TaxTMI 
TaxTMI 
2016 (9) TMI 865
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....his appeal assessee had originally claimed 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 conf....
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....f income, the assessee company has claimed that its profit in respect 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 rel....
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....se may be, and thereafter, fifty per cent of such profits and gains for further two consecutive assessment years, and thereafter; (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 peri....
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.... competent authority may allow in this behalf. Explanation 1.-For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in 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 prescrib....
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....tion (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. [(7A) xxx xxx xxx [(7B) xxx xxx xxx (8) xxx xxx xxx" 4.1 In view of aforesaid statutory provisions, a bare 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 th....
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.... business of the units in question, the instances cited by the Assessing Officer such as use of electricity / telephone facility and also personnels when needed are inevitable. But that alone cannot lead to the conclusion (unless any of the above conditions is violated) that the unit 107 is not an independent and cannot function without using the infrastructure of Unit-106 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 exe....
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....epartment had approached the Income-Tax Appellate Tribunal at Ahmedabad by preferring three Appeals related to three assessment years as stated above. The said appeals were numbered as Income- Tax Appeal Nos.1530/2000, 1867/2001 and 368/2001. 8. These appeals since entangled in a similar set of facts and question of law, the Tribunal consolidated the same for disposal of it and by judgment 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 t....
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.... of Unit-106 and therefore, not entitled to deduction under Section 10A of the Act and alternatively, submitted that respondent - assessee was not entitled to deduction in respect of revenue earned in the name of recruitment and training activities and reimbursement of expenses and by submitting this, learned counsel for the revenue stated that Unit-107 is not entitled to seek any benefit of provision 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 ledge....
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....ration, physical expenses as also revenue generation and therefore, once its established on the record that Unit-107 is separate and distinct, the revenue earned by it is eligible for exemption under Section 10A of the Act. Learned counsel further submitted and reiterated that Unit-107 has neither been set up by splitting up or reconstruction of any business in existence or by plant and machinery 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 ....
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....record that while setting up Unit-107, new investment has been made for acquiring the new furniture and fixtures as also plant and machinery, namely, computer and computer equipments and more than 10 persons have been employed by Unit-107 and these facts were not in dispute and therefore, the Tribunal has rightly observed and concluded that Unit-107 becomes an independent unit in all physical terms. 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 ....
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....vered by the Bombay Tribunal in case of M/s.S&S Consultancies Pvt. Ltd. and upon examination of it, found that receipts on account of supply of professionals for development of computer software on individual basis constituted export receipts and the object of Section 10A of the Act being benevolent, the said fact may not be interpreted so as to deny the benefit of exemption which is ultimate object 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 lik....