2015 (4) TMI 299 - HC - Income Tax

Deduction u/s 10A - as per AO new unit under which the claim was made would be formed out of splitting up or reconstruction of the business by using the old plant and machinery and therefore, the assessee by furnishing incorrect particulars of income has claimed deduction which is not allowable under Section 10A - ITAT allowed the claim - Held that - In the instant case, the assessee began operation in the existing company whereas the STP unit was registered on 16.10.2002. The STP authorities could also permit the conversion of an existing unit into a STP unit. The purpose of the STP scheme is to encourage exports and gain valuable foreign exchange for the country. The STP scheme provides the benefit of converting a DTA unit into a STPI unit and the same should also hold good for tax purposes. CBDT Circular No.1 of 2005 dated 6th January, 2005 grants certain benefits under the provisions of Section 10B of the Act. Though the circular is in the context of Section 10B, the ratio of the circular equally applies to Section 10A also. In fact, the Commissioner of Income Tax (Appeals) has referred to various judgments on the point and has come to the conclusion that the benefit of Section 10A of the Act would also be available even when an existing unit gets converted into a STPI unit. In fact, the material on record discloses that no export of computer software was made before 16.10.2002. The export commenced only after 16.10.2002. The invoices produced in the case clearly establish the said fact. In those circumstances, the Appellate Authority as well as the Tribunal are justified in extending the benefit of Section 10A of the Act to the unit of the assessee in question. See CIT and ITO Versus Expert Outsource (P) Ltd. 2011 (3) TMI 1428 - Karnataka High Court - Decided in favour of assessee.

Summary

Issues Involved:
Appeal against order granting tax benefit under Section 10A of the Income Tax Act, 1961.

Analysis:
1. Background and Facts:
The case involves an appeal by the revenue against an order passed by the Tribunal upholding the benefit of tax under Section 10A of the Income Tax Act, 1961. The assessee, engaged in software development, claimed deduction under Section 10A for the assessment year 2003-04. The Assessing Authority held that the claim was not allowable as the new unit was formed from the old unit, initiating penalty proceedings under Section 271(1)(c) of the Act. The Commissioner of Income Tax (Appeals) allowed the appeal in part, citing a CBDT Circular. The Tribunal, relying on its earlier order, upheld the findings of the Appellate Commissioner, leading to the revenue's appeal.

2. Interpretation of Section 10A:
Section 10A of the Act allows deduction from total income for profits derived from export activities. The tax holiday period starts when the undertaking begins manufacturing or producing the exported items. Certain conditions under Section 10A(2) must be met to avail the benefit. In this case, the STP unit was registered after the existing company began operations. The STP scheme aims to promote exports and foreign exchange earnings. The CBDT Circular No.1 of 2005, though related to Section 10B, applies to Section 10A as well. The benefit of Section 10A was extended to the unit as no software exports occurred before the STP unit registration.

3. Legal Precedent:
A similar issue was addressed in a previous case where the benefit under Section 10A was upheld. The High Court found no illegality in the decisions of the Appellate Authority and Tribunal. The findings were based on legal evidence and consistent with the law laid down by the Court in previous judgments. No substantial question of law arose for consideration in the appeal, leading to its dismissal.

In conclusion, the judgment upholds the benefit of tax under Section 10A for the software development unit, based on the interpretation of relevant provisions and legal precedents. The decision emphasizes the importance of compliance with statutory conditions and the applicability of circulars in determining tax benefits for export-oriented businesses.