2014 (10) TMI 146 - HC - Income Tax

Grant of deduction u/s 10B Registration with STPI - Whether the Tribunal was right in holding that the registration with STPI is not a pre-requisite for grant of deduction u/s 10B Held that - Assessee is a company engaged in software development, has applied for registration as 100% Export Oriented Unit on 24.3.2005 before the competent authority and got the approval in May, 2005 - The assessee claimed benefit of exemption u/s 10-B of the Act, which falls under Chapter IV - a 100% EOU as provided u/s 10B(1) will be one that is approved by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by Section 14 of the Industries (Development and Regulation) Act, 1951 and the Rules made under that Act - approval was granted during May, 2005 only and therefore, prior to that date or the assessment year, relevant to the date of registration, the benefit of Section 10-B would not be available as the requirement of approval by the competent authority is not available as on the date, from which the assessee claimed exemption - Section 10B is very clear and unambiguous that approval by the competent authority is pre-requisite for grant of benefit u/s 10-B - it will not be appropriate for the Tribunal to hold that there is no pre-condition that the assessee should have obtain STPI registration before making the claim u/s 10-B. The Circular is nothing but clarification of what the Section 10B really provides for - It is of no avail either to the assessee or to the Department when the provisions of Section 10-B is clear following the decision in C.I.T. Vs. Gopal plastics Ltd. 1994 (10) TMI 12 - MADRAS High Court - the assessee in this case will be entitled to the benefit of Section 10-B only on complying with the conditions contained prescribed in Section 10-B of the Income Tax Act, and it does not enure to the benefit for the AY in question, namely, 2005-06. - Decided in favor of revenue.

Summary

Issues:
1. Whether registration with STPI is a pre-requisite for grant of deduction under Section 10B of the Income Tax Act?

Analysis:
The case involved a Tax Case (Appeal) filed by the Revenue challenging the order of the Income Tax Appellate Tribunal for the assessment year 2005-06. The main issue was whether the registration with Software Technology Parks of India (STPI) was a pre-requisite for claiming deduction under Section 10B of the Income Tax Act. The respondent, a software development company, applied for registration as a 100% Export Oriented Unit (EOU) with STPI in March 2005 and obtained approval in May 2005. The Assessing Officer disallowed the claim of deduction under Section 10B as the approval was obtained after the relevant assessment year. The Commissioner of Income Tax (Appeals) partly allowed the appeal, emphasizing that the conditions for exemption should be satisfied from the assessment year in which the activities begin. The Tribunal held that STPI registration was not a pre-condition for claiming deduction under Section 10B, and the CBDT circular could not override the Act's provisions.

Further, the Tribunal referred to relevant case law and emphasized that beneficial provisions like Section 10B should be liberally construed to promote the software industry. The Tribunal held that the approval or registration under STPI was not mandatory as per the Act and that the CBDT circulars were binding only on the Department. The Tribunal dismissed the Revenue's appeal, upholding the benefit of exemption under Section 10B for the assessee.

However, the High Court disagreed with the Tribunal's interpretation. The Court noted that Section 10B required approval by the competent authority, in this case, STPI, as a pre-requisite for granting benefits. The Court held that since the approval was granted after the relevant assessment year, the assessee was not entitled to the benefit for that year. The Court emphasized that the Tribunal's view on the lack of pre-condition for STPI registration was incorrect and contrary to the Act's provisions. The Court also clarified that the Circular was a mere clarification of the Act and did not alter the requirement of approval for claiming benefits under Section 10B.

Ultimately, the High Court ruled in favor of the Revenue, setting aside the Tribunal's order and allowing the Tax Case (Appeal). The Court held that the assessee would be entitled to the benefit of Section 10B only upon complying with the conditions specified in the Act, including obtaining approval from STPI. The Court rejected the Tribunal's interpretation and emphasized the importance of fulfilling the pre-requisite conditions for availing exemptions under Section 10B.