TaxTMI 
TaxTMI 
2003 (7) TMI 275
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....provisions contained in ss. 10A(2)(iii) and 10B(2)(iii)." 2. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record. 3. The facts in nutshell are that the assessee is engaged in the export of computer software, distribution of software products and computer training through its own centres and its franchises. In the computation of taxable income filed along with the return, the appellant company declared its income from business and profession in the following manner: (a) Income from export of software from the export-oriented unit 4,64,60,227 (b) Income from exports of software from the unit at Software Technology Park 1,89,26,966 (c) Computer training and distribution of computer production domestic market 34,83,001 4. The assessee claimed exemption of tax holidays under s. 10A of the IT Act of Rs. 1,89,26,966 in respect of the unit situated at the Software Technology Park and under s. 10B for Rs. 4,64,60,227 in respect of 100 per cent export-oriented unit. The AO analyzed the claim and stated that the exemption contemplated under ss. 10A and 10B were available if among other conditions the following t....
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....ly clear that this industrial undertaking should not be formed by splitting up or reconstructing of a business already in existence or it should not be formed by transfer of plant and machinery previously used for any purpose. As such, according to the AO, specific provisions are there in these sections to prevent undertakings which were earlier in existence from claiming the exemption by merging or reconstructing and thereby forming a new company or by transferring their already used plant and machinery to a new company. The AO further observed that when the merger of different companies took place, the assets got mingled up and hence it was a case of reconstruction where old plant and machinery were used for the purpose of business. A show-cause notice in this regard was given to the assessee and in response thereto, it was stated on behalf of the assessee that in the event of amalgamation, there is no transfer of machinery or plant used previously for any purpose. In support of his contention, the assessee has relied upon the CBDT Circular No. 149/68/94 TPL dt. 23rd Nov., 1994. But the AO was not convinced with the contentions of the assessee and he observed that it would not be....
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..... Place) and in Bangalore at Richmond Road for an amount of Rs. 10,00,098 (Annexure II). These assets were purchased by ACS with a view to entering the domestic software training market using its educational software. The High Court of Delhi passed an order for the amalgamation of ACS with ISCT on 12th Oct., 1992, effective from 31st March, 1992. From 1st April, 1992, to 12th Oct., 1992. ACS was engaged in domestic business and was doing product marketing and computer training. ISCT too was in domestic business and was engaged in product marketing and computer training. After the merger process had been completed in December, 1992, ISCT established a STP unit in its premises at Barakhamba Road. No asset from the domestic business of ISCT was transferred to the STP on its establishment. No significant assets were required by the STP as during this year the STP unit earned all its revenues of Rs. 6,74,384 from on-site consulting in the US." 7. The CIT(A) re-examined the issue in the light of assessee's contention and allowed the claim of the assessee after making the following observations: "2.6 I will begin by quoting from the decision of the Hon'ble Supreme Court in the case ....
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....the word 'formed' as used in Chapter VI and ss. 10A/10B. In the case of CIT vs. Indian Aluminium Co. Ltd. (1977) 108 ITR 367 (SC) the Hon'ble Supreme Court held that unless the transfer of machinery is sufficiently important and necessary to put up the new undertaking, no adverse inference may be drawn. Further, the expression 'formed' in the context in which it has been used intends to connote that the body of the company or its shape did not come up in consequence of transfer of machinery and plant used previously for business purposes. Use of the negative before the words 'formed' further strengthens it. In other words, machinery and plant used previously in other business should not result in the undertaking being formed by it. The transfer to take out the new undertaking out of the purview of the provisions must be such that but for the transfer the new industrial undertaking could not have come into being (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC). Lastly, the word 'reconstruction' is a commercial term used in company law and has been distinguished from 'amalgamation'. In the reconstruction of a company there is an element of transfer of assets and of some change, p....
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....echnology and for arriving at the merger exchange ratio, a valuation was done of the software packages that had been developed by ACS for the domestic market. The valuation was done by the ESC at a valuation of Rs. 3,05,00,000. Accordingly, Ascendant Computer Systems capitalized its software at a valuation of Rs. 3 crores on31st March, 1992. Before the order of amalgamation passed by the High Court from1st April, 1992to12th Oct., 1992, ACS was engaged in domestic business and was doing project marketing and computer training. After the merger process had been completed, ISCT established an STP unit in its premises at Barakhamba Road and no asset from domestic business of ISCT was transferred to STP on its establishment. No significant assets were required by the STP as during this year the STP unit earned all its revenue of Rs. 6,74,384 from on-site consulting in the US. 11. Learned counsel for the assessee further submits that the ACS had no STP unit. The STP was created after the merger with the assessee and, therefore, there is no 'continuing' to operate as a separate and independent unit. Post-merger, the assessee created a new STP unit which operated as a separate unit withou....