TaxTMI 
TaxTMI 
2011 (12) TMI 323
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....the facts and circumstances of the case, the ld. CIT (Appeals) ought to have held that a new unit undertaking exports was established in financial year 1999-2000; 1.4 That the finding of the ld. CIT (Appeals) that the business of the STPI unit were the same as provided by the domestic unit is contrary to the material on record; 1.5 That the Circular No. 1 of 2005 dated 6/01/2005 ought to have been applied in relation to the new export undertaking established in financial year 1999-2000; 2. That on the facts and in the circumstances of the case, the ld. CIT (Appeals) has erred in holding that the ownership / beneficial interest has been transferred in the year under consideration in terms of Section 10A(9) read with explanation 1 of the section; 2.1 That for the purpose of section 10A(9) read with explanation 1 the comparison of share-holding ought to have been done as at 31/03/2000 and 31/03/2002; 2.2 Without prejudice to the above grounds whether transfer in shareholding made before 1/04/2000 can be reckoned for purposes of ascertaining change in beneficial share-holding for purposes of section 10A(9) read with explanation 1; &....
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....10. Therefore, it was a deliberate move on the part of the assessee company to switch over to section 10A from section 80HHE and thereby kept on availing extended benefit, not intended to be given by the Legislature; (iii) that the principal object of section 10A is to encourage setting up of new industrial undertakings by offering tax incentives. In the case of the assessee this principal object is getting defeated as no new industrial undertaking has been set up as the old industrial undertaking on which the assessee was hither to was claiming deduction under section 80HHE has been used for the purposes of claim of section 10A by taking undue advantage of the provisions of the Act; (iv) that sub-section (1) of section 10A provides deduction for ten consecutive years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be. In the case of assessee, manufacturing started in the previous year relevant to assessment year 1996-97 and hence the claim of deduction under section 10A should have been made for assessment year 1996-97 itself. S....
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.... as on the last day of previous year in which undertaking was set up. In other words, in order to apply Explanation 1, it must be shown that those very persons who held the shares of the company carrying not less than the 51 per cent of the voting power on the last day of the year in which undertaking was set up have ceased to beneficially hold the shares carrying not less than 51 per cent of voting power as on the last day of the relevant previous year. Before ld. CIT (A) it was argued by the assessee that since the STPI status was granted on 28th March, 2000, the assessee for the purpose deduction u/s 10A should be treated to have been set up on this date and in that view of matter the beneficial ownership of not less than 51 per cent of voting power remained un-changed as on 31st March, 2002 with reference to shares held as on 31.03.2000. In this regard ld. CIT (A) has noted that the undertaking was set up during AY 1996-97. The assessee had received approval of the STPI on 28th March, 2000. Therefore, the date of approval of STPI would not have any bearing on deciding the date when the undertaking was set up for the purpose of Explanation 1 to section 10A(9). He further has obs....
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....n two different dates, ld. CIT(A) observed that in the previous year relevant to AY 1996-97 in which the undertaking was set up the share holding of above five persons was hundred per cent. However, for assessment year 2002-03 the share holding of those five persons had fallen to 37.66 per cent of total issued capital of Rs. 6,45,36,650/-. The ld. CIT (A) relying on decision of ITAT in the case of Zycus Infotech (P.) Ltd. v. ITO [2007] 17 SOT 310 (Mum.) came to the conclusion that the provisions of section 10A(9) read with Explanation-1 thereof were applicable to the facts of the assessee's case and therefore, the assessee was not entitled for deduction under section 10A of the Act. 7.1 Before us the ld. AR of the assessee submitted that in the case of the assessee for assessment year 2001-02 its claim for deduction u/s 10A had in principle been allowed by the ITAT. However, since the Revenue authorities on account of technical reasons did not examine claim of the assessee under section 10A, the matter was remanded back to the file of the AO with the direction to examine as to whether all the conditions of section 10A were satisfied. It has, therefore, been submitted that th....
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....ees. It will be applicable only for those undertakings which had been set up after 1.4.2001 i.e. after substitution of the new section 10A. He, therefore, submitted that the Legislative intention being clear cannot be made applicable for assessment year under consideration and hence, the assessee is eligible for deduction under section 10A of the Act. Accordingly, the change in the share-holding pattern with reference to assessment year 1996-97 would not affect the case of the assessee for assessment year under consideration. 7.3 Further since provisions of section 10A(9), 10A(9A) and Explanation 1 were omitted with effect from 1.4.2004, relying on the decision of ITAT, Bangalore Bench in the case of G. E. Thermometrics India (P.) Ltd. v. Dy. CIT in IT Appeal Nos. 257 & 258 of 2008 for assessment years 2003-04 and 2004-05 dated 30th May, 2008, Ld. AR of the assessee submitted that provisions of section 10A have to be read as if sub-section (9) of section 10A was not in existence. He also relied on the decision of ITAT Pune in the case of Jt. CIT v. Patni Computers (p) Ltd. in IT Appeal No 687/PN/2006 for Ay 2002-03 dated 30.06.2011 for the proposition that deduction u/s 10A will....
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....d. CIT(A) has held that there is no bar in law to claim deduction u/s 10A in the cases where deduction u/s 80HHE was earlier claimed and allowed, provided that all the conditions of section 10A were satisfied. It is a fact that the Department had not filed appeal against this part of the decision. Therefore, to this extent the issue is settled in favour of assessee in the instant case. However, ld. CIT(A) has disallowed the claim for deduction u/s 10A by holding that (i) there was conversion of the undertaking established in assessment year 1996-97 into STPI unit and (ii) the ownership/ beneficial interest has been transferred in the year under consideration in terms of Section 10A(9) read with Explanation 1 of the section. 10.1 Now we have to consider the contention of the assessee as to whether there is conversion of the undertaking established in assessment year 1996-97 into STP unit? The ld. CIT (A) has recorded a finding of fact that the assessee in its application for STP registration did not refer to its proposal either for establishment of a new undertaking or expansion of existing STP unit. It was unequivocally stated that the proposal was for "conversion of an existing....
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....hment time required for commencement of development/export from the date of issue of permission. Against this the assessee mentioned " Export Development in Process". From above facts one may find that the assessee had intended to use 280 existing indigenous equipments, 5000sq. ft area of existing unit, existing staff and labour numbering 40[managerial (4); Supervisory (1); Supervisory non-technical (1); labour skilled (35)]. The assessee had also stated that export development was in process. There is neither any whisper of a word in STP registration application suggesting that assessee had intended to set up a new unit nor such intention can be gathered from the said application or from the conduct of the assessee while seeking for STP registration from the competent authority. Rather from the information extracted from STP registration application as above, it is clear that the assessee required STP registration for existing undertaking and not for new undertaking. The assessee had categorically mentioned in application for conversion of the existing unit. If the assessee had intended to set up altogether a new unit, it would not have included infrastructure, staff & skilled ....
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....oyed benefit of section 80HHE in earlier years if all the conditions of section 10A were satisfied. If it was a case of a new unit altogether, the assessee would not have claimed deduction u/s 80HHE in assessment year 2001-02 and would not have come to the Tribunal in appeal against disallowance of deduction u/s 10A. Moreover, the reasons for switch over to deduction under section 10A from 80HHE was that from AY 2001-02 a new sub section (1B) was inserted in section 80HHE through which deduction under section 80-HHE was gradually being phased off with the result that from AY 2005-06 no deduction under section 80HHE would have been available to the assessee. The assessee with a view to avail of the benefit of section 10A got the existing unit registered as STP unit which was set up in free trade zone. 13. From above discussion it is clear that the assessee had intended to convert the existing unit set up in assessment year 1996-97 to STP unit. Therefore, contention of the assessee that a new unit was set up is an after thought and nothing more. We, therefore, uphold the findings of the ld CIT (A) that it was a case of conversion of an existing software export unit to STP unit whi....
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....tal share allotted in respective previous year) who were initially contributed share capital as below: Name of share holder. 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 *(1000000) (1450045) (1500000) (2000000) (5045000) (5045000) (6452665) Rohit Aggarwal 249985 ---- 12500 ---- 145015 ---- 12375 Rahul Aggarwal 249975 ---- ---- ---- 151195 ---- 12375 Rashmi Aggarwal 10 ---- 12500 181250 697490 ---- ---- Rahul and Rohit Aggarwal (Joint) 80 ---- ---- ---- ---- ---- ---- Manoj Murarka 499950 ---- 25000 181250 50 ---- ---- 10,00,000 * Figures in bracket shows total number of shares allotted by the assessee in respective previous year. 15.1 On perusal of above it is seen that share holding pattern has been changing in each year staring from previous year 1996-97 relevant to assessment year 1997-98. In previous year 1995-96 relevant to assessment year 1996-97 all 10,00,000 shares were held by five share....
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....and section 10A(1) and section 10A(1B), reads as under: "10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years: Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone i....
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....lowing conditions are fulfilled, namely:- (a) the amount credited to the Special Economic Zone Re-investment Allowance Reserve Account is to be utilized- (i) for the purposes of acquiring new machinery or plant which is first put to use before the expiry of a period of three years next following the previous year in which the reserve was created; and (ii) until the acquisition of new machinery or plant as aforesaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India; (b) the particulars, as may be prescribed in this behalf, have been furnished by the assessee in respect of new machinery or plant along with the return of income for the assessment year relevant to the previous year in which such plant or machinery was first put to use. (1C) Where any amount credited to the Special Economic Zone Re-investment Allowance Reserve Account under clause (ii) of sub-section (1A),- (a) has been utilised for any purpose other than those referred to in sub-section (1B), the amount so utilised; ....
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....lment of conditions of section 10A of the Act. Thus sub-section (9) inserted w.e.f. 1.4.2001 will be applicable to all undertakings which began to manufacture or produce such articles or things or computer software upto 31.03.2002. There is nothing in section 10A which may suggest that provisions of sub-section (9) of section 10A will be applicable in respect of the undertakings which began to manufacture or produce such articles or things or computer software w.e.f. 1.04.2001. In the absence any such provision in section 10A in our considered opinion, the assessee's case is squarely covered by the provisions of section 10A (9) of the Act. 17.1 The ld. AR of the assessee has submitted that the provisions of section 10A(9), 10A(9A) and Explanation 1 have been omitted with effect from 1/04/2004 and, therefore, it should be considered that provisions of section 10-A(9) were not on statute. We have gone through the memorandum explaining provisions of the Finance Bill, 2003 by which section 10A (9) was omitted. The explanatory note on clauses (vii) and (viii) of the Finance Bill, 2003 reads as under:- " Under the existing provisions of sub section (9) of section 10A and sub se....
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....e the provisions of section 10A(9) and Explanation 1 have been omitted with effect from 1/04/2004, the legislative intention is clear that provisions of section 10A(9) will be applicable up to assessment year 2003-04. In Bhavnagar University v. Palitana Sugar Mill (P.) Ltd. [2003] 2 SCC 111 the Apex Court has held that it is the basic principle of construction of statute that the same should be read as a whole, then chapter by chapter, section by section and words by words. Recourse to construction or interpretation of statute is necessary when there is ambiguity, obscurity, or inconsistency therein and not otherwise and an effort must be made to give effect to all parts of the statute and unless absolutely necessary, no part thereof shall be rendered surplusage or redundant. In High Court of Gujarat v. Gujarat Kisan Mazdoor Panchayat [2003] 4 SCC 712 it has been held by the Apex Court that it is a well-settled principle of law that an attempt should be made to give effect to each and every word employed in a statute and such interpretation which would render a particular provision redundant or otiose should be avoided. The dominant purpose in construing a statute is to ascertain t....
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....less than 51 per cent of the voting power in the year in which the undertaking was set up has ceased to beneficially hold shares carrying not less than 51 per cent of the voting power in the year under appeal. In fact their share holding had declined to 42.60 per cent as on 31st March, 2001. Therefore, they would have voting power to the extent of their share holding only. They, however, continued to control and manage the company as they had majority of the voting power not by virtue of their holding of the shares carrying not less than 51 per cent of the voting power, but by virtue of shares allotted to foreign strategic financial investors were without giving any voting right to them. It was thus clear that the promoters had ceased to beneficially hold shares carrying less than 51 per cent of voting power. Therefore, the assessee was not entitled to exemption under section 10A of the Act. 18.2 On further appeal Hon'ble Bombay High Court held that it is a settled principle of interpretation that retrospectively could not be lightly inferred unless it is clearly provided in the statute. The first proviso to section 10A implies continuity. If the intention was to deprive the....
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....sment year. Hence facts of the assessee's case are distinguishable with the facts of the case of Zycus Infotech (P.) Ltd. (supra). 19. As regards the decision of the ITAT, Pune Bench in the case of Patni Computers (P.) Ltd. (supra) the facts of the case were that three units at Chinchwad, Aakruti and Millennium Park were set up and STP registration was obtained. The assessing officer treated the aforesaid units as mere expansion of existing units on the basis of approval letters received from Software Technology park of India. Accordingly, the assessing officer held that profitability of three units was liable to be combined with that of corresponding old units. The assessing officer also concluded that the eligible period for deduction under section 10A of the Act with respect to three units would also be reckoned from the first year of the eligibility of corresponding old units. Aggrieved with the aforesaid stand of the assessing officer, the assessee carried the matter in appeal before the ld. CIT (Appeals). On appeal the assessee contended that all the three undertakings have been established in Software Technology Park and were registered with STPI. It was asserted t....