Ita/1118/2009 Of The Commissioner Of Income Tax v. M/S Assyst International(P)Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY MONDAY, THE 14TH MARCH 2011 / 23RD PHALGUNA 1932 ITA.No. 1118 of 2009() ---------------------- ITA.551/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): --------------- M/S.ASSYST INTERNATIONAL (P) LTD., ALUVA. ADV. SRI.DALE P.KURIEN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14/03/2011, ALONG WITH ITA NO. 1469 OF 2009 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR, &BHABANI PRASAD RAY, JJ. -------------------------------------------- I. T. A. Nos. 1118 & 1469 of 2009 -------------------------------------------- Dated this the 14th day of March, 2011 JUDGMENT Ramachandran Nair, J. Heard standing counsel appearing for the appellant and advocateSri. Dale P Kurian appearing for the respondent. The question raised iswhether the Tribunal was justified in confirming the order of the CIT(Appeals) declaring eligibility for exemption to the respondent underSection 10A of the I.T. Act. 2. Appeals relate to assessment years 2001-02 and 2002-03.Admittedly respondent was engaged in development and export ofcomputer software which entitles for 10 year tax holiday under Section10A as well as under Section 80HHE of the I.T. Act. The assessee-company was formed with two shareholders on 25.11.1999. However,in August, 2000 the company was taken over by an American companythrough purchase of shares. In the assessment for the year 2001-02 theassessing officer declined the benefit because of the transfer of theundertaking by the original promoters of the respondent-company to an American company. In the first round when the assessment was setaside and the matter was remanded, the Tribunal directed the assessingofficer to consider alternatively the assessee's claim for exemptionunder Section 80HHE of the Act. After remand, the assessing officerdeclined the benefit under Section 10A for violation of Section 10A(9)and assessee's claim under Section 80HHE was not considered for thereason that the claim was not supported by audit report and othercertificates were not furnished in time along with returns. 3. In the second round of appeal, the first appellate authority aswell as the Tribunal held that the assessee started business in theprevious year relevant for the assessment year 2001-02 and in theprevious year itself, the assessee's shares were transferred to theAmerican company and in fact it is as subsidiary of the Americancompany, the assessee carried on business in development and exportof computer software. Therefore since the company was set up only inthe previous year relevant for the assessment year 2001-02, and in thevery same year, the share transfer took place, the Tribunal held thatthere was no violation of Section 10A(9). So far as the denial of exemption alternatively claimed by the assessee under Section 80HHEis concerned, the Tribunal adversely commented upon the action of theofficer in declining the benefit for non-production of documents andaudit report because according to the Tribunal the remand was for thepurpose of furnishing documents, though furnished with delay. It isagainst these orders of the Tribunal, revenue has filed these appeals. 4. After hearing both sides we notice that admittedly therespondent was engaged in development and export of computersoftware. The only reason for denial of exemption under Section 10Ais the acquisition of majority shares by the American company ofwhich respondent was a subsidiary company. Section 10A(9) itselfwas deleted by the Finance Act, 2003 with effect from 1.4.2003 makingit clear that on taking over of a company by a foreign company, exportexemption on computer software should not be disallowed. The whole 4. After hearing both sides we notice that admittedly therespondent was engaged in development and export of computersoftware. The only reason for denial of exemption under Section 10Ais the acquisition of majority shares by the American company ofwhich respondent was a subsidiary company. Section 10A(9) itselfwas deleted by the Finance Act, 2003 with effect from 1.4.2003 makingit clear that on taking over of a company by a foreign company, exportexemption on computer software should not be disallowed. The whole purpose of Sections 10A and 80HHE is to promote softwaredevelopment business in India. The Tribunal has decided the issue infavour of the respondent by holding that the company itself was set upin the previous year relevant for the assessment year 2001-02 and therefore there can be no transfer of the assessee to foreign companybecause the respondent company was really a subsidiary company inIndia of the American company from the very beginning of relevantassessment year. We find force in the finding of the Tribunal that thedenial of assessee's claim of exemption on the profit earned from theexport of computer software under Section 80HHE on technicalities asuntenable. In the circumstances, and in view of the finding on fact by theTribunal based on which they held in favour of the assessee, we do notfind any substantial question of law arising from the order of theTribunal. Consequently appeals by the revenue are dismissed. (C.N.RAMACHANDRAN NAIR)Judge.Judge. (BHABANI PRASAD RAY) Judge.