The Supreme Court recently ruled that a small-scale industry cannot claim income tax benefits given to it earlier if it ceases to be one. Setting aside the judgment of the Karnataka High Court which held the opposite view, the court stated in the case of Ace Multi Axes Systems Ltd and other companies that an industry may be eligible once and given the benefit of deduction under Section 80 IB of the Income Tax Act but it cannot claim deduction for all the following years. It must fulfil all the conditions enumerated in the provision, such as the value of assets, use of power and number of employees, to claim the benefit in each year. The court thus allowed the appeals of the revenue authorities.
The judgment explained, after examining the scheme in the law, that “there is no manner of doubt that incentive meant for small-scale industrial undertakings cannot be availed by those which do not continue as smallscale industrial undertakings during the relevant period. Needless to say, each assessment year is a different assessment year, except for block assessment”. It held as wrong the high court view that the object of the legislation was to encourage industrial expansion, which implied that incentive should remain applicable even when on account of industrial expansion, small-scale units do not retain their original character.