2011 (8) TMI 613 - HC - Income Tax

Eligibility of deduction u/s 10B of the Act- Assessee having business of software development located at Gujarat shifted its unit to Bangalore- Revenue denied exemption on ground that such shifting is reconstruction of business. Held that -The shifting has been done with the permission of the Government of India. In view of shifting, there is only one undertaking, whose identity, integrity and continuity is maintained. The assessee is not claiming any benefit under Section 10(B) in respect of any unit at Gujarat. The only benefit claimed is in respect of the unit at Bangalore as there is no unit at Gujarat and the only unit is at Bangalore, the assessee is entitled to the benefit under Section 10B of the I.T. Act. Decided against the Revenue.

Issues:
- Eligibility for exemption under Section 10(B) of the Income-tax Act
- Reconstruction of business from one location to another
- Interpretation of Section 10(B)(d)(ii) of the Income-tax Act
- Applicability of exemption under Section 10(B) for the assessment year 1992-93

Eligibility for exemption under Section 10(B) of the Income-tax Act:
The case involved a company engaged in software development that shifted its unit from Gujarat to Bangalore and claimed exemption under Section 10(B) of the Income-tax Act. The Assessing Officer initially denied the exemption, considering it as reconstruction of business. However, the Appellate Commissioner and the Income-tax Appellate Tribunal held that the relocation was permissible as the unit was shifted with permission from the Government of India. The Tribunal found that there was only one undertaking, maintaining identity, integrity, and continuity, thus entitling the assessee to claim the benefit under Section 10(B) for the unit in Bangalore. The Tribunal's decision was deemed lawful and in accordance with the provisions of the Act.

Reconstruction of business from one location to another:
The central issue revolved around whether the relocation of the business unit from Gujarat to Bangalore constituted a reconstruction of business, impacting the eligibility for exemption under Section 10(B) of the Income-tax Act. The Department of Electronics, Government of India, had permitted the relocation, leading to the conclusion that it was not a reconstruction but a permissible shift. The Tribunal emphasized that the continuity and identity of the undertaking were maintained despite the relocation, supporting the assessee's entitlement to the exemption under Section 10(B) for the Bangalore unit.

Interpretation of Section 10(B)(d)(ii) of the Income-tax Act:
The Assessing Officer relied on Section 10(B)(d)(ii) of the Income-tax Act to argue against granting the exemption, contending that the business was already in existence and hence not eligible for the benefits under Section 10(B). However, the Appellate Commissioner and the Tribunal interpreted the provision differently, considering the relocation as a permissible action that did not fall under the restriction imposed by Section 10(B)(d)(ii). This interpretation favored the assessee's claim for exemption under Section 10(B) for the Bangalore unit.

Applicability of exemption under Section 10(B) for the assessment year 1992-93:
The appeal also raised the question of whether the assessee could claim exemption under Section 10(B) for the assessment year 1992-93 due to the relocation of the business unit. The Tribunal's decision, supported by the High Court, affirmed that the shifting of the unit from Gujarat to Bangalore did not disqualify the assessee from availing the benefits under Section 10(B) for the said assessment year. The judgment clarified that as there was no unit remaining in Gujarat and only one unit existed in Bangalore, the assessee was entitled to the exemption under Section 10(B) for the relevant period.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision in favor of the assessee regarding the eligibility for exemption under Section 10(B) of the Income-tax Act due to the relocation of the business unit from one location to another with the requisite permissions and maintaining the continuity and identity of the undertaking.

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