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2012 (9) TMI 627 - HC - Income TaxDeduction u/s 10-B - STPI unit - income derived from export of computer software - ITAT allowed the claim as assesses had received approval to start 100 per cent EOU under STP scheme - whether this approval can be deemed one under Section 10-B? - Held that - For that purpose a 100 per cent EOU is only that which is so approved by the Board appointed by Central Government in exercise of powers conferred under Section 14 of IDAR Act, 1951. The pre-conditions that govern units set up under STP scheme are different from those that govern the units set up as 100 per cent EOUs and so approved by the Board. Some conditions may undoubtedly overlap yet, criteria, such as fulfillment of the employment criteria, foreign exchange, etc., are not common. There is no notification or official document suggesting that either the Inter Ministerial Committee, or any other officer or agency was nominated to perform the duties of the Board (constituted under Section 14 of the IDR Act), for purposes of approvals under Section 10-B. Though the considerations which apply for granting approval under Sections 10-A and 10-B may to an extent, overlap, yet the deliberate segregation of these two benefits by the statute reflects Parliamentary intention that to qualify for benefit under either, the specific procedure enacted for that purpose has to be followed. There is nothing in any of the Circulars or instructions relied on by the Tribunal in all the orders, implying that approval for purposes of an STP also entitled the unit to a benefit under Section 10-B. The orders of the Tribunal are consequently erroneous, and its reasoning, unsupportable - in favour of the revenue
Issues Involved:
1. Eligibility for deduction under Section 10B of the Income Tax Act for income derived from the export of computer software. 2. Validity of the approval from the Software Technology Park of India (STPI) for claiming benefits under Section 10B. 3. Interpretation of statutory provisions and circulars regarding the delegation of approval powers. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 10B: The primary issue is whether the Income Tax Appellate Tribunal (ITAT) erred in allowing the deduction under Section 10B for income derived from the export of computer software by the assessees, M/s. Regency Creations Ltd. and Valiant Communications Ltd. The Assessing Officer had disallowed the claim, arguing that the assessees did not possess a valid certificate for software export and that the approval from STPI could not be equated with the approval required under Section 14 of the Industries (Development and Regulation) Act, 1951 (IDR Act). 2. Validity of STPI Approval for Section 10B Benefits: The Tribunal found that the assessees had established software divisions approved and registered with the STPI, a nodal agency authorized by the Ministry of Information and Technology. The Tribunal relied on CBDT Circulars, which directed that registration by STPI should be treated as valid for purposes of Section 10B. The Tribunal noted that the Memorandum of Association of the companies included provisions for exporting goods, including software, and that the assessees had complied with all necessary conditions for software export. 3. Interpretation of Statutory Provisions and Circulars: The Revenue argued that the benefits under Section 10B are distinct from those under Section 10A, and the approval from STPI does not suffice for Section 10B. The Tribunal had relied on various circulars and notifications, including CBDT Circular No. 1 of 2005 and Instruction No. 1 of 2006, which suggested that approvals by STPI could be valid for Section 10A, but not explicitly for Section 10B. The Tribunal's interpretation was that the Inter-Ministerial Standing Committee (IMSC) for EHTPs and STPs was competent to grant approval for STPI units to claim 100% benefits under the EOU Scheme, thus entitling the assessees to Section 10B benefits. Court's Analysis and Conclusion: The Court noted that the essential question was whether the approval by the STPI could be deemed as approval under Section 10B. It was emphasized that a 100% EOU must be approved by the Board appointed by the Central Government under Section 14 of the IDR Act. The Court found no express authorization or delegation of the Board's approval powers to the Inter-Ministerial Committee for the purposes of Section 10B. The Court held that the deliberate segregation of benefits under Sections 10A and 10B by the statute indicates that specific procedures must be followed for each. The Tribunal's reliance on circulars and instructions did not imply that approval for an STP unit also entitled it to benefits under Section 10B. Judgment: The Court concluded that the Tribunal's orders were erroneous and unsupportable. The question of law was answered in favor of the Revenue, and the appeals were allowed. The assessees were not entitled to the deduction under Section 10B based on the approvals they had received from the STPI.
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