Commissioner of Income Tax, Kottayam v. M/S All Koshys All Spices

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY, THE 11TH DAY OF DECEMBER 2017/20TH AGRAHAYANA, 1939** **ITA.No. 81 of 2015 ()** **----------------------** **AGAINST THE ORDER/JUDGMENT IN ITA 456/COCH/2013 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 24-09-2014** **APPELLANT(S)/APPELLANT/RESPONDENT/REVENUE: ----------------------------------** **THE COMMISSIONER OF INCOME TAX, KOTTAYAM** **BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX** ## **RESPONDENT(S)/RESPONDENT/APPELLANT/ ASSESSEE:** **---------------------------------------------** **M/S.ALL KOSHYS ALL SPICES, BLOCK NO.18/609/6, PAKKIL P.O., NATTAKOM, KOTTAYAM, PIN - 686 012.** **BY ADV. SRI.S.ARUN RAJ BY ADV. SMT.C.T.SUJA** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 11-12-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **ITA 81/15** ## **APPENDIX** ## **APPELLANT'S ANNEXURES** **ANNEXURE-A : COPY OF ASSESSMENT ORDER U/S 143(3) OF INCOME TAX ACT 1961 DATED 24.12.2010.** **ANNEXURE-B : COPY OF CIT(A)'S ORDER NO.T-63&64/KTM/CIT(A) 20102011 DATED 11.04.2013.** **ANNEXURE-C : COPY OF ITAT'S ORDER IN ITA 456/COCH/2013 DATED 24.9.2014.** **ANNEXURE-D : COPY OF ORDER OF PUNJAB AND HARYANA HIGH COURT REPORTED IN (2008) 175 TAXMAAN 257.** **ANNEXURE-E : COPY OF CBDT CIRCULAR NO.1/2005 DATED 6.1.2005.** ## **//TRUE COPY//** **PS TO JUDGE.** jg-21/12 ## K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- ITA No.81 of 2015 ------------------------------------------Dated this the 11[th] day of December, 2017 ## J U D G M E N T ## Vinod Chandran, J. The Revenue is in appeal from the order of the Income Tax Appellate Tribunal on an interpretation of Section 10B of the Income Tax Act, 1961. Section 10B, which provides special provisions in respect of newly established 100% export-oriented undertakings, to the extent it is relevant in the instant case, is extracted herein below:- “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 the 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.” 2. On facts, suffice it to notice that the assessee was a sole ITA 81/15 -2- proprietorship firm, which commenced its manufacturing business in the year 1997-98. Later, it was converted into a partnership firm and was also issued with a certificate of it being a 100% exportoriented unit in the year 2000-2001, specifically on 24.9.1999. Whether the assessee would be entitled to claim exemption under Section 10B from assessment year 2000-2001, the previous year being its year of inception as a 100% export-oriented undertaking or whether it has to be from the 1997-1998, the year on which the manufacture was commenced. 3. The learned Senior Counsel, Department of Taxes, Government of India relied on Annexure-D, a judgment of the Punjab and Haryana High Court, and the decision in Sami Labs Ltd. - v. Assistant Commissioner of Income Tax ([2011] 334 ITR 157). The learned counsel appearing for the respondent-assessee relied on the decision in Commissioner of Income Tax v. Shri Renuga Textiles Mills Ltd. [366 ITR 649 (Madras)]. 4. Annexure-D judgment of the Punjab and Haryana High Court dealt with the issue as to whether the assessee therein was a newly established undertaking or not. The assessee therein had ITA 81/15 -3- commenced operation of development of software from 1998-1999 and was registered with Software Technology Park from 24.03.2000. The assessee claimed exemption for the first time in the assessment year 2000-2001. The High Court found that there is no question arising as to whether the assessee is a newly established undertaking or not under Section 10B and the assessee having claimed the benefit within the period of 10 years from its commencement there can be no denial. The decision lays down only that there is no requirement for an assessee to claim benefit under Section 10B, to prove that it is a newly established undertaking. There can be no dictum deduced from the facts to find that the Court also laid down that the claim can only be from commencement of operations. 5. Sami Labs's case (supra) considered the question as to whether the assessee, who did not satisfy the test of a 100% exportoriented undertaking in the first assessment year, could claim such exemption in the subsequent years. The High Court ruled against the assessee and in favour of the Revenue. A Division Bench of the Punjab and Haryana High Court in the decision in Commissioner of ITA 81/15 -4- Income Tax v. Mahavir Spinning Mills Limited [2008 (303) ITR 353] refused to interfere with an order of the Tribunal granting exemption under Section 10B to a unit which commenced operation in an earlier year but got recognition as a 100% exported oriented unit in a subsequent year. The appeal of the revenue was dismissed since no question of law arose; which again can have no persuasive effect on us to decide the question raised here. Shri Renuga Textiles's case was also in circumstances of a subsidiary company, which was a 100% export-oriented unit, merging with the holding company. The claim under Section 10B was raised only for the unit of the amalgamated company, which was declined by the Department alleging a transfer of plant and machinery. The Court held that amalgamation of a subsidiary company will not result in transfer of plant and machinery or commencement of a new business. We are of the opinion that none of the decisions apply on facts to the case in hand. 6. Section 10B(1) speaks of exemption being available to a 100% export-oriented undertaking for a period of 10 consecutive assessment years beginning with the assessment year relevant to ITA 81/15 -5- the previous year, in which the undertaking begins to manufacture or produce articles or things or computer software. The provision read as a whole, can only be understood as, the manufacture referred to, is one commenced pursuant to the certification of 100% export-oriented undertaking. The exemption is made available to a 100% export-oriented undertaking and the same is available for ten years, beginning with the assessment year relevant to the previous year in which manufacturing is commenced. In the present case it cannot be said that the assessee, a 100% export-oriented unit is eligible from the year in which they commenced manufacture, since in that relevant year the assessee was not a 100% export-oriented unit. The benefit being conferred only on a 100% export-oriented unit, the exemption could commence only from its certification, as such a unit and if there is no manufacture at the time of certification, from the time of commencement of manufacture. The benefit conferred is for the activity of export and if it is not related to the time from commencement of manufacture then a registered export-oriented unit, if for any reason commences manufacture later, then it could lead to the benefit being reduced since the ITA 81/15 -6- income derived will only be on manufacture and for the period in which there is no business, it would be illusory. 7. As has been found in Annexure-D judgment, there is no requirement that the export-oriented unit be newly established. The benefits have to be, hence, applied from the date of commencement of the export-oriented undertaking, which in the present case coincides with the manufacturing too. On the above reasoning, we answer the question in favour of the assessee and against the Revenue and reject the Income Tax Appeal. No order as to Costs. K.V INOD CHANDRAN Judge ASHOK MENON Judge jg