2013 (7) TMI 147 - HC - Income Tax

Exemption u/s 10B - 100% EOU / STP unit - Receipt of training fees - Held that - 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 - benefit under Section 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 export oriented unit fulfilling the conditions specified in the Section - 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 - Decided in favour of Revenue. Benefit under STP scheme - Tribunal rejected - Held that - 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. - Decided against the assessee.

Summary

Issues Involved:
1. Whether the assessee is entitled to relief under Section 10B of the Income Tax Act for income from training.
2. Whether the training income qualifies as export income under Section 10B.
3. Whether the absence of foreign inward remittance affects the claim under Section 10B.

Detailed Analysis:

1. Entitlement to Relief under Section 10B for Income from Training:

The assessee, a 100% export-oriented unit, claimed exemption under Section 10B of the Income Tax Act for income received from training fees. The Assessing Officer rejected this claim, arguing that the relationship between the assessee and the trainees was not that of employer and employee, and the training was provided to outsiders with no contractual obligation to absorb them. The Commissioner of Income Tax (Appeals) allowed the claim, recognizing training as integral to software development. However, the Income Tax Appellate Tribunal (ITAT) remanded the matter for further enquiry into whether the training was an integral part of the business. Upon reassessment, the Assessing Officer again denied the exemption, stating the training was provided for a fixed fee and duration, and the relationship was that of teacher and student. The Tribunal ultimately held that the training income did not qualify as export income under Section 10B, as it was earned from training outsiders and not from exporting articles, goods, or software.

2. Qualification of Training Income as Export Income:

The Tribunal emphasized that Section 10B applies to profits and gains derived from the export of articles or things manufactured or produced by the undertaking. The Tribunal noted that the income from training was not derived from the export of software but from fees charged for training, which did not qualify as export income. The Tribunal also dismissed the assessee's reliance on various circulars and schemes, stating they were not relevant for the Income Tax Act's exemption provisions. The Tribunal's interpretation was that the training activity did not constitute the manufacture or production of an article or thing as required under Section 10B.

3. Impact of Foreign Inward Remittance on Section 10B Claim:

In related appeals for the assessment years 1997-98 and 1999-2000, the Revenue raised the issue of whether the absence of foreign inward remittance affected the exemption claim under Section 10B. The Tribunal had allowed the assessee's appeals, subject to the condition that the order would conform to the decision for the assessment year 1996-97. The High Court, however, set aside the Tribunal's order, stating that the facts were similar to those in the 1996-97 case and upheld the denial of exemption for training income. The High Court concluded that the receipts from training did not qualify for exemption under Section 10B, as they were not derived from the manufacture or production of an article or thing, regardless of foreign inward remittance.

Conclusion:

The High Court dismissed the assessee's appeal, confirming the Tribunal's view that the training income did not qualify for exemption under Section 10B of the Income Tax Act. The Court held that the training activity did not meet the criteria of manufacturing or producing an article or thing, and the relationship between the assessee and trainees did not align with the requirements for claiming the exemption. The Court also rejected the plea for a proportionate allowance and the request for remand, affirming that the training income was not eligible for exemption under Section 10B.