Benefit Of Deduction Can’t Be Given To An Industry If It Ceases To Be A Small Scale Industry: SC [Read Judgment]

Incentive meant for small scale industrial undertakings cannot be availed by industrial undertakings which do not continue as small scale industrial undertakings during the relevant period, the bench held.

The Supreme Court, in Deputy Commissioner Of Income-Tax vs M/S Ace Multi Axes Systems Ltd, has held that an assessee is not entitled to benefit of exemption if it loses its eligibility as a small scale industrial undertaking in a particular assessment year, even if in the initial year, eligibility was satisfied.

Before the apex court, the revenue had questioned the Karnataka High Court view that when once the eligible business of an assessee is given the benefit of deduction under Section 80 IB on the assessee satisfying the conditions mentioned in sub-section. (2) of Section 80 IB, cannot the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, it ceases to be a small scale industry.

A three-judge bench of Justice Ranjan Gogoi, Justice AK Goel and Justice Navin Sinha observed that the assessee, having not retained the character of ‘small scale industrial undertaking’, is not eligible to the incentive meant for that category and permitting incentive in such case will be against the object of law.

“There is no manner of doubt that incentive meant for small scale industrial undertakings cannot be availed by industrial undertakings which do not continue as small scale industrial undertakings during the relevant period. Needless to say, each assessment year is a different assessment year, except for block assessment,” the bench said.

The high court also disapproved the observation of the high court that, as the object of legislature is to encourage industrial expansion, incentive should remain applicable even where on account of industrial expansion small scale industrial undertakings ceases to be small scale industrial undertakings. “An incentive meant for small scale industrial undertaking cannot be availed by an assessee which is not such an undertaking. It does not, in any manner, mean that the object of permitting industrial expansion is defeated, if benefit is not allowed to other undertakings,” the bench said.

"Higher slabs of tax or higher tax burden on an assessee having higher income or higher capacity cannot in any manner, be considered unreasonable,” the bench observed while setting aside the high court judgment.

Read the Judgment Here