Government of India, Ministry of Commerce and Industry in locating the Software
Technology Park, the assessee can be deprived of the benefits of Section 10A
solely by reason of it being in existence already, but became STPI subsequently.
And the verdict goes against the Revenue.
Facts of the
case
The assessee is a
Proprietory Concern engaged in Electronic Data Transmission (Data Processing).
The assessee's Unit was in operation ever since 1994. The Assessee's unit was
approved as Software Technology Park by the Government of India as 100% Export
Oriented Unit for Computer Software on 27.03.2002. Considering its status as
100% Export Oriented Unit, the assessee claimed the benefit of deduction u/s 10A
of the Act, particularly for the AY 2003-04. The assessee had the benefit of
100% deduction u/s 10A for the AYs 2003-04 and 2004-05. For the AY 2005-06, the
CIT initiated proceedings u/s 263 on the ground that the assessee got
registration as Software Technology Park only on 27.03.2002, whereas, it had
commenced production in the Financial Year 1999-2000 itself; as such, the
assessee unit was an existing unit wherein the plant and machinery were used for
such purposes; by getting permission from the authority as Software Technology
Park on 27.03.2002, the assessee had transferred the plant and machinery
previously used to the Software Technology Park and the assessee had not
registered ever since it commenced production in the Financial Year 1999-2000.
In view of the above, the deduction granted was erroneous and prejudicial to the
interests of the Revenue. The assessee contested by placing reliance on the
decision of the Tribunal, which was rejected by the CIT.
Further, the CIT viewed that the
Circular No.1 of 2005 dated 06.01.2005 relied on by the assessee related to the
provisions of Section 10B of the Act and has no relevance to the operation of
Section 10A of the Act. The CIT confirmed its proposal for the AY 2005-06. On
appeal, the Tribunal dismissed the same, against which an appeal has been filed
before the High Court. By referring to the reasoning of the CIT, the AO held
that since the assessee had used its old machinery, which was in existence from
the assessment year 1999-2000, it was not entitled to the deduction under
Section 10A of the Act. Thus, aggrieved by the assessment order, the assessee
filed appeal before the CIT (A), who agreed with the assessee. Consequent on the
CIT's order, the assessment was made on the assessee. On appeal, the CIT(A)
agreed with the contentions of the assessee. On appeal by the Revenue, the
Tribunal followed its order for 2006-07 and 2007-08 and allowed the appeals. The
CIT(A) also allowed the appeals for the AYs 2006-07 and 2007-08 following the
order of the Tribunal in the case of ITO Vs. Heartland K.G.Information
Ltd.
The
Tribunal relied on the decision of the Karnakata High Court in the case of
CIT and Others Vs. M/s.Expert Outsource (P) Ltd., wherein the Court had
allowed the deduction u/s 10A; even though the assessee had begun operations on
17.12.2003. Thus, Tribunal allowed the assessee's claim, and held that, the fact
of the assessee being in the business prior to the date of the registration of
the STPI would not stand in the way of granting relief to the assessee.
Aggrieved, the Revenue has filed
this appeal before the High Court.
The
DR referred to the Sections 10A and Section 10B and submitted that the reliance
placed on by the assessee on the decision of the Karnataka High Court has no
relevance, because it operated on a different field and reiterated the stand
taken by the CIT. The contention of the Revenue could be summarized as that
since the assessee, was already in existence cannot take the benefit of Section
10A of the Act and only such of those assessees, who have commenced production
with the registration as Software Technology Park as given therein under Section
10A(2) of the Act alone can claim to benefit of Section 10A of the Act.
Having heard the parties,
the High Court held that,
+ we
do not agree with the said line of reasoning of Standing counsel appearing for
the Revenue. At the outset, we may say that we are in respectful agreement with
the Karnataka High Court decision in the case of CIT and Others Vs. M/s.Expert
Outsource (P) Ltd. Pointing out to the purpose of the STP scheme to encourage
exports and gain valuable foreign exchange for the country, the Karnataka High
Court held that "The STP scheme provides the benefit of converting a DTA unit
into a STPI unit and the same should also hold good for tax purposes." Referring
to Circular No.1 of 2005 dated 06.01.2005, the Karnataka High Court pointed out
that the said Circular grants certain benefits under Section 10B of the Act;
though this was in the context of Section 10B of the Act, the ratio of the
Circular No.1 of 2005 dated 06.01.2005 would apply to Section 10A of the Act
too. Thus it held that the mere fact that the assessee was in existence prior to
its date of registration on 04.08.2004 as Software Technology Park would not
disentitle the assessee from claiming deduction under Section 10A of the Act;
+ as
far as the present case is concerned, there is no denial of the fact that the
assessee is in business right from 1999-2000. It got its registration as STPI on
27.03.2002. The Department accepted the claim of the assessee for two assessment
years 2003-04 and 2004-05 and the assessment had become final. It is not as
though the facts relating to the assessee's existence prior to its registration
on 27.03.2002 is not a fact that the Department did not know and by mistake it
allowed the benefit for the year 2003-04 and 2004-2005. In the circumstances,
with the orders thus becoming final, principally stating, we do not find any
justifiable ground for the Revenue to question the claim of the assessee from
the assessment year 2005-06;
+
even otherwise, we find that the claim of the Revenue could not be sustained.
The provisions contained in Section 10A of the Act grants 100% deduction on
profits and gains derived by an undertaking from the export of articles or
things or computer software for a period of ten consecutive assessment years
beginning with the assessment year relevant to the previous year in which the
undertaking begins to manufacture or produce such articles or things or computer
software. Section 10A(2) of the Act refers to the undertaking which are entitled
to the benefit of Section 10A of the Act;
+ a
reading of the provisions referred to above point out that the Section grants
100% deduction to an undertaking, which has begun or begins to manufacture or
produce articles or things or computer software as per Sub clause (i) of Sub
Section 2 of Section 10A of the Act. The dates mentioned therein show the
conditions regarding the year of manufacture for the purpose of reckoning the
exemption/ deduction for ten consecutive years with reference to the undertaking
set up in different locations viz., for the industries in free trade zone, units
in electronic hardware technology park or software technology park, units in
special economic zone. The second requirement under Sub Section 2 of Section 10A
of the Act is that it is not formed by splitting up or the reconstruction of a
business already in existence and Sub clause (iii) of Sub Section 2 of Section
10A of the Act states that it is not formed by the transfer of machinery or
plant previously used for any purpose to a new business;
+ as
far as the present case is concerned, the assessee is in Software Technology
Park. The assessee took advantage of the scheme notified by the Government of
India in the Ministry of Commerce and Industry of the "software technology park"
and sought for registration as STPI on 2002. In so getting the registration, the
question that arises for consideration is as to whether the claim of the
assessee would be covered by Clause (b) of Sub clause (i) of Sub Section 2 of
Section 10A of the Act. A reading of the above Sub Section shows that in order
to claim deduction, an undertaking in hardware technology park or software
technology park must be in existence commencing its production on or after the
1st day of April, 1994. Given the fact that the assessee is not formed by
splitting up or transfer to a new business and got registration even since 2002,
the fact that it has been in existence ever since 1999, does not militate
against the applicability of Section 10A of the Act. The case on hand falls
under Section 10A(2)(b) of the Act. As already pointed out, even the cursory
reading of Section 10A(2)(i) of the Act shows that it has relevance to industry
that has begun to manufacture or produce articles or things or computer software
on or after the 1st day of April, 1994. Thus, the moment the assessee satisfies
this clause and it goes for the second requirement namely, registration as a
Software Technology Park in accordance with the scheme of Government of India,
the assessee stands benefited by the provisions of Section 10A of the Act;
+
Standing counsel appearing for the Revenue however pointed out to the second
proviso to Section 10A(1) of the Act and submitted that the Section will have
relevance to the industry;
+ we
do not think it so. The second proviso to Section 10A(1) of the Act states that
where the undertaking located in any free trade zone or export processing zone
is subsequently located in a special economic zone by reason of conversion of
such free trade zone or export processing zone into a special economic zone, the
period of ten consecutive assessment years referred to in this sub-section shall
be reckoned from the assessment year relevant to the previous year in which it
had started manufacture or produce such articles or things or computer software
in the free trade zone or the export processing zone or otherwise, and clarifies
that the benefit would continued to be available to the balance of period
available to the free trade zone which has been subsequently got converted into
special economic zone. Given the scope of the scheme formulated by the
Government of India, Ministry of Commerce and Industry in locating the Software
Technology Park, which either may be done by the Government itself or by the
individual unit, we do not find any conditions in the Section, throwing the
assessee out of benefit of Section 10A of the Act solely by reason of it being
in existence already but became STPI subsequently. In the circumstances, we have
no hesitation in rejecting the Revenue's appeal, thereby confirming the order of
the Income Tax Appellate Tribunal.
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