Hon'ble Mr. Justice Arjan Kumar Sikri
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 1784 OF 2019
(ARISING OUT OF SLP (C) NO. 23172 OF 2018)
PR. COMMISSIONER OF INCOME TAX
SHIMLA
.....APPELLANT(S)
VERSUS
M/S. AARHAM SOFTRONICS .....RESPONDENT(S)
W I T H
CIVIL APPEAL NO(S). 1785 OF 2019
(ARISING OUT OF SLP (C) NO. 23176 OF 2018)
CIVIL APPEAL NO(S). 1786 OF 2019
(ARISING OUT OF SLP (C) NO. 23179 OF 2018)
CIVIL APPEAL NO(S). 1788 OF 2019
(ARISING OUT OF SLP (C) NO. 24678 OF 2018)
CIVIL APPEAL NO(S). 1787 OF 2019
(ARISING OUT OF SLP (C) NO. 23414 OF 2018)
CIVIL APPEAL NO(S).1789 OF 2019
(ARISING OUT OF SLP (C) NO. 24679 OF 2018)
MISC. APPLICATION NO. 2880 OF 2018
IN
CIVIL APPEAL NO. 7218 OF 2018
CIVIL APPEAL NO(S). 1790 OF 2019
(ARISING OUT OF SLP (C) NO. 5486 OF 2019)
(ARISING OUT OF DIARY NO. 34756 OF 2018)
2
MISC. APPLICATION NO. 2879 OF 2018
IN
CIVIL APPEAL NO. 7222 OF 2018
MISC. APPLICATION NO. 2852 OF 2018
IN
CIVIL APPEAL NO. 7236 OF 2018
MISC. APPLICATION NO. 2850 OF 2018
IN
CIVIL APPEAL NO. 7215 OF 2018
MISC. APPLICATION NO. 2841 OF 2018
IN
CIVIL APPEAL NO. 7221 OF 2018
MISC. APPLICATION NO. 2840 OF 2018
IN
CIVIL APPEAL NO. 7217 OF 2018
MISC. APPLICATION NO. 2976 OF 2018
IN
CIVIL APPEAL NO. 7223 OF 2018
CIVIL APPEAL NO(S). 1795 OF 2019
(ARISING OUT OF SLP (C) NO. 2296 OF 2019)
CIVIL APPEAL NO(S).1796 OF 2019
(ARISING OUT OF SLP (C) NO. 1983 OF 2019)
CIVIL APPEAL NO(S). 1797 OF 2019
(ARISING OUT OF SLP (C) NO. 3278 OF 2019)
AND
CIVIL APPEAL NO(S). 1798 OF 2019
(ARISING OUT OF SLP (C) NO. 4483 OF 2019)
J U D G M E N T
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A.K.SIKRI, J.
SLP(C) Nos. 23172 of 2018, 23176 of 2018, 23179 of 2018, 24678 of 2018,
23414 of 2018, 24679 of 2018, 2296 of 2019, 1983 of 2019, 3278 of 2019
and 4483 of 2019 :
Leave granted.
2. Origin of these appeals can be traced to the judgment dated 28th
November, 2017 rendered by High Court of Himachal Pradesh in a
batch of appeals. Vide the said judgment, the High Court decided many
issues. However, in these proceedings we are concerned with only one
question of law which is formulated in the following terms:
"Whether an assessee who sets up a new industry of a kind
mentioned in sub-section (2) of Section 80-IC of the Act and starts
availing exemption of 100 per cent tax under sub-section (3) of
Section 80-IC (which is admissible for five years) can start
claiming the exemption at the same rate of 100% beyond the
period of five years on the ground that the assessee has now
carried out substantial expansion in its manufacturing unit?”
3. The High Court has answered the aforesaid question in the affirmative
thereby holding that when the assessees started availing exemption of
100% tax on the setting up of a new industry of the kind mentioned in
sub-section (2) of Section 80IC, which is admissible for 5 years, and
either on the expiry of 5 years or thereafter (but within 10 years) from the
date when these assessees started availing exemption, they carried out
substantial expansion of its industry, from that year the assessees
become entitled to claim exemption @ 100% again.
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4. The Income Tax Department (hereinafter referred to as the ‘Revenue’)
had challenged the judgment of the High Court on the aforesaid issue by
filing number of special leave petitions which were converted into
appeals after leave was granted in those special leave petitions.
Thereafter, these appeals were heard and decided by a Division Bench
of this Court, which comprised one of us (A.K. Sikri, J.). By its judgment
dated August 20, 2018. The judgment of the High Court was reversed
on the aforesaid issue.
5. It so happened that in some of the appeals, assessees who were
respondents, were not served with the notice and they remained
unrepresented. Since the appeals in respect of these assessees were
decided in their absence, they filed miscellaneous applications for recall
of the order, with prayer to decide the appeals afresh after giving hearing
to them. Since, these assessees remained unrepresented, as even the
notice was not served upon them, by a separate order passed in their
cases, those applications have been allowed and their appeals being
C.A. No. 7218, 7882, 7236, 7215, 7221, 7217 and 7223 of 2018 have
been restored. Even the Revenue has filed few SLPs against the
common judgment of the High Court as these SLPs were not filed earlier
when batch of appeals was decided on 20th August, 2018 by this Court.
Appeals arising out of these SLPs have also been heard along with
5
other appeals in which the earlier judgment rendered has been recalled.
All these appeals have been heard afresh and are being disposed of by
the present judgment.
6. We have already taken note of the question of law that arises for
determination. Factual background in which this question of law arises
for consideration has been taken note of in the judgment dated 20th
August, 2018 which may again be reiterated, in order to understand the
niceties of this issue:
To understand the aforesaid question of law in clear terms, it may
be mentioned at this stage itself that sub-section (2) of Section 80-IC
applies to an undertaking or enterprise which has, inter alia, begun or
begins to manufacture or produce any article or thing by setting up a
new factory in the area specified therein which includes State of
Himachal Pradesh as well. Sub-section (3) of Section 80-IC is in two
parts: in certain cases, exemption from income is provided at the rate of
100% of such profits and gains earned from the aforesaid undertaking or
enterprise for 10 assessment years commencing with the initial
assessment year. The present appeals do not fall in that category. Other
clause relates to another category of undertakings or enterprises (these
cases belong to that category) where the exemption is at the rate Civil
Appeal No. 7208 OF 2018 & Ors. Page 4 of 17 of 100% of profits and
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gains for five assessment years commencing with the initial assessment
year and, thereafter, 25% of profits and gains. Total exemption, thus, is
for a period of 10 years, namely, @100% for 1st five years and @ 25%
for remaining five years. In these cases, all the assessees started
claiming exemption @ 100% on profits and gains and availed it for a
period of five years. During this period these assessees carried out
“substantial expansion” and they claimed that, on that basis, they should
be allowed exemption from profits and gains for another five years @
100% instead of 25% from 6th to 10th year as well. Interestingly, they
admit that the total period during which they are entitled to exemption
would not exceed 10 years, as per the mandate of sub-section (6). In
this backdrop, the question is as to whether the assessees can again
start claiming 100% exemption for the next five years from profits and
gains after availing the same for first five years on the ground that they
have now carried out substantial expansion. The High Court has
answered the question in affirmative and for this reason, it is the
department which has come up to this Court challenging the said
decision by filing these appeals.
Section 80-IA was inserted by the Finance (No. 2) Act, 1991, with
effect from 1st April, 1991. By virtue of said Section, the gross total
income (profits and gains) of an assessee derived from any business of
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an industrial undertaking, so specified therein, was entitled to certain
deductions for a period commencing from 1st April, 1993. With effect
from 1st April, 2000, the said provision was bifurcated with the insertion
of another Section, i.e., 80-IB, dealing with “certain industrial
undertakings other than infrastructure development undertakings.”
Thereafter, the Legislator, in its wisdom, enacted a special provision, in
respect of “units” established in certain special category States. Thus,
Section 80-IC came to be inserted by virtue of Finance Act, 2003,
applicable with effect from 1st April, 2004. At this point., It may only be
noticed that correspondingly certain provisions of Section 80-IB were
also amended/repealed. Deductions under the said Section were
discontinued for the Assessment Years commencing from 1st April, 2004
(Sub-section (4) of Section 80- IB).
7. At this juncture, we would like to take note of the relevant provisions of
Section 80-IC of the Act. Therefore, we extract below the relevant
portion of this provision:
"[80-IC. Special provisions in respect of certain undertakings
or enterprises in certain special category States.—(1) Where
the gross total income of an assessee includes any profits and
gains derived by an undertaking or an enterprise from any
business referred to in sub-section (2), there shall, in accordance
with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction from
such profits and gains, as specified in sub-section (3).
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(2) This section applies to any undertaking or enterprise,—
(a) which has begun or begins to manufacture or produce any
article or thing, not being any article or thing specified in the
Thirteenth Schedule, or which manufactures or produces any
article or thing, not being any article or thing specified in the
Thirteenth Schedule and undertakes substantial expansion during
the period beginning—
(i) on the 23rd day of December, 2002 and ending before the
2 [1st day of April, 2007], in any Export Processing Zone or
Integrated Infrastructure Development Centre or Industrial
Growth Centre or Industrial Estate or Industrial Park or
Software Technology Park or Industrial Area or Theme Park,
as notified by the Board in accordance with the scheme
framed and notified by the Central Government in this
regard, in the State of Sikkim; or
(ii) on the 7th day of January, 2003 and ending before the
1st day of April, 2012, in any Export Processing Zone or
Integrated Infrastructure Development Centre or Industrial
Growth Centre or Industrial Estate or Industrial Park or
Software Technology Park or Industrial Area or Theme Park,
as notified by the Board in accordance with the scheme
framed and notified by the Central Government in this
regard, in the State of Himachal Pradesh or the State of
Uttaranchal; or
(iii) on the 24th day of December, 1997 and ending before
the 1st day of April, 2007, in any Export Processing Zone or
Integrated Infrastructure Development Centre or Industrial
Growth Centre or Industrial Estate or Industrial Park or
Software Technology Park or Industrial Area or Theme Park,
as notified by the Board in accordance with the scheme
framed and notified by the Central Government in this
regard, in any of the North-Eastern States;
(b) which has begun or begins to manufacture or produce any
article or thing, specified in the Fourteenth Schedule or
commences any operation specified in that Schedule, or which
manufactures or produces any article or thing, specified in the
Fourteenth Schedule or commences any operation specified in
that Schedule and undertakes substantial expansion during the
period beginning—
(i) on the 23rd day of December, 2002 and ending before the 2
[1st day of April, 2007], in the State of Sikkim; or
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(ii) on the 7th day of January, 2003 and ending before the 1st day
of April, 2012, in the State of Himachal Pradesh or the State of
Uttaranchal; or
(iii) on the 24th day of December, 1997 and ending before the 1st
day of April, 2007, in any of the North-Eastern States.
(3) The deduction referred to in sub-section (1) shall be—
xxx xxx xxx
(ii) in the case of any undertaking or enterprise referred to in
sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of
sub-section (2), one hundred per cent of such profits and gains for
five assessment years commencing with the initial assessment
year and thereafter, twenty-five per cent. (or thirty per cent. where
the assessee is a company) of the profits and gains.
xxx xxx xxx
(6) Notwithstanding anything contained in this Act, no deduction
shall be allowed to any undertaking or enterprise under this
section, where the total period of deduction inclusive of the period
of deduction under this section, or under the second proviso to
sub-section (4) of section 80-IB or under section 10C, as the case
may be, exceeds ten assessment years.
(8) For the purposes of this section,—
xxx xxx xxx
(v) ”Initial assessment year” means the assessment year relevant
to the previous year in which the undertaking or the enterprise
begins to manufacture or produce articles or things, or
commences operation or completes substantial expansion;
xxx xxx xxx
(ix) “Substantial expansion” means increase in the investment in
the plant and machinery by at least fifty per cent of the book value
of plant and machinery (before taking depreciation in any year),
as on the first day of the previous year in which the substantial
expansion is undertaken.
8. This section makes special provisions in respect of certain undertakings
or enterprises in certain special category States. Section 80-IC was
10
inserted by the Finance Act, 2003 w.e.f. Civil Appeal No. 7208 OF 2018
& Ors. Page 12 of 17 April 1, 2004. As per this provision, certain
undertakings or enterprises in certain special category States are
allowed deduction from such profits and gains, as specified in
sub-section (3) of Section 80-IC. The provisions of Section 80-IC
provided deduction to manufacturing units situated in the State of
Sikkim, Himachal Pradesh and Uttaranchal and North-Eastern States.
The deduction was provided to new units established in the aforesaid
States, and also to existing units in those States if substantial expansion
was carried out. The deduction was available @ 100% for ten
Assessment Years for the units located in North-Eastern and in the State
of Sikkim and for the units located in Himachal Pradesh, the deduction
was available @ 100% for five years and @ 25% for next five years.
9. In all these cases assessees had started availing exemption under
Section 80-IC on the setting up of new industrial units. All these
assessees have availed 100% deduction for a period of 5 years. As
noticed above, from sixth year, in normal course, deduction is admissible
@ 25% of the profits and gains, for next five years (or 30% where the
assessee is a company. However, all these assessees, after the expiry
of five years, carried out substantial expansion of their existing units.
This substantial expansion is in accordance with the provisions of
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Section 80-IC and there is no dispute about the same. From the year
such substantial explanations were carried out by the assessees, the
assessees demanded deduction @ 100%, instead of 25%/30% for the
remaining period of 10 years which is the maximum period for which
deduction is admissible.
10.Sub-section (3), as noted above, mentions the period of 10 years
commencing with the initial Assessment Year. Subsection (6) puts a cap
of 10 years, which is the maximum period for which the deduction can
be allowed to any undertaking or enterprise under this section, starting
from the initial Assessment Year. Another significant feature under
sub-section (3) is that the deduction allowable is 100% of such profits
and gains from an undertaking or an enterprise for five Assessment
Years commencing with the initial Assessment Year and thereafter the
deduction is allowable at 25% (or 30% where the assessee is a
company) of the profits and gains. It brings out the following aspects:
(a) Those undertakings or enterprises fulfilling the conditions
mentioned in sub-section (2) of Section 80-IC become entitled to
deduction under this provision.
(b) This deduction is allowable from the initial Assessment Year. ‘Initial
Assessment Year’ is defined in Section 80-IB(14)(c) of the Act.
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(c) The deduction is @ 100% of such profits and gains for first 5
Assessment Years and thereafter a deduction is permissible @ 25% (or
30% where the assessee is a company).
(d) Total period of deduction is 10 years, which means 100% deduction
for first 5 years from the initial Assessment Year and 25% (or 30% where
the assessee is a company) for the next 5 years.
11.In the judgment dated 20th August, 2018, while holding that deduction @
100% cannot be allowed for more than 5 years from the ’initial
assessment year’, the reasoning that was given is contained in
paragraph 20 of the judgment. Which reads as under:
"When we keep in mind the aforesaid scheme and spirit behind
this provision, such a situation cannot be countenanced where an
Civil Appeal No. 7208 OF 2018 & Ors. Page 14 of 17 assessee is
able to secure deduction @ 100% for the entire period of 10
years. If that is allowed it will amount to doing violence to the
provisions of sub-section (3) read with sub-section (6) of Section
80-IC. A pragmatic and reasonable interpretation of Section 80-IC
would be to hold that once the initial Assessment Year
commences and an assessee, by virtue of fulfilling the conditions
laid down in sub-section (2) of Section 80-IC, starts enjoying
deduction, there cannot be another “Initial Assessment Year” for
the purposes of Section 80-IC within the aforesaid period of 10
years, on the basis that it had carried substantial expansion in its
unit.”
12.As can be seen from the aforesaid passage, this Court took the view
that once ‘initial assessment year’ starts on fulfilling the conditions laid
down in sub-section (2) of Section 80-IC, there cannot be another ‘initial
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assessment year’ for the purposes of Section 80-IC within the aforesaid
period of 10 years. While doing so, the Court referred to Section
80-IB(14)(c) of the Act, on the basis of which an opinion was formed that
there cannot be another ‘initial assessment year’ for the purpose of
Section 80-IC within the aforesaid period of 10 years. As pointed out in
the later part of the judgment, this is the apparent error which was
committed. Section 80-IB(14) starts with the words ‘for the purpose of
this section’. Thus, ‘initial assessment year’ defined therein is relatable
only to the deductions that are provided under the provisions of Section
80-IB, namely, in respect of profits and gains from certain industrial
undertakings other than infrastructure development undertakings.
Section 80-IB is materially different from Section 80-IC of the Act.
Inasmuch as Section 80-IC is a special provision in respect of certain
undertakings, all enterprises mentioned in Section 80-IC are limited in
contrast with Section 80-IB, the deduction under this Section is available
only when such undertakings or enterprises are established in particular
States, Sikkim, Himachal Pradesh, Uttaranchal or any of the
North-Eastern States. Therefore, definition of ‘initial assessment year’
mentioned in Section 80-IB could not have been the basis of finding out
the definition of ‘initial assessment year’ which is different from the
definition contained in Section 80-IB. Further, Sub-section (3) of Section
80-IC mentions about the deduction that is permissible, namely, 100%
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deduction of the profits and gains for first five years and 25% (or 30%
where the assessee is a company) for the next five years. This
sub-section, in any case, does not deal with the ‘initial assessment
year’.
13.Learned counsel appearing for the assessees pointed out before us that
clause (v) of sub-section (8) of Section 80-IC is the concerned provision
which provides definition of ‘initial assessment year’, for the purpose of
this very Section, i.e., Section 80-IC, which was not noticed while
pronouncing the judgment in Commissioner of Income Tax vs. M/s.
Classic Binding Industries case. We find substance in this
submission of the assessees. We have no hesitation to accept this
mistake which occurred in the aforesaid judgment. The Court
specifically dealt with ‘initial assessment year’ and came into conclusion
that there cannot be two initial assessment years within a span of 10
years which is the maximum period for allowing deduction as per
sub-section (6) of Section 80-IC. As the issue directly concerned with
initial assessment year, its definition contained in that very Section was
missed out. To that extent, there is an error in the judgment dated 20th
August, 2018 in Classic Binding Industries case.
14.In the aforesaid conspectus, the focus has to be on the question as to
whether definition of ‘initial assessment year’ contained in clause (v) of
sub-section (8) of Section 80-IC makes any difference? We would like to
15
reproduce the said definition once again, hereunder, for the purpose of
continuity of thought process.
"S. 80-IC : xxx xxx xxx
(8) xxx xxx xxx
(v) ―Initial assessment year means the assessment year ‖
relevant to the previous year in which the undertaking or the
enterprise begins to manufacture or produce articles or things, or
commences operation or completes substantial expansion”
15.On the basis of this definition, counsel for the assessees before us have
argued that there can be more than one ‘initial assessment year’ which
can be triggered by the contingency provided therein.
16.As per this definition, there can be ‘initial assessment year’, relevant to
previous year, in any of the following contingencies:
(i) The previous year in which the undertaking or the enterprise
begins to manufacture or produce article or things; or
(ii) Commences operation; or
(iii) Completes substantial expansion
First two events are relatable to new units whereas third incident
would occur in respect of existing units. The benefit of Seciton 80-IC is,
thus, admissible not only when an undertaking or enterprise sets up new
unit and starts manufacturing or producing article or things. The
advantage of this provisions is also accrued to those existing units, if
they carry out “substantial expansion” of their units by investing required
capital, in the assessment year relevant to the previous year.
16
“Substantial expansion” is defined in clause (ix) of sub-section (8) of
Section 80-IC and it reads as under:
"(ix) “Substantial expansion” means increase in the investment in
the plant and machinery by at least fifty per cent of the book value
of plant and machinery (before taking depreciation in any year),
as on the first day of the previous year in which the substantial
expansion is undertaken;
17.As per the aforesaid definition, an existing unit would be treated as
having carried out substantial expansion when there is increase in the
investment in the plant and machinery by at least 50% of the book value
of the plant and machinery (before taking depreciation in any year). As
already noted above, in all these cases at hand, the assessees had
initially set up new industry in the State of Himachal Pradesh of the
nature specified under Section 80-IC of the Act. As a result, they
became entitled to avail the concession provided in the said provision. It
is also an admitted fact that after five years and before the expiry of 10
years, the assessees had carried substantial expansion of their units in
terms of the aforesaid definition. When we consider the definition of
‘initial assessment year’, keeping in view these factors, we find
substance in the submissions made by the learned counsel for the
assessees and are inclined to accept that there can be another ‘initial
assessment year’ on the fulfillment of the condition mentioned in the
said definition, namely, completion of substantial expansion of the
existing unit.
18.The Court is supposed to give effect to the provisions of Section 80-IC
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by reading various provisions conjointly. For the purpose of these
cases, relevant provisions are sub-section (2)(a)(ii), sub-section 3(ii),
sub-section (6) and sub-section (8)(v) and (ix). Clause (ii) of sub-section
(2) provides that in case an undertaking or enterprise sets up a unit of
the nature specified therein in the State of Himachal Pradesh or the
State of Uttaranchal between the 7th January, 2003 and 1st April, 2015,
such an undertaking or enterprise shall become eligible for the
deductions from such profits and gains, as specified in sub-section (3).
In respect of State of Himachal Pradesh (in respect of which these
cases pertain to) sub-section (3) enumerates the extent of deduction. It
is 100% of profits and gains for first five initial assessment years
commencing with the initial assessment year and thereafter 25% (or
30% where the assessee is a company) of the profits and gains. The
deduction @ 25% for the neat five years in on the assumption that the
new unit remains static insofar as expansion thereof is concerned.
However, the moment substantial expansion takes place, another ‘initial
assessment year’ gets triggered. This new event entitles that unit to
start getting deduction @ 100% of the profits and gains. At the same
time, new period of 10 years does not start. It is because of the reason
that total period for which deduction can be allowed is capped at 10
years, inasmuch as sub-section (6) in no uncertain terms stipulates that
deduction shall be not allowed for a period exceeding 10 assessment
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years. In fact, this period of 10 years relates not only in respect of
deduction under Section 80-IC but under the second proviso to
sub-section (4) of Section 80-IB as well. It would mean that total
deduction under Section 80-IB as well as 80-IC is for a period of 10
years.
19.Having examined the scheme in the aforesaid manner, we arrive at the
conclusion that the definition of ‘initial assessment year’ contained in
clause (v) of sub-section (8) of Section 80-IC can lead to a situation
where there can be more than one “initial assessment year” within the
said period of 10 years. As per sub-section (6), cap is on the 10
assessment years. It is not on quantum. We have also to keep in mind
the purpose for which Section 80-IC was enacted. The purpose was to
establish the business of the nature specified in the said provision in the
specified States. This provision was, thus, aimed at encouraging the
undertakings or enterprises to establish and set up such units in the
aforesaid States to make them industrially advanced States as well.
Undoubtedly, these are difficult States as most of these States fall in hilly
areas. Therefore, cost of production and transportation may also go up.
20.When we keep in mind these objectives for which Section 80-IC was
enacted, an irresistible conclusion would be to grant 100% deduction of
the profits and gains even from the year when there is substantial
expansion in the existing unit. After all, this substantial expansion
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involves great deal of investment which has to be, at least 50% in the
plant and machinery, of the book value thereof before taking
depreciation in any year. With an expansion of such a nature not only
there would be increase in production but generation of more
employment as well, which would benefit the local populace. It is for this
reason, carrying out substantial expansion by itself is treated as ‘initial
assessment year’. It would mean that even when an old unit completes
substantial expansion, such a unit also becomes entitled to avail the
benefit of Section 80-IC. If that is the purpose of the legislature, we see
no reason as to why 100% deduction of the profits and gains be not
allowed to even those units who had availed this deduction on setting up
of a new unit and have now invested huge amount with substantial
expansion of those units. We would like to reproduce following
discussions from the Constitution Bench judgment in Commissioner of
Customs (Import), Mumbai vs. Dilip Kumar and Company and
Others1
:
"20. It is well accepted that a statute must be construed according
to the intention of the legislature and the courts should act upon
the true intention of the legislation while applying law and while
interpreting law. If a statutory provision is open to more than one
meaning, the Court has to choose the interpretation which
represents the intention of the legislature. In this connection, the
following observations made by this Court in District Mining
Officer v. TISCO [District Mining Officer v. TISCO, (2001) 7 SCC
358] , may be noticed: (SCC pp. 382-83, para 18)
1 (2018) 9 SCC 1
20
“18. … A statute is an edict of the legislature and in
construing a statute, it is necessary, to seek the intention of
its maker. A statute has to be construed according to the
intent of them that make it and the duty of the court is to act
upon the true intention of the legislature. If a statutory
provision is open to more than one interpretation the court
has to choose that interpretation which represents the true
intention of the legislature. This task very often raises
difficulties because of various reasons, inasmuch as the
words used may not be scientific symbols having any
precise or definite meaning and the language may be an
imperfect medium to convey one's thought or that the
assembly of legislatures consisting of persons of various
shades of opinion purport to convey a meaning which may
be obscure. It is impossible even for the most imaginative
legislature to forestall exhaustively situations and
circumstances that may emerge after enacting a statute
where its application may be called for. Nonetheless, the
function of the courts is only to expound and not to legislate.
Legislation in a modern State is actuated with some policy to
curb some public evil or to effectuate some public benefit.
The legislation is primarily directed to the problems before
the legislature based on information derived from past and
present experience. It may also be designed by use of
general words to cover similar problems arising in future.
But, from the very nature of things, it is impossible to
anticipate fully the varied situations arising in future in which
the application of the legislation in hand may be called for,
and, words chosen to communicate such indefinite referents
are bound to be in many cases lacking in clarity and
precision and thus giving rise to controversial questions of
construction. The process of construction combines both
literal and purposive approaches. In other words, the
legislative intention i.e. the true or legal meaning of an
enactment is derived by considering the meaning of the
words used in the enactment in the light of any discernible
purpose or object which comprehends the mischief and its
remedy to which the enactment is directed.”
"28. The decision of this Court in Punjab Land Development and
Reclamation Corpn. Ltd. v. Labour Court [Punjab Land
Development and Reclamation Corpn. Ltd.v. Labour Court, (1990)
3 SCC 682 : 1991 SCC (L&S) 71] , made the said distinction, and
explained the literal rule: (SCC p. 715, para 67)
“67. The literal rules of construction require the wording of
the Act to be construed according to its literal and
grammatical meaning, whatever the result may be. Unless
21
otherwise provided, the same word must normally be
construed throughout the Act in the same sense, and in the
case of old statutes regard must be had to its contemporary
meaning if there has been no change with the passage of
time.”
That strict interpretation does not encompass strict literalism into
its fold. It may be relevant to note that simply juxtaposing “strict
interpretation” with “literal rule” would result in ignoring an
important aspect that is “apparent legislative intent”. We are alive
to the fact that there may be overlapping in some cases between
the aforesaid two rules. With certainty, we can observe that, “strict
interpretation” does not encompass such literalism, which lead to
absurdity and go against the legislative intent. As noted above, if
literalism is at the far end of the spectrum, wherein it accepts no
implications or inferences, then “strict interpretation” can be
implied to accept some form of essential inferences which literal
rule may not accept.
29. We are not suggesting that literal rule dehors the strict
interpretation nor one should ignore to ascertain the interplay
between “strict interpretation” and “literal interpretation”. We may
reiterate at the cost of repetition that strict interpretation of a
statute certainly involves literal or plain meaning test. The other
tools of interpretation, namely, contextual or purposive
interpretation cannot be applied nor any resort be made to look to
other supporting material, especially in taxation statutes. Indeed, it
is well settled that in a taxation statute, there is no room for any
intendment; that regard must be had to the clear meaning of the
words and that the matter should be governed wholly by the
language of the notification. Equity has no place in interpretation
of a tax statute. Strictly one has to look to the language used;
there is no room for searching intendment nor drawing any
presumption. Furthermore, nothing has to be read into nor should
anything be implied other than essential inferences while
considering a taxation statute.
30. Justice G.P. Singh, in his treatise Principles of Statutory
Interpretation (14th Edn. 2016 p. 879) after referring
to Micklethwait, In re [Micklethwait, In re, (1855) LR 11 Ex 452 :
156 ER 908] ; Partington v. Attorney
General [Partington v. Attorney General, (1869) LR 4 HL
100] , Rajasthan Rajya Sahakari Spg. & Ginning Mills Federation
Ltd. v. CIT [Rajasthan Rajya Sahakari Spg. & Ginning Mills
Federation Ltd. v. CIT, (2014) 11 SCC 672] , State Bank of
Travancore v. CIT [State Bank of Travancore v. CIT, (1986) 2 SCC
11 : 1986 SCC (Tax) 289] and Cape Brandy
22
Syndicate v. IRC [Cape Brandy Syndicate v. IRC, (1921) 1 KB
64] , summed up the law in the following manner:
“A taxing statute is to be strictly construed. The
well-established rule in the familiar words of Lord
Wensleydale, reaffirmed by Lord Halsbury
[Ed.: Tennant v. Smith, 1892 AC 150 at p. 154] and Lord
Simonds [Ed.: St Aubyn v. Attorney General, 1952 AC 15 at
p. 32 (HL)] , means:
‘“The subject is not to be taxed without clear words for that
purpose; and also that every Act of Parliament must be read
according to the natural construction of its words.”’
In a classic passage Lord Cairns stated the principle thus:
‘If the person sought to be taxed comes within the letter of
the law he must be taxed, however great the hardship may
appear to the judicial mind to be. On the other hand, if the
Crown seeking to recover the tax, cannot bring the subject
within the letter of the law, the subject is free, however
apparently within the spirit of law the case might otherwise
appear to be. In other words, if there be admissible in any
statute, what is called an equitable construction, certainly,
such a construction is not admissible in a taxing statute
where you can simply adhere to the words of the statute.’
Viscount Simon quoted [Ed.: Canadian Eagle Oil Co.
Ltd. v. Selection Trust Ltd., 1946 AC 119 at p. 140 (HL)] with
approval a passage [Cape Brandy Syndicate v. IRC, (1921) 1 KB
64] from Rowlatt, J. expressing the principle in the following
words: (Cape Brandy case [Cape Brandy Syndicate v. IRC, (1921)
1 KB 64] , KB p. 71)
‘… in a taxing Act one has to look merely at what is clearly
said. There is no room for any intendment. There is no
equity about a tax. There is no presumption as to a tax.
Nothing is to be read in, nothing is to be implied. One can
only look fairly at the language used.’”
21.The High Court has interpreted these provisions in the following manner:
"80-IC(3)(ii) [for Himachal Pradesh] stipulates that deduction shall
be @ 100% for five years commencing with “initial assessment
year” and thereafter @ 25%. “Initial assessment year”, as per
23
Section 80-IC (8)(v) means, year in which the unit
begins/commences to manufacture/produce or completes
“substantial expansion” [As per Section 80-IC(8)(ix)].
46. The moment “substantial expansion” is completed as per
Section 80-IC(8)(ix), the statutory definition of “initial assessment
year” [Section 80-IC(8)(v)] comes into play. And consequently,
Section 80-IC(3)(ii) entitles the unit to 100% deduction for five
years commencing with completion of “substantial expansion”,
subject to maximum of ten years as per Section 80-IC(6).
47. A unit that started operating/existed before 7.1.2003 was
entitled to 100% deduction for first five years under Section
80-IB(4). If this unit completes substantial expansion during the
window period (7.1.2003 to 31.3.2012), it would be eligible for
100% deduction again for another five years under Section
80-IC(3)(ii), subject to ceiling of ten years as stipulated under
Section 80-IC(6).”
We are inclined to agree with the aforesaid interpretation.
22.It would be pertinent to point out that in Para 20 of the judgment in
Classic Binding Industries, this Court observed that if deduction @
100% for the entire period of 10 years, it would be doing violence to the
language of sub-section (6) of Section 80-IC. However, this observation
came without noticing the definition of ‘initial assessment year’ contained
in the same very provision.
23.Having examined the matter in the aforesaid perspective, judgment in
the case of Mahabir Industries v. Principal Commissioner of Income
Tax2
would, in fact, help the assessee. The fine distinction pointed out
in Classic Binding Industries elopes thereby. To recapitulate, in
Mahabir Industries, it was held that if an assessee get 100%
2 Civil Appeal Nos. 4765-4766 of 2018 decided on May 18, 2018
24
exemption under Section 80-IB of the Act for five years and thereafter
carries out the substantial expansion because of which said assessee
becomes entitled to exemption under the new provision i.e. Section
80-IC of the Act, the assessee would be entitled to deduction @ 100%
even after five years. This ruling was predicated on the ground that
there can be two initial assessment years, one for the purpose of
Section 80-IB and other for the purposes of Section 80-IC of the Act.
Once we find that there can be two initial assessment years, even as per
the definition thereof in Section 80-IC itself, the legal position comes at
par with the one which was discussed in Mahabir Industries.
24.The aforesaid discussion leads us to the following conclusions:
(a) Judgment dated 20th August, 2018 in Classic Binding
Industries case omitted to take note of the definition ‘initial
assessment year’ contained in Section 80-IC itself and instead based
its conclusion on the definition contained in Section 80-IB, which does
not apply in these cases. The definitions of ‘initial assessment year’
in the two sections, viz. Sections 80-IB and 80-IC are materially
different. The definition of ‘initial assessment year’ under Section
80-IC has made all the difference. Therefore, we are of the opinion
that the aforesaid judgment does not lay down the correct law.
(b) An undertaking or an enterprise which had set up a new unit
between 7th January, 2003 and 1st April, 2012 in State of Himachal
25
Pradesh of the nature mentioned in clause (ii) of sub-section (2) of
Section 80-IC, would be entitled to deduction at the rate of 100% of
the profits and gains for five assessment years commencing with the
‘initial assessment year’. For the next five years, the admissible
deduction would be 25% (or 30% where the assessee is a company)
of the profits and gains.
(c) However, in case substantial expansion is carried out as
defined in clause (ix) of sub-section (8) of Section 80-IC by such an
undertaking or enterprise, within the aforesaid period of 10 years, the
said previous year in which the substantial expansion is undertaken
would become ‘initial assessment year’, and from that assessment
year the assessee shall been entitled to 100% deductions of the
profits and gains.
(d) Such deduction, however, would be for a total period of 10
years, as provided in sub-section (6). For example, if the expansion
is carried out immediately, on the completion of first five years, the
assessee would be entitled to 100% deduction again for the next five
years. On the other hand, if substantial expansion is undertaken,
say, in 8th year by an assessee such an assessee would be entitled to
100% deduction for the first five years, deduction @ 25% of the
profits and gains for the next two years and @ 100% again from 8th
year as this year becomes ‘initial assessment year’ once again.
26
However, this 100% deduction would be for remaining three years,
i.e., 8th, 9th and 10th assessment years.
25.In view of the aforesaid, we affirm the judgment of the High Court on this
issue and dismiss all these appeals of the Revenue. Likewise, appeals
filed by the assessees are hereby allowed.
.............................................J.
(A.K. SIKRI)
.............................................J.
(A. ABDUL NAZEER)
.............................................J.
(M. R. SHAH)
NEW DELHI;
February 20, 2019.
