TaxTMI 
TaxTMI 
2011 (12) TMI 323
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.... (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; 3. That in any case the Section 10A is an incentive p....
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....any 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. Since the assessee company did not claim deduction under section 10A in asses....
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....ds, 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 observed that in a case of an assessee which had been set up in a domestic tariff are....
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....g 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 the assessee is entitled for deduction under section 10A in view of ITAT decision in the case of the assessee. He further submitted that ld. CIT (A)....
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....ore, 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 be allowable even when there is expansion of undertaking. 8. On the other hand, the ld. Sr. DR submitted that as per provisions of Explanation 1 to se....
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....hat 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 software export unit to STP unit" which had been approved by STPI. The contention of ld. AR of the assessee is that a separate unit was set up for which new ....
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....om 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 labour etc. of existing unit in STP registration application form. These facts belie the contention of the assessee that a new unit was set up when STP registration was obt....
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.... 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 which would connote conversion of a unit already set up. 14. The next contention of the assessee is that for the purposes of section 10A (9) read with Explanation 1 the comparison of....
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....001-02 *(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 holders. In previous year 1997-98, 5,00,000 shares were allotted out of which 50,000 shares were allotted to these five persons. Thus their share holding was 10,50,000 shares out of total 15,00,000 shares. In previous year 1998-99 shares held by them were 14,12,500 out of total shares allotted at 20,00,000. As on 31.03.20....
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....levant 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 into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the undertaking began to manufacture or produce such articles or things or computer software in such free trade zone or export processing zone....
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....rve 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; or (b) has not been utilised before the expiry of the period specified in sub-clause (i) of clause (a) of sub-section (1B), the amount not so utilised, shall be deemed to be the profits,- (i) in a case referred to in clause (a), in the year in which the amount was so utilised; or (ii) in a case referred to in clause (b), in the year i....
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....ndertakings 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 section (9) of sub section 10B, the deductions under sections 10A and 10B are not allowed to the assessee where the ownership or the beneficial interest in the undertaking is transferred by any means. However, this condition is not applicable where as a result of the re-organization of the business, a firm or sole proprietary concern is succeeded by a company due to the pro....
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....ould 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 the intention of the Legislature which constitutes the law of any statute. In view of settled position of law provisions of section 10A(9) and Explanation 1 cannot be treated as redundant from the date of its insertion simply on the ground that the same have been omitted w.e.f. 1.4. 2004. In the case before us since the year involved is assessment year 2002-03, in our considered opinion, ....
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....ontinued 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 existing industries or to impose a condition, which is not capable of being fulfilled in the context of transfer having already occurred prior to the statute, it would have been specifically made clear. Under these circumstances keeping in mind the general principle that vested rights cannot be divested, one cannot assume retrospectively to a greater extent then what the section intends. Ho....
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....ted 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 that all the three units satisfied the prescribed conditions under section 10A(2) of the Act. It was submitted that they were separate and distinct from the existing undertakings. The new units were located at locations different from their corresponding old units. There was substantial investment in land, building and machinery in all the three units as distinct from old units. It was also submitt....