STPI registration and export deduction claims: section 10B needs prescribed approval, while integral support units do not justify profit apportionment.

STPI registration alone does not satisfy the statutory approval requirement for deduction under section 10B where approval by the prescribed authority is required for a hundred per cent export oriented undertaking. An alternate claim for deduction under section 10A may be entertained when raised at the earliest effective stage with the necessary audit report, and the claim should then be examined on merits. Section 80-IA(8), read with sections 10A(7) and 10B(7), applies only where there is a distinct other business with inter-business transfers; support centres forming part of the same export undertaking do not justify apportionment of profits to reduce eligible deduction.

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Issues: (i) Whether approval by the Director, Software Technology Park of India was sufficient for claiming deduction under section 10B. (ii) Whether the assessee could raise an alternate claim for deduction under section 10A before the appellate authority. (iii) Whether profits of the assessee's Pune unit could be reduced by treating the Bangalore and Ahmedabad centres as separate businesses for the purpose of section 80-IA(8) read with section 10A(7) and section 10B(7).

Issue (i): Whether approval by the Director, Software Technology Park of India was sufficient for claiming deduction under section 10B.

Analysis: The deduction under section 10B depended on approval by the authority contemplated in the statutory definition of a hundred per cent export oriented undertaking. The assessee's unit had only STPI registration and no approval from the prescribed Board or its equivalent statutory authority. The Tribunal followed the binding Delhi High Court ruling holding that STPI approval, by itself, does not satisfy the requirement for section 10B eligibility.

Conclusion: The claim under section 10B was rightly rejected, and this issue was decided against the assessee.

Issue (ii): Whether the assessee could raise an alternate claim for deduction under section 10A before the appellate authority.

Analysis: The assessee had originally claimed section 10B deduction in the return and raised section 10A as an alternate claim after the section 10B claim was disallowed. The Tribunal held that, on the facts, the assessee could not have anticipated the denial of section 10B in the return, and the alternate claim was made at the earliest effective stage with the prescribed audit report. The Tribunal therefore directed examination of the section 10A claim on merits and in accordance with law.

Conclusion: The alternate claim under section 10A was held maintainable and the matter was remanded for fresh verification, in favour of the assessee.

Issue (iii): Whether profits of the assessee's Pune unit could be reduced by treating the Bangalore and Ahmedabad centres as separate businesses for the purpose of section 80-IA(8) read with section 10A(7) and section 10B(7).

Analysis: The Tribunal found that the Bangalore and Ahmedabad centres functioned only as support units for the software export activity of the Pune STPI unit. The facts did not show that they constituted any other independent business within the meaning of section 80-IA(8). Since the activities were inseparable parts of the same export undertaking and no separate turnover, accounts, or independent export business existed, apportionment of profits to those centres was not justified. The Tribunal therefore set aside the profit attribution made by the lower authorities.

Conclusion: The reduction of eligible profits by attributing income to Bangalore and Ahmedabad was disallowed, in favour of the assessee.

Final Conclusion: The appeal of the Revenue failed, the assessee succeeded on the alternate deduction and profit-apportionment issues, and the remaining ground was not pressed, resulting in a partial allowance of the assessee's appeals.

Ratio Decidendi: STPI registration alone does not satisfy the statutory approval requirement for section 10B, and section 80-IA(8) applies only where there is a distinct other business with inter-business transfers, not where the impugned centres are merely integral support functions of the same eligible export undertaking.

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