In Brief
The Income Tax Act, 1961 grants manufacturing units in special category States like Himachal Pradesh a deduction under Section 80-IC: 100% of profits for the first five assessment years and 25%–30% (for companies) for the next five years, with a strict 10-year maximum. Assessees claimed they could restart 100% deduction after five years based on subsequent expansion. The Supreme Court held that once an assessee begins claiming deduction under Section 80-IC, the initial Assessment Year is fixed, and substantial expansion cannot create a second initial Assessment Year within the same period. The Court affirmed that the statutory deduction structure is inflexible: 100% for years 1–5, then 25%–30% for years 6–10, with no exception for later expansion.
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