Contraceptives do not fall under Eleventh Schedule; Section 80-IB

Contraceptives do not fall under Eleventh Schedule; Section 80-IB deduction allowed maintaining historical consistency.

Issue

Whether contraceptives manufactured by the assessee fall within the list of non-priority articles specified in Serial Nos. 27 and 28 of the Eleventh Schedule, thereby disentitling the assessee from claiming deduction under Section 80-IB.
Whether the Assessing Officer was justified in taking a different view and denying Section 80-IB deduction for a single assessment year when the claim was allowed for nine out of ten years of the eligibility period on identical facts.

Facts

Business Profile: The assessee is engaged in the manufacturing of contraceptives.
Statutory Benefit Claimed: The assessee claimed deduction under Section 80-IB of the Income-tax Act, 1961, across the 10-year period from the commencement of commercial production.
Assessment History: The Department allowed the assessee’s Section 80-IB deduction claim for years 1 to 7, as well as years 9 and 10.
Disallowance in Assessment Year: For the 8th year alone, the Assessing Officer (AO) denied the deduction under Section 80-IB on the ground that contraceptives manufactured using rubber fall within the purview of Serial Nos. 27 and 28 of the Eleventh Schedule.

Decision

Exclusion from Eleventh Schedule: Entries 27 and 28 of the Eleventh Schedule apply only to specific items named therein, rather than all rubber-made products generally; hence, contraceptives do not fall under these restricted entries. (In favour of assessee)
Rule of Consistency: Since the Revenue consistently accepted and allowed the Section 80-IB claim on identical facts for nine out of ten eligibility years, taking a divergent stance for a single intervening year without any material change in facts was unjustified. (In favour of assessee)

Key Takeaways

Narrow Interpretation of Negative Lists: Statutory entries in negative schedules (such as the Eleventh Schedule) must be strictly construed and cannot be expanded to cover distinct medical/health products like contraceptives merely because they contain rubber.
Principle of Consistency: While the doctrine of res judicata does not strictly apply to income tax proceedings, tax authorities cannot take arbitrary contrary positions on recurring multi-year statutory relief claims when the underlying facts and legal regime remain identical.
Protection of Multi-Year Tax Incentives: Once an undertaking is recognized as eligible for multi-year tax holiday deductions (such as Section 80-IB), the Revenue cannot randomly break consistency in isolated middle years absent a fundamental change in circumstances.

HIGH COURT OF MADRAS

TTK Protective Devices Ltd.

Assistant Commissioner of Income-tax

Dr. Anita Sumanth and S. Raveekumar, JJ.

TCA No. 604 of 2013^†

SEPTEMBER 9, 2026

Section

R.Vijayaraghavan and Subbaraya Aiyar Padmanabhan Ramamani for the Appellant. Dr. S. Sathiyanarayanan, Senior Standing Counsel for the Respondent.

JUDGMENT

Dr. Anita Sumanth, J.- The substantial questions that have been admitted on 10.04.2014 are as follows:-

Whether on the facts and in the circumstances of the case and in law the Tribunal was right in holding that assessee is not entitled for deduction U/S.801B of the Act?

Whether on the facts and in the circumstances of the case and in law the Tribunal was right in holding that the rubber contraceptives manufactured by assessee is an item covered by Entry Nos.27 and 28 of Eleventh Schedule of the Act being a rubber fitting and hence assessee is not entitled to deduction u/s.80IB of the Act?

Whether on the facts and in the circumstances of the case and in law the relief that has been granted under section 80IA/80IB for the same product in the initial assessment year a different view can be taken for the current assessment year being the Eighth year for denying the deduction on the ground that it falls under Eleventh schedule?

2. We have heard Mr.Vijayaraghavan, learned counsel for assessee / appellant and Dr.S.Sathiyanarayanan, learned Senior Standing Counsel for the respondent / Department.

3. The issue that arises for consideration is to whether the appellant, an entity engaged in various businesses including manufacture of contraceptives, is entitled to deduction under Section 80IB of the Income-Tax Act, 1961 (Act).

4. Section 80IB grants deduction for a period of ten years from the year in which commercial production is commenced. In this case, the assessee has been consistently claiming and has been granted deduction under Section 80IB for years one through seven, years nine and ten.

5. This is the solitary assessment year (the eighth year of claim) in which the assessing authority took the view that the products manufactured by the assessee would fall within the meaning of the Entries under Serial Nos. 27 and 28 of the XI Schedule of the Act, which adumbrates specific products that are barred from the grant of deduction under Section 80IB.

6. The specific objection of the Department was that Serial Nos. 27 and 28 of the XI Schedule made reference to the term ‘Rubber’, and since the goods manufactured by the appellant were contraceptives using rubber, the bar would apply.

7. In MRF Ltd. v. Dy. CIT (LTU) (Madras) which was a decision rendered in the context of tyres, MRF Limited had been denied deduction under Section 80IB on the same analogy as in the present case, bringing tyres manufactured by MRF within the ambit of Serial Nos. 25 and 26 of the XI Schedule.

8. This Court accepted the claim of the assessee noting that it was only those products/goods specifically referred to in Entries 25 and 26 that would attract the bar and not all and any goods made of rubber. The Court held as follows:-

“28. The revenue would also argue that the intendment of the XI th Schedule is to restrict the benefit under Sections 80IA and 80IB and other provisions that provide for accelerated and wide benefits to an assessee. Hence, a strict interpretation has to be given to the bar in regard to the XI th Schedule.

29. We have heard the rival contentions on this score. The XI th Schedule places an embargo on the grant of relief under various provisions of the Income Tax Act including Sections 80IA and 80IB. We note that each entry under the XI th Schedule is specific to a single product that may be made, utilising different materials, or different classes of one family of products.

30. Where the entry refers to more than one product, the specific products that are intended to be covered are mentioned separately. The only such instance is entry no.4 that mentions ‘tooth paste, dental cream, tooth powder and soap’.

31. Entry 27 refers to ‘Crown corks, or other fittings of cork, rubber, polyethylene or any other material’. The argument of the revenue is that entry No.27 relates to all fittings or accessories of cork, rubber, polyethylene or any other material. This interpretation is too wide of acceptance as it would expose all products made of cork, rubber, polyethylene or any other material to the restriction.

32. There is yet another reason why the argument of the revenue does not appeal. Entry No.28 refers to pilfer-proof caps for packaging or other fittings of cork, rubber polyethylene or any other material. If all other fittings of cork, rubber, polyethylene or other material were covered under the ambit of entry No.27, as the revenue would argue, there would have been no necessity to refer to those products again in entry 28. 33. That apart, we do not find that the comma placed after the phrase ‘crown corks’, makes any difference to the interpretation that the fittings of cork, rubber, polyethylene or other material must relate to crown corks only. This argument is hence rejected and the substantial question of law in this regard is answered in favour of the assessee. 34. The decisions referred to by the assessee, would also support our conclusion as above.”

9. The present issue is thus covered by the above decision to which one of us is a party. We accept the claim of the assessee also for another reason. The Department has accepted the claim of the assessee on identical facts and legal position for nine out of ten years comprising the period for which deduction may be claimed. There is hence no reason whatsoever for a different stand to have been taken for the year in question.

10. Hence the substantial questions are answered in favour of the assessee and this appeal is allowed, both applying the ratio in the case of MRF Ltd. (supra) as well as the requirement of consistency/uniformity in the application of law. No costs.

11. We had, on the previous hearing, directed the appearance of the concerned authority in the Income tax Department to convey our displeasure of the fact that adjournments were routinely being sought in this matter despite the appeal being of 2013 vintage. Ms.C.Yamuna, Commissioner of Income Tax (Judicial) appears today, and we record the appearance.