2015 (8) TMI 560 - HC - Income Tax

Eligibility for section 10A deduction - STPI unit is not a new undertaking but formed by splitting up of the existing unit and reconstruction of business already in existence - Held that - This court had an occasion to consider the similar question in the case of CIT v. Wipro GE Medical System Ltd. reported in 2015 (8) TMI 548 - KARNATAKA HIGH COURT , and in the case of CIT v. Maxim India Integrated Circuit Design (P.) Ltd. reported in 2011 (7) TMI 518 - Karnataka High Court and CIT v. Expert Outsource (P.) Ltd. reported in (2011 (3) TMI 1428 - Karnataka High Court) to hold that benefit of Section 10A would also be available even when an existing unit gets converted into a STPI unit - Decided in favour of the assessee

Summary

Issues:
1. Interpretation of Section 10A deduction eligibility for STPI unit formation.

Analysis:
The judgment involved a common question of law concerning the eligibility of an assessee for Section 10A deduction related to the formation of an STPI unit. The assessee, an Indian company engaged in computer software development and business processing, established an STPI unit alongside a non-STPI unit during the financial year 2005-06. The dispute arose when the claim for Section 10A deduction for the STPI unit was initially rejected on the grounds that it was formed by splitting an existing unit. However, the appellate authorities overturned this decision, granting the deduction. The Tribunal upheld this decision, prompting the Revenue to appeal. The court referred to previous cases to support its decision, emphasizing that the law applied in those cases was relevant to the present situation. Consequently, the court ruled in favor of the assessee, dismissing the appeals brought by the Revenue.

In essence, the crux of the matter revolved around the interpretation and application of Section 10A in determining the eligibility of the STPI unit for the deduction claimed by the assessee. The court considered the facts of the case, including the establishment of the STPI unit separate from the existing non-STPI unit, the maintenance of separate accounts, and the compliance with STPI authorities' regulations. Drawing from precedents such as CIT v. Wipro GE Medical System Ltd. and others, the court concluded that the findings of the appellate authorities align with the law. Therefore, the substantial question of law raised in the appeals was resolved in favor of the assessee, leading to the dismissal of the Revenue's appeals.

Overall, the judgment provided clarity on the interpretation of Section 10A deduction eligibility concerning the formation of an STPI unit. By analyzing the facts, legal precedents, and relevant regulations, the court affirmed the assessee's entitlement to the deduction, emphasizing compliance with STPI regulations and the separate nature of the STPI unit from the existing business operations. The decision underscored the importance of adhering to statutory provisions and maintaining distinct operational entities to qualify for tax benefits under Section 10A, ultimately upholding the appellate authorities' rulings in favor of the assessee.