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TMI Blog2016 (9) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... ible for deduction. The Tribunal has also considered the relevant circular which has been placed for consideration and various authorities submitted to it and therefore, appears to this Court that the conclusion arrived at by the Tribunal is based upon sound reasoning, the orders impugned are not required to be interfered with. From the aforesaid background of fact since it is clearly emerging that the conditions contained under Section 10A of the Act are established on the case on hand, the record has revealed the independent and distinct identity of Unit-107 and all other relevant factors have rightly been concluded by the Tribunal to hold that Unit-107 is a separate and distinct identity, the conclusion arrived at by the Tribunal is not worth to be dislodged or disturbed. Therefore, we are of the opinion that the decision delivered by the Tribunal does not deserve to be disturbed or set aside and therefore, having not found case in favour of the revenue, we hereby confirm the order of the Tribunal - TAX APPEAL NO. 604 of 2008 With TAX APPEAL NO. 605 of 2008 TO TAX APPEAL NO. 606 of 2008 - - - Dated:- 16-9-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI FOR THE APPELLANT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature is already dealt with and disposed of vide order dated 21/28.8.2012 in Tax Appeal No.242 of 2000 and therefore, the appellant department has candidly submitted not to consider the same and therefore, present judgment and order is restricted to consideration of substantial question of law which is framed as question No.1. 4. Brief facts are that the assessee company is dealing in the business of development of software and packaged software product which is divided into four groups, namely, customerized software, packaged software product, agency product and exports. The assessee company is carrying on its activity in India as well as abroad which is detailed out and reflected from assessment order. The assessee company which is dealing in customerized software has developed software packages for various sectors and these services are provided by the company in Indian market to various parties and the software projects are for manufacturing, marketing, financial information systems, payroll and export marketing etc. Similarly, packaged software which is developed by the assessee company with the help of R D Unit at Pune and these products are marketed in India. The age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years : Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the [undertaking began to manufacture or produce such articles or things or computer software] in such free trade zone or export processing zone : [ Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software :] Provided also that no deduction under this section shall be allowed to any undertaking f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed by the assessee in respect of new machinery or plant along with the return of income for the assessment year relevant to the previous year in which such plant or machinery was first put to use. (1C) xxx xxx xxx (2) This section applies to any undertaking which fulfills all the following conditions, namely :- (i) it has begun or begins to manufacture or produce articles or things or computer software 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; (c) commencing on or after the 1st day of April, 2001 in any special economic zone; (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 respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any subsequent assessment year,- (i) section 32,section 32A, section 33, section 35 and clause (ix) of sub-section (1) of section 36, shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years [ending before the 1st day of April, 2001], in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A,, clause (ii) of subsection (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of subsection (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction; (ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng aggrieved by the said conclusion of Assessing Officer filed an appeal before the CIT (Appeals) and the CIT (Appeals) along with other issues which have been canvassed before it, has dealt with an issue related to Section 10A of the Act and has directed the Assessing Officer to allow the assessee company s claim for exemption under Section 10A of the Act as per the directions given. The relevant extract of the said conclusion is reproduced hereinafter : 2. I have considered the rival submissions and also perused the various details filed with reference to queries raised during the course of hearing before me. As per the provisions of section 10A of the I.T.Act 1961 any industrial undertaking which fulfills 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 . (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 respect of any industrial undertaking which is formed as a resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecruitment and training income shown by the appellant is the income related to the deployment of these expertise. Further it is seen that the appellant is not a recruiting agent as understood in normal parlance but it recruits and trains the personnels and deploys them for the softwares developed by the appellant only and does not recruit and trained personnels to be deployed for some one elses requirements. It is also stated by the appellant while explaining the overall functional and management structure during my visit that the expertises deployed are the regular employees of the appellant company and on successful execution of the software/completion of the project as the case may be returned to the appellant company. Therefore as rightly pointed out by the appellant the deployment of expertise with a particular software is an integral part of the industrial activity undertaken by the appellant and therefore income derived from it is eligible for exemption u/s.10A of the I.T.Act,1961. 4. However, from the perusal of the assessment order it is seen that the appellant has also claimed reimbursement of expenses (mainly travelling expenses of the personnel) for the purpose of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was also contended on behalf of counsel for the revenue that the activities which were carried out by Unit-106 prior to coming into existence Unit- 1067 and the software supplied by Unit-107 is nothing but software development by Unit-106 and thereby, contended that commission has been achieved by manipulating business activity and therefore, can never be said that Unit-107 is not an independent unit so as to become eligible for deduction under Section 10A of the Act. Learned counsel further contended that Unit-107 apart from its export of software was also engaged in providing independent activities of recruitment and training to its personnel through Masket (UK) and the revenues earned are not for manufacturing of any software but merely for training purpose and these receipts are not for manufacturing of article or tins and thereby, contended that they are not entitled for exemption under Section 10A of the Act. Learned counsel relying upon some of the terms of the agreement between Laternal Profiles Ltd. and the respondent assessee and then submitted that the status of assessee is of independent contractor and not developer of software. It was then submitted that reading th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unit-107 has not been established and set up at the cost of business or revenue of Unit-106. It was then submitted by counsel for the respondent assessee that what is contemplated under Section 10A of the Act is the new industrial undertaking which should not have been formed by splitting up or reconstruction of the business already in existence. It was stated before the Court that section nowhere talks of common management and therefore, there may be a situation that in one common management, there may be more than one unit who will be entitled and eligible for exemption provided that there are independent units and not formed by reconstruction or splitting up of the business already in existence. Learned counsel for the respondent assessee has submitted that Unit-106 was catering and still catering the requirement of software consultancy services in respect of works to be executed for sourced from Singapore and USA which is reflected in the agreement itself. Learned counsel has submitted that in view of the terms of the agreement also, both Unit-106 and Unit- 107 are totally separate units and also are operated from the different premises with different infrastructure which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the notice of the Court another decision in case of Commissioner of Income-Tax V/s. Rohtas Industries Ltd., reported in 120 ITR 110 (Calcutta) and reiterated the submission that Unit-107 be treated as a distinct and separate establishment so as to grant benefit of Section 10A of the Act. Learned counsel has further relied upon some of the observations from the decision delivered by the Division Bench of this Court rendered in Tax Appeal No.242 of 2000 and allied matters decided on 21/28.8.2012 and then reiterated the contention that Unit-107 is rightly treated as separate and distinct unit so as to get the benefit of Section 10A of the Act and thereby, submitted to confirm the decision delivered by the Tribunal and dismiss the Tax Appeals. 11. Having heard both the learned counsel appearing for the respective parties and having gone through the details of the case on hand, it appears that detailed examination has been undertaken by the Tribunal and has rightly come to the conclusion that Unit-107 is a separate establishment and is entitled to benefit of Section 10A of the Act. The comparison of each aspects appeared to have been undertaken by the Tribunal to ascertain whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court rendered in Tax Appeal No.242 of 2000 and allied matters are applicable in the background of present facts and circumstances. Even the record indicates that a personal visit has also been made to verify the contention of the respondent assessee and upon physical verification also of both the units, namely, Unit-106 and Unit-107, it was held and ascertained that Unit-107 was an independent unit and not formed by way of any splitting up of Unit-106 and therefore, the conclusion arrived at by the Tribunal appears to be substantially by cogent material and the decision relied upon by counsel for the respondent appears to have been applicable and therefore, it was rightly concluded by the Tribunal that Unit- 107 was a new unit and therefore, fulfills the terms and conditions laid down under Section 10A of the Act to become eligible to seek exemption benefit. Simply because some of the minor expenses are overlapping, same will not change the basic character of the unit which is found as an independent unit. The record further reveals that upon detailed examination of material the Tribunal rightly come to the conclusion that from all angles and parameters, Unit-107 is to be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld business, they were not be treated as being formed by reconstruction of the old business. 13. In the case of Indian Aluminum Company Ltd. (Supra), taking aid of the decision reported in 107 ITR 195, the Supreme Court took the similar view and has observed that nature of substantial investment would indicate that even if units have been set up side-by-side it cannot be said that the units were not newly set up and thereby, extended the benefit of exemption under Section 15C of the relevant Act. 14. Yet in another case, relying upon the aforesaid two decisions of the Supreme Court, the Division Bench of this Court as in case of Digvijay Cement Co. Ltd. (Supra) has held that investment of fresh capital and employment of additional labour force are the relevant factors to hold that unit had a separate and distinct identity and the results of production increased would also lead to hold that unit has a separate and distinct identity. It was observed by the High Court relying upon aforesaid decisions of the Supreme Court that all tests laid down by the Supreme Court would lead to a situation to hold that unit has a separate and distinct unit established and is eligible to get t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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