High Court Of Madras
Penta Media Graphica Ltd. VS. ACIT, Co. Ward V (2)
Assessment Year : 1996-97
Section : 10B
Mrs. Chitra Venkataraman And Ms. K.B.K. Vasuki, Jj.
Tax Case (Appeal) Nos. 34 Of 2010 And
332 & 333 Of 2011
M.P. No. 1 Of 2011
June  5, 2013
JUDGMENT
Mrs. Chitra Venkataraman, J. –Â The assessee is on appeal as against the order of the Income-tax Appellate Tribunal relating to the assessment year 1996-97. The following is the substantial question of law raised by the assessee in this Tax Case Appeal:
“Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding the appellant as not entitled to relief under Section 10B in respect of a sum of Rs.3,25,88,263/- being income from training?”
2. The assessee herein is a 100% export oriented unit. They claimed exemption under Section 10B of the Income-tax Act on the income received by them as by way of training fees. The claim of the assessee was rejected by the Assessing Officer on the view that the relationship between the assessee and the trainees was not that of employer and employees. Training was not given to the employees of the assessee or on apprenticeship. On the other hand, training fee was charged by the assessee for carrying out training to outsiders and there was no contractual obligation on the part of the assessee company to absorb them. In the absence of any such relationship as employer and employees and the training being given to outsiders, the Assessing Officer viewed that the receipt was not exempt under Section 10B of the Income-tax Act. On appeal, the Commissioner of Income Tax (Appeals) viewed that the nature of business of the assessee, viz., development and sale of software was dependent on the availability of trained manpower. Thus, training being recognised as part of software development in the export oriented units, the receipt from the training programme was exempt under Section 10B of the Income Tax Act. Thus the Commissioner of Income Tax (Appeals) allowed the appeal. On further appeal before the Income-tax Appellate Tribunal by the Revenue in I.T.A.Nos.338/Mds/01, the Tribunal pointed out that having regard to the nature of business of the assessee, it was necessary to see whether the training programme formed an integral part of the business of 100% Export Oriented Unit. There was no sufficient enquiry made in this regard as to whether there existed any contractual relationship between the assessee and the trainees in regard to the joining of service in the assessee company. Hence, it was necessary that the assessment be set aside and the matter be remanded back to the Assessing Officer with a direction to decide the issue de novo in accordance with law after providing adequate opportunity of hearing to the assessee. It further felt, on satisfactory completion of the training, the trainees would be absorbed in the undertaking and the undertaking owed certain obligation for providing job to them. Thus the training programme could be treated as an integral part of the business. In the light of the order of the Tribunal dated 17th February 2006 remanding the matter, once again the issue was taken up for consideration.
3. The Assessing Officer pointed out that the faculty in the training unit were the very employees engaged in software development were also used as a faculty to train the students; by this, the income of the assessee was optimised and ensured efficient utilisation of its assets viz., computers and manpower. In the circumstances, the Officer rejected the submission of the assessee to considers its training as part of the business of the company. The Assessing Officer further pointed out that training was given only on receipt of fixed fee. The training was for a fixed timing for a fixed period. The training was conducted in batches and each batch consisted of fixed number of students. The relationship between the trainee and the faculty was that of a student and teacher. The assessee admitted this fact. In the background of the provisions of Section 10B of the Income Tax Act, the assessment was completed rejecting the claim for exemption.
4. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who agreed with the assessee that training was an integral part of the business of the 100% EOU and consequently, the assessee was entitled to 100% exemption.
5. The Revenue challenged this order on appeal before the Tribunal. There was yet another appeal relating to the same company but on different issues relating to the assessment year 2004-05. By a common order relating to the assessment years 1996-97 and 2004-2005, the Tribunal rejected the plea of the assessee and thereby allowed the appeal on the claim under Section 10B of the Income Tax Act.
6. The Tribunal held that the income derived from the undertaking could not be stated as export income of the assessee. The income falling under Section 10B was earned as fee received by the assessee for imparting training to outsiders by using some infrastructure which might be lying idle as the assessee had not exported any article or goods or software during the period relevant to the assessment year under consideration. We may point out herein the objection of the learned counsel appearing for the assessee that it was an incorrect statement of fact by the Tribunal that the assessee had not exported any article or goods during the relevant period. Learned counsel appearing for the assessee pointed out to the assessment order, wherein it had placed the required details as to the income derived from the cost of software. This incorrectness of fact, however, according to us, does not affect the decision of the Tribunal otherwise on the very wording of Section 10B. Leaving this aspect aside, it may be pointed out that the assessee relied on various circulars to support its claim under Section 10B of the Income Tax Act. The Tribunal held that these circulars were not relevant to the assessment of the export oriented unit in the Income Tax Act. Since the circulars were only as regards the benefits granted under the Customs Act and being an exemption provision under the Income Tax Act, unless the assessee showed that providing of training was part of the business of export of software, its claim could not be sustained. Aggrieved by this, the present appeal by the assessee.
7. Learned counsel appearing for the assessee challenged the order of the Tribunal, principally on the ground that the assessee had had export of software during the relevant period, earning income to the tune of Rs.102,03,10,481/-. Apart from that, it had domestic software sales and service to the tune of Rs.10,66,96,808/-, which means, the domestic sales were 25% and less than that. Thus, according to the assessee, it satisfied the condition stipulated under Section 10B(2) of the Income Tax Act. Learned counsel placed before us the scheme viz., Software Technology Parks (STP) Scheme and given the objectives of the scheme, one of them being to train the employees, the activity of the assessee in training graduates who are professionals, the receipt is part of the exempt income given under Section 10B of the Income Tax Act. Consequently, the Tribunal committed a serious error in ignoring the very scheme while approaching the issue. Laying emphasis on the Circular No.37/95 dated 18.04.1995, Circular No.24/ 97- Cus. dated 07.07.1997 in F.No.305 / 7 / 95 -FTT of the Government of India, Ministry of Finance, Department of Revenue, as well as the letters of Software Technology Park of India, Chennai dated 06.08.1998 (addressed to the Tamil Nadu Electricity Board) and 04.08.2001 respectively, she submitted that the Tribunal ought to have considered the scheme on setting up a Software Technology Park and the Export Oriented Unit and the purpose of granting exemption to consider the case of the assessee in the proper perspective, to grant the relief. She also placed before us the order of the Income Tax Appellate Tribunal, Mumbai ‘D’ Bench in Sovika Infotek Ltd. v. ITO [2008] 19 SOT 412, wherein, a similar claim was allowed and the Department had also accepted the order of the Tribunal. She further submitted that training of professionals being part of the business of development of software, the provisions have to be interpreted liberally to grant the relief. Being a provision to promote the infrastructure development in the country and the nature of business in the development of software being dependent on the availability of more professionals in the field, the Tribunal ought to have had a proper understanding on the scope of the provision and grant the relief. She also made particular objection to the view of the Tribunal about the infrastructure utilised for training, holding that it was only on account of the idle infrastructure that the assessee had used, to gain unmerited benefit. Considering the wrong view taken and that some of the students were also taken on employment, on facts, she submitted that in the event, this Court does not accept the plea for exemption, it is but necessary that the matter be remitted back for a de novo consideration of the claim for a pro-rata relief.
8. Learned Standing Counsel appearing for the Revenue supported the order of the Tribunal that even eschewing the findings of the Tribunal on the availability of export turnover and that the unit was not lying idle, the facts available clearly point out that the assessee had imparted training, charging fees; that the relationship of the assessee with the trainees was admittedly of a teacher and student nature. Hence, on the facts admitted, Section 10B of the Income Tax Act can have no relevance, it being not related to export of article or things produced or manufactured. He pointed out that irrespective of the compliance of condition given under Section 10B(2), the fact remains that the receipt is not in respect of export of any article or thing manufactured. In the circumstances, the question of grant of exemption does not arise.
9. Heard learned counsel appearing on either side and perused the material placed on record.
10. On the materials placed before this Court and considering the orders of the authorities below, we do not find any justifiable ground to agree with the submissions made by the learned counsel appearing for the appellant. We have no hesitation in rejecting the same and confirming the order of the Tribunal.
11. Before going into the merits of the case, one needs to see the scheme of Scheme of Section 10B as it existed originally. The relevant portion of the provisions under Section 10B of the Income Tax Act, as it existed during the relevant assessment year 1996-97 is as follows:
‘10B. Special provision in respect of newly established hundred per cent export-oriented undertakings.— (1) Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent. export-oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in the total income of the assessee.
(2) This section applies to any undertaking which fulfils all the following conditions, namely:—
| (i) | it manufactures or produces any article or thing; | |
| (ia) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1994, its exports of such articles and things are not less than seventy-five per cent. of the total sales thereof during the previous year ; | ||
| (ii) | it is not formed by the splitting up, or the reconstruction, of a business already in existence: | |
| Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; | ||
| (iii) | it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. |
Explanation.—The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section.
(3) to (7) …
Explanation.–For the purposes of this section,–
| (i) | “hundred per cent export-oriented undertaking” means an undertaking which has been approved as a hundred per cent. export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act; | |
| (ii) | “relevant assessment years” means the five consecutive assessment years specified by the assessee at his option under sub-section (3) or sub-section (5), as the case may be; | |
| (iii) | “manufacture” includes any– |
| (a) | process, or | |
| (b) | assembling, or | |
| (c) | recording of programmes on any disc, tape, perforated media or other information storage device. |
| (iv) | “produce”, in relation to any article or thing referred to in clause (i) of sub-section (2) includes production of computer programmes.’ |
12. A reading of Section 10B of the Income Tax Act shows that till 2001, the provisions contemplated 100% exemption from tax under the Act. The exemption granted related to the profits and gains derived by the assessee which is 100% export oriented unit undertaking. The undertaking is one approved as a hundred percent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by Section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951) and the rules made thereunder. Sub Section (2) specifies among other things that exemption under the Section applied to an assessee/undertaking which “manufactures or produces any article or thing”, that it started producing or manufacturing article or thing on or after 1.4.1994 and that it is not formed by transfer to a new business of machinery or plant primarily used for any purpose. Thus going by the very scheme of the provision, exemption considered under Section 10B is related only to those undertakings which are engaged in the manufacture or production of any article or thing and has relevance to the receipts which are out of the activities relating to the profits and gains arising from the manufacture or production of an article or thing. The benefit under Section 10B as exemption was available for ten consecutive years. From 2001, Section 10B was amended to make the claim a deduction provision. Thus the benefit under Section 10B is referable not only with reference to the approved undertaking, but it must also be with reference to profits and gains derived from the export oriented unit fulfilling the conditions specified in the Section.
13. On the admitted facts of the case herein, that the receipt is related to a fee charged by it, on the training of professionals who are admittedly not its employees and that the profits and gains not being one arising on account of manufacture or production of an article or thing, the benefit under Section 10B can have no relevance at all. The Section, as already extracted above, clearly points out what “manufacture” is. The said term includes any process or assembling or recording of programmes on any disc, tape, perforated media or other information storage device that are considered for the purpose of applicability of the Section. In other words, the activity other than what has been specified or enumerated in the Section would be of no relevance for the purpose of considering the exemption under Section 10B of the Income Tax Act. Even though the provision is an incentive provision, yet, when the words are unequivocal, the Section calls for a restrictive consideration – Refer Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/129 Taxman 539 (SC). As is well laid, taxation under the Act is the rule and exemption, the exception. Thus, unless the assessee shows that the receipts come clearly within the language of the Section, it is not possible for this Court to give an elastic interpretation to the clear words based on tax treatment under different enactments or the schemes formulated for setting up of industries in a particular area or zone. In the background of the above-said provision, if we look at the order of the Tribunal, we may note that there is hardly any fallacy, particularly a legal one, which calls for any interference by this Court.
14. It is no doubt true that there are circulars issued by the Central Board of Indirect Taxes, particularly customs charges as regards the duty treatment therein on the import of computers. It is no doubt true that Software Technology Parks Scheme gives the object on setting up of Software Technology Parks:
| (a) | To establish and manage the infrastructural resources such as data communication facilities, core computer facilities, built-up space, common amenities etc. | |
| (b) | To provide services (import certification, software valuation, project approvals, etc.) to the users who undertake software development for export purposes. | |
| (c) | To promote development and export of software and software services through technology assessments, market analysis, marketing segmentation, marketing support etc. | |
| (d) | To train professionals and to encourage design and development in the field of Software Technology and Software Engineering. |
15. In the context of these objectives, it is also not in doubt that in the matter of import of computers, other infrastructure and capital goods, the Government of India, Ministry of Finance, considered the duty liability on the import of 100% export oriented units for training purposes. Circular No. 37/95 dated 18/4/95 in F.No. 305/7/95-FTT reads as under:
“Circular No. 37/95
dated 18/4/95
F.No. 305/7/95-FTT
Government of India
Ministry of Finance
Department of Revenue, New Delhi
Subject : Imports by 100% Export Oriented Unit Software Technology Park units for training purpose.
I am directed to say that the Board is in receipt of a reference from the Department of Electronics that a Software Technology Park (STP) Unit has not been permitted to import certain equipment’s meant for utilisation within the unit for training of professionals. In this regard, the Board’s attention has been drawn to the Ministry of Commerce Notification No. 33/ (RE)/ 92-97, dated 22.3.1994 which vide para 2.12 allows the use of computer system within the STP units for training purpose subject to the condition that no computer terminal will be installed outside the STP unit for this purpose.
2. The matter has been examined be (sic) the Board. There is no doubt that as a policy any STP unit is permitted to utilise the imported equipment’s for purpose of training within the unit itself. However, it is to be appreciated that such STP units are set up with the primary intention of exports and training. Accordingly, if such units set up for export purpose use the equipment also for training there can be no objection. It is clear that in such cases the declared intention at the time of import would be to fulfil the export obligation under the STP scheme and if this is so the customs may have no objection for import of the equipments under the respective notification.
3. In view of the aforesaid facts, I am directed to clarify that imports by STP Units should be permitted by the Customs authorities in terms of the relevant customs notification and if later the equipments are used for training purpose also we may have no objection.
Sd/-
S.M. Bhatnagar
Under Secretary to the Government of India”
16. This is followed by yet another circular dated 07.07.1997 in Circular No.24/97- Cus., which once again pointed out to the treatment meant for customs purpose, particularly in the context of the EXIM Policy, which reads as under:
“Circular No. 24/ 97- Cus.
dated 7/ 7/ 97
F. No. 305/ 7/ 95 -FTT
Government of India
Ministry of Finance
Department of Revenue
Subject : Imports by 100% Export Oriented units Software Technology Parks unit for training purpose.
I am directed to say that the Board is in receipt of a reference from the Department of Electronics that commercial training on computers installed in the bonded premises of STP units be allowed. The EXIM Policy as also provides (paragraph 9.15 (f)) that software units will be allowed to use the computers system for training purposes (including commercial training) subject to the condition that no computer terminal shall be installed outside the bonded premises for the purpose.
2. the matter has been examined by the Board. It is noted that activity of imparting commercial training in an STP unit is totally different from permitting manufacture of goods for domestic market by an EOU. It has also been noted that STP units are set up with the primary intention of developing and exporting software but if they in addition use the equipment for training of the personnel of the units there should be no objection. The same principle can equally be applied to training of persons other than employees of the concerned unit.
3. In view of the aforesaid facts, I am directed to clarify that the STP units should be permitted by the Customs authorities in terms of the relevant provisions even if later on when units have completed their Export Obligations, the equipment’s are used for training including commercial training purpose, provided the training is conducted within the bonded premises.
4. The Board’s instruction contained in Circular No. 37/ 95 dated 18th April, 1995 issued from F.No. 305/ 7/ 95- FTT deemed to have been modified accordingly.
Sd /-
(O.P. Khanduja)
Senior Technical Officer (FTT)”
17. Considering the difference in the tax treatment granted by the Customs and Central Excise Board in the absence of any such concession contemplated under the provision, or for that matter, by the Central Board of Direct Taxes, we do not find any justifiable legal compulsion to accept the plea of the assessee that similar treatment could be imported under the provisions of the Act.
18. It is a well settled principle of law that when the provisions of the tax enactment are clear and are beyond any contradiction, no words could be added to understand the scheme of the provisions of the Act. As already seen, a reading of the provision points out that the Act has made its intention very clear that the exemption is available in respect of profits and gains derived by an undertaking which is engaged in the manufacture or production of an article or thing. Since the training is given to the graduates/professionals who are not employees, who are not, in any way, associated with the business of the assessee in the matter of production and manufacture of an article or thing, and the receipts not being profits and gains derived by the undertaking in the manufacture or production of article or thing, we do not find any justifiable ground to confer benefit of the provision based on the policy decision taken either under the customs enactment, or for that matter, under the Software Technology Park Scheme. It is no doubt true that the objectives of the Software Technology Park Scheme seeks training of professionals as one of the objects; yet, the scheme is one thing and tax treatment is totally another aspect of it. Whatever may be the objectives of the scheme, exemption should be given only in terms of what is provided for under the income tax provisions. As already pointed out, Section 10B of the Income Tax Act being a clear exemption provision, unless the assessee is in a position to show any ambiguity in the provisions of the Act which may possibly be taken advantage of, there can be no liberal interpretation given to the provisions of the Act, for the purpose of granting relief to the assessee. In the circumstances, we have no hesitation in rejecting the plea of the assessee.
19. As far as the reliance placed on the decision of the Mumbai Bench of the Income Tax Appellate Tribunal in Sovika Infotek Ltd. (supra) is concerned, we do not find that the view taken therein could be of any assistance to the assessee. We do not find any legal justification to take the same view, as had been done by the Mumbai Bench of the Income Tax Appellate Tribunal in the decision referred to above.
20. Learned counsel appearing for the assessee submitted that after training, some of the trained personnel were employed in the assessee in its business; consequently, this Court should consider liberal interpretation of the provision for grant of relief to the assessee. Whatever be the post event on training, as on the date of receipt of income, there existed no relationship between the assessee and the trainees as master and servants, to hold that for the purpose of business, training was given to aid in the business of the assessee. The employment of the trained personnel came only after the training was completed to the satisfaction of the institution. Hence, the plea of the assessee for a proportionate allowance cannot be considered. In the circumstances, so long as the receipt was only for the purpose of training, treating the trainee as a student, we do not find any reason to accept the plea of the assessee to allow this appeal. Hence, we reject the submissions of the learned counsel appearing for the assessee and dismiss the Tax Case Appeal, thereby confirming the view of the Tribunal.
21. As far as the question of remand is concerned, even admitting for a moment that there is an error in the order of the Tribunal as regards the receipt of income on the export of software and local sales upto 25%, yet, going by the reasons already given in the preceding paragraphs and the provision on exemption being that the profits and gains of the undertaking arising from the manufacture or production of an article or thing, we do not find any justifiable ground to remand the matter. The facts herein are clear enough to persuade us to hold that the receipts do not call for any exemption under Section 10B of the Income Tax Act. Hence, Tax Case (Appeal) No.34 of 2010 stands dismissed. No costs.
22. In Tax Case (Appeal) Nos.332 and 333 of 2011 relating to the assessment years 1997-98 and 1999-2000 respectively, the Revenue has raised the following substantial question of law:
“Whether on the facts and circumstances of the case, Tribunal was right in holding that the assessee is entitled for exemption under Section 10B with respect to receipts from training activity of the assessee when no foreign inward remittance has taken place.”
The facts herein are no different from the one stated in Tax Case (Appeal) No.34 of 2010.
23. It is seen from the order of the Tribunal that it referred to the order passed in respect of the assessment year 1996-97 and the appeal pending before this Court. Yet, it however allowed the appeals of the assessee, subject to the condition that the order passed in respect of the assessment years 1997-98 and 1999-2000 would stand amended in conformity with the order in respect of the assessment year 1996-97. Even though learned counsel appearing for the assessee placed heavy reliance on the order of the Commissioner of Income Tax (Appeals), yet, we do not find any ground that persuades us to take a different view. In the circumstances, having regard to the order passed in Tax Case (Appeal) No.34 of 2010, we set aside the order of the Tribunal and allow Tax Case (Appeal) Nos.332 and 333 of 2011. No costs. Connected M.P.No.1 of 2011 stands closed.
[Citation : 357 ITR 403]
