JUDGMENT
Arijit Pasayat , C.J.
1. Heard.
2. Both the income-tax references are concerned with a common dispute and, therefore, are disposed of by this common judgment. The following
question has been referred for the opinion of this court by the Income-tax Appellate Tribunal, Cochin Bench (in short the “Tribunal”), in terms of Section 256(2) of the Income-tax Act, 1961 (in short the “Act”), pursuant to the direction given in O. P. Nos. 14911 and 15223 of 1993.
“Whether, on the facts and in the circumstances of the case, the asses-see is entitled to deduction under Section 80HHA of the Income-tax Act, 1961 ?”
3. The factual position as set out in the statement of case is as follows : The assessee is engaged in the business of manufacture and sale of paper. It claims to have commenced production in the previous year ending on March 31, 1985. In the balance-sheet, the aggregate cost of plant and machinery as on March 31, 1988, and March 31, 1989, relevant to the assessment years 1988-89, and 1989-90, is reflected as Rs. 52,95,028 and Rs. 63,05,477, respectively. The Assessing Officer was of the view that the claim for deduction under Section 80HHA of the Act is impermissible. The reason for such a conclusion was indicated to be the value of plant and machinery installed as on the last day of the previous year exceeding Rs. 35 lakhs. The matter was carried in appeal, before the Commissioner of Income-tax (Appeals) (in short “the CIT (A)”). He referred to Circular No. 314 (F. No. 202/20/79-ITA(ii) (see [1981] 132 ITR (St.) 10)) and held that in terms of the said circular, the value of plant and machinery other than tools, jigs, dies and moulds was to be considered and on exclusion of the value of these items the value of plant and machinery still exceeded Rs. 35 lakhs. Accordingly, the orders of the Assessing Officer were confirmed. Appeals were filed by the assessee before the Tribunal. On consideration of Press Note No. 25 of 1989, dated October 10, 1989, issued by the Department of Industrial Development of the Government of India, clarifying as to what items were to be included and what items were to be excluded in arriving at the value of plant and machinery for the purpose of treating the unit as a small scale industrial undertaking, the Tribunal came to the conclusion that if certain items mentioned in the press note were excluded, the value of plant and machinery would be less than Rs. 35 lakhs. Accordingly, it was held that the assessee was entitled to deduction under Section 80HHA of the Act. An application filed under Section 256(1) of the Act was rejected. As stated above, in accordance with the direction of this court the question as set out above has been referred.
4. Learned counsel for the Revenue submitted that the applicability of the press note referred to by the Tribunal was a matter of dispute as the binding effect thereof was not discussed by the Tribunal. Learned counsel for the assessee, Sri Balachandran, brought to our notice the change of provision itself and submitted that the relief has been rightly granted by the Tribunal.
5. It is to be noted that in the Explanation to Sub-section (8) of Section 80HHA, the earlier provision was substituted and presently it reads as follows :
“(b) an industrial undertaking shall be deemed to be a small scale industrial undertaking which is, on the last day of the previous year, regarded as a small-scale industrial undertaking under Section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951).”
6. Prior to the amendment, the provision read as follows :
“(b) an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of the business of the undertaking does not exceed,–
(1) in a case where the previous year ends before the 1st day of August, 1980, ten lakh rupees ;
(2) in a case where the previous year ends after the 31st day of July, 1980, but before the 18th day of March, 1985, twenty lakh rupees ; and
(3) in a case where the previous year ends after the 17th day of March, 1985, thirty-five lakh rupees,
and for this purpose the value of any machinery or plant shall be,–
(i) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee ; and
(ii) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant.”
7. Section 11B of the Industries (Development and Regulation) Act, 1951 (in short the “IDR Act”), reads as follows :
“11B. (1) The Central Government may, with a view to ascertaining which ancillary and small scale industrial undertakings need supportive measures, exemptions or other favourable treatment under this Act to enable them to maintain their viability and strength so as to be effective in,–
(a) promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and
(b) securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good,
specify, having regard to the factors mentioned in Sub-section (2) by notified order, the requirements which shall be complied with by an industrial undertaking to enable it to be regarded, for the purposes of this Act, as an ancillary, or a small scale industrial undertaking and different requirements may be so specified for different purposes or with respect to industrial undertakings engaged in the manufacture or production of different, articles :
Provided that no industrial undertaking shall be regarded as an ancillary industrial undertaking unless it is, or is proposed to be, engaged in,–
(i) the manufacture of parts, components, sub-assemblies, toolings or intermediates ; or
(ii) rendering of services, or supplying or rendering, not more than fifty per cent, of its production or its total services, as the case may be, to other units for production of other articles.
(2) The factors referred to in Sub-section (1) are the following, namely :–
(a) the investment by the industrial undertaking in :
(i) plant and machinery, or
(ii) land, buildings, plant and machinery ;
(b) the nature of ownership of the industrial undertaking ;
(c) the smallness of the number of workers employed in the industrial undertaking ;
(d) the nature, cost and quality of the product of the industrial undertaking ;
(e) foreign exchange, if any, required for the import of any plant or machinery by the industrial undertaking ; and
(i) such other relevant factors as may be prescribed.
(3) A copy of every notified order proposed to be made under Sub-section (1) shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the proposed notified order or both Houses agree in making any modification in the proposed notified order, the notified order shall not be made or, as the case may be, shall be made only in such modified form as may be agreed upon by both the Houses.
(4) Notwithstanding anything contained in Sub-section (1), an industrial undertaking which, according to the law for the time being in force, fell, immediately before the commencement of the Industries (Development and Regulation) Amendment Act, 1984, under the definition of an ancillary, or small scale industrial undertaking, shall, after such commencement, continue to be regarded as an ancillary, or small scale industrial undertaking for the purposes of this Act until the definition aforesaid is altered or superseded by any notified order made under Sub-section (1).”
8. It is, therefore, to be noted that if some clarification is issued in terms of the notified order, that would be relevant while considering the claim under Section 80HHA of the Act. There is no clear material before us to come to a definite conclusion whether the circular referred to by the
Tribunal was one which can be called a “notified order” in terms of Section 11B of the Industries (Development and Regulation) Act. We, therefore, remit the matter back to the Tribunal for the limited purpose of giving
a finding as to whether the circular was one which is covered by
Section 11B of the Industries (Development and Regulation) Act. If its conclusion is in the affirmative, the relief granted shall stand.
9. The income-tax reference is disposed of as above.