THE issues before the Bench are - Whether the benefit available u/s 10B is an exemption or a deduction; Whether the benefit u/s 10B can be allowed only in case an assessee is indulged in activities as pre-determined under the statute; Whether u/s 10B, which is a clear exemption provision, unless the assessee is in a position to show any ambiguity in the provisions of the Act, there can be any liberal interpretation given to the provisions of the Act, for the purpose of granting relief to the assessee and Whether an assessee is entitled for exemption u/s 10B with respect to receipts from training activity, when no foreign inward remittance has taken place. And the verdict goes against the assessee.
Assessee , a company, is a 100% export oriented unit (EOU). It had claimed exemption u/s 10B on the income received by way of training fees. During assessment, its claim was rejected by the AO on the view that the relationship between the assessee and the trainees was not that of employer and employees. Training was not given to the employees of the assessee or on apprenticeship. On the other hand, training fee was charged for carrying out training to outsiders and there was no contractual obligation on the part of the assessee company to absorb them. In the absence of any such relationship as employer and employees and the training being given to outsiders, the AO viewed that the receipt was not exempt u/s 10B. On appeal, CIT( A) viewed that the nature of business of the assessee , viz., development and sale of software was dependent on the availability of trained manpower. Thus, training being recognised as part of software development in the EOUs, the receipt from the training programme was exempt u/s 10B. Thus CIT( A) had allowed the appeal. On further appeal by the Revenue, Tribunal pointed out that having regard to the nature of business of the assessee , it was necessary to see whether the training programme formed an integral part of the business of 100% EOU. There was no sufficient enquiry made in this regard as to whether there existed any contractual relationship between the assessee and the trainees in regard to the joining of service in the assessee company. Hence, it was necessary that the assessment be set aside and the matter be remanded back to the AO with a direction to decide the issue de novo in accordance with law after providing adequate opportunity of hearing to the assessee . It further felt, on satisfactory completion of the training, the trainees would be absorbed in the undertaking and the undertaking owed certain obligation for providing job to them. Thus the training programme could be treated as an integral part of the business. On remand, AO had pointed out that the faculties in the training unit were the very employees engaged in software development were also used as a faculty to train the students; by this, the income of the assessee was optimised and ensured efficient utilisation of its assets viz., computers and manpower. In the circumstances, the Officer rejected the submission of the assessee to consider its training as part of the business of the company. The AO further pointed out that training was given only on receipt of fixed fee. The training was for a fixed timing for a fixed period. The training was conducted in batches and each batch consisted of fixed number of students. The relationship between the trainee and the faculty was that of a student and teacher. The assessee admitted this fact. In the background of the provisions of Section 10B, the assessment was completed rejecting the claim for exemption. On appeal, CIT( A) had agreed with the assessee that training was an integral part of the business of the 100% EOU and consequently, the assessee was entitled to 100% exemption. On further appeal by revenue before the Tribunal, there was yet another appeal relating to the same company but on different issues relating to the AY 2004-05. By a common order relating to the AYs 1996-97 and 2004-2005, the Tribunal rejected the plea of the assessee and thereby allowed the appeal on the claim u/s 10B and held that the income derived from the undertaking could not be stated as export income of the assessee . The income falling u/s 10B was earned as fee received by the assessee for imparting training to outsiders by using some infrastructure which might be lying idle as the assessee had not exported any article or goods or software during the period.
Facts of the case
Before HC, the assessee's counsel contended that the assessee had had export of software during the relevant period, earning income to the tune of Rs.102,03,10,481/-. Apart from that, it had domestic software sales and service to the tune of Rs.10 ,66,96,808 /-, which means, the domestic sales were 25% and less than that. Thus, according to the assessee , it satisfied the condition stipulated u/s 10B( 2). Counsel placed before us the scheme viz., STP Scheme and given the objectives of the scheme, one of them being to train the employees, the activity of the assessee in training graduates who were professionals, the receipt was part of the exempt income given u/s 10B. Consequently, the Tribunal committed a serious error in ignoring the very scheme while approaching the issue. It was also submitted that the Tribunal ought to have considered the scheme on setting up a STP and the EOU and the purpose of granting exemption to consider the case of the assessee in the proper perspective, to grant the relief. It was further submitted that training of professionals being part of the business of development of software, the provisions have to be interpreted liberally to grant the relief. Being a provision to promote the infrastructure development in the country and the nature of business in the development of software being dependent on the availability of more professionals in the field, the Tribunal ought to have had a proper understanding on the scope of the provision and grant the relief. It had also made objection to the view of the Tribunal about the infrastructure utilized for training, holding that it was only on account of the idle infrastructure that the assessee had used, to gain unmerited benefit. Considering the wrong view taken and that some of the students were also taken on employment, on facts, it was submitted that in the event, this Court does not accept the plea for exemption, it was but necessary that the matter be remitted back for a de novo consideration of the claim for a pro-rata relief. On the other hand, the Revenue's counsel had supported the order of the Tribunal that even if the findings of the Tribunal on the availability of export turnover and that the unit was not lying idle, the facts available clearly pointed out that the assessee had imparted training, charging fees; that the relationship of the assessee with the trainees was admittedly of a teacher and student nature. Hence, Section 10B can have no relevance, it being not related to export of article or things produced or manufactured. It had pointed out that irrespective of the compliance of condition given u/s 10B( 2), the fact remains that the receipt was not in respect of export of any article or thing manufactured. Thus, the question of grant of exemption does not arise.
Held that,
++ we do not find any justifiable ground to agree with the submissions made by the counsel appearing for the appellant. We have no hesitation in rejecting the same and confirming the order of the Tribunal. A reading of Section 10B shows that till 2001, the provisions contemplated 100% exemption from tax under the Act. The exemption granted related to the profits and gains derived by the assessee which is 100% EOU undertaking. The undertaking is one approved as a hundred percent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by Section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951) and the rules made thereunder . Sub Section (2) specifies among other things that exemption under the Section applied to an assessee /undertaking which "manufactures or produces any article or thing", that it started producing or manufacturing article or thing on or after 1.4.1994 and that it is not formed by transfer to a new business of machinery or plant primarily used for any purpose. Thus going by the very scheme of the provision, exemption considered under Section 10B is related only to those undertakings which are engaged in the manufacture or production of any article or thing and has relevance to the receipts which are out of the activities relating to the profits and gains arising from the manufacture or production of an article or thing. The benefit under Section 10B as exemption was available for ten consecutive years. From 2001, Section 10B was amended to make the claim a deduction provision. Thus the benefit u/s 10B is referable not only with reference to the approved undertaking, but it must also be with reference to profits and gains derived from the EOU fulfilling the conditions specified in the Section;
++ on the admitted facts of the case herein, that the receipt is related to a fee charged by it, on the training of professionals who are admittedly not its employees and that the profits and gains not being one arising on account of manufacture or production of an article or thing, the benefit under Section 10B can have no relevance at all. The Section, as already extracted above, clearly points out what "manufacture" is. The said term includes any process or assembling or recording of programmes on any disc, tape, perforated media or other information storage device that are considered for the purpose of applicability of the Section. In other words, the activity other than what has been specified or enumerated in the Section would be of no relevance for the purpose of considering the exemption under Section 10B. Even though the provision is an incentive provision, yet, when the words are unequivocal, the Section calls for a restrictive consideration - Refer ( 2003-TIOL-51-SC-IT ) ( Pandian Chemicals Ltd. v. CIT) . As is well laid, taxation under the Act is the rule and exemption, the exception. Thus, unless the assessee shows that the receipts come clearly within the language of the Section, it is not possible for this Court to give an elastic interpretation to the clear words based on tax treatment under different enactments or the schemes formulated for setting up of industries in a particular area or zone. In the background of the above-said provision, if we look at the order of the Tribunal, we may note that there is hardly any fallacy, particularly a legal one, which calls for any interference by this Court;
++ it is a well settled principle of law that when the provisions of the tax enactment are clear and are beyond any contradiction, no words could be added to understand the scheme of the provisions of the Act. As already seen, a reading of the provision points out that the Act has made its intention very clear that the exemption is available in respect of profits and gains derived by an undertaking which is engaged in the manufacture or production of an article or thing. Since the training is given to the graduates/professionals who are not employees, who are not, in any way, associated with the business of the assessee in the matter of production and manufacture of an article or thing, and the receipts not being profits and gains derived by the undertaking in the manufacture or production of article or thing, we do not find any justifiable ground to confer benefit of the provision based on the policy decision taken either under the customs enactment, or for that matter, under the Software Technology Park Scheme. It is no doubt true that the objectives of the STP Scheme seeks training of professionals as one of the objects; yet, the scheme is one thing and tax treatment is totally another aspect of it. Whatever may be the objectives of the scheme, exemption should be given only in terms of what is provided for under the income tax provisions. As already pointed out, Section 10B being a clear exemption provision, unless the assessee is in a position to show any ambiguity in the provisions of the Act which may possibly be taken advantage of, there can be no liberal interpretation given to the provisions of the Act, for the purpose of granting relief to the assessee . In the circumstances, we have no hesitation in rejecting the plea of the assessee ;
++ in the circumstances, so long as the receipt was only for the purpose of training, treating the trainee as a student, we do not find any reason to accept the plea of the assessee to allow this appeal. Hence, we reject the submissions of the counsel appearing for the assessee and dismiss the Tax Case Appeal, thereby confirming the view of the Tribunal. As far as the question of remand is concerned, even admitting for a moment that there is an error in the order of the Tribunal as regards the receipt of income on the export of software and local sales upto 25%, yet, going by the reasons already given in the preceding paragraphs and the provision on exemption being that the profits and gains of the undertaking arising from the manufacture or production of an article or thing, we do not find any justifiable ground to remand the matter. The facts herein are clear enough to persuade us to hold that the receipts do not call for any exemption u/s 10B. Hence, Tax Case (Appeal) No.34 of 2010 stands dismissed;
++ in Tax Case (Appeal) Nos.332 and 333 of 2011 relating to the AYs 1997-98 and 1999-2000 respectively, the Revenue has raised the substantial question of law that the Tribunal was right in holding that the assessee is entitled for exemption under Section 10B with respect to receipts from training activity of the assessee when no foreign inward remittance has taken place. The facts herein are no different from the one stated in Tax Case (Appeal) No.34 of 2010. It is seen from the order of the Tribunal that it referred to the order passed in respect of the AY 1996-97 and the appeal pending before this Court. Yet, it however allowed the appeals of the assessee , subject to the condition that the order passed in respect of the AYs 1997-98 and 1999-2000 would stand amended in conformity with the order in respect of the AY 1996-97. Even though counsel appearing for the assessee placed heavy reliance on the order of the CIT( A), yet, we do not find any ground that persuades us to take a different view. In the circumstances, having regard to the order passed in Tax Case (Appeal) No.34 of 2010, we set aside the order of the Tribunal and allow Tax Case (Appeal) Nos.332 and 333 of 2011. No costs. Connected M.P.No.1 of 2011 stands closed.
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