Facts
The taxpayer is a company engaged in the manufacture and mainly exports of cotton yarn, grey and finished knitted cotton fabrics and readymade garments. During the assessment year 2001-02, the taxpayer had claimed income of its original unit exempt under section10B of Income.Tax Act, 1961 („the Act‟) details of which are as under. E.O.U. Date of commercial production Relevant Assessment year Exemption under section 10B claimed upto Assessment year
Original unit
1 Feb 1992
1992-93
2001-02
Section 10B was inserted with effect from 1 April 1989 and profit of EOU was exempt for a period of five consecutive assessment years falling within the block of eight assessment years, subject to fulfillment of certain conditions.
The original unit was entitled for exemption from assessment year 1992-93 but since there was a loss in this unit, the taxpayer did not claim exemption in the first three assessment years and claimed the exemption from assessment year 1995-96 and accordingly the taxpayer was eligible for exemption under section 10B up to assessment year 1999-00.
By way of an amendment, the period of exemption prescribed under section 10B (3) of five years was increased to ten years from assessment year 1999-00. Accordingly the taxpayer claimed that its original unit was eligible for exemption for a further period of two years i.e. assessment years 2000-01 and 2001-02.
The Assessing Officer (“AO”) concluded that the taxpayer was entitled for exemption upto assessment year 1999-00 only and exemption for subsequent years was denied.
The taxpayer preferred an appeal before the Commissioner of Income-tax (Appeals) [“CIT(A)”] who in allowing the claim of the taxpayer, observed that if the intention of the legislature was not to allow the benefit to existing unit then restriction could have been brought in to the Act itself as done earlier in other sections 80HHA, 80HH(2)(1) etc.
On appeal by the revenue authorities before Income Tax Appellate Tribunal (ITAT), the issue was referred to Special Bench as a different view had been expressed by Coordinate Bench of Kolkata Tribunal in case of Tata Tea1.
Issue before the Pune ITAT – Special Bench
Whether an undertaking claiming exemption under section 10B as it existed prior to 1 April 1999 would be entitled for exemption under section 10B for extended period of ten years as per amended provision of law which is effective from 1April 1999?
Observations and Ruling of the Special Bench
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. Here the taxpayer has not claimed that the provisions of substituted section 10B are retrospective in nature.
When the amendment was made with effect from 1 April 1999 with regard to period of tax holiday for ten years, proviso to section 10B(3) was also omitted which mentioned that the period of five years shall not cover any period after expiry of block of eight years. At the same time the definition of relevant assessment year was also amended to mean ten consecutive assessment years. This would clarify that the intention of law makers was to give benefit of extended period of ten years to all the units, existing or new, as no such differentiation was made.
Also, with effect from 1 April 2001 the entire section 10B has been substituted wherein also no restriction on existing units for claiming exemption of ten years has been prescribed. On the contrary, the first proviso of the amended section10B categorically allows exemption to the existing units for the unexpired period of ten years.
In Tata Tea‟s case, the period of claiming exemption for five years was completed and also the period of ten consecutive assessment years ended in assessment year 1998-99 whereas the amendment was with effect from assessment year 1999-00. In fact, in the said case itself, Kolkata Tribunal observed that the position would have been different if the period of five years had not expired and the amendment was made, then Tata Tea would have been entitled for benefit of extended period.
The Karnataka High Court in case of DSL Software Limited2 had also held that the tax holiday stood extended for ten consecutive assessment years even if the five year period is expired provided the period of ten years is available. Since this is the only decision of Karnataka High court on the issue, the same is binding on the Special Bench.
Thus, an undertaking existing prior to 1 April 1999 and claiming exemption under section 10B would be entitled to exemption for the extended period of ten years.
Conclusion
The relevant provision of law as applicable for the assessment years needs to be applied and therefore the existing undertaking will be eligible for extended period of ten years under section 10B.
Source: Maral Overseas Ltd. (ITA Nos 777 & 900 of 1004 and 295& 356 of 2006 Indore ITAT, Special Bench) dated 28 March 2012
The taxpayer is a company engaged in the manufacture and mainly exports of cotton yarn, grey and finished knitted cotton fabrics and readymade garments. During the assessment year 2001-02, the taxpayer had claimed income of its original unit exempt under section10B of Income.Tax Act, 1961 („the Act‟) details of which are as under. E.O.U. Date of commercial production Relevant Assessment year Exemption under section 10B claimed upto Assessment year
Original unit
1 Feb 1992
1992-93
2001-02
Section 10B was inserted with effect from 1 April 1989 and profit of EOU was exempt for a period of five consecutive assessment years falling within the block of eight assessment years, subject to fulfillment of certain conditions.
The original unit was entitled for exemption from assessment year 1992-93 but since there was a loss in this unit, the taxpayer did not claim exemption in the first three assessment years and claimed the exemption from assessment year 1995-96 and accordingly the taxpayer was eligible for exemption under section 10B up to assessment year 1999-00.
By way of an amendment, the period of exemption prescribed under section 10B (3) of five years was increased to ten years from assessment year 1999-00. Accordingly the taxpayer claimed that its original unit was eligible for exemption for a further period of two years i.e. assessment years 2000-01 and 2001-02.
The Assessing Officer (“AO”) concluded that the taxpayer was entitled for exemption upto assessment year 1999-00 only and exemption for subsequent years was denied.
The taxpayer preferred an appeal before the Commissioner of Income-tax (Appeals) [“CIT(A)”] who in allowing the claim of the taxpayer, observed that if the intention of the legislature was not to allow the benefit to existing unit then restriction could have been brought in to the Act itself as done earlier in other sections 80HHA, 80HH(2)(1) etc.
On appeal by the revenue authorities before Income Tax Appellate Tribunal (ITAT), the issue was referred to Special Bench as a different view had been expressed by Coordinate Bench of Kolkata Tribunal in case of Tata Tea1.
Issue before the Pune ITAT – Special Bench
Whether an undertaking claiming exemption under section 10B as it existed prior to 1 April 1999 would be entitled for exemption under section 10B for extended period of ten years as per amended provision of law which is effective from 1April 1999?
Observations and Ruling of the Special Bench
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. Here the taxpayer has not claimed that the provisions of substituted section 10B are retrospective in nature.
When the amendment was made with effect from 1 April 1999 with regard to period of tax holiday for ten years, proviso to section 10B(3) was also omitted which mentioned that the period of five years shall not cover any period after expiry of block of eight years. At the same time the definition of relevant assessment year was also amended to mean ten consecutive assessment years. This would clarify that the intention of law makers was to give benefit of extended period of ten years to all the units, existing or new, as no such differentiation was made.
Also, with effect from 1 April 2001 the entire section 10B has been substituted wherein also no restriction on existing units for claiming exemption of ten years has been prescribed. On the contrary, the first proviso of the amended section10B categorically allows exemption to the existing units for the unexpired period of ten years.
In Tata Tea‟s case, the period of claiming exemption for five years was completed and also the period of ten consecutive assessment years ended in assessment year 1998-99 whereas the amendment was with effect from assessment year 1999-00. In fact, in the said case itself, Kolkata Tribunal observed that the position would have been different if the period of five years had not expired and the amendment was made, then Tata Tea would have been entitled for benefit of extended period.
The Karnataka High Court in case of DSL Software Limited2 had also held that the tax holiday stood extended for ten consecutive assessment years even if the five year period is expired provided the period of ten years is available. Since this is the only decision of Karnataka High court on the issue, the same is binding on the Special Bench.
Thus, an undertaking existing prior to 1 April 1999 and claiming exemption under section 10B would be entitled to exemption for the extended period of ten years.
Conclusion
The relevant provision of law as applicable for the assessment years needs to be applied and therefore the existing undertaking will be eligible for extended period of ten years under section 10B.
Source: Maral Overseas Ltd. (ITA Nos 777 & 900 of 1004 and 295& 356 of 2006 Indore ITAT, Special Bench) dated 28 March 2012
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