2014 (11) TMI 1277 - HC - Income Tax

Tribunal Grants Deductions for Software Exports u/s 10A, Dismissing Revenue's Appeal on Telecommunication Charges.

The Commissioner of Income Tax, Bangalore, The Deputy Commissioner of Income Tax Circle-12 (3}, Bangalore And The Income Tax Officer Ward-11 (1) Bangalore Versus M/s Cypress Semi Conductor Technology India Pvt Ltd

The Tribunal ruled in favor of the assessee, allowing deductions under section 10A of the Income Tax Act for software exports. It determined that the ... Deduction u/s 10A - Claim denied by Revenue as production was commenced even before the registration of the SIPI and therefore, they are not entitled to deduction and the unit was acquired on 1.10.2001 and therefore it is a case for reconstruction and therefore, they are not entitled to deduction - Tribunal by looking into the material on record by a considered and reasoned order has categorically recorded a finding that Lara Networks did not have STPI network by the time the unit taken over by the assessee - HELD THAT:- The circular No.1 of 2005 dated 61.2005 by CPDT makes it clear that even if the existing undertaking receives STPI approval, it would still be entitled to deduction under Section 10 A and therefore, it was held that the business of STPI Unit-It was not set up by reconstruction or splitting up. Further it was held though registration was subsequent to the production, that is not a condition which is stipulated in Section 1CA for claiming the benefit of the said deduction and therefore, the assessee is entitled to the said benefit. In fact, these questions were the subject matter in the case of Commissioner of Income Tax and another - vs - Caritor (India Pvt. Ltd) [2015 (2) TMI 670 - KARNATAKA HIGH COURT] and also in the case of Commissioner of Income Tax and Another - vs - Expert Outsource P. Ltd. [2011 (3) TMI 1428 - KARNATAKA HIGH COURT] where, on interpreting the aforesaid provisions, it was held neither the customs bonding nor STPI registration before production is not a condition precedent. In that view of the matter, the substantial question of law are answered in favour of the assessee and against the Revenue. There is no merit in this appeal and it is accordingly dismissed. However, while giving effect to these orders, the Assessing Authority also shall give effect to the judgment of this court in the case of Commissioner of Income Tazz - vs - Tata Elsi Ltd & Ors. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] as said judgment is the subject matter of appeal before the Apex Court. However, in the event of the revenue succeeding before Apex Court, then consequential order in terms of Section 260(1)(14) of the Income Tax Act should be passed and given effect to. Issues:1. Entitlement to deduction under section 10A for software export.2. Eligibility of Unit IZ for deduction under section 10A.3. Consideration of disallowance of telecommunication charges for deduction under section 10A.Analysis:1. The main issue in this judgment revolves around the entitlement of the assessee to deduction under section 10A of the Income Tax Act for software exports. The Tribunal held that the software was exported only after receiving STPI approval, making the assessee eligible for the deduction. The Revenue challenged this decision, arguing that the unit was not entitled to the deduction due to the timing of production and acquisition. However, the Tribunal found that the business was not set up by reconstruction or splitting up, and the assessee satisfied all conditions for the deduction under section 10A.2. The second issue raised was regarding the eligibility of Unit IZ for deduction under section 10A, even though it was taken over from a previous business entity. The Tribunal considered the fact that the previous business did not have STPI approval at the time of acquisition, and therefore, the unit was not considered a reconstruction or splitting up. The Tribunal's decision aligned with previous judgments that clarified customs bonding or STPI registration before production is not a condition precedent for claiming the deduction under section 10A.3. The final issue addressed in the judgment was whether the Tribunal correctly allowed deduction under section 10A for Unit-III-IT without considering the disallowance of telecommunication charges from the export turnover. The Tribunal's decision was based on the interpretation of relevant provisions and previous judgments, ultimately ruling in favor of the assessee and dismissing the appeal from the Revenue. Additionally, the judgment highlighted the need for the Assessing Authority to adhere to previous court decisions in similar cases and prepare for potential outcomes if the matter is appealed to a higher court.This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's reasoning behind its decision, ensuring a thorough understanding of the legal complexities addressed in the case.