2014 (11) TMI 596 - HC - Income Tax

Entitlement for deduction u/s 10A Profits attributable to export turnover - Whether the Tribunal was right in holding that the assessee company was entitled to deduction u/s 10A in respect of the profits attributable to the export turnover for the entire previous year relevant to the AY 2000-01 even though registration from the Software Technology Parks of India (STPI), as an STPI unit was obtained only on 04.03.2000 and the AO was not correct in restricting the deduction to the export profits relating to the turnover of the period after the date of registration as certified by the STPI Held that - The assessee Soffia Software Limited has been notified on 04.03.2000 and the assessee has commenced its software production during the previous year related to the Assessment Year - From the date of notification, the assessee would be entitled to the benefit of Sec.10A if other conditions have been fulfilled - in Section 10A, nowhere there is a restriction provided that deduction may be applicable only after registration with STPI or only for the amounts earned after such registration. If the assessee has to derive the benefits of the special provisions of Sec.10A, the assessee has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year in the STPI Unit and it will be entitled to deduction under Sec.10A in respect of profits attributed to export turn over the Tribunal was rightly of the view that the Circular issued under Section 10B cannot be made applicable to the case falling under sec.10A - There is a clear distinction between the establishment of Sec.10A and the special provisions of Sec.10B of the Act which defines 100% Export Oriented Undertakings - There is no scope for drawing inference from the provisions of Sec.10B as the assessee satisfies the requirement of Sec.10A, it will be entitled to such benefit - the AO has restricted the deduction based on an artificial cut off date (i.e.) 4.3.2000 which we hold is not the correct method of computation for benefit flowing under sec.10A the order of the Tribunal is upheld Decided against revenue.

Summary

Issues Involved:
1. Eligibility for deduction under Section 10A of the Income Tax Act.
2. Applicability of the Circular issued under Section 10B to Section 10A.
3. Correct method of computation for benefits under Section 10A.

Detailed Analysis:

1. Eligibility for Deduction under Section 10A:

The primary issue was whether the assessee was entitled to deduction under Section 10A of the Income Tax Act for the entire previous year relevant to the assessment year 2000-01, despite obtaining registration from the Software Technology Parks of India (STPI) only on 04.03.2000. The Assessing Officer restricted the deduction to the export profits post-registration, while the assessee claimed it for the entire year.

The High Court observed that Section 10A applies to any industrial undertaking that begins to manufacture or produce articles or things during the previous year relevant to the assessment year. The Tribunal held that there is no restriction in Section 10A that the deduction is applicable only after registration with STPI. The High Court upheld this view, stating that the assessee would be entitled to the benefit of Section 10A from the date it began manufacturing or producing, provided it was during the relevant assessment year.

2. Applicability of the Circular Issued under Section 10B to Section 10A:

The Commissioner (Appeals) relied on a Circular issued under Section 10B, which stated that the deduction would be available only from the year in which the unit got approval as a 100% Export Oriented Unit (EOU). The Tribunal distinguished this by stating that the Circular under Section 10B is not applicable to Section 10A and cannot be applied retrospectively to the assessment year 2000-01.

The High Court agreed, noting that Section 10B deals with 100% EOUs, which is different from the provisions under Section 10A. The Circular issued on 6.1.2005 was not relevant to the assessment year in question, and the Tribunal correctly ruled that it should not restrict the deduction under Section 10A.

3. Correct Method of Computation for Benefits under Section 10A:

The Assessing Officer computed the deduction by segregating the turnover and profits before and after the STPI registration date. The High Court found this method incorrect, emphasizing that the benefit under Section 10A should not be restricted to an artificial cut-off date. The entire turnover and profits for the relevant assessment year should be considered for deduction under Section 10A.

The Court cited a precedent, Commissioner of Income Tax vs Wheels India Ltd, where it was held that the benefit of a tax provision should enure for the whole assessment year and not be limited to a period post-notification.

Conclusion:

The High Court dismissed the revenue's appeal, confirming the Tribunal's order that the assessee is entitled to deduction under Section 10A for the entire previous year relevant to the assessment year 2000-01. The Court held that the Circular under Section 10B does not apply to Section 10A and that the computation method used by the Assessing Officer was incorrect. The judgment was in favor of the assessee, ensuring the benefits of Section 10A for the entire year without restriction to the post-registration period.