COMMISSIONER OF INCOME TAX Vs. NESTOR PHARMACEUTICALS LTD.

JUDGEMENT

(1.) IT Appeal Nos. 1154 of 2009 and 1204 of 2009 were heard on 25th Nov., 2009 and judgment reserved. Within few days other three Income Tax appeals were heard on 9th Dec., 2009. Though the assessees are different in the two sets of appeals, questions of law are common. In fact, IT Appeal Nos. 1154 of 2009 and 1204 of 2009 are filed by the Revenue as the Income Tax Appellate Tribunal (Tribunal) has decided the matter in favour of the assessee. On the other hand, in other appeals it is the assessee who is the appellant and is aggrieved by the order of the Tribunal. For this reason we deem it proper to decide all these appeals by one common judgment. Of course at the same time we shall take up both sets of appeals separately for discussions.

(2.) THE assessee M/s. Nestor Pharmaceuticals Ltd. is in the business of manufacturing of pharmaceuticals formulations in bulk drugs and supplying the drugs to the Government hospitals, institutions besides selling the product in domestic and foreign markets. It Is claiming depreciation on plant and machinery for benefit under Section 80 -IA/80 -IB of the IT Act (in short 'Act'). The assessee had carried out trial production from 20th March, 1998. On that basis the AO treated asst. yr. 1998 -99 as the initial year for benefit under the aforesaid provision. Since this benefit is allowable for five years, according to the AO, this benefit is admissible from asst. yr. 1998 -99 to asst. yr. 2002 -03. The assessee on the other hand was claiming benefit from asst. yr. 1999 -2000 to asst. yr. 2003 -04. The IT Appeal No. 1204 of 2009 refers to asst. yr. 2003 -04. For this reason, in respect of this assessment year, the benefit was entirely disallowed. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the order of the AO but the Tribunal has reversed that order holding that since Section 80 -IA/80 -IB of the Act being beneficial legislation, the benefit should be extended to the assessee. It further held that as on 20th March, 1998 only trial production started which is different from commercial production and benefit of that section would be allowed in the year in which commercial production started i.e., in the asst. yr. 1999 -2000 and, therefore, would be extendable upto the asst. yr. 2003 -04.

(3.) THERE is no quarrel that the assessee qualifies as the industrial undertaking as specified in the said section for the purpose of deriving benefit of the said provision. This provision allows deduction from profits and gains of an amount equal to hundred per cent of profits and gains derived from such business for the first five assessment years commencing at the time during the periods as specified in Sub -section (2) and the dispute is as to which are the first five assessment years. These five years are to commence at any time during the periods as specified in Sub -section (2). Sub -section (2) mentions "beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility...." The provision which existed at that time included Sub -section (12) and Clause (c) thereof defined "initial assessment year" in the following manner: