Ita/368/2010 Of The Commissioner Of Income-Tax v. M/S L.g Soft India Pvt Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU| ON THE 14 DAY OF NOVEMBER, 2018 BEFORE THE HON’BLE MR. JUSTICE RAVI MALIMATH| AND| THE HON’BLE MR. JUSTICE K.NATARAJAN INCOME TAX APPEAL No.368 OF 2010 C/W INCOME TAX APPEAL No.36/7 OF 201 INCOME TAX APPEAL No.368 of 2010 BETWEEN: 1THE COMMISSIONER OF INCOME TAX C.R.BUILDING QUEENS ROAD BENGALURU 2.|THE DY. COMMISSIONER OF. INCOME TAX CIRCLE —- 11(5) C.R.BUILDING, QUEENS ROAD| BENGALURU .., APPELLANTS (BY SRI: K.V.ARAVIND, ADVOCATE) AND M/S.L.G.SOFT INDIA PRIVATE LIMITEDCHERRY HILLS EMBASSY GOLF LINKSBUSINESS PARK BENGALURU- 560 O/1 .. RESPONDENT. (BY SRI: T.SURYANARAYANA, ADVOCATE) THISINCOME|TAX.APPEAL|ISFILED|UNDERSECTION 260-A OF INCOME TAX ACT, 1961 ARISING OUT|OFORDERDATED19.05.2010|PASSEDIN|LIA.NO.623/Bang/2010, FOR THE ASSESSMENT YEAR 2004-2005, PRAYING TO I)FORMULATE THE SUBSTANTIAL|QUESTIONS OF LAW STATED THEREIN, II)ALLOW THE|APPEAL AND SET ASIDE THE ORDERS PASSED BY THE|ITAT, BENGALURU IN ITA NO.623/Bang/2010 DATED!19.05.7010 CONFIRMING THE ORDER OF THE APPELLATE|COMMISSIONER AND CONFIRM THE ORDER PASSED BYTHE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 11(5), BENGALURU, IN THE INTEREST OF JUSTICE AND|EFQUITY. INCOME TAX APPEAL No.36/7/201 BETWEEN: 1THE COMMISSIONER OF INCOME TAX C.R.BUILDING, QUEENS ROAD|BENGALURUBENGALURU 2 |THE ASST. COMMISSIONER OF INCOME TAXCIRCLE —- 11(5)CIRCLE —- 11(5) C.R.BUILDING, QUEENS ROAD|BENGALURU ... APPELLANTS (BY SRI: K.V.ARAVIND, ADVOCATE) AND M/S.L.G.SOFT INDIA PRIVATE LIMITEDCHERRY HILLSEMBASSY GOLF LINKSBUSINESS PARK BENGALURU - 560 O/1 .. RESPONDENT| (BY SRI: T,.SURYANARAYANA, ADVOCATE THISINCOME|TAX.APPEAL|ISFILED|UNDERSECTION 260-A OF INCOME TAX ACT, 1961 ARISING OUT|OFORDERDATED19.05.2010|PASSEDIN|TTA.NO.847/Bang/2010, FOR THE ASSESSMENT YEAR 2005-2006, PRAYING TO I)FORMULATE THE SUBSTANTIAL|QUESTIONS OF LAW STATED THEREIN, II)ALLOW THE|APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT,BENGALURU IN ITA NO.847/Bang/2010 DATED 19.05.2010.CONFIRMINGTHEORDER|OF|THEAPPELLATECOMMISSIONER AND CONFIRM THE ORDER PASSED BYTHE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 11(5), BENGALURU, IN THE INTEREST OF JUSTICE AND|EQUITY. OK OOK THESE INCOME TAX APPEALS COMING ON FOR]HEARING THIS DAY, RAVI MALIMATH. J., DELIVERED THE.FOLLOWING: JUDGMENT The assessee is engaged in the business of software|development. It filed a return of income for theassessmentYCdT|2004-05.declaringal?incomeOT Rs./77,29,220/-. Exemption was claimed under Section10A of the Income Tax Act (hereinafter referred to as ‘the|Act’ for brevity). The Assessing Officer held that the.assessee could not claim exemption under Section 10A otfthe Act due to violation of the conditions stipulated in/Section LOA(2)(ii) & (iil) of the Act; that the assessee Nas|split-up andreconstructed the business already inexistence; that the new business has been formed out of|tne plant and machinery previously used for tne purpose|and hence a sum of Rs.8,10,85,595/- was added back by|disallowing the claim. On appeal, the order of assessment.was set aside and relief under Section 10A of the Act was.granted to the assessee. Aggrieved by the same, the’Revenue preferred an appeal! before the Tribunal. Tnesame was dismissed. Hence, the present appeal in Income|Tax Appeal 368 of 2010. 2. By order dated 25.05.2011 tne appeal wasadmitted to consider the following substantial question of|law [-| “Wnetner the finding of tne Tribunal,confirming the order passed by the appellate|autnority that assessee nas not violated tne)conditions stated in Sec.10A(2)(li) and in view|of organizational change, is perverse and|arbitrary and contrary to law?”| 2. By order dated 25.05.2011 tne appeal wasadmitted to consider the following substantial question of|law [-| “Wnetner the finding of tne Tribunal,confirming the order passed by the appellate|autnority that assessee nas not violated tne)conditions stated in Sec.10A(2)(li) and in view|of organizational change, is perverse and|arbitrary and contrary to law?”| 3 The learned counsel for the Revenue contendstnat tne assessee nas violated tne conditions as stated in|Section LOA (2)(il) of the Act with the organizational|change in the company. Under the circumstances, grant of |relief under Section 10A of the Act to the assessee js/erroneous and tnat the findings recorded by tne Appellate|Autnority as well as the Tridunal are erroneous. Hence, nepleads that the question of law be answered in favour of the Revenue and against the assessee. 4. The same is disputed by the assessee. Tnelearned counsel on behalf of the assessee contends that|the Unit has been running since the last eight years and|exemption was consistently granted for eight years. It isonly for this year, the same Nas been disallowed py the|Assessing Officer. Even in terms of Section 10A of the Act)SUCN a claim cannot be daisallowed in the [94]year of|functioning of the Unit. Tnat the proviso could be appliedOnly at the inception stage. He placed reliance on the|judgment of the Hign Court of Delhi reported in (2014)|366 ITR 523 (Delni) wherein a similar question wasanswered in favour of the Assessee and against the.Revenue. 5. Heard learned counsels. Admittedly the Unit has)been functioning ever since the year 1996-97. This is the8[94]year of operation of the assessee. It is only tnis yeartnere has been a disallowance by the Assessing Officer|under Section 10A of the Act. The High Court of Delhi in-the aforesaid judgment held as follows :-| “We nave already noted the _ factuaposition. It is an accepted and admitted fact|that the undertaking was formed or created by HICS and there is no allegation or finding by|the Assessing Officer that on tne adate offormation of the undertaking, there was|violation of clause (Ii) and (til) of section 10B|(2). The undertaking, when it was formed,|satisfied and duly fulfilled the requirements of the said clauses, as it was not formed by|splitting up or reconstruction of a business|already in existence. It was a new undertakingand tnere is no factual finding that at the timeOrestablishmentOrformetion.oftheundertaking, Dusiness already in existence wassplitted or reconstructed. It is accepted that|the plant and machinery procured at tne time|of formation was new. The next question, which arises’ forconsideration, is wnether there is any Dar or|pronibition in section 10B on transfer or sale ofthe undertaking by tne assessee, who has|formed or establishedqd the same, to anotheassessee and whether the purcnaser/acquirer-accessee can be denied the benefit under section JOB of the Act. Before we answer this—guestion, one Clarification is required. Sub-|section (1) of section 10B stipulates tne tax|noliday period as 10 years, wnicn should be|continuous/consecutive and begins from tne|assessment year reievant to the previous year|In)whichthe undertakingDeGINSto|manufacture or produce articles, things or|computer software. Thus, the period of 10|years is with reference to the undertaking and|transfer or change of undertaking will not alter|or increase the tax holiday period of 10 years.The same Is fixed with reference to the date on.which the production or manufacture begins. ” Therefore, a distinction as sought to be made thereinis that in terms of Sub-section (1) of Section 10B of the|Act, the tax holiday period snould be continuous and|consecutive; that the period of ten years is referable to tneundertaking and therefore, the transfer or change of the|undertaking will not aiter or increase the tax holiday periodof ten years. Therefore, the contention of the Revenue|that if there is change of undertaking, tax holiday would) Therefore, a distinction as sought to be made thereinis that in terms of Sub-section (1) of Section 10B of the|Act, the tax holiday period snould be continuous and|consecutive; that the period of ten years is referable to tneundertaking and therefore, the transfer or change of the|undertaking will not aiter or increase the tax holiday periodof ten years. Therefore, the contention of the Revenue|that if there is change of undertaking, tax holiday would) stand restricted may not be correct. In so doing, the!earlier orders of the High Court of Madras in the case of)Heartland KG Information Ltd. Reported in (2013) 359 ITR1 (Mad)andSonata Software Ltd. (2012) 343 ITR 397(Bom)were affirmed. Keeping in mind the threejudgments, the substantial question of law requires to be.answered in favour of the assessee and against the)Revenue, | The appeal is disposed off accordingly. INCOME TAX APPEAL 367 of ZOLO The assessee herein is tne very assessee as inIncome Tax Appeal 368 of 2010. 2. ITA 368 of 2ZOLO was filed for the assessmentyear 2004-05. The present appeal- ITA 36/7 of 2010 is for|the assessment year 2005-06. In view of answering the.substantial question of law in ITA 368 of 2010, the)following order is passed : Income Tax Appeal No.367 of 2010 is disposed off byanswering the substantial question of law in favour of the|assessee and against the Revenue by following the)judgment of this Court in Income Tax Appeal No.368 of 2ZOLO. SD/-| SD/-SD/-|JUDGE JUDGErs|