Karnataka H.C : Where assessee began operation prior to date of registration with STPI but export of goods commenced only after registration with STPI, assessee was eligible for deduction under section 10A

High Court Of Karnataka

CIT Vs. Expert Outsource (P.) Ltd.

Assessment Year : 2005-06

Section : 10A

N. Kumar And Ravi Malimath, Jj.

IT Appeal No. 323 Of 2010

March 1, 2011


N. Kumar, J. – The Revenue has preferred this appeal challenging the order passed by the Tribunal, which has upheld the order of the appellate authority granting the benefit of tax under s. 10A of the IT Act, 1961 (for short hereinafter referred to as the ‘Act’).

2. The assessee is carrying on the business as a software consultant and developing software. It is a private limited company. It was incorporated on 17th Dec., 2003. It entered into an agreement with its parent company on 20th Oct., 2003 for providing software development services. The first invoice was raised by the assessee on 29th Dec., 2003. The assessee secured the STPI registration on 4th Aug., 2004. For the asst. yr. 2005-06, the assessee claimed deduction under s. 10A of the Act. He had enclosed Form No. 56F along with the return of income in support of the claim of deduction under s. 10A. Thereafter, scrutiny assessment under s. 143(3) was completed on 28th Sept., 2007. The assessing authority disallowed the deduction claimed under s. 10A on the ground that the company was incorporated and started business activity prior to obtaining approval of STPI. Hence, the conditions laid down under s. 10A(2)(i)(b) and (c) of the Act are not satisfied. The assessee did not choose the available option of conversion of the DTA unit into STP unit. Therefore, when the assessee has used the machinery previously used, which is more than 20 per cent of the total plant and machinery, the conditions laid down under s. 10A(2)(iii) of the Act are not satisfied. Aggrieved by the said order, the assessee preferred an appeal. The CIT(A) by a well considered order by placing reliance on the circular issued under s. 10B of the Act and also the several judgments dealing with the above aspects, held that the assessee is entitled to the deduction under s. 10A to the existing unit and consequently, the conditions laid down under ss. 10A(2)(i)(b) and 10A(2)(ii) and (iii) are fulfilled and directed the assessing authority to allow eligible deductions under s. 10A. Aggrieved by the said order, the Revenue preferred an appeal to the Tribunal which has upheld the said order. Aggrieved by the same, the Revenue is in appeal before us.

3. From the aforesaid facts, it is clear that s. 10A provides for a deduction from the total income of profits derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years. The tax holiday period commences 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. Sec. 10A(2) prescribes certain conditions onthe fulfillment of which the benefit of s. 10A could be availed.

4. In the instant case, the assessee began operations on 17th Dec., 2003 whereas the STPI was registered on 4th Aug., 2004. The STP authorities could also permit the conversion of an existing unit into a STPI unit. The purpose of the STP scheme is to encourage exports and gain valuable foreign exchange for the country. The STP scheme provides the benefit of converting a DTA unit into a STPI unit and the same should also hold good for tax purposes. CBDT Circular No. 1 of 2005 dt. 6th Jan., 2005 grants certain benefits under s. 10B. Though the circular is in the context of s. 10B, the ratio of the circular equally applies to s. 10A also. In fact, the CIT(A) has referred to various judgments on the point and has come to the conclusion that the benefit of s. 10A would also be available even when an existing unit gets converted into a STPI unit. In fact, the material on record discloses that no export of computer software was made before 4th Aug., 2004. The export commenced only after 4th Aug., 2004. The invoices produced in the case clearly establish the said fact. In those circumstances, the appellate authority as well as the Tribunal were justified in extending the benefit of s. 10A to the unit in question.

5. We do not see any illegality committed by them. The said finding recorded by the appellate authority as well as the Tribunal is also based on evidence and is in accordance with law. We do not see any substantial question of law that arises for consideration in this appeal.

Accordingly, the appeal is dismissed.

[Citation : 358 ITR 518]