ITA/950/2007 of C.I.T Vs MOSER BAER INDIA LTD.

fflGH COURT OF DELHI: NEW DELHI

+ITA No. 950/2007

%Decidedon: 14^May, 2008

THE COMMISSIONEROF INCOME TAX,

DELm-m, NEW DELHIThrough:Mr. R.D. Jolly, Adv.

....Appellant

versus

MOSER BAER INDIA LTD.

63,iaNGROAD,LAJPATNAGAR,NEW DELHI-110024

....RespondentThrough:Mr. Ajay Vohra with Ms. Kavita Jha,Advs.

Coram:

HON'BLE MR. JUSTICE MADAN B. LOKURHON'BLE MR. JUSTICE MANMOHAN SINGH

1. Whether the Reporters of local papers maybe allowed to see the judgment?be allowed to see the judgment?

Yes

2. To be referred to Reporter or not?

Yes

3. Whether the judgment should be reportedin the Digest?Yesin the Digest?Yes

MADAN B. LOKUR, J. (ORAL)

The Revenueis aggrievedby an orderdated 30^^ November,2006passed by the Income Tax Appellate Tribunal, Delhi Bench 'D' in ITANo. 1343/Del/2000relevant for the AssessmentYear 1996-97; ITA No.3093/Del/2003relevant for the Assessment Year 1997-98; and ITA No.3094/Del/2003relevant for the Assessment Year 1998-99.

2.After hearing learned counsel for the parties, we frame thefollowing substantial question of law for consideration:-

"Whether the Income Tax Appellate Tribunal wascorrect in law in coming to the conclusion that therequirement of Section 10B(7) of the Income TaxAct,1961thatadeclarationforwithdrawalofexemption under Section lOB(l) read with Section10B(3) of the Act should be filed before the due dateof famishing the return of income under sub-section(1) of Section 139 of the Act is directory?"

3.Filing of paper books is dispensed with.

4.Since we have heard learned counsel for the parties in detail, weare disposing of the appeal on the existing papers.

5.At the outset, learned counsel for the Assessee has pointed out thatSection lOB of the Act has undergone several changes.As on therelevant date, the provisions of Section lOB(l), 10B(3) and 10B(7) ofthe Act, which we are concerned with, read as foliows:-

"lOB. (1) Subject to the provisions of this section,any profits and gains derived by an assessee from ahundredpercentexport-orientedundertaking(hereinafterin thissectionreferredtoas theundertaking)to whichthis sectionappliesshallnotbe included in the total income of the assessee.xxxxxxxx

(3) The profits and gains referred to in sub-section(1) shall not be included in the total income of theassesseeinrespectofanyfiveconsecutiveassessment year, falling within period of eightyears beginning with the assessment year relevantto the previous year in which the undertakingbegins to manufacture or producearticles orthings, specified by the assessee at his option:Provided that nothing in this sub-section shall beconstruedto extend the aforesaidfive assessment

years to cover any period after the expiry of thesaid period of eight years.

xxxxxxxx

(7)Notwithstandinganything contained in theforegoing provisions of this section, where theassessee, before the due date for furnishing thereturn of his income under sub-section(1) ofSection 139, furnishes to the Assessing Officer adeclaration in writing that the provisions of thissection may not be made applicable to him, theprovisionsof this sectionshall not applyto him forany of the relevant assessment years."

6.In respectof the AssessmentYear 1996-97,which is taken as themain case, the Assesseewas requiredto file its returnofincomeby 30^November, 1996. There is no doubt that the Assessee filed its return ofincome before the due date. Earlier, in accordance with Section lOB(l)and Section 10B(3) of the Act, the Assessee had obtained an exemptionfor the Assessment Year 1994-95 and therefore, it was entitled to claimexemption for period of five consecutiveyears thereafter.

7.However, since the Assesseesuffered loss in the AssessmentYear 1996-97, it sought to withdraw its claim for exemption under theprovisionsof Section 10B(7)of the Act in respect of one of its units thatis Floppy Unit 11.In this regard, the Assessee admittedly filed adeclaration as required by Section 10B(7) of the Act, onFebruary,1999 which is after the due date of filing the return.This declarationwas by way of letter and was filed during the assessment proceedingsbecausethe assessmentwas framedon 8'^ March, 1999.

8.The Assessing Officer was of the view that since the claim forwithdrawal was made after the due date of filing the return, the Assesseewas not entitled to withdraw the claim for exemption.

9.FeelingaggrievedbytheAssessmentOrder,theAssesseepreferred an appeal before the Commissionerof Income Tax (Appeals)who upheld the view taken by the Assessing Officer and came to theconclusion that the provisions of Section 10B(7) of the Act weremandatory in nature to the extent that the claun for withdrawal should bemade before the due date of filing the return.

10.The Assessee then took up the matter before the Income TaxAppellate Tribunal and by the order under appeal, the Tribunal came tothe conclusion that the requirement of filing the declaration forwithdrawing the claim for exemption before the due date of return wasnot mandatory but it was directory. In this regard, the Tribunal reliedupon certain decisions rendered by other Benches of the Tribunal.

11.Learned counsel for the Revenue, in support of his case has reliedupon Goetze (India) Ltd, vs. Commissioner ofIncome Tax [2006] 284ITR 323 . This case is not directly on the point since what was decidedtherein by the Supreme Court was that claim for exemptioncan bemade either in the return as originallyfiled or by filing revisedreturnunder Section 139(5) of the Act. In the event an Assesseee does not filea "claim for exemption in the original return or the revised return, hecannot subsequently make claim for deduction and the AssessingOfficer can reject the claim for exemption.ITA No.950/2007Page 4 of10

12.This is not what has happened in the present case inasmuch as theAssessee has not made claim for exemption but has made claim forwithdrawing an exemptionwhich it would otherwisebe entitledto claimin view of Section 10B(3) of the Act. Goetze (India) is not at allapposite.

13.Learned counsel for the Assessee has relied upon CommissionerofIncome Tax vs. Nagpur Hotel Owners' Association [2001] 247ITR201 in which the Supreme Court was concerned with Section 11(2) ofthe Act. What this provision postulates is that the Assessee shall give anotice in writing to the Assessing Officer 'in the prescribed manner' foraccumulating or setting apart its income for charitable purpose so asnot to be leviable to income tax.The 'prescribed manner' is providedfor in Rule 17 of the Income Tax Rules, 1962. This requires notice tobe given in Form No. X and it also requires the delivery of the noticebefore the expiry of the time allowed under sub-section (1) of Section139 of the Act for the purposes of furnishing the income tax return.

14.On an interpretationofthe provisions,the SupremeCourtcametothe conclusion that what is really required is for the Assessee to file therequisiteinformationbeforetheAssessingOfficercompletestheassessment.It was held that this is necessary because in the absence ofany such information, it would not be possible for the Assessing Officerto grant to the Assessee the benefit of such accumulation.

15.To this extent, the Supreme Court held that the requirement ofgiving the informationis mandatorybecausewithout the requisiteITA No.950/2007Page 5 of 10

particulars, the Assessing Officer cannot entertain the claim of theAssessee under Section 11 of the Act.The Supreme Court did notdirectlydeal with the questionof what would happenif the informationisnot furnishedby the assesseewithinthe timeprescribedunderRule 17ofthe IncomeTax Rules, 1962readwith Section139 (1) ofthe Act.16.Learnedcounselfor the Assesseeclarifiedthat he placed limitedrelianceon this decisionto show that the requirementof furnishingtheinformation is mandatory. It was submitted that similarly, for thepurposesof Section10B(7)ofthe Act, the furnishingof declarationismandatory.

17.The contention of learned counsel for the Assessee was that thesecond requirement under section 10B(7) of the Act namely theprescriptionof time or the happening of particular event is onlydirectoryin nature.In supportof this contention,learnedcounselfor theAssessee relied Commissionerof Income Tax vs. Hardeodas uponAgarwalla Trust [1992] 198 ITR 511. In this decision, the CalcuttaHigh Courtwas concernedwiththe provisionsofSection12A(b)oftheAct which prescribedthe furnishingof auditedaccountsby charteredaccountantalong with the return of income for the relevant assessmentyear.

18.While interpretingthe above provision,the CalcuttaHigh Courtcame to the following conclusion:-

"It is now well-settledthat proceduralprovision,should not be construedasifordinarily, mandatory,the defect in the act done in pursuance of it can beITA No.950/2007Page 6of10

cured by permitting the appropriate rectification to becarried out at subsequent stage.Procedural lawsare,devised and enacted for the purpose of advancingjustice.It does not mean that the procedural lawsshould be brushed aside by the court.It depends onthe facts and circumstances of particular case as towhether breach in the observance of any procedurallaw, if not excused or overlooked, would cause realand substantial injustice to the parties."

19.Learnedcounselfor the Assesseealso drew our attentionto thedecision of the Punjab and Haryana High Court in Commissioner ofIncome Tax vs. Gupta Fabs [2005] 274ITR 620 and Commissioner ofIncome Tax vs. Punjab Financial Corporation [2002] 254 ITR 6; andthe decision of the Madhya Pradesh High Court in Commissioner ofIncome Tax V5. Panama ChemicalWorks [2007] 292 ITR 147.Allthese decisions are similarly in the context of filing of an audit reportalongwiththe return.

We need not discuss these judicial pronouncements in view of theclear exposition of law by the Calcutta High Court, with which we agree.

20.We may, however, notice Kailash vs. Nanhku and Ors. {2005) 4see 480 in the context of the interpretation of the Order VIII Rule 1 ofthe Code of Civil Procedure.One of the questions that arose forconsideration was: Whether the time limit of 90 days as prescribed bythe proviso appended to Rule 1 of Order Vm of the Code of CivilProcedure is mandatory or directory in nature?

21.While concluding that the provision is directory, the SupremeCourt held in paragraphs 30 and 33 as follows:

"30.It is also to be noted that though the power of thecourt under the proviso appended to Rule I Order 8 iscircumscribed by the words "shall not be later than ninetydays" but the consequences flowing from non-extension oftime are not specifically provided for though they may bereadin bynecessaryimplication.Merelybecauseaprovision of law is couched in negative language implyingmandatory character, the same is not without exceptions.The courts, when called upon to interpret the nature of theprovision, may, keeping in view the entire context in whichthe provision came to be enacted, hold the same to bedirectory though worded in the negative form.

xxxxxxxx

33.As stated earlier. Order 8 Rule 1 is provisioncontained in CPC and hence belongs to the domain ofprocedural law. Another feature noticeable in the languageof Order 8 Rule 1 is that although it appoints time withinwhich the written statement has to be presented and alsorestricts the power of the court by employing languagecouchedin negative way that the extensionof timeappointed for filing the written statement was not to be laterthan 90 days from the date of service of summons yet it doesnot in itself provide for penal consequences to follow if thetime schedule,as laid down, is not observed.From thesetwo features certain consequences follow."

22.The Supreme Court surmned up its conclusion in the following

words:

"46 (iv)The purpose of providing the time schedule forfiling the written statement under Order 8 Rule 1 CPCis to expediteand not to scuttle the hearing.Theprovision spells out disability on the defendant.Itdoes not impose an embargo on the power of the courtto extend the time. Though the language of the provisoto Rule 1 Order 8 CPC is couched in negative form, itdoes not specify any penal consequences flowing fromthe non-compliance. The provision being in the domainof the procedurallaw, it has to be held directory and notmandatory. The power of the court to extend time forfiling the written statement beyond the time scheduleprovided by Order 8 Rule 1 CPC is not completelytaken away."

23.On reading of all the decisions mentioned above, we find thatthe purpose of filing declaration under Section 10B(7) of the Act is toenable the Assessee to bring to the knowledge of the Assessing Officerthe desire of the Assessee to withdraw the claim for exemption. To thatextent, therefore, the requirement of filing declaration is of coursemandatory because without such declaration, the Assessing Officercannot even consider the claim for withdrawal. However, the questionwhich we are required to consider is whether the declaration ismandatorilyrequired to be filed before the due date of filing the return.

24.We find from the decisions that we have discussed above, thatfirst of all the time prescription is procedural requirement and,therefore, cannot be read to the disadvantage of the Assessee,particularly if he is entitled to withdraw the claim for exemption.Moreover, the statute does not specifically provide the consequence ofnot filmg the declaration before the due date of return. It is only byimplication that one may reach the conclusion that if the declaration isfiled afterthe due date of filingthe return,then it is liableto be rejected.As mentioned above, there is no such specific sanction or adverseconsequenceso far as the Assesseeis concernedif the declarationisfiled after the due date of filing the return.

25.Therefore, it must be held that the second requirement of Section10B(7)ofthe Actis only directorybutthedeclarationmust obviouslybefiledbeforethe assessmentis completedbythe AssessingOfficer.

ITA No.950/2007

26.We are also of the opinion that it is not as if the Assessing Officercannot proceed to frame the assessmentif the declaration is after the duedate. If he can proceed with the assessment proceedings without thedeclaration being on record, then, the deadline for filing the declarationmust necessarily be just before the assessment is actually framed. Evenif the Assesseeexceeds the time limit but is still within the deadline,then he cannot be disadvantaged.

27.Underthesecircumstances,we are of theopinionthat thesubstantial question of law is required to be answered in the affirmative,in favour of the Assessee and against the Revenue and it must be heldthat the requirement under Section 10B(7) of the Act whereby theassessee must file declaration for withdrawing claim for exemption ismandatory, but the time limit prescribed for filing the declaration beforethe due date of filing the return is only directory.28.The appeal is disposed of accordingly.

MADAN B. LOKUR, J

MAY 14, 2008SD

MANMOHAN SEVGH, J