2003 (7) TMI 275 - AT - Income Tax

Exemption under section 10A and 10B - export of computer software - Amalgamation of two existing business entities, eligible for exemption under section 10A and 10B ? - HELD THAT - We find that the Ascendant Computers Systems (P) Ltd. had no units before its merger with the assessee-company. This new STP unit was set up after the merger by the assessee-company and it was operated as a separate unit but in the case of International Informatics Solutions (P) Ltd., it was duly approved 100 per cent EOU starting from 1989-90 i.e., before its merger with the assessee. Now, the question comes whether the assessee is entitled to enjoy tax-free status with respect to his 100 per cent export-oriented unit of which accounts were separately maintained. The answer is in the affirmative because the benefits are always attached to the industrial undertaking irrespective of the fact who owns it. In the instant case, both the units of the assessee were independent units and their accounts were also separately maintained. We have also carefully examined the order of the CIT(A) and noticed that the CIT(A) has examined the issue after making a threadbare analysis of the relevant provisions of law in the light of Circulars issued by the CBDT. In respect of export-oriented unit, we find force in the contention of the assessee that before the merger, this undertaking was enjoying tax exemption under s. 10B of the IT Act and since these benefits are attached to the undertaking, it will continue to enjoy the same benefit even after the merger for the remaining period. On careful perusal of the order of the CIT(A), we do not find any infirmity therein as he has dealt with the controversial issues elaborately in his order. We, therefore, find ourselves in agreement with his findings. Accordingly, the order of the CIT(A) is hereby confirmed. In the result, the appeal of the Revenue stands dismissed.

Summary

Issues Involved:
1. Eligibility for exemption under sections 10A and 10B of the Income Tax Act.
2. Formation of the assessee-company through amalgamation and its impact on eligibility.
3. Use of old assets by the assessee-company and its impact on eligibility.

Detailed Analysis:

1. Eligibility for exemption under sections 10A and 10B of the Income Tax Act:

The Revenue appealed against the CIT(A)'s order allowing exemptions under sections 10A and 10B. The key contention was whether the assessee-company, formed by amalgamation, was eligible for these exemptions. The assessee claimed exemptions for income from the Software Technology Park (STP) unit and the 100% Export-Oriented Unit (EOU). The Assessing Officer (AO) denied these exemptions, citing that the units did not meet the conditions of being newly established undertakings and that they were formed by reconstruction and transfer of old assets.

2. Formation of the assessee-company through amalgamation and its impact on eligibility:

The AO argued that the assessee-company was formed by the amalgamation of existing businesses, thus failing the conditions under sections 10A(2)(ii) and 10B(2)(ii). The AO noted the history of mergers involving Ascendant Computers Systems (P) Ltd., ISCT Information Technology, and International Informatics Solutions (P) Ltd. The AO concluded that the amalgamation resulted in the reconstruction of an existing business, ineligible for exemptions. However, the CIT(A) found that the STP unit was established post-merger and operated independently, and the EOU had been enjoying exemptions before the merger and continued to do so post-merger.

3. Use of old assets by the assessee-company and its impact on eligibility:

The AO also contended that the use of old assets transferred from the amalgamated companies disqualified the units from exemptions under sections 10A(2)(iii) and 10B(2)(iii). The AO observed that the merger involved the transfer of significant assets, implying reconstruction and the use of previously used machinery. The assessee argued that the STP unit was newly established post-merger without the transfer of significant assets, and the EOU was an independent unit with separate accounts, continuing to enjoy its tax-free status. The CIT(A) agreed with the assessee, stating that the benefits attached to the undertaking, not the owner, and thus, the EOU continued to qualify for exemptions.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, confirming that the assessee's STP and EOU units were eligible for exemptions under sections 10A and 10B. The Tribunal agreed that the STP unit was newly established post-merger and the EOU, being an independent unit, continued to enjoy its tax-free status. The Tribunal dismissed the Revenue's appeal, affirming that the benefits of sections 10A and 10B are attached to the undertaking, not the owner, and thus, the exemptions were rightly allowed by the CIT(A).