PR. COMMISSIONER OF INCOME TAX SHIMLAversusM/S AARHAM SOFTRONICS

                         [2019] 4 S.C.R. 409                              409


          PR. COMMISSIONER OF INCOME TAX, SHIMLA                          A
                                  v.
                  M/S. AARHAM SOFTRONICS
                   (Civil Appeal No. 1784 of 2019)
                        FEBRUARY 20, 2019                                 B
  [A. K. SIKRI, S. ABDUL NAZEER AND M. R. SHAH, JJ.]
       Income Tax Act, 1961 – ss.80-IA, 80-IB, 80-IC – ‘Initial
Assessment Year’ u/s.80-IC – U/s.80-IC an undertaking or enterprise,
in certain special category states, which has inter alia, begun or
                                                                          C
begins to manufacture or produce any article or thing by setting up
a new factory in the area specified therein, is allowed, deduction
from profits and gains u/sub-s.(3) of s.80-IC– Sub-s.(3) of s.80-IC
inter alia states that a category of undertakings or enterprises
(present cases belong to this category) are allowed exemption @
100% of profits and gains for five assessment years commencing            D
with the initial assessment year and @ 25% of profits and gains for
the next five years, thus deduction being for a total of 10 years –
Deduction was also provided to existing units if substantial expansion
thereof was carried out – Assessees set up new industrial units and
availed 100% deduction for 5 years and after carrying out
                                                                          E
“substantial expansion” claimed deduction @ 100% instead of 25%
for another 5 years – If entitled to – High Court answered in
affirmative – Held: Sub-sec.(6) of s.80-IC puts a cap of 10 years,
which is the maximum period for which the deduction can be allowed
to any undertaking or enterprise under this section, starting from
the initial Assessment Year – Clause (v) of sub-sec.(8) of s.80-IC        F
provides definition of ‘initial assessment year’, for the purpose of
this very section, i.e.s.80-IC – As per this definition, there can be
‘initial assessment year’, relevant to previous year, in any of the
following contingencies:(i) the previous year in which the
undertaking or the enterprise begins to manufacture or produce
                                                                          G
article or things; or (ii) completes substantial expansion – Thus,
benefit of s.80-IC is admissible not only when an undertaking or
enterprise sets up new unit and starts manufacturing or producing
article or things but, is also accrued to those existing units, if they
carry out “substantial expansion” of their units by investing required
                                                                          H
                                 409
410            SUPREME COURT REPORTS                       [2019] 4 S.C.R.


A     capital, in the assessment year relevant to the previous year – Thus,
      definition of ‘initial assessment year’ contained in clause (v) of sub-
      sec.(8) of s.80-IC can lead to a situation where there can be more
      than one “initial assessment year” within the period of 10 years –
      Judgment in Classic Binding Industries holding that there cannot
      be two assessment years within a span of 10 years u/sub-sec.(6) of
B
      s.80-IC does not lay down correct law – No reason as to why 100%
      deduction of the profits and gains be not allowed to even those
      units who availed this deduction on setting up a new unit and have
      now invested huge amount with substantial expansion of those units.
            Income Tax Act, 1961 – ss.80-IB(14) and 80-IC –
C     Held: s. 80-IB(14) starts with the words ‘for the purpose of this
      section’ – Thus, ‘initial assessment year’ defined therein is relatable
      only to the deductions that are provided under the provisions of
      s.80-IB – s.80-IB is materially different from s.80-IC.
            Income Tax Act, 1961 – s.80-IC – Purpose of – Explained.
D
            Disposing of the appeals, the Court
             HELD: 1.1 Sub-section (2) of Section 80-IC, Income Tax
      Act, 1961 applies to an undertaking or enterprise which has, inter
      alia, begun or begins to manufacture or produce any article or
E     thing by setting up a new factory in the area specified therein
      which includes State of Himachal Pradesh as well. Sub-section
      (3) of Section 80-IC inter alia states that a category of
      undertakings or enterprises (present cases belong to that
      category) where the exemption is at the rate of 100% of profits
      and gains for five assessment years commencing with the initial
F     assessment year and, thereafter, 25% of profits and gains. Total
      exemption, thus, is for a period of 10 years, namely, @100% for
      1st five years and @ 25% for remaining five years. The provisions
      of Section 80-IC provided deduction to manufacturing units
      situated in the State of Sikkim, Himachal Pradesh and Uttaranchal
G     and North-Eastern States. The deduction was provided to new
      units established in the aforesaid States, and also to existing units
      in those States if substantial expansion was carried out.
      [Paras 8, 9][417-F-H; 418-A, B; 421-D, E]
          1.2 Sub-section (3) mentions the period of 10 years
      commencing with the initial Assessment Year. Subsection (6) puts
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      PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                       411
              M/S. AARHAM SOFTRONICS

a cap of 10 years, which is the maximum period for which the          A
deduction can be allowed to any undertaking or enterprise under
this section, starting from the initial Assessment Year. Another
significant feature under sub-section (3) is that the deduction
allowable is 100% of such profits and gains from an undertaking
or an enterprise for five Assessment Years commencing with the
                                                                      B
initial Assessment Year and thereafter the deduction is allowable
at 25% (or 30% where the assessee is a company) of the profits
and gains. [Para 10][422-A, B]
        1.3 In Commissioner of Income Tax vs. M/s. Classic
Binding Industries case Supreme Court took the view that once
‘initial assessment year’ starts on fulfilling the conditions laid    C
down in sub-section (2) of Section 80-IC, there cannot be another
‘initial assessment year’ for the purposes of Section 80-IC within
the aforesaid period of 10 years. While doing so, the Court
referred to Section 80-IB(14)(c) of the Act, on the basis of which
an opinion was formed that there cannot be another ‘initial           D
assessment year’ for the purpose of Section 80-IC within the
aforesaid period of 10 years. This is the apparent error which
was committed. Section 80-IB(14) starts with the words ‘for the
purpose of this section’. Thus, ‘initial assessment year’ defined
therein is relatable only to the deductions that are provided under
the provisions of Section 80-IB, namely, in respect of profits and    E
gains from certain industrial undertakings other than
infrastructure development undertakings. Section 80-IB is
materially different from Section 80-IC of the Act. Inasmuch as
Section 80-IC is a special provision in respect of certain
undertakings, all enterprises mentioned in Section 80-IC are          F
limited in contrast with Section 80-IB, the deduction under this
Section is available only when such undertakings or enterprises
are established in particular States, Sikkim, Himachal Pradesh,
Uttaranchal or any of the North-Eastern States. Further, Sub-
section (3) of Section 80-IC mentions about the deduction that is
permissible, namely, 100% deduction of the profits and gains for      G
first five years and 25% (or 30% where the assessee is a company)
for the next five years. This sub-section, in any case, does not
deal with the ‘initial assessment year’. Clause (v) of sub-section
(8) of Section 80-IC is the concerned provision which provides
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412            SUPREME COURT REPORTS                     [2019] 4 S.C.R.


A     definition of ‘initial assessment year’, for the purpose of this very
      Section, i.e., Section 80-IC, which was not noticed while
      pronouncing the judgment in Commissioner of Income Tax vs.
      M/s. Classic Binding Industries case. There is substance in this
      submission of the assessees. The Court has no hesitation to
      accept this mistake which occurred in the aforesaid judgment.
B
      The Court specifically dealt with ‘initial assessment year’ and
      came to conclusion that there cannot be two initial assessment
      years within a span of 10 years which is the maximum period for
      allowing deduction as per sub-section (6) of Section 80-IC. As
      the issue directly concerned with initial assessment year, its
C     definition contained in that very Section was missed out. To that
      extent, there is an error in the judgment dated 20th August, 2018
      in Classic Binding Industries case. [Paras 12, 13][423-B-H;
      424-A, B]
            1.4 As per definition in Section 80-IC, there can be ‘initial
D     assessment year’, relevant to previous year, in any of the following
      contingencies: (i) The previous year in which the undertaking or
      the enterprise begins to manufacture or produce article or things;
      or (ii) Commences operation; or (iii) Completes substantial
      expansion. First two events are relatable to new units whereas
      third incident would occur in respect of existing units. The benefit
E     of Seciton 80-IC is, thus, admissible not only when an undertaking
      or enterprise sets up new unit and starts manufacturing or
      producing article or things. The advantage of this provisions is
      also accrued to those existing units, if they carry out “substantial
      expansion” of their units by investing required capital, in the
F     assessment year relevant to the previous year. “Substantial
      expansion” is defined in clause (ix) of sub-section (8) of Section
      80-IC. As per the aforesaid definition, an existing unit would be
      treated as having carried out substantial expansion when there
      is increase in the investment in the plant and machinery by at
      least 50% of the book value of the plant and machinery (before
G     taking depreciation in any year). In all these cases at hand, the
      assessees had initially set up new industry in the State of Himachal
      Pradesh of the nature specified under Section 80-IC of the Act.
      As a result, they became entitled to avail the concession provided
      in the said provision. It is also an admitted fact that after five
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      PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                          413
              M/S. AARHAM SOFTRONICS

years and before the expiry of 10 years, the assessees had carried       A
substantial expansion of their units in terms of the aforesaid
definition. There can be another ‘initial assessment year’ on the
fulfillment of the condition mentioned in the said definition, namely,
completion of substantial expansion of the existing unit.
[Paras 16, 17][424-F-H; 425-A, C-E]
                                                                         B
       1.5 The definition of ‘initial assessment year’ contained in
clause (v) of sub-section (8) of Section 80-IC can lead to a situation
where there can be more than one “initial assessment year” within
the said period of 10 years. As per sub-section (6), cap is on the
10 assessment years. It is not on quantum. The purpose for
which Section 80-IC was enacted was to establish the business            C
of the nature specified in the said provision in the specified States.
This provision was, thus, aimed at encouraging the undertakings
or enterprises to establish and set up such units in the aforesaid
States to make them industrially advanced States as well.
Undoubtedly, these are difficult States as most of these States fall     D
in hilly areas. Therefore, cost of production and transportation
may also go up. [Para 19][426-D-F]
       1.6 When these objectives for which Section 80-IC was
enacted, are kept in mind an irresistible conclusion would be to
grant 100% deduction of the profits and gains even from the year         E
when there is substantial expansion in the existing unit. After
all, this substantial expansion involves great deal of investment
which has to be, at least 50% in the plant and machinery, of the
book value thereof before taking depreciation in any year. With
an expansion of such a nature not only there would be increase in
production but generation of more employment as well, which              F
would benefit the local populace. It is for this reason, carrying
out substantial expansion by itself is treated as ‘initial assessment
year’. It would mean that even when an old unit completes
substantial expansion, such a unit also becomes entitled to avail
the benefit of Section 80-IC. If that is the purpose of the              G
legislature, there is no reason as to why 100% deduction of the
profits and gains be not allowed to even those units who had
availed this deduction on setting up of a new unit and have now
invested huge amount with substantial expansion of those units.
It would be pertinent to point out that in Para 20 of the judgment
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414            SUPREME COURT REPORTS                    [2019] 4 S.C.R.


A     in Classic Binding Industries, this Court observed that if
      deduction @ 100% for the entire period of 10 years, it would be
      doing violence to the language of sub-section (6) of Section 80-
      IC. However, this observation came without noticing the
      definition of ‘initial assessment year’ contained in the same very
      provision. [Paras 20, 22][426-F-H; 427-A, B; 431-B, C]
B
           1.7 The aforesaid discussion leads to the following
      conclusions:
            (a) Judgment dated 20th August, 2018 in Classic Binding
      Industries case omitted to take note of the definition ‘initial
C     assessment year’ contained in Section 80-IC itself and instead
      based its conclusion on the definition contained in Section 80-
      IB, which does not apply in these cases. The definitions of ‘initial
      assessment year’ in the two sections, viz. Sections 80-IB and 80-
      IC are materially different. The definition of ‘initial assessment
      year’ under Section 80-IC has made all the difference. Therefore,
D     we are of the opinion that the aforesaid judgment does not lay
      down the correct law.
            (b) An undertaking or an enterprise which had set up a
      new unit between 7th January, 2003 and 1st April, 2012 in State of
      Himachal Pradesh of the nature mentioned in clause (ii) of sub-
E     section (2) of Section 80-IC, would be entitled to deduction at
      the rate of 100% of the profits and gains for five assessment
      years commencing with the ‘initial assessment year’. For the
      next five years, the admissible deduction would be 25% (or 30%
      where the assessee is a company) of the profits and gains.
F           (c) However, in case substantial expansion is carried out
      as defined in clause (ix) of sub-section (8) of Section 80-IC by
      such an undertaking or enterprise, within the aforesaid period of
      10 years, the said previous year in which the substantial expansion
      is undertaken would become ‘initial assessment year’, and from
G     that assessment year the assessee shall be entitled to 100%
      deductions of the profits and gains.
           (d) Such deduction, however, would be for a total period of
      10 years, as provided in sub-section (6). For example, if the
      expansion is carried out immediately, on the completion of first
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      PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                           415
              M/S. AARHAM SOFTRONICS

five years, the assessee would be entitled to 100% deduction              A
again for the next five years. On the other hand, if substantial
expansion is undertaken, say, in 8th year by an assessee such an
assessee would be entitled to 100% deduction for the first five
years, deduction @ 25% of the profits and gains for the next two
years and @ 100% again from 8th year as this year becomes ‘initial
                                                                          B
assessment year’ once again. However, this 100% deduction
would be for remaining three years, i.e., 8 th, 9 th and 10 th
assessment years. [Para 24][431-F-H; 432-A-F]
      Commissioner of Income Tax v. M/s. Classic Binding
      Industries (2018) 9 SCC 753 – held not correct law.
                                                                          C
      Commissioner of Customs (Import), Mumbai v. Dilip
      Kumar and Company and Others (2018) 9 SCC 1 :
      [2018] 7 SCR 1191 – followed.
      Mahabir Industries v. Principal Commissioner of
      Income Tax Civil Appeal Nos. 4765-4766 of 2018                      D
      decided on May 18, 2018 – referred to.
                       Case Law Reference
(2018) 9 SCC 753                held not correct law Para 13
[2018] 7 SCR 1191               followed                 Para 20
                                                                          E
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1784
of 2019
      From the Judgment and Order dated 26.02.2018 of the High
Court of Himachal Pradesh, Shimla in I.T.A. No. 25 of 2015
                                 With                                     F

      Civil Appeal Nos. 1785, 1786, 1787, 1788, 1789, 1790, 1797, 1796,
1795, 1798, of 2019, Misc. Application No. 2840 of 2018 in Civil Appeal
No. 7217 of 2018, Misc. Application No. 2880 of 2018 in Civil Appeal
No. 7218 of 2018, Misc. Application No. 2841 of 2018 in Civil Appeal
No. 7221 of 2018, Misc. Application No. 2976 of 2018 in Civil Appeal      G
No. 7223 of 2018, Misc. Application No. 2850 of 2018 in Civil Appeal
No. 7215 of 2018, Misc. Application No. 2852 of 2018 in Civil Appeal
No. 7236 of 2018, Misc. Application No. 2879 of 2018 in Civil Appeal
No. 7222 of 2018.
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416            SUPREME COURT REPORTS                         [2019] 4 S.C.R.


A            A. N. S. Nadkarni, ASG, K. Radhakrishnan, Mukul Rohatgi, Kapil
      Sibal, Arvind P. Datar, Sr. Advs., H. Raghavendra Rao, Arijit Prasad,
      A. K. Srivastav, Mrs. Anil Katiyar, Jay Savla, Sameer Rohatgi,
      Ms. Renuka Sahu, Jasdeep Singh Dhillon, Prabhat Kumar Chaurasia,
      Dushyant Tiwari, Rohit Kaura, Anish R. Shah, Puneet Jain, Ms. Christi
      Jain, Abhinav Gupta, Harsh Jain, Ms. Ankita Gupta, Abhinav Deshwal,
B
      R. Jawahar Lal, Siddharth Bawa, Shyamal Anand, Mayankshir Sagar,
      Balaji Srinivasan, Advs. for the appearing parties.
            The Judgment of the Court was delivered by
            A. K. SIKRI, J.
C           SLP(C) Nos. 23172 of 2018, 23176 of 2018, 23179 of 2018,
            24678 of 2018, 23414 of 2018, 24679 of 2018, 2296 of 2019,
            1983 of 2019, 3278 of 2019 and 4483 of 2019 :
            1. Leave granted.

D            2. Origin of these appeals can be traced to the judgment dated
      28th November, 2017 rendered by High Court of Himachal Pradesh in a
      batch of appeals. Vide the said judgment, the High Court decided many
      issues. However, in these proceedings we are concerned with only one
      question of law which is formulated in the following terms:
            “Whether an assessee who sets up a new industry of a kind
E
            mentioned in sub-section (2) of Section 80-IC of the Act and starts
            availing exemption of 100 per cent tax under sub-section (3) of
            Section 80-IC (which is admissible for five years) can start claiming
            the exemption at the same rate of 100% beyond the period of five
            years on the ground that the assessee has now carried out
F           substantial expansion in its manufacturing unit?”
             3. The High Court has answered the aforesaid question in the
      affirmative thereby holding that when the assessees started availing
      exemption of 100% tax on the setting up of a new industry of the kind
      mentioned in sub-section (2) of Section 80IC, which is admissible for 5
G     years, and either on the expiry of 5 years or thereafter (but within 10
      years) from the date when these assessees started availing exemption,
      they carried out substantial expansion of its industry, from that year the
      assessees become entitled to claim exemption @ 100% again.
           4. The Income Tax Department (hereinafter referred to as the
H     ‘Revenue’) had challenged the judgment of the High Court on the
      PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                               417
        M/S. AARHAM SOFTRONICS [A. K. SIKRI, J.]

aforesaid issue by filing number of special leave petitions which were        A
converted into appeals after leave was granted in those special leave
petitions. Thereafter, these appeals were heard and decided by a Division
Bench of this Court, which comprised one of us (A.K. Sikri, J.). By its
judgment dated August 20, 2018. The judgment of the High Court was
reversed on the aforesaid issue.
                                                                              B
       5. It so happened that in some of the appeals, assessees who
were respondents, were not served with the notice and they remained
unrepresented. Since the appeals in respect of these assessees were
decided in their absence, they filed miscellaneous applications for recall
of the order, with prayer to decide the appeals afresh after giving hearing
to them. Since, these assessees remained unrepresented, as even the           C
notice was not served upon them, by a separate order passed in their
cases, those applications have been allowed and their appeals being C.A.
No. 7218, 7222, 7236, 7215, 7221, 7217 and 7223 of 2018 have been
restored. Even the Revenue has filed few SLPs against the common
judgment of the High Court as these SLPs were not filed earlier when          D
batch of appeals was decided on 20th August, 2018 by this Court. Appeals
arising out of these SLPs have also been heard along with other appeals
in which the earlier judgment rendered has been recalled. All these
appeals have been heard afresh and are being disposed of by the present
judgment.
                                                                              E
       6. We have already taken note of the question of law that arises
for determination. Factual background in which this question of law
arises for consideration has been taken note of in the judgment dated
20th August, 2018 which may again be reiterated, in order to understand
the niceties of this issue:
                                                                              F
       To understand the aforesaid question of law in clear terms, it may
be mentioned at this stage itself that sub-section (2) of Section 80-IC
applies to an undertaking or enterprise which has, inter alia, begun or
begins to manufacture or produce any article or thing by setting up a
new factory in the area specified therein which includes State of Himachal
Pradesh as well. Sub-section (3) of Section 80-IC is in two parts: in         G
certain cases, exemption from income is provided at the rate of 100% of
such profits and gains earned from the aforesaid undertaking or enterprise
for 10 assessment years commencing with the initial assessment year.
The present appeals do not fall in that category. Other clause relates to
another category of undertakings or enterprises (these cases belong to        H
418             SUPREME COURT REPORTS                           [2019] 4 S.C.R.


A     that category) where the exemption is at the rate Civil Appeal No. 7208
      OF 2018 & Ors. Page 4 of 17 of 100% of profits and gains for five
      assessment years commencing with the initial assessment year and,
      thereafter, 25% of profits and gains. Total exemption, thus, is for a period
      of 10 years, namely, @100% for 1st five years and @ 25% for remaining
      five years. In these cases, all the assessees started claiming exemption
B
      @ 100% on profits and gains and availed it for a period of five years.
      During this period these assessees carried out “substantial expansion”
      and they claimed that, on that basis, they should be allowed exemption
      from profits and gains for another five years @ 100% instead of 25%
      from 6th to 10th year as well. Interestingly, they admit that the total
C     period during which they are entitled to exemption would not exceed 10
      years, as per the mandate of sub-section (6). In this backdrop, the question
      is as to whether the assessees can again start claiming 100% exemption
      for the next five years from profits and gains after availing the same for
      first five years on the ground that they have now carried out substantial
      expansion. The High Court has answered the question in affirmative
D
      and for this reason, it is the department which has come up to this Court
      challenging the said decision by filing these appeals.
             Section 80-IA was inserted by the Finance (No. 2) Act, 1991,
      with effect from 1st April, 1991. By virtue of said Section, the gross total
      income (profits and gains) of an assessee derived from any business of
E     an industrial undertaking, so specified therein, was entitled to certain
      deductions for a period commencing from 1st April, 1993. With effect
      from 1st April, 2000, the said provision was bifurcated with the insertion
      of another Section, i.e., 80-IB, dealing with “certain industrial undertakings
      other than infrastructure development undertakings.” Thereafter, the
F     Legislator, in its wisdom, enacted a special provision, in respect of “units”
      established in certain special category States. Thus, Section 80-IC came
      to be inserted by virtue of Finance Act, 2003, applicable with effect
      from 1st April, 2004. At this point., It may only be noticed that
      correspondingly certain provisions of Section 80-IB were also amended/
      repealed. Deductions under the said Section were discontinued for the
G     Assessment Years commencing from 1st April, 2004 (Sub-section (4) of
      Section 80- IB).
            7. At this juncture, we would like to take note of the relevant
      provisions of Section 80-IC of the Act. Therefore, we extract below the
      relevant portion of this provision:
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PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                             419
  M/S. AARHAM SOFTRONICS [A. K. SIKRI, J.]

“[80-IC. Special provisions in respect of certain                     A
undertakings or enterprises in certain special category
States.—(1) Where the gross total income of an assessee includes
any profits and gains derived by an undertaking or an enterprise
from any business referred to in sub-section (2), there shall, in
accordance with and subject to the provisions of this section, be
                                                                      B
allowed, in computing the total income of the assessee, a deduction
from such profits and gains, as specified in sub-section (3).
(2) This section applies to any undertaking or enterprise,—
(a) which has begun or begins to manufacture or produce any
article or thing, not being any article or thing specified in the     C
Thirteenth Schedule, or which manufactures or produces any
article or thing, not being any article or thing specified in the
Thirteenth Schedule and undertakes substantial expansion during
the period beginning—
   (i) on the 23rd day of December, 2002 and ending before the 2      D
   [1st day of April, 2007], in any Export Processing Zone or
   Integrated Infrastructure Development Centre or Industrial
   Growth Centre or Industrial Estate or Industrial Park or
   Software Technology Park or Industrial Area or Theme Park,
   as notified by the Board in accordance with the scheme framed
   and notified by the Central Government in this regard, in the      E
   State of Sikkim; or
   (ii) on the 7th day of January, 2003 and ending before the 1st
   day of April, 2012, in any Export Processing Zone or Integrated
   Infrastructure Development Centre or Industrial Growth Centre
   or Industrial Estate or Industrial Park or Software Technology     F
   Park or Industrial Area or Theme Park, as notified by the Board
   in accordance with the scheme framed and notified by the
   Central Government in this regard, in the State of Himachal
   Pradesh or the State of Uttaranchal; or
   (iii) on the 24th day of December, 1997 and ending before the      G
   1st day of April, 2007, in any Export Processing Zone or
   Integrated Infrastructure Development Centre or Industrial
   Growth Centre or Industrial Estate or Industrial Park or
   Software Technology Park or Industrial Area or Theme Park,
   as notified by the Board in accordance with the scheme framed
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420      SUPREME COURT REPORTS                         [2019] 4 S.C.R.


A        and notified by the Central Government in this regard, in any
         of the North-Eastern States;
      (b) which has begun or begins to manufacture or produce any
      article or thing, specified in the Fourteenth Schedule or
      commences any operation specified in that Schedule, or which
B     manufactures or produces any article or thing, specified in the
      Fourteenth Schedule or commences any operation specified in
      that Schedule and undertakes substantial expansion during the
      period beginning—
      (i) on the 23rd day of December, 2002 and ending before the 2
C     [1st day of April, 2007], in the State of Sikkim; or
      (ii) on the 7th day of January, 2003 and ending before the 1st day
      of April, 2012, in the State of Himachal Pradesh or the State of
      Uttaranchal; or
      (iii) on the 24th day of December, 1997 and ending before the 1st
D     day of April, 2007, in any of the North-Eastern States.
      (3) The deduction referred to in sub-section (1) shall be—
      xxx       xxx      xxx
      (ii) in the case of any undertaking or enterprise referred to in sub-
E     clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-
      section (2), one hundred per cent of such profits and gains for
      five assessment years commencing with the initial assessment
      year and thereafter, twenty-five per cent. (or thirty per cent. where
      the assessee is a company) of the profits and gains.
F     xxx       xxx      xxx
      (6) Notwithstanding anything contained in this Act, no deduction
      shall be allowed to any undertaking or enterprise under this section,
      where the total period of deduction inclusive of the period of
      deduction under this section, or under the second proviso to sub-
G     section (4) of section 80-IB or under section 10C, as the case
      may be, exceeds ten assessment years.
      (8) For the purposes of this section,—
      xxx       xxx      xxx

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      PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                              421
        M/S. AARHAM SOFTRONICS [A. K. SIKRI, J.]

      (v) “Initial assessment year” means the assessment year relevant       A
      to the previous year in which the undertaking or the enterprise
      begins to manufacture or produce articles or things, or commences
      operation or completes substantial expansion;
      xxx        xxx     xxx
      (ix) “Substantial expansion” means increase in the investment in       B
      the plant and machinery by at least fifty per cent of the book
      value of plant and machinery (before taking depreciation in any
      year), as on the first day of the previous year in which the
      substantial expansion is undertaken.
       8. This section makes special provisions in respect of certain        C
undertakings or enterprises in certain special category States. Section
80-IC was inserted by the Finance Act, 2003 w.e.f. Civil Appeal No.
7208 OF 2018 & Ors. Page 12 of 17 April 1, 2004. As per this provision,
certain undertakings or enterprises in certain special category States
are allowed deduction from such profits and gains, as specified in sub-      D
section (3) of Section 80-IC. The provisions of Section 80-IC provided
deduction to manufacturing units situated in the State of Sikkim, Himachal
Pradesh and Uttaranchal and North-Eastern States. The deduction was
provided to new units established in the aforesaid States, and also to
existing units in those States if substantial expansion was carried out.
The deduction was available @ 100% for ten Assessment Years for the          E
units located in North-Eastern and in the State of Sikkim and for the
units located in Himachal Pradesh, the deduction was available @ 100%
for five years and @ 25% for next five years.
       9. In all these cases assessees had started availing exemption
under Section 80-IC on the setting up of new industrial units. All these     F
assessees have availed 100% deduction for a period of 5 years. As
noticed above, from sixth year, in normal course, deduction is admissible
@ 25% of the profits and gains, for next five years (or 30% where the
assessee is a company. However, all these assessees, after the expiry
of five years, carried out substantial expansion of their existing units.    G
This substantial expansion is in accordance with the provisions of Section
80-IC and there is no dispute about the same. From the year such
substantial explanations were carried out by the assessees, the assessees
demanded deduction @ 100%, instead of 25%/30% for the remaining
period of 10 years which is the maximum period for which deduction is
admissible.                                                                  H
422             SUPREME COURT REPORTS                         [2019] 4 S.C.R.


A            10. Sub-section (3), as noted above, mentions the period of 10
      years commencing with the initial Assessment Year. Subsection (6) puts
      a cap of 10 years, which is the maximum period for which the deduction
      can be allowed to any undertaking or enterprise under this section, starting
      from the initial Assessment Year. Another significant feature under sub-
      section (3) is that the deduction allowable is 100% of such profits and
B
      gains from an undertaking or an enterprise for five Assessment Years
      commencing with the initial Assessment Year and thereafter the deduction
      is allowable at 25% (or 30% where the assessee is a company) of the
      profits and gains. It brings out the following aspects:
            (a) Those undertakings or enterprises fulfilling the conditions
C           mentioned in sub-section (2) of Section 80-IC become entitled to
            deduction under this provision.
            (b) This deduction is allowable from the initial Assessment Year.
            ‘Initial Assessment Year’ is defined in Section 80-IB(14)(c) of
            the Act.
D
            (c) The deduction is @ 100% of such profits and gains for first 5
            Assessment Years and thereafter a deduction is permissible @
            25% (or 30% where the assessee is a company).
            (d) Total period of deduction is 10 years, which means 100%
E           deduction for first 5 years from the initial Assessment Year and
            25% (or 30% where the assessee is a company) for the next 5
            years.
             11. In the judgment dated 20th August, 2018, while holding that
      deduction @ 100% cannot be allowed for more than 5 years from the
F     ’initial assessment year’, the reasoning that was given is contained in
      paragraph 20 of the judgment. Which reads as under:
            “When we keep in mind the aforesaid scheme and spirit behind
            this provision, such a situation cannot be countenanced where an
            Civil Appeal No. 7208 OF 2018 & Ors. Page 14 of 17 assessee is
            able to secure deduction @ 100% for the entire period of 10 years.
G
            If that is allowed it will amount to doing violence to the provisions
            of sub-section (3) read with sub-section (6) of Section 80-IC. A
            pragmatic and reasonable interpretation of Section 80-IC would
            be to hold that once the initial Assessment Year commences and
            an assessee, by virtue of fulfilling the conditions laid down in sub-
H
       PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                                   423
         M/S. AARHAM SOFTRONICS [A. K. SIKRI, J.]

       section (2) of Section 80-IC, starts enjoying deduction, there cannot       A
       be another “Initial Assessment Year” for the purposes of Section
       80-IC within the aforesaid period of 10 years, on the basis that it
       had carried substantial expansion in its unit.”
        12. As can be seen from the aforesaid passage, this Court took
the view that once ‘initial assessment year’ starts on fulfilling the conditions   B
laid down in sub-section (2) of Section 80-IC, there cannot be another
‘initial assessment year’ for the purposes of Section 80-IC within the
aforesaid period of 10 years. While doing so, the Court referred to
Section 80-IB(14)(c) of the Act, on the basis of which an opinion was
formed that there cannot be another ‘initial assessment year’ for the
purpose of Section 80-IC within the aforesaid period of 10 years. As               C
pointed out in the later part of the judgment, this is the apparent error
which was committed. Section 80-IB(14) starts with the words ‘for the
purpose of this section’. Thus, ‘initial assessment year’ defined therein
is relatable only to the deductions that are provided under the provisions
of Section 80-IB, namely, in respect of profits and gains from certain             D
industrial undertakings other than infrastructure development
undertakings. Section 80-IB is materially different from Section 80-IC
of the Act. Inasmuch as Section 80-IC is a special provision in respect
of certain undertakings, all enterprises mentioned in Section 80-IC are
limited in contrast with Section 80-IB, the deduction under this Section is
available only when such undertakings or enterprises are established in            E
particular States, Sikkim, Himachal Pradesh, Uttaranchal or any of the
North-Eastern States. Therefore, definition of ‘initial assessment year’
mentioned in Section 80-IB could not have been the basis of finding out
the definition of ‘initial assessment year’ which is different from the
definition contained in Section 80-IB. Further, Sub-section (3) of Section         F
80-IC mentions about the deduction that is permissible, namely, 100%
deduction of the profits and gains for first five years and 25% (or 30%
where the assessee is a company) for the next five years. This sub-
section, in any case, does not deal with the ‘initial assessment year’.
       13. Learned counsel appearing for the assessees pointed out before          G
us that clause (v) of sub-section (8) of Section 80-IC is the concerned
provision which provides definition of ‘initial assessment year’, for the
purpose of this very Section, i.e., Section 80-IC, which was not noticed
while pronouncing the judgment in Commissioner of Income Tax vs.
M/s. Classic Binding Industries case. We find substance in this
                                                                                   H
424             SUPREME COURT REPORTS                         [2019] 4 S.C.R.


A     submission of the assessees. We have no hesitation to accept this mistake
      which occurred in the aforesaid judgment. The Court specifically dealt
      with ‘initial assessment year’ and came into conclusion that there cannot
      be two initial assessment years within a span of 10 years which is the
      maximum period for allowing deduction as per sub-section (6) of Section
      80-IC. As the issue directly concerned with initial assessment year, its
B
      definition contained in that very Section was missed out. To that extent,
      there is an error in the judgment dated 20th August, 2018 in Classic
      Binding Industries case.
              14. In the aforesaid conspectus, the focus has to be on the question
      as to whether definition of ‘initial assessment year’ contained in clause
C     (v) of sub-section (8) of Section 80-IC makes any difference? We would
      like to reproduce the said definition once again, hereunder, for the purpose
      of continuity of thought process.
            “S. 80-IC : xxx     xxx      xxx
D           (8) xxx    xxx      xxx
            (v) - Initial assessment year means the assessment year relevant
            to the previous year in which the undertaking or the enterprise
            begins to manufacture or produce articles or things, or commences
            operation or completes substantial expansion”
E           15. On the basis of this definition, counsel for the assessees before
      us have argued that there can be more than one ‘initial assessment year’
      which can be triggered by the contingency provided therein.
            16. As per this definition, there can be ‘initial assessment year’,
      relevant to previous year, in any of the following contingencies:
F
            (i) The previous year in which the undertaking or the enterprise
            begins to manufacture or produce article or things; or
            (ii) Commences operation; or
            (iii) Completes substantial expansion
G            First two events are relatable to new units whereas third incident
      would occur in respect of existing units. The benefit of Seciton 80-IC is,
      thus, admissible not only when an undertaking or enterprise sets up new
      unit and starts manufacturing or producing article or things. The
      advantage of this provisions is also accrued to those existing units, if
H     they carry out “substantial expansion” of their units by investing required
       PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                                425
         M/S. AARHAM SOFTRONICS [A. K. SIKRI, J.]

capital, in the assessment year relevant to the previous year. “Substantial     A
expansion” is defined in clause (ix) of sub-section (8) of Section 80-IC
and it reads as under:
      “(ix) “Substantial expansion” means increase in the investment in
      the plant and machinery by at least fifty per cent of the book
      value of plant and machinery (before taking depreciation in any           B
      year), as on the first day of the previous year in which the
      substantial expansion is undertaken;
       17. As per the aforesaid definition, an existing unit would be treated
as having carried out substantial expansion when there is increase in the
investment in the plant and machinery by at least 50% of the book value         C
of the plant and machinery (before taking depreciation in any year). As
already noted above, in all these cases at hand, the assessees had initially
set up new industry in the State of Himachal Pradesh of the nature
specified under Section 80-IC of the Act. As a result, they became
entitled to avail the concession provided in the said provision. It is also
an admitted fact that after five years and before the expiry of 10 years,       D
the assessees had carried substantial expansion of their units in terms of
the aforesaid definition. When we consider the definition of ‘initial
assessment year’, keeping in view these factors, we find substance in
the submissions made by the learned counsel for the assessees and are
inclined to accept that there can be another ‘initial assessment year’ on       E
the fulfillment of the condition mentioned in the said definition, namely,
completion of substantial expansion of the existing unit.
       18. The Court is supposed to give effect to the provisions of Section
80-IC by reading various provisions conjointly. For the purpose of these
cases, relevant provisions are sub-section (2)(a)(ii), sub-section 3(ii),       F
sub-section (6) and sub-section (8)(v) and (ix). Clause (ii) of sub-section
(2) provides that in case an undertaking or enterprise sets up a unit of
the nature specified therein in the State of Himachal Pradesh or the
State of Uttaranchal between the 7th January, 2003 and 1st April, 2015,
such an undertaking or enterprise shall become eligible for the deductions
from such profits and gains, as specified in sub-section (3). In respect        G
of State of Himachal Pradesh (in respect of which these cases pertain
to) sub-section (3) enumerates the extent of deduction. It is 100% of
profits and gains for first five initial assessment years commencing with
the initial assessment year and thereafter 25% (or 30% where the
assessee is a company) of the profits and gains. The deduction @ 25%            H
426             SUPREME COURT REPORTS                           [2019] 4 S.C.R.


A     for the neat five years in on the assumption that the new unit remains
      static insofar as expansion thereof is concerned. However, the moment
      substantial expansion takes place, another ‘initial assessment year’ gets
      triggered. This new event entitles that unit to start getting deduction @
      100% of the profits and gains. At the same time, new period of 10 years
      does not start. It is because of the reason that total period for which
B
      deduction can be allowed is capped at 10 years, inasmuch as sub-section
      (6) in no uncertain terms stipulates that deduction shall be not allowed
      for a period exceeding 10 assessment years. In fact, this period of 10
      years relates not only in respect of deduction under Section 80-IC but
      under the second proviso to sub-section (4) of Section 80-IB as well. It
C     would mean that total deduction under Section 80-IB as well as 80-IC is
      for a period of 10 years.
             19. Having examined the scheme in the aforesaid manner, we
      arrive at the conclusion that the definition of ‘initial assessment year’
      contained in clause (v) of sub-section (8) of Section 80-IC can lead to a
D     situation where there can be more than one “initial assessment year”
      within the said period of 10 years. As per sub-section (6), cap is on the
      10 assessment years. It is not on quantum. We have also to keep in
      mind the purpose for which Section 80-IC was enacted. The purpose
      was to establish the business of the nature specified in the said provision
      in the specified States. This provision was, thus, aimed at encouraging
E     the undertakings or enterprises to establish and set up such units in the
      aforesaid States to make them industrially advanced States as well.
      Undoubtedly, these are difficult States as most of these States fall in
      hilly areas. Therefore, cost of production and transportation may also
      go up.
F            20. When we keep in mind these objectives for which Section 80-
      IC was enacted, an irresistible conclusion would be to grant 100%
      deduction of the profits and gains even from the year when there is
      substantial expansion in the existing unit. After all, this substantial
      expansion involves great deal of investment which has to be, at least
G     50% in the plant and machinery, of the book value thereof before taking
      depreciation in any year. With an expansion of such a nature not only
      there would be increase in production but generation of more employment
      as well, which would benefit the local populace. It is for this reason,
      carrying out substantial expansion by itself is treated as ‘initial assessment
      year’. It would mean that even when an old unit completes substantial
H
         PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                                 427
           M/S. AARHAM SOFTRONICS [A. K. SIKRI, J.]

expansion, such a unit also becomes entitled to avail the benefit of Section       A
80-IC. If that is the purpose of the legislature, we see no reason as to
why 100% deduction of the profits and gains be not allowed to even
those units who had availed this deduction on setting up of a new unit
and have now invested huge amount with substantial expansion of those
units. We would like to reproduce following discussions from the
                                                                                   B
Constitution Bench judgment in Commissioner of Customs (Import),
Mumbai vs. Dilip Kumar and Company and Others1 :
         “20. It is well accepted that a statute must be construed according
         to the intention of the legislature and the courts should act upon
         the true intention of the legislation while applying law and while
         interpreting law. If a statutory provision is open to more than one       C
         meaning, the Court has to choose the interpretation which
         represents the intention of the legislature. In this connection, the
         following observations made by this Court in District Mining
         Officer v. TISCO [District Mining Officer v. TISCO, (2001) 7 SCC
         358] , may be noticed: (SCC pp. 382-83, para 18)                          D
             “18. … A statute is an edict of the legislature and in construing
             a statute, it is necessary, to seek the intention of its maker. A
             statute has to be construed according to the intent of them that
             make it and the duty of the court is to act upon the true intention
             of the legislature. If a statutory provision is open to more than     E
             one interpretation the court has to choose that interpretation
             which represents the true intention of the legislature. This task
             very often raises difficulties because of various reasons,
             inasmuch as the words used may not be scientific symbols
             having any precise or definite meaning and the language may
             be an imperfect medium to convey one’s thought or that the            F
             assembly of legislatures consisting of persons of various shades
             of opinion purport to convey a meaning which may be obscure.
             It is impossible even for the most imaginative legislature to
             forestall exhaustively situations and circumstances that may
             emerge after enacting a statute where its application may be          G
             called for. Nonetheless, the function of the courts is only to
             expound and not to legislate. Legislation in a modern State is
             actuated with some policy to curb some public evil or to
             effectuate some public benefit. The legislation is primarily
1
    (2018) 9 SCC 1
                                                                                   H
428      SUPREME COURT REPORTS                           [2019] 4 S.C.R.


A        directed to the problems before the legislature based on
         information derived from past and present experience. It may
         also be designed by use of general words to cover similar
         problems arising in future. But, from the very nature of things,
         it is impossible to anticipate fully the varied situations arising in
         future in which the application of the legislation in hand may
B
         be called for, and, words chosen to communicate such indefinite
         referents are bound to be in many cases lacking in clarity and
         precision and thus giving rise to controversial questions of
         construction. The process of construction combines both literal
         and purposive approaches. In other words, the legislative
C        intention i.e. the true or legal meaning of an enactment is derived
         by considering the meaning of the words used in the enactment
         in the light of any discernible purpose or object which
         comprehends the mischief and its remedy to which the
         enactment is directed.”
D     “28. The decision of this Court in Punjab Land Development
      and Reclamation Corpn. Ltd. v. Labour Court [Punjab Land
      Development and Reclamation Corpn. Ltd.v. Labour Court,
      (1990) 3 SCC 682 : 1991 SCC (L&S) 71] , made the said distinction,
      and explained the literal rule: (SCC p. 715, para 67)
E        “67. The literal rules of construction require the wording of
         the Act to be construed according to its literal and grammatical
         meaning, whatever the result may be. Unless otherwise
         provided, the same word must normally be construed throughout
         the Act in the same sense, and in the case of old statutes regard
         must be had to its contemporary meaning if there has been no
F        change with the passage of time.”
      That strict interpretation does not encompass strict literalism into
      its fold. It may be relevant to note that simply juxtaposing “strict
      interpretation” with “literal rule” would result in ignoring an
      important aspect that is “apparent legislative intent”. We are alive
G     to the fact that there may be overlapping in some cases between
      the aforesaid two rules. With certainty, we can observe that, “strict
      interpretation” does not encompass such literalism, which lead to
      absurdity and go against the legislative intent. As noted above, if
      literalism is at the far end of the spectrum, wherein it accepts no
H     implications or inferences, then “strict interpretation” can be
PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                                 429
  M/S. AARHAM SOFTRONICS [A. K. SIKRI, J.]

implied to accept some form of essential inferences which literal         A
rule may not accept.
29. We are not suggesting that literal rule dehors the strict
interpretation nor one should ignore to ascertain the interplay
between “strict interpretation” and “literal interpretation”. We may
reiterate at the cost of repetition that strict interpretation of a       B
statute certainly involves literal or plain meaning test. The other
tools of interpretation, namely, contextual or purposive interpretation
cannot be applied nor any resort be made to look to other supporting
material, especially in taxation statutes. Indeed, it is well settled
that in a taxation statute, there is no room for any intendment; that
regard must be had to the clear meaning of the words and that the         C
matter should be governed wholly by the language of the
notification. Equity has no place in interpretation of a tax statute.
Strictly one has to look to the language used; there is no room for
searching intendment nor drawing any presumption. Furthermore,
nothing has to be read into nor should anything be implied other          D
than essential inferences while considering a taxation statute.
30. Justice G.P. Singh, in his treatise Principles of Statutory
Interpretation (14th Edn. 2016 p. 879) after referring
to Micklethwait, In re [Micklethwait, In re, (1855)
LR 11 Ex 452 : 156 ER 908]; Partington v. Attorney                        E
General [Partington v. Attorney General, (1869) LR 4 HL 100]
, Rajasthan Rajya Sahakari Spg. & Ginning Mills Federation
Ltd. v. CIT [Rajasthan Rajya Sahakari Spg. & Ginning Mills
Federation Ltd. v. CIT, (2014) 11 SCC 672] , State Bank of
Travancore v. CIT [State Bank of Travancore v. CIT, (1986) 2
SCC 11 : 1986 SCC (Tax) 289] and Cape Brandy                              F
Syndicate v. IRC [Cape Brandy Syndicate v. IRC, (1921) 1 KB
64] , summed up the law in the following manner:
   “A taxing statute is to be strictly construed. The well-established
   rule in the familiar words of Lord Wensleydale, reaffirmed by
   Lord Halsbury [Ed.: Tennant v. Smith, 1892 AC 150 at p. 154]           G
   and Lord Simonds [Ed.: St Aubyn v. Attorney General, 1952
   AC 15 at p. 32 (HL)] , means:
   ‘“The subject is not to be taxed without clear words for that
   purpose; and also that every Act of Parliament must be read
   according to the natural construction of its words.”’                  H
430            SUPREME COURT REPORTS                         [2019] 4 S.C.R.


A           In a classic passage Lord Cairns stated the principle thus:
               ‘If the person sought to be taxed comes within the letter of the
               law he must be taxed, however great the hardship may appear
               to the judicial mind to be. On the other hand, if the Crown
               seeking to recover the tax, cannot bring the subject within the
B              letter of the law, the subject is free, however apparently within
               the spirit of law the case might otherwise appear to be. In
               other words, if there be admissible in any statute, what is called
               an equitable construction, certainly, such a construction is not
               admissible in a taxing statute where you can simply adhere to
               the words of the statute.’
C
            Viscount Simon quoted [Ed.: Canadian Eagle Oil Co.
            Ltd. v. Selection Trust Ltd., 1946 AC 119 at p. 140 (HL)] with
            approval a passage [Cape Brandy Syndicate v. IRC, (1921) 1
            KB 64] from Rowlatt, J. expressing the principle in the following
            words: (Cape Brandy case [Cape Brandy Syndicate v. IRC,
D           (1921) 1 KB 64] , KB p. 71)
               ‘… in a taxing Act one has to look merely at what is clearly
               said. There is no room for any intendment. There is no equity
               about a tax. There is no presumption as to a tax. Nothing is to
               be read in, nothing is to be implied. One can only look fairly at
E              the language used.’”
           21. The High Court has interpreted these provisions in the following
      manner:
            “80-IC(3)(ii) [for Himachal Pradesh] stipulates that deduction shall
F           be @ 100% for five years commencing with “initial assessment
            year” and thereafter @ 25%. “Initial assessment year”, as per
            Section 80-IC (8)(v) means, year in which the unit begins/
            commences to manufacture/produce or completes “substantial
            expansion” [As per Section 80-IC(8)(ix)].
            46. The moment “substantial expansion” is completed as per
G
            Section 80-IC(8)(ix), the statutory definition of “initial assessment
            year” [Section 80-IC(8)(v)] comes into play. And consequently,
            Section 80-IC(3)(ii) entitles the unit to 100% deduction for five
            years commencing with completion of “substantial expansion”,
            subject to maximum of ten years as per Section 80-IC(6).
H
         PR. COMMISSIONER OF INCOME TAX, SHIMLA v.                                431
           M/S. AARHAM SOFTRONICS [A. K. SIKRI, J.]

         47. A unit that started operating/existed before 7.1.2003 was entitled   A
         to 100% deduction for first five years under Section 80-IB(4). If
         this unit completes substantial expansion during the window period
         (7.1.2003 to 31.3.2012), it would be eligible for 100% deduction
         again for another five years under Section 80-IC(3)(ii), subject to
         ceiling of ten years as stipulated under Section 80-IC(6).”
                                                                                  B
         We are inclined to agree with the aforesaid interpretation.
       22. It would be pertinent to point out that in Para 20 of the judgment
in Classic Binding Industries, this Court observed that if deduction @
100% for the entire period of 10 years, it would be doing violence to the
language of sub-section (6) of Section 80-IC. However, this observation           C
came without noticing the definition of ‘initial assessment year’ contained
in the same very provision.
       23. Having examined the matter in the aforesaid perspective,
judgment in the case of Mahabir Industries v. Principal Commissioner
of Income Tax2 would, in fact, help the assessee. The fine distinction            D
pointed out in Classic Binding Industries elopes thereby. To
recapitulate, in Mahabir Industries, it was held that if an assessee get
100% exemption under Section 80-IB of the Act for five years and
thereafter carries out the substantial expansion because of which said
assessee becomes entitled to exemption under the new provision i.e.
Section 80-IC of the Act, the assessee would be entitled to deduction @           E
100% even after five years. This ruling was predicated on the ground
that there can be two initial assessment years, one for the purpose of
Section 80-IB and other for the purposes of Section 80-IC of the Act.
Once we find that there can be two initial assessment years, even as per
the definition thereof in Section 80-IC itself, the legal position comes at       F
par with the one which was discussed in Mahabir Industries.
         24. The aforesaid discussion leads us to the following conclusions:
         (a) Judgment dated 20 th August, 2018 in Classic Binding
         Industries case omitted to take note of the definition ‘initial
         assessment year’ contained in Section 80-IC itself and instead           G
         based its conclusion on the definition contained in Section 80-IB,
         which does not apply in these cases. The definitions of ‘initial
         assessment year’ in the two sections, viz. Sections 80-IB and 80-

2
    Civil Appeal Nos. 4765-4766 of 2018 decided on May 18, 2018
                                                                                  H
432            SUPREME COURT REPORTS                          [2019] 4 S.C.R.


A           IC are materially different. The definition of ‘initial assessment
            year’ under Section 80-IC has made all the difference. Therefore,
            we are of the opinion that the aforesaid judgment does not lay
            down the correct law.
            (b) An undertaking or an enterprise which had set up a new unit
B           between 7th January, 2003 and 1st April, 2012 in State of Himachal
            Pradesh of the nature mentioned in clause (ii) of sub-section (2)
            of Section 80-IC, would be entitled to deduction at the rate of
            100% of the profits and gains for five assessment years
            commencing with the ‘initial assessment year’. For the next five
            years, the admissible deduction would be 25% (or 30% where the
C           assessee is a company) of the profits and gains.
            (c) However, in case substantial expansion is carried out as defined
            in clause (ix) of sub-section (8) of Section 80-IC by such an
            undertaking or enterprise, within the aforesaid period of 10 years,
            the said previous year in which the substantial expansion is
D           undertaken would become ‘initial assessment year’, and from that
            assessment year the assessee shall been entitled to 100%
            deductions of the profits and gains.
            (d) Such deduction, however, would be for a total period of 10
            years, as provided in sub-section (6). For example, if the expansion
E           is carried out immediately, on the completion of first five years,
            the assessee would be entitled to 100% deduction again for the
            next five years. On the other hand, if substantial expansion is
            undertaken, say, in 8th year by an assessee such an assessee would
            be entitled to 100% deduction for the first five years, deduction
F           @ 25% of the profits and gains for the next two years and @
            100% again from 8th year as this year becomes ‘initial assessment
            year’ once again. However, this 100% deduction would be for
            remaining three years, i.e., 8th, 9th and 10th assessment years.
            25. In view of the aforesaid, we affirm the judgment of the High
G     Court on this issue and dismiss all these appeals of the Revenue. Likewise,
      appeals filed by the assessees are hereby allowed.


      Divya Pandey                                              Appeals disposed of.


H