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2018 (11) TMI 1787 - HC - Income TaxExemption u/s 10A - organizational change - assessee has split-up and reconstructed the business already in existence; that the new business has been formed out of the plant and machinery previously used for the purpose - HELD THAT - Admittedly the Unit has been functioning ever since the year 1996-97. This is the 8th Year of operation of the assessee. It is only this year there has been a disallowance by the Assessing Officer under Section 10A of the Act. Distinction as sought to be made therein is that in terms of Sub-section (1) of Section 10B of the Act, tax holiday period should be continuous and consecutive; that the period of ten years is referable to the undertaking and therefore, the transfer or change of the undertaking will not alter or increase the tax holiday period Of ten years. Therefore, the contention of the Revenue that if there is change of undertaking, tax holiday would stand restricted may not be correct. In so doing the earlier orders in case of Heartland KG Information Ltd. 2013 (9) TMI 375 - MADRAS HIGH COURT And Sonata Software Ltd. 2012 (4) TMI 99 - BOMBAY HIGH COURT were affirmed - Decided against revenue.
Issues:
1. Claim of exemption under Section 10A of the Income Tax Act for the assessment year 2004-05. 2. Violation of conditions stipulated in Section 10A(2)(ii) & (iii) of the Act. 3. Disallowance by the Assessing Officer and subsequent appeals. 4. Interpretation of tax holiday period under Section 10B. Analysis: Issue 1: Claim of exemption under Section 10A The assessee, engaged in software development, filed a return of income for the assessment year 2004-05, claiming exemption under Section 10A of the Act. The Assessing Officer disallowed the claim citing violation of conditions under Section 10A(2)(ii) & (iii) due to alleged split-up and reconstruction of the business. However, on appeal, the order of assessment was set aside, and relief under Section 10A was granted. The Revenue appealed before the Tribunal, which dismissed the appeal, leading to the present appeal in Income Tax Appeal 368 of 2010. Issue 2: Violation of Conditions under Section 10A(2)(ii) & (iii) The substantial question of law considered was whether the Tribunal's finding confirming the order that the assessee did not violate the conditions of Section 10A(2)(ii) due to an organizational change was erroneous. The Revenue contended that the grant of relief was incorrect, emphasizing the alleged violation. However, the assessee argued that the unit had been consistently operational for eight years, and the disallowance in the 8th year was unjustified, citing a similar judgment from the High Court of Delhi in favor of the assessee. Issue 3: Disallowance and Appeals The High Court noted that the unit had been functioning since 1996-97, and the disallowance in the 8th year was unprecedented. It emphasized that the tax holiday period of ten years under Section 10B is continuous and consecutive, not affected by changes in the undertaking. Referring to previous judgments, the Court held in favor of the assessee, rejecting the Revenue's contention that a change in the undertaking would restrict the tax holiday. Issue 4: Interpretation of Tax Holiday Period under Section 10B The Court clarified that the tax holiday period of ten years under Section 10B is tied to the undertaking, unaffected by transfers or changes. It referenced judgments from the High Courts of Madras and Bombay to support this interpretation. Consequently, the substantial question of law was answered in favor of the assessee and against the Revenue, leading to the disposal of the appeal. In the related Income Tax Appeal 367 of 2010 for the assessment year 2005-06, the substantial question of law was answered in favor of the assessee following the judgment in Income Tax Appeal 368 of 2010.
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