2014 (12) TMI 474 - HC - Income Tax

High Court upholds Tribunal decision in favor of assessee on tax benefits under Section 10A

THE COMMISSIONER OF INCOME TAX AND THE INCOME TAX OFFICER Versus M/s AMERICAN DATA SOLUTIONS INDIA PVT LTD

The High Court dismissed the appeals, upholding the Tribunal's decision and ruling in favor of the assessee on both substantial questions of law. The ... Computation of deduction u/s 10A - Exclusion of telecommunication charges from the computation of total turnover – Held that:- Following the decision in Commissioner of Income Tax and another Vs Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] wherein it has been clearly held that while computing the consideration received from such export turnover, the expenses incurred towards freight, telecommunication charges, or insurance attributable to the delivery of the articles or things or computer software outside India, or expenses if any incurred in foreign exchange, in providing the technical services outside India should not be included – Decided against revenue. Allowability of deduction u/s 10A – STPI permission not obtained - Whether the Tribunal was correct in holding that commencement of production on 23.10.1997 i.e., before obtaining STPI permission which was done subsequently on 23.12.1997 and after commencement of production - Held that:- The three conditions to be fulfilled for getting the benefit u/s 10A are the assessee should begin to manufacture or produce articles or things or computer software on or before the 1st day of April 1994 in software technology park, and it is not formed by the splitting up or the reconstruction of a business already in existence and it is not formed by the transfer to a new business of machinery or plant previously used for any purpose - all the three conditions are fulfilled - the material on record discloses application for registration was filed on 23.10.1997 whereas, the permission was granted on 23.12.1997 after incorporation of the assessee on 03.09.1997 - The assessee taken steps for registration by filing application and thereafter he has commenced production on 23.10.1997 and therefore, as it has fulfilled the requirement as mentioned in Sub Section (2)(i) of Section 10A, the assessee cannot be denied the benefit – Decided against revenue. Issues: Appeal against Tribunal's order granting relief to the assessee. Substantial questions of law regarding exclusion of telecommunication charges for deduction under Section 10A and commencement of production before obtaining STPI permission.Analysis:1. The first substantial question of law pertains to whether telecommunication charges should be excluded for computing deduction under Section 10A. Referring to a previous judgment, the Court ruled in favor of the assessee, following the precedent set by Commissioner of Income Tax vs. Tata Elxsi Ltd. Consequently, the first substantial question of law was resolved in favor of the assessee.2. The second substantial question of law revolves around the commencement of production before obtaining STPI permission and its impact on claiming Section 10A deduction. The revenue argued that production started before the registration date, thus disqualifying the assessee from the tax exemption. However, the Court found no merit in this argument. It emphasized that the conditions for Section 10A benefit were met, including the commencement of manufacturing activities before the specified date, irrespective of the registration timeline. As the assessee fulfilled the requirements under Section 10A(2)(i), the benefit could not be denied. Consequently, the second substantial question of law was answered in favor of the assessee.In conclusion, the High Court dismissed the appeals, upholding the Tribunal's decision and ruling in favor of the assessee on both substantial questions of law. The judgment highlighted the importance of meeting the statutory conditions for claiming tax benefits under Section 10A, emphasizing the fulfillment of manufacturing commencement requirements over registration timelines.