Tax holiday eligibility requires strict statutory approval; software development qualified for deduction, while personal travel and training costs were disallowed.

Eligibility for tax holiday or exemption depends on strict compliance with the statutory approval and commencement conditions of the relevant scheme, and a scheme-level administrative approval cannot replace the approval expressly required by the statute. On that basis, exemption under sections 10A and 10B was denied for the software unit and Nagarjuna Hills operations. Software development was treated as production of an article or thing for section 80-IA(2)(iv)(a), so deduction was allowed for domestic sales and was not barred by a separate export deduction under section 80HHE. Foreign travel and training expenditure for the Managing Director's son was held to be personal in character and not wholly for business, so it was disallowed. For section 80HHE, only net interest after setting off related interest expenditure was to be excluded.

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Issues: (i) Whether the assessee was entitled to exemption under sections 10A and 10B for its software unit and the Nagarjuna Hills operations; (ii) whether software development qualified for deduction under section 80-IA(2)(iv)(a) for domestic sales; (iii) whether foreign travel and training expenditure of the Managing Director's son was allowable as business expenditure; and (iv) whether interest receipts had to be reduced by interest paid for computing relief under section 80HHE.

Issue (i): Whether the assessee was entitled to exemption under sections 10A and 10B for its software unit and the Nagarjuna Hills operations.

Analysis: The exemption under section 10A for software technology park units was held to be available only to units commencing production in the previous year relevant to assessment year 1994-95 or later, and the CBDT circular could not override the express statutory language. For section 10B, the statutory requirement was approval as a hundred per cent export oriented undertaking by the Board appointed under section 14 of the Industries (Development and Regulation) Act, 1951. Approval under the software technology park scheme and by the Inter-Ministerial Standing Committee was not treated as a substitute for that specific approval. The Nagarjuna Hills activity was also treated as an extension of the earlier unit and not as an independently eligible unit.

Conclusion: The claim under sections 10A and 10B was rejected and the issue was decided against the assessee.

Issue (ii): Whether software development qualified for deduction under section 80-IA(2)(iv)(a) for domestic sales.

Analysis: The Tribunal held that software development amounts to production of an article or thing for the purpose of section 80-IA(2)(iv)(a). The absence of an express definition in that provision did not justify denying the deduction, particularly when the Board's circular treated software production as a form of production. The deduction under section 80HHE for export income did not bar a separate deduction for domestic sales under section 80-IA(2)(iv)(a).

Conclusion: The assessee was held entitled to deduction under section 80-IA(2)(iv)(a), and this issue was decided in favour of the assessee.

Issue (iii): Whether foreign travel and training expenditure of the Managing Director's son was allowable as business expenditure.

Analysis: The expenditure was incurred without any binding arrangement at inception linking the education and travel to a present business obligation. The Tribunal treated the expenditure as primarily personal in character and not wholly and exclusively for business purposes. The later employment of the person and the treatment of the amount as a perquisite in another person's hands did not alter the character of the expenditure in the company's hands.

Conclusion: The disallowance was upheld and the issue was decided against the assessee.

Issue (iv): Whether interest receipts had to be reduced by interest paid for computing relief under section 80HHE.

Analysis: The Tribunal applied the earlier order in the assessee's own case and held that only net interest should be excluded while working out the export deduction. The related interest expenditure had to be set off against the interest and miscellaneous receipts before computing the amount to be excluded from export business income.

Conclusion: The assessee succeeded on this issue, and the matter was decided in favour of the assessee.

Final Conclusion: The appeals were allowed only to the extent of the deduction under section 80-IA(2)(iv)(a) and the netting of interest for section 80HHE, while the claims for exemption under sections 10A and 10B and the business deduction for the education and travel expenditure were rejected.

Ratio Decidendi: Eligibility for tax holiday or exemption must satisfy the exact statutory approval and commencement conditions of the relevant scheme, and a scheme-specific administrative approval cannot be treated as equivalent to a different statutory approval unless the statute so provides.

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