2020 (9) TMI 1019 - HC - Income Tax

Entitlement for deduction u/s.10A - when the new STP unit was not in existence and no activities are carried out from the STP unit - assessee is a Design Engineering Company - question of law involving in the case - HELD THAT - Newly established undertaking is an undertaking of the assessee independent of all the undertakings that he is already possessing. In the instant case, the assessee was engaged on site development of software program. The programs were delivered at the premises of the client at the work site in South Korea. The activities of the assessee finally culminated at the work site of the clients at South Korea and there was no need for full fledged infrastructure facilities in India. Thus, the industrial undertaking of the assessee was independent of all the undertakings which it was already possessing. Therefore, the assessee has rightly been held entitled to deduction under Section 10A of the Act by the Commissioner of Income Tax (Appeals) as well as the Tribunal. The aforesaid concurrent findings of fact by no stretch of imagination can be said to be perverse. It is the cardinal principle of law that tribunal is fact finding authority and a decision on facts on the tribunal can be gone into by the High Court only if a question has been referred to it, which says the finding of the tribunal is perverse. See SUDARSHAN SILKS SAREES VS. CIT 2008 (4) TMI 5 - SUPREME COURT and and 'MANGALORE GANESH BEEDI WORKS VS. CIT 2015 (10) TMI 1283 - SUPREME COURT . We find that matter stands concluded by findings of fact and the revenue has not been able to either plead or place on record material to show that findings of fact recorded by the Tribunal are perverse. Thus, we hold that non substantial questions of law. arise for consideration in this appeal.

Summary

Issues:
- Eligibility for deduction under Section 10A of the Income Tax Act, 1961
- Interpretation of the term "new industrial undertaking" in Section 10A(2) of the Act

Analysis:

Issue 1: Eligibility for deduction under Section 10A
The appeal before the Karnataka High Court involved the eligibility of the appellant for a deduction under Section 10A of the Income Tax Act for the Assessment Year 2007-08. The appellant, a Design Engineering Company, had claimed the deduction, but the Assessing Officer contended that no new unit was set up and that the existing infrastructure was merely split. The Commissioner of Income Tax (Appeals) and the Tribunal had allowed the deduction, emphasizing that the appellant's activities did not require a full-fledged infrastructure facility. The High Court, after considering submissions from both parties, upheld the concurrent findings of fact by the lower authorities. It was established that the appellant's industrial undertaking was independent of its existing undertakings, making it eligible for the deduction under Section 10A.

Issue 2: Interpretation of "new industrial undertaking"
The Court delved into the interpretation of the term "new industrial undertaking" as per Section 10A(2) of the Act. It was clarified that the key criterion for claiming the deduction was not the expansion of the existing business but the establishment of a new, identifiable, and separate undertaking. The Court referenced previous decisions to support the view that a new activity could produce similar or distinct products from the existing business. In this case, the appellant's engagement in software development, with delivery at client premises abroad, justified the eligibility for the deduction under Section 10A. The Court emphasized that the industrial undertaking must be independent of the appellant's other undertakings, which was the case here. The Court highlighted that the findings of fact were not challenged as perverse and that the revenue failed to demonstrate any material to refute the lower authorities' conclusions.

In conclusion, the High Court dismissed the appeal, stating that no substantial questions of law arose for consideration. The judgment underscored the importance of factual findings, the need for a question of law to be rooted in pleadings and sustainable facts, and the limited scope for interference by the Court in the absence of perversity in lower authorities' findings.