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original storyline

Vide section 80-IC if between January 7, 2003 and April 1, 2012, a “unit” has “begun” or “begins” to manufacture or produce any article or thing specified in the Fourteenth Schedule or commences any operation “and undertakes substantial expansion” during the period, then by virtue of sub-section (3), it shall be entitled to deduction at the rate of 100 per cent. of profits and gains for five assessment years, commencing from the “initial assessment year” and thereafter at the rate of 25 per cent. of the profits and gains.

Question before the SC

“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 100 per cent . beyond the period of five years of the ground that the assessee has now carried out substantial expansion in its manufacturing unit?”


There can be another “initial assessment year” on the fulfillment of the condition mentioned in the definition ,namely, completion of substantial expansion of the existing unit .This new event ( substantial expansion) entitles that unit to start getting deduction at 100 per cent .of the profits and gains.

That such deduction, however, would be for a total period of ten years, as provided in section 80-IC(6) .For Example ,if the expansion is carried out immediately, on the completion of the first five years, the assessee would be entitled to 100 per cent deduction again for the next five years. On the other hand , if substantial expansion is undertaken ,say, in the eighth year by an assessee such an assessee would be entitled to 100 per cent .deduction for the first five years ,deduction at 25 per cent .of the profits and gains for the next two years and at 100 per cent .again from eighth year as this year become the “initial assessment year” once again .However, this 100 per cent .deduction would be for the remaining  three years ,i.e., the eighth, ninth and tenth assessment years.

Earlier the HP High Court in Stovecraft India v CIT (2018) 400ITR 225 held that the Legislature consciously extended the benefit of “initial assessment year” to a unit that completed substantial expansion. This judgment now stands approved by the SC. The previous adverse SC ruling in Classic Building Industries case (2018) 407ITR429 which held that after availing of the deduction for a period of five years at 100 per cent. of such profits and gains from the eligible units, the assessee would be entitled to deduction for the remaining five assessment years at 25 per cent. (or 30 per cent. where the assessee is a company), and not at 100 per cent stands overruled now. Interestingly one of the judges is common in the two decisions of the Supreme Court.

Taking note of this development the companies can file for rectification.



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