2016 (3) TMI 1020 - AT - Income Tax

Tribunal allows deductions under Income Tax Act for software exporter, emphasizing legislative intent.

The tribunal held that the assessee was entitled to claim deductions under both Sections 10A and 10B of the Income Tax Act, 1961. The tribunal found that ... Eligibility of exemption claimed u/s. 10B on call centre operation - denial of claim on the ground that the assessee company did not have any ‘Certificate of Approval’ from the Board of Approval appointed in that regard by the Central Government - also the assessee could not submit any ratification obtained from the ‘Board of Approval’ as required as per the clarification of the CBDT dated 09.03.09 - Held that:- It is not in dispute that a call centre operation has been duly notified as IT enabled services and thereby eligible for deduction for 100% export oriented unit contemplated u/s. 10A/10B of the Act. Instruction (F.No.178/19/2008-IT-I) dated 9th March’ 2009 issued by CBDT clarifies that the power to grant approval u/s. 14 of industrial (Development & Regulations) Act, 1951 has been delegated to Development Commissioners and approval granted by the Development Commissioner shall be considered valid for the purpose of exemption u/s. 10B. It would be pertinent to note that in the instant case approval under the STP scheme is granted by the Designated Officer, Department of Information Technology and by the Inter-ministerial Standing Committee (IMSC). Hence, the approval granted under STP Scheme complies with all the requirements contemplated u/s. 10B of the Act when read with Industrial (Development & Regulations) Act, 1951, Foreign Trade Policy 2004-2009, Hand book of Procedures (Volume-I) & Appendix to the Handbook As find that the contents of audit report in form no. 56F and 56G together with the computation mechanism remains the same for claiming the deduction u/s. 10A/10B of the Act.the assessee is entitled to claim the benefit of deduction under the provisions of section 10A as well as section 10B of the Act. Hence we find no infirmity in the impugned orders of the ld.CIT(A) in deleting the disallowance as made by the ld.AO on this issue. We uphold the impugned orders of the ld.CIT(A). - Decided against revenue Issues Involved:1. Eligibility for deduction under Section 10B of the Income Tax Act, 1961.2. Eligibility for deduction under Section 10A of the Income Tax Act, 1961 as an alternative claim.3. Validity of approval by the Director of Software Technology Parks of India (STPI) under the STP scheme.Detailed Analysis:Issue 1: Eligibility for Deduction under Section 10BThe primary issue was whether the assessee was entitled to claim deduction under Section 10B of the Income Tax Act, 1961 for profits derived from its call centre operations registered with STPI as a 100% Export Oriented Unit (EOU).- Facts and Arguments: The assessee started call centre operations on 16-02-2006 and claimed exemption under Section 10B. The AO denied the deduction on the grounds that the assessee did not have a certificate of approval from the Board of Approval (BOA) appointed by the Central Government as required by Section 14 of the Industries (Development & Regulation) Act, 1951.- Assessee's Defense: The assessee argued that the power to grant approval had been delegated to the Development Commissioner and that the approval granted by the Development Commissioner should be valid for the purpose of Section 10B. The assessee provided various documents, including a letter of permission, legal agreements, green card, and other certificates to support its claim.- Tribunal's Findings: The tribunal found that the approval granted under the STP scheme by the designated officer of the Department of Information Technology and the Inter-Ministerial Standing Committee (IMSC) complied with all requirements for Section 10B. The tribunal noted that denying the deduction would defeat the purpose of setting up a unit and registering it with STPI as a 100% EOU.Issue 2: Eligibility for Deduction under Section 10A as an Alternative ClaimThe assessee also claimed that it should be allowed deduction under Section 10A if the deduction under Section 10B was denied.- Facts and Arguments: The assessee argued that it met all the conditions stipulated under Section 10A and that the approval by the Director of STPI should be considered valid for this purpose.- Tribunal's Findings: The tribunal referred to CBDT Instruction No. 1/2006, which clarified that approval by the Director of STPI should not be a ground to deny deduction under Section 10A, provided all other conditions were met. The tribunal also cited various judicial precedents, including the ITAT Chandigarh's decision in the case of Bebo Technologies (P) Ltd and the ITAT Mumbai's decision in ITO Vs. Accentia Technologies Limited, which supported the assessee's claim for deduction under Section 10A despite quoting the wrong section in the return of income.Issue 3: Validity of Approval by the Director of STPIThe tribunal examined whether the approval granted by the Director of STPI under the STP scheme was valid for the purpose of claiming deductions under Sections 10A and 10B.- Facts and Arguments: The assessee provided various documents, including a green card and letters from the STPI, confirming the approval as a 100% EOU under the STP scheme. The CBDT's instruction dated 9th March 2009 also clarified that approvals by the Development Commissioner were valid for Section 10B.- Tribunal's Findings: The tribunal found that the approval granted by the Director of STPI under the STP scheme complied with all the requirements for Sections 10A and 10B. The tribunal emphasized that the purpose behind granting such approvals was to promote export-oriented units and that denying the deduction would be contrary to this objective.Conclusion:The tribunal held that the assessee was entitled to claim deductions under both Sections 10A and 10B of the Income Tax Act, 1961. The tribunal found no infirmity in the orders of the CIT(A) and dismissed the revenue's appeals while allowing the cross-objections filed by the assessee. The judgment emphasized the importance of interpreting the provisions in a manner that aligns with the legislative intent of promoting export-oriented units. The tribunal's decision was pronounced in open court on 04-03-2016.