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TMI Blog2012 (9) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... 83/2009) in respect of Assessment Years 2003-04 and 2004-05 are that it is engaged in 100% export of artware handicrafts, home furnishing and software exports. The assessee had three divisions respectively, in connection with the said three activities - i.e. artware handicrafts, home furnishing and software division, which was named M/s. Maxtech iSolution. The assessee claimed exemption under Section 10B in respect of its software export income. The Assessing Officer held that to qualify for such benefit, the assessee should be a 100% Export Oriented Unit (EOU) and approved by the Central Government through its appropriate authority under Section 14 of the Industries (Development and Regulation) Act, 1951 (IDR Act). The Assessing Officer concluded that the Assessee had no valid certificate for software export and had not mentioned in its Articles of Memorandum of Association that it could carry-out business in computer software and that M/s. Maxtech iSolution was not shown to be an undertaking of the assessee, in its Articles of Memorandum of Association. The assessees' appeal was allowed for academic years 2003-07; the Appellate Commissioner held that the claim for exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (Appeals) for granting exemption under sec. 10-B to the assessee unit. The finding recorded by the CIT (Appeals) at pages 5 & 6 of his appellate order has not been controverted by the department by bringing any positive material on record." 3. For the assessment year 2004-05, the Assessing Officer disallowed the claim for deduction under Section 10B. The Appellate Commissioner accepted the assessees' argument following his previous order for the assessment year 2003-04 and also after observing that the appellant had exported computer software through proper banking channels and after duly complying with conditions for getting export invoices endorsed by the STPI, (the Central Government body which is also the nodal agency established for monitoring exports of computer software). The Revenue's appeal was allowed by the ITAT which followed its previous order. 4. For the assessment year 2007-08, the Assessing Officer and the Appellate Commissioner rejected the claim for benefit under Section 10B. The assessee in its appeal relied upon the previous two orders of the Tribunal. Before the Tribunal, the assessee relied upon Ex. No. 62 - Press Note 5 (1997 Series) and Ex.No. 38 - Press ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial Standing Committee had been set-up for considering applications to set-up units under EHTP Scheme and the STP Scheme. Such Inter-Ministerial committees were deemed to be for the purpose of Section 10A. This position was clarified by Circular No. 1 of 2005 relied upon during the course of Tribunal's orders. Similarly, Instruction No. 1 of 2006 also underlined the fact that the Software Technology Park Scheme notified under Section 3 of the Foreign Trade Development (Regulations) Act, approvals received by the Inter-Ministerial Standing Committee qualified for deduction under Section 10A. It was submitted that neither of these circulars nor even the subsequent clarification dated 06.05.2009 ever spelt-out any misunderstanding on the part of the income tax authorities that approval by the Director STPI could be deemed valid approval for the purpose of Section 10-B. 7. Learned counsel for the assessees contended that the rationale for granting approval for Software Technology Park units was with the intention of their exporting services and products. The intention of Section 10B had to be, therefore, read in the context of the concerned Scheme, i.e. ETPI and STPI which was meant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion about the rival contentions regarding merits of the case, it would be necessary to extract the relevant provisions, i.e Sections 10-A and Section 10B. They read as follows: "Section 10A .SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED INDUSTRIAL UNDERTAKINGS IN FREE TRADE ZONES (1) Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :- (i) It has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year - (a) Commencing on or after the 1st day of April, 1981, in any free trade zone; or (b) Commencing on or after the 1st day of April, 1994, in any electronic hardware technology park or, as the case may be, software technology park; (ia) In relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1995, its exports of such articles or things are not less than seventy-five per cent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme notified by the Government of India in the Ministry of Commerce; (vi) "Produce", in relation to articles or things referred to in clause (i) of sub-section (2), includes production of computer programmes...." "SECTION 10B. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKINGS. (1) Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent export-oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in the total income of the assessee. (2) This section applies to any undertaking which fulfils all the following conditions, namely :- (i) It manufactures or produces any article or thing; (ia) In relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1994, its exports of such articles and things are not less than seventy-five per cent of the total sales thereof during the previous year; (ii) It is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Undertaking - Certain clarification - Reg 6/1/2005 Exemptions Section 10B Section 10B of the Income-tax Act provides for 100% deduction of profits derived by a hundred per cent export oriented undertaking, form export of articles or things or computer software manufactured or produced by it. The deduction is available for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software. However, no deduction under section 10B is available after assessment year 2009-10. 2. The deduction under section 10B is available to an undertaking which fulfils all the following conditions: (i) it manufacturers or produces any article or thing or computer software; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence except in the circumstances specified under section 33B of the IT Act. (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. 3. Representations have been received from various quarters as to whether an undertaking set up in Dome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OU in Financial year 2007-08 relevant to assessment year 2008-09. No deduction under section 10B shall be admissible to undertaking B as the period of 10 years expires in financial year 2005-06 relevant to assessment year 2006-07, prior to its approval as 100% EOU. (iii) Undertaking 'C' is set up in Domestic Tariff Area in the financial year 2000-01 relevant to assessment year 2001-02 and engaged in the business of providing computer related services, other than those notified by the Board for the purpose of section 10B. In financial year 2002-03, it acquires more than 20% of old plant and machinery and starts manufacturing computer software. It also gets approval as 100% EOU in financial year 2002-03. Undertaking 'C' shall not be eligible for deduction under section 10B, as there has been transfer of old plant and machinery. (iv) Undertaking 'D' is set up and starts producing computer software in financial year 2003-04 relevant to assessment year 2004-05. It gets approval as 100% EOU in financial year 2006-07 relevant to assessment year 2007-08. It shall be eligible for deduction under section 10B from assessment year 2007-08. However, the deduction shall not be available after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, State Government, Public or Private Sector Undertakings or any combination thereof. An STP may be an individual unit by itself or it may be one of such units located in an area designated as STP Complex by the Department of Electronics. The scheme was required to be administered by the Department of Electronics, Government of India, through Directors of respective Software Technology Parks which form part of the Software Technology Parks of India (STPI), a society established by the Department of Electronics and registered under the Societies Registration Act, 1860. An application in the prescribed form for establishing a STP unit was required to be submitted to the Chief Executive of STP Complex along with the details of the Software project. Such application was to be considered by an Inter-Ministerial Standing Committee (IMSC) constituted under the Chairmanship of Secretary, Department of Electronics, Government of India. 4. Subsequently, vide Notification No. 4/(RE-95/92-97), dated 30th April, 1995 issued by the Director General (Foreign Trade), Ministry of Commerce, in exercise of powers conferred in sub-section (1) of section 3 of the Foreign Trade (Development and Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arliest instructions issued by the Central Government, pertinently stated that: "....it is clarified that units in EPZs/EOUs which export software are as much eligible for availing of the five-year tax holiday under sections 10A and 10B as any other units in EPZ/EOU, even for the period prior to the previous year relevant to the assessment year 1994-95. The conditions stipulated in the provisions have, of course, to be fulfilled. The insertion of the Explanation of the term "produce" in 1993 should not be taken as a ground for denying the tax holiday to such units for earlier years." Earlier, the Department of Industrial Development, Ministry of Industry had, by notification No. 117-E dated 22-2-1993 constituted a committee to perform the functions specifically delegated, including the grant of approval for EHTPs and STPs. The said Notification reads as follows: "Ministry of Industry (Department of Industrial Development) New Delhi, the 22nd Feb., 1993 Notification S.O. No. 117(E)--In exercise of the powers conferred by Section 14 of Industries (Development and Regulation) Act, 1951 (65 of 1951), r/w Sub-rule (2) of Rule 10 of the Registration and Licensing of Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of matters falling within its competence". Analysis 13. There is no dispute about the essential facts. Both assesses had received approval to start 100 per cent EOU under STP scheme. The question is whether this approval can be deemed one under Section 10-B of the Act. For that purpose a 100 per cent EOU is only that which is so approved by the Board appointed by Central Government in exercise of powers conferred under Section 14 of IDAR Act, 1951. The pre-conditions that govern units set up under STP scheme are different from those that govern the units set up as 100 per cent EOUs and so approved by the Board. Some conditions may undoubtedly overlap yet, criteria, such as fulfilment of the employment criteria, foreign exchange, etc., are not common. 14. The Inter-Ministerial Standing Committee set up for granting licences under STP scheme is also appointed by the Central Government in exercise of powers conferred under, Section 14 of IDAR Act. However, the question is whether that part of the Board's function (under Section 14 IDR Act) - to grant approval under Section 10-B also stands delegated. The assesses submit that the Inter-Ministerial Standing Committee has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency or authority. Another cardinal rule which binds the court to interpret statutes is that "where power is given to do a certain thing in a certain way, the thing must be done in that way or not at all, and other methods of performance are necessarily forbidden..." (See Nazir Ahmed v King Emperor (1936) I. L. R. 17 Lah 629). 17. In the present case, there is no notification or official document suggesting that either the Inter Ministerial Committee, or any other officer or agency was nominated to perform the duties of the Board (constituted under Section 14 of the IDR Act), for purposes of approvals under Section 10-B. Though the considerations which apply for granting approval under Sections 10-A and 10-B may to an extent, overlap, yet the deliberate segregation of these two benefits by the statute reflects Parliamentary intention that to qualify for benefit under either, the specific procedure enacted for that purpose has to be followed. There is nothing in any of the Circulars or instructions relied on by the Tribunal in all the orders, implying that approval for purposes of an STP also entitled the unit to a benefit under Section 10-B. The orders of the Tribunal are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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