S. 10B: Extension of relief period available for existing units
The assessee, a 100 % EOU, commenced commercial production in AY 1992-93 and was entitled to claim exemption u/s 10B(3) in any 5 consecutive assessment years falling within the period of 8 years. The assessee did not claim a deduction in the first 3 assessment years as there was a loss and claimed it for the first time in AY 1995-96. The eligibility period was upto AY 1999-2000. With effect from 1.4.1999, the period of exemption prescribed u/s 10B(3) of 5 years was substituted by 10 years. The assessee claimed that it was entitled for exemption u/s 10-B for a further period of two years i.e. AY 2000-01 and 2001-02. Thereafter, w.e.f. 1.4.2001, s. 10B was substituted by the Finance Act, 2000. The assessee’s claim was resisted by the AO & CIT (A) on the ground that the benefit applied only to “new undertakings” set up after that date and not to existing units. HELD by the Special Bench:
(i) In AY 1999-2000, before expiry of the original time limit of five consecutive assessment years for which deduction was available as per then applicable law, the amended law became applicable and the assessee was accordingly eligible for deduction for the extended period of 10 years, as against 5 years allowed under the preamended law (DSL Software Ltd followed);
(ii) If there is only one decision of a non-jurisdictional Hon’ble High Court on the issue, it is binding on the Special Bench in view of the settled principle of judicial proprietary;
(iii) The department’s argument that the new units set up by the assessee was a mere “capacity extension” and not a separate industrial undertaking on the basis that the certificates granted by the EOU authorities was for enhanced capacity and not for setting up a new industrial undertaking is not acceptable because S. 10B does not stipulate the issue of a separate approval for each unit from the competent authority. The only requirement is that the undertaking should be approved (Saurashtra Cement & Chemical Industries 260 ITR 181 (SC) distinguished)
(iv) On the question whether export incentives are “derived” from the undertaking and are eligible for deduction u/s 10B, s. 10B(4) stipulates a formula by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, though s. 10B(1) refers to profits “derived” by the EOU, the manner of determining such eligible profits has to be done as per the formula. S. 10B(4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking and be eligible for deduction.