Arkema Peroxides India Private Limited Vs DCIT (Madras High Court)
Summary: The Madras High Court dismissed Arkema Peroxides India Private Limited’s appeals concerning assessment years 1992-93, 1993-94 and 1994-95, upholding denial of deduction under Section 80HH of the Income-tax Act, 1961. The company had acquired land at Semmanikuppam Village, Cuddalore, in the then South Arcot District to establish units manufacturing polymerisation initiators. South Arcot District, including Cuddalore, appeared in the Eighth Schedule’s list of backward areas in 1984. The company relied on a Government letter of intent dated 12 September 1984, approval of its collaboration agreement dated 9 November 1984, and investments and steps taken towards establishing the undertaking. It was incorporated on 14 March 1985 and commenced business in December 1988.
The dispute arose following the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 and a revised backward-area notification issued on 19 December 1986, effective from 1 April 1983, which excluded Cuddalore. The assessing and appellate authorities consequently rejected the deduction. Before the High Court, the assessee questioned whether its earlier approvals, substantial investment and irrevocable steps towards establishing the undertaking protected its entitlement despite the subsequent statutory changes. It also invoked the doctrine of promissory estoppel. The admitted questions additionally concerned whether an intention to manufacture and investment were sufficient, or whether actual manufacture or production before the 1986 amendment was necessary.
The Court held that the undertaking’s location in a qualifying backward area was a pre-condition for Section 80HH relief. Since Cuddalore had admittedly been de-notified with effect from 1983, the deduction had rightly been rejected. On promissory estoppel, the Court stated that there could be no estoppel against the operation of law. It further noted that the assessee had not challenged the notification withdrawing Cuddalore from the backward-area list; arguments concerning prejudice and hardship were therefore immaterial in those circumstances. All substantial questions of law were answered against the assessee, and the appeals were dismissed without costs.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
These appeals relate to assessment years (AY) 1992-93, 1993-94 and 1994-95. The substantial questions that have been admitted on 05.08.2014 are as follows:
1. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that assessee is not entitled to deduction U/S.80HH of the Act in respect of the industrial undertaking set up in a backward area as specified in the Eighth Schedule of the Income Tax Act ?
2. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that for claiming deduction u/s.80HH mere intention to begin manufacture or production and making investment would not suffice and there has to be actual manufacture or production at least before 10-09-1986 when the Taxation laws (Amendment and Miscellaneous Provisions)Bill, 1986 became an Act.?
3. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that assessee is not entitled to deduction U/S.80HH of the Act since the industrial undertaking that was set up in a backward area as specified in Eighth Schedule ceased to be a backward area when it started its production in December 1988 ?
4. Whether on the facts and in the circumstances of the case and in law the deletion of Eighth Schedule would affect the claim of assessee for deduction U/S.80HH as it had taken irrevocable steps for establishing the industrial undertaking by making substantial investment and after getting necessary approvals and clearances from the Government of India ?.
5. Whether the Tribunal was right in law in not applying the Doctrine of Promissory Estoppel for granting the claim of deduction u/s.80HH of the Act ?
2. The facts are as follows. Section 80HH grants deduction in respect of profits and gains derived from newly established industrial undertakings located in backward areas. The Explanation to the provision states that a backward area is an area specified under the VIII Schedule to the Act. The VIII Schedule, as it stood in 1984, included South Arcot district encompassing Cuddalore.
3. The appellant had acquired land in Semmanikuppam Village, Cuddalore, South Arcot District, for setting up units for the manufacture of polymerisation initiators intending to avail the benefit of deduction under Section 80 HH of the Income tax 1961 that granted deduction of 100 % of the profits derived from deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.
4. The letter of intent from the Government was dated 12.09.1984 and collaboration agreement was approved by the Government of India on 09.11.1984. The assessee company was incorporated on 14.03.1985 and business was commenced in December, 1988.
5. While so, and unfortunately for the assessee, the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 came into effect on 10.09.1986, and Notification in F.No.178/171/86-IT(A1) was issued on 19.12.1986, effective from 01.04.1983, specifying a revised list of backward areas that excluded Cuddalore.
6. On account of the change in circumstance and de-notification of Cuddalore as a backward area, the assessee suffered adverse orders of assessment denying the deduction claimed, consistently from AY 1989 onwards. Those orders have been affirmed concurrently, both at the first and second appellate stages..
7. It is only for AY 92-93, 93-94 and 1994-95 that the assessee has challenged the disallowance, and no appeals have been filed in respect of the orders for AYs. 1988-89 to 1991-92 or the later periods. The Appellant has challenged the rejection of the deduction claimed, also raising a question as to whether the doctrine of promissory estoppel would not govern the authorities in consideration of the claim.
8. Section 80HH requires, as a pre-condition, the inclusion of the area in which the industrial undertaking is set up, to be a backward area as per VIII Schedule to the Act. The admitted factual position in the present case is that Cuddalore has been de-notified as a backward area with effect from 1983, and with this, the claim has been rightly been rejected.
9. As far as the last question relating to the applicability of the doctrine of estoppel is concerned, it is a settled position that there could be no estoppel as against the operation of law. That apart, the assessee has not challenged Notification dated 01.04.1983 in F.No.178/171/86-IT(A1), that withdraws Cuddalore from the list of backward areas. The argument in relation to prejudice and hardship are not material in such circumstances.
10. All the substantial questions of law are decided against the assessee and the Tax Case (Appeals) are dismissed. No costs.
