Allowed

The Commissisoner of Income Tax-Iii, Hyderabad v. M/S. Srinivasa Cystine Limited

Telangana HC14 Dec 2022ITTA/206/2006

Case brief

AI extract

What is this about?

In an appeal under Section 260A of the IT Act, the High Court dismissed the Revenue's challenge to the Tribunal's order. The Court held the assessee was entitled to exemption under Section 10B because the Central Government had recognized the substantial expansion as a separate, distinct export-oriented unit.

What did the court decide?

The appeal of the Revenue (Appellant) was dismissed; the order of the CIT(A) and Tribunal was upheld in favor of the assessee.

The Commissisoner of Income Tax-Iii, Hyderabad Vs M/S… — Income Tax | Telangana HC (2022)

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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD

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WEDNESDAY,THE FOURTEENTH DAY OF DECEMBER TWO IHOUSAND AND TWENTY TWO

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PRESENT

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THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HON'BLE SRI JUSTICE C.V. BHASKAR REDDY

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INCOME TAX TRIBUNAL APPEA,L NO: 206 OF 2006

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Appeal Under Section 260A of the lncome Tax Act 1961 against the order dated 29-07-2005 in ITA No. 3401 Hydl 2001 ( Asst. Year 1997-98 ) on the file of the lncome Tax Appellate Tribunal, Hyderabad Bench - B, Hyderabad preferred against the order of the Commissioner of lncome Tax ( Appeals) Vijayawada dated 08-02-2001 in ITA No. 148/ JCSR 4l HYdl CIT (A) MA I 2000-01 Old ITA No. 15/ JCSR 4/ CIT (A) ll / 2000-01 preferred against the order of the Joint Commissioner of lncome Tax ( Assts )., Special Range -4 , Hyderabad dated 31/03/2000 in PAN / GIR No. -134.

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Between:

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The Commissioner Of lncome Tax-lll, Hyderabad. AND

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...APPELLANT

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M/s. Srinivasa Cystine Limited, G-2, Concorde Apartments, D.No.6-3-638, ...RESPONDENT Somajiguda, Hyderabad-500082

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Counsel for the Appellant: Ms. K. MAMATA CHOUDARY SENIOR SC FOR . SRI J.V. PRASAD, SC FOR INCOME TAX DEPT.

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Counsel for the Respondent: NONE APPEARED

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The Court delivered the following: JUDGMENT

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THEHO_] AND

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THE H,)N'BLE SRI IUSTICE C.V.BHASKAR REDDY I.T.T.A.No.206 of 2006

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DGI{EN]" (Per t, e Hon'bb the Chitl|Nrn Llial Bhtgan)

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Fleard Mr. I(.Mamata Choudary, learned Senior Standing

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Counsel appelrtng on behalf oF Mr. J.V.Prasad, learned Senior Standing^(ioun ;cl, lncome T'ax Department for the appellant. N<>nc has appe , red for the respondents.

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This app::r[ has becn filed by the revenue lrs the appellant undcr Section 2 60A ol thc Income Tax Act, 1961 @riefly 'the Act' hcreinafter) agrinst the ordcr dared 29.01 .2005 passed by the Income^'fax ,.';pcllate Tribunal, Hyderabad Bcnch 'B', Hyderabad (briefly 'the^-l'ribunal' hcreinalter) in ITA.No.340/HYd/2001 tor the assessment vezr 1997 -98.

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On 03.(8.2006, this^(.ourt had admitted the appeal for

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hcaring on the lollowing substant-ial questions o[ law:

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\X4l thcr on the facts and in the circumstances of the case, tl e finding of the fribunal that the expansion of the existinll unit o[ the assessee is to be treatcd as newly establir hed i007o export odented undenaking is not

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vitiated in law for non-consideradon of televant facts on record mentioned in the assessment order ? 2. On the facts and in the circumstances of the case, whether the assessee is entided for exemption u/s. 108 of the Act for the televant assessment yeat ?

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Respondent is an assessee under the Act having the status of

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a company. Assessment year under consideralion is 1997-98. Respondent carries on the business of manufacruring liquid crystine, which is a crystalline am-ino acid extracted from human hair. \Vhile filing its return o[ income for the afotesaid assessment year, respondent claimed deduction under Section 10B of the Act in respect of additional unit. By the assessment otder datcd 31.03.2000 passed under Section U3Q) of the Act, assessing officer took the vieu'that there was only an addition of machineries and electrical installations to the existing unit, which did not result into a separate, severable and independent undertaking and such addition of machineries elr., amounted to reconstruction of existing tusiness only; it couid not be construed as a flew industrial unit. Therefore, it was held that respondent was not eligrble for

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dcduction under Section 108 of the Acl Consequendy, the claim was tejected.

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Responderrt assailed the above decision of the assessing offrcer belore the Commissioner of Income Tax (Appeals), Viiayawada @r:i,:fly 'the CIT(A)' hereinafter). By the appellate order datcd 03.02.2001, CI'I( ) referred to letters of the respondent dat,d 27.12.1989 as well as dated 31.12.1992 and thereafter camc to the conclusion that respondent was endded to claim exempti()lr in terms of Scction 10B of the Act for the income d<:rived lrom [] rit-lI.

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Against ,,uch order ol CIT(A), reveflue preferrcd appeal belore the Trirunal. By thc order dated 29.01 .2005, Tribunal upheld the or.ler of CIT(A) and dismissed the appeal of the fevenue.

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1 . Be fore r s, Iearncd Senior Standing Counsel, Income Tax Department l.r s referred to the order of the asscssing officer and^</sup>

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submits that atter meticulous perusal oF the record and inspection

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oF site, assessing ofFrcer had reached the conclusion that the ncrv unit claimed by the respondents as hundred perceot exportoriented unit was flothiflg but an addition of machinery and electrical installations to the exisring unit; an extension of the existing unit. He had referred to decisions in this regard passed by the Supreme Court as weil as by the High Court that there must be a separate, severable, integrated and independent industrial undertaking to claim bcnefit under Section 10B of the Act. Therefore, view taken by the assessing offtcer is fuily justified. Adverting to the otder passed by CIT(A), she submits that CIT(A) misconstrued communications dated 27.12.1,989 and 31,.12.7992 ol the respondent while reversing the view taken by the assessing officer.

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As we have akeady noted above, the relevant assessmeflt year is i997-1998. Section 10B of the Act as it stood at the relevant point of time, reads as under:

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10B. Special provision in respect of newly established hundted per ceflt expert-odented undertakings:-

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(i) Subject^.o the provisions of this section, any pro6ts and gains derive,l by an assessee from a hundred per cent exportoriented un,lertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in rhe total income oI the assessee

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(2) This secrion applies to any undertaking which frrlfils all the followrng cr,nditions namely:-

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(i) it mar:ufacrures or produces any article or thing

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(ia) in relation to an undertaking which begins to manufac ture on produce any article or thing on or after the 1* day of April, 1996, its exports of such atticles and th.ings ale not less than seventy-five pcr cent of the total sales thr reof during the previous year;

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(ii) it s not formed by the sp[tting up, or the reconstruction, of a business already in existencc :

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Provided that this condition shall not apply in respect of anv undertaking which is formed as a tesult of the re-cstablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;

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(iii) it is not formed by the transfer to a new business o[ ma chinery or plant previously used for any pufPose.

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Explat,ation:- The provisions of Expknation I and Explat;ation 2 to sub-section (2) of section 80-I shall app' for the purposes of clause (iii) of this sub-

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section as they apply for the purposes of clause (t) of that sub-section

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(3) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any tefl consecufive assessment yeas, beginning with the assessment year rclevant to the previous yeat in which the undetaking begins to manufacture ot produce articles or thirgr.

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(4) Norwithstanding anything contained in any other provision of this Act, in computing the toal income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year relevant to any subsequent assessment year-

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(i) section 32, sectjon 32A, section 33 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance ot deduction tefered to therein and telating to or

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I
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allowable fot any of the televant assessment years, in relation to any building, machinery, plant or futniture used fot the purposes of the business of the undetaking in the previous yeat relevant to such assessment ye r ot Lny expenditure incured for the pqposes of suqh business in such previous yeast had been given foll effect to for that assessment yeat itself and accotdingly sub-section (2) of Section^{32, clause} (ii) of sub-section (3) of section 32A,^{clause (ii)} of sub-section (2) of section 33 ot the second

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proviso to clause (ix) of sub-section (1) of section 36, as thc case may be, shall not apply in reiarion to anv such a owance ot deducrion; ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss telates to the business of the undertaking, shall bc carried forward or set off where such loss relates to any oI the televant assessment years;

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(iii) no deduction shall be allowed under section 80HH or section 8OHFIA or section 80-I or section 80-lA or section 80-lB in relation to the profits and gains of the undertaking; and

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(iv) in computing the depreciation allowance under section 32, the written down of any asset used for the purposes of the business of the undetaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depteciation for each of the relevant assessment years.

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(5) Whert the ur-rdertaking has begun to manufacture or produce atticles or things in previous year relevant to the assessmen: year corfinencing before the 1"' day of 1989, the assessee m^y, Lt his option, before the due date for furnishing /the rerurn o[ his incomc under sub-section (1) of section 139 for the assessment year commencing on the 1" day of April, 1989, furnish to the Assessing Of6cer a declararion in writing that the p: ovisions of sub-secrion (1) may be made applicable

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to him for any Eve consecutive assessment years falling within a period o[ eight years beginning with the assessment year commencing on the 1"' day of April, 1989, and if he does so, then, the provisions of sub-section (1) shall apply to him for each of such assessment years and the provisions of subsection (4) shall also apply in computing the totai income of tlre assessee for the assessment year immediately succeeding the last of such assessment years and any subsequent assessment yeaf.

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(6) The provisions of sub-section (8) and sub-section (9) of section 80-I shall, so far as rr.:ay be, apply in relation to the undertaking referred to in this section as they apply for the purposes o[ the industrial undertaking referred to in section 80-r.

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(7) Notwithstanding anything conta-ined in the foregoing provisions of this section, when the assessee, befote tlle due date fot furnishing the return of his income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years. Explanation:- For the purposes of this section,-

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(, "hundted per cent export-oriented undertaking" means an undetaking which has been apptoved as a hundred per cent expon-odented undertaking by the Board appohted in this behalf by the Central Government in exetcise of the powers confetred by section 14 of the Industries

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(Development and Regulation) Act, 1951 (65 of 1951), and the rulcs made under that Act: (ii) "relevant assessment years" means the ten consecudve assessment years refened to in subsection (3):

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(iii; "manufacrurc" includes any-

(a) process, or

(b) assembling, or

(rv) "produce, in relation to any articlc or thing referred to in clause (i) of sub section (2) includes production of computer programmes."

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8.1. Section 1 lB deals with special provision in respect o[ newly

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establishcd hunlred percent export-oriented undertakings. As per sub-section (1 ) hereof, subject to the proyisions of the said section anv profits an I gains derivecl by an assessee ftom a hundred pcrcent cxport oriented undertaking shall not be included in the total incomc of the assessee. Sub-Section (2) thereof lays down the

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conditions whi( h must be fulfilled for claiming the tbove bene Frt.

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8.2. We may :cfer to sub-section @ thereof, rvhich is relevant for our present deriberation. Sub-section [) as extracted above says - that notwithslanding aflything contained in the foregoing

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provisions of Secdon 10B of the Act when the assessee, before the due date for furnishing the rerurn o[ his income under sub-section (1) of Section 139, furnishes to the assessing officet, a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this Section shall not apply to him for any of the relevant assessment years. !7hat this sub-sect-ion therefore contemplates is that the assessee may waive off the benefit of Se ction 10B of the Act by making a declaration in rvriting that the said provision may not be made applicable to him.

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8.3. Explanation (i) below sub-section (7) clarifies that "hundred percent export-oriented undertaking" means an undertaking which has been proved as a hundrcd percent export-orierited undertaking by the Board appointed in this behalt by the Central Government in exercise of the powers conferred by Section 14 of the Industries @evelopment^{and Regulation)Act, 1951 and the ruies framed} thereunder

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-I'hereflore, from a careful analysis o[ the aforesaid provision, it is discernible that a hundrcd percent export-oriented undertaking

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would mean an rndertal ng u,hich has been approved as a hundrcd percent export-(,riefltcd undertaking by the Board appointed in this bchalf by the Central Gor.ernment under Section 14 of the aforesaid A ct. - -his would imply that once an approval is received from thc Iloatd that an r:ndcrtaking is a hundred percent exportoriented underaking, it would not be open to the assessing authoriry to taht a conffary vicw that the unit or the additional unit of an assessee rs not a hundred percent export-oriented undertaking and thereft;re! assessce is not entided to the benefit under Section 10B of t he Act

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10.^-I'his asp,'ct was gone into by the Tribunal whereafter Tribunal held as follows:

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Gor crnmcnt of India, vide letter dated 5-9-1997, which i; at p^ge 23 of papet book, confumed as \ follows: \ "l am directed to refer to your letter dated 18 August, 1997 on the above subject and to con firm that all the facilitjes and privileges under 10002b Export Oriented Scheme as stipulated in the permission letter No.NPER:49 0.119)/ (C) dared 22 April, 1989 admissible to M/s. Sivas Cystine Ltd. for effecting substantial

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expansion for the manufacture o[ L-Cystine at their additional unit ^t A[ar^t^ Village, Chandragiri Mandal, Chittoor Disttict, Andhra Pradesh.

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This is subject to the condition that company fulfills all the conditions contained in their above mentioned permission letter."

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A perusal of the application made by the assessee, which is p^ge 24 of the paper book, shows that the ^t assessee had written to Government of India stating that it had undefiaken substantial expansion by installing a second line of production and that this should be declared as an additional unit. This confLmation dated 5-9-1997 was issued after seeking clarification from the assessee, ,ride letter dated 12-8-1997. Moreover, as stated by the CIT (A), the permission for substantial expansion of the existing i 00% EOS u/as given on the following conditions reproduced in the order of the CIT (A):-

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(1) The entire (100%) ptoduction shall be exported;

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(2) You shall undettake to expott the entire ptoduction (100%) excluding tejects nor exceeding 5 (hve) percent fot a period of 10 (en) years. Fot this purpose, you wiil furnish the requisite lcgal agreement/bank^guarantee. Aftet the export obligation pedod^is over the

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unit shall bc allorvcd to produce for domestic market in the light of Industrial Policy in force at the dme in relauon to manufacture of items reserved For small scale sector;

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(3) The value addition shall be a minimum of 33.9o/o (hirty three point nine percent). Conditron No. 14 of Annexure-Il stands modified to this extent;

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(4) It is notcd that you requfue imported capital goods rvorth Rs.63.90 lakhs (R.upees sixty thtee point nine zcro lakhs) cif for the proiect as pet list attached (Anncxure 1).

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A plrin look at these conditions cleady demonstrates that the assessee company is required to fteat this substantial expansion as a separate and distinct unit and the Govt. of India Eeated tlts substandal expansion as a separate unit. It is nobody's case th rt the conditions specified by the Govt. of India are violated by the assessee..

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No doubg the expansion was only by way of installat,on of additional plant and machinery in the same pr emises of the existing unit by using all existing facilitje:. The AO had also pointed our thar to rJre process of manufacruring L-Cystine, which involves differen t sections like (a) NeutralizadLon section, (b) Reactiorr secrion, (c) Filtcr secrion, (d) Drier secrion etc., addirion of planr and machinery was made

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section $/ise for increasing the capacity. From a layman's point of view, it would appear that this is not a case of putting up an addition'al 100% Export Oriented undertaking, but only a mere expansion of an existing unit.

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However, as 100% Export Oriented Undertaking for the pulpose of sec.10B has been de6ned and as the Board appointed in this behalf by Central Government is empowered to approve the same and as the Centtral Government has recognised this as an additional unit, we have no other alternative but to uphold the order of the CIT (A) and hold that the assessee is entided to claim exemption under sec. 10B of the Act.

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Coming to the reliance placed by the AO as well as the learned DR on the^judgment of Hon'ble Supreme Court in the case of Textile Machines Corporation Ltd. (supra), we hold that the same is not applicable to the facts of the case in the case of sec.10B the power vests with the Central Government recognising additional units.

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In the result, the order of the CIT (A) is upheld and the appeal of the Revenue is dismissed.

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71.^\We are in conformiry with the views^expressed by^the Tribunal that thc assessing officer was not^justiFred in turning down

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the claim of the respondent that the additional unit was a hundred

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percent export-{ )rientcd unit and rvas entrded to tl'rc benefit under Section 108 of thc Act

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In view tlrercof, the sr.rbstanrial questions o[ law framed are answered again;t thc appcliant/rcvenue and ln favour o[ the

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tespondent/ass( ssee.

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Consequertly, thc appcal rs dismissed. No costs.

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As a se.1rrel, miscellaneous petitions, pending if any, stand

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dismissed.

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sd/- M. VIJAYA^bHAgr'nn JOINT^REGIqIRAR //rRUE coPY/' tEcrloN otrrcee

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To,

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The lncome^{Tax AppellateTribunal'Hyderabad Bench - B' Hyderabad}

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The Commissic'ner^{of lncome Tax ( Appeals)Vijayawada}

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The^{JointCommissioner of lncomeTax( Assts )'' SpecialRange'4 '} Hyderabad

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One CC to^{SRI J.V'PRASAD'SC FOR l'T' DEPT' IOPUC]}

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Two^{CD CoPies;}

,.-

HIGH COURT

HCJ & CVBRJ

DATED:1411212C22

JUDGMENT

ITTA.No.206 of 2006

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DISMISSING THE ITT \

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WITHOUT COSTS

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a Ye

The Commissisoner of Income Tax-Iii, Hyderabad v. M/S. Srinivasa Cystine Limited

Case brief

What is this about?

What did the court decide?

The Commissisoner of Income Tax-Iii, Hyderabad v. M/S. Srinivasa Cystine Limited

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

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Case details

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