Maral Overseas Limited v. Additional Commissioner of Income-Tax

ORDER

1. This Special Bench is constituted by Hon'ble President under section 255(3) of the Income-tax Act, 1961 for deciding the following questions of law : -

1. "Whether, an undertaking claiming exemption u/s 10B of the Income-tax Act, 1961, as it existed prior to 1.4.1999 would be entitled for exemption/deduction u/s 10B for extended period of ten years as per the amended provisions of law brought on statute with effect from 01.04.1999 ?"
2. "Whether, in the facts and circumstances of the case, the undertaking is eligible for deduction on export incentive received by it in terms of provisions of Section 10B(1) read with Section 10B(4) of the Act ?"

2. Brief facts of the case are that the assessee is a company engaged in the manufacture and mainly export of cotton yarn, grey and finished knitted cotton fabrics and readymade garments. During the assessment year 2001-02, the assessee has claimed income exempt u/s 10B of I.T. Act for three units namely original unit which started production from A.Y. 1992-93, spinning unit No. III which started production from A.Y. 1996-97 and spinning unit No. IV which started production from A.Y. 1999-2000. This is given below in tabular form:-

3. During course of assessment, the Assessing Officer observed that the first year of operation of original unit was assessment year 1992-93 and as there was loss, as per provisions of Section 10B(3), the assessee company exercised its option not to avail exemption u/s 10B of Income-tax Act, 1961, for assessment years 1992-93, 1993-94 and 1994-95. As such, the first year of its claim u/s 10B was assessment year 1995-96 and the same was admissible up to assessment year 1999-2000 only since the assessee was entitled for deduction only for five consecutive years out of eight years. As per the Assessing Officer, the assessee went ahead further and claimed exemption u/s 10B for assessment year 2000-01 and assessment year 2001-02 also. As per the Assessing Officer, the assessee company exceeded its claim beyond permissible limit of 5 consecutive years out of eight years. He further held that this claim was overstitched to separate Units III and IV set up in assessment years 1996-97 and 1999-2000 resulting into extended claim up to assessment years 2005-06 and 2008-09 respectively. As per the Assessing Officer, the unit Nos. III and IV are interdependent and complementary to each other, therefore, those could not be held to be independent new units entitled for claim of exemption u/s 10B of Income-tax Act, 1961. Thereafter, relying upon the decision of Hon'ble Kolkata Tribunal reported in Tata Tea Ltd. v. Jt. CIT [2003] 87 ITD 351 , the Assessing Officer concluded that the assessee company was entitled for exemption up to assessment year 1999-2000 only and its claim of exemption in subsequent years was not tenable and, therefore, the same was rejected.

4. By the impugned order, the ld. CIT(A) allowed assessee's claim of deduction u/s 10B after observing that the case of Tata Tea is related to assessment year 1998-99, whereas Section 10B was amended w.e.f. 1.4.99, thereby extending the period of exemption from 5 years to 10 years and accordingly benefit of 10 year exemption is available from assessment year 1999-2000 onwards only and not from assessment year 1998-99 as claimed by Tata Tea. Tata Tea had already exhausted benefit of 5 years exemption on the basis of relevant and operative provisions before assessment year 1998-99. The CIT(A) also observed that the facts in the case of Tata Tea Ltd. (supra) were as under :-

"The assessee-company had an EOU known as 'Instant Tea Division' in respect of which exemption u/s 10B was claimed for the year 1998-99, even though the assessee had already availed of the benefit of Section 10B for five consecutive years in terms of Section 10B(3) as it stood in the said relevant assessment year. The assessee's claim was that in view of amendment in Section 10B with effect from 1.4.1999, the benefit was available for ten consecutive years and since the assessee had completed only five years of exemption u/s 10B, the assessee was also eligible for further exemption for next five years. That claim was declined by the Assessing Officer by observing that the amendment, enhancing the number of eligible assessment years to 'ten' did not provide for retrospective operation and, accordingly, the benefit of ten years could not be granted in the assessment year in question."

The CIT(A) further stated that in the light of the above facts, the Hon'ble I.T.A.T. has concluded as under :-

"In view of the above discussion, we see no merit in assessee's grievance. In our considered view, the assessee having already availed Section 10B benefit of 5 consecutive assessment years, was not eligible for exemption u/s 10B, any further, so far as assessment year 1998-99 is concerned. Accordingly, we confirm the conclusions arrived by the authorities below and decline to interfere in the matter."

As per the CIT(A), the verdict in the case relied on by the Assessing Officer has been restricted to assessment year 1998-99, to which the provisions of pre-amended Section 10B applied. The learned Commissioner of Income Tax (Appeals) further stated that it has also been observed by the Hon'ble Bench that the question of extending the tax holiday period can only be examined in the year in which the amended law is to take effect i.e. assessment year 1999-2000 or thereafter. This observation restricts the applicability of the said judgment specifically for the assessment year 1998-99. He further observed that the case of the present assessee before him is that of assessment year 2001-02 to which the provisions of substituted Section 10B apply. The Hon'ble I.T.A.T., Kolkata Bench had no occasion to discuss the newly substituted S. 10B as applicable for the assessment year 2001-02, which is the relevant year in this case and it had discussed only the amendments made effective from 01.04.1999 which are not relevant for the assessment year under consideration.

5. The learned Commissioner of Income Tax (Appeals) further observed that the law as applicable to any particular assessment year can only be applied for that assessment year, nothing is to be read in, and nothing is to be implied. The appellant company has not claimed that the provisions of substituted Section 10B are retrospective in nature. The amended provisions are applicable w.e.f. 01.04.1999 and those substituted are applicable w.e.f. 01.04.2001 and the appellant's claim under the said Section is as per these amended/substituted provisions, as applicable to the respective assessment year. There is no restriction on the existing units for claiming the exemption for a period of ten years. On the contrary the first proviso to the newly substituted Section 10B(1) categorically allows exemption to the existing units for the unexpired period of ten years. Even the Explanatory note relating to the said enactment (245 ITR St 34) states that an undertaking set up before 31.03.2000 shall be entitled to the deduction for a period of ten years. Though this amendment is effective from 01.04.2001, it specifically allows exemption to existing unit for a period of ten years.

6. After analyzing the provisions of section 10B from the year of its inception till the year under consideration, the learned Commissioner of Income Tax (Appeals) concluded as under :-

2.4. As per the clear, plain and unambiguous language of Section 10B, as applicable to this relevant assessment year the appellant is entitled to claim exemption for a period of ten consecutive assessment year, beginning with the assessment year relevant to the previous year in which the unit began to manufacture or produce. That the facts in the case of Tata Tea Limited are different and clearly distinguishable from those in the case of this appellant. I, therefore, adjudicate ground No.1 and ground no. 1(a) in favour of the appellant and direct the AO to allow exemption u/s 10B in respect of the normal computation as well as the computation u/s 115JB, for all the eligible units of the EOU, for a period of ten years, starting from the assessment year in which the respective unit started production. In result all the units of the EOU of the appellant are eligible for exemption u/s 10B, for the year under appeal, which the AO is directed to allow."

The CIT(A) further discussed that the entire section 10B has been substituted by the Finance Act 2000 w.e.f. 01.04.2001. Section 10B(1) as substituted by the Finance Act 2000 w.e.f. 01.04.2001 and as applicable for the year under consideration reads as under:-

"Subject to the provisions of this Section a deduction of such profits and gains as are derived by a 100 % Export Oriented Undertaking from export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee."

The first proviso to section 10B(1) reads as under :-

"Provided that wherein in computing the total income of the undertaking in any assessment year, its profits and gains had not been included by application of the provisions of this Section as it stood immediately before its substitution by the Finance Act, 2000, an undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years."

It will not be out of place to mention here the sequence of amendments/substitutions made to Section 10B which was initially inserted by the Finance Act, 1988, w.e.f. 1.4.1989 to provide for a complete tax holiday to 100 % Export Oriented Undertakings for a period of five consecutive assessment years falling within the block of eight assessment years, subject to fulfilment of certain conditions.

(a) The Finance Act, 1993 amended Section 10B(4)(iii) with retrospective effect from 01.04.1991 to provide that an undertaking availing of the benefits of deductions u/s 10B shall not be eligible to claim deduction u/s 80-IA.
(b) By the Finance Act, 1994, the tax holiday u/s 10B was restricted to the EOUs exporting at least 75% of their turnover. Such restriction was specifically and prospectively made applicable to 100% EOUs which commenced production on or after 1st April 1994. It is pertinent to note here that a specific mention was made that the said restriction will apply only to new units coming into existence after 1.4.1994.
(c) Another major amendment was made by the Income Tax (Amendment) Act 1998 w.e.f. 1.4.1999, wherein the period of benefit of five years out of eight years was extended to a period of ten years out of ten years. It is worthwhile to note that proviso to Section 10B(3) was specifically omitted by the Income-tax (Amendment) Act, 1998 w.e.f. 01.04.1999, which read as under :—

"Provided that nothing in this sub-section shall be construed to extend the aforesaid five assessment years to cover any period after the expiry of the said period of eight years."

Had it been the intention of the law makers to not to allow the benefit of extended period to the existing units, the above proviso would not have been omitted and would have been made applicable to existing units. Similarly, explanation (ii) defining the term "relevant assessment years" was also substituted w.e.f. 1.4.1999, which is reproduced hereunder :

Erstwhile explanation applicable up to 31.3.99.

(ii) "relevant assessment year means the five consecutive assessment years specified by the assessee at his option under sub-section (3) of sub-section (5) as the case may be".

The substituted explanation w.e.f. 01.04.1999

(ii) "relevant assessment years" means the ten consecutive assessment years referred to in sub-section (3)"

This substitution lays down the clear intention of the legislature to provide the benefit of extended period of ten years to all the units, existing or new. When this amendment was brought into effect, the appellant was still eligible for exemption u/s 10B for two assessment years and as such qualified for exemption for the unexpired period of ten years.

6. It is a settled rule of interpretation that no words can be read into a provisions that did not exist. It is for the Parliament to legislate and for the judiciary to interpret the law as enacted by the Parliament. This view gets support from the following decisions :-

A. CIT v. Ajax Products Ltd.,(55 ITR 741, 747)(S.C.)
B. CIT v. Shahzadanand Sons (60 ITR 392, 400) ( S.C).
C. Smt. Tarulata Shyam v. CIT(IT 108 ITR) 345, 357) (S.C.).

Had it been the intention of the law makers to restrict the tax holiday period to five years in respect of the existing undertakings, the same would have been brought out in the Section clearly and specifically as had been done earlier in Sections 80HH(2)(1), 80HHA, 80-IA, 80-IB etc. If any particular amendment is intended to be made applicable only for specific units, such intention is always clearly spelled in the statute, as is also evident from sub-section (2)(ia) appearing in the old section 10B which was applicable specifically to units commencing production on or after 01.04.1994. 'Statement of Objects and Reasons' as reported in 245 ITR (Statutes) page 34 with specific reference to clauses 15.3 and 15.14 of Circular No. 794 dated 9th August, 2000 , reads as under :-

"…. thus an undertaking set up on or before 31.03.2000 shall be entitled to the deduction for a period of ten years, that set up during the period 01.04.2000 to 31.03.2001 for a period of nine years, that set up in 2001-02 for a period of eight years and so on. The existing units will get the deduction for the unexpired period of ten years only……."

"15.14 The provisions of newly substituted section 10B shall apply mutatis mutandis in respect of 100% Export Oriented Units.

It is obvious from the above 'Statement of Objects and Reasons' given at the time of enacting amendment to Section 10B, the law had very clear intention to give the benefit of extended period of ten years to the existing units as well. It is important to note that extension is possible only in the case of existing units and if it had been the intention of the legislature to give benefit to new undertaking than word 'extend the period of tax holidays' would not have found place in the objects and reasons of the earlier amendment in 1999."

7. The Department filed appeal before the Tribunal against the above order of CIT(A). As different view has been taken by the Co-ordinate Bench, Kolkata, in the case of Tata Tea Ltd. (supra) the Bench referred above question of law for consideration by the Special Bench.

8. Shri Keshav Saxena, CIT DR, appeared on behalf of the Revenue and argued that the assessee is eligible for deduction u/s 10B of the I.T. Act upto A.Y. 1999-2000 i.e. 8 years beginning with the assessment years in which undertaking began manufacturing i.e. from A.Y. 1992-93. From 1 April, 1998 the law was amended and 8 years were substituted by 10 years, in section 10B(3) of the I.T. Act. The restraint of exemption upto 8 years were also withdrawn. The only question which is to be solved is whether amendment of Finance Act, 1998 will apply to new units established after 01.04.1998 or they will apply to existing E.O.Us also.

9. The learned CIT DR placed reliance on the decision of Tata Tea Ltd. (supra), and contended that this decision replies two issues namely amendments in statutes are prospective and not retrospective and amended provision does not say that extended period of exemption of 10 years instead of 8 years is applicable to existing units as well. The ld. CIT DR further submitted that the assessee has claimed income exempt u/s 10B of I.T. Act for three units namely original unit which started production from A.Y. 1992-93, spinning unit No. III which started production from A.Y. 1996-97 and spinning unit No. IV which started production from A.Y. 1999-2000. This is given below in tabular form:-

10. Learned CIT DR further submitted that crucial question is whether the assessee as an undertaking which has started production in A.Y. 1992-93 can get benefit upto 10 years i.e. upto A.Y. 2001-02 or it can extend that period beyond 10 years as a result of some expansion in its production capacity by way of establishing unit III IV. Section 10B of I.T. Act do not provide for any exemption beyond 10 years to the same undertaking. The new units no. III and IV are not registered as new undertaking, but merely an expansion of old undertaking. In present case undertaking came into existence and started production in A.Y. 1992-93. The same undertaking cannot be stated to start once again in A.Y. 1996-97 and again in A.Y. 1999-2000 in respect of unit No. III and IV, respectively, merely because of some expansion in its production capacity.

11. With regard to eligibility of two new units under section 10B of the Act, contention of the learned CIT DR was that assessee has claimed deduction u/s 10B of I.T. Act for three units namely original unit which started production from A.Y. 1992-93, spinning unit no. III which started production from A.Y. 1996-97 and spinning unit no. IV which started production from A.Y. 1999-2000. Contention of the learned CIT DR was that two subsequent units are mere expansion of original undertaking and they were not separate undertakings so as to enable the assessee to claim deduction of their income u/s 10B of the Act. As per the learned CIT DR it is only a case of expansion of undertaking because even after expansion of 1995 and 1998 total export was of Rs. 206. 95 crores in A.Y. 2002-03. The export of original unit of 1992 was Rs. 133.41 crore and export from other two spinning units III IV established in 1995 1998 combined together was only Rs. 73.54 crores. Besides mere expansion was permitted by Ministry of Industry to the existing undertaking as per the approval letter.

12. The ld. CIT DR further argued that in the decisions mentioned below expansion of the industrial undertaking is considered only with reference as to whether it constitutes reconstruction or not as provided u/s 80J (4) of I.T. Act which is similar to section 10B(2) of the I.T. Act :-

"State of Gujarat v. Saurathstra Cement Chemical Industries [2003] 260 ITR 181 (SC) :-

So called new unit is thus not totally independent of assets of existing unit-physical identity with old unit is preserved and the new unit is an expansion of the existing undertaking-Respondent therefore not entitled to exemption."

The Hon'ble Apex Court observed in Para 10 that respondent was having two kilns and third is added. This leads to inevitable conclusion that new unit is an expansion of existing undertaking. Once it is held to be a case of expansion, the claim of exemption from electricity duty set up by the respondents, completely falls to the grounds.

13. In present case also assessee initially established spinning unit in A.Y. 1992-93 and one more spinning unit was added in each of two years namely A.Y. 1996-97 A.Y. 1999-2000. There was no change in the product line of manufacturing. The assessee company had not got permission to set up a new industrial undertaking but the permission was granted for increase in capacity from 39088 spindles to 89088 spindles.

14. Reliance was also placed on decision of Hon'ble Kerala High Court in the case of Canara Wire Wire Products Ltd. v. CIT [1992] 196 ITR 426. He submitted that in this case deduction u/s 80J of the I.T. Act was denied on the ground that industrial unit set up must be new and though new plant machinery are erected for producing either same commodities or some distinct commodities, it should not be a case of reconstruction of old business. It is not sufficient that assessee has invested large amounts new installations have contributed to increase production capacity of the assessee. Most of cases decided are on section 80J which is materially different from section 10B. Section 80J says:-where gross total income of an assessee includes any profits and gains derived from an industrial undertaking………………, a deduction from such profits and gains of so much of amount thereof as does not exceed the amount calculated at rate of 6% per annum on the capital employed in industrial undertaking. ………….

15. He further argued that the contention of assessee that huge capital is invested for installing new units is not material for claim of exemption in respect of three new units. The learned CIT DR further argued that if we examine the issue objectively the industrial undertaking came into existence in A.Y. 1992-93 and started business of manufacturing and export of yarn other textile products. The permission was granted to it in A.Ys. 1996-97 1999-2000 by Under Secretary, Ministry of Industry only to enhance capacity of existing unit. In view of this it cannot be said that a new undertaking came into existence as no permission for any new unit was granted by competent authority. Mere enhancement of capacity for same products could not be termed as bringing new unit in existence. Yarn manufacturing is different from steel or cement manufacturing and single unit can be sufficient for producing yarn, but that does not make it separate independent industrial undertaking, especially when marketing and administration are the same for old undertaking and new spinning divisions.

16. As per ld. CIT DR, provision of section 10B(3) prohibits claim u/s 10B beyond 10 year period for an undertaking as reproduced below:-

"The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any [ten] consecutive assessment years, [* * *] beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things."

He further argued that any expansion or addition/alteration of same undertaking will not entitle it for a benefit u/s 10B beyond 10 years, unless the Competent Authority approves it as a new undertaking or a new EOU which is not the case with assessee. As per the learned CIT DR, answer is required to the question as to whether assessee Maral Overseas Ltd. is eligible for claim u/s 10B upto 8 years only or it is eligible upto extended period of 10 years or the claim u/s 10B can be extended even beyond 10 years. Since both issues of allowances of deduction u/s 10B beyond 8 years to the undertaking established in 1992 and the issue of allowance of section 10B to the spinning unit III IV established in 1996 1999 are to be answered by application of section 10B(3) of the IT Act. As per the learned CIT DR, the Tribunal has to decide both of them together u/r 12 of the ITAT Rule, 1946 as held in the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC) .

17. With regard to the eligibility of assessee for deduction on export incentive received by it in terms of provisions of Section 10-B(1) read with Section 10-B(4) of the Act, the contention of ld. CIT DR was that Section 10B of the I.T. Act uses the words "derived". However, export incentives cannot be said to be derived from the assessee's undertaking.

18. The ld. CIT DR placed reliance on the decision of Hon'ble Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349 , wherein Hon'ble Supreme Court defined the term 'derived' in para 14 by using the expression 'derived from' Parliament intended to cover sources not beyond the first degree.

19. He further contended that the issue of import license sale was considered by Hon'ble Apex Court in Commissioner Of Income Tax, Karnataka v. Sterling Foods, Mangalore [1999] 237 ITR 579/104 Taxman 204 and it was decided that same cannot form part of export turnover for calculation of deduction u/s 80HHC.

20. Reliance was also placed on the observation of Madras High Court in the case of India Comnet International v. ITO [2008] 304 ITR 322/[2009] 185 Taxman 51 , wherein it was held that interest received on export profits deposited with bank does not qualify for relief u/s 10A of Income-tax Act, 1961, as there is no direct nexus between interest income and industrial undertaking. Reliance was also placed on the decision of I.T.A.T. Chennai Bench in the case of California Software Co. Ltd., wherein it was held that definition of "export turnover" in Section 10B is more or less similar to the one that appears in Section 80HHC and that quantum of relief to be allowed to an exporter is to be based on "net inflow of foreign exchange". He further contended that the decision of Hon'ble Supreme Court in the case of B. Desraj v. Commissioner Of Income Tax, Salem [2008] 301 ITR 439/171 Taxman 481 are distinguishable on facts.

21. The learned CIT DR further submitted that application of circular No. 621 of CBDT was prospective and not retrospective. Prior to its application "commission" was a part of "profits of the business" for which reliance may be placed on the decision of Special Bench in case of International Research Park Laboratories Ltd. v. Asstt. CIT [1994] 50 ITD 37 (Delhi) .

22. In view of the above submissions, the learned CIT DR vehemently argued that the assessee was not eligible for claim of deduction u/s 10B with reference to the amended provision of law which are prospective in nature.

23. With regard to the decision of Hon'ble Karnataka High Court in case of CIT v. DSL Software Ltd. [2012] 18 taxmann.com 151/205 Taxman 48 (Mag.) cited by assessee, contention of the ld. CIT DR was that when assessee already enjoyed benefit of 5 years u/s 10B of the IT. Act upto A.Y. 1997-98, how the amended provisions of section 10B, which were amended from 01.04.1999 could be retrospectively applied to assessee to give it a benefit of deduction from A.Y. 1993-94 to A.Y. 2002-03, is an issue not even considered by Hon'ble Karnataka High Court.

24. Shri Ajay Vohra appeared on behalf of the assessee and submitted that the assessee is 100% export oriented unit which was eligible for deduction u/s 10B in respect of its Sarovar Division and two separate and independent spinning units. He submitted that initially under the provisions of section 10B exemption was available for five consecutive years out of eight assessment years beginning with the assessment year in which the eligible undertaking begins to manufacture or produce article. Thereafter IT Amendment Act, 1998 extended the period of benefit from five years to ten years with effect from 1.4.1999. Proviso to section 10B(3) was also omitted which stipulated that the period of five assessment years shall not be extended to cover any period after the expiry of the said period of eight years. Since the assessee has not claimed any deduction in the initial three assessment years, for the first time it started claim of deduction with effect from the assessment year 1995-96 till 1999-00. Since the amendment was made with effect from 1.4.1999, all the three units of the assessee became entitled to the benefit of section 10B for ten years starting from the year of commencement of production. Our attention was invited to Circular No. 794 dated 9.8.2000 containing explanatory notes to the amendment brought by the Finance Act, 2000 which clarified that an undertaking set up before 31st March, 2000 shall be entitled to deduction for a period of ten years from the year in which the undertaking begins manufacture or produces articles or things. He further submitted that applying the aforesaid settled legal position, once in the assessment year 1999-2000, the amended law became applicable, the assessee could have only been allowed exemption/deduction under the amended law and not under the pre-amended law. In the assessment year 1999-2000, there was no way to go back to the non-existent/pre-amended law so as to either allow higher/lower deduction or to deny the same altogether. He further submitted that one of the example of amended law being applicable is the second proviso inserted in section 10B(1) of the Act by the Finance Act, 2002, w.e.f. 1.04.2003. The said proviso provided that for the assessment year 2003-04, deduction under section 10B of the Act would be allowed @ 90% and not 100%. The said amendment governed all the assessee claiming deduction under that section in the assessment year 2003-04, irrespective of the date of setting up of the unit. Reliance was placed upon the decision of the Karnataka High Court in the case of DSL Software Ltd. (supra) Income-tax Act, 1961, No. 462 of 2007 wherein the assessee had commenced production in year 1993-94 and claimed benefit und section 10B till assessment year 1997-98. In view of the amended provision the assesese became entitled to benefit from assessment years 1993-94 to 2002-03. The assessee accordingly claimed benefit for three more years from assessment years 1999-00 to 2001-02. The benefit for assessment year 2001-02 was denied by the assessing officer.

25. The High Court held that in terms of amendment carried out in the year 1999, the tax holiday benefit stood extended for a period of ten consecutive assessment years. It was held that on 01.04.1999, when the amended provision came into force by virtue of said provision, the assessee would be entitled to the benefit of tax holiday for 10 consecutive years from the date of production and if the assessee already availed the benefit under the unamended provision and the 10 consecutive years would fall prior to 01.04.1999, then the assessee would not be entitled to the said benefit. It was thus, held that if the said 10 consecutive years from the date of production have not expired prior to 01.04.1999, for the remaining unexpired period, the assessee could be entitled to benefit.

26. In view of the above decision, if the period of ten years from the date of manufacture has not expired as on the date when the amended provision came into force the assessee is entitled to the benefit of tax holiday for period of ten years. In fact, in the aforesaid decision the Court went on to hold that even if the period of five years has expired as on the date of amended provisions but the period of ten years is still running, the assessee cannot be denied benefit.

27. As per the Ld. Counsel for the assessee, the aforesaid solitary/only decision of the Hon'ble Karnataka High Court is binding on the Hon'ble Special Bench in view of the settled principles of judicial propriety discussed infra. Further reliance was placed on the following decisions:

"The Mumbai Bench of the Tribunal in the case of Consindia (P) Ltd. in ITA No. 8270/Mum/2004, similarly held that the assessee was eligible for deduction under section 10A of the Act for the extended period of ten years. In that case, the eight year period expired in the assessment year 2000-01."

The Delhi Bench of the Tribunal in the case of Tech Books Electronics Services (P) Ltd. v. Addl. CIT [2006] 100 ITD 125 held likewise. In that case, again, neither the five year period nor the block period of eight year had expired before the amended provisions became applicable and accordingly the Tribunal was pleased to hold that the assessee was eligible for deduction for the extended period as per the amended law.

28. As per the Ld. Counsel for the assessee, in the assessment year 1999-2000, when the period of exemption was extended from 5 years to 10 years, all the three units were eligible for deduction under section 10B of the Act as under:

Thus, each of the aforesaid units were eligible for exemption under section 10B of the Act, both under the pre-amended law (when exemption was available for 5 out of 8 years) as well as under the amended law (when exemption was extended to 10 consecutive assessment years).

29. In the assessment year 1999-2000, the amended law became applicable to the assessee, whereunder all the three eligible units of the assessee became entitled to deduction for a period of 10 consecutive assessment years from the date of commencement of manufacture/production of article or thing by the said eligible undertaking.

30. The Ld. Counsel for the assessee further submitted that the decision of Kolkata Bench of the Tribunal in the case of Tata Tea Ltd. case (supra) relied upon by the assessing officer is clearly distinguishable as in that case the exemption was claimed for assessment year 1998-99, which was the 5th consecutive year of deduction. The assessee had thus, already exhausted the five years exemption period in the assessment year 1998-99 and was no longer eligible to claim deduction under the then applicable law. In these facts and circumstances the Tribunal held that exemption could not be allowed to the assessee in the A.Y. 1999-00, since the assessee had already exhausted its eligibility period.

31. Reliance was placed on the following decisions wherein it has been held that various Benches of the Tribunal (whether Special or Division), being lower in judicial hierarchy, are bound to follow the decisions of the High Court:

- Union of India v. Kamlakshi Finance Corpn. Ltd. AIR 1992 SC 711
- Khalid Automobiles v. UOI [1995] 4 SCC (Supp.) 653
- Jain Exports v. UOI [1988] 3 SCC 579
- Berger Paints India Ltd. v. CIT [2004] 266 ITR 99/135 Taxman 586 (SC)
- Asstt. CCE v. Dunlop India Ltd. [1985] 154 ITR 172 (SC).
- Agarwal Warehousing Leasing Ltd. v. CIT [2002] 257 ITR 235/124 Taxman 440 (MP)
- CIT v. Abhey Kumar Jain [2006] 281 ITR 431/[2005] 147 Taxman 383 (MP)
- CIT v. SAE Head Office Monthly Paid Employees Welfare Trust [2004] 271 ITR 159/14 Taxman 364 (Delhi)
- Bank of Baroda v. H.C. Shrivastava [2002] 256 ITR 385/122 Taxman 330 (Bom.)
- Voesta-Alpine Ind. GmbH v. ITO [2000] 246 ITR 745/[2002] 122 Taxman 413 (Cal.)
- Nicco Corpn. Ltd. v. CIT [2001] 251 ITR 791/[2003] 129 Taxman 875 (Cal.)
- N.N. Agrawal v. CIT [1991] 189 ITR 769/56 Taxman 24 (All.)
- CIT v. Sarabhai Sons Ltd. [1983] 143 ITR 473/12 Taxman 245 (Guj)
- CIT v. L.G. Ramamurthi [1977] 110 ITR 453 (Mad.)
- Commissioner Of Income-Tax, Madras v. S. Devaraj.* [1969] 73 ITR 1 (Mad.)
- Pearl Polymers Ltd. v. Dy. CIT [2002] 80 ITD 1 (Delhi) (SB): If subsequent to SB there is some decision of the High Court or the Supreme Court, then Division Bench would be at liberty to take an independent view.

32. In support of the proposition that spinning Units III and IV were also eligible for claim of deduction u/s 10B reliance was placed upon the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 wherein it was held "The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved. This has not happened here in the case of the two undertakings which are separate and distinct."

33. Our attention was also drawn to page 206 of the judgment where the Supreme Court summarized the requirements to be satisfied by a new industrial undertaking to enjoy the tax holiday as under:

"……… The fact that the assessee is carrying on the general business of heavy engineering will not prevent him from setting up new industrial undertakings and from claiming benefit under section 15C if that section is otherwise applicable. However, in order to be entitled to the benefit under section 15C, the following facts have to be established by the assessee, subject always to time-schedule in the section:

(1) investment of substantial fresh capital in the industrial undertaking set up,
(2) employment of requisite labour therein,
(3) manufacture or production of articles in the said undertaking,
(4) earning of profits clearly attributable to the said new undertaking, and
(5) above all, a separate and distinct identity of the industrial unit set up.

We may add that there is no bar to an assessee carrying on a particular business to set up a new industrial undertaking on account of which exemption of tax under section 15C may be claimed."

34. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Indian Aluminium Co. Ltd. [1977] 108 ITR 367 wherein the assessee made extensions to its existing factories at Belur and Alupuram in the accounting year relevant to the assessment year in question. In the assessment year 1960-61, the respondent claimed relief under section 15C of the Indian Income-tax Act, 1922, in respect of the additional investments in the form of extensions to the existing factory premises, installation of new plant and machinery, etc., at Belur and Alupuram. The assessing officer refused to allow the relief and the Commissioner of Income Tax (Appeals) dismissed the respondent's appeal. On further appeal, the Tribunal noted that (i) during the previous year, production of aluminium ingots went up by double, that the additional units set up by the respondent cost over Rs. 50 lakhs at Belur and about the same figure or a little more, at Alupuram, (ii) in view of the nature of the substantial investments, it could not be said that the units were not new industrial units by themselves. The Tribunal held that these units had been set up side by side with the old ones and had added to the respondent's total output of aluminium ingots. The Tribunal, accordingly, held that the respondent was entitled to the relief under section 15C of the 1922 Act. The Supreme Court following the law laid down in the decision in the case of Textile Machinery Corpn. Ltd. (supra) upheld the aforesaid findings of the Tribunal.

35. He further submitted that the principle that emerges from the aforesaid decisions is that an undertaking means a unit/business which has -

(a) separate and independent existence, separate and distinct from other units/ business.
(b) independent infrastructure, separate plant and machinery, etc., employed therein;
(c) been set up with substantial capital investment;
(d) new employees; and
(e) identifiable output (even though same product) and the profits attributable thereto can be determined.

It is totally irrelevant that such new unit may come into existence by way of undertaking substantial expansion and/ or the new/ expanded unit manufactures different or the same product.

36. As per the ld. Counsel for the assessee, all the aforesaid conditions are satisfied in the present case of the assessee as elaborated infra.

37. The aforesaid two units, viz. Unit III and Unit IV, were set up by the assessee as separate and independent production units by making substantial investment in new building, plant and machinery, etc., wherein distinct and marketable products are manufactured. As regards Unit III, by referring pages 34-51 of the paper book, it was submitted that:

1. New unit was set up in a newly constructed building by installing additional 16224 spindles, which took the total installed capacity to 38400 spindles from existing 22176 spindles.
2. Four new knitting machines were installed against the existing 13 knitting machines.
3. Facilities to manufacture additional 6 lakh p.a. pieces of garments were put in place as against earlier installed capacity of 13.6 lakh garments p.a.
4. Turnover of company almost doubled to Rs. 121.72 crores during that year from Rs. 67.26 crores in the immediately preceding year and profits before depreciation also took quantum leap of Rs. 3.37 crores.
5. Around 800 workers and staff were recruited during the financial year 1995-96 .

38. As regards Unit IV, the ld. Counsel for the assessee submitted that :

1. Additional 16128 spindles were installed taking the total installed capacity to 54528 spindles.
2. The company imported and installed twelve circular knitting machines.
3. The company set up a power plant of 4.25 MV capacity.
4. Readymade garment manufacturing facilities were set up to manufacture additional 6 lakhs garments per annum.
5. New unit resulted in total addition to gross block of fixed assets by Rs. 69.43 crores as against 121.01 crores at opening of year.
6. Turnover of company increased to Rs. 224.5 crores as against Rs. 158.37 crores in preceding year.
7. Around 570 workers and staff were recruited during the financial year 1998-99

39. As per the Ld. Counsel for the assessee the new units were duly approved as 100% EOUs by the competent authorities. The permission dated 31.03.1995 bearing No. 141/EOB/61/95 issued by the Ministry of Industry, Department of Industrial Development, Government of India was received for setting up new unit. However, due to certain discrepancies in the permission dated 31.03.1995 the assessee, vide letter dated 27.04.1995, pointed out the same, necessary corrections whereof were carried out vide letter dated 31.05.1995. Thereafter, the assessee filed request letter dated 14.04.1998 before the competent autho-rity for enhancement of licensed capacity which was granted vide letter dated 02.06.1998.

40. Reliance was also placed decision of the Pune Bench of the Tribunal in the case of Patni Computer Systems Ltd. v. Dy. CIT [2012] 135 ITD 398/19 taxmann.com 180 , wherein the assessee, a company engaged in business of development and export of computer software, claimed deduction under section 10A of the Act in respect of three units. The claim of the assessee was disallowed on the ground that three units were not new units but mere expansion of existing unit on the basis of approval letters received from STPI. The Tribunal while deciding in favour of the assessee held that the manner of granting approval was not relevant for adjudicating the claim of deduction under section 10A.

41. Reliance was also placed the decision of the Pune Bench of the Tribunal in the case of ACIT v. Symantec Software India (P.) Ltd. [IT Appeal No. 787 (Pune) of 2009]. In that case the assessee had claimed deduction under section 10A in respect of its unit set up in terms of STPI approval, which was treated by the assessee as separate undertaking. The claim of the assessee was disallowed on various grounds including, inter alia, that the undertaking was merely expansion of existing undertaking and that the STPI permission obtained in October, 2003 was for expansion of business and not for starting new business. The Tribunal while following the decision of Patni Computer Systems Ltd. (supra) held that merely because the new permission contained reference to the original licence could not be considered as conclusive that the new unit was not a separate or independent unit.

42. With regard to the assesee's eligibility for claiming deduction u/s 10B in respect of export entitlement and special import licence, the contention of the Ld. Counsel for the assessee was that deduction u/s 10B of the Act is clearly allowable in view of specific provisions contained u/s 10B(4) of the Act which provided a specific formula for computing profits derived by the undertaking from the export. He further emphasized that that sub-section (4) of section 10B of the Act mandates that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover to the total turnover. Thus, even though sub-section (1) of section 10B of the Act refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily defined in sub-section (4) of that section.

43. He further invited our attention to the finding recorded by the Assessing Officer to the effect that the aforesaid income was treated as business income of the assessee on which deduction u/s 10B cannot be denied in view of the provisions of section 10B(1) read with section 10B(4) of the Act.

44. He further submitted that the decision of the Supreme Court in the case of Liberty India (supra) relied upon by Revenue is not applicable to the facts of the present case. In that case, the issue before the Supreme Court was with regard to the eligibility of duty drawback for claiming deduction under section 80-IB of the Act. The Supreme Court, making a reference to its own decision in the case of Sterling Foods (supra), held that duty drawback could not be held to be income "derived from" the specified business and was therefore, not eligible for deduction under section 80-IB of the Act.

45. As noticed above, there is no similar formula prescribed in section 80-IA/80-IB to arrive at the profits derived from the business of eligible undertaking and therefore, the aforesaid decision rendered in context of section 80-IB would not be applicable in case of deduction under section 10A/10B of the Act.

46. In view of the above discussion, he submitted that both the questions referred to the Special Bench are to be answered in the affirmative.

47. We have considered the rival contentions, carefully gone through the orders of the authorities below and also deliberated on the case laws cited by the ld. Authorized Representative and the ld. CIT DR during the course of hearing before us as well as case laws referred by lower authorities in their respective orders, in the context of factual matrix of the case. We have also perused the relevant pages in the paper book to which our attention was invited by the ld. Authorized Representative and ld. CIT DR during the course of hearing before us.

48. First issue which was referred to the Special Bench relates to assessee's eligibility to claim exemption u/s 10-B for the enhanced period of ten years in terms of amended provisions of law, which came into effect from assessment year 1999-2000. In the instant case, the assessee is a 100 % E.O.U. which commenced its commercial production on 1st February, 1992, i.e. during the previous year 1991-92, relevant to the assessment year 1992-93. The assessee was entitled to claim exemption in any five consecutive assessment years falling within the period of eight years beginning with the assessment year in which the undertaking begins to manufacture or produce articles, at the option of the assessee, as per the provisions of erstwhile Section 10B(3) as applicable up to assessment year 1998-99. Since there was loss, the assessee did not claim any deduction in the first three assessment years i.e. 1992-93, 1993-94 and 1994-95. The exemption u/s 10B was claimed and allowed to the assessee for the first time in assessment year 1995-96. Accordingly, the assessee was eligible for exemption u/s 10B in respect of profits of its EOU up to the assessment year 1999-2000. With effect from 1.4.1999 the period of exemption prescribed u/s 10B(3) of five years was substituted by ten years by the Income-tax (Second Amendment) Act, 1998. And accordingly, the assessee became entitled for exemption u/s 10B for a further period of two years i.e. assessment years 2000-01 and 2001-02. Thereafter, with effect from 1.4.2001, the entire section 10B has been substituted by the Finance Act, 2000, sub-section (1) of which provides for deduction of profits for 100 % EOU for a period of 10 consecutive years beginning with the assessment year relevant to the previous year in which the undertaking starts its production. As the relevant provisions of exemption u/s 10B, had undergone various changes, it is worthwhile to narrate the relevant provisions of law as applicable from the year in which this Section was brought into statute.

(a) Section 10B was initially inserted by the Finance Act, 1988, w.e.f. 1.4.1989 to provide for a complete tax holiday to 100 % E.O.U. for a period of five consecutive assessment years falling within the block of eight assessment years, subject to fulfilment of certain conditions.
(b) The Finance Act 1993 amended Section 10B(4)(iii) with retrospective effect from 01.04.1991 to provide that an undertaking availing of the benefits of deductions u/s 10B shall not be eligible to claim deduction u/s 80-IA.
(c) By the Finance Act, 1994, the tax holiday u/s 10B was restricted to the EOUs exporting at least 75 % of their turnover. Such restriction was specifically and prospectively made applicable to 100 % EOUs which commenced production on or after 1st April 1994. It is pertinent to note here that a specific mention was made that the said restriction will apply only to new units coming into existence after 1.4.1994.
(d) Another major amendment was made by the Income-tax (Amendment) Act, 1998 w.e.f. 1.4.1999, wherein the period of benefit of five years out of eight years was extended to a period of ten years out of ten years. It is worth while to note that proviso to Section 10B(3) was specifically omitted by the Income Tax (Amendment) Act, 1998 w.e.f. 01.04.1999, which read as under :

"Provided that nothing in this sub-section shall be construed to extend the aforesaid five assessment years to cover any period after the expiry of the said period of eight years."

Had it been the intention of the law makers to not to allow the benefit of extended period to the existing units, the above proviso would not have been omitted and would have been made applicable to existing units. Similarly, Explanation(ii) defining the term "relevant assessment years" was also substituted w.e.f. 1.04.1999, which is reproduced hereunder : Erstwhile Explanation applicable up to 31.3.99.

(iii) "relevant assessment year means the five consecutive assessment years specified by the assessee at his option under sub-section (3) of sub-section (5) as the case may be".

The substituted explanation w.e.f. 01.04.1999

(iii) "relevant assessment years" means the ten consecutive assessment years referred to in sub-section (3)"

This substitution lays down the clear intention of the Legislature to provide the benefit of extended period of ten years to all the units, existing or new. When this amendment was brought into effect, the appellant was still eligible for exemption u/s 10B for two assessment years and as such qualified for exemption for the unexpired period of ten years.

5. The law as applicable to any particular assessment year can only be applied for that assessment year, nothing is to be read in, and nothing is to be implied. The appellant company has not claimed that the provisions of substituted Section 10B are retrospective in nature. The amended provisions are applicable w.e.f. 01.04.1999 and those substituted are applicable w.e.f. 01.04.2001 and the appellant's claim under the said Section is as per these amended/substituted provisions, as applicable to the respective assessment year. There is no restriction on the existing units for claiming the exemption for a period of ten years. On the contrary the first proviso to the newly substituted Section 10B(1) categorically allows exemption to the existing units for the unexpired period of ten years. Even the Explanatory note relating to the said enactment as reported at 245 ITR St. 34 states that an undertaking set up before 31.03.2000 shall be entitled to the deduction for a period of ten years. Though this amendment is effective from 01.04.2001, it specifically allows exemption to existing unit for a period of ten years."

49. Applying the relevant provisions as discussed above, prior to amendment by Income-tax (Amendment) Act, 1998, the assessee was eligible for deduction u/s 10B of the I.T. Act for five consecutive years out of 8 years beginning with the assessment years in which undertaking began manufacturing i.e. from A.Y. 1992-93. From 1 April, 1998 the law was amended and 8 years were substituted by 10 years, in section 10B(3) of the I.T. Act. The restraint of exemption upto 8 years was also withdrawn. The only question which is to be answered is whether amendment of Finance Act, 1998 will apply to new units established after 01.04.1998 or they will apply to existing E.O.U.s also. To put it differently whether the Finance Act has given benefit to those units which will come into existence after 01.04.1998 or it also wanted to boost the export of exiting units. The Finance Minister stated in Income-tax (Second Amendment) Bill, 1998 that he wanted to extend the 5 years tax holiday to E.O.U.s, to 10 years u/s 10B of the I.T. Act.

50. During the year under consideration, the assessee has claimed income exempt u/s 10B of I.T. Act for three units namely original unit which started production from A.Y. 1992-93, spinning unit No. III which started production from A.Y. 1996-97 and spinning Unit No. IV which started production from A.Y. 1999-2000. This is given below in tabular form:-

In the assessee's case, the original unit started commercial production during the previous year relevant to the assessment year 1992-93. No deduction was claimed in the first three assessment years 1992-93 to 1994-95. Deduction under section 10B of the Act was claimed for the first time in the assessment year 1995-96 and accordingly under the pre-amended law the assessee was entitled to deduction upto assessment year 1999•2000. In the assessment year 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 pre-amended law.

51. In the assessee's case, the amended law became applicable during the period in which the assessee was otherwise eligible for claiming deduction under section 10B of the Act under the pre-amended law. Thus, as a necessary corollary and applying the amended law, the assessee was clearly eligible for deduction under section 10B of the Act for the extended period.

52. We now discuss the facts in the case of Tata Tea Ltd. (supra) as relied on by the Assessing Officer.

53. The facts in the case of Tata Tea Ltd. (supra) were that the assessee had started eligible unit in assessment year 1989-90. Deduction under section 10B of the Act was availed by the assessee for five consecutive years i.e. assessment years 1992-93 to 1996-97. The assessee had exhausted its five year tax holiday period available for claiming exemption under section 10B of the Act in the assessment year 1996-97. In the appeal for the assessment year 1997-98, the assessee, however, sought to claim deduction under section 10B of the Act by relying upon the provisions of the said section as amended subsequently by Income-tax (Second Amendment) Act, 1998, w.e.f. 1.4.1999. It was the contention of the assessee that the law, as amended by the I.T. (Second Amendment) Act, 1998 extending the period of tax holiday from five years to ten years, was merely clarificatory in nature and also applied to the assessee, even though the assessee admittedly and undisputedly had already exhausted its tax holiday period available under the pre-amended law and prior to the amendment, which was, in any case not applicable to the year under appeal.

54. Disagreeing with the aforesaid contention of the assessee, the Tribunal, while upholding the order of the CIT(A) and the Assessing Officer denying deduction under section 10A of the Act, for the assessment year 1997-98, held that since the assessee had already exhausted the tax holiday period and the assessee been allowed deduction for five consecutive assessment years, as per the applicable law, the assessee was not eligible for deduction for the extended period in view of the amendment which was effective w.e.f. 01.04.1999 which was even otherwise not retrospective in operation. The pertinent observations of the Tribunal are reproduced hereunder:

"24. As per the earlier provision the assessee was entitled to have the deduction for five consecutive assessment years in the eight years from the date when it began to manufacture or produce the articles or things. The assessee opted for availing the benefit of deduction in the last five years out of the eight years and the said period terminated in asst. yr. 1996-97. In other words the assessee had completely availed the benefit of deduction as per the provisions of law existing at the material time. Sub-sec (3) was amended with effect from asst. yr. 1999-2000 for allowing deduction in ten consecutive assessment years. When the amendment was carried out the assessee had completely exhausted the benefit of deduction available as per law. We are dealing with the asst. yr. 1997-98 which is the ninth year beginning with the assessment year relevant to the previous year in which the industrial undertaking began to manufacture. How an amendment carried out after two years of the cessation of benefit can be said to have application on earlier years is any body's guess. It is more so for the reason that the period of eight years expired in asst. yr. 1996-97 and thereafter the assessee's unit became taxable under the regular provisions of the Act. It is still further noted that even the period of ten consecutive assessment years from the beginning of the year in which the industrial undertaking begins to manufacture or produce articles was also over in the asst. yr. 1998-99 whereas the amendment was carried out w.e.f. 1st April, 1999. The order relied by the learned Authorised Representative in Consindia (P) Ltd. is not applicable inasmuch as in that case the period of eight years expired in asst. yr. 2000-01, whereas the amendment was carried out w.e.f. 1st April, 1999. We therefore hold that the learned CIT(A) was justified in denying the benefit of deduction under section 10A."

On perusal of the aforesaid, it may be noticed that in the aforesaid case-

(i) the assessee had claimed and been allowed deduction for five consecutive assessment years, viz, assessment years 1992-93 to 1996-97.
(ii) even the eight years block period for claiming tax holiday for a continuous period of five years had already exhausted in the assessment year 1996-97.
(iii) the amendment in section 10B was applicable from the assessment year 1999-2000 and not retrospectively.

55. It is in these circumstances, that the Tribunal held that the assessee was not eligible for claiming tax holiday for the extended period of ten years. It is, however, important to note that in the aforesaid decision the Tribunal also observed that had it been a case where the five years period had not expired at the time of applicability of the amended law, the assessee would have been entitled to deduction for the larger period under the amended law. The pertinent observations of the Tribunal are reproduced hereunder:

"......... Obviously the amendment so made to sub-section (3) .... of section 10B is substantive as it has expanded the period of deduction from the earlier five years to ten years. There is nothing like giving any clarification for the earlier provision or laying ........ down any procedure in respect of the existing provision. A new extended benefit was conferred for the first time. By no stretch of imagination it can be said to be clarificatory or procedural so as to make it applicable retrospective. It is, indeed a substantive amendment and will hold the field from the date when it has been made applicable from, which in the present case is asst. yr. 1999-2000. The position would have been different if the period of five years had not yet expired and the amendment had come in between; In that case the assessee would have been entitled to deduction for the larger period as per the amendment."

56. The issue before the Tribunal is squarely covered by the decision of the Hon'ble Karnataka High Court in the case of DSL Software Ltd. (supra), wherein it was held by the Hon'ble High Court that in terms of amendment carried out in the year 1999, the tax holiday benefit stood extended for a period of ten consecutive assessment years. It was also held that on 1.4.1999, when the amended provisions came into force by virtue of the said provision, the assessee would be entitled to the benefit of tax holiday for ten consecutive years from the date of production and if the assessee had already availed the benefit under the un-amended provision and the ten consecutive yeas would fall prior to 1.4.1999 then the assessee would not be entitled to the said benefit. It was further held that if the said ten consecutive years from the date of production have not expired prior to 1.4.1999, for the remaining un-expired period, the assessee could be entitled to the benefit. The relevant observation of the Court was as under :-

"8. From the aforesaid object behind the amendment, it is clear that the period of 5 years is extended to 10 years in order to give added thrust to exports. It is because the Parliament felt that the tax holiday of 5 years is not having the desired result and therefore, they extended the benefit of tax holiday from 5 years to 10 years. If it is a case of extension from 5 years to 10 years, the unit, which had the benefit of 5 years automatically, should get the benefit of 10 years if other conditions are fulfilled. The other condition to be fulfilled is ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture. Therefore, the object with which this amendment was introduced is to extend the benefit of tax holiday for a period of 10 consecutive years from the date of commencement of manufacture or production. Before an assessee can claim the benefit of tax holiday, the said law governing the tax holiday should be in force on the first day of the relevant year. Then only he would be entitled to the said benefit. On 01.04.1999 when the amended provision came into force by virtue of said provision the assessee would be entitled to the benefit of tax holiday for 10 consecutive years from the date of production. If the assessee already availed the benefit under the unamended provision and the 10 consecutive years would fall prior to 01.04.1999, then the assessee would not be entitled to the said benefit. If the said 10 consecutive years from the date of production has not expired, prior to 01.04.1999, for the remaining unexpired period, he would be entitled to the benefit. On the ground that he had the benefit of unamended provision and the 5 years period has expired on the day amended provision came into force, he cannot be denied the benefit. If that is done, it would run counter to the intention with which the amended provision was brought on the statute book. It would negate the amended provision.

9. In the instant case, the assessee has commenced production in the year 1993-94. He enjoyed the benefit of 5 years from 1993-94 to 1997-98. The amended provision came into force on 01.04.1999. He is entitled to the tax holiday under the amended provision i.e. from 1993-94 to 2002-03. He claimed benefit from 1999-2000, 2000-01 and 2001-02. It is for the period 2001-02, the benefit is denied. The said denial of the benefit runs counter to the spirit of section 10B and it would negate the object with which the amended provision was brought in. The assessee is entitled to the benefit of extension from 5 years to 10 years tax holiday as provided under the amended provision for 10 consecutive years from the date of commencement of production. In that view of the matter, the order passed by the Tribunal as well as the First Appellate Authority is strictly in accordance with law and do not suffer from any legal infirmity, which calls for interference. No substantial question of law arises for consideration in this appeal."

57. Applying the proposition of law laid down by the above decision to the facts of the instant case, as the period of ten years from the year of start of manufacture has not expired as on the date when the amended provision came into force, the assessee is entitled to the benefit of tax holiday for the remaining period of ten years. It is pertinent to mention here that in the aforesaid decision, the Hon'ble Karnataka High Court went on to hold that even if the period of five years has expired as on the date of amended provisions but the period of ten years is still running, the assessee cannot be denied the benefit. Thus, the issue raised before this Special Bench is squarely covered by the aforesaid decision of the Hon'ble High Court of Karnataka. Since this is the only decision of the Hon'ble High Court on the issue, the same is binding on the Special Bench in view of the settled principle of judicial proprietary, as laid down in following cases :-

Supreme Court in the case of Dunlop India Ltd.'s case (supra) :

"We desire to add and as was said in Cassell Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never be necessary for us to say so again that 'in the hierarchical system of courts' which exists in our country, 'it is necessary for each lower tier', including the High Court, 'to accept loyally the decisions of the higher tiers'. It is inevitable in a hierarchical system of courts that there are decisions of the supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary ...... But the judicial system only works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted (See observations of Lord Hailsham and Lord Diplock in Broome v. Cassell). The better wisdom of the court below must yield to the higher wisdom of the court above. That is the strength of the hierarchical judicial system. In Cassell v. Broome [1972] AC 1027, commenting on the Court of Appeal's comment that Rookes v. Barnard [1964] AC 1129, was rendered per incuriam, Lord Diplock observed (p. 1131).

"The Court of Appeal found themselves able to disregard the decision of this House in Rookes v. Barnard by applying to it the label per incuriam. That label is relevant only to the right of an appellate court to decline to follow one of its own previous decisions, not to its right to disregard a decision of a higher appellate court or to the right of a judge of the High Court to disregard a decision of the Court of Appeal."

The Delhi High Court in the case of All India Lakshmi Commercial Bank Officers' Union v. UOI [1985] 20 Taxman 412 , held that the income-tax authorities acting anywhere in India have to respect the law laid down by a High Court, whether of the State in which they are functioning or of a different State, in the absence of any contrary decision of any other High Court.

Similar view has been taken in the following cases holding that the Tribunal had to follow the law laid down by a non-jurisdictional High Court where there is no judgment of a jurisdictional Court:

CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bom.)
CIT v. Highway ConstructionCo. (P.) Ltd. [1996] 217 ITR 234 (Commissioner Of Income-Tax, Poona Ii v. Smt. Nirmalabai K. Darekar. [1990] 186 ITR 242/49 Taxman 74 (Bom.)
CIT v. Maganlal Mohanlal Panchal (HUF) [1994] 210 ITR 580 (Guj.).

58. Similar view has been taken by the ITAT, Mumbai Bench in the case of Cons India Private Ltd. v. ITO [IT Appeal No. 8270 (Mum.) of 2004], dated 29-01-2008 wherein it was held that the assessee was eligible for deduction u/s 10A of the Act for the extended period of ten years. In this case also eight years expired in the assessment year 2000-01.

59. Reference in this regard may also made to the decision of the Delhi Bench of the Tribunal in the case of Tech Books Electronics Services (P) Ltd. (supra). In that case, again, neither the five year period nor the block period of eight year had expired before the amended provisions became applicable and accordingly the Tribunal was pleased to hold that the assessee was eligible for deduction for the extended period as per the amended law. The pertinent observations of the Tribunal are reproduced hereunder:

"10.8 In the case of the assessee, neither the period of five years nor the block period of eight years expired when the amendment replacing the word 'ten' for 'five' was introduced by Income-tax (Second Amendment) Act, 1998 with effect from 1-4-1999. Since the assessee was entitled to exemption in the year in which amendment became effective and operative, the assessee will be entitled to the extended period of exemption because the period of five years had not exhausted up to assessment year 1999-2000. Since the right of the assessee was continuing in the year of amendment and was not lost on the date when the amendment came into existence, the view taken by the learned CIT(A) cannot be upheld."

10.9 So far as the objections of the learned CIT(A) regarding conduct of the assessee-firm in not claiming the exemption in earlier year is concerned, the approach of the learned CIT(A) raising this objection, cannot be legally justified because if the assessee is entitled to any benefit under any statutory provision then the past conduct cannot be relevant particularly when reference to such conduct is not made in the Act. The eligibility of the assessee has to be seen in the year in which the claim is preferred and if in earlier years the assessee waived his right then he cannot be stopped in claiming the benefit in the subsequent years.

10.10 The learned CIT(A) has also observed that the assessee did not file declaration exercising option prior to the due date for filing of return but filed it along with the return and, therefore, the assessee is disqualified from claiming exemption on this ground also. We do not find any force in such objection because this objection is merely of super-technical nature. In view of the above, we are unable to concur with the finding of learned CIT(A) and set aside the same. Consequently, we allow the ground of appeal taken by the assessee and direct that the assessee shall be entitled to claim exemption under section 10B in the assessment year under consideration."

60. From record we find that the assessee has set up two new spinning units (Unit III and Unit IV) on 1.6.1995 and 19.8.1999, respectively, as a separate, independent and distinct unit. During the relevant assessment year, under consideration, the assessee has claimed deduction in respect of profits of spinning Unit Nos. 3 and 4, which was declined by the Assessing Officer by holding that the spinning Units III and IV could not be treated as new industrial undertaking and that the assessee was only granted certificate for enhanced capacity and not for the new industrial undertaking and that permission for enhancement of the capacity was merely by way of amendment of the original certificate and not in the form of any new permission/certificate. The Assessing Officer also observed that the deduction is granted to an industrial undertaking and a new line of production set up and named as separate unit cannot be treated as new industrial undertaking. The objection of the Assessing Officer was that even though the assessee had carried out capacity expansion, but such expansion could not be regarded as separate industrial undertaking in order to be independently eligible for deduction u/s 10B of the Act. By the impugned order, the learned CIT(A) after giving detailed finding, allowed the assessee's claim by holding that all the conditions u/s 10B were satisfied as there was substantial investment of fresh capital in the new unit set up and employment of the requisite labour. The learned CIT(A) also recorded a finding to the effect that separate and distinct industrial unit was set up by the assessee. It was also held that there was no requirement of obtaining separate and distinct industrial licence as a condition precedent to claim of deduction u/s 10B of the Act so long as the new unit set up was approved as an EOU by the designated authority.

61. Applying the relevant provisions of law as applicable during the years, under consideration, and also the judicial pronouncements, as discussed above, we can safely hold that in the assessment year 1999-00 when the period of exemption was extended from five years to ten years, all the three units of the assessee were eligible for deduction u/s 10B of the Act. Each of the units were eligible for exemption under section 10B of the Act, both under the pre-amended law when the exemption was available for five years out of eight years as well as under the amended law when the exemption was extended to ten consecutive assessment years. As the amendment came into force in the assessment year 1999-00, the amended laws became applicable to the assessee according to which all the three eligible units of the assessee became entitled for deduction for a period of ten consecutive assessment years from the date of commencement of manufacture/production by the said eligible undertaking. Furthermore, there is no question of claiming the provision of section 10B to be prospective or retrospective since what the assessee is simply claiming is that the exemption should be allowed as per the provisions of section 10B of the Act as applicable in the relevant assessment year. Once that is done, no question arises for denying exemption to the assessee during the relevant assessment years under consideration. It is pertinent to mention here that in the assessment year 1999-00 the assessee was duly allowed deduction as per the then applicable law whereunder the eligible undertaking is allowed such deduction for a period of ten consecutive years. Now in the assessment year 2000-01 the assessee had claimed deduction in respect of its eligible units which was also not disputed by the Assessing Officer. The Assessing Officer in his order for the assessment year 2000-01 has given a finding that Unit Nos. III and IV were entitled for exemption upto the assessment years 2005-06 and 2008-09 respectively, which was as under :—

"The assessee's one of the undertakings, situated at Khalbujurg, referred to as Sarover Division is 100% Export Oriented Unit engaged in manufacturing of Cotton yarn, Fabric and Garments. A copy of Green Card No. 113 dated 30.07.1993, valid till 29.07.1998 and renewed Green card No. 471 dated 13.07.1998 valid upto 31.03.2003 have already been furnished earlier. The original unit of this undertaking is entitled for exemption u/s 10-IB upto A.Y. 2001-02 whereas Unit III and Unit IV of this undertaking are entitled for exemption under section 80B upto Assessment years 2005-06 and 2008-09 respectively. For the year under consideration, the assessee is eligible for exemption under section 80B in respect of all its units of this undertaking situated at Khalbujurg District Khargone."

We also find that the CIT has revised the above order of the Assessing Officer by exercising his power under section 263 of the Act on the issue of allowability of deduction under section 10B on the aforesaid units. This order of the CIT was quashed by the Tribunal and subsequently appeal filed by the revenue was also dismissed by the High Court.

62. We have considered in detail the submissions of the learned CIT DR and the ld. counsel for the assessee. We have also deliberated on the case laws cited by both the parties in the context of factual matrix of the case. As per our considered view, deduction u/s 10B of the Act is allowable in respect of profits of 100% export oriented undertaking. The expression "undertaking" has not been defined u/s 10B of the Act. The said expression has been explained by the Courts in the context of similar other provisions of IT Act viz. section 15C of 1922 Act, sections 80J, 80HH, 80-I, 80-IA and 80-IB of 1961 Act. Hon'ble Supreme Court in the case of Textile Machinery Corpn. Ltd. (supra) held that the true test is whether the unit claiming deduction is a new and identifiable undertaking separate and distinct from the existing business. It was further held that manufacture or production of articles yielding additional profit attributable to the new outlay of capital is a separate and distinct unit is the heart of the matter, to earn benefit from the exemption of tax liability. Following observations of the Court are very much pertinent :-

"The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved. This has not happened here in the case of the two undertakings which are separate and distinct.

It is clear that the principal business of the assessee is heavy engineering in the course of which it manufactures boilers, wagons, etc. If an industrial undertaking produces certain machines or parts which are by themselves, identifiable units being marketable commodities and the undertaking can exist even after the cessation of the principal business of the assessee, it cannot be anything but a new and separate industrial undertaking to qualify for appropriate exemption under section 15C. The principal business of the assessee can be carried on even if the said two additional undertakings cease to function. Again, the converse is also true. The fact that the articles produced by the two undertakings are used by the boiler division of the assessee will not weigh against holding that these are new and separate undertakings. On the other hand, the fact that a portion of the articles produced in these two new industrial undertakings had been sold in the open market to others is a circumstance in favour of the assessee that the new industrial units can function on their own. Use of the articles by the assessee is not decisive to deny the benefit of section 15C."

"One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced and at least a minimum of ten persons with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of section 15C the industrial units set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. In order to deny the benefit of section 15C the new undertaking must be formed by reconstruction of the old business. Now, in the instant case, there is no formation of any industrial undertaking out of the existing business since that can take place only when the assets of the old business are transferred substantially to the new undertaking. There is no such transfer of assets in the two cases with which we are concerned."

63. At page 206 the Hon'ble Supreme Court has summarised the requirements to be satisfied by a new industrial undertaking to enjoy the tax holiday as under :-

"However, in order to be entitled to the benefit under section 15C, the following facts have to be established by the assessee, subject always to time-schedule in the section:

(1) investment of substantial fresh capital in the industrial undertaking set up,
(2) employment of requisite labour therein,
(3) manufacture or production of articles in the said undertaking,
(4) earning of profits clearly attributable to the said new undertaking, and
(5) above all, a separate and distinct identity of the industrial unit set up."

It is clear from the above that the Hon'ble Supreme Court has pointed out that new industrial undertaking should emerge as physically separate industrial unit which may exist on its own as a viable unit and the commodity so produced or the results achieved should be commercially tangible products and the undertaking should be carried on separately without completed absorption and losing the identity of the existing business unit; the mere fact that the new unit produces same/similar products would not constitute valid reason to decline the claim of deduction to the new unit.

64. Hon'ble Supreme Court in the case of IndianAluminium Co. Ltd. (supra) held that where the assessee made extensions to its existing factories, the claim of deduction u/s 15C of the 1922 Act in respect of the additional investment in the form of extension of the existing factory premises, installation of new plant and machinery, etc. cannot be denied.

65. The Hon'ble jurisdictional High Court in the case of CIT v. Bhilai Engg. Corpn. (P.) Ltd. [1982] 133 ITR 687/10 Taxman 87 (MP) , after following the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corpn. Ltd. (supra) held that relief u/s 80J could be obtained when new plant and machinery were erected for producing the same commodity which the assessee was producing earlier.

66. In view of the above discussion, we can safely hold that an undertaking means a unit/business which has a separate and independent existence distinct from the other units/business; having independent infrastructure, separate plant and machinery being set up with substantial capital investment and having an identifiable output and the profits attributable thereto can be determined.

67. Applying the above proposition to the facts of the instant case, we find that all the aforesaid conditions are satisfied in the two new spinning units viz. Unit Nos. 3 and 4, which were set up by the assessee as a separate and independent production units, by making substantial investment in new building, plant and machinery, etc. wherein distinct and marketable produce are manufactured. In respect of Unit No. 3 we find that it was set up in a newly constructed building by installing additional 16,224 spindles which enhanced the total capacity to 38400 spindles from the existing 22,176 spindles. We also find that four new knitting machines were installed. The facilities to manufacture additional 6 lakhs per annum pieces of garments were put as against earlier installed capacity of 13.6 lakhs garments per annum. The turnover of the company reached to Rs. 121.72 crores from Rs. 67.26 crores in the immediately preceding year and the profits before depreciation took quantum leap of 3.37 crores. In Unit No. 4, additional 16,128 spindles were installed which enhanced the installed capacity to 54,528 spindles. 12 circular knitting machines were imported and installed. A power plant of 4.25 MV capacity was set up. The facilities to manufacture readymade garments were set up to manufacture 6 lakhs additional garments per annum and the new unit resulted into total addition of gross block of fixed assets by Rs. 69.43 crores as against 121.01 crores at the beginning of the year. The turnover of the company also increased to Rs. 224.5 crores as against 158.37 crores in the preceding year. Thus, on the facts of the case, both the new spinning units of the assessee have their independent and separate existence which is evident from the copy of invoices along with packing list placed in the paper book which shows that identifiable and marketable products were manufactured by these units. The raw material issue slips also show that the raw material is issued and recorded unitwise. The wage registers also show that separate workers were engaged and wages were paid and recorded separately. The flow chart of spinning process clearly indicates that each unit is separately set up. The loan sanction letters issued by bank also evidenced sanction of separate term loan to show that the funds were borrowed for new units and the assessee has maintained separate books of account for each unit. All these documentary evidences clearly establish that the assessee has undertaken substantial expansion by setting up new units viz. Unit Nos. 3 and 4 which were separate and independent production units eligible for claim of deduction u/s 10B for ten years from the year of start of production in each of the units.

68. In this regard the contention of the learned CIT DR was that the assessee had just carried out capacity extension which could not be regarded as a separate industrial undertaking for making it eligible for the claim of deduction u/s 10B insofar as the assessee was only granted certificate for enhanced capacity and not for the new industrial undertaking. The objection of the learned CIT DR was also that the permission for enhancement of capacity was merely by way of amendment in the original certificate and not in the form of any new permission/certificate. In this regard we find that section 10B does not stipulate for issue of separate approval for each unit from the competent authority. The only requirement under the said section is that the undertaking should be approved. The definition of "100% export undertaking" as provided in clause (iv) of Explanation 2 to section 10B provides as under :-

'(iv) "hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act;'

69. From record we find that the new spinning unit set up by the assessee was duly approved as 100% EOU by the concerned Government department. The relevant permission dated 13.3.1995 bearing No. 144/EOB/61/95 issued by the Ministry of Industries, Department of Industrial Development, Government of India, was received for setting up new unit. Necessary corrections in the permission dated 13.3.1995 were also carried out by the Ministry vide letter dated 31.5.1995. The assessee had also filed letter dated 14.4.1998 before the competent authority for enhancement of the licence capacity which was also granted on 2.6.1998. In view of these documentary evidences, we hold that fresh permission was granted for a new unit where the competent authority extended the benefit available to 100% export oriented unit for substantial extension of the existing undertaking.

70. The decision relied upon by the learned CIT DR in the case of State of Gujarat v. Saurashtra Cement Chemical IndustriesLtd. [2003] 260 ITR 181 (SC) is distinguishable on facts insofar as it was held by the Hon'ble Supreme Court that admittedly the alleged new unit was using the existing crushers, grains, raw mills, packing machines and old cement mills to complete the process of manufacture of cement. It was thus held that new unit was not totally independent viable unit, therefore, not eligible for claim of exemption from electricity duty u/s 3(2)(vii)(b) of the Bombay Electricity Duty Act, 1958. However, in the instant case before us, the aforesaid two units viz. Unit Nos. 3 and 4 were separate and independent production units wherein by making substantial investment in new building, plant and machinery, etc., the assessee was manufacturing distinct and marketable products. Unit 3 was set up in newly constructed building by installing additional spindles, new knitting machines which resulted into substantial increase in the installed capacity and turnover of the company. Similarly, in unit 4, the assessee has installed 16,128 spindles, 12 circular knitting machines, power plant of 4.25 MV capacity. Thus, the unit resulted into total addition to gross block of fixed assets by Rs. 69.43 crores as against 121.01 crores. The turnover of the company also increased to Rs. 224.5 crores as against Rs. 158.37 crores in the preceding year.

71. The decision relied upon by the learned CIT DR in the case of Canara Wire Wire Products Ltd. (supra) is also distinguishable on facts insofar as the claim of deduction u/s 80J was declined on the plea that the assessee has undertaken reconstruction of old business. It was held that whenever an assessee claims relief u/s 80J, the assessee will have to plead and establish that a new unit has come into existence, which independently produces articles of whatever nature and this new unit is not dependent upon old existing unit. However, in the instant case before us, the two units were separate and totally independent wherein substantial investment in new building, plant and machinery was done, therefore, the case law relied upon by the learned CIT DR is of no help to the revenue for declining the claim of deduction u/s 10B in respect of its new unit Nos. 3 and 4.

72. Now coming to the objection of the learned CIT DR to the effect that the assessee was only granted certificate for enhanced capacity by way of amendment of the original certificate and not a fresh sanction letter in the form of certificate, therefore, the assessee's claim of deduction u/s 10B of the Act cannot be granted. This objection of the learned CIT DR is not tenable insofar as manner of granting approval/licence for new unit is not relevant and even the endorsement on the existing licence/approval would be sufficient for considering the unit as distinct and separate undertaking, since the assessee fulfilled all the conditions, namely,

(a) Business has separate and independent existence, separate and distinct from other units/business
(b) employment of independent infrastructure and separate plant and machinery etc.
(c) substantial capital investment
(d) new employees and
(e) Identifiable output (even though same product) and profits thereto can be determined.

73. Similar issue has been dealt with by the I.T.A.T., Pune Bench, in the case of Patni Computer Systems Ltd. (supra), wherein assessee's claim for deduction under section 10A of the Act in respect of three units was disallowed by the Assessing Officer on the ground that three units were not new units but mere expansion of existing unit on the basis of approval letters received from STPI. The Tribunal held that the manner of granting approval was not relevant for adjudicating the claim of deduction under section 10A. The relevant observations and findings of the Tribunal were as under :-

'41. The only plea of the Revenue is that in the approvals granted by the STPI, the three units have been referred to as an expansion of the corresponding old units. The moot question is as to whether such a plea of the Revenue is potent to effect the assessee's entitlement for deduction under section 10A of the Act. Similar plea of the Revenue in the context of section 10B of the Act was a subject matter of consideration by our coordinate Bench in the case of Jayant Agro Organics Ltd. Akhandanad, (supra) wherein following discussion is worthy of notice:

"8. Revenue has vehemently contended that there is no independent Government approval of the new unit and all that the Government has permitted is enhancement in capacity of the existing unit. As evident from the land allotment letter dated 19th July, 1995 issued by the Gujarat Industrial Development Corp. Ltd. it is clear that the land allotted for the new unit is plot #624/1 and 2, and 625 to 627 whereas the existing plant was in plot 3 602. The production of 12 Hydroxy Stearic Acid is authorized by the letter dated 27th January 1995 which states that the Government has taken note of assessee's wish to manufacture Hydroxy Stearic Acid also by way of forward integration and amended the letter of permission to include 12 Hydroxy Stearic Acid of 12,000 MT in the very next sentence. It is observed that "Govt also approves of your request for the import of additional capital goods worth Rs. 550 lakhs for the project". That clearly demonstrates that the production of Hydroxy Stearic Acid of 12,000 MT was viewed by the Government as an independent project. It was not a case for purchase of addition capital goods for the existing project. The assessee is irrespective of the number of units, is one of artificial juridical person. Therefore, a combined permission, which involves setting up for different units, is quite in order. The fact of amendment of earlier permission or of grant of separate permissions, is not really relevant. What is really to be examined is whether the units are independent of unit and whether the units are covered by the permission or not. In our humble understanding it meets both the tests. We have also noted that it is not an statutory requirement that there has to be separate permission for each unit and therefore just because the permission is granted by the Government by way of amending the original permission letter does not affect the eligibility for deduction u/s 10B in any manner.'

74. In view of the above discussion, the co-ordinate Bench held that the manner in which the approval has been granted is not relevant to examine the assessee's eligibility for claim of deduction u/s 10A of the Act in respect of three units. What is really to be examined is as to whether the three units are independent units and that they fulfil the conditions prescribed u/s 10A(2) of the Act. It was, therefore, held that the mere fact that the requisite permissions from STPI refer them as expansions of the existing units would not disentitle the assessee from the claim of deduction under section 10A of the Act.

75. In view of the above decision of the coordinate Bench, the plea of the learned CIT DR will not disentitle the assessee from claiming deduction u/s 10B in respect of two new units since these units were set up in a newly constructed building by installing additional spindles, new plant and machinery, new power plant and new manufacturing facilities which resulted into increased turnover by almost double, recruitment of new manpower/employees, manufacturing of new identifiable and marketed products, maintenance of separate books of account for each unit, obtaining separate approvals for new spinning units and permission for enhanced capacity. It is pertinent to mention here that new, separate and independent units were set up which were distinct from other existing unit eligible for deduction u/s 10B of the Act.

76. In view of the above discussion, we hold that the undertaking existing prior to 1.4.1999 claiming exemption u/s 10B of the Act would be entitled to exemption for the extended period of ten years and deduction under the said sections would be admissible in respect of unit No. 3 and unit No. 4 as well for ten years from the year of start of production in these new units since these units were separate and independent production units. Thus, the first question referred to the Special Bench is answered in the affirmative.

77. The second question referred to the Special Bench pertains to eligibility of deduction in respect of export incentives received by the assessee in terms of the provisions of section 10B(1) read with section 10B(4) of the Act. The facts, in brief, are that during the year, the assessee was in receipt of export entitlement of Rs. 1.65 crores and special import licence of Rs. 4.47 lakhs. The Assessing Officer declined the claim of deduction by holding that such income was not derived from 100% export oriented undertaking, therefore, not eligible for claim of deduction u/s 10B(1) read with section 10B(4) of the Act. The learned Commissioner of Income-tax (Appeals), by following the order of the Tribunal in the assessee's own case, held that the assessee was eligible for exemption in respect of export entitlement and special import licence as the income of EOU eligible for exemption u/s 10B of the Act. From record we find that the export entitlement was allotted by the competent authority in respect of export undertaken by the assessee during the year. The assessee off-loaded the entitlement which was unusable and bought quota/entitlements which was required for procuring the required material necessary for its production purpose. Similarly, special import licence was allotted to the assessee by the designated authority as per Export Import Policy And Procedure 1997-2002. Income arising out of sale of export entitlement and special import licence was assessed as income from business. However, on such business income, the assessee is entitled to claim of deduction u/s 10B in respect of such income. The relevant provisions of section 10B read as under :-

"[Special provisions in respect of newly established hundred per cent export-oriented undertakings

10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :

Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years :

Provided further that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software:

Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, [2012] and subsequent years :

Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139.

(2) This section applies to any undertaking which fulfils all the following conditions, namely :—

(i) it manufactures or produces any articles or things or computer software;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section ;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

Explanation.—The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section.

(3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.

Explanation 1.—For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

Explanation 2.—The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.

(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.

Explanation 2.—For the purposes of this section,—

(i) "computer software" means—

(a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or
(b) any customized electronic data or any product or service of similar nature as may be notified by the Board, which is transmitted or exported from India to any place outside India by any means;

(ii) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder or any other corresponding law for the time being in force;
(iii) "export turnover" means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;
(iv) "hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act;
(v) "relevant assessment years" means any assessment years falling within a period of ten consecutive assessment years, referred to in this section.]

Explanation 3.—For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.

Explanation 4.—For the purposes of this section, "manufacture or produce" shall include the cutting and polishing of precious and semi-precious stones."

It is clear from the plain reading of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4) of the Act stipulates specific formula for computing the profit derived by the undertaking from export. Thus, the provisions of sub-section (4) of section 10B of the Act mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total turnover. Thus, even though sub-section (1) of section 10B refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily defined in sub-section (4) of that section. Both sub-sections (1) and (4) are to be read together while computing the eligible deduction u/s 10B of the Act. We cannot ignore sub-section (4) of section 10B which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. In case of Liberty India (supra), the Hon'ble Supreme Court has dealt with the provisions of section 80-IA of the Act wherein no formula was laid down for computing the profits derived by the undertaking which has specifically been provided under sub-section (4) of section 10B while computing the profits derived by the undertaking from the export. Thus, the decision of the Hon'ble Supreme Court is of no help to the revenue in determining the claim of deduction u/s 10B in respect of export incentives.

78. Section 10B of sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :-

79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, notwithstanding the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (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. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the "profits of the business" which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, sub-section (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the "profits of the business" eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories Ltd. (supra), after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. P.R Prabhakar v. Commissioner Of Income Tax, Coimbatore [2006] 284 ITR 584/154 Taxman 503 had approved the principle laid down in the Special Bench decision in International Reserarch Park Laboratories Ltd. (supra). In the assessee's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India (supra) held that provisions of section 10B are different from the provisions of section 80-IA wherein no formula has been laid down for computing the eligible business profit.

80. In view of the above discussion, question No. 2 is answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B(1) read with section 10B(4) of the Act.