2014 (3) TMI 109 - HC - Income Tax

Interpretation of Section 10A(2) of the Act - Deduction claimed on income from software exports - Held that - The decision in Nagesh Chundur v. Assistant Commissioner of Income Tax 2011 (6) TMI 809 - ITAT CHENNAI followed Section 10A provides for deduction from the total income of profits derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive years - The tax holiday period commences from the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such article or thing or computer software - Section 10 (2) prescribes certain conditions on the fulfillment of which the benefit of 10A could be availed - the Revenue s submission cannot be accepted that it would be giving undue stress and entirely dependent upon the expression during the previous years relevant to the assessment years according to Section 10A (2) (i) Relying upon Circular No.1/2005, benefit of section 10(2) is allowed Decided against Revenue.

Summary

Issues:
Interpretation of Section 10A, deduction of income from software exports, commencement of production, conditions under Section 10A (2), benefit of tax holiday period, relevance of second proviso to Section 10 (A) (1).

Analysis:
The case involved a dispute regarding the interpretation of Section 10A of the Income Tax Act. The assessee had reported NIL income for the assessment year 2007-08 based on the approval for setting up Software Technology Parks in India. The Assessing Officer restricted the deduction for income from software exports based on the validity period mentioned in the permission letter. The Commissioner (Appeals) disallowed the deduction entirely, stating that the assessee had commenced software production in a different assessment year. The Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal, referring to a previous order of the Chennai Bench. The Chennai Bench had emphasized the conditions under Section 10A for availing deductions from export profits.

The Revenue contended that since the assessee began commercial production before obtaining approval in 2006, the benefit under Section 10A should not apply. The Revenue highlighted the conditions specified in Section 10A (2) (i) and the second proviso to Section 10 (A) (1) to support its argument. However, the Court analyzed the provisions of Section 10A and the second proviso, stating that the benefit extends to a period of ten years from the relevant assessment year when production begins. The Court rejected the Revenue's restrictive interpretation of Section 10A (1) and emphasized that Section 10A (2) should not be solely dependent on the expression "during the previous years relevant to the assessment years."

The Court referred to a judgment of the Karnataka High Court in a similar case involving Section 10B and Circular No.1/2005. Ultimately, the Court upheld the ITAT's decision, stating that there was no error of law in following the previous decision. The appeal was dismissed based on the Court's analysis of the provisions and relevant case law.