERIOD CAN ON LY BE EXAMINED IN THE YEAR IN WHICH THE AMENDED LAW IS TO TAKE EFFECT I.E. ASSESSMENT YEAR 1999-2000 OR THEREAFTER. THIS OBSERVATION RESTRICTS THE APPLICABILITY OF THE SAID JUDGMENT SP ECIFICALLY FOR THE ASSESSMENT YEAR 1998-99. HE FURTHER OBSERVED THAT THE CASE OF THE PRESENT ASSESSEE BEFORE HIM IS THAT OF ASSESSME NT YEAR 2001- 02 TO WHICH THE PROVISIONS OF SUBSTITUTED SECTION 1 0B APPLY. THE HON'BLE I.T.A.T., KOLKATA BENCH HAD NO OCCASION TO DISCUSS THE NEWLY SUBSTITUTED S. 10B AS APPLICABLE FOR THE ASSE SSMENT YEAR 2001-02, WHICH IS THE RELEVANT YEAR IN THIS CASE AN D IT HAD DISCUSSED ONLY THE AMENDMENTS MADE EFFECTIVE FROM 0 1.04.1999 WHICH ARE NOT RELEVANT FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FU RTHER OBSERVED THAT THE LAW AS APPLICABLE TO ANY PARTICUL AR ASSESSMENT YEAR CAN ONLY BE APPLIED FOR THAT ASSESSMENT YEAR, NOTHING IS TO 7 BE READ IN, AND NOTHING IS TO BE IMPLIED. THE APPEL LANT COMPANY HAS NOT CLAIMED THAT THE PROVISIONS OF SUBSTITUTED SECTION 10B ARE RETROSPECTIVE IN NATURE. THE AMENDED PROVISIONS ARE APPLICABLE W.E.F. 01.04.1999 AND THOSE SUBSTITUTED ARE APPLICABLE W.E.F. 01.04.2001 AND THE APPELLANTS CLAIM UNDER T HE SAID SECTION IS AS PER THESE AMENDED/SUBSTITUTED PROVISI ONS, AS APPLICABLE TO THE RESPECTIVE ASSESSMENT YEAR. THERE IS NO RESTRICTION ON THE EXISTING UNITS FOR CLAIMING THE EXEMPTION FOR A PERIOD OF TEN YEARS. ON THE CONTRARY THE FIRST PROV ISO TO THE NEWLY SUBSTITUTED SECTION 10B(1) CATEGORICALLY ALLOWS EXE MPTION TO THE EXISTING UNITS FOR THE UNEXPIRED PERIOD OF TEN YEAR S. EVEN THE EXPLANATORY NOTE RELATING TO THE SAID ENACTMENT (24 5 ITR ST 34) STATES THAT AN UNDERTAKING SET UP BEFORE 31.03.2000 SHALL BE ENTITLED TO THE DEDUCTION FOR A PERIOD OF TEN YEARS . THOUGH THIS AMENDMENT IS EFFECTIVE FROM 01.04.2001, IT SPECIFIC ALLY ALLOWS EXEMPTION TO EXISTING UNIT FOR A PERIOD OF TEN YEAR S. 6. AFTER ANALYZING THE PROVISIONS OF SECTION 10B FROM THE YEAR OF ITS INCEPTION TILL THE YEAR UNDER CONSIDERATION, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED AS U NDER :- 2.4. AS PER THE CLEAR, PLAIN AND UNAMBIGUOUS LANGUAGE OF SECTION 10B, AS APPLICABLE TO THIS RELEVANT ASSESSMENT YEAR THE APPELLANT IS ENTITLED TO CLAIM EXEMPTION FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEAR, BEGINNING WITH THE ASSESSMENT 8 YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNIT BEGAN TO MANUFACTURE OR PRODUCE. THAT THE FACTS IN THE CASE OF TATA TEA LIMITED ARE DIFFERENT AND CLEARLY DISTINGUISHABLE FROM THOSE IN THE CASE OF THIS APPELLANT. I, THEREFORE, ADJUDICATE GROUND NO.1 AND GROUND NO.1(A) IN FAVOUR OF THE APPELLANT AND DIRECT THE AO TO ALLOW EXEMPTION U/S 10B IN RESPECT OF THE NORMAL COMPUTATION AS WELL AS THE COMPUTATION U/S 115JB, FOR ALL THE ELIGIBLE UNITS O F THE EOU, FOR A PERIOD OF TEN YEARS, STARTING FROM THE ASSESSMENT YEAR IN WHICH THE RESPECTIVE UNIT STARTED PRODUCTION. IN RESULT ALL THE UNITS OF THE EOU OF THE APPELLANT ARE ELIGIBLE FOR EXEMPTION U/S 10B, FOR THE YEAR UNDER APPEAL, WHICH THE AO IS DIRECTED TO ALLOW. THE CIT(A) FURTHER DISCUSSED THAT THE ENTIRE SECTIO N 10B HAS BEEN SUBSTITUTED BY THE FINANCE ACT 2000 W.E.F. 01 .04.2001. SECTION 10B(1) AS SUBSTITUTED BY THE FINANCE ACT 2 000 W.E.F. 01.04.2001 AND AS APPLICABLE FOR THE YEAR UNDER CON SIDERATION READS AS UNDER:- SUBJECT TO THE PROVISIONS OF THIS SECTION A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A 100 % EXPORT ORIENTED UNDERTAKING FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE FIRST PROVISO TO SEC 10B(1) READS AS UNDER :- PROVIDED THAT WHEREIN IN COMPUTING THE TOTAL INCOME OF THE UNDERTAKING IN ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED 9 BY APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT 2000, AN UNDERTAKING SHALL BE ENTITLED TO THE DEDUCTION REFERRED TO IN THIS SUB SECTION ONLY FOR THE UNEXPIRED PERIOD OF AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS. IT WILL NOT BE OUT OF PLACE TO MENTION HERE THE SEQUENCE OF AMENDMENTS/SUBSTITUTIONS MADE TO SECTION 10B WHICH WAS INITIALLY INSERTED BY THE FINANCE ACT, 1988, W.E.F. 1.4.89 TO PROVIDE FOR A COMPLETE TAX HOLIDAY TO 100 % EXPORT ORIENTED UNDERTAKINGS FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS FALLING WITHIN THE BLOCK OF EIGHT ASSESSMENT YEARS, SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS. (A) THE FINANCE ACT 1993 AMENDED SECTION 10B(4)(III) WITH RETROSPECTIVE EFFECT FROM 01.04.91 TO PROVIDE THAT AN UNDERTAKING AVAILING OF THE BENEFITS OF DEDUCTIONS U/S 10B SHALL NOT BE ELIGIBLE TO CLAIM DEDUCTION U/S 80IA. (B) BY THE FINANCE ACT, 1994, THE TAX HOLIDAY U/S 10B WAS RESTRICTED TO THE EOUS EXPORTING AT LEAST 75 % OF THEIR TURNOVER. SUCH RESTRICTION WAS SPECIFICALLY AND PROSPECTIVELY MADE APPLICABLE TO 100 % EOUS WHICH COMMENCED PRODUCTION ON OR AFTER 1 ST APRIL 1994. IT IS PERTINENT TO NOTE HERE THAT A SPECIFIC MENTION WAS MADE THAT THE SAID RESTRICTION WILL APPLY ONLY TO NEW UNITS COMING INTO EXISTENCE AFTER 1.4.94. (C) ANOTHER MAJOR AMENDMENT WAS MADE BY THE INCOME TAX (AMENDMENT) ACT 1998 W.E.F. 1.4.1999, WHEREIN THE PERIOD OF BENEFIT OF FIVE YEARS OUT OF EIGHT YEARS WAS EXTENDED TO A PERIOD OF TEN YEARS OUT OF TEN YEARS. IT IS WORTH WHILE TO NOTE THAT PROVISO TO SECTION 10B(3) WAS SPECIFICALLY OMITTED BY THE INCOME TAX (AMENDMENT) 10 ACT 1998 W.E.F. 01.04.1999, WHICH READ AS UNDER :- PROVIDED THAT NOTHING IN THIS SUB-SECTION SHALL BE CONSTRUED TO EXTEND THE AFORESAID FIVE ASSESSMENT YEARS TO COVER ANY PERIOD AFTER THE EXPIRY OF THE SAID PERIOD OF EIGHT YEARS. HAD IT BEEN THE INTENTION OF THE LAW MAKERS TO NOT TO ALLOW THE BENEFIT OF EXTENDED PERIOD TO THE EXISTING UNITS, THE ABOVE PROVISO WOULD NOT HAVE BEEN OMITTED AND WOULD HAVE BEEN MADE APPLICABLE TO EXISTING UNITS. SIMILARLY, EXPLANATION(II) DEFINING THE TERM RELEVANT ASSESSMENT YEARS WAS ALSO SUBSTITUTED W.E.F. 0.04.1999, WHICH IS REPRODUCED HERE UNDER : ERSTWHILE EXPLANATION APPLICABLE UP TO 31.3.99. (II) RELEVANT ASSESSMENT YEAR MEANS THE FIVE CONSECUTIVE ASSESSMENT YEARS SPECIFIED BY THE ASSESSEE AT HIS OPTION UNDER SUB SECTION (3) OF SUB SECTION (5) AS THE CASE MAY BE. THE SUBSTITUTED EXPLANATION W.E.F. 01.04.1999 (II) RELEVANT ASSESSMENT YEARS MEANS THE TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN SUB SECTION (3) THIS SUBSTITUTION LAYS DOWN THE CLEAR INTENTION OF THE LEGISLATURE TO PROVIDE THE BENEFIT OF EXTENDED PERIOD OF TEN YEARS TO ALL THE UNITS, EXISTING OR NEW. WHEN THIS AMENDMENT WAS BROUGHT INTO EFFECT, THE APPELLANT WAS STILL ELIGIBLE FOR EXEMPTION U/S 10B FOR TWO ASSESSMENT YEARS AND AS SUCH 11 QUALIFIED FOR EXEMPTION FOR THE UNEXPIRED PERIOD OF TEN YEARS. 6. IT IS A SETTLED RULE OF INTERPRETATION THAT NO WORDS CAN BE READ INTO A PROVISIONS THAT DID NOT EXIST. IT IS FOR THE PARLIAMENT TO LEGISLATE AND FOR THE JUDICIARY TO INTERPRET THE LAW AS ENACTED BY THE PARLIAMENT. THIS VIEW GETS SUPPORT FROM THE FOLLOWING DECISIONS :- A. CIT VS. AJAX PRODUCTS LTD., (55 ITR 741, 747)(S.C.) B. CIT VS. SHAHZADANAND & SONS AND OTHERS, (60 ITR 392, 400) ( S.C). C. SMT. TARULATA SHYAM VS. CIT, (IT 108 ITR)345, 357) (S.C.). HAD IT BEEN THE INTENTION OF THE LAW MAKES TO RESTRICT THE TAX HOLIDAY PERIOD TO FIVE YEARS IN RESPECT OF THE EXISTING UNDERTAKINGS, THE SAME WOULD HAVE BEEN BROUGHT OUT IN THE SECTION CLEARLY AND SPECIFICALLY AS HAD BEEN DONE EARLIER IN SECTION 80HH(2)(1), 80HHA, 80I(IA), 80IB ETC. IF ANY PARTICULAR AMENDMENT IS INTENDED TO BE MADE APPLICABLE ONLY FOR SPECIFIC UNITS, SUCH INTENTION IS ALWAYS CLEARLY SPELLED IN THE STATUTE, AS IS ALSO EVIDENT FROM SUB SECTION (2)((IA) APPEARING IN THE OLD SEC10B WHICH WAS APPLICABLE SPECIFICALLY TO UNITS COMMENCING PRODUCTION ON OR AFTER 01.04.1994. STATEMENT OF OBJECTS AND REASONS AS REPORTED IN 245 ITR (STATUTES) PAGE 34 WITH SPECIFIC REFERENCE TO CLAUSES 15.3 AND 15.14 OF CIRCULAR NO.794 DATED 9 TH AUGUST, 2000, READS AS UNDER :- . THUS AN UNDERTAKING SET UP ON OR BEFORE 31.03.2000 SHALL BE ENTITLED 12 TO THE DEDUCTION FOR A PERIOD OF TEN YEARS, THAT SET UP DURING THE PERIOD 01.04.2000 TO 31.03.2001 FOR A PERIOD OF NINE YEARS, THAT SET UP IN 2001-02 FOR A PERIOD OF EIGHT YEARS AND SO ON. THE EXISTING UNITS WILL GET THE DEDUCTION FOR THE UNEXPIRED PERIOD OF TEN YEARS ONLY. 15.14 THE PROVISIONS OF NEWLY SUBSTITUTED SECTION 10B SHALL APPLY MUTATIS MUTANDIS IN RESPECT OF 100% EXPORT ORIENTED UNITS. IT IS OBVIOUS FROM THE ABOVE STATEMENT OF OBJECTS AND REASONS GIVEN AT THE TIME OF ENACTING AMENDMENT TO SECTION 10B, THE LAW HAD VERY CLEAR INTENTION TO GIVE THE BENEFIT OF EXTENDED PERIOD OF TEN YEARS TO THE EXISTING UNITS AS WELL. IT IS IMPORTANT TO NOTE THAT EXTENSION IS POSSIBLE ONLY IN THE CASE OF EXISTING UNITS AND IF IT HAD BEEN THE INTENTION OF THE LEGISLATURE TO GIVE BENEFIT TO NEW UNDERTAKING THAN WORD EXTEND THE PERIOD OF TAX HOLIDAYS WOULD NOT HAVE FOUND PLACE IN THE OBJECTS AND REASONS OF THE EARLIER AMENDMENT IN 1999. 7. THE DEPARTMENT FILED APPEAL BEFORE THE TRIBUNAL AGA INST THE ABOVE ORDER OF CIT(A). AS DIFFERENT VIEW HAS BE EN TAKEN BY THE COORDINATE BENCH, KOLKATA, IN THE CASE OF TATA TEA LIMITED, THE BENCH REFERRED ABOVE QUESTION OF LAW FOR CONSIDERAT ION BY THE SPECIAL BENCH. 8. SHRI KESHAV SAXENA, CIT DR, APPEARED ON BEHALF OF T HE REVENUE AND ARGUED THAT THE ASSESSEE IS ELIGIBLE F OR DEDUCTION 13 U/S 10B OF THE I.T. ACT UPTO A.Y. 1999-2000 I.E. 8 YEARS BEGINNING WITH THE ASSESSMENT YEARS IN WHICH UNDERT AKING BEGAN MANUFACTURING I.E. FROM A.Y. 1992-93. FROM 1 APRIL, 1998 THE LAW WAS AMENDED AND 8 YEARS WERE SUBSTITUTED BY 10 YEAR S, IN SECTION 10B(3) OF THE I.T. ACT. THE RESTRAINT OF E XEMPTION UPTO 8 YEARS WERE ALSO WITHDRAWN. THE ONLY QUESTION WHICH IS TO BE SOLVED IS WHETHER AMENDMENT OF FINANCE ACT, 1998 WI LL APPLY TO NEW UNITS ESTABLISHED AFTER 01.04.1998 OR THEY WILL APPLY TO EXISTING E.O.US ALSO. 9. THE LEARNED CIT DR PLACED RELIANCE ON THE DECISIO N OF TATA TEA LIMITED, 87 ITD 351, AND CONTENDED THAT TH IS DECISION REPLIES TWO ISSUES NAMELY AMENDMENTS IN STATUTES AR E PROSPECTIVE AND NOT RETROSPECTIVE AND AMENDED PROVI SION DOES NOT SAY THAT EXTENDED PERIOD OF EXEMPTION OF 10 YEA RS INSTEAD OF 8 YEARS IS APPLICABLE TO EXISTING UNITS AS WELL. TH E LD. CIT DR FURTHER SUBMITTED THAT THE ASSESSEE HAS CLAIMED INC OME EXEMPT U/S 10B OF I.T. ACT FOR THREE UNITS NAMELY ORIGINAL UNIT WHICH STARTED PRODUCTION FROM A.Y. 1992-93, SPINNING UNIT NO. III WHICH STARTED PRODUCTION FROM A.Y. 1996-97 AND SPINNING U NIT NO. IV WHICH STARTED PRODUCTION FROM A.Y. 1999-2000. THIS IS GIVEN BELOW IN TABULAR FORM:- 14 E.O.U. DATE OF COMMERCIAL PRODUCTION RELEVANT ASSESSMENT YEAR EXEMPTION U/S 10B CLAIMED UP TO AY A.ORIGINAL UNIT 01.02.1992 1992 - 93 2001 - 02 B.SPINNING UNIT NO. III 01.06.1995 1996 - 97 2005 - 06 C.SPINNING UNIT NO. IV 19.08.1998 1999 - 00 2008 - 09 10. LEARNED CIT DR FURTHER SUBMITTED THAT CRUCIAL QUEST ION IS WHETHER THE ASSESSEE AS AN UNDERTAKING WHICH HAS ST ARTED PRODUCTION IN A.Y. 1992-93 CAN GET BENEFIT UPTO 10 YEARS I.E. UPTO A.Y. 2001-02 OR IT CAN EXTEND THAT PERIOD BEYO ND 10 YEARS AS A RESULT OF SOME EXPANSION IN ITS PRODUCTION CAP ACITY BY WAY OF ESTABLISHING UNIT III & IV. SECTION 10B OF I.T. ACT DO NOT PROVIDE FOR ANY EXEMPTION BEYOND 10 YEARS TO THE SA ME UNDERTAKING. THE NEW UNITS NO. III AND IV ARE NOT R EGISTERED AS NEW UNDERTAKING, BUT MERELY AN EXPANSION OF OLD UND ERTAKING. IN PRESENT CASE UNDERTAKING CAME INTO EXISTENCE AND STARTED PRODUCTION IN A.Y. 1992-93. THE SAME UNDERTAKING CA NNOT BE STATED TO START ONCE AGAIN IN A.Y. 1996-97 AND AGAI N IN A.Y. 1999-2000 IN RESPECT OF UNIT NO. III AND IV, RESPEC TIVELY, MERELY BECAUSE OF SOME EXPANSION IN ITS PRODUCTION CAPACIT Y. 11. WITH REGARD TO ELIGIBILITY OF TWO NEW UNITS UNDER S ECTION 10B OF THE ACT, CONTENTION OF THE LEARNED CIT DR WA S THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 10B OF I.T. ACT FOR THREE 15 UNITS NAMELY ORIGINAL UNIT WHICH STARTED PRODUCTION FROM A.Y. 1992-93, SPINNING UNIT NO. III WHICH STARTED P RODUCTION FROM A.Y. 1996-97 AND SPINNING UNIT NO. IV WHICH ST ARTED PRODUCTION FROM A.Y. 1999-2000. CONTENTION OF THE L EARNED CIT DR WAS THAT TWO SUBSEQUENT UNITS ARE MERE EXPAN SION OF ORIGINAL UNDERTAKING AND THEY WERE NOT SEPARATE UNDERTAKINGS SO AS TO ENABLE THE ASSESSEE TO CLAIM DEDUCTION OF THEIR INCOME U/S 10B OF THE ACT. AS PER THE LEAR NED CIT DR IT IS ONLY A CASE OF EXPANSION OF UNDERTAKING BECAUSE EVEN AFTER EXPANSION OF 1995 AND 1998 TOTAL EXPORT WAS O F RS. 206. 95 CRORES IN A.Y. 2002-03. THE EXPORT OF ORIGINAL U NIT OF 1992 WAS RS. 133.41 CRORE AND EXPORT FROM OTHER TWO SPIN NING UNITS III & IV ESTABLISHED IN 1995 & 1998 COMBINED TOGETHER WAS ONLY RS. 73.54 CRORES. BESIDES MERE EXPANSION W AS PERMITTED BY MINISTRY OF INDUSTRY TO THE EXISTING U NDERTAKING AS PER THE APPROVAL LETTER. 12. THE LD. CIT DR FURTHER ARGUED THAT I N THE DECISIONS MENTIONED BELOW EXPANSION OF THE INDUSTRIAL UNDERTA KING IS CONSIDERED ONLY WITH REFERENCE AS TO WHETHER IT CON STITUTES RECONSTRUCTION OR NOT AS PROVIDED U/S 80J (4) OF I. T. ACT WHICH IS SIMILAR TO SECTION 10B(2) OF THE I.T. ACT :- 16 STATE OF GUJARAT VS. SAURATHSTRA CEMENT & CHEMICAL INDUSTRIES (2003) 260 ITR 181 (SC):- SO CALLED NEW UNIT IS THUS NOT TOTALLY INDEPENDENT OF ASSETS OF EXISTING UNIT-PHYSICAL IDENTITY WITH OLD UNIT IS PRESERVED AND THE NEW UNIT IS AN EXPANSION OF THE EXISTING UNDERTAKING-RESPONDENT THEREFORE NOT ENTITLED TO EXEMPTION. THE HONBLE APEX COURT OBSERVED IN PARA 10 THAT RE SPONDENT WAS HAVING TWO KILNS AND THIRD IS ADDED. THIS LEADS TO INEVITABLE CONCLUSION THAT NEW UNIT IS AN EXPANSION OF EXISTIN G UNDERTAKING. ONCE IT IS HELD TO BE A CASE OF EXPANS ION, THE CLAIM OF EXEMPTION FROM ELECTRICITY DUTY SET UP BY THE RE SPONDENTS, COMPLETELY FALLS TO THE GROUNDS. 13. IN PRESENT CASE ALSO ASSESSEE INITIALLY ESTABL ISHED SPINNING UNIT IN A.Y. 1992-93 AND ONE MORE SPINNING UNIT WAS ADDED IN EACH OF TWO YEARS NAMELY A.Y. 1996-97 & A. Y. 1999- 2000. THERE WAS NO CHANGE IN THE PRODUCT LINE OF MANUFACTURING. THE ASSESSEE COMPANY HAD NOT GOT PER MISSION TO SET UP A NEW INDUSTRIAL UNDERTAKING BUT THE PERM ISSION WAS GRANTED FOR INCREASE IN CAPACITY FROM 39088 SPINDLE S TO 89088 SPINDLES. 14. RELIANCE WAS ALSO PLACED ON DECISION OF HON'BL E KERALA HIGH COURT IN THE CASE OF CANARA WIRE & WIRE PRODUC TS LIMITED, (1992) 196 ITR 426 (KER). HE SUBMITTED THAT IN THIS CASE 17 DEDUCTION U/S 80J OF THE I.T. ACT WAS DENIED ON THE GROUND THAT INDUSTRIAL UNIT SET UP MUST BE NEW AND THOUGH NEW P LANT & MACHINERY ARE ERECTED FOR PRODUCING EITHER SAME COM MODITIES OR SOME DISTINCT COMMODITIES, IT SHOULD NOT BE A CASE OF RECONSTRUCTION OF OLD BUSINESS. IT IS NOT SUFFICIEN T THAT ASSESSEE HAS INVESTED LARGE AMOUNTS & NEW INSTALLATIONS HAVE CONTRIBUTED TO INCREASE PRODUCTION CAPACITY OF THE ASSESSEE. MOST OF CASES DECIDED ARE ON SECTION 80J WHICH IS M ATERIALLY DIFFERENT FROM SECTION 10B. SECTION 80J SAYS:-WHERE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING, A DEDUCTION FROM SUCH PR OFITS AND GAINS OF SO MUCH OF AMOUNT THEREOF AS DOES NOT EX CEED THE AMOUNT CALCULATED AT RATE OF 6% PER ANNUM ON THE CAPITAL EMPLOYED IN INDUSTRIAL UNDERTAKING. . 15. HE FURTHER ARGUED THAT THE CONTENTION OF ASSES SEE THAT HUGE CAPITAL IS INVESTED FOR INSTALLING NEW UNITS I S NOT MATERIAL FOR CLAIM OF EXEMPTION IN RESPECT OF THREE NEW UNITS. THE LEARNED CIT DR FURTHER ARGUED THAT IF WE EXAMINE THE ISSUE OBJECTIVELY THE INDUSTRIAL UNDERTAKING CAME INTO EXISTENCE IN A.Y. 1992-93 AND STARTED BUSINESS OF MANUFACTURING AND EXPORT OF YARN & OTHER TEXTILE PRODUCTS. THE PERMISSION WAS GRANTED TO IT IN A.Y. 1996-97 & 1999-2000 BY UNDER SECRETARY, MINISTRY OF INDUSTRY 18 ONLY TO ENHANCE CAPACITY OF EXISTING UNIT. IN VIEW OF THIS IT CANNOT BE SAID THAT A NEW UNDERTAKING CAME INTO EXISTENCE AS NO PERMISSION FOR ANY NEW UNIT WAS GRANTED BY COMPETEN T AUTHORITY. MERE ENHANCEMENT OF CAPACITY FOR SAME PRODUCTS COUL D NOT BE TERMED AS BRINGING NEW UNIT IN EXISTENCE. YARN MANU FACTURING IS DIFFERENT FROM STEEL OR CEMENT MANUFACTURING AND S INGLE UNIT CAN BE SUFFICIENT FOR PRODUCING YARN, BUT THAT DOES NOT MAKE IT SEPARATE & INDEPENDENT INDUSTRIAL UNDERTAKING, ESPE CIALLY WHEN MARKETING AND ADMINISTRATION ARE THE SAME FOR OLD U NDERTAKING AND NEW SPINNING DIVISIONS. 16. AS PER LD. CIT DR, PROVISION OF SECTION 10B (3) PROHIBITS CLAIM U/S 10B BEYOND 10 YEAR PERIOD FOR AN UNDERTAK ING AS REPRODUCED BELOW:- THE PROFITS AND GAINS REFERRED TO IN SUB-SECTION (1) SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF TH E ASSESSEE IN RESPECT OF ANY 95 [TEN] CONSECUTIVE ASSESSMENT YEARS, 96 [* * *] BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS. HE FURTHER ARGUED THAT ANY EXPANSION OR ADDITION/AL TERATION OF SAME UNDERTAKING WILL NOT ENTITLE IT FOR A BENEFIT U/S 10B BEYOND 10 YEARS, UNLESS THE COMPETENT AUTHORITY APPROVES I T AS A NEW UNDERTAKING OR A NEW EOU WHICH IS NOT THE CASE WITH ASSESSEE. 19 AS PER THE LEARNED CIT DR, ANSWER IS REQUIRED TO TH E QUESTION AS TO WHETHER ASSESSEE MARAL OVERSEAS LTD. IS ELIGIBLE FOR CLAIM U/S 10B UPTO 8 YEARS ONLY OR IT IS ELIGIBLE UPTO EXTEN DED PERIOD OF 10 YEARS OR THE CLAIM U/S 10B CAN BE EXTENDED EVEN BEY OND 10 YEARS. SINCE BOTH ISSUES OF ALLOWANCES OF DEDUCTION U/S 10B BEYOND 8 YEARS TO THE UNDERTAKING ESTABLISHED IN 19 92 AND THE ISSUE OF ALLOWANCE OF SECTION 10B TO THE SPINNING U NIT III & IV ESTABLISHED IN 1996 & 1999 ARE TO BE ANSWERED BY AP PLICATION OF SECTION 10B(3) OF THE IT ACT. AS PER THE LEARNED CI T DR, THE TRIBUNAL HAS TO DECIDE BOTH OF THEM TOGETHER U/R 12 OF THE ITAT RULE, 1946 AS HELD IN THE CASE OF HUKUMCHAND MILLS LTD. 63 ITR 232 (SC). 17. WITH REGARD TO THE ELIGIBILITY OF ASSESSEE FOR DEDUCTION ON EXPORT INCENTIVE RECEIVED BY IT IN TERMS OF PROVISI ONS OF SECTION 10-B(1) READ WITH SECTION 10-B(4) OF THE ACT, THE C ONTENTION OF LD. CIT DR WAS THAT SECTION 10B OF THE I.T. ACT US ES THE WORDS DERIVED. HOWEVER, EXPORT INCENTIVES CANNOT BE SA ID TO BE DERIVED FROM THE ASSESSEES UNDERTAKING. 18. THE LD. CIT DR PLACED RELIANCE ON THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA, 317 ITR 218, WHEREIN HONBLE SUPREME COURT DEFINED THE TERM D ERIVED IN 20 PARA 14 BY USING THE EXPRESSION DERIVED FROM PARL IAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGR EE. 19. HE FURTHER CONTENDED THAT THE ISSUE OF IMPORT LICEN SE SALE WAS CONSIDERED BY HONBLE APEX COURT IN STERLING FO ODS 237 ITR 579 (SC) AND IT WAS DECIDED THAT SAME CANNOT FORM P ART OF EXPORT TURNOVER FOR CALCULATION OF DEDUCTION U/S 80HHC. 20. RELIANCE WAS ALSO PLACED ON THE OBSERVATION OF MADR AS HIGH COURT IN THE CASE OF INDIA CEMENT INTERNATIONA L VS. ITO 304 ITR 322 (MAD), WHEREIN IT WAS HELD THAT INTERES T RECEIVED ON EXPORT PROFITS DEPOSITED WITH BANK DOES NOT QUALIFY FOR RELIEF U/S 10A OF INCOME-TAX ACT, 1961, AS THERE IS NO DIRECT NEXUS BETWEEN INTEREST INCOME AND INDUSTRIAL UNDERTAKING. RELIANCE WAS ALSO PLACED ON THE DECISION OF I.T.A.T. CHENNAI BENCH IN THE CASE OF CALIFORNIA SOFTWARE CO.LTD., WHEREIN IT WAS HELD THAT DEFINITION OF EXPORT TURNOVER IN SECTION 10B IS M ORE OR LESS SIMILAR TO THE ONE THAT APPEARS IN SECTION 80HHC AN D THAT QUANTUM OF RELIEF TO BE ALLOWED TO AN EXPORTER IS T O BE BASED ON NET INFLOW OF FOREIGN EXCHANGE. HE FURTHER CONTEN DED THAT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF B. DESHRAJ, 301 ITR 439 ARE DISTINGUISHABLE ON FACTS. 21. THE LEARNED CIT DR FURTHER SUBMITTED THAT APPLICATI ON OF CIRCULAR NO. 621 OF CBDT WAS PROSPECTIVE AND NOT RE TROSPECTIVE. 21 PRIOR TO ITS APPLICATION 'COMMISSION' WAS A PART OF 'PROFITS OF THE BUSINESS' FOR WHICH RELIANCE MAY BE PLACED ON THE D ECISION OF SPECIAL BENCH IN CASE OF INTERNATIONAL I RESEARCH PARK LABORATORIES LTD. [1995J 212 ITR (AT) 1. 22. IN VIEW OF THE ABOVE SUBMISSIONS, THE LEARNED CIT D R VEHEMENTLY ARGUED THAT THE ASSESSEE WAS NOT ELIGIBL E FOR CLAIM OF DEDUCTION U/S 10B WITH REFERENCE TO THE AM ENDED PROVISION OF LAW WHICH ARE PROSPECTIVE IN NATURE. 23. WITH REGARD TO THE DECISION OF HON'BLE KARNATAKA HI GH COURT IN CASE OF M/S. DSL SOFTWARE LTD. IN ITA NO. 462 OF 2007 DATED 12.10.2011 CITED BY ASSESSEE, CONTENTION OF THE LD. CIT DR WAS THAT WHEN ASSESSEE ALREADY ENJOYED BENEFIT O F 5 YEARS U/S 1OB OF THE IT. ACT UPTO A.Y. 1997-98, HOW THE A MENDED PROVISIONS OF SECTION LOB, WHICH WERE AMENDED FROM 01.04.1999 COULD BE RETROSPECTIVELY APPLIED TO ASSESSEE TO GIV E IT A BENEFIT OF DEDUCTION FROM A.Y. 1993-94 TO A.Y. 2002-03, IS AN ISSUE NOT EVEN CONSIDERED BY HON'BLE KARNATAKA HIGH COURT. 24. SHRI AJAY VOHRA APPEARED ON BEHALF OF THE ASSESS EE AND SUBMITTED THAT THE ASSESSEE IS 100% EXPORT ORIENTED UNIT WHICH WAS ELIGIBLE FOR DEDUCTION U/S 10B IN RESPECT OF IT S SAROVAR DIVISION AND TWO SEPARATE AND INDEPENDENT SPINNING UNITS. HE 22 SUBMITTED THAT INITIALLY UNDER THE PROVISIONS OF SE CTION 10B EXEMPTION WAS AVAILABLE FOR FIVE CONSECUTIVE YEARS OUT OF EIGHT ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR IN WHICH THE ELIGIBLE UNDERTAKING BEGINS TO MANUFACTURE OR P RODUCE ARTICLE. THEREAFTER IT AMENDMENT ACT, 1998 EXTENDE D THE PERIOD OF BENEFIT FROM FIVE YEARS TO TEN YEARS WITH EFFECT FROM 1.4.1999. PROVISO TO SECTION 10B(3) WAS ALSO OMITTED WHICH ST IPULATED THAT THE PERIOD OF FIVE ASSESSMENT YEARS SHALL NOT BE EX TENDED TO COVER ANY PERIOD AFTER THE EXPIRY OF THE SAID PERIO D OF EIGHT YEARS. SINCE THE ASSESSEE HAS NOT CLAIMED ANY DEDU CTION IN THE INITIAL THREE ASSESSMENT YEARS, FOR THE FIRST TIME IT STARTED CLAIM OF DEDUCTION WITH EFFECT FROM THE ASSESSMENT YEAR 1 995-96 TILL 1999-00. SINCE THE AMENDMENT WAS MADE WITH EFFECT FROM 1.4.1999, ALL THE THREE UNITS OF THE ASSESSEE BECAM E ENTITLED TO THE BENEFIT OF SECTION 10B FOR TEN YEARS STARTING F ROM THE YEAR OF COMMENCEMENT OF PRODUCTION. OUR ATTENTION WAS INVI TED TO CIRCULAR NO. 794 DATED 9.8.2000 CONTAINING EXPLANAT ORY NOTES TO THE AMENDMENT BROUGHT BY THE FINANCE ACT, 2000 WHIC H CLARIFIED THAT AN UNDERTAKING SET UP BEFORE 31 ST MARCH, 2000 SHALL BE ENTITLED TO DEDUCTION FOR A PERIOD OF TEN YEARS FROM THE YEAR IN WHICH THE UNDERTAKING BEGINS MANUFACTURE OR PRODUCES ARTICLES OR THINGS. HE FURTHER SUBMITTED THAT APPL YING THE 23 AFORESAID SETTLED LEGAL POSITION, ONCE IN THE ASSES SMENT YEAR 1999-2000, THE AMENDED LAW BECAME APPLICABLE, THE A SSESSEE COULD HAVE ONLY BEEN ALLOWED EXEMPTION/ DEDUCTION U NDER THE AMENDED LAW AND NOT UNDER THE PRE-AMENDED LAW. IN T HE ASSESSMENT YEAR 1999-2000, THERE WAS NO WAY TO GO B ACK TO THE NON-EXISTENT/ PRE-AMENDED LAW SO AS TO EITHER ALLOW HIGHER/ LOWER DEDUCTION OR TO DENY THE SAME ALTOGETHER. HE FURTHER SUBMITTED THAT ONE OF THE EXAMPLE OF AMENDED LAW BE ING APPLICABLE IS THE SECOND PROVISO INSERTED IN SECTIO N 10B(1) OF THE ACT BY THE FINANCE ACT, 2002, W.E.F. 1.04.2003. THE SAID PROVISO PROVIDED THAT FOR THE ASSESSMENT YEAR 2003-04, DEDU CTION UNDER SECTION 10B OF THE ACT WOULD BE ALLOWED @ 90% AND N OT 100%. THE SAID AMENDMENT GOVERNED ALL THE ASSESSEE CLAIMI NG DEDUCTION UNDER THAT SECTION IN THE ASSESSMENT YEAR 2003-04, IRRESPECTIVE OF THE DATE OF SETTING UP OF THE UNIT. RELIANCE WAS PLACED UPON THE DECISION OF THE KARNATAKA HIGH COUR T IN THE CASE OF DSL SWOFTWARE LIMITED; INCOME-TAX ACT, 1961 , NO. 462 OF 2007 WHEREIN THE ASSESSEE HAD COMMENCED PRODUCTI ON IN YEAR 1993-94 AND CLAIMED BENEFIT UND SECTION 10B TI LL ASSESSMENT YEAR 1997-98. IN VIEW OF THE AMENDED PRO VISION THE ASSESESE BECAME ENTITLED TO BENEFIT FROM ASSESSMENT YEARS 1993-94 TO 2002-03. THE ASSESSEE ACCORDINGLY CLAIME D BENEFIT 24 FOR THREE MORE YEARS FROM ASSESSMENT YEARS 1999-00 TO 2001- 02. THE BENEFIT FOR ASSESSMENT YEAR 2001-02 WAS DEN IED BY THE ASSESSING OFFICER. 25. THE HIGH COURT HELD THAT IN TERMS OF AMENDMENT CARR IED OUT IN THE YEAR 1999, THE TAX HOLIDAY BENEFIT STOOD EXTENDED FOR A PERIOD TEN CONSECUTIVE ASSESSMENT YEARS. IT WAS H ELD THAT ON 01.04.1999, WHEN THE AMENDED PROVISION CAME INTO FO RCE BY VIRTUE OF SAID PROVISION, THE ASSESSEE WOULD BE ENT ITLED TO THE BENEFIT OF TAX HOLIDAY FOR 10 CONSECUTIVE YEARS FRO M THE DATE OF PRODUCTION AND IF THE ASSESSEE ALREADY AVAILED THE BENEFIT UNDER THE UNAMENDED PROVISION AND THE 10 CONSECUTIVE YEAR S WOULD FALL PRIOR TO 01.04.1999, THEN THE ASSESSEE WOULD N OT BE ENTITLED TO THE SAID BENEFIT. IT WAS THUS, HELD THAT IF THE SAID 10 CONSECUTIVE YEARS FROM THE DATE OF PRODUCTION HAVE NOT EXPIRED PRIOR TO 01.04.1999, FOR THE REMAINING UNEXPIRED PE RIOD, THE ASSESSEE COULD BE ENTITLED TO BENEFIT. 26. IN VIEW OF THE ABOVE DECISION, IF THE PERIOD OF TEN YEARS FROM THE DATE OF MANUFACTURE HAS NOT EXPIRED AS ON THE D ATE WHEN THE AMENDED PROVISION CAME INTO FORCE THE ASSESSEE IS ENTITLED TO THE BENEFIT OF TAX HOLIDAY FOR PERIOD OF TEN YEA RS. INFACT, IN THE AFORESAID DECISION THE COURT WENT ON TO HOLD THAT E VEN IF THE 25 PERIOD OF FIVE YEARS HAS EXPIRED AS ON THE DATE OF AMENDED PROVISIONS BUT THE PERIOD OF TEN YEARS IS STILL RUN NING, THE ASSESSEE CANNOT BE DENIED BENEFIT. 27. AS PER THE LD.COUNSEL FOR THE ASSESSEE, THE AFORESA ID SOLITARY/ ONLY DECISION OF THE HONBLE KARNATAKA HI GH COURT IS BINDING ON THE HONBLE SPECIAL BENCH IN VIEW OF THE SETTLED PRINCIPLES OF JUDICIAL PROPRIETY DISCUSSED INFRA. F URTHER RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CONSINDIA (P) LTD IN ITA NO. 8270/MUM/2004, SIMILARLY HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT FOR THE EXTENDED PERIOD OF TEN YEARS. IN THAT CASE, THE EIG HT YEAR PERIOD EXPIRED IN THE ASSESSMENT YEAR 2000- 01. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TECH BOOKS ELECTRONICS SERVICES (P) LTD VS. ACIT: 100 ITD 125 HELD LIKEWISE. IN THAT CASE, AGAIN, NEITHER THE FIVE YEAR PERIOD N OR THE BLOCK PERIOD OF EIGHT YEAR HAD EXPIRED BEFORE THE AMENDED PROVISIONS BECAME APPLICABLE AND ACCORDINGLY THE TRIBUNAL WAS PLEASED TO HOLD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION F OR THE EXTENDED PERIOD AS PER THE AMENDED LAW. 28. AS PER THE LD.COUNSEL FOR THE ASSESSEE, IN THE ASSE SSMENT YEAR 1999-2000, WHEN THE PERIOD OF EXEMPTION WAS EX TENDED 26 FROM 5 YEARS TO 10 YEARS, ALL THE THREE UNITS WERE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT AS UNDER: EOU DATE OF COMMERCIAL A/Y YEAR OF EXEMPTION PRODUCTION IN A.Y 1999-2000 ORIGINAL UNIT 01.02.1992 1992-93 5 TH YEAR (OUT OF 8 YEARS) SPINNING UNIT III 01.06.1995 19 96-97 4 TH YEAR SPINNING UNIT IV 19.08.1998 199 9-00 1 ST YEAR THUS, EACH OF THE AFORESAID UNITS WERE ELIGIBLE FOR EXEMPTION UNDER SECTION 10B OF THE ACT, BOTH UNDER THE PRE-AM ENDED LAW (WHEN EXEMPTION WAS AVAILABLE FOR 5 OUT OF 8 YEARS) AS WELL AS UNDER THE AMENDED LAW (WHEN EXEMPTION WAS EXTENDED TO 10 CONSECUTIVE ASSESSMENT YEARS). 29. IN THE ASSESSMENT YEAR 1999-2000, THE AMENDED LAW BECAME APPLICABLE TO THE ASSESSEE, WHEREUNDER ALL T HE THREE ELIGIBLE UNITS OF THE ASSESSEE BECAME ENTITLED TO D EDUCTION FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS FROM THE DATE OF COMMENCEMENT OF MANUFACTURE/ PRODUCTION OF ARTICLE OR THING BY THE SAID ELIGIBLE UNDERTAKING. 30. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED T HAT THE DECISION OF KOLKATA BENCH OF THE TRIBUNAL IN THE CA SE OF TATA TEA LTD: 87 ITD 351 RELIED UPON BY THE ASSESSING OFFICE R IS CLEARLY 27 DISTINGUISHABLE AS IN THAT CASE THE EXEMPTION WAS C LAIMED FOR ASSESSMENT YEAR 1998-99, WHICH WAS THE 5 TH CONSECUTIVE YEAR OF DEDUCTION. THE ASSESSEE HAD THUS, ALREADY EXHAUSTED THE FIVE YEARS EXEMPTION PERIOD IN THE ASSESSMENT YEAR 1998- 99 AND WAS NO LONGER ELIGIBLE TO CLAIM DEDUCTION UNDER THE THEN APPLICABLE LAW. IN THESE FACTS AND CIRCUMSTANCES TH E TRIBUNAL HELD THAT EXEMPTION COULD NOT BE ALLOWED TO THE ASS ESSEE IN THE A.Y. 1999-00, SINCE THE ASSESSEE HAD ALREADY EXHAUS TED ITS ELIGIBILITY PERIOD. 31. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS WHER EIN IT HAS BEEN HELD THAT VARIOUS BENCHES OF THE TRIBUNAL (WHETHER SPECIAL OR DIVISION), BEING LOWER IN JUDICIAL HIERA RCHY, ARE BOUND TO FOLLOW THE DECISIONS OF THE HIGH COURT: - KAMLAKSHI FINANCE CORPORATION LIMITED: AIR 1992 SC 711 - KHALID AUTOMOBILES V. UOI: (1995) 4 SCC (SUPL) 653 - JAIN EXPORTS VS. UOI (1988) 3 SCC 579 - BERGER PAINS INDIA LIMITED: 266 ITR 99 (SC) - ASST. CCE V. DUNLOP INDIA LTD.: 154 ITR 172 (SC). - AGGARWAL WAREHOUSING & LEASING LIMITED: 257 ITR 235 (MP) - CIT VS. AKSHAY KUMAR JAIN: 281 ITR 431(MP) - SAE HEAD OFFICE MONTHLY PAID EMPLOYEES WELFARE TRUST: 271 ITR 159 (DEL) - BANK OF BARODA V. H.C. SHRIVATSAVA: 256 ITR 385 (BOM) - VOESTA- ALPHINE IND. GMBH V. ITO: 246 ITR 745 (CAL. ) 28 - NIKKO CORPORATION LTD V. CIT: 251 ITR 791 (CAL.) - KN. AGRAWAL V. CIT: 189 ITR 769 (ALL.) - CIT VS. SARABHAI SONS LTD: 143 ITR 473, 486 (GUJ) - L.G. RAMAMURTHI: 110 ITR 453 (MAD.) - CIT V. S. DEVRAJ: 73 ITR 1 (MAD.) - PEARL POLYMERS LIMITED: 80 ITD 1 (DEL.) (SB): IF SUBSEQUENT TO SB THERE IS SOME DECISION OF THE HIGH COURT OR THE SUPREME COURT, THEN DIVISION BENCH WOULD BE AT LIBERTY TO TAKE AN INDEPENDENT VIEW. 32. IN SUPPORT OF THE PROPOSITION THAT SPINNING UNI TS III AND IV WERE ALSO ELIGIBLE FOR CLAIM OF DEDUCTION U/S 10B R ELIANCE WAS PLACED UPON THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF TEXTILE MACHINERY CORPORATION LIMITED; 107 ITR 195 WHEREIN IT WAS HELD THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UN DERTAKING CONNOTES EXPANSION OF THE EXISTING BUSINESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW AND IDENTIFIABLE UNDERTAKING SEPARATE AND DISTI NCT FROM THE EXISTING BUSINESS. NO PARTICULAR DECISION IN ONE CASE CAN LAY DOWN AN INE XORABLE TEST TO DETERMINE WHETHER A GIVEN CASE COMES UNDER SECTION 15C OR NOT. IN ORDER THAT THE NEW UNDERTAKING CAN BE SAID TO BE NOT FORMED OUT OF THE ALREADY EXISTING BUSINE SS, THERE MUST BE A NEW EMERGENCE OF A PHYSICALLY SEPARATE INDUSTRIAL UNIT WHICH MAY EXIST ON ITS OWN AS A VIABLE UNIT. AN UNDERTAKING IS FORMED OUT OF THE EXISTING BUSINESS IF THE PHYSICAL IDENTITY WITH THE OLD UNIT IS PRESERVED. THIS HAS NOT HAPPENED HERE IN THE CASE O F THE TWO UNDERTAKINGS WHICH ARE SEPARATE AND DISTINCT. 33. OUR ATTENTION WAS ALSO DRAWN TO PAGE 206 OF TH E JUDGMENT WHERE THE SUPREME COURT SUMMARIZED THE REQUIREMENTS TO BE 29 SATISFIED BY A NEW INDUSTRIAL UNDERTAKING TO ENJOY THE TAX HOLIDAY AS UNDER: THE FACT THAT THE ASSESSEE IS CARRYING ON THE GENERAL BUSINESS OF HEAVY ENGINEERING WILL NOT PREV ENT HIM FROM SETTING UP NEW INDUSTRIAL UNDERTAKINGS AND FROM CLAIMING BENEFIT UNDER SECTION 15C IF THAT SEC TION IS OTHERWISE APPLICABLE. HOWEVER, IN ORDER TO BE ENTITLED TO THE BENEFIT UNDER SECTION 15C, THE FOLL OWING FACTS HAVE TO BE ESTABLISHED BY THE ASSESSEE, SUBJE CT ALWAYS TO TIME-SCHEDULE IN THE SECTION: (1)INVESTMENT OF SUBSTANTIAL FRESH CAPITAL IN THE INDUSTRIAL UNDERTAKING SET UP, (2) EMPLOYMENT OF REQUISITE LABOUR THEREIN, (3) MANUFACTURE OR PRODUCTION OF ARTICLES IN THE SA ID UNDERTAKING, (4) EARNING OF PROFITS CLEARLY ATTRIBUTABLE TO THE SAID NEW UNDERTAKING, AND (5) ABOVE ALL, A SEPARATE AND DISTINCT IDENTITY OF THE INDUSTRIAL UNIT SET UP. WE MAY ADD THAT THERE IS NO BAR TO AN ASSESSEE CARRYING ON A PARTICULAR BUSINESS TO SET UP A NEW INDUSTRIAL UNDERTAKING ON ACCOUNT OF WHICH EXEMPTIO N OF TAX UNDER SECTION 15C MAY BE CLAIMED. 34. RELIANCE WAS PLACED ON THE DECISION OF THE HON' BLE SUPREME COURT IN THE CASE OF INDIAN ALUMINIUM LIMITED; 108 ITR 367 WHEREIN THE ASSESSEE MADE EXTENSIONS TO ITS EXISTIN G FACTORIES AT BELUR AND ALUPURAM IN THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION. IN THE ASSESSMENT YEAR 1960-61, THE RESPONDENT CLAIMED RELIEF UNDER SECTION 15C OF THE INDIAN INCOME-TAX ACT, 1922, IN RESPECT OF THE ADDITIONAL INVESTMENTS IN THE FORM OF EXTENSIONS TO THE EXISTING FACTORY PREM ISES, 30 INSTALLATION OF NEW PLANT AND MACHINERY, ETC., AT B ELUR AND ALUPURAM. THE ASSESSING OFFICER REFUSED TO ALLOW TH E RELIEF AND THE COMMISSIONER OF INCOME TAX (APPEALS) DISMISSED THE RESPONDENT'S APPEAL. ON FURTHER APPEAL, THE TRIBUNA L NOTED THAT (I) DURING THE PREVIOUS YEAR, PRODUCTION OF ALUMINI UM INGOTS WENT UP BY DOUBLE, THAT THE ADDITIONAL UNITS SET UP BY T HE RESPONDENT COST OVER RS. 50 LAKHS AT BELUR AND ABOUT THE SAME FIGURE OR A LITTLE MORE, AT ALUPURAM, (II) IN VIEW OF THE NATUR E OF THE SUBSTANTIAL INVESTMENTS, IT COULD NOT BE SAID THAT THE UNITS WERE NOT NEW INDUSTRIAL UNITS BY THEMSELVES. THE TRIBUNAL HELD THAT THESE UNITS HAD BEEN SET UP SIDE BY SIDE WITH THE O LD ONES AND HAD ADDED TO THE RESPONDENT'S TOTAL OUTPUT OF ALUMI NIUM INGOTS. THE TRIBUNAL, ACCORDINGLY, HELD THAT THE RESPONDENT WAS ENTITLED TO THE RELIEF UNDER SECTION 15C OF THE 1922 ACT. TH E SUPREME COURT FOLLOWING THE LAW LAID DOWN IN THE DECISION I N THE CASE OF TEXTILE MACHINERY (SUPRA) UPHELD THE AFORESAID FIND INGS OF THE TRIBUNAL. 35. HE FURTHER SUBMITTED THAT THE PRINCIPLE THAT E MERGES FROM THE AFORESAID DECISIONS IS THAT AN UNDERTAKING MEANS A UNIT/BUSINESS WHICH HAS (A) SEPARATE AND INDEPENDENT EXISTENCE, SEPARATE AND DISTINCT FROM OTHER UNITS/ BUSINESS. 31 (B) INDEPENDENT INFRASTRUCTURE, SEPARATE PLANT AND MACHINERY, ETC., EMPLOYED THEREIN; (C) BEEN SET UP WITH SUBSTANTIAL CAPITAL INVESTMENT; (D) NEW EMPLOYEES; AND (E) IDENTIFIABLE OUTPUT (EVEN THOUGH SAME PRODUCT) AND THE PROFITS ATTRIBUTABLE THERETO CAN BE DETERMINED. IT IS TOTALLY IRRELEVANT THAT SUCH NEW UNIT MAY COM E INTO EXISTENCE BY WAY OF UNDERTAKING SUBSTANTIAL EXPANSION AND/ OR THE NEW/ EXPANDED UNIT MANUFACTURES DIFFERENT OR THE SAME PR ODUCT. 36. AS PER THE LD. COUNSEL FOR THE ASSESSEE, ALL TH E AFORESAID CONDITIONS ARE SATISFIED IN THE PRESENT CASE OF THE ASSESSEE AS ELABORATED INFRA. 37. THE AFORESAID TWO UNITS, VIZ. UNIT III AND U NIT IV, WERE SET UP BY THE ASSESSEE AS SEPARATE AND INDEPENDENT PROD UCTION UNITS BY MAKING SUBSTANTIAL INVESTMENT IN NEW BUILDING, P LANT AND MACHINERY, ETC., WHEREIN DISTINCT AND MARKETABLE PR ODUCTS ARE MANUFACTURED. AS REGARDS UNIT III, BY REFERRING PAGES 34-51 OF THE PAPER BOOK, IT WAS SUBMITTED THAT: 1. NEW UNIT WAS SET UP IN A NEWLY CONSTRUCTED BUILDING BY INSTALLING ADDITIONAL 16224 SPINDLES, WHICH TOOK TH E TOTAL 32 INSTALLED CAPACITY TO 38400 SPINDLES FROM EXISTING 22176 SPINDLES. 2. FOUR NEW KNITTING MACHINES WERE INSTALLED AGAINST T HE EXISTING 13 KNITTING MACHINES. 3. FACILITIES TO MANUFACTURE ADDITIONAL 6 LAKH P.A PIE CES OF GARMENTS WERE PUT IN PLACE AS AGAINST EARLIER INSTA LLED CAPACITY OF 13.6 LAKH GARMENTS P.A. 4. TURNOVER OF COMPANY ALMOST DOUBLED TO RS. 121.72 CR ORES DURING THAT YEAR FROM RS. 67.26 CRORES IN THE IMMED IATELY PRECEDING YEAR AND PROFITS BEFORE DEPRECIATION ALSO TOOK QUANTUM LEAP OF RS. 3.37 CRORES. 5. AROUND 800 WORKERS AND STAFF WERE RECRUITED DURING THE FINANCIAL YEAR 1995-96 . 38. AS REGARDS UNIT IV, THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT :- 1. ADDITIONAL 16128 SPINDLES WERE INSTALLED TAKING THE TOTAL INSTALLED CAPACITY TO 54528 SPINDLES. 2. THE COMPANY IMPORTED AND INSTALLED TWELVE CIRCULAR KNITTING MACHINES. 3. THE COMPANY SET UP A POWER PLANT OF 4.25 MV CAPACIT Y. 4. READYMADE GARMENT MANUFACTURING FACILITIES WERE SET UP TO MANUFACTURE ADDITIONAL 6 LACS GARMENTS PER ANNUM. 33 5. NEW UNIT RESULTED IN TOTAL ADDITION TO GROSS BLOCK OF FIXED ASSETS BY RS. 69.43 CRORES AS AGAINST 121.01 CRORES AT OPENING OF YEAR. 6. TURNOVER OF COMPANY INCREASED TO RS. 224.5 CRORES A S AGAINST RS. 158.37 CRORES IN PRECEDING YEAR. 7. AROUND 570 WORKERS AND STAFF WERE RECRUITED DURING THE FINANCIAL YEAR 1998-99 39. AS PER THE LD.COUNSEL FOR THE ASSESSEE THE NEW UNITS WERE DULY APPROVED AS 100% EOUS BY THE COMPETENT AUTHORI TIES. THE PERMISSION DATED 31.03.1995 BEARING NO. 141/EOB/61/ 95 ISSUED BY THE MINISTRY OF INDUSTRY, DEPARTMENT OF I NDUSTRIAL DEVELOPMENT, GOVERNMENT OF INDIA WAS RECEIVED FOR S ETTING UP NEW UNIT. HOWEVER, DUE TO CERTAIN DISCREPANCIES IN THE PERMISSION DATED 31.03.1995 THE ASSESSEE, VIDE LETT ER DATED 27.04.1995, POINTED OUT THE SAME, NECESSARY CORRECT IONS WHEREOF WERE CARRIED OUT VIDE LETTER DATED 31.05.1995. THER EAFTER, THE ASSESSEE FILED REQUEST LETTER DATED 14.04.1998 BEFO RE THE COMPETENT AUTHORITY FOR ENHANCEMENT OF LICENSED CAP ACITY WHICH WAS GRANTED VIDE LETTER DATED 02.06.1998. 40. RELIANCE WAS ALSO PLACED DECISION OF THE PUN E BENCH OF THE TRIBUNAL IN THE CASE OF PATNI COMPUTER SYSTEMS LTD. V. DCIT: ITA 34 NO. 426 AND 1131/PN/06, WHEREIN THE ASSESSEE, A COM PANY ENGAGED IN BUSINESS OF DEVELOPMENT AND EXPORT OF CO MPUTER SOFTWARE, CLAIMED DEDUCTION UNDER SECTION 10A OF TH E ACT IN RESPECT OF THREE UNITS. THE CLAIM OF THE ASSESSEE W AS DISALLOWED ON THE GROUND THAT THREE UNITS WERE NOT NEW UNITS B UT MERE EXPANSION OF EXISTING UNIT ON THE BASIS OF APPROVAL LETTERS RECEIVED FROM STPI. THE TRIBUNAL WHILE DECIDING IN FAVOUR OF THE ASSESSEE HELD THAT THE MANNER OF GRANTING APPROVAL WAS NOT RELEVANT FOR ADJUDICATING THE CLAIM OF DEDUCTION U NDER SECTION 10A. 41. RELIANCE WAS ALSO PLACED THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. SYMANTEC SOFTWARE I NDIA P. LTD.: ITA NO. 787/PN/09. IN THAT CASE THE ASSESSEE HAD CL AIMED DEDUCTION UNDER SECTION 10A IN RESPECT OF ITS UNIT SET UP IN TERMS OF STPI APPROVAL, WHICH WAS TREATED BY THE ASSESSEE AS SEPARATE UNDERTAKING. THE CLAIM OF THE ASSESSEE WAS DISALLOW ED ON VARIOUS GROUNDS INCLUDING, INTERALIA, THAT THE UNDERTAKING WAS MERELY EXPANSION OF EXISTING UNDERTAKING AND THAT THE STPI PERMISSION OBTAINED IN OCTOBER, 2003 WAS FOR EXPANSION OF BUSI NESS AND NOT FOR STARTING NEW BUSINESS. THE TRIBUNAL WHILE FOLLO WING THE DECISION OF PATNI COMPUTER SYSTEMS (SUPRA) HELD THA T MERELY BECAUSE THE NEW PERMISSION CONTAINED REFERENCE TO T HE ORIGINAL 35 LICENCE COULD NOT BE CONSIDERED AS CONCLUSIVE THAT THE NEW UNIT WAS NOT A SEPARATE OR INDEPENDENT UNIT. 42. WITH REGARD TO THE ASSESEES ELIGIBILITY FOR CLAIMING DEDUCTION U/S 10B IN RESPECT OF EXPORT ENTITLEMENT AND SPECIAL IMPORT LICENCE, THE CONTENTION OF THE LD.COUNSEL FO R THE ASSESSEE WAS THAT DEDUCTION U/S 10B OF THE ACT IS CLEARLY AL LOWABLE IN VIEW OF SPECIFIC PROVISIONS CONTAINED U/S 10B(4) OF THE ACT WHICH PROVIDED A SPECIFIC FORMULA FOR COMPUTING PROFITS D ERIVED BY THE UNDERTAKING FROM THE EXPORT. HE FURTHER EMPHASIZED THAT THAT SUB-SECTION (4) OF SECTION 10B OF THE ACT MANDATES THAT DEDUCTION UNDER THAT SECTION SHALL BE COMPUTED BY APPORTIONIN G THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN THE RATIO OF EXPORT TURNOVER TO THE TOTAL TURNOVER. THUS, EVEN THOUGH SUB-SECTIO N (1) OF SECTION 10B OF THE ACT REFERS TO PROFITS AND GAINS AS ARE D ERIVED BY A 100% EOU, THE MANNER OF DETERMINING SUCH ELIGIBLE P ROFITS HAS BEEN STATUTORILY DEFINED IN SUB-SECTION (4) OF THAT SECTION. 43 HE FURTHER INVITED OUR ATTENTION TO THE FINDING RECORDED BY THE ASSESSING OFFICER TO THE EFFECT THAT THE AFORES AID INCOME WAS TREATED AS BUSINESS INCOME OF THE ASSESSEE ON WHICH DEDUCTION U/S 10B CANNOT BE DENIED IN VIEW OF THE PROVISIONS OF SECTION 10B(1) READ WITH SECTION 10B(4) OF THE ACT. 36 44. HE FURTHER SUBMITTED THAT THE DECISION OF THE S UPREME COURT IN THE CASE OF LIBERTY INDIA AND OTHERS V. CI T: 317 ITR 218 RELIED UPON BY REVENUE IS NOT APPLICABLE TO THE FAC TS OF THE PRESENT CASE. IN THAT CASE, THE ISSUE BEFORE THE SU PREME COURT WAS WITH REGARD TO THE ELIGIBILITY OF DUTY DRAWBACK FOR CLAIMING DEDUCTION UNDER SECTION 80IB OF THE ACT. THE SUPREM E COURT, MAKING A REFERENCE TO ITS OWN DECISION IN THE CASE OF STERLING FOOD (SUPRA), HELD THAT DUTY DRAWBACK COULD NOT BE HELD TO BE INCOME DERIVED FROM THE SPECIFIED BUSINESS AND WA S THEREFORE, NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF TH E ACT. 45. AS NOTICED ABOVE, THERE IS NO SIMILAR FORMULA P RESCRIBED IN SECTIONS 80IA/80IB TO ARRIVE AT THE PROFITS DERIVED FROM THE BUSINESS OF ELIGIBLE UNDERTAKING AND THEREFORE, THE AFORESAID DECISION RENDERED IN CONTEXT OF SECTION 80IB WOULD NOT BE APPLICABLE IN CASE OF DEDUCTION UNDER SECTIONS 10A/ 10B OF THE ACT. 46. IN VIEW OF THE ABOVE DISCUSSION, HE SUBMITTED T HAT BOTH THE QUESTIONS REFERRED TO THE SPECIAL BENCH ARE TO BE A NSWERED IN THE AFFIRMATIVE. 47. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND AL SO DELIBERATED 37 ON THE CASE LAWS CITED BY THE LD. AUTHORIZED REPRES ENTATIVE AND THE LD. CIT DR DURING THE COURSE OF HEARING BEFORE US AS WELL AS CASE LAWS REFERRED BY LOWER AUTHORITIES IN THEIR RE SPECTIVE ORDERS, IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. WE HA VE ALSO PERUSED THE RELEVANT PAGES IN THE PAPER BOOK TO WHI CH OUR ATTENTION WAS INVITED BY THE LD. AUTHORIZED REPRESE NTATIVE AND LD. CIT DR DURING THE COURSE OF HEARING BEFORE US. 48. FIRST ISSUE WHICH WAS REFERRED TO THE SPECIAL BE NCH RELATES TO ASSESSEES ELIGIBILITY TO CLAIM EXEMPTIO N U/S 10-B FOR THE ENHANCED PERIOD OF TEN YEARS IN TERMS OF AMENDE D PROVISIONS OF LAW, WHICH CAME INTO EFFECT FROM ASSESSMENT YEAR 1999-2000. IN THE INSTANT CASE, THE ASSESSEE IS A 100 % E.O.U. WHICH COMMENCED ITS COMMERCIAL PRODUCTION ON 1 ST FEBRUARY, 1992, I.E. DURING THE PREVIOUS YEAR 1991-92, RELEVANT TO THE ASSESSMENT YEAR 1992-93. THE ASSESSEE WAS ENTITLED TO CLAIM EXEMPTION IN ANY FIVE CONSECUTIVE ASSESSMENT YEARS FALLING WITHIN THE PERIOD OF EIGHT YEARS BEGINNING WITH THE ASSESSMENT YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES, AT THE OPTION OF THE ASSESSEE, AS PER THE PROVISIONS OF ERSTWHILE SECTION 10B(3) AS APPLICABL E UP TO ASSESSMENT YEAR 1998-99. SINCE THERE WAS LOSS, THE ASSESSEE DID NOT CLAIM ANY DEDUCTION IN THE FIRST THREE ASSE SSMENT YEARS 38 I.E. 1992-93, 1993-94 AND 1994-95. THE EXEMPTION U/ S 10-B WAS CLAIMED AND ALLOWED TO THE ASSESSEE FOR THE FIR ST TIME IN ASSESSMENT YEAR 1995-96. ACCORDINGLY, THE ASSESSEE WAS ELIGIBLE FOR EXEMPTION U/S 10-B IN RESPECT OF PROFITS OF ITS EOU UP TO THE ASSESSMENT YEAR 1999-2000. WITH EFFECT FROM 1.4.199 9 THE PERIOD OF EXEMPTION PRESCRIBED U/S 10B(3) OF FIVE Y EARS WAS SUBSTITUTED BY TEN YEARS BY THE INCOME TAX SECOND A MENDMENT ACT, 1998. AND ACCORDINGLY, THE ASSESSEE BECAME ENT ITLED FOR EXEMPTION U/S 10-B FOR A FURTHER PERIOD OF TWO YEAR S I.E. ASSESSMENT YEAR 2000-01 AND 2001-02. THEREAFTER, WI TH EFFECT FROM 1.4.2001, THE ENTIRE SECTION 10B HAS BEEN SUBS TITUTED BY THE FINANCE ACT, 2000, SUB SECTION (1) OF WHICH PRO VIDES FOR DEDUCTION OF PROFITS FOR 100 % EOU FOR A PERIOD OF 10 CONSECUTIVE YEARS BEGINNING WITH THE ASSESSMENT YEA R RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING START S ITS PRODUCTION. AS THE RELEVANT PROVISIONS OF EXEMPTION U/S 10-B, HAD UNDERGONE VARIOUS CHANGES, IT IS WORTHWHILE TO NARRATE THE RELEVANT PROVISIONS OF LAW AS APPLICABLE FROM THE Y EAR IN WHICH THIS SECTION WAS BROUGHT INTO STATUTE. (A)SECTION 10B WAS INITIALLY INSERTED BY THE FINANC E ACT, 1988, W.E.F. 1.4.1989 TO PROVIDE FOR A COMPLETE TAX HOLIDAY TO 100 % E.O.U. FOR A PERIOD OF FIVE CONSECUTIVE AS SESSMENT YEARS FALLING WITHIN THE BLOCK OF EIGHT ASSESSMENT YEARS, SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS. 39 (B)THE FINANCE ACT 1993 AMENDED SECTION 10B(4)(III) WITH RETROSPECTIVE EFFECT FROM 01.04.91 TO PROVIDE THAT AN UNDERTAKING AVAILING OF THE BENEFITS OF DEDUCTIONS U/S 10B SHALL NOT BE ELIGIBLE TO CLAIM DEDUCTION U/S 80IA. (C) BY THE FINANCE ACT, 1994, THE TAX HOLIDAY U/S 10B WAS RESTRICTED TO THE EOUS EXPORTING AT LEAST 7 5 % OF THEIR TURNOVER. SUCH RESTRICTION WAS SPECIFICA LLY AND PROSPECTIVELY MADE APPLICABLE TO 100 % EOUS WHICH COMMENCED PRODUCTION ON OR AFTER 1 ST APRIL 1994. IT IS PERTINENT TO NOTE HERE THAT A SPECIFIC MENTION WAS MADE THAT THE SAID RESTRICTION WILL APPLY ONLY TO NEW UNITS COMING INTO EXISTENCE AFTER 1.4.94. (D) ANOTHER MAJOR AMENDMENT WAS MADE BY THE INCOME TAX (AMENDMENT) ACT 1998 W.E.F. 1.4.1999, WHEREIN THE PERIOD OF BENEFIT OF FIVE YEA RS OUT OF EIGHT YEARS WAS EXTENDED TO A PERIOD OF TEN YEARS OUT OF TEN YEARS. IT IS WORTH WHILE TO NOTE T HAT PROVISO TO SECTION 10B(3) WAS SPECIFICALLY OMITTED BY THE INCOME TAX (AMENDMENT) ACT 1998 W.E.F. 01.04.1999, WHICH READ AS UNDER :- PROVIDED THAT NOTHING IN THIS SUB-SECTION SHALL BE CONSTRUED TO EXTEND THE AFORESAID FIVE ASSESSMENT YEARS TO COVER ANY PERIOD AFTER THE EXPIRY OF THE S AID PERIOD OF EIGHT YEARS. HAD IT BEEN THE INTENTION OF THE LAW MAKERS TO NOT TO ALLOW THE BENEFIT OF EXTENDED PERIOD TO THE EXISTIN G UNITS, THE ABOVE PROVISO WOULD NOT HAVE BEEN OMITTED AND WOULD HAVE BEEN MADE APPLICABLE TO EXISTING UNITS. SIMILARLY, EXPLANATION(II) DEFINING THE TERM RELEVANT ASSESSMENT YEARS WAS ALSO SUBSTITUTED W.E.F. 0.04.1999, WHICH IS REPRODUCED HERE UNDER : ERSTWHILE EXPLANATION APPLICABLE UP TO 31.3.99. (III) RELEVANT ASSESSMENT YEAR MEANS THE FIVE CONSECUTIVE ASSESSMENT YEARS SPECIFIED BY THE 40 ASSESSEE AT HIS OPTION UNDER SUB SECTION (3) OF SUB SECTION (5) AS THE CASE MAY BE. THE SUBSTITUTED EXPLANATION W.E.F. 01.04.1999 (III) RELEVANT ASSESSMENT YEARS MEANS THE TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN SUB SECTION (3) THIS SUBSTITUTION LAYS DOWN THE CLEAR INTENTION OF THE LEGISLATURE TO PROVIDE THE BENEFIT OF EXTENDED PERI OD OF TEN YEARS TO ALL THE UNITS, EXISTING OR NEW. WHE N THIS AMENDMENT WAS BROUGHT INTO EFFECT, THE APPELLANT WAS STILL ELIGIBLE FOR EXEMPTION U/S 10B FOR TWO ASSESSMENT YEARS AND AS SUCH QUALIFIED FOR EXEMPTION FOR THE UNEXPIRED PERIOD OF TEN YEARS. 5. THE LAW AS APPLICABLE TO ANY PARTICULAR ASSESSMENT YEAR CAN ONLY BE APPLIED FOR THAT ASSESSMENT YEAR, NOTHING IS TO BE READ IN, AND NOTHING IS TO BE IMPLIED. THE APPELLANT COMPANY HAS NOT CLAIMED THAT THE PROVISIONS OF SUBSTITUTED SECTION 10B ARE RETROSPECTIVE IN NATURE. THE AMENDED PROVISIONS ARE APPLICABLE W.E.F. 01.04.1999 AND THOSE SUBSTITUTED ARE APPLICABLE W.E.F. 01.04.2001 AND THE APPELLANTS CLAIM UNDER THE SAID SECTION IS AS PER THESE AMENDED/SUBSTITUTED PROVISIONS, AS APPLICABLE TO THE RESPECTIVE ASSESSMENT YEAR. THERE IS NO RESTRICTION ON THE EXISTING UNITS FOR CLAIMING THE EXEMPTION FOR A PERIOD OF TEN YEARS. ON THE CONTRAR Y THE FIRST PROVISO TO THE NEWLY SUBSTITUTED SECTION 10B(1) CATEGORICALLY ALLOWS EXEMPTION TO THE EXISTI NG UNITS FOR THE UNEXPIRED PERIOD OF TEN YEARS. EVEN T HE EXPLANATORY NOTE RELATING TO THE SAID ENACTMENT AS REPORTED AT 245 ITR ST 34 STATES THAT AN UNDERTAKIN G SET UP BEFORE 31.03.2000 SHALL BE ENTITLED TO THE DEDUCTION FOR A PERIOD OF TEN YEARS. THOUGH THIS AMENDMENT IS EFFECTIVE FROM 01.04.2001, IT SPECIFICALLY ALLOWS EXEMPTION TO EXISTING UNIT FOR A PERIOD OF TEN YEARS. 41 49. APPLYING THE RELEVANT PROVISIONS AS DISCUSSED ABOVE , PRIOR TO AMENDMENT BY INCOME TAX (AMENDMENT) ACT, 1998, T HE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 10B OF THE I.T. ACT FOR FIVE CONSECUTIVE YEARS OUT OF 8 YEARS BEGINNING WITH THE ASSESSMENT YEARS IN WHICH UNDERTAKING BEGAN MANUFACTURING I.E. FROM A.Y. 1992-93. FROM 1 APRIL, 1998 THE LAW WAS AMENDED AND 8 YEARS WERE SUBSTITUTED BY 10 YEARS, IN SECTION 10B(3) OF THE I.T. ACT. THE RESTRAINT OF EXEMPTION UPTO 8 YEARS WAS ALSO WI THDRAWN. THE ONLY QUESTION WHICH IS TO BE ANSWERED IS WHETHER AM ENDMENT OF FINANCE ACT, 1998 WILL APPLY TO NEW UNITS ESTABLISH ED AFTER 01.04.1998 OR THEY WILL APPLY TO EXISTING E.O.U.S A LSO. TO PUT IT DIFFERENTLY WHETHER THE FINANCE ACT HAS GIVEN BENEF IT TO THOSE UNITS WHICH WILL COME INTO EXISTENCE AFTER 01.04.19 98 OR IT ALSO WANTED TO BOOST THE EXPORT OF EXITING UNITS. THE F INANCE MINISTER STATED IN INCOME TAX (SECOND AMENDMENT) BILL, 1998 THAT HE WANTED TO EXTEND THE 5 YEARS TAX HOLIDAY TO E.O.U.S , TO 10 YEARS U/S 10B OF THE I.T. ACT. 50. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS CLAIMED INCOME EXEMPT U/S 10B OF I.T. ACT FOR THREE UNITS NAMELY ORIGINAL UNIT WHICH STARTED PRODUCTION FROM A.Y. 19 92-93, SPINNING UNIT NO. III WHICH STARTED PRODUCTION FROM A.Y. 1996-97 42 AND SPINNING UNIT NO. IV WHICH STARTED PRODUCTION F ROM A.Y. 1999-2000. THIS IS GIVEN BELOW IN TABULAR FORM:- E.O.U. DATE OF COMMERCIAL PRODUCTION RELEVANT ASSESSMENT YEAR EXEMPTION U/S 10B CLAIMED UP TO AY A.ORIGINAL UNIT 01.02.1992 1992 - 93 2001 - 02 B.SPINNING UNIT NO. III 01.06.1995 1996 - 97 2005 - 06 C.SPINNING UNIT NO. IV 19.08.1998 1999 - 00 2008 - 09 IN THE ASSESSEE'S CASE, THE ORIGINAL UNIT STARTED C OMMERCIAL PRODUCTION DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1992-93. NO DEDUCTION WAS CLAIMED IN THE FIRST THREE ASSESSMENT YEARS 1992-93 TO 1994-95. DEDUCTION UNDE R SECTION LOB OF THE ACT WAS CLAIMED FOR THE FIRST TIME IN TH E ASSESSMENT YEAR 1995-96 AND ACCORDINGLY UNDER THE PRE-AMENDED LAW THE ASSESSEE WAS ENTITLED TO DEDUCTION UPTO ASSESSMENT YEAR 19992000. IN THE ASSESSMENT YEAR 1999-2000, BEFORE EXPIRY OF THE ORIGINAL TIME LIMIT OF FIVE CONSECUTIVE ASSESSM ENT YEARS FOR WHICH DEDUCTION WAS AVAILABLE AS PER THEN APPLICABL E LAW, THE AMENDED LAW BECAME APPLICABLE AND THE ASSESSEE WAS ACCORDINGLY ELIGIBLE FOR DEDUCTION FOR THE EXTENDED PERIOD OF 10 YEARS, AS AGAINST 5 YEARS ALLOWED UNDER THE PRE-AME NDED LAW. 43 51. IN THE ASSESSEE'S CASE, THE AMENDED LAW BECAME APPLICABLE DURING THE PERIOD IN WHICH THE ASSESSEE WAS OTHERWISE ELIGIBLE FOR CLAIMING DEDUCTION UNDER SEC TION LOB OF THE ACT UNDER THE PRE AMENDED LAW. THUS, AS A NECES SARY COROLLARY AND APPLYING THE AMENDED LAW, THE ASSESSE E WAS CLEARLY ELIGIBLE FOR DEDUCTION UNDER SECTION LOB OF THE ACT FOR THE EXTENDED PERIOD. 52. WE NOW DISCUSS THE FACTS IN THE CASE OF TATA TEA LI MITED AS RELIED ON BY THE ASSESSING OFFICER. 53. THE FACTS IN THE CASE OF TATA TEA LIMITED (SUPRA) WERE THAT THE ASSESSEE HAD STARTED ELIGIBLE UNIT IN ASSESSMEN T YEAR 1989- 90. DEDUCTION UNDER SECTION LOB OF THE ACT WAS AVAI LED BY THE ASSESSEE FOR FIVE CONSECUTIVE YEARS I.E. ASSESSMENT YEARS 1992-93 TO 1996-97. THE ASSESSEE HAD EXHAUSTED ITS FIVE YEA R TAX HOLIDAY PERIOD AVAILABLE FOR CLAIMING EXEMPTION UNDER SECTI ON LOB OF THE ACT IN THE ASSESSMENT YEAR 1996-97. IN THE APPEAL F OR THE ASSESSMENT YEAR 1997-98, THE ASSESSEE, HOWEVER, SOU GHT TO CLAIM DEDUCTION UNDER SECTION LOB OF THE ACT BY RELYING U PON THE PROVISIONS OF THE SAID SECTION AS AMENDED SUBSEQUEN TLY BY INCOME-TAX (SECOND AMENDMENT) ACT, 1998, W.E.F. 1.4 .1999. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE LAW, AS AMENDED BY THE I.T. (SECOND AMENDMENT) ACT, 1998 EXTENDING THE PERIOD OF 44 TAX HOLIDAY FROM FIVE YEARS TO TEN YEARS, WAS MEREL Y C1ARIFICATORY IN NATURE AND ALSO APPLIED TO THE ASSESSEE, EVEN TH OUGH THE ASSESSEE ADMITTEDLY AND UNDISPUTEDLY HAD ALREADY EX HAUSTED ITS TAX HOLIDAY PERIOD AVAILABLE UNDER THE PRE-AMENDED LAW AND PRIOR TO THE AMENDMENT, WHICH WAS, IN ANY CASE NOT APPLIC ABLE TO THE YEAR UNDER APPEAL. 54. DISAGREEING WITH THE AFORESAID CONTENTION OF THE A SSESSEE, THE TRIBUNAL, WHILE UPHOLDING THE ORDER OF THE CIT( A) AND THE ASSESSING OFFICER DENYING DEDUCTION UNDER SECTION L OA OF THE ACT, FOR THE ASSESSMENT YEAR 1997-98, HELD THAT SINCE TH E ASSESSEE HAD ALREADY EXHAUSTED THE TAX HOLIDAY PERIOD AND TH E ASSESSEE BEEN ALLOWED DEDUCTION FOR FIVE CONSECUTIVE ASSESSM ENT YEARS, AS PER THE APPLICABLE LAW, THE ASSESSEE WAS NOT ELIGIB LE FOR DEDUCTION FOR THE EXTENDED PERIOD IN VIEW OF THE AMENDMENT WH ICH WAS EFFECTIVE W.E.F. 01.04.1999 WHICH WAS EVEN OTHERWIS E NOT RETROSPECTIVE IN OPERATION. THE PERTINENT OBSERVATI ONS OF THE TRIBUNAL ARE REPRODUCED HEREUNDER: '24. AS PER THE EARLIER PROVISION THE ASSESSEE WAS ENTITLED TO HAVE THE DEDUCTION FOR FIVE CONSECUTIV E ASSESSMENT YEARS IN THE EIGHT YEARS FROM THE DATE W HEN IT BEGAN TO MANUFACTURE OR PRODUCE THE ARTICLES OR THI NGS. THE ASSESSEE OPTED FOR AVAILING THE BENEFIT OF DEDU CTION IN THE LAST FIVE YEARS OUT OF THE EIGHT Y EARS AND THE SAID PERIOD TERMINATED IN ASST. YR. 1996-97. IN OTHER WO RDS THE ASSESSEE HAD COMPLETELY AVAILED THE BENEFIT OF DEDUCTION AS PER THE PROVISIONS OF LAW EXISTING AT THE MATERIAL TIME. SUB-SEC (3) WAS AMENDED WITH EFFECT FROM ASST. R. 1999-2000 FOR ALLOWING DEDUCTION IN T EN 45 CONSECUTIVE ASSESSMENT YEARS. WHEN THE AMENDMENT WAS CARRIED OUT THE ASSESSEE HAD COMPLETELY EXHAUST ED THE BENEFIT OF DEDUCTION AVAILABLE AS PER LAW. WE A RE DEALING WITH THE ASST. YR. 1997-98 WHICH IS THE NIN TH YEAR BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE INDUSTRIAL UNDERTAKI NG BEGAN TO MANUFACTURE. HOW AN AMENDMENT CARRIED OUT AFTER TWO YEARS OF THE CESSATION OF BENEFIT CAN BE SAID TO HAVE APPLICATION ON EARLIER YEARS IS ANY BODY'S GUESS. IT IS MORE SO FOR THE REASON THAT THE PERIOD OF EIGHT YEARS EXPIRED IN ASST. YR. 1996-97 AND THEREA FTER THE ASSESSEE'S UNIT BECAME TAXABLE UNDER THE REGULA R PROVISIONS OF THE ACT. IT IS STILL FURTHER NOTED TH AT EVEN THE PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS FROM THE BEGINNING OF THE YEAR IN WHICH THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES WAS ALSO OVER IN THE ASST. YR. 1998-99 WHEREAS THE AMENDMENT WAS CARRIED OUT W.E.F. 1ST APRIL, 1999. T HE ORDER RELIED BY THE LEARNED AUTHORISED REPRESENTATI VE IN CONSINDIA (P) LTD. IS NOT APPLICABLE INASMUCH AS IN THAT CASE THE PERIOD OF EIGHT YEARS EXPIRED IN ASST . YR. 2000-01, WHEREAS THE AMENDMENT WAS CARRIED OUT W.E.F. 1ST APRIL, 1999. WE THEREFORE HOLD THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DENYING THE BENEFIT OF DEDUCTION UNDER S. 1OA.' ON PERUSAL OF THE AFORESAID, IT MAY BE NOTICED THAT IN THE AFORESAID CASE- (I) THE ASSESSEE HAD CLAIMED AND BEEN ALLOWED DEDUCTION FOR FIVE CONSECUTIVE ASSESSMENT YEARS, VIZ, ASSESSMENT YEARS 1992-93 TO 1996-97. (II) EVEN THE EIGHT YEARS BLOCK PERIOD FOR CLAIMIN G TAX HOLIDAY FOR A CONTINUOUS PERIOD OF FIVE YEARS HAD ALREADY EXHAUS TED IN THE ASSESSMENT YEAR 1996-97. (II) THE AMENDMENT IN SECTION LOB WAS APPLICABLE FROM TH E ASSESSMENT YEAR 1999-2000 AND NOT RETROSPECTIVELY. 55. IT IS IN THESE CIRCUMSTANCES, THAT THE TRIBUNAL HE LD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR CLAIMING TAX HOLIDAY FOR THE EXTENDED PERIOD OF TEN YEARS. IT IS, HOWEVER, IMPORTANT TO N OTE THAT IN THE AFORESAID DECISION THE TRIBUNAL ALSO OBSERVED THAT HAD IT BEEN A 46 CASE WHERE THE FIVE YEARS PERIOD HAD NOT EXPIRED AT THE TIME OF APPLICABILITY OF THE AMENDED LAW, THE ASSESSEE WOUL D HAVE BEEN ENTITLED TO DEDUCTION FOR THE LARGER PERIOD UNDER T HE AMENDED LAW. THE PERTINENT OBSERVATIONS OF THE TRIBUNAL ARE REPRODUCED HEREUNDER: ' ....... OBVIOUSLY THE AMENDMENT SO MADE TO SUB-S O (3) .... OF SECTION 10B IS SUBSTANTIVE AS IT HAS EXPANDED THE PERIOD OF DEDUCTION FROM THE EARLIER FIVE YEARS TO TEN YEARS. THERE IS NOTHING LIKE GIVI NG ANY CLARIFICATION FOR THE EARLIER PROVISION OR LAYI NG ......... DOWN ANY PROCEDURE IN RESPECT OF THE EXI STING PROVISION. A NEW EXTENDED BENEFIT WAS CONFERRED FOR THE FIRST TIME. BY NO STRETCH OF IMAGINATION IT CAN BE SAID TO BE CLARIFICATORY OR PROCEDURAL SO AS TO MAK E IT APPLICABLE RETROSPECTIVE. IT IS, INDEED A SUBSTANTI VE AMENDMENT AND WILL HOLD THE FIELD FROM THE DATE WHEN IT HAS BEEN MADE APPLICABLE FROM, WHICH IN THE PRESENT CASE IS ASST. YR. 1999-2000. THE POSITI ON WOULD HAVE BEEN DIFFERENT IF THE PERIOD OF FIVE YEA RS HAD NOT YET EXPIRED AND THE AMENDMENT HAD COME IN BETWEEN; IN THAT CASE THE ASSESSEE WOULD HAVE BEEN ENTITLED TO DEDUCTION FOR THE LARGER PERIOD AS PER THE AMENDMENT .' 56. THE ISSUE BEFORE THE TRIBUNAL IS SQUARELY COVERED B Y THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF DSL SOFTWARE LIMITED; ITA NO. 462/07, WHEREIN IT WAS HE LD BY THE HON'BLE HIGH COURT THAT IN TERMS OF AMENDMENT CARRI ED OUT IN THE YEAR 1999, THE TAX HOLIDAY BENEFIT STOOD EXTEND ED FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS. IT WAS ALSO H ELD THAT ON 1.4.1999, WHEN THE AMENDED PROVISIONS CAME INTO FOR CE BY VIRTUE OF THE SAID PROVISION, THE ASSESSEE WOULD BE ENTITLED TO THE 47 BENEFIT OF TAX HOLIDAY FOR TEN CONSECUTIVE YEARS FR OM THE DATE OF PRODUCTION AND IF THE ASSESSEE HAD ALREADY AVAILED THE BENEFIT UNDER THE UN-AMENDED PROVISION AND THE TEN CONSECUT IVE YEAS WOULD FALL PRIOR TO 1.4.1999 THEN THE ASSESSEE WOUL D NOT BE ENTITLED TO THE SAID BENEFIT. IT WAS FURTHER HELD THAT IF THE SAID TEN CONSECUTIVE YEARS FROM THE DATE OF PRODUCTION H AVE NOT EXPIRED PRIOR TO 1.4.1999, FOR THE REMAINING UN-EXP IRED PERIOD, THE ASSESSEE COULD BE ENTITLED TO THE BENEFIT. THE RELEVANT OBSERVATION OF THE COURT WAS AS UNDER :- 8. FROM THE AFORESAID OBJECT BEHIND THE AMENDMENT, IT IS CLEAR THAT THE PERIOD OF 5 YEARS IS EXTENDED TO 10 YEARS IN ORDER TO GIVE ADDED THRUST TO EXPORTS. IT IS BECAUS E THE PARLIAMENT FELT THAT THE TAX HOLIDAY OF 5 YEARS IS NOT HAVING THE DESIRED RESULT AND THEREFORE, THEY EXTENDED THE BENEFIT OF TAX HOLIDAY FROM 5 YEARS TO 10 YEARS . IF IT IS A CASE OF EXTENSION FROM 5 YEARS TO 10 YEARS, THE UNIT, WHICH HAD THE BENEFIT OF 5 YEARS AUTOMATICALLY, SHOULD GET THE BE NEFIT OF 10 YEARS IF OTHER CONDITIONS ARE FULFILLED. THE OTHER CONDITION TO BE FULFILLED IS TEN CONSECUTIVE ASSESSMENT YEARS BE GINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE. THEREF ORE, THE OBJECT WITH WHICH THIS AMENDMENT WAS INTRODUCED IS TO EXTEND THE BENEFIT OF TAX HOLIDAY FOR A PERIOD OF 1 0 CONSECUTIVE YEARS FROM THE DATE OF COMMENCEMENT OF MANUFACTURE OR PRODUCTION. BEFORE AN ASSESSEE CAN C LAIM THE BENEFIT OF TAX HOLIDAY, THE SAID LAW GOVERNING THE TAX HOLIDAY SHOULD BE IN FORCE ON THE FIRST DAY OF THE RELEVANT YEAR. THEN ONLY HE WOULD BE ENTITLED TO THE SAID BE NEFIT. ON 01.04.1999 WHEN THE AMENDED PROVISION CAME INTO FOR CE BY VIRTUE OF SAID PROVISION THE ASSESSEE WOULD BE ENTI TLED TO THE BENEFIT OF TAX HOLIDAY FOR 10 CONSECUTIVE YEARS FRO M THE DATE OF PRODUCTION . IF THE ASSESSEE ALREADY AVAILED THE BENEFIT UNDER THE UNAMENDED PROVISION AND THE 10 CONSECUTIV E YEARS WOULD FALL PRIOR TO 01.04.1999, THEN THE ASSE SSEE WOULD NOT BE ENTITLED TO THE SAID BENEFIT. IF THE S AID 10 48 CONSECUTIVE YEARS FROM THE DATE OF PRODUCTION HAS N OT EXPIRED, PRIOR TO 01.04.1999, FOR THE REMAINING UNE XPIRED PERIOD, HE WOULD BE ENTITLED TO THE BENEFIT. ON THE GROUND THAT HE HAD THE BENEFIT OF UNAMENDED PROVISION AND THE 5 YEARS PERIOD HAS EXPIRED ON THE DAY AMENDED PROVISI ON CAME INTO FORCE, HE CANNOT BE DENIED THE BENEFIT. I F THAT IS DONE, IT WOULD RUN COUNTER TO THE INTENTION WITH WH ICH THE AMENDED PROVISION WAS BROUGHT ON THE STATUTE BOOK. IT WOULD NEGATE THE AMENDED PROVISION. 9. IN THE INSTANT CASE, THE ASSESSEE HAS COMMENCED PRODUCTION IN THE YEAR 1993-94. HE ENJOYED THE BENE FIT OF 5 YEARS FROM 1993-94 TO 1997-98. THE AMENDED PROVISIO N CAME INTO FORCE ON 01.04.1999. HE IS ENTITLED TO TH E TAX HOLIDAY UNDER THE AMENDED PROVISION I.E. FROM 1993- 94 TO 2002-03. HE CLAIMED BENEFIT FROM 1999-2000, 2000-01 AND 2001-02. IT IS FOR THE PERIOD 2001-02, THE BENEFIT IS DENIED. THE SAID DENIAL OF THE BENEFIT RUNS COUNTER TO THE SPIRIT OF SECTION 10B AND IT WOULD NEGATE THE OBJECT WITH WHI CH THE AMENDED PROVISION WAS BROUGHT IN. THE ASSESSEE IS E NTITLED TO THE BENEFIT OF EXTENSION FROM 5 YEARS TO 10 YEAR S TAX HOLIDAY AS PROVIDED UNDER THE AMENDED PROVISION FOR 10 CONSECUTIVE YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION. IN THAT VIEW OF THE MATTER, THE ORDER P ASSED BY THE TRIBUNAL AS WELL AS THE FIRST APPELLATE AUTHORI TY IS STRICTLY IN ACCORDANCE WITH LAW AND DO NOT SUFFER F ROM ANY LEGAL INFIRMITY, WHICH CALLS FOR INTERFERENCE. NO S UBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION IN THIS AP PEAL. 57. APPLYING THE PROPOSITION OF LAW LAID DOWN BY THE AB OVE DECISION TO THE FACTS OF THE INSTANT CASE, AS THE P ERIOD OF TEN YEARS FROM THE YEAR OF START OF MANUFACTURE HAS NOT EXPIR ED AS ON THE DATE WHEN THE AMENDED PROVISION CAME INTO FORCE, TH E ASSESSEE IS ENTITLED TO THE BENEFIT OF TAX HOLIDAY FOR THE REMA INING PERIOD OF TEN YEARS. IT IS PERTINENT TO MENTION HERE THAT IN THE AFORESAID DECISION, THE HON'BLE KARNATAKA HIGH COURT WENT ON TO HOLD THAT EVEN IF THE PERIOD OF FIVE YEARS HAS EXPIRED AS ON THE DATE OF 49 AMENDED PROVISIONS BUT THE PERIOD OF TEN YEARS IS S TILL RUNNING, THE ASSESSEE CANNOT BE DENIED THE BENEFIT. THUS, TH E ISSUE RAISED BEFORE THIS SPECIAL BENCH IS SQUARELY COVERED BY TH E AFORESAID DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA. SI NCE THIS IS THE ONLY DECISION OF THE HON'BLE HIGH COURT ON THE ISSU E, THE SAME IS BINDING ON THE SPECIAL BENCH IN VIEW OF THE SETTLED PRINCIPLE OF JUDICIAL PROPRIETARY, AS LAID DOWN IN FOLLOWING CAS ES :- SUPREME COURT IN THE CASE OF DUNLOP INDIA LTD: 154 ITR 172 @ 181: WE DESIRE TO ADD AND AS WAS SAID IN CASSELL AND CO. LTD. V. BROOME [1972] AC 1027 (HL), WE HOPE IT WILL NEVE R HE NECESSARY FOR US TO SAY SO AGAIN THAT ' IN THE HIER ARCHICAL SYSTEM OF COURTS ' WHICH EXISTS IN OUR COUNTRY, ' I T IS NECESSARY FOR EACH LOWER TIER ', INCLUDING THE HIGH COURT, 'TO ACCEPT LOYALLY THE DECISIONS OF THE HIGHER TIER S'. ' IT IS INEVITABLE IN A HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DECISIONS OF THE SUPREME APPELLATE TRIBUNAL WHI CH DO NOT ATTRACT THE UNANIMOUS APPROVAL OF ALL MEMBERS O F THE JUDICIARY ...... BUT THE JUDICIAL SYSTEM ONLY W ORKS IF SOME ONE IS ALLOWED TO HAVE THE LAST WORD AND THAT LAST WORD, ONCE SPOKEN, IS LOYALLY ACCEPTED ' (SEE OBSERVATIONS OF LORD HAILSHAM AND LORD DIPLOCK IN BROOME V. CASSELL). THE BETTER WISDOM OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE. THAT IS THE STRENGTH OF THE HIERARCHICAL JUDICIAL SYSTEM . IN CASSELL V. BROOME [1972] AC 1027, COMMENTING ON THE COURT OF APPEAL'S COMMENT THAT ROOKES V. BARNARD [1964] AC 1129, WAS RENDERED PER INCURIAM, LORD DIP LOCK OBSERVED (P. 1131). 'THE COURT OF APPEAL FOUND THEMSELVES ABLE TO DISRE GARD THE DECISION OF THIS HOUSE IN ROOKES V. BARNARD BY APPLYING TO IT THE LABEL PER INCURIAM. THAT LABEL I S RELEVANT ONLY TO THE RIGHT OF AN APPELLATE COURT TO DECLINE TO FOLLOW ONE OF ITS OWN PREVIOUS DECISIONS, NOT TO ITS 50 RIGHT TO DISREGARD A DECISION OF A HIGHER APPELLATE COURT OR TO THE RIGHT OF A JUDGE OF THE HIGH COURT TO DIS REGARD A DECISION OF THE COURT OF APPEAL.' THE DELHI HIGH COURT IN THE CASE OF ALL INDIA LAKSH MI COMMERICAL BANK OFFICERS UNION V. UOI: 150 ITR 1, HELD THAT THE INCOME TAX AUTHORITIES ACTING ANYWHER E IN INDIA HAVE TO RESPECT THE LAW LAID DOWN BY A HIGH C OURT, WHETHER OF THE STATE IN WHICH THEY ARE FUNCTIONING OR OF A DIFFERENT STATE, IN THE ABSENCE OF ANY CONTRARY DEC ISION OF ANY OTHER HIGH COURT. SIMILAR VIEW HAS BEEN TAKEN IN THE FOLLOWING CASES HOLDING THAT THE TRIBUNAL HAD TO FOLLOW THE LAW LAI D DOWN BY A NON-JURISDICTIONAL HIGH COURT WHERE THERE IS N O JUDGEMENT OF A JURISDICTIONAL COURT; CIT V. GODAVARI DEVI SARAF : 113 ITR 589 (BOM) HIGHWAY CONSTRUCTION : 217 ITR 234, 240 (GAU.) CIT VS. SMT. NIRMALABAI K. DAREKAR: 186 ITR 242 (BOM) CIT VS. MAGANLAL MOHANLAL PANCHAL: 210 ITR 580 (GUJ). 58. SIMILAR VIEW HAS BEEN TAKEN BY THE I.T.A.T., MUMBAI BENCH IN THE CASE OF CONS INDIA PRIVATE LIMITED IN ITA NO. 8270/MUM/2004 WHEREIN IT WAS HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT FOR THE E XTENDED PERIOD OF TEN YEARS. IN THIS CASE ALSO EIGHT YEARS EXPIRED IN THE ASSESSMENT YEAR 2000-01. 59. REFERENCE IN THIS REGARD MAY ALSO MADE TO THE DECIS ION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TECH BOOKS ELECTRONICS SERVICES (P) LTD VS. ACIT: 100 ITO 125. IN THAT CASE, AGAIN, NEITHER THE FIVE YEAR PERIOD NOR THE BLOCK P ERIOD OF EIGHT YEAR HAD EXPIRED BEFORE THE AMENDED PROVISIONS BECA ME 51 APPLICABLE AND ACCORDINGLY THE TRIBUNAL WAS PLEASED TO HOLD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION FOR TH E EXTENDED PERIOD AS PER THE AMENDED LAW. THE PERTINENT OBSERV ATIONS OF THE TRIBUNAL ARE REPRODUCED HEREUNDER: '10.8 IN THE CASE OF THE ASSESSEE, NEITHER THE PERI OD OF FIVE YEARS NOR THE BLOCK PERIOD OF EIGHT YEARS EXPIRED WHEN THE AMENDMENT REPLACING THE WORD 'TEN' FOR 'FIVE' WAS INTRODUCED BY INCOME-TAX (SECO ND AMENDMENT) ACT, 1998 WITH EFFECT FROM 1-4-1999. SINCE THE ASSESSEE WAS ENTITLED TO EXEMPTION IN THE YEAR IN WHICH AMENDMENT BECAME EFFECTIVE AND OPERATIVE, THE ASSESSEE WILL BE ENTITLED TO THE EXTENDED PERIOD OF EXEMPTION BECAUSE THE PERIOD OF FIVE YEARS HAD NOT EXHAUSTED UP TO ASSESSMENT YEAR 1999-2000. SINCE THE RIGHT OF THE ASSESSEE WAS CONTINUING IN THE YEAR OF AMENDMENT AND WAS NOT LOST ON THE DATE WHEN THE AMENDMENT CAME INTO EXISTENCE, THE VIEW TAKEN BY THE LEARNED CIT(A) CANNOT BE UPHELD. 10.9 SO FAR AS THE OBJECTIONS OF THE LEARNED CIT(A) REGARDING CONDUCT OF THE ASSESSEE-FIRM IN NOT CLAIMING THE EXEMPTION IN EARLIER YEAR IS CONCERNED, THE APPROACH OF THE LEARNED CIT(A) RAISING THIS OBJECTION, CANNOT BE LEGALLY JUSTIFIED BECAUSE IF THE ASSESSEE IS ENTITLED TO ANY BENEFIT UNDER ANY STATUTORY PROVISION THEN THE PAST CONDUCT CANNOT BE RELEVANT PARTICULARLY WHEN REFERENCE TO SUCH CONDUCT IS NOT MADE IN THE ACT. THE ELIGIBILITY OF THE ASSESSEE HAS TO BE SEEN IN THE YEAR IN WHICH THE CLAIM IS PREFERRED AND IF IN EARLIER YEARS THE ASSESSEE WAIVED HIS RIGHT THEN HE CANNOT BE STOPPED IN CLAIMING THE BENEFIT IN THE SUBSEQUENT YEARS. 10.10 THE LEARNED CIT(A) HAS ALSO OBSERVED THAT THE ASSESSEE DID NOT FILE DECLARATION EXERCISING OPTION PRIOR TO THE DUE DATE FOR FILING OF RETURN B UT FILED IT ALONG WITH THE RETURN AND, THEREFORE, THE 52 ASSESSEE IS DISQUALIFIED FROM CLAIMING EXEMPTION ON THIS GROUND ALSO. WE DO NOT FIND ANY FORCE IN SUCH OBJECTION BECAUSE THIS OBJECTION IS MERELY OF SUPER-TECHNICAL NATURE. IN VIEW OF THE ABOVE, WE ARE UNABLE TO CONCUR WITH THE FINDING OF LEARNED CIT(A) AND SET ASIDE THE SAME. CONSEQUENTLY, WE ALLOW THE GROUND OF APPEAL TAKEN BY THE ASSESSEE AND DIRECT THAT THE ASSESSEE SHALL BE ENTITLED TO CLAIM EXEMPTION UNDER SECTION LOB IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 60. FROM RECORD WE FIND THAT THE ASSESSEE HAS SET UP TW O NEW SPINNING UNITS (UNIT III AND UNIT IV) ON 1.6.1995 A ND 19.8.1999, RESPECTIVELY, AS A SEPARATE, INDEPENDENT AND DISTIN CT UNIT. DURING THE RELEVANT ASSESSMENT YEAR, UNDER CONSIDER ATION, THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF PROFIT S OF SPINNING UNIT NOS. 3 AND 4, WHICH WAS DECLINED BY THE ASSESS ING OFFICER BY HOLDING THAT THE SPINNING UNITS III AND IV COULD NOT BE TREATED AS NEW INDUSTRIAL UNDERTAKING AND THAT THE ASSESSEE WAS ONLY GRANTED CERTIFICATE FOR ENHANCED CAPACITY AND NOT F OR THE NEW INDUSTRIAL UNDERTAKING AND THAT PERMISSION FOR ENHA NCEMENT OF THE CAPACITY WAS MERELY BY WAY OF AMENDMENT OF THE ORIGINAL CERTIFICATE AND NOT IN THE FORM OF ANY NEW PERMISSI ON/CERTIFICATE. THE ASSESSING OFFICER ALSO OBSERVED THAT THE DEDUCT ION IS GRANTED TO AN INDUSTRIAL UNDERTAKING AND A NEW LINE OF PRODUCTION SET UP AND NAMED AS SEPARATE UNIT CANNOT BE TREATED AS NEW INDUSTRIAL UNDERTAKING. THE OBJECTION OF THE ASSESSING 53 OFFICER WAS THAT EVEN THOUGH THE ASSESSEE HAD CARRI ED OUT CAPACITY EXPANSION, BUT SUCH EXPANSION COULD NOT BE REGARDED AS SEPARATE INDUSTRIAL UNDERTAKING IN ORDER TO BE I NDEPENDENTLY ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. BY THE IMPUGNED ORDER, THE LEARNED CIT(A) AFTER GIVING DETAILED FIN DING, ALLOWED THE ASSESSEES CLAIM BY HOLDING THAT ALL THE CONDITIONS U/S 10B WERE SATISFIED AS THERE WAS SUBSTANTIAL INVESTMENT OF FR ESH CAPITAL IN THE NEW UNIT SET UP AND EMPLOYMENT OF THE REQUISITE LABOUR. THE LEARNED CIT(A) ALSO RECORDED A FINDING TO THE E FFECT THAT SEPARATE AND DISTINCT INDUSTRIAL UNIT WAS SET UP BY THE ASSESSEE. IT WAS ALSO HELD THAT THERE WAS NO REQUIREMENT OF O BTAINING SEPARATE AND DISTINCT INDUSTRIAL LICENCE AS A CONDI TION PRECEDENT TO CLAIM OF DEDUCTION U/S 10B OF THE ACT SO LONG AS THE NEW UNIT SET UP WAS APPROVED AS AN EOU BY THE DESIGNATED AUT HORITY. 61. APPLYING THE RELEVANT PROVISIONS OF LAW AS APPLICAB LE DURING THE YEARS, UNDER CONSIDERATION, AND ALSO THE JUDICIAL PRONOUNCEMENTS, AS DISCUSSED ABOVE, WE CAN SAFELY H OLD THAT IN THE ASSESSMENT YEAR 1999-00 WHEN THE PERIOD OF EXEM PTION WAS EXTENDED FROM FIVE YEARS TO TEN YEARS, ALL THE THRE E UNITS OF THE ASSESSEE WERE ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. EACH OF THE UNITS WERE ELIGIBLE FOR EXEMPTION UNDER SECTION 10B OF THE ACT, BOTH UNDER THE PRE-AMENDED LAW WHEN THE EXEMPT ION WAS 54 AVAILABLE FOR FIVE YEARS OUT OF EIGHT YEARS AS WELL AS UNDER THE AMENDED LAW WHEN THE EXEMPTION WAS EXTENDED TO TEN CONSECUTIVE ASSESSMENT YEARS. AS THE AMENDMENT CAM E INTO FORCE IN THE ASSESSMENT YEAR 1999-00, THE AMENDED L AWS BECAME APPLICABLE TO THE ASSESSEE ACCORDING TO WHICH ALL T HE THREE ELIGIBLE UNITS OF THE ASSESSEE BECAME ENTITLED FOR DEDUCTION FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS FROM THE DATE OF COMMENCEMENT OF MANUFACTURE/PRODUCTION BY THE SAID ELIGIBLE UNDERTAKING. FURTHERMORE, THERE IS NO QUESTION OF CLAIMING THE PROVISION OF SECTION 10B TO BE PROSPECTIVE OR RETRO SPECTIVE SINCE WHAT THE ASSESSEE IS SIMPLY CLAIMING IS THAT THE EX EMPTION SHOULD BE ALLOWED AS PER THE PROVISIONS OF SECTION 10B OF THE ACT AS APPLICABLE IN THE RELEVANT ASSESSMENT YEAR. ONC E THAT IS DONE, NO QUESTION ARISES FOR DENYING EXEMPTION TO THE ASS ESSEE DURING THE RELEVANT ASSESSMENT YEARS UNDER CONSIDERATION. IT IS PERTINENT TO MENTION HERE THAT IN THE ASSESSMENT YE AR 1999-00 THE ASSESSEE WAS DULY ALLOWED DEDUCTION AS PER THE THEN APPLICABLE LAW WHEREUNDER THE ELIGIBLE UNDERTAKING IS ALLOWED SUCH DEDUCTION FOR A PERIOD OF TEN CONSECUTIVE YEAR S. NOW IN THE ASSESSMENT YEAR 2000-01 THE ASSESSEE HAD CLAIMED DE DUCTION IN RESPECT OF ITS ELIGIBLE UNITS WHICH WAS ALSO NOT DI SPUTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER IN HIS OR DER FOR THE 55 ASSESSMENT YEAR 2000-01 HAS GIVEN A FINDING THAT UN IT NOS. III AND IV WERE ENTITLED FOR EXEMPTION UPTO THE ASSESSM ENT YEAR 2005-06 AND 2008-09 RESPECTIVELY, WHICH WAS AS UNDE R :-- THE ASSESSEES ONE OF THE UNDERTAKINGS, SITUATED A T KHALBUJURG, REFERRED TO AS SAROVER DIVISION IS 100% EXPORT ORIENTED UNIT ENGAGED IN MANUFACTURING OF COTTON YA RN, FABRIC AND GARMENTS. A COPY OF GREEN CARD NO. 113 DATED 30.07.1993, VALID TIL 29.07.98 AND RENEWED GREEN CA RD NO. 471 DATED 13.07.1998 VALID UPTO 31.03.2003 HAVE ALR EADY BEEN FURNISHED EARLIER. THE ORIGINAL UNIT OF THIS U NDERTAKING IS ENTITLED FOR EXEMPTION U/S 10IB UPTO A.Y. 2001-0 2 WHEREAS UNIT III AND UNIT IV OF THIS UNDERTAKING AR E ENTITLED FOR EXEMPTION UNDER SECTION 80B UPTO ASSESSMENT YEA RS. 2005-06 AND 2008-09 RESPECTIVELY. FOR THE YEAR UNDE R CONSIDERATION, THE ASSESSEE IS ELIGIBLE FOR EXEMPTI ON UNDER SECTION 80B IN RESPECT OF ALL ITS UNITS OF THIS UND ERTAKING SITUATED AT KHALBUJURG DISTRICT KHARGONE . WE ALSO FIND THAT THE CIT HAS REVISED THE ABOVE ORD ER OF THE ASSESSING OFFICER BY EXERCISING HIS POWER UNDER SEC TION 263 OF THE ACT ON THE ISSUE OF ALLOWABILITY OF DEDUCTIO N UNDER SECTION 10B ON THE AFORESAID UNITS. THIS ORDER OF THE CIT WAS QUASHED BY THE TRIBUNAL AND SUBSEQUENTLY APPEAL FILED BY THE REVENUE WAS ALSO DISMISSED BY THE HIGH COURT . 62. WE HAVE CONSIDERED IN DETAIL THE SUBMISSIONS OF THE LEARNED CIT DR AND THE LD. COUNSEL FOR THE ASSESSEE . WE HAVE ALSO DELIBERATED ON THE CASE LAWS CITED BY BOTH THE PARTIES IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. AS PER OUR CONSIDERED VIEW, DEDUCTION U/S 10B OF THE ACT IS ALLOWABLE IN RESPEC T OF PROFITS OF 56 100% EXPORT ORIENTED UNDERTAKING. THE EXPRESSION U NDERTAKING HAS NOT BEEN DEFINED U/S 10B OF THE ACT. THE SAID E XPRESSION HAS BEEN EXPLAINED BY THE COURTS IN THE CONTEXT OF SIMI LAR OTHER PROVISIONS OF IT ACT VIZ. SECTION 15C OF 1922 ACT, SECTION 80J, 80HH, 80I, 80IA AND 80IB OF 1961 ACT. HON'BLE SUPR EME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LIMITE D V. CIT: 107 ITR 195 HELD THAT THE TRUE TEST IS WHETHER THE UNIT CLAIMING DEDUCTION IS A NEW AND IDENTIFIABLE UNDERTAKING SEP ARATE AND DISTINCT FROM THE EXISTING BUSINESS. IT WAS FURTHER HELD THAT MANUFACTURE OR PRODUCTION OF ARTICLES YIELDING ADDI TIONAL PROFIT ATTRIBUTABLE TO THE NEW OUTLAY OF CAPITAL IS A SEPA RATE AND DISTINCT UNIT IS THE HEART OF THE MATTER, TO EARN BENEFIT FR OM THE EXEMPTION OF TAX LIABILITY. FOLLOWING OBSERVATIONS OF THE COURT ARE VERY MUCH PERTINENT :- THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNOTES EXPANSION OF THE EXISTING BUSI NESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NE W AND IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS. NO PARTICULAR DECISION IN ONE CA SE CAN LAY DOWN AN INEXORABLE TEST TO DETERMINE WHETHER A GIVEN CASE COMES UNDER SECTION 15C OR NOT. IN ORDER THAT THE NEW UNDERTAKING CAN BE SAID TO BE NOT FORMED OUT OF THE ALREADY EXISTING BUSINESS, THERE MUST BE A NEW EMERGENCE OF A PHYSICALLY SEPARATE INDUSTRIAL UNIT WHICH MAY EXIST ON ITS OWN AS A VIABLE UNIT. AN UNDERTAKI NG IS FORMED OUT OF THE EXISTING BUSINESS IF THE PHYSICAL IDENTITY WITH THE OLD UNIT IS PRESERVED. THIS HAS NOT HAPPEN ED HERE IN THE CASE OF THE TWO UNDERTAKINGS WHICH ARE SEPARATE AND DISTINCT . 57 IT IS CLEAR THAT THE PRINCIPAL BUSINESS OF THE ASSE SSEE IS HEAVY ENGINEERING IN THE COURSE OF WHICH IT MANUFAC TURES BOILERS, WAGONS, ETC. IF AN INDUSTRIAL UNDERTAKING PRODUCES CERTAIN MACHINES OR PARTS WHICH ARE BY THEMSELVES, IDENTIFIABLE UNITS BEING MARKETABLE COMMODITIES AND THE UNDERTAKING CAN EXIST EVEN AFTE R THE CESSATION OF THE PRINCIPAL BUSINESS OF THE ASSESSEE , IT CANNOT BE ANYTHING BUT A NEW AND SEPARATE INDUSTRIA L UNDERTAKING TO QUALIFY FOR APPROPRIATE EXEMPTION UN DER SECTION 15C. THE PRINCIPAL BUSINESS OF THE ASSESSEE CAN BE CARRIED ON EVEN IF THE SAID TWO ADDITIONAL UNDERTAKINGS CEASE TO FUNCTION. AGAIN, THE CONVERSE IS ALSO TRUE. THE FACT THAT THE ARTICLES PRODUCED BY T HE TWO UNDERTAKINGS ARE USED BY THE BOILER DIVISION OF THE ASSESSEE WILL NOT WEIGH AGAINST HOLDING THAT THESE ARE NEW AND SEPARATE UNDERTAKINGS. ON THE OTHER HAND, T HE FACT THAT A PORTION OF THE ARTICLES PRODUCED IN THE SE TWO NEW INDUSTRIAL UNDERTAKINGS HAD BEEN SOLD IN THE OP EN MARKET TO OTHERS IS A CIRCUMSTANCE IN FAVOUR OF THE ASSESSEE THAT THE NEW INDUSTRIAL UNITS CAN FUNCTION ON THEIR OWN. USE OF THE ARTICLES BY THE ASSESSEE IS N OT DECISIVE TO DENY THE BENEFIT OF SECTION 15C. ONE THING IS CERTAIN THAT THE NEW UNDERTAKING MUST BE AN INTEGRATED UNIT BY ITSELF WHEREIN ARTICLES ARE PROD UCED AND AT LEAST A MINIMUM OF TEN PERSONS WITH THE AID OF POWER AND A MINIMUM OF TWENTY PERSONS WITHOUT THE A ID OF POWER HAVE BEEN EMPLOYED. SUCH A NEW INDUSTRIALL Y RECOGNIZABLE UNIT OF AN ASSESSEE CANNOT BE SAID TO BE RECONSTRUCTION OF HIS OLD BUSINESS SINCE THERE IS N O TRANSFER OF ANY ASSETS OF THE OLD BUSINESS TO THE N EW UNDERTAKING WHICH TAKES PLACE WHEN THERE IS RECONSTRUCTION OF THE OLD BUSINESS. FOR THE PURPOSE OF SECTION 15C THE INDUSTRIAL UNITS SET UP MUST BE NEW IN THE SENSE THAT NEW PLANTS AND MACHINERY ARE ERECTED FOR PRODUCING EITHER THE SAME COMMODITIES OR SOME DISTI NCT COMMODITIES. IN ORDER TO DENY THE BENEFIT OF SECTIO N 15C THE NEW UNDERTAKING MUST BE FORMED BY RECONSTRUCTIO N OF THE OLD BUSINESS . NOW, IN THE INSTANT CASE, THERE IS NO FORMATION OF ANY INDUSTRIAL UNDERTAKING OUT OF THE EXISTING BUSINESS SINCE THAT CAN TAKE PLACE ONLY WH EN THE ASSETS OF THE OLD BUSINESS ARE TRANSFERRED SUBSTANT IALLY TO THE NEW UNDERTAKING. THERE IS NO SUCH TRANSFER OF A SSETS 58 IN THE TWO CASES WITH WHICH WE ARE CONCERNED. 63. AT PAGE 206 THE HON'BLE SUPREME COURT HAS SUMMARISE D THE REQUIREMENTS TO BE SATISFIED BY A NEW INDUSTRIA L UNDERTAKING TO ENJOY THE TAX HOLIDAY AS UNDER :- HOWEVER, IN ORDER TO BE ENTITLED TO THE BENEFIT UN DER SECTION 15C, THE FOLLOWING FACTS HAVE TO BE ESTABLI SHED BY THE ASSESSEE, SUBJECT ALWAYS TO TIME-SCHEDULE IN TH E SECTION: (1)INVESTMENT OF SUBSTANTIAL FRESH CAPITAL IN THE I NDUSTRIAL UNDERTAKING SET UP, (2) EMPLOYMENT OF REQUISITE LABOUR THEREIN, (3) MANUFACTURE OR PRODUCTION OF ARTICLES IN THE SA ID UNDERTAKING, (4) EARNING OF PROFITS CLEARLY ATTRIBUTABLE TO THE SAID NEW UNDERTAKING, AND (5) ABOVE ALL, A SEPARATE AND DISTINCT IDENTITY OF THE INDUSTRIAL UNIT SET UP. IT IS CLEAR FROM THE ABOVE THAT THE HON'BLE SUPREME COURT HAS POINTED OUT THAT NEW INDUSTRIAL UNDERTAKING SHO ULD EMERGE AS PHYSICALLY SEPARATE INDUSTRIAL UNIT WHICH MAY EXIST ON ITS OWN AS A VIABLE UNIT AND THE COMMODITY SO PRODUCED OR THE RESULTS ACHIEVED SHOULD BE COMMERCI ALLY TANGIBLE PRODUCTS AND THE UNDERTAKING SHOULD BE CAR RIED ON SEPARATELY WITHOUT COMPLETED ABSORPTION AND LOSING THE IDENTITY OF THE EXISTING BUSINESS UNIT; THE MERE FA CT THAT THE NEW UNIT PRODUCES SAME/SIMILAR PRODUCTS WOULD NOT CONSTITUTE VALID REASON TO DECLINE THE CLAIM OF DED UCTION TO THE NEW UNIT. 59 64. HON'BLE SUPREME COURT IN THE CASE OF INDIAN ALUMINI UM LIMITED 108 ITR 367 HELD THAT WHERE THE ASSESSEE MA DE EXTENSIONS TO ITS EXISTING FACTORIES, THE CLAIM OF DEDUCTION U/S 15C OF THE 1922 ACT IN RESPECT OF THE ADDITIONAL IN VESTMENT IN THE FORM OF EXTENSION OF THE EXISTING FACTORY PREMISES, INSTALLATION OF NEW PLANT AND MACHINERY, ETC. CANNOT BE DENIED. 65. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F BHILAI ENGG. CORPORATION PRIVATE LIMITED; 133 ITR 687, AFT ER FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF TEXTILE MACHINERY CORPORATION LIMITED (SUPRA) HELD THAT REL IEF U/S 80J COULD BE OBTAINED WHEN NEW PLANT AND MACHINERY WERE ERECTED FOR PRODUCING THE SAME COMMODITY WHICH THE ASSESSEE WAS PRODUCING EARLIER. 66. IN VIEW OF THE ABOVE DISCUSSION, WE CAN SAFELY HOL D THAT AN UNDERTAKING MEANS A UNIT/BUSINESS WHICH HAS A SEPAR ATE AND INDEPENDENT EXISTENCE DISTINCT FROM THE OTHER UNITS /BUSINESS; HAVING INDEPENDENT INFR-STRUCTURE, SEPARATE PLANT A ND MACHINERY BEING SET UP WITH SUBSTANTIAL CAPITAL INVESTMENT AN D HAVING AN IDENTIFIABLE OUTPUT AND THE PROFITS ATTRIBUTABLE TH ERETO CAN BE DETERMINED. 67. APPLYING THE ABOVE PROPOSITION TO THE FACTS OF THE INSTANT CASE, WE FIND THAT ALL THE AFORESAID CONDITIONS ARE SATISFIED IN THE 60 TWO NEW SPINNING UNITS VIZ. UNIT NOS. 3 AND 4, WHIC H WERE SET UP BY THE ASSESSEE AS A SEPARATE AND INDEPENDENT PRODU CTION UNITS, BY MAKING SUBSTANTIAL INVESTMENT IN NEW BUILDING, P LANT AND MACHINERY, ETC. WHEREIN DISTINCT AND MARKETABLE PRO DUCE ARE MANUFACTURED. IN RESPECT OF UNIT NO. 3 WE FIND THA T IT WAS SET UP IN A NEWLY CONSTRUCTED BUILDING BY INSTALLING ADDIT IONAL 16224 SPINDLES WHICH ENHANCED THE TOTAL CAPACITY TO 38400 SPINDLES FROM THE EXISTING 22,176 SPINDLES. WE ALSO FIND THA T FOUR NEW KNITTING MACHINES WERE INSTALLED. THE FACILITIES TO MANUFACTURE ADDITIONAL 6 LACS PER ANNUM PIECES OF GARMENTS WERE PUT AS AGAINST EARLIER INSTALLED CAPACITY OF 13.6 LACS GAR MENTS PER ANNUM. THE TURNOVER OF THE COMPANY REACHED TO RS. 121.72 CRORES FROM RS. 67.26 CRORES IN THE IMMEDIATELY PRE CEDING YEAR AND THE PROFITS BEFORE DEPRECIATION TOOK QUANTUM LE AP OF 3.37 CRORES. IN UNIT NO. 4, ADDITIONAL 16128 SPINDLES W ERE INSTALLED WHICH ENHANCED THE INSTALLED CAPACITY TO 54528 SPIN DLES. 12 CIRCULAR KNITTING MACHINES WERE IMPORTED AND INSTAL LED. A POWER PLANT OF 4.25 MV CAPACITY WAS SET UP. THE FACILITIE S TO MANUFACTURE READYMADE GARMENTS WERE SET UP TO MANUF ACTURE 6 LACS ADDITIONAL GARMENTS PER ANNUM AND THE NEW UNIT RESULTED INTO TOTAL ADDITION OF GROSS BLOCK OF FIXED ASSETS BY RS. 69.43 CRORES AS AGAINST 121.01 CRORES AT THE BEGINNING OF THE YEAR. THE 61 TURNOVER OF THE COMPANY ALSO INCREASED TO RS. 224.5 CRORES AS AGAINST 158.37 CRORES IN THE PRECEDING YEAR. THUS, ON THE FACTS OF THE CASE, BOTH THE NEW SPINNING UNITS OF THE ASSESS EE HAVE THEIR INDEPENDENT AND SEPARATE EXISTENCE WHICH IS EVIDENT FROM THE COPY OF INVOICES ALONG WITH PACKING LIST PLACED IN THE PAPER BOOK WHICH SHOWS THAT IDENTIFIABLE AND MARKETABLE PRODUC TS WERE MANUFACTURED BY THESE UNITS. THE RAW MATERIAL ISSU E SLIPS ALSO SHOW THAT THE RAW MATERIAL IS ISSUED AND RECORDED U NITWISE. THE WAGE REGISTERS ALSO SHOW THAT SEPARATE WORKERS WERE ENGAGED AND WAGES WERE PAID AND RECORDED SEPARATELY. THE FLOW CHART OF SPINNING PROCESS CLEARLY INDICATES THAT EACH UNIT I S SEPARATELY SET UP. THE LOAN SANCTION LETTERS ISSUED BY BANK ALSO E VIDENCED SANCTION OF SEPARATE TERM LOAN TO SHOW THAT THE FUN DS WERE BORROWED FOR NEW UNITS AND THE ASSESSEE HAS MAINTAI NED SEPARATE BOOKS OF ACCOUNTS FOR EACH UNIT. ALL THES E DOCUMENTARY EVIDENCES CLEARLY ESTABLISH THAT THE ASSESSEE HAS U NDERTAKEN SUBSTANTIAL EXPANSION BY SETTING UP NEW UNITS VIZ. UNIT NOS. 3 AND 4 WHICH WERE SEPARATE AND INDEPENDENT PRODUCTIO N UNITS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 10B FOR TEN YEA RS FROM THE YEAR OF START OF PRODUCTION IN EACH OF THE UNITS. 68. IN THIS REGARD THE CONTENTION OF THE LEARNED CIT DR WAS THAT THE ASSESSEE HAD JUST CARRIED OUT CAPACITY EXT ENSION WHICH 62 COULD NOT BE REGARDED AS A SEPARATE INDUSTRIAL UNDE RTAKING FOR MAKING IT ELIGIBLE FOR THE CLAIM OF DEDUCTION U/S 1 0B INSOFAR AS THE ASSESSEE WAS ONLY GRANTED CERTIFICATE FOR ENHAN CED CAPACITY AND NOT FOR THE NEW INDUSTRIAL UNDERTAKING. THE OBJ ECTION OF THE LEARNED CIT DR WAS ALSO THAT THE PERMISSION FOR ENH ANCEMENT OF CAPACITY WAS MERELY BY WAY OF AMENDMENT IN THE ORIG INAL CERTIFICATE AND NOT IN THE FORM OF ANY NEW PERMISSI ON/CERTIFICATE. IN THIS REGARD WE FIND THAT SECTION 10B DOES NOT ST IPULATE FOR ISSUE OF SEPARATE APPROVAL FOR EACH UNIT FROM THE C OMPETENT AUTHORITY. THE ONLY REQUIREMENT UNDER THE SAID SEC TION IS THAT THE UNDERTAKING SHOULD BE APPROVED. THE DEFINITION OF 100% EXPORT UNDERTAKING AS PROVIDED IN CLAUSE (IV) OF E XPLANATION 2 TO SECTION 10B PROVIDES AS UNDER :- (IV) 'HUNDRED PER CENT. EXPORT-ORIENTED UNDERTAKIN G' MEANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A HUNDRED PE R CENT. EXPORT- ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFER RED BY SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951 (65 OF 1951), AND THE RULES MADE UNDER THAT ACT; 69. FROM RECORD WE FIND THAT THE NEW SPINNING UNIT SET UP BY THE ASSESSEE WAS DULY APPROVED AS 100% EOU BY THE C ONCERNED GOVERNMENT DEPARTMENT. THE RELEVANT PERMISSION DATE D 13.3.1995 BEARING NO. 144/EOB/61/95 ISSUED BY THE M INISTRY OF INDUSTRIES, DEPARTMENT OF INDUSTRIAL DEVELOPMENT, GOVERNMENT OF INDIA, WAS RECEIVED FOR SETTING UP NEW UNIT. NE CESSARY 63 CORRECTIONS IN THE PERMISSION DATED 13.3.1995 WERE ALSO CARRIED OUT BY THE MINISTRY VIDE LETTER DATED 31.5.1995. T HE ASSESSEE HAD ALSO FILED LETTER DATED 14.4.1998 BEFORE THE CO MPETENT AUTHORITY FOR ENHANCEMENT OF THE LICENCE CAPACITY W HICH WAS ALSO GRANTED ON 2.6.1998. IN VIEW OF THESE DOCUMENTARY EVIDENCES, WE HOLD THAT FRESH PERMISSION WAS GRANTED FOR A NEW UN IT WHERE THE COMPETENT AUTHORITY EXTENDED THE BENEFIT AVAILABLE TO 100% EXPORT ORIENTED UNIT FOR SUBSTANTIAL EXTENSION OF T HE EXISTING UNDERTAKING. 70. THE DECISION RELIED UPON BY THE LEARNED CIT DR IN THE CASE OF STATE OF GUJARAT VS. SAURASHTRA CEMENT & CHEMICA L INDUSTRIES; 260 ITR 181 IS DISTINGUISHABLE ON FACTS INSOFAR AS IT WAS HELD BY THE HON'BLE SUPREME COURT THAT ADMITTEDLY THE ALLEG ED NEW UNIT WAS USING THE EXISTING CRUSHERS, GRAINS, RAW MILLS, PACKING MACHINES AND OLD CEMENT MILS TO COMPLETE THE PROCES S OF MANUFACTURE OF CEMENT. IT WAS THUS HELD THAT NEW U NIT WAS NOT TOTALLY INDEPENDENT VIABLE UNIT, THEREFORE, NOT ELI GIBLE FOR CLAIM OF EXEMPTION FROM ELECTRICITY DUTY U/S 3(2)(VII)(B) OF THE BOMBAY ELECTRICITY DUTY ACT, 1958. HOWEVER, IN THE INSTANT CASE BEFORE US, THE AFORESAID TWO UNITS VIZ. UNIT NO. 3 AND 4 W ERE SEPARATE AND INDEPENDENT PRODUCTION UNITS WHEREIN BY MAKING SUBSTANTIAL INVESTMENT IN NEW BUILDING, PLANT AND M ACHINERY, 64 ETC., THE ASSESSEE WAS MANUFACTURING DISTINCT AND M ARKETABLE PRODUCTS. UNIT 3 WAS SET UP IN NEWLY CONSTRUCTED B UILDING BY INSTALLING ADDITIONAL SPINDLES, NEW KNITTING MACHIN ES WHICH RESULTED INTO SUBSTANTIAL INCREASE IN THE INSTALLED CAPACITY AND TURNOVER OF THE COMPANY. SIMILARLY, IN UNIT 4, THE ASSESSEE HAS INSTALLED 16,128 SPINDLES, 12 CIRCULAR KNITTING MAC HINES, POWER PLANT OF 4.25 MV CAPACITY. THUS, THE UNIT RESULTED INTO TOTAL ADDITION TO GROSS BLOCK OF FIXED ASSETS BY RS. 69.4 3 CRORES AS AGAINST 121.01 CRORES. THE TURNOVER OF THE COMPANY ALSO INCREASED TO RS. 224.5 CRORES AS AGAINST RS. 158.37 CRORES IN THE PRECEDING YEAR. 71. THE DECISION RELIED UPON BY THE LEARNED CIT DR IN T HE CASE OF CANARA WIRE PRODUCTS LIMITED; 196 ITR 426 IS ALS O DISTINGUISHABLE ON FACTS INSOFAR AS THE CLAIM OF DE DUCTION U/S 80J WAS DECLINED ON THE PLEA THAT THE ASSESSEE HAS UNDERTAKEN RECONSTRUCTION OF OLD BUSINESS. IT WAS HELD THAT W HENEVER AN ASSESSEE CLAIMS RELIEF U/S 80J, THE ASSESSEE WILL H AVE TO PLEAD AND ESTABLISH THAT A NEW UNIT HAS COME INTO EXISTEN CE, WHICH INDEPENDENTLY PRODUCES ARTICLES OF WHATEVER NATURE AND THIS NEW UNIT IS NOT DEPENDENT UPON OLD EXISTING UNIT. HOWE VER, IN THE INSTANT CASE BEFORE US, THE TWO UNITS WERE SEPARATE AND TOTALLY INDEPENDENT WHEREIN SUBSTANTIAL INVESTMENT IN NEW B UILDING, 65 PLANT AND MACHINERY WAS DONE, THEREFORE, THE CASE L AW RELIED UPON BY THE LEARNED CIT DR IS OF NO HELP TO THE REV ENUE FOR DECLINING THE CLAIM OF DEDUCTION U/S 10B IN RESPECT OF ITS NEW UNIT NOS. 3 AND 4. 72. NOW COMING TO THE OBJECTION OF THE LEARNED CIT DR T O THE EFFECT THAT THE ASSESSEE WAS ONLY GRANTED CERTIFICA TE FOR ENHANCED CAPACITY BY WAY OF AMENDMENT OF THE ORIGINAL CERTIF ICATE AND NOT A FRESH SANCTION LETTER IN THE FORM OF CERTIFICATE, THEREFORE, THE ASSESSEES CLAIM OF DEDUCTION U/S 10B OF THE ACT CA NNOT BE GRANTED. THIS OBJECTION OF THE LEARNED CIT DR IS NO T TENABLE INSOFAR AS MANNER OF GRANTING APPROVAL/LICENCE FOR NEW UNIT IS NOT RELEVANT AND EVEN THE ENDORSEMENT ON THE EXISTI NG LICENCE/APPROVAL WOULD BE SUFFICIENT FOR CONSIDERIN G THE UNIT AS DISTINCT AND SEPARATE UNDERTAKING, SINCE THE ASSESS EE FULFILLED ALL THE CONDITIONS, NAMELY, A) BUSINESS HAS SEPARATE AND INDEPENDENT EXISTENCE, SEPARATE AND DISTINCT FROM OTHER UNITS/BUSINESS B) EMPLOYMENT OF INDEPENDENT INFRASTRUCTURE AND SEPARATE PLANT AND MACHINERY ETC. C) SUBSTANTIAL CAPITAL INVESTMENT D) NEW EMPLOYEES AND E) IDENTIFIABLE OUTPUT (EVEN THOUGH SAME PRODUCT) AND PROFITS THERETO CAN BE DETERMINED. 73. SIMILAR ISSUE HAS BEEN DEALT WITH BY THE I.T.A.T., PUNE BENCH, IN THE CASE OF PATNI COMPUTER SYSTEMS LTD. V. DCIT: ITA 66 NO. 426 AND 1131/PN/06, WHEREIN ASSESSEES CLAIM F OR DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT O F THREE UNITS WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROU ND THAT THREE UNITS WERE NOT NEW UNITS BUT MERE EXPANSION OF EXIS TING UNIT ON THE BASIS OF APPROVAL LETTERS RECEIVED FROM STPI. T HE TRIBUNAL HELD THAT THE MANNER OF GRANTING APPROVAL WAS NOT R ELEVANT FOR ADJUDICATING THE CLAIM OF DEDUCTION UNDER SECTION 1 0A. THE RELEVANT OBSERVATIONS AND FINDINGS OF THE TRIBUNAL WERE AS UNDER :- 41. THE ONLY PLEA OF THE REVENUE IS THAT IN THE APP ROVALS GRANTED BY THE STPI, THE THREE UNITS HAVE BEEN REFE RRED TO AS AN EXPANSION OF THE CORRESPONDING OLD UNITS. THE MOOT QUESTION IS AS TO WHETHER SUCH A PLEA OF THE REVENU E IS POTENT TO EFFECT THE ASSESSEES ENTITLEMENT FOR DED UCTION UNDER SECTION 10A OF THE ACT . SIMILAR PLEA OF THE REVENUE IN THE CONTEXT OF SECTION 10B OF THE ACT WAS A SUBJECT MATTER OF CONSIDERATION BY OUR COORDINATE BENCH IN THE CAS E OF JAYANT AGRO ORGANICS LTD. AKHANDANAD, (SUPRA) WHERE IN FOLLOWING DISCUSSION IS WORTHY OF NOTICE: 8. REVENUE HAS VEHEMENTLY CONTENDED THAT THERE IS NO INDEPENDENT GOVERNMENT APPROVAL OF THE NEW UNIT AND ALL THAT THE GOVERNMENT HAS PERMITTED IS ENHANCEMENT IN CAPACITY OF THE EXISTING UNIT. AS EVIDENT FROM THE LAND ALLOTMENT LETTER DATED 19TH JULY, 1995 ISSUED BY TH E GUJARAT INDUSTRIAL DEVELOPMENT CORP. LTD. IT IS CLEAR THAT THE LAND ALLOTTED FOR THE NEW UNIT IS PLOT #624/1 AND 2, AND 625 TO 627 WHEREAS THE EXISTING PLANT WAS IN PLOT 3 602. T HE PRODUCTION OF 12 HYDROXY STEARIC ACID IS AUTHORIZED BY THE LETTER DT 27TH JANUARY 1995 WHICH STATES THAT THE GOVERNMENT HAS TAKEN NOTE OF ASSESSEES WISH TO MANUFACTURE HYDROXY STEARIC ACID ALSO BY WAY OF FOR WARD INTEGRATION AND AMENDED THE LETTER OF PERMISSION TO INCLUDE 12 HYDROXY STEARIC ACID OF 12,000 MT IN THE VERY NE XT 67 SENTENCE. IT IS OBSERVED THAT GOVT ALSO APPROVES O F YOUR REQUEST FOR THE IMPORT OF ADDITIONAL CAPITAL GOODS WORTH RS 550 LAKHS FOR THE PROJECT. THAT CLEARLY DEMONSTRAT ES THAT THE PRODUCTION OF HYDROXY STEARIC ACID OF 12,000 MT WAS VIEWED BY THE GOVERNMENT AS AN INDEPENDENT PROJECT. IT WAS NOT A CASE FOR PURCHASE OF ADDITION CAPITAL GOODS FOR THE EXISTING PROJECT. THE ASSESSEE IS IRRESPECTIVE OF THE NUMBER OF UNITS, IS ONE OF ARTIFICIAL JURIDICAL PER SON. THEREFORE, A COMBINED PERMISSION, WHICH INVOLVES SE TTING UP FOR DIFFERENT UNITS, IS QUITE IN ORDER. THE FACT OF AMENDMENT OF EARLIER PERMISSION OR OF GRANT OF SEPA RATE PERMISSIONS, IS NOT REALLY RELEVANT. WHAT IS REALLY TO BE EXAMINED IS WHETHER THE UNITS ARE INDEPENDENT OF UN IT AND WHETHER THE UNITS ARE COVERED BY THE PERMISSION OR NOT. IN OUR HUMBLE UNDERSTANDING IT MEETS BOTH THE TESTS. W E HAVE ALSO NOTED THAT IT IS NOT AN STATUTORY REQUIREMENT THAT THERE HAS TO BE SEPARATE PERMISSION FOR EACH UNIT AND THE REFORE JUST BECAUSE THE PERMISSION IS GRANTED BY THE GOVER NMENT BY WAY OF AMENDING THE ORIGINAL PERMISSION LETTER D OES NOT AFFECT THE ELIGIBILITY FOR DEDUCTION U/S 10B IN ANY MANNER. 74. IN VIEW OF THE ABOVE DISCUSSION, THE CO-ORDINATE BE NCH HELD THAT THE MANNER IN WHICH THE APPROVAL HAS BEEN GRAN TED IS NOT RELEVANT TO EXAMINE THE ASSESSEES ELIGIBILITY FOR CLAIM OF DEDUCTION U/S 10A OF THE ACT IN RESPECT OF THREE UN ITS. WHAT IS REALLY TO BE EXAMINED IS AS TO WHETHER THE THREE UN ITS ARE INDEPENDENT UNITS AND THAT THEY FULFILL THE CONDITI ONS PRESCRIBED U/S 10A(2) OF THE ACT. IT WAS, THEREFORE, HELD THA T THE MERE FACT THAT THE REQUISITE PERMISSIONS FROM STPI REFER THEM AS EXPANSIONS OF THE EXISTING UNITS WOULD NOT DIS-ENTI TLE THE ASSESSEE FROM THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. 68 75. IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BEN CH, THE PLEA OF THE LEARNED CIT DR WILL NOT DIS-ENTITLE THE ASSESSEE FROM CLAIMING DEDUCTION U/S 10B IN RESPECT OF TWO NEW UN ITS SINCE THESE UNITS WERE SET UP IN A NEWLY CONSTRUCTED BUIL DING BY INSTALLING ADDITIONAL SPINDLES, NEW PLANT AND MACHI NERY, NEW POWER PLANT AND NEW MANUFACTURING FACILITIES WHICH RESULTED INTO INCREASED TURNOVER BY ALMOST DOUBLE, RECRUITMENT OF NEW MANPOWER/EMPLOYEES, MANUFACTURING OF NEW IDENTIFIAB LE AND MARKETED PRODUCTS, MAINTENANCE OF SEPARATE BOOKS OF ACCOUNT FOR EACH UNIT, OBTAINING SEPARATE APPROVALS FOR NEW SPI NNING UNITS AND PERMISSION FOR ENHANCED CAPACITY. IT IS PERTIN ENT TO MENTION HERE THAT NEW, SEPARATE AND INDEPENDENT UNITS WERE SET UP WHICH WERE DISTINCT FROM OTHER EXISTING UNIT ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. 76. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THE UNDERTAKING EXISTING PRIOR TO 1.4.1999 CLAIMING EXE MPTION U/S 10B OF THE ACT WOULD BE ENTITLED TO EXEMPTION FOR T HE EXTENDED PERIOD OF TEN YEARS AND DEDUCTION UNDER THE SAID SE CTIONS WOULD BE ADMISSIBLE IN RESPECT OF UNIT NO. 3 AND UNIT NO. 4 AS WELL FOR TEN YEARS FROM THE YEAR OF START OF PRODUCTION IN T HESE NEW UNITS SINCE THESE UNITS WERE SEPARATE AND INDEPENDENT PRO DUCTION 69 UNITS. THUS, THE FIRST QUESTION REFERRED TO THE SP ECIAL BENCH IS ANSWERED IN THE AFFIRMATIVE. 77. THE SECOND QUESTION REFERRED TO THE SPECIAL BENCH P ERTAINS TO ELIGIBILITY OF DEDUCTION IN RESPECT OF EXPORT IN CENTIVES RECEIVED BY THE ASSESSEE IN TERMS OF THE PROVISIONS OF SECTI ON 10B(1) READ WITH SECTION 10B(4) OF THE ACT. THE FACTS, IN BRIE F, ARE THAT DURING THE YEAR, THE ASSESSEE WAS IN RECEIPT OF EXPORT ENT ITLEMENT OF RS. 1.65 CRORES AND SPECIAL IMPORT LICENCE OF RS. 4.47 LACS. THE ASSESSING OFFICER DECLINED THE CLAIM OF DEDUCTION B Y HOLDING THAT SUCH INCOME WAS NOT DERIVED FROM 100% EXPORT ORIENT ED UNDERTAKING, THEREFORE, NOT ELIGIBLE FOR CLAIM OF D EDUCTION U/S 10B(1) READ WITH SECTION 10B(4) OF THE ACT. THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS), BY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, HELD THAT THE ASSESSEE WAS ELIGIBLE FOR EXEMPTION IN RESPECT OF EXPORT ENT ITLEMENT AND SPECIAL IMPORT LICENCE AS THE INCOME OF EOU ELIGIBL E FOR EXEMPTION U/S 10B OF THE ACT. FROM RECORD WE FIND THAT THE EXPORT ENTITLEMENT WAS ALLOTTED BY THE COMPETENT AU THORITY IN RESPECT OF EXPORT UNDERTAKEN BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE OFF-LOADED THE ENTITLEMENT WHICH WAS U NUSABLE AND BOUGHT QUOTA/ENTITLEMENTS WHICH WAS REQUIRED FOR PR OCURING THE REQUIRED MATERIAL NECESSARY FOR ITS PRODUCTION PURP OSE. 70 SIMILARLY, SPECIAL IMPORT LICENCE WAS ALLOTTED TO T HE ASSESSEE BY THE DESIGNATED AUTHORITY AS PER EXPORT IMPORT POLIC Y AND PROCEDURE 1997 2002. INCOME ARISING OUT OF SALE O F EXPORT ENTITLEMENT AND SPECIAL IMPORT LICENCE WAS ASSESSED AS INCOME FROM BUSINESS. HOWEVER, ON SUCH BUSINESS INCOME, T HE ASSESSEE IS ENTITLED TO CLAIM OF DEDUCTION U/S 10B IN RESPEC T OF SUCH INCOME. THE RELEVANT PROVISIONS OF SECTION 10B REA D AS UNDER :- [SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHE D HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKINGS 10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION , A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING FROM T HE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE F OR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SH ALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AN D GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISI ONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUB STITUTION BY THE FINANCE ACT, 2000, THE UNDERTAKING SHALL BE ENT ITLED TO THE DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF AFORESAID TEN CONSECUTIVE ASSES SMENT YEARS : [ PROVIDED FURTHER THAT FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THIS SUB- SECTION SHALL BE NINETY PER CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH A RTICLES OR THINGS OR COMPUTER SOFTWARE:] PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, [ 2012 ] AND SUBSEQUENT YEARS : 71 [ PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO AN ASSESSEE WHO DOES NOT FURNISH A RETUR N OF HIS INCOME ON OR BEFORE THE DUE DATE SPECIFIED UNDER SU B- SECTION (1) OF SECTION 139 .] (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH F ULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : ( I ) IT MANUFACTURES OR PRODUCES ANY ARTICLES OR THING S OR COMPUTER SOFTWARE; ( II ) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECO NSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE- ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASS ESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B , IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION ; ( III ) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINES S OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION. THE PROVISIONS OF EXPLANATION 1 AND EXPLANATION 2 TO SUB-SECTION (2) OF SECTION 80-I SHALL APPLY FOR THE PURPOSES OF CLAUSE ( III ) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE ( II ) OF THAT SUB-SECTION. (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA ARE RECEIVED IN, OR BROUGHT INTO, INDI A BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WI THIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. EXPLANATION 1. FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHORITY AS IS AUTHORISED U NDER ANY LAW FOR THE TIME BEING IN FORCE FOR REGULATING PAYM ENTS AND DEALINGS IN FOREIGN EXCHANGE. EXPLANATION 2. THE SALE PROCEEDS REFERRED TO IN THIS SUB- SECTION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN IN DIA WHERE SUCH SALE PROCEEDS ARE CREDITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF THE RESERVE BANK OF INDIA. [(4) FOR THE PURPOSES OF SUB-SECTION (1), THE PROF ITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE SHALL 72 BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUS INESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER S OFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING.] XXX XXX XXX XXX EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION, ( I ) COMPUTER SOFTWARE MEANS ( A ) ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE; OR ( B ) ANY CUSTOMIZED ELECTRONIC DATA OR ANY PRODUCT OR SERVICE OF SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD, WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO AN Y PLACE OUTSIDE INDIA BY ANY MEANS; ( II ) CONVERTIBLE FOREIGN EXCHANGE MEANS FOREIGN EXCH ANGE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK OF INDIA AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPO SES OF THE FOREIGN EXCHANGE REGULATION ACT, 1973 (46 OF 1973), AND ANY RULES MADE THEREUNDER OR ANY OTHER CORRESPONDIN G LAW FOR THE TIME BEING IN FORCE; ( III ) EXPORT TURNOVER MEANS THE CONSIDERATION IN RESP ECT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB- SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMM UNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY O F THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN P ROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA; ( IV ) HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING ME ANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A HUNDRED PE R CENT EXPORT-ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951 (65 OF 1951), AND THE RULES M ADE UNDER THAT ACT; 73 ( V ) RELEVANT ASSESSMENT YEARS MEANS ANY ASSESSMENT YEARS FALLING WITHIN A PERIOD OF TEN CONSECUTIVE ASSESSME NT YEARS, REFERRED TO IN THIS SECTION.] [ EXPLANATION 3. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE PROFITS AND GAINS DERIVED FROM ON SITE DEVELOPMENT OF COMPUTER SOFTWARE (INCLUDING SERVICE S FOR DEVELOPMENT OF SOFTWARE) OUTSIDE INDIA SHALL BE DEE MED TO BE THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA.] [ EXPLANATION 4. FOR THE PURPOSES OF THIS SECTION, MANUFACTURE OR PRODUCE SHALL INCLUDE THE CUTTING AND POLISHING OF PRECIOUS AND SEMI-PRECIOUS STONES.] IT IS CLEAR FROM THE PLAIN READING OF SECTION 10B(1 ) OF THE ACT THAT THE SAID SECTION ALLOWS DEDUCTION IN RESPECT OF PRO FITS AND GAINS AS ARE DERIVED BY A 100% EOU. FURTHER, SECTION 10B (4) OF THE ACT STIPULATES SPECIFIC FORMULA FOR COMPUTING THE PROFI T DERIVED BY THE UNDERTAKING FROM EXPORT. THUS, THE PROVISIONS OF S UB-SECTION (4) OF SECTION 10B OF THE ACT MANDATE THAT DEDUCTION UN DER THAT SECTION SHALL BE COMPUTED BY APPORTIONING THE PROFI TS OF THE BUSINESS OF THE UNDERTAKING IN THE RATIO OF EXPORT TURNOVER BY THE TOTAL TURNOVER. THUS, EVEN THOUGH SUB-SECTION (1) OF SECTION 10B REFERS TO PROFITS AND GAINS AS ARE DERIVED BY A 100 % EOU, THE MANNER OF DETERMINING SUCH ELIGIBLE PROFITS HAS BEE N STATUTORILY DEFINED IN SUB-SECTION (4) OF THAT SECTION. BOTH SU B-SECTIONS (1) AND (4) ARE TO BE READ TOGETHER WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S 10B OF THE ACT. WE CANNOT IGNORE SUB -SECTION (4) OF SECTION 10B WHICH PROVIDES SPECIFIC FORMULA FOR COMPUTING THE 74 PROFITS DERIVED BY THE UNDERTAKING FROM EXPORT. AS PER THE FORMULA SO LAID DOWN, THE ENTIRE PROFITS OF THE BUS INESS ARE TO BE DETERMINED WHICH ARE FURTHER MULTIPLIED BY THE RATI O OF EXPORT TURNOVER TO THE TOTAL TURNOVER OF THE BUSINESS. IN CASE OF LIBERTY INDIA, THE HON'BLE SUPREME COURT HAS DEALT WITH THE PROVISIONS OF SECTION 80IA OF THE ACT WHEREIN NO FORMULA WAS LAID DOWN FOR COMPUTING THE PROFITS DERIVED BY THE UNDERTAKING WH ICH HAS SPECIFICALLY BEEN PROVIDED UNDER SUB-SECTION (4) OF SECTION 10B WHILE COMPUTING THE PROFITS DERIVED BY THE UNDERTAK ING FROM THE EXPORT. THUS, THE DECISION OF THE HON'BLE SUPREME COURT IS OF NO HELP TO THE REVENUE IN DETERMINING THE CLAIM OF DED UCTION U/S 10B IN RESPECT OF EXPORT INCENTIVES. 78. SECTION 10B SUB-SECTION (1) ALLOWS DEDUCTION IN RES PECT OF PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU. SE CTION 10B(4) LAYS DOWN SPECIAL FORMULA FOR COMPUTING THE PROFITS DERIVED BY THE UNDERTAKING FROM EXPORT. THE FORMULA IS AS UNDE R :- PROFIT OF THE BUSINESS OF THE EXPORT TURNOVER UNDERTAKING X TOTAL TURNOVER OF BUSINESS CARRIED OUT BY THE UNDERTAKING 79. THUS, SUB-SECTION (4) OF SECTION 10B STIPULATED THA T DEDUCTION UNDER THAT SECTION SHALL BE COMPUTED BY A PPORTIONING THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN T HE RATIO OF TURNOVER TO THE TOTAL TURNOVER. THUS, NOT-WITH-STAN DING THE FACT 75 THAT SUB-SECTION (1) OF SECTION 10B REFERS THE PROF ITS AND GAINS AS ARE DERIVED BY A 100% EOU, YET THE MANNER OF DETERM INING SUCH ELIGIBLE PROFITS HAS BEEN STATUTORILY DEFINED IN SU B-SECTION (4) OF SECTION 10B OF THE ACT. AS PER THE FORMULA STATED ABOVE, THE ENTIRE PROFITS OF THE BUSINESS ARE TO BE TAKEN WHIC H ARE MULTIPLIED BY THE RATIO OF THE EXPORT TURNOVER TO THE TOTAL TU RNOVER OF THE BUSINESS. SUB-SECTION (4) DOES NOT REQUIRE AN ASSE SSEE TO ESTABLISH A DIRECT NEXUS WITH THE BUSINESS OF THE U NDERTAKING AND ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE UN DERTAKING, THE SAME WOULD BE INCLUDED IN THE PROFITS OF THE BU SINESS OF THE UNDERTAKING. THUS, ONCE AN INCOME FORMS PART OF TH E BUSINESS OF THE ELIGIBLE UNDERTAKING, THERE IS NO FURTHER MANDA TE IN THE PROVISIONS OF SECTION 10B TO EXCLUDE THE SAME FROM THE ELIGIBLE PROFITS. THE MODE OF DETERMINING THE ELIGIBLE DEDU CTION U/S 10B IS SIMILAR TO THE PROVISIONS OF SECTION 80HHC INASM UCH AS BOTH THE SECTIONS MANDATES DETERMINATION OF ELIGIBLE PRO FITS AS PER THE FORMULA CONTAINED THEREIN. THE ONLY DIFFERENCE IS THAT SECTION 80HHC CONTAINS A FURTHER MANDATE IN TERMS OF EXPLAN ATION (BAA) FOR EXCLUSION OF CERTAIN INCOME FROM THE PROFITS O F THE BUSINESS WHICH IS, HOWEVER, CONSPICUOUS BY ITS ABSENCE IN SE CTION 10B. ON THE BASIS OF THE AFORESAID DISTINCTION, SUB-SECT ION (4) OF SECTION 10A/10B OF THE ACT IS A COMPLETE CODE PROVI DING THE 76 MECHANISM FOR COMPUTING THE PROFITS OF THE BUSINES S ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE INCOME OF THE ELIGIBLE UNDERTAKING OF THE ASSESSEE, THE SAME CANNOT BE EXCLUDED FROM THE ELIG IBLE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B OF T HE ACT. AS PER THE COMPUTATION MADE BY THE ASSESSING OFFICER H IMSELF, THERE IS NO DISPUTE THAT BOTH THESE INCOMES HAVE BEEN TRE ATED BY THE ASSESSING OFFICER AS BUSINESS INCOME. THE CBDT CIR CULAR NO. 564 DATED 5 TH JULY, 1990 REPORTED IN 184 ITR (ST.) 137 EXPLAINED THE SCOPE AND AMBIT OF SECTION 80HHC AND THE MODE O F DETERMINATION OF PROFITS DERIVED BY AN ASSESSEE FRO M THE EXPORT OF GOODS. I.T.A.T., SPECIAL BENCH IN THE CASE OF INTE RNATIONAL RESEARCH PARK LABORATORIES VS. ACIT, 212 ITR (AT) 1 , AFTER FOLLOWING THE AFORESAID CIRCULAR, HELD THAT STRAIGH T JACKET FORMULA GIVEN IN SUB-SECTION (3) HAS TO BE FOLLOWED TO DETE RMINE THE ELIGIBLE DEDUCTION. THE HON'BLE SUPREME COURT IN T HE CASE OF P.R. PRABHAKAR; 284 ITR 584 HAD APPROVED THE PRINCI PLE LAID DOWN IN THE SPECIAL BENCH DECISION IN INTERNATIONAL RESERARCH PARK LABORATORIES VS. ACIT (SUPRA). IN THE ASSESSE ES OWN CASE THE I.T.A.T. IN THE PRECEDING YEARS, AFTER CONSIDER ING THE DECISION IN THE CASE OF LIBERTY INDIA HELD THAT PROVISIONS O F SECTION 10B ARE DIFFERENT FROM THE PROVISIONS OF SECTION 80IA W HEREIN NO 77 FORMULA HAS BEEN LAID DOWN FOR COMPUTING THE ELIGIB LE BUSINESS PROFIT. 80. IN VIEW OF THE ABOVE DISCUSSION, QUESTION NO. 2 IS ANSWERED IN AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. ACCO RDINGLY, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION ON EXPO RT INCENTIVE RECEIVED BY IT IN TERMS OF PROVISIONS OF SECTION 10 B(1) READ WITH SECTION 10B(4) OF THE ACT. ORDER PRONOUNCED IN THE OPEN COURT ON 28.3. 2012. SD/- SD/- SD/- (G.C. GUPTA) (G.E. VEERABHDRAPPA) (R.C. SHARMA) VICE PRESIDENT PRESIDENT ACCOUN TANT MEMBER MARCH 28, 2012 COPY TO : 1. M/S MARAL OVERSEAS LIMITED MARAL SAROVAR KHALBUJURG, KASRAWAD KHARGONE 2.ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 5 INDORE 3.COMMISSIONER OF INCOME TAX INDORE 4. COMMISSIONER OF INCOME TAX(APPEALS) INDORE 5. COMMISSIONER OF INCOME TAX - DR 6. GUARD FILE BY ORDER, 78 ASSISTANT REGISTRAR DHEBANE /-