Ita/403/2008 Of The Commissioner Of Income Tax v. M/S Caritor (India) Pvt Ltd

IN THB HIGH COURT OF KARNATAKA AT BANGALOREDATED THIS THE 20[th]DAY OF JUNE 2014 PRESENT THR HON BLE MR. JUSTICE N. KUMAR. AND THR HON’BLE MR. JUSTICK B MANOHAR. ITA No.403 OF 2008 $%ITA.No.402 /200 IN ITA.No.403 /2008 BETWEEN; 1.The Commissioner of Income-Tax,C.R.Building, Queens Road,Bangalore.2.tThe Income Tax Officer,Ward-11(1),C.R. Building,Queens Road,Bangalore._ APPKRLLANTS(By Sri.K.V. Aravind, Advocate) AND: M/s.Caritor(India) Pvt. Ltd.,No.17 &17/1,3[,4]Floor, |south End Road,BasavanagudiBangalore-560 O04.. RESPONDENT (By Sri.Chythanya.kK.K., Advocate) This ITA is filed under Section 260-A of I.T. Act,|1961 arising out of Order dated 8.11.2007 passed inITA.No.395/BNG/2005, for the Assessment Year 2001-O2 praying to formulate the substantial questions of lawstated therein and to allow the appeal and set aside theorderpassedbytheITAT,Bangalore|1n ITANo.395/BNG/20009datedO8.11.2007|contirmtheorders of the Appellate Commissioner and AssistantCommissioner of Income Tax Officer, Ward-11(1),Bangalore. IN ITA.No.402/2008: BETWEEN; 1.The Commissioner of Income-Tax,C.R.Building, Queens Road,Bangalore.2.The Assistant Commissioner of Income-Tax,Circle-11(4), C.R. Building,Queens Road,Bangalore._ APPKRLLANTS(By Sri.K.V. Aravind, Advocate) AND: M/s.Caritor(India) Pvt. Ltd.,No.17 &17/1,3[,4]Floor, |south End Road,BasavanagudiBangalore-560 O04RBSPONDENT (By Sri.Chythanya.kK.K., Advocate) -0-0-0-0-O0-This ITA is filed under Section 260-A of I.T. Act,|1961 arising out of Order dated 8.10.2007 passed inITA.No.970/BNG/2006, for the Assessment Year 2003- O4 praying to formulate the substantial questions of lawstated therein and to allow the appeal and set aside theorderpassedbytheITAT,Bangalore|1n ITANo.970/BNG/2006,datedO8.11.2007|contirmtheorders of the Appellate Commissioner and Assistant.Commissioner of Income Tax Officer, Cuircle-11(4),Bangalore. These appeals coming on for hearing this day,N,KUMAR, J.delivered the following:- JUDGMENT These two appeals are preferred by the revenue.where the common question of law is involved, which is ©held in favour of the assessee by the Tribunal. 2 |The undisputed facts are that the assessee is in the business of computer software development andestablished in a software technology park. The assesseeclaimed deduction under Section 1O(A) amounting toRs.11,98,99,954/-. The said claim was in respect of theunits situated at different places in Bangalore andChennai. During the assessment proceedings, theassessee was asked to file details ot STPIregistration dates, customs approval for _ settingbonded.wearhouse,dateoT|cCommencementot| production etc. The assessee company furnished all theparticulars. The particulars furnished showed the dateof commencement of production and date of initialregistration with the STPI are on the same day. One ofthe primary conditions stipulated in Section 10A is thatthe undertaking should have been newly formed aliterregistration with STP. The relevant provision namelysection 1OA(2)(i1) reads as under:- “(2)This section applies to anyundertakingwhichfulfills allthe|following condition namely:- (ulthasbegunOYbeginsfo manufacture or produce articles or|things or computer software during the|previousyearrelevantfo theassessment year. (aJcommencing on or after the 1[St]day of April, 1981 in any free trade|ZOPrle, O (b)commencing on or after the 1[St]day Apri 1994, in any electronic| hardware technology park, or as the|CAaASbe,softwaretechnologypark.” “(2)This section applies to anyundertakingwhichfulfills allthe|following condition namely:- (ulthasbegunOYbeginsfo manufacture or produce articles or|things or computer software during the|previousyearrelevantfo theassessment year. (aJcommencing on or after the 1[St]day of April, 1981 in any free trade|ZOPrle, O (b)commencing on or after the 1[St]day Apri 1994, in any electronic| hardware technology park, or as the|CAaASbe,softwaretechnologypark.” While granting permission for setting up of the units,the STPI authorities have putsome conditions. |Condition No.5 is the units should be customs bonded.The other condition mentioned in the Annexure to the|permission letter of the STPI Authorities is theproduction of the undertaking under the Scheme shallbe carried out in the customs bounded area. The’location of the undertaking would be subject to theclearance by the concerned Collector of Customs. Fromthat it is clear that the unit registered with the STPIauthorities should commence production only in thecustoms bounded area. The Assessee alter fulfilling theformalities obtainedlicence{OrPrivateBonded.Wearhouse from the Customs Department. This licencefor private bonded wearhouse obviously would be a datealter the permission granted by the STPI authorities toset up the STPI Units. The assessing authority was of the view that the assessee would be entitled to the'benefit under Section 10 only if production commencesin the customs bonded area after such permission. As_the assessee commenced production before that datethe assessee is not entitled to the benefit. Accordingly,the claim for exemption was denied to the assessee. |Agegrieved by the said order, the assessee preferred anappeal to the Commissioner of Income Tax (Appeals)-I,Bangalore, who set aside the order of the assessingauthority and allowed the appeal holding that all thefour|unitsoT theasSsSE€SShave|begun|manutfacture/purchase of computer software during theprevious.yearrelevant.TOtheassessment|Yearcommencing on or aiter 1.4.1994 in a_ softwaretechnology park. All the four STP units are newly —established undertaking|situatedunderdifferentgeographical locations having new plant and machinery. —It is not compulsory for a STP unit to have a priorCustomsapprovalTO COIMmmMmeanysoftwaredevelopment export. The commercial production can be commenced before bonding. Customs bonding isrequired only if the assessee intends to avail dutyconcessions i.e. customs duty/excise duty. For thepurpose of Section 10A what is to be seen is whetherthe conditions stipulated by the EXIM Policy/STPIauthorities have been fulfilled or not in addition to the conditions stipulated in Section under Section 10A. |Once STIPI registration is obtained, the conditionstipulated under Section 1OA are fulfilled. Merelybecause the production was commenced before theactual customs bonding took place the assessee cannotbe denied the benefit of exemption. Aggrieved by thesaid order, the Revenue preferred an appeal to theTribunal. The Tribunal on reappreciation of the entirematerial on record aiter considering the relevantprovisions of law and relying on the decision of theBench in the case of M/s.Intosys Technologies Ltd. Vs.JCIT passed earlier held that after the first sale iseffected, the unit is recognized as STP unit then theassessee is entitled to the benefit of Section 110A eventhough the unit started production before it becamea STP unit and therefore, it dismissed the appeal. It isagainst the said order, the present appeals are filed. These appeals were admitted to consider thefollowing substantial question of law:- a)Whether the appellate authoritiesLUeCrcorrectIn|holdingthatthe|aASsSSCSSLUaAentitledtoclaim.deduction under Section 1OA of the Act,in respect of its units despite the|assessee failing to satisfy the conditions|Stipulated in the STIPI Scheme whichStipulated commencement of units from|a particular date when the assessee’s|unit had already commenced much|before obtaining the license for the|bonded warehouse?” eventhough the unit started production before it becamea STP unit and therefore, it dismissed the appeal. It isagainst the said order, the present appeals are filed. These appeals were admitted to consider thefollowing substantial question of law:- a)Whether the appellate authoritiesLUeCrcorrectIn|holdingthatthe|aASsSSCSSLUaAentitledtoclaim.deduction under Section 1OA of the Act,in respect of its units despite the|assessee failing to satisfy the conditions|Stipulated in the STIPI Scheme whichStipulated commencement of units from|a particular date when the assessee’s|unit had already commenced much|before obtaining the license for the|bonded warehouse?” From the aforesaid facts, it is clear that the assesseecompany has set up its unit in the software technologypark and had applied to the STPI Authorities forapproval. Unit-I was approved on 11.11.1995. Unit II was approved on 9.6.1998; Unit II] was approved on29.6.1998 and Unit IV was approved on 9.8.1999. Theparticulars are clearly set out in Para(2) of theTribunal’s order, which is extracted as hereunder:- The assessee commenced production prior to thecustoms bonding. However, the invoices were raisedalter the customs bonding. The conditions stipulated inthe permission granted by the STPI is the units shall becustoms bonded. The benefit of such customs bondingis that the assessee would be entitled to the benefit ofcustoms duty and excise duty. It has nothing to do with the grant of exemption under Section 10A of the IncomeTax Act. To be eligible for exemption under Section 10A, —the conditions stipulated in Sub-Section(2) (i) of Section10A has to be fulfilled i.e. the assessee has to beginmanufacturing the products on or aiter the first day ofApril 1994 in any Electronic Hardware Technology Park.In order to start the unit in software technology park,the permission is required. Once permission is obtainedand the unit is started in software technology park,after the aforesaid date, the assessee is entitled to thebenefit under Section 10A of the Act. Customs bondingis not a requirement or a condition precedent foreranting exemption under Section 10A. As is clear fromthe facts set out above, both the Appellate Authoritieswere justified in granting relief to the assessee.—Therefore, we do not see any merit in this appeal. Thesubstantial question of law is answered in favour of theassessee and against the revenue. �## ,4)+53:1���'*'�/BB'/3*�/,'�4)*()**'4���������������������������������������������������J/3C$.��