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Judgment
D.A. Mehta, J.—At the time of admission, the following question was formulated by the High Court as substantial question of law on 6.12.1999 :
Whether the Appellate Tribunal is right in law and on facts in allowing the claim of assessee for deduction u/s 80HH of the Act?
The Assessment Year in question is 1989-90, the relevant accounting period being from 1.1.1988 to 31.3.1989. The assessee, a Company, claimed deduction u/s 80HH of the Income Tax Act, 1961 (the Act). The same was disallowed by the Assessing Officer holding that the assessee carried on manufacturing activity at Chhatral which is situated in Kalol Taluka of Mehsana District. That by virtue of Notification No. 89/165 dated 19.12.1986, Kalol Taluka was excluded from the list of ''backward area'' and thus the assessee was not entitled to relief u/s 80HH of the Act. The Assessing Officer also referred to subsequent Clarification to the Notification to the effect that where production had commenced in Kalol Taluka before October, 1986, such a unit would be entitled to deduction u/s 80HH of the Act. Thereafter, on facts the Assessing Officer has referred to various proceedings for preceding Assessment Year, namely, Assessment Year 1988-89, and concluded that if, as held in earlier Assessment Year, no production had commenced at that point of time, relatable to corresponding accounting period for Assessment Year 1988-89, there was no question of the assessee being entitled to any relief for the Assessment Year in question, considering the accounting period in question.
The assessee carried the matter in Appeal before Commissioner (Appeals) but failed. However, in Second Appeal before the Tribunal, the claim made by the assessee was allowed by the Tribunal by referring to and following the Tribunal''s own order for Assessment Year 1988-89 in ITA Nos. 5227/AHD/91 and 5754/AHD/91 without recording any independent reasons.
At the time of hearing, learned Counsel for the Appellant Revenue, submitted that for earlier Assessment Year, though Reference Applications filed by the Revenue were rejected by the Tribunal, the applications filed by the Revenue u/s 256(2) of the Act were granted by the High Court but no corresponding Reference is available and the Appellant is not in a position to state as to whether the Tribunal has, or has not, forwarded the statement of case.
On merits, it was submitted that the Assessing Officer has incorrectly referred to Notification No. 89/165 dated 19.12.1986 because the correct Notification is Notification No. S.O. 165, dated 19.12.1986 (1987) 165 ITR 294. That by virtue of the said Notification, Kalol Taluka of Mehsana District was excluded from the list of ''backward area'' and, therefore, the assessee was not entitled to any relief.
Referring to Circular No. 484 dated 1.5.1987 it was submitted that the Central Board of Direct Taxes (CBDT) had issued clarification on the subject of ''backward area'' for the purpose of Section 80HH of the Act wherein it was stated that the benefit of the said provision in respect of any area will not be withdrawn retrospectively and all areas specified in the Eighth Schedule will continue to enjoy the benefit of Section 80HH of the Act in respect of industrial undertaking which begins to manufacture or produce articles before 10.09.1986. That even if the said Circular is applied to the facts of the case, as recorded by the Assessing Officer, production had commenced only in December, 1987 and therefore, the assessee was not entitled to any relief.
Learned Senior Advocate appearing on behalf of the respondent-assessee submitted that there was no dispute as to issuance of Notification No. S.O. 165, dated 19.12.1986 and subsequent clarificatory Circular No. 484 dated 1.5.1987. The only dispute that survived thereafter, was as to whether the assessee had commenced manufacturing of articles on or before the specified date viz. 10.09.1986. In this connection, reference was invited to paragraph Nos. 4 & 5 of Tribunal''s order dated 25.7.1996 for Assessment Year 1988-89 in ITA No. 5227/AHD/1991, which was assessee''s Appeal, to emphasise the fact that the Tribunal had recorded a finding of fact that the assessee had commenced production prior to October, 1986. It was, therefore, urged that for the present Assessment Year, the Tribunal had correctly referred to and relied upon its own order for Assessment Year 1988-89 in assessee''s own case.
It is common ground between the parties that the legislative scheme in the form of original Eighth Schedule, prior to insertion of Sub-section (11) of Section 80HH of the Act, specified entire Mehsana District, including Kalol Taluka, as ''backward area'' as per list appearing in the Eighth Schedule of the Act. By virtue of Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from 10.09.1986 the Explanation below Sub-section (10) of Section 80HH of the Act was omitted and Sub-section (11) came to be inserted in Section 80HH of the Act. By virtue of the said provision, the legislative scheme underwent a partial modification vesting Central Government with powers to issue Notification for the purpose of Section 80HH of the Act, to define ''backward area'', having regard to the stage of development of that area.
In exercise of the said powers Notification No. S.O. 165, dated 19.12.1986 came to be issued and in so far as Mehsana District is concerned Kalol Taluka stood excluded. Subsequently, legislature realised that problems arose because of such omission and, hence, the clarificatory Circular being Circular No. 484 dated 1.5.1987 was issued by CBDT (1986) 166 ITR 120. The relevant part of the said Circular reads as under :
C.B.D.T. Circulars. Circular No. 484, dated 1st May, 1987.
Subject :''Backward Area'' for the purpose of Section 80HH of the Income Tax Act, 1961 - Problems arising from the omission of the Eighth Schedule of the Income Tax Act with retrospective effect - Notification of backward areas - Certain clarifications - Regarding.
By an amendment brought about by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, Explanation below Sub-section (10) of Section 80HH of the Income Tax Act, 1961, was substituted by Sub-section (11) and the Eighth Schedule to the Income Tax Act was omitted. The said Explanation provided that in this section ''backward area'' meant an area specified in the list in the Eighth Schedule. The newly inserted Sub-section (11) provides that for the purposes of this section ''backward area'' means such area as the Central Government may, having regard to the stage of development of that area, by notification in the Official Gazette specify in this behalf. The Schedule was omitted with effect from 1-4-1984 and it was provided that notification under Sub-section (11) could be issued so as to have retrospective effect to a date not earlier than 1-4-1983. In pursuance of the new provisions of Sub-section (11), a Notification No. 7056 (F. No. 178/171/86-ITA.1) dated 19-12-1986 effective 1-4-1983 was issued notifying the list of backward areas. In this notification, certain blocks/taluks, where investment had exceeded Rs. 30 crores as on 31-3-1983 were excluded.
In the interest of administrative convenience, it has been decided that the benefit of Section 80HH in respect of any area will not be withdrawn retrospectively. The Taxation Laws (Amendment and Miscellaneous Provisions) Bill, 1986, received the assent of the President on 10-9-1986. It is, therefore, clarified that notwithstanding the aforesaid notification, all areas specified in the Eighth Schedule will continue to enjoy the benefit of Section 80HH in respect of an industrial undertaking which begins to manufacture or produce articles before 10-9-1986 or in respect of the business of a hotel which starts functioning before 10-9-1986.
Thus, it appears that in relation to units located in Kalol Taluka of Mehsana District not only will the exclusion by virtue of the Notification not apply retrospectively, but more importantly, units which had commenced to manufacture articles before 10.09.1986 would continue to enjoy the benefit of Section 80HH of the Act. This provision appears to be in consonance with provisions of Sub-section (4) of Section 80HH of the Act which permits allowing deduction u/s 80HH of the Act while computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles. Hence, on facts one has to examine whether the assessee in fact had commenced manufacturing articles prior to 10.09.1986, there being no dispute as to the fact that the assessee fulfills all other relevant requirements for being entitled to relief u/s 80HH of the Act. The Circular issued by the CBDT, referred to hereinbefore, is categorical when it states that the unit would continue to enjoy the benefit u/s 80HH of the Act if the industrial undertaking was situated in a ''backward area'' as listed in the Eighth Schedule of the Act as it stood prior to 10.09.1986. Therefore, there is no question of reappreciating the facts and evidence. The authority is only required to examine whether the industrial undertaking was located in a ''backward area'' listed in Eighth Schedule of the Act. If the answer is yes, the only inquiry thereafter is, as to whether unit had commenced manufacturing or production of articles on or before 10.09.1986.
Applying the aforesaid scheme of the Act, which unfolds on a conjoint reading of provisions of Section 80HH of the Act and the Notification and the Circular issued thereafter, as can be seen from the impugned order of Tribunal, no independent reasons are assigned but the Tribunal has followed its own order in assessee''s own case for earlier Assessment Year. A copy of order for Assessment Year 1988-89 made by the Tribunal has been placed on record and paragraph Nos. 4 & 5 of the said order indicate that after appreciating the facts and evidence on record the Tribunal has recorded a finding of fact that the assessee started production prior to October, 1986. The evidence on record appreciated by the Tribunal shows that the statutory audit report reveals figures of actual production of washing powder sold on 8.4.1986 indicating not only manufacture, but sale of the produced item, and the said facts were not disputed by the Revenue.
In the circumstances, it is not possible to hold that the Tribunal, while passing the impugned order for the Assessment Year under consideration, was not justified in granting relief u/s 80HH of the Act by following its own order for Assessment Year 1988-89 in assessee''s own case. Once the Tribunal had recorded a finding of fact that the assessee had commenced production prior to October,1986 and the evidence in support of the said finding was not disputed by Revenue for earlier Assessment Year, it is not possible to take any other view of the matter for the year under consideration. The question is accordingly answered in the affirmative i.e. in favour of the assessee and against the Revenue.
The Appeal is dismissed accordingly with no order as to costs.