TaxTMI 
TaxTMI 
2016 (9) TMI 865
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....d exemption u/s 10A which was disallowed by Assessment Officer. Against the said disallowance, in an appeal filed by assessee CIT(A) directed to allow exemption u/s 10A of the Act in respect of Unit no.107 which came to be upheld by the Tribunal against which this tax appeal came to be filed by Revenue. 1.1 Similarly, in case of Tax Appeal No.605 of 2998 is concerned, similar is the position in which challenge is made to a common order dated 7.8.2007 in connection with ITA 368 of 2001 for Assessment Year 1997-98. In this appeal also Tribunal upheld the decision of CIT(A) in which it was concluded that Unit 107 was a new unit and eligible for exemption under Section 10A of the Act. Since the facts are almost similar and the issues involved in the appeals are also identical, the facts are taken up from Tax Appeal No.606 of 2008 for deciding the controversy in question. 2. This Court vide order dated 2.9.2008 has admitted the appeal, namely Tax Appeal No.606 of 2008 for consideration of following substantial questions of law which are reproduced hereinafter. "(1) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) in deleting ad....
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....espect of Unit-107 is exempted under Section 10A of the Income-Tax Act,1961 (for short 'the Act') and further stated that upto the Assessment Year 1995-96, the profits of the Unit-106 was claimed as exempt under Section 10A of the Act and now, in respect of Unit-106 the benefit under Section 80HHE may be allowed. In the present proceedings, we are not concerned with other claims submitted by the assessee company but, only question which is called for consideration is in respect of exemption claimed under Section 10A of the Act and it is in this context a substantial question of law put for consideration. First of all a bare look at the relevant portion of statutory provision of Section 10A is worth to be taken note of, hence reproduced hereinafter : "[Special provision in respect of newly established undertakings in free trade zone, etc. 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....
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....ter; (ii) for the next three consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the "Special Economic Zone Re-investment Allowance Reserve Account" ) to be created and utilised for the purposes of the business of the assessee in the manner laid down in sub-section (1B): [Provided that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of Section 139] (1B) The deduction under clause (ii) of sub-section (1A) shall be allowed only if the following conditions are fulfilled, namely:- (a) the amount credited to the Special Economic Zone Re-investment Allowance Reserve Account is to be utilised- (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, fo....
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....n force for regulating payments and dealings in foreign exchange. Explanation 2.-The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. [(4) For the purposes of [sub-sections (1) and (1A)], the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.] (5) The deduction under [this section] shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in the prescribed form, alongwith the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. (6) Notwithstandi....
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....are reading of the same indicates that so as to become eligible for benefit under Section 10A of the Act for deduction, the unit must be a separate and distinct unit not based upon either of splitting up of the existing unit or of reconstruction thereof and there must not be any intermixing or interlacing and from the context of these parameters, the issue raised by the revenue is required to be examined. 5. The Assessing Officer while framing an assessment order has dealt with this issue of claim of assessee under Section 10A of the Act in respect of Unit-107, has held upon consideration that Unit-107 is not an independent unit and activities of both the units are not separable and is not possible to hold that Unit-107 is separate and viable unit on its own as it cannot function without using infrastructure of Unit-106 in India and therefore, has held that Unit-107 is nothing but a mere extension of old Unit-106 and thereby, claim submitted by the assessee company came to be disallowed and consequently, profits of Unit-107 to the extent of 2.57 crores (rounded off) came to be added to the total income of the assessee company with initiation of penalty proceedings under Section 27....
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....as arrived at by the Assessing Officer. The appellant has rebutted both through arguments and evidence the arguments / observations of the Assessing Officer on non-allowability of exemption u/s.10A. The raison d'etre and the field and scope of operation of unit 107 is entirely different from that of unit 106 and for carrying its activities unit 107 possesses necessary infrastructure in terms of personnels / machinery etc. as is evident from the facts placed on record and was also evidenced by me during my personal visit to Units 106 and 107 to specifically verity appellant's contentions and facts placed on record in support of those contentions. Therefore, in my opinion, the appellant is entitled for deduction u/s.10A of the I.T.Act,1961. Now coming to the next aspect as to which income qualifies for exemption u/s. 10A considering the nature of appellant's business namely that of developing software packages (customized or otherwise) and deploying the necessary expertise for its successful / execution / maintenance etc. because highly technical and sophisticated software (whether customized or otherwise) by itself will not be a salable commodity unless it is successfully executed....
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....t and order dated 7.8.2007, all the appeals preferred by the revenue came to be dismissed by a common order. It is against this judgment and order passed by the Income-Tax Appellate Tribunal, present three appeals came up for consideration before this Court which are stated to have been admitted on 2.9.2008 by raising substantial question of law as mentioned above. Since these appeals are raising similar issues as stated above, by treating Tax Appeal No.606 of 2008 as a lead matter, the Court is taking up the examination of issues raised in all the appeals by way of this common judgment. 9. Learned counsel, Mrs.Mauna Bhatt for the revenue contented that Unit-107 has been formed by splitting of Unit- 106 and thereby, contended that Unit-107 is nothing but an extension of Unit-106 inasmuch as the activities are almost similar in nature and many software personnel of Unit-106 are deputed to Unit-107. It was also contended that turn-over of Unit-107 is much more than in proportion to plant and machinery, furniture and fixtures as compared to Unit-106 and therefore, in view of intermixing and interlacing of expenses would make it clear that there was common control and common managemen....
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....rovision under Section 10A of the Act. No other submissions have been made. 10. As against this, learned counsel, Mr.Bandish Soparkar for the respondent - assessee submitted that Unit-107 is set up in a separate premises, acquired under the separate rental agreement and the said agreement is also forming part of the record which has not been disputed by Assessing Officer. It was also pointed out that premises of Unit-107 as a separate electricity meter, separate water meter, all telephones lines are being visible on the premises separately fitted and the said fact has not been disputed by the revenue. It was also contended that amount of Rs. 48 lacs was invested for the furniture and fixtures for better equipments for the operation of the unit which has plant and machinery, a separate ledger is maintained for expenses exclusively incurred with respect to Unit-107 and thereby, submitted that it is an independent and exclusive unit. Learned counsel submitted that if the contention of the revenue is accepted that Unit-107 was established to take over the business of Unit-106 then in that case, business and employment of Unit-106 should decline and may come to an end. However, the rec....
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....y previously used. Learned counsel also submitted that each one is having a separate territory for its functioning. By pointing out this, learned counsel relied upon the decision of the Supreme Court in case of Textile Machinery Corporation Ltd. V/s. CIT, reported in 107 ITR 195(SC) and has submitted that if an undertaking is not formed by the reconstruction of old business, said undertaking will not be denied the benefit of Section 15C merely because it goes to expand the general business of assessee in some direction. Section 15C was dealt with by the Supreme Court in the said decision. However, the principle underlying in the said decision is almost applicable to the background of fact of the present case. It was also submitted that this very decision was relied upon by the Supreme Court in case of Commissioner of Income-Tax V/s. Indian Aluminum Company Ltd., reported in 108 ITR 367 (SC) and thereby, reiterated that Unit-107 is eligible for the benefit of Section 10A of the Act. Learned counsel placed further reliance upon the decision in case of Commissioner of Income Tax V/s. Shree Digvijay Cement Co. Ltd., reported in 144 ITR 532 (Gujarat) and contended that the unit had a se....
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....s. It was also concluded by ascertaining the figures of turnover, manpower, employment and it was also ascertained by the Tribunal that Unit-106 catering to USA whereas Unit-107 is having altogether a different territory and has distinctly entered into business in the area of U.K., Austria, New Zealand and Germany by way of separate agreements. It is also emerging from the record that Unit-107 has a different operational field which clearly indicated in all that Unit-107 is a separate and independent unit set up not out of reconstruction of Unit-106 in any manner. 12. From the record it is further emerging that business of Unit-106 went in upward direction in terms of its turnover, employment which is indicated that business of Unit-106 which was a unit in existence has not diverted to Unit-107. It was also emerging from the record that old unit was operating in territory of USA and allied markets through different subsidiary i.e. Masket (US) whereas Unit-107 operates in U.K. and allied market by separate agreements with Masket (U.K.). These are the factors which has led the Tribunal rightly to hold that Unit-107 was not formed by either splitting up or reconstruction of business ....
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.... by maintaining such provision in the Act and therefore, overall examination of material on record, it is clearly emerging that Unit-107 in all respect is a separate and independent unit. Therefore, it appears that the contention raised by the revenue are not worth enough to dislodge the conclusion arrived at by the Tribunal. As stated above, learned counsel for the respondent who has relied upon a decision in case of Textile Machinery Corporation Ltd. (Supra), in which upon examination of the relevant record and similar position, dealing with Section 15C of the 1922 Act, the Supreme Court has stated that it was rightly justified by the Tribunal that new unit which was set up who has got the effect of 15C of 1922 Act and while coming to that conclusion, the Supreme Court has observed like this which worth to be taken note of : "If any undertaking is not formed by reconstruction of the old business that undertaking will not be denied the benefit of section 15C of the 1922 Act simply because it goes to expand the general business of the assessee in some directions. As in the instant case, once the new industrial undertakings were separate and independent production units in the sen....