9911796707
TMI Blog2009 (5) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... in holding that it was not proper on the part of the Assessing Officer to question the approval granted by the prescribed authority being the Secretary, Government of India, as a company engaged in the activities of research and development (R D) for the purpose of section 80-IB(8A). It is further mentioned that he ignored the terms of the approval to the effect that the same was subject to the provisions contained in section 80-IB(8A), other provisions of section 80-IB, and the provisions contained in rules 18D and 18DA of the Income-tax Rules, 1962. It is also mentioned that he erred in holding that the undertaking of the assessee was established by acquiring new plant, machinery and equipment, while the fact is that after exhausting the deduction under section 80-O, the assessee-company changed its memorandum of association (MOA) for the sole purpose of availing of the benefit under section 80-IB(8A). It is also mentioned that the learned Commissioner of Income-tax (Appeals) erred in holding that the assessment year 2003-04 was the initial assessment year for the purpose of section 80IB(8A). It is also mentioned that he erred in holding that the difference in receipts, amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the amendment in the memorandum of association was merely to avail of the benefit of deduction under section 80-IB(8A) when the benefit under section 80-O got exhausted. The assessee did not satisfy the requirement of rule 18DA(1)(e) that it was exclusively engaged in scientific research and development activities leading to technological development, improvement of technology and transfer of technology developed by it. Rule 18DA(2)(a) stipulated that the approved company shall sell any prototype or output, if any, from its laboratory or pilot plant with the permission of the prescribed authority. The assessee was unable to produce such permission letter in respect of sales effected in the financial years 2002-03 and 2003-04. It was also mentioned that the initial year of deduction under sub-section (8A) of section 80-IB was the assessment year 1992-93. There was also some reconciliation difference of Rs. 1,00,369, found in receipts, which was added to the total income. Thus, the income of the assessee was computed at Rs. 1,39,35,080 and the same was brought to tax. All these findings were challenged before the learned Commissioner of Income-tax (Appeals), who after examining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, namely, (i) it is not formed by splitting up, or reconstruction, of a business already in existence ; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose ; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India ; and (iv) it employs 10 or more workers in the manufacturing process carried on with the aid of power or employs 20 or more workers in a manufacturing process carried on without the aid of power. In this connection, it was argued that the undertaking of the assessee was an old undertaking and, therefore, the first two conditions of sub-section (2) were not satisfied. The assessee had not carried on the business of manufacturing or producing any article or thing and, therefore, the third condition was also not satisfied. In this very connection, it was submitted that the assessee obtained the approval from the prescribed authority on February 11, 2002 under section 80-IB(8A) for the assessment years 2003-04 to 2005-06. This approval was granted subject to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2000] 245 ITR (St.) 21), being explanatory note on the provisions relating to direct taxes. It is mentioned that in order to grant impetus to knowledge based industry, the Act provides tax holiday for ten consecutive years if the company is carrying on scientific research and development. This period of ten years is to be reckoned from the year in which the approval is given by the prescribed authority. To avail of this benefit, such company-(i) should be registered in India ; (ii) should have its main object to carry out scientific research and development ; (iii) should be approved by the prescribed authority at any time after March 31, 2000, but before the first day of April, 2003 ; and (iv) should fulfil such other conditions as may be prescribed. On the basis of this circular, it was argued that the conditions mentioned in clause (e) of sub-section (1) of rule 18DA was not satisfied and, therefore, the assessee was not entitled to deduction under section 80-IB. In reply, learned counsel referred to the provisions contained in sub-section (2) of section 80-IB and it was argued that since the assessee-company was not carrying out any manufacturing activity, the conditions m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 18DA(1)(e) was not satisfied, our attention was drawn towards development, production and licensing agreement dated May 19, 1995, between the assessee and ADI. The assessee has been designated as the developer in the agreement and it is mentioned in paragraph 1 that the parties are to work together to determine from customer feedback corrections, improvements or enhancements to the latest release of a product and the developer agrees to use such inputs as well as input from ADI and itself to develop further enhancements for products from time to time during the term of the agreement. In paragraph 2, it is mentioned that the developer agrees to deliver to ADI full documentation for the products along with the delivery of the products and to provide updates to such documentation to reflect any enhancements or new releases of each product as a developer, with a view to permit ADI to market each product and to provide first line customer support for the product. Under paragraph 3, the developer agreed to take full responsibility for the service and quality assurance of the products delivered by it, to participate with ADI in presentation of the products to key customers, to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel was that this paragraph also did not mean that research and development activities were carried out jointly but it only was a part of sale agreement granting certain rights to ADI. In regard to the absence of definition of the expression "initial assessment year" in sub-section (14) for the purpose of sub-section (8A), it was submitted that the provisions contained in sub-sections (8) and (8A) constitute analogous law. Therefore, if there was any omission in sub-section (8A), it will be necessary to look into the provision of sub-section (8). For this purpose, reliance was placed on the decision of hon'ble Supreme Court in the case of CIT v. J. H. Gotla [1985] 156 ITR 323. At page 339, after referring to the decision in the case of K. P. Varghese v. ITO [1981] 131 ITR 597 (SC), the hon'ble court mentioned that where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal representative submitted that the principle of res judicata is not applicable to the income-tax proceedings. Under the fiscal statute each year is a separate year. Therefore, if deduction was granted in the assessment year 2003-04, it should not be granted in the assessment year 2004-05 by merely following the rule of consistency as there were substantial reasons not to do so. In this connection, he drew our attention to the heading of section 80-IB, being "Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertaking". It was his case that there was some ambiguity, the same should be resolved by looking at the heading, which shows the real intention of the Legislature to grant deduction from profits derived from industrial undertakings other than infrastructure development undertaking. Therefore, it will have to be read that the undertaking of the assessee is an industrial undertaking and the provision contained in sub-section (2) will be applicable in the case of the assessee. We have considered the facts of the case and rival submissions. The major controversy in this case is-whether, the provisions conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of April, 2007, are satisfied. Coming to the fourth condition that it fulfils such other conditions as may be prescribed, we are of the view that the prescription under the subsection has to be made by the Central Government through the Central Board of Direct Taxes (CBDT), which is the competent authority to frame rules under residuary clause (iv) of sub-section (8A). Thus, the rules have to be prescribed by the Central Board of Direct Taxes under the delegated legislation. The prescribed authority mentioned in the rules shall not be competent to abridge or enlarge the scope of the rules framed by the Central Board of Direct Taxes as it has no authority under the aforesaid residuary clause. Therefore, the condition imposed by the prescribed authority that the approval is granted subject to other general conditions of section 80-IB was excessive use of the power conferred on the prescribed authority under the Rules, which cannot be sustained. In so far as the objection regarding violation of the provision contained in rule 18DA(1)(e) is concerned, the prescription is that the company is engaged exclusively in scientific research and development activities leading to technology d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition regarding transfer of technology developed by itself will not be satisfied. Therefore, such income will not become subject matter of deduction under section 80-IB. In other words, we find that the assessee is entitled to deduction under section 80-IB in respect of income derived from transfer of technology developed by itself. We may add here that the decision of the hon'ble Supreme Court in the case of J. H. Gotla [1985] 156 ITR 323 was that in interpretation of a statutory provision, an attempt should be to discover the intention of the Legislature from the language used therein, which at best is an imperfect instrument for the expression of human intention. Therefore, the whole of the statute should be read to arrive at the aforesaid intention. While coming to our aforesaid conclusion, we have considered all the provisions of section 80-IB and the rules 8D and 8DA and on reading thereof as a whole, it becomes clear that-(i) the conditions mentioned in sub-section (2) are not applicable in the case of a research and development company and (ii) the deduction is available in respect of transfer of technology developed by the assessee itself. The Assessing Officer shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search and development. The period of ten years is reckoned from the year in which the approval is given by the prescribed authority. This circular, which is in the nature of contemporaneous exposition of the law by the Central Board of Direct Taxes, clearly specifies that the period of ten years is to be reckoned from the year in which the approval is given by the prescribed authority. Therefore, in the absence of the definition of the aforesaid expression in sub-section (14) for the purpose of sub-section (8A), the definition given for the purpose of sub-section (8) has to be adopted. In this connection, we also find that the decision of the hon'ble Supreme Court in the case of Padmasundara Rao (Decd.) [2002] 255 ITR 147 was that casus omissus should be supplied only in the case of clear necessity and not to rewrite the statute. We have considered this matter also. It is clear that some meaning will have to be given to the aforesaid expression. The case of the learned Departmental representative is that the meaning to be given to this expression, in the absence of definition, is the year in which the company started its operations. To our mind such an interpretation would defeat ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
