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Commissioner Of Income Tax Del-Iii Vs. Unipatch Rubber Ltd.
February, 02nd 2015
$~R-1
*     IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                   Decided on : 05.01.2015
+      ITA 38/2000
       COMMISSIONER OF INCOME TAX DEL-III                  ..... Appellant
                         Through:     Mr.Balbir Singh, Sr.Standing Counsel

                         versus

       UNIPATCH RUBBER LTD.                               ..... Respondent

                         Through:     Mr.Prakash Kumar, Advocate.

       CORAM:
       HON'BLE MR. JUSTICE S. RAVINDRA BHAT
       HON'BLE MR. JUSTICE R.K. GAUBA

MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)

%
1.     The question of law framed in this case by order dated 22.09.2000 is
as follows:-

         "Whether assessee is entitled to deduction/benefit under
         Section 80-I on the gross income without excluding/reducing
         deduction allowed under Section 80-HH?"
2.     The facts necessary for deciding this appeal under Section 260-A of
the Income Tax Act, 1961 are that for the period 01-01-1988 to 31-03-1989,
relevant for the assessment year 1989-90, the return of income was filed by
the respondent-assessee declaring Rs.53,93,390/- as income. The assessee
manufactured and sold rubber patches for tyre, tubes, uniseals etc. By order
dated 13-03-1992 the Assessing Officer inter alia held that deduction under
Section 80-I could be allowed on the balance amount of income after it




ITA 38/2000                                                            Page 1
suffers a deduction under Section 80-HH. This view was affirmed by the
Commissioner of Income Tax (Appeals) who was of the opinion that both
Sections i.e., Sections 80-HH and 80-I were independent provisions and
consequently, the assessee was entitled to deduction under Section 80-I on
the total amount without it having suffered any deduction under Section 80-
HH. The Revenue unsuccessfully appealed to the ITAT and consequently
has approached this Court.

3.     It is argued on behalf of the Revenue that the ITAT as well as the
Commissioner (Appeals) completely overlooked Section 80-HH (9) which is
in imperative terms and stipulates expressly that before the benefit of
Section 80-I could be claimed, or some other benefit ­ under Section 80-J,
could be claimed ­ the total profits had to be deducted in the manner
provided in the Section i.e. in terms of Section 80-HH (I). The submission of
the Revenue in this regard may be noticed by its contention in the grounds
of appeal to the following effect:-

      "The language of Section 80-HH(9) is clear and specifically
      stipulates that where the assessee is entitled to deduction u/s 80-
      HH and 80-I, the assessee is first entitled to deduction u/s 80-HH
      and thereafter deduction will be allowed u/s 80-I."
4.     The CIT(A) reasoned that the deduction under Section 80-I and 80-
HH had to be with reference to gross total income independent to one
another, relying on the language with reference to Section 80-I. The ITAT
apparently endorsed this opinion in the following terms:-

      "The next grievance is against the direction of the Ld.CIT(A) to
      allow deduction u/s 80I on the same income on which deduction
      u/s 80HH has been allowed i.e. on the gross income. The




ITA 38/2000                                                                 Page 2
      assessee claimed deductions u/s 80HH & 80I on the gross
      income. The issue is covered by the order dated 5.11.96 of Delhi
      Bench `B' in ITA No.5730/Del/91 in assessee's own case.
      Reliance on the orders of the Karnataka High Court and
      Allahabad High Court reported in 203 ITR 811 and 140 ITR 745
      have been placed. The ITAT had held in asstt. Year 1988-89 in
      this very case that the deduction u/s 80I must be allowed without
      taking into account other deductions permissible under Chapter
      6 of the Act. Thus the relief under sec. 80HH and 80I were
      admissible on gross income. Following the order of the ITAT we
      dismiss the revenue's ground."
5.     The relevant provisions are as follows:-

      "Section 80-HH(1) ­ Where the gross total income of an
      assessee includes any profits and gains derived from an
      industrial undertaking, or the business of a hotel, to which this
      section applies, 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
      of an amount equal to twenty per cent thereof.
      xxxx                               xxxxxx                     xxxxx
      Section 80 HH(9) ­ In a case where the assessee is entitled also
      to the deduction under [section 80-I or] section 80J in relation to
      the profits and gains of an industrial undertaking or the business
      of a hotel to which this section applies, effect shall first be given
      to the provisions of this section.

       [Deduction in respect of profits and gains from industrial
       undertakings after a certain date, etc.
       80-I. (1) Where the gross total income of an assessee includes
       any profits and gains derived from an industrial undertaking or
       a ship or the business of a hotel [or the business of repairs to
       ocean-going vessels or other powered craft], to which this
       section applies, there shall, in accordance with and subject to
       the provisions of this section, be allowed, in computing the total




ITA 38/2000                                                                   Page 3
       income of the assessee, a deduction from such profits and gains
       of an amount equal to twenty per cent thereof :
       Provided that in the case of an assessee, being a company, the
       provisions of this sub-section shall have effect [in relation to
       profits and gains derived from an industrial undertaking or a
       ship or the business of a hotel] as if for the words "twenty per
       cent", the words "twenty-five per cent" had been substituted.
       [(1A) Notwithstanding anything contained in sub-section (1), in
       relation to any profits and gains derived by an assessee from--
  (i) an industrial undertaking which begins to manufacture or
      produce articles or things or to operate its cold storage plant or
      plants; or
  (ii) a ship which is first brought into use; or
  (iii) the business of a hotel which starts functioning,
       on or after the 1st day of April, 1990, [but before the 1st day of
       April, 1991], 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
       of an amount equal to twenty-five per cent thereof :
       Provided that in the case of an assessee, being a company, the
       provisions of this sub-section shall have effect in relation to
       profits and gains derived from an industrial undertaking or a
       ship or the business of a hotel as if for the words "twenty-five
       per cent", the words "thirty per cent" had been substituted.]
       (2) This section applies to any industrial undertaking which
       fulfils all the following conditions, namely :--
       (i) it is not formed by the splitting up, or the reconstruction, of a
       business already in existence;
       (ii) it is not formed by the transfer to a new business of
       machinery or plant previously used for any purpose;







ITA 38/2000                                                                    Page 4
       (iii) it manufactures or produces any article or thing, not being
       any article or thing specified in the list in the Eleventh
       Schedule, or operates one or more cold storage plant or plants,
       in any part of India, and begins to manufacture or produce
       articles or things or to operate such plant or plants, at any time
       within the period of [ten] years next following the 31st day of
       March, 1981, or such further period as the Central Government
       may, by notification in the Official Gazette, specify with
       reference to any particular industrial undertaking;
       (iv) in a case where the industrial undertaking manufactures or
       produces articles or things, the undertaking employs ten or
       more workers in a manufacturing process carried on with the
       aid of power, or employs twenty or more workers in a
       manufacturing process carried on without the aid of power :
       Provided that the condition in clause (i) shall not apply in
       respect of any industrial undertaking which is formed as a
       result of the re-establishment, reconstruction or revival by the
       assessee of the business of any such industrial undertaking as is
       referred to in section 33B, in the circumstances and within the
       period specified in that section :
       Provided further that the condition in clause (iii) shall, in
       relation to a small-scale industrial undertaking, apply as if the
       words "not being any article or thing specified in the list in the
       Eleventh Schedule" had been omitted.
       Explanation 1.--For the purposes of clause (ii) of this sub-
       section, any machinery or plant which was used outside India
       by any person other than the assessee shall not be regarded as
       machinery or plant previously used for any purpose, if the
       following conditions are fulfilled, namely :--
       (a) such machinery or plant was not, at any time previous to the
       date of the installation by the assessee, used in India;




ITA 38/2000                                                                 Page 5
       (b) such machinery or plant is imported into India from any
       country outside India; and
       (c) no deduction on account of depreciation in respect of such
       machi-nery or plant has been allowed or is allowable under the
       provisions of this Act in computing the total income of any
       person for any period prior to the date of the installation of the
       machinery or plant by the assessee.
       Explanation 2.--Where in the case of an industrial undertaking,
       any machinery or plant or any part thereof previously used for
       any purpose is transferred to a new business and the total value
       of the machinery or plant or part so transferred does not exceed
       twenty per cent of the total value of the machinery or plant used
       in the business, then, for the purposes of clause (ii) of this sub-
       section, the condition specified therein shall be deemed to have
       been complied with.
       Explanation 3.--For the purposes of this sub-section, "small-
       scale industrial undertaking" shall have the same meaning as
       in clause (b) of the Explanation below sub-section (8) of section
       80HHA.
       (3) This section applies to any ship, where all the following
       conditions are fulfilled, namely :--
       (i) it is owned by an Indian company and is wholly used for the
       purposes of the business carried on by it;
       (ii) it was not, previous to the date of its acquisition by the
       Indian company, owned or used in Indian territorial waters by
       a person resident in India; and
       (iii) it is brought into use by the Indian company at any time
       within the period of [ten] years next following the 1st day of
       April, 1981.
       (4) This section applies to the business of any hotel, where all
       the following conditions are fulfilled, namely :--




ITA 38/2000                                                                  Page 6
       (i) the business of the hotel is not formed by the splitting up, or
       the reconstruction, of a business already in existence or by the
       transfer to a new business of a building previously used as a
       hotel or of any machinery or plant previously used for any
       purpose;
       (ii) the business of the hotel is owned and carried on by a
       company registered in India with a paid-up capital of not less
       than five hundred thousand rupees;
       (iii) the hotel is for the time being approved for the purposes of
       this sub-section by the Central Government;
       (iv) the business of the hotel starts functioning after the 31st day
       of March, 1981, but before the 1st day of April [1991].
       [(4A) This section applies to the business of repairs to ocean-
       going vessels or other powered craft which fulfils all the
       following conditions, namely :--
       (i) the business is not formed by the splitting up, or the
       reconstruction, of a business already in existence;
       (ii) it is not formed by the transfer to a new business of
       machinery or plant previously used for any purpose;
       (iii) it is carried on by an Indian company and the work by way
       of repairs to ocean-going vessels or other powered craft has
       been commenced by such company after the 31st day of March,
       1983, but before the 1st day of April, 1988; and
   (iv) it is for the time being approved for the purposes of this sub-
       section by the Central Government.]
       (5) The deduction specified in sub-section (1) shall be allowed
       in computing the total income in respect of the assessment year
       relevant to the previous year in which the industrial
       undertaking begins to manufacture or produce articles or
       things, or to operate its cold storage plant or plants or the ship
       is first brought into use or the business of the hotel starts




ITA 38/2000                                                                   Page 7
       functioning [or the company commences work by way of repairs
       to ocean-going vessels or other powered craft] (such
       assessment year being hereafter in this section referred to as
       the initial assessment year) and each of the seven assessment
       years immediately succeeding the initial assessment year :
       Provided that in the case of an assessee, being a co-operative
       society, the provisions of this sub-section shall have effect as if
       for the words "seven assessment years", the words "nine
       assessment years" had been substituted :
       [Provided further that in the case of an assessee carrying on
       the business of repairs to ocean-going vessels or other powered
       craft, the provisions of this sub-section shall have effect as if for
       the words "seven assessment years", the words "four
       assessment years" had been substituted:]
       [Provided also that in the case of--
   (i) an industrial undertaking which begins to manufacture or
       produce articles or things or to operate its cold storage plant or
       plants; or
   (ii) a ship which is first brought into use; or
   (iii) the business of a hotel which starts functioning,
       on or after the 1st day of April, 1990 [but before the 1st day of
       April, 1991], provisions of this sub-section shall have effect as
       if for the words "seven assessment years", the words "nine
       assessment years" had been substituted :
       Provided also that in the case of an assessee, being a co-
       operative society, deriving profits and gains from an industrial
       undertaking or a ship or a hotel referred to in the third proviso,
       the provisions of that proviso shall have effect as if for the
       words "nine assessment years", the words "eleven assessment
       years" had been substituted.]




ITA 38/2000                                                                    Page 8
       (6) Notwithstanding anything contained in any other provision
       of this Act, the profits and gains of an industrial undertaking or
       a ship or the business of a hotel [or the business of repairs to
       ocean-going vessels or other powered craft] to which the
       provisions of sub-section (1) apply shall, for the purposes of
       determining the quantum of deduction under sub-section (1) for
       the assessment year immediately succeeding the initial
       assessment year or any subsequent assessment year, be
       computed as if such industrial undertaking or ship or the
       business of the hotel [or the business of repairs to ocean-going
       vessels or other powered craft] were the only source of income
       of the assessee during the previous years relevant to the initial
       assessment year and to every subsequent assessment year up to
       and including the assessment year for which the determination
       is to be made.
       (7) Where the assessee is a person other than a company or a
       co-operative society, the deduction under sub-section (1) from
       profits and gains derived from an industrial undertaking shall
       not be admissible unless the accounts of the industrial
       undertaking for the previous year relevant to the assessment
       year for which the deduction is claimed have been audited by
       an accountant, as defined in the Explanation below sub-section
       (2) of section 288, and the assessee furnishes, along with his
       return of income, the report of such audit in the prescribed form
       duly signed and verified by such accountant.
       (8) Where any goods held for the purposes of the business of the
       industrial undertaking or the hotel or the operation of the ship
       [or the business of repairs to ocean-going vessels or other
       powered craft] are transferred to any other business carried on
       by the assessee, or where any goods held for the purposes of
       any other business carried on by the assessee are transferred to
       the business of the industrial undertaking or the hotel or the
       operation of the ship [or the business of repairs to ocean-going







ITA 38/2000                                                                 Page 9
       vessels or other powered craft] and, in either case, the
       consideration, if any, for such transfer as recorded in the
       accounts of the business of the industrial undertaking or the
       hotel or the operation of the ship [or the business of repairs to
       ocean-going vessels or other powered craft] does not
       correspond to the market value of such goods as on the date of
       the transfer, then, for the purposes of the deduction under this
       section, the profits and gains of the industrial undertaking or
       the business of the hotel or the operation of the ship [or the
       business of repairs to ocean-going vessels or other powered
       craft] shall be computed as if the transfer, in either case, had
       been made at the market value of such goods as on that date :
       Provided that where, in the opinion of the [Assessing] Officer,
       the computation of the profits and gains of the industrial
       undertaking or the business of the hotel or the operation of the
       ship [or the business of repairs to ocean-going vessels or other
       powered craft] in the manner hereinbefore specified presents
       exceptional difficulties, the [Assessing] Officer may compute
       such profits and gains on such reasonable basis as he may
       deem fit.
       Explanation.--In this sub-section, "market value", in relation
       to any goods, means the price that such goods would ordinarily
       fetch on sale in the open market.
       (9) Where it appears to the [Assessing] Officer that, owing to
       the close connection between the assessee carrying on the
       business of the industrial undertaking or the hotel or the
       operation of the ship [or the business of repairs to ocean-going
       vessels or other powered craft] to which this section applies
       and any other person, or for any other reason, the course of
       business between them is so arranged that the business
       transacted between them produces to the assessee more than
       the ordinary profits which might be expected to arise in the
       business of the industrial undertaking or the hotel or the




ITA 38/2000                                                                Page 10
       operation of the ship [or the business of repairs to ocean-going
       vessels or other powered craft], the [Assessing] Officer shall, in
       computing the profits and gains of the industrial undertaking or
       the hotel or the ship [or the business of repairs to ocean-going
       vessels or other powered craft] for the purposes of the
       deduction under this section, take the amount of profits as may
       be reasonably deemed to have been derived therefrom.
       (10) The Central Government may, after making such inquiry as
       it may think fit, direct, by notification in the Official Gazette,
       that the exemption conferred by this section shall not apply to
       any class of industrial undertakings with effect from such date
       as it may specify in the notification.]
6.     This Court notices that the question of law framed has now been
answered in a series of decisions. In the first case i.e. J.P.Tobacco Products
Pvt. Ltd vs Commissioner of Income Tax; (1998)229 ITR 123, the Madhya
Pradesh High Court, after noticing that sub-Section 9 of Section 80-HH was
amended by Act No.30 of 1981, nevertheless, in relation to assessment year
1985-86, proceeded to hold that the benefits under Section 80-HH and
Section 80-I were independent and consequently, there was no question of
giving effect to Section 80-HH(9) and thereafter proceeding to bring the
balance amount for the purposes of tax or benefit under Section 80-I.

7.     The view in J.P. Tobacco (supra) was followed by several other High
Courts i.e., Gujarat High Court, Allahabad High Court, Rajasthan High
Court, the Punjab and Haryana High Court and even by a Division Bench of
this Court [in CIT vs S.A. Engineering Pvt. Ltd. (2006) 285 ITR 423 (Del)].
Ultimately this view was affirmed by the Supreme Court in Joint
Commissioner of Income Tax vs. Mandideep Engineering and Packaging




ITA 38/2000                                                                 Page 11
Ind. Pvt. Ltd. (2007) 292 ITR (1) SC. The relevant part of the discussion by
the Supreme Court is as follows:-

      "2.     The Madhya Pradesh High Court in J.P.Tobacco
      Products P. Ltd. v. CIT reported in [1998] 229 ITR 123 took the
      view that both the sections are independent and, therefore, the
      deductions could be claimed both under sections 80HH and 80I
      on the gross total income. Against this judgment a special leave
      petition was filed in this court which was dismissed on the
      ground of delay on July 21, 2000 (see[2000] 245 ITR (St.) 71).
      The decision in J.P.Tobacco Products P. Ltd. [1998] 229 ITR
      123 (MP) was followed by the same High Court in the case of
      CIT v. Alpine Solvex P. Ltd. in I.T.A. No. 92 of 1999 decided on
      May 2, 2000. Special leave petition against this decision was
      dismissed by this court on January 12, 2001, (see [2001] 247 ITR
      (St.) 36). This view has been followed repeatedly by different
      High Courts in a number of cases against which no special leave
      petitions were filed meaning thereby that the Department has
      accepted the view taken in these judgments. See CIT v. Nima
      Specific Family Trust reported in [2001] 248 ITR 29 (Bom); CIT
      v. Chokshi Contacts P. Ltd. [2001] 251 ITR 587 (Raj); CIT v.
      Amod Stamping [2005] 274 ITR 176 (Guj.); CIT v. Mittal
      Appliances P. Ltd. [2004] 270 ITR 65 (MP); CIT v. Rochiram
      and Sons [2004] 271 ITR 444 (Raj.); CIT v. Prakash Chandra
      Basant Kumar [2005] 276 ITR 664 (MP); CIT v. S. B. Oil
      Industries P. Ltd. [2005] 274 ITR 495 (P&H); CIT v. SKG
      Engineering P. Ltd. [2005] 119 DLT 673 and CIT v. Lucky
      Laboratories Ltd. [2006] 200 CTR 305 (All).
        Since the special leave petitions filed against the judgment of
      the Madhya Pradesh High Court have been dismissed and the
      Department has not filed the special leave petitions against the
      judgments of different High Courts following the view taken by
      the Madhya Pradesh High Court, we do not find any merit in this
      appeal. The Department having accepted the view taken in those
      judgments cannot be permitted to take a contrary view in the
      present case involving the same point. Accordingly, the civil
      appeal is dismissed. No costs."




ITA 38/2000                                                               Page 12
8.     In view of the above position in law, the question of law framed in
this appeal is answered in terms of the law declared by the Supreme Court in
Mandideep Engineering and Packaging Ind. Pvt. Ltd. (supra) and against
the Revenue. The appeal is accordingly dismissed.



                                                    S. RAVINDRA BHAT
                                                              (JUDGE)



                                                              R.K.GAUBA
                                                                 (JUDGE)
JANUARY 05, 2015
mb




ITA 38/2000                                                           Page 13

 
 
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