This
Tax Alert summarizes a recent ruling of the Chandigarh Income Tax Appellate
Tribunal (Tribunal) in a group of cases, with the case of Hycron Electronics
(Taxpayer) as the lead matter, where the common issue before the Tribunal
was whether a new industrial unit set up in specified areas in North Indian
states on or after 7 January 2003 is entitled to a fresh five-year
profit-linked incentive deduction of 100% under Section 80IC (S.80IC) of the
Indian Tax Laws (ITL), if such a unit undertakes substantial expansion before 1
April 2012.
After a comprehensive analysis of the scheme of package incentives granted by the Central Government (including S.80IC), the Circular No. 7/2003 dated 5 September 2003 issued by the Central Board of Direct Taxes (CBDT) and cross contentions of the Taxpayer and the Tax Authority, the Tribunal ruled in favor of the Tax Authority. The Tribunal held that, considering the overall context of S.80IC and the harmonious construction of all sub-sections thereof, a new unit set up on or after 7 January 2003 is entitled to 100% deduction for the first five years and 25% (30% for corporate taxpayers) for the next five years. Although S.80IC also provides for a similar profit-linked deduction for a unit which undertakes substantial expansion between 7 January 2003 and 31 March 2012 (qualifying period), this benefit can be availed of only by units which existed prior to 7 January 2003 and cannot be availed of by new units set up after 7 January 2003.
Ever since S.80IC was inserted in the ITL in 2003, there existed an ambiguity on whether taxpayers setting up new units can make a fresh claim of tax holiday @ 100% for five years by undertaking substantial expansion during the qualifying period. This is because there is no express prohibition in S.80IC for grant of such benefit.
While the Delhi Tribunal, in the case of Tirupati LPG Industries Ltd. (supra), took a view favoring the taxpayer, the Tribunal, in the present case, has taken a view against the Taxpayer by holding that the Delhi Tribunal ruling is per incuriam. The conflict of views between two benches of the Tribunal reflects that the issue is highly debatable and that taxpayers would need to evaluate the impact of the rulings and the evolving jurisprudence on the issue
After a comprehensive analysis of the scheme of package incentives granted by the Central Government (including S.80IC), the Circular No. 7/2003 dated 5 September 2003 issued by the Central Board of Direct Taxes (CBDT) and cross contentions of the Taxpayer and the Tax Authority, the Tribunal ruled in favor of the Tax Authority. The Tribunal held that, considering the overall context of S.80IC and the harmonious construction of all sub-sections thereof, a new unit set up on or after 7 January 2003 is entitled to 100% deduction for the first five years and 25% (30% for corporate taxpayers) for the next five years. Although S.80IC also provides for a similar profit-linked deduction for a unit which undertakes substantial expansion between 7 January 2003 and 31 March 2012 (qualifying period), this benefit can be availed of only by units which existed prior to 7 January 2003 and cannot be availed of by new units set up after 7 January 2003.
Ever since S.80IC was inserted in the ITL in 2003, there existed an ambiguity on whether taxpayers setting up new units can make a fresh claim of tax holiday @ 100% for five years by undertaking substantial expansion during the qualifying period. This is because there is no express prohibition in S.80IC for grant of such benefit.
While the Delhi Tribunal, in the case of Tirupati LPG Industries Ltd. (supra), took a view favoring the taxpayer, the Tribunal, in the present case, has taken a view against the Taxpayer by holding that the Delhi Tribunal ruling is per incuriam. The conflict of views between two benches of the Tribunal reflects that the issue is highly debatable and that taxpayers would need to evaluate the impact of the rulings and the evolving jurisprudence on the issue
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