2015 (2) TMI 670 - HC - Income Tax

Entitlement to claim deduction under section 10A - assessee failing to satisfy the conditions stipulated in the STPI Scheme which stipulated commencement of units from a particular date when the assessee's unit had already commenced much before obtaining the licence for the bonded warehouse - Held that - The conditions stipulated in the permission granted by the STPI is the units shall be customs bonded. The benefit of such customs bonding is that the assessee would be entitled to the benefit of customs duty and excise duty. It has nothing to do with the grant of exemption under section 10A of the Income-tax Act. To be eligible for exemption under section 10A, the conditions stipulated in sub-section (2)(i) of section 10A has to be fulfilled, i.e., the assessee has to begin manufacturing the products on or after the first day of April, 1994, in any electronic hardware technology park. In order to start the unit in software technology park, the permission is required. Once permission is obtained and the unit is started in software technology park, after the aforesaid date, the assessee is entitled to the benefit under section 10A of the Act. Customs bonding is not a requirement or a condition precedent for granting exemption under section 10A. As is clear from the facts set out above, both the appellate authorities were justified in granting relief to the assessee. Therefore, we do not see any merit in this appeal. - Decided in favour of the assessee

Summary

Issues:
1. Interpretation of conditions for claiming deduction under section 10A.
2. Commencement of production in a software technology park before customs bonding.
3. Applicability of STPI Scheme conditions for claiming exemption under section 10A.

Analysis:
1. The primary issue in this case is the interpretation of conditions for claiming deduction under section 10A of the Income-tax Act. The assessee, involved in computer software development, claimed deduction under section 10A amounting to a substantial sum. The dispute arose when the assessing authority denied the exemption on the grounds that production commenced before obtaining customs bonding. The Tribunal and appellate authorities held in favor of the assessee, emphasizing fulfillment of conditions stipulated in the EXIM Policy/STPI authorities along with those in section 10A. The Tribunal relied on a previous decision to support the assessee's entitlement to the benefit of section 10A even if production started before customs bonding.

2. Another crucial issue addressed in the judgment pertains to the commencement of production in a software technology park before obtaining customs approval. The STPI authorities had conditions regarding customs bonding for units, but the Tribunal highlighted that customs bonding is not a prerequisite for claiming exemption under section 10A. The judgment clarified that once the unit is established in a software technology park and production begins after the specified date, the assessee is eligible for the benefits under section 10A. The timing of customs bonding vis-`a-vis production commencement was not deemed crucial for claiming the exemption.

3. The case also delved into the applicability of STPI Scheme conditions for claiming exemption under section 10A. The appellate authorities justified granting relief to the assessee based on the fulfillment of conditions under section 10A(2)(i) without strict adherence to customs bonding timelines. The judgment underscored that customs bonding is related to duty concessions and not a prerequisite for availing section 10A benefits. The substantial question of law was answered in favor of the assessee, leading to the dismissal of the appeals filed by the Revenue.

In conclusion, the judgment provides clarity on the interpretation of conditions for claiming deduction under section 10A, emphasizing the fulfillment of statutory requirements over procedural formalities like customs bonding timelines. The decision underscores the importance of meeting the substantive conditions laid down in the law for availing exemptions, ultimately ruling in favor of the assessee and upholding the decisions of the appellate authorities.