ACIT, CHENNAI V. Vishwak Solutions Private Limited, CHENNAI

ITA 1634/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86269 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income; Double taxation relief; Permanent establishment; Reasonable cause; Condonation of delay
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. ASSESS- MENT YEAR APPELLANT RESPONDENT 1935 & 1936/MDS/2010 2004-05 & 2005-06 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(4) CHENNAI-34. M/S.VISHWAK SOLUTIONS PVT.LTD., 169, HABIBULLAH ROAD, T.NAGAR, CHENNAI-600 017. PAN:AABCV2675A CO.NO.187/MDS /2013 (IN ITA NO.1935/MDS/2010 ) 2004-05 M/S.VISHWAK SOLUTIONS PVT.LTD., MODULE 106, NSIC- STP, GUINDY INDUSTRIAL ESTATE, EKKADUTHANGAL, CHENNAI-600 032. PAN:AABCV2675A ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(4) CHENNAI-34. 67 & 1634/MDS/2014 2003-04 & 2006-07 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(4) CHENNAI-34. M/S.VISHWAK SOLUTIONS PVT.LTD., 19, POSTAL COLONY 1 ST STREET, WEST MAMBALAM, CHENNAI-600 033. PAN:AABCV2675A REVENUE BY : MR. P.RADHAKRISHNAN, JCIT ASSESSEE BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /DATE OF HEARING : 18 TH DECEMBER, 2014 /DATE OF PRONOUNCEMENT : 30 TH JANUARY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: ALL THESE FOUR APPEALS ARE FILED BY THE REVENUE AG AINST SEPARATE ORDERS OF COMMISSIONER OF INCOME TAX (APPE ALS)-III CHENNAI FOR THE ASSESSMENT YEARS 2003-04 TO 2006-0 7. 2 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 CROSS OBJECTION IS FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05. 2. THE CROSS OBJECTION FILED BY THE ASSESSEE IS BA RRED BY 1101 DAYS. THE ASSESSEE FILED AN AFFIDAVIT EXPLAIN ING REASONS FOR DELAY IN FILING OF CROSS OBJECTION AND PRAYS FOR CONDONATION OF DELAY STATING AS UNDER:- I STATE THAT THE DEPARTMENTAL GROUNDS OF APPEAL F OR THE ABOVE ASSESSMENT YEAR WAS RECEIVED BY US ON 23.11.1 0 AND THE CROSS OBJECTION OUGHT TO HAVE BEEN FILED WI THIN 30 DAYS FROM THE DATE OF RECEIPT OF ORDER I.E. ON OR B EFORE 3.12.2010. HOWEVER, THE CROSS OBJECTION IS BEING F ILED ON 9.12.2013 RESULTING IN A DELAY OF 1101 DAYS. I STATE THAT THE DELAY IS NEITHER WILLFUL NOR DELIB ERATE BUT TO UNAVOIDABLE CIRCUMSTANCES. I STATE THAT THIS GROUNDS OF OBJECTION RAISED ON ACCOUNT OF ADDITIONAL GROUNDS OF APPEAL FILED BY DEPARTMENT ON 11.3.2013. THE DELHI HIGH COURT HAD REVIEWED THEIR DECISION AND THE ASSESSEE BECAME AWA RE OF THE SAME ONLY IN 2 ND WEEK OF AUGUST, 2013. THE ASSESSEE APPROACHED THEIR ADVOCATES AND IT WAS DECIDED TO FILE CROSS OBJECTION TO ADDITIONAL GROUN D RAISED BY DEPARTMENT. THE DELAY IN FILING CROSS OBJECTION FROM THE DATE OF FILING OF ORIGINAL GROUNDS OF APPEAL BY THE DEPARTMENT IS ONLY BECAUSE OF THE DEPARTMENT HAS FI LED ADDITION GROUNDS ON 11.3.2013 AND THE ASSESSEE WAS AWARE OF THE REVIEW OF DELHI HIGH COURT DECISION ON LY IN 2 ND WEEK OF AUGUST, 2013. IT IS PRAYED THAT IN THE INTEREST OF JUSTICE, THE D ELAY IN FILING CROSS OBJECTION MAY BE CONDONED AND GROUN DS OF CROSS OBJECTION MAY BE ADMITTED FOR CONSIDERATION I N ACCORDANCE WITH LAW. 3 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 3. WE HAVE PERUSED THE REASONS AND ARE SATISFIED THAT THERE IS A REASONABLE CAUSE FOR THE DELAY IN FILING OF THE CROSS OBJECTION. IN THE INTEREST OF JUSTICE, WECONDONE TH E DELAY OF 1101 DAYS IN FILING OF THE CROSS OBJECTION. THE PET ITION FOR CONDONATION OF DELAY IS THUS, ALLOWED AND THE CROSS OBJECTION IS ADMITTED. 4. THE COMMON ISSUE IN ALL THESE APPEALS OF THE REV ENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING INTERNET CHARGES DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. BRIEF FACTS ARE THAT ASSESSEE IN ALL THES E ASSESSMENT YEARS PAID DATA STORAGE SPACE CHARGES TO INETU, A N ON- RESIDENT. THE ASSESSING OFFICER WHILE COMPLETING T HE ASSESSMENT WAS OF THE VIEW THAT SINCE THE ASSESSEE PAID DATA STORAGE SPACE CHARGES (INTERNET CHARGES) TO A NON- RESIDENT THE ASSESSEE IS REQUIRED TO DEDUCT TDS AND SINCE THE ASSESSEE DID NOT DEDUCT TDS, THE SAID AMOUNT IS NOT ALLOWABLE AS DEDUCTION UNDER SECTION 40(A)(I) OF TH E ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT ANY INTEREST , ROYALTY OR FEES FOR TECHNICAL SERVICES PAYABLE TO A NON-RESI DENT OUTSIDE INDIA IS LIABLE FOR DEDUCTION OF TDS AND IN THE ABS ENCE OF THE 4 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 ASSESSEE MAKING TDS, THE SAME IS NOT ALLOWABLE UNDE R SECTION 40(A)(I) OF THE ACT. ON APPEAL, THE COMMISS IONER OF INCOME TAX (APPEALS) ON CONSIDERING THE NATURE OF T HE PAYMENT AND RELEVANT CASE LAWS ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT THE SAID PAYMENTS ARE NOT TA XABLE IN INDIA AS PER DTAA BETWEEN USA AND INDIA AND THEREFO RE THEY ARE NOT LIABLE FOR TDS. THE REVENUE IS IN APPE AL BEFORE US. 5. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTS TH E ORDERS OF THE ASSESSING OFFICER AND SUBMITS THAT PA YMENTS MADE BY THE ASSESSEE TOWARDS INTERNET CHARGES ARE F ALL UNDER FEES FOR TECHNICAL SERVICES, THEREFORE ASSESSEE SHO ULD HAVE DEDUCTED TDS. 6. COUNSEL FOR THE ASSESSEE SUBMITS THAT ALL THESE PAYMENTS WERE MADE BY THE ASSESSEE TO A NON-RESIDEN T IN US NAMELY INETU FOR STORAGE OF DATA OF THE ASSESSEE . HE SUBMITS THAT CHARGES ARE AS PER VOLUME OF DATA STOR ED ON THEM. HE SUBMITS THAT CHARGES PAID TO THEM ARE NOT FOR THE PAYMENT OF OR RIGHT TO USE ANY INDUSTRIAL, COMMERCI AL OR 5 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 SCIENTIFIC EQUIPMENT AND HENCE PAYMENT IS NOT ROYA LTY UNDER ARTICLE 12 OF INDO-USA DTAA. COUNSEL SUBMITS THAT I T IS A SERVICE RENDERED BY THE NON-RESIDENT PROMOTING CONN ECTIVITY TO THE ASSESSEE FOR HOSTING OF WEBSITE AND NOT FOR USAGE OF ANY MACHINES. IT IS ONLY FOR THE USE OF SERVER OUTS IDE INDIA AND IS NOT TAXABLE IN INDIA AND HENCE TAX NEED NOT BE DEDUCTED AT SOURCE. THEREFORE THESE AMOUNTS CANNOT BE DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. HE F URTHER SUBMITS THAT MANAGEMENT OF SERVER INSTALLED IN USA WOULD CONSTITUTE PERMANENT ESTABLISHMENT OF THE ASSESSEE IN USA AND BOTH PROFIT AND EXPENDITURE INCURRED IN USA SHO ULD NOT BE BROUGHT TO TAX IN INDIA. HE ALSO SUBMITS THAT TH E NON- RESIDENT, INETU IS SITUATED IN USA AND THEY HAVE N O PERMANENT ESTABLISHMENT IN INDIA AND HENCE ARE NOT SUBJECT TO INCOME-TAX IN INDIA. COUNSEL SUBMITS THAT HOSTIN G CHARGES IS NOT ROYALTY. HE PLACES RELIANCE ON THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS. PEOPL E INTERACTIVE (I) P.LTD. IN ITA NOS. 2179 TO 2182/MUM /2009 DATED 29.02.2012. HE ALSO SUBMITS THAT THESE PAYME NTS DO NOT FALL UNDER FEES FOR TECHNICAL SERVICES. HE SUBM ITS THAT NON- RESIDENT DOES NOT MAKE AVAILABLE ANY TECHNICAL KNOW LEDGE 6 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 AND HENCE CANNOT BE TERMED AS FEES FOR TECHNICAL SE RVICES. HE PLACES RELIANCE ON THE FOLLOWING DECISIONS IN SU PPORT OF HIS CONTENTIONS:- I)CIT VS. DE BEERS MINERALS INDIA P.LTD. (346 ITR 4 67)(KER) II) DIT VS. GUY CARPENTAR (346 ITR 504) (DEL) 7. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THIS ISSUE HAS BEEN CO NSIDERED BY THE COMMISSIONER OF INCOME TAX (APPEALS) WITH RE FERENCE TO THE SUBMISSIONS, CASE LAW AND DTAA BETWEEN USA A ND INDIA AND HELD THAT THESE PAYMENTS ARE NOT TAXABLE IN INDIA OBSERVING AS UNDER:- 5.1 THE APPELLANT HAD ALSO PAID CHARGES TO A NON RESIDENT, AS UNDER, WHICH HAD BEEN DISALLOWED ON TH E GROUND THAT TAX HAS NOT BEEN DEDUCTED. S.NO. PARTY STATUS PURPOSE AMT. ` 1. INETU NON-RESIDENT WITH NO PERMANENT ESTABLISHMENT IN INDIA DATA STORAGE SPACE CHARGES ` 42,34,578/- 5.2 THE ID. AR SUBMITTED THAT IT ONLY USES THE STOR AGE SPACE PROVIDED BY INETU IN THE MACHINES OWNED BY INETU SITUATED OUTSIDE INDIA. IT WAS SUBMITTED THAT THE APPELLANT HAD NO RIGHT OVER THE EQUIPMENT IN WHICH DATA WAS STORED. THE CHARGES ARE THEREFORE PAID ONLY FOR STORAGE AND RETRIEVAL OF DATA. THE CHARGES ARE BASE D ON THE VOLUME OF DATA STORED IN THE MACHINES. IT WAS A LSO SUBMITTED THAT THE PAYMENT TO THEM DOES NOT PARTAKE THE CHARACTER OF ROYALTY UNDER ARTICLE 12 OF OTAA WITH USA, SINCE IT IS NOT PAID FOR ANY USE OR RIGHT TO USE OF ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPME NT. IT WAS SUBMITTED THAT THE PAYMENT CONSTITUTED ONLY 7 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 BUSINESS INCOME IN THE HANDS OF THE RECIPIENTS AND SINCE THEY DO NOT HAVE A PERMANENT ESTABLISHMENT PE) IN INDIA AND HENCE IT IS NOT TAXABLE. IT WAS ALSO SUBM ITTED THAT THE INCOME IS EARNED BY THE FOREIGN COMPANY FR OM A SOURCE OUTSIDE INDIA AND HENCE WAS NOT TAXABLE U/S 9(L)(VI)(B) AND (1)(VII)(B). THEY HAVE ALSO RELIED ON ARTICLE 26(3) RELATING TO NON DISCRIMINATION CLAUSE . IT WAS ALSO SUBMITTED THAT EVEN IF THE PAYMENT IS TREA TED AS ROYALTY, THE PROVISIONS OF SECTION 40(A)(I) ARE NOT ATTRACTED FOR THIS ASSESSMENT YEAR. RELIANCE WAS PL ACED ON VARIOUS JUDICIAL DECISIONS: MILLENIUMINFOCOM TECHNOLOGIES LTD V. ACIT 117 ITO 114 (DEL) DELL INTERNATIONAL SERVICES INDIA P LTD 305 ITR 37 (AAR) CIT V. ESTEL COMMUNICATION 310 ITR 2 (ST) - SLP DISMISSED LUFTHANSA CARGO INDIA PVT. LTD 91 ITO 133 (DEL) CIT V. KKK WEST GERMANY 263 ITR 513 (MAD) CIT V. INDIA PISTONS LTD 282 ITR 632 (MAD) CIT V. VIJAY SHIP BREAKING 314 ITR 309 (SC) 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ID. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE AO AND AR. AS POINTED OU T BY THE ID. AR, THE AMOUNT PAID TO THE NON-RESIDENT IS TOWARDS HIRING OF STORAGE SPACE. THE PAYMENT HAS BE EN MADE TO A PERSON WHOSE BUSINESS IS TO MAKE AVAILABL E STORAGE SPACE TO VARIOUS PARTIES. THEREFORE.THE PAY MENTS MADE TO THE NON-RESIDENT ONLY CONSTITUTES ITS BUSIN ESS INCOME. THE BUSINESS INCOME EARNED BY A NON RESIDEN T WHO DOES NOT HAVE A PERMANENT ESTABLISHMENT (PE) IN INDIA CANNOT BE TAXED IN INDIA AS PER DTAA BETWEEN USA AND INDIA. I ALSO FIND MERIT IN THE ALTERNATE G ROUND RAISED BY THE APPELLANT IN RESPECT OF THE NON- DISCRIMINATION CLAUSE UNDER THE DTAA BETWEEN INDIA AND USA. THE ARTICLE 26(3) OF THE DTAA IS CLEARLY AGAINST ANY DISCRIMINATION AGAINST THE NON-RESIDENT , WHEREBY ANY PAYMENT TO THE NON-RESIDENT IS NOT ALLO WED AS A DEDUCTION IN COMPUTING THE INCOME OF THE RESID ENT PAYER. THE DECISIONS OF THE DELHI BENCH OF THE ITAT IN HERBALIFE INTERNATIONAL (SUPRA) AND MILLENIUMINFOCO M (SUPRA) ALSO SUPPORT THE APPELLANT'S CASE. SINCE, S IMILAR PAYMENTS (RENT, ROYALTY ETC.) WITHOUT DEDUCTION OF TAX TO RESIDENTS WOULD NOT INVITE DISALLOWANCE U/S 40(A)(I A) IN THE AY 2004-05, WHICH IS THE SUBJECT ASSESSMENT YEA R BEFORE ME, I AGREE THAT THE DISALLOWANCE IN THE PRE SENT CASE U/S 40(A)(I) OF THE PAYMENTS TO THE NON-RESIDE NTS 8 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 WOULD AMOUNT TO DISCRIMINATION AGAINST THE NON- RESIDENT, WHICH IS NOT PERMITTED . HENCE, FOR THIS REASON AS WELL, IT IS HELD THAT THERE COULD NOT BE ANY DISALLOWANCE U/S 40(A)(I) OF THE PAYMENTS MADE BY T HE APPELLANT. ACCORDINGLY I AM OF THE OPINION THAT THE APPELLANT IS NOT REQUIRED TO DEDUCT TAX ON THE PAYM ENT MADE. THE DISALLOWANCE MADE BY THE AO IS DELETED AN D THIS GROUND OF APPEAL IS ALLOWED. 8. ON GOING THROUGH THE ABOVE ORDER, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT . THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS ) HAVE NOT BEEN REBUTTED WITH ANY EVIDENCE BY THE REVENUE. WE HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER AND FIN D THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING AS TO HOW DATA STORAGE CHARGES PAID BY THE ASSESSEE ARE FALLI NG EITHER UNDER ROYALTY OR FEES FOR TECHNICAL SERVICES SO AS TO DEDUCT TDS ON SUCH PAYMENTS MADE TO NON-RESIDENT OUTSIDE I NDIA. IN THE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E DISALLOWANCE AND REJECT THE GROUNDS RAISED IN ALL T HE APPEALS OF THE REVENUE ON THIS ISSUE. 9 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 9. THE SECOND ISSUE IN THE APPEAL OF THE REVENUE FO R THE ASSESSMENT YEAR 2004-05 IS THAT COMMISSIONER OF INC OME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFI CER TO GRANT RELIEF UNDER SECTION 10B OF THE ACT. REVENUE HAS FI LED ADDITIONAL GROUND ON 12.3.2013 STATING THAT COMMISS IONER OF INCOME TAX (APPEALS) ERRED IN GRANTING DEDUCTION UN DER SECTION 10B TO THE ASSESSEE WHEN IT IS NOT A HUNDRE D PERCENT INDUSTRIAL UNDERTAKING AS PER EXPLANATION 2(IV) TO SECTION 10B IN VIEW OF THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. REGENCY CREATIONS LTD. REPORTED IN 79 DTR 2 4. ADDITIONAL GROUND FILED BY THE REVENUE WAS ADMITTED BY THE BENCH ON 12.03.2013. 10. BRIEF FACTS ARE THAT ASSESSEE CLAIMED EXEMPTION UNDER SECTION 10B OF THE ACT DURING THIS ASSESSMENT YEAR . WHILE COMPLETING THE ASSESSMENT ASSESSING OFFICER DENIED EXEMPTION UNDER SECTION 10B OF THE ACT ON THE GROUN D THAT ASSESSEE PRINCIPALLY HAD DOMESTIC BUSINESS IN ITS D TI UNIT. STPI UNIT DOES NOT HAVE ANY NEW COMPUTER SYSTEM AND OTHER NECESSARY EQUIPMENTSFOR THE PURPOSE OF CARRYING ON SOFTWARE DEVELOPMENT. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE 10 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 ASSESSEE USED COMPUTERS RELATING TO ITS DTI UNIT S ITUATED IN THE BUILDING AT SARANGAPANI STREET, T.NAGAR, CHENN AI. THE ASSESSING OFFICER WAS OF THE VIEW THAT ADDITIONS O F NEW COMPUTER SYSTEM AND REGULAR EMPLOYEES WERE RECRUITE D FOR THE STPI UNIT AFTER STPI UNIT WAS SHIFTED TO A NEW BUILDING LOCATED AT HABIBULLAH ROAD, T.NAGAR, CHENNAI. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS USED COMPUTERS BELONGING TO ITS DTI UNIT FOR DEVELOPMENT OF SOFTWARE, THEREFORE NOT ELIGIBLE FOR EXEMPTION UNDE R SECTION 10B OF THE ACT. HE WAS OF THE VIEW THAT ASSESSEE HA S NOT HIRED BUILDING WHERE STPI IS SAID TO HAVE BEEN SITU ATED AND THEREFORE DENIED EXEMPTION UNDER SECTION 10B OF THE ACT. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) ALLOWE D EXEMPTION CLAIMED BY THE ASSESSEE OBSERVING THAT AS SESSEE HAD PURCHASED NEW COMPUTERS FOR STPI UNIT WHICH IS LOCATED AT 2 ND FLOOR OF NO.2, SARANGAPANI STREET AND THE ENTIRE F LOOR IS ONLY STPI UNIT. COMMISSIONER OF INCOME TAX (APPEALS ) HELD THAT DTI UNIT WAS FUNCTIONING ONLY FROM THE FIRST FLOOR. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT NEW COMPUTERS WERE DELIVERED IN THE SECOND FLOOR FOR S TPI UNIT. THE ASSESSEE PAID RENT BY WAY OF DEBIT NOTE TO THE OTHER UNIT 11 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 SINCE LEASE BETWEEN ONE DIVISION AND ANOTHER OF THE SAME ASSESSEE, THEREFORE THERE IS NO NECESSITY FOR PAYI NG AMOUNT BY CHEQUE . THE COMMISSIONER OF INCOME TAX (APPEALS ) WAS OF THE VIEW THAT STPI GRANTED APPROVAL TO OPERATE 1 00% EXPORT ORIENTED UNDERTAKING FROM NO.2, 2 ND FLOOR, SARANGAPANI STREET, T.NAGAR, CHENNAI BY ISSUE OF GR EEN CARD. STPI HAS RECEIVED NEW ORDERS WHEN THEY HAVE BEEN EXECUTED AND ASSESSEE RECEIVED EXPORT PROCEEDS. THU S COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED EXEMPT ION CLAIMED BY THE ASSESSEE. 11. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT STPI U NIT DOES NOT HAVE NEW COMPUTER SYSTEM AND OTHER EQUIPMENTSFOR CARRYING ON THE WORK DURING THE YEAR. HE SUBMITS THAT ASSESSEE ONLY UTILIZED EXISTING FACILI TIES OF THE DTI UNIT. HE ALSO SUBMITS THAT EMPLOYEES ALSO BEL ONGED TO THE DTI UNIT AND STPI UNIT HIRED SUCH MANPOWER TEM PORARILY. STPI UNIT DID NOT RECRUIT ANY EMPLOYEES IN ITS BUSI NESS DURING THE YEAR. HE FURTHER SUBMITS THAT EVIDENCE FILED BY THE ASSESSEE ONLY SHOWS THAT PURCHASE OF COMPUTERS BY THE DTI UNIT AND NOT BY THE STPI UNIT. DEPARTMENTAL REPRESE NTATIVE 12 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 FURTHER SUBMITS THAT APPLICATION FOR STPI REGISTRAT ION AVAILABLE IN PAGE 5 OF THE ASSESSEES PAPER BOOK SHOWS THAT IT WAS ONLY CONVERSION OF EXISTING UNIT AS STPI UNIT DURI NG THE YEAR. THIS IS A CASE OF SPLITTING OF EXISTING UNIT AND NO T A NEW UNIT ESTABLISHED BY THE ASSESSEE. THEREFORE, HE PLEADS FOR SUSTAINING THE ORDER OF THE ASSESSING OFFICER IN DE NYING EXEMPTION UNDER SECTION 10B OF THE ACT. 12. COMING TO THE ADDITIONAL GROUNDS DEPARTMENTAL REPRESENTATIVE SUBMITS THAT ASSESSEE IS NOT ELIGIB LE FOR DEDUCTION UNDER SECTION 10B IN VIEW OF EXPLANATION 2(IV) TO SECTION 10B OF THE ACT AS IT IS NOT A 100% EXPORT O RIENTED UNDERTAKING SINCE APPROVAL BY THE BOARD APPOINTED I N THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF PO WERS CONFERRED BY SECTION 14 OF THE INDUSTRIES (DEVELO PMENT & REGULATION) ACT, 1951 IS NOT YET OBTAINED. APPROVA L UNDER STPI ACT WILL NOT MAKE THE ASSESSEE ELIGIBLE FOR DE DUCTION UNDER SECTION 10B OF THE ACT. HE PLACES RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. REGENCY CREATIONS LTD. (79 DTR 24). 13 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 13. COUNSEL FOR THE ASSESSEE PLACES RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND FUR THER REFERRING TO PAGES 1 TO 6 OF THE PAPER BOOK WHICH C ONTAIN APPLICATION FOR GREEN CARD, COPY OF GREEN CARD, SAM PLE INVOICES AND SUBMITS THAT STPI UNIT WAS SITUATED I N 2 ND FLOOR OF SARANGAPANI STREET, T.NAGAR, CHENNAI AND THIS IS AN INDEPENDENT UNIT AND IT IS NOTHING TO DO WITH THE D TI UNIT SITUATED AT FIRST FLOOR. HE SUBMITS THAT STPI PERM ITTED THE ASSESSEE TO CONDUCT ITS BUSINESS FROM THE SECOND FL OOR. HE FURTHER SUBMITS THAT ALL THE COMPUTERS WERE DELIVER ED IN THE ADDRESS GIVEN IN THE SECOND FLOOR WHERE STPI UNIT I S LOCATED AND ALL THESE INVOICES WERE PRODUCED BEFORE THE ASS ESSING OFFICER AS EVIDENCED FROM THE REMAND REPORT ALSO. T HEREFORE HE SUBMITS THAT CLAIM MADE BY THE ASSESSEE UNDER S ECTION 10B IS IN ORDER. THE ASSESSEE ALSO FILED CROSS OBJE CTION CLAIMING THAT IN CASE DEDUCTION UNDER SECTION 10B I S NOT ALLOWABLE, CLAIM FOR RELIEF UNDER SECTION 10A SHOUL D BE CONSIDERED AS THE ASSESSEE SATISFIES ALL THE CONDIT IONS OF SECTION 10A OF THE ACT. THE COUNSEL FOR THE ASSESS EE PLACING RELIANCE ON THE VERY SAME DECISION RELIED ON BY THE REVENUE IN THE CASE OF CIT VS. REGENCY CREATIONS LTD. (353 ITR 326) 14 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 SUBMITS THAT THE HONBLE DELHI HIGH COURT HELD THA T THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 10B IS NOT ALLOWABLE CLAIM FOR RELIEF UNDER SECTION 10A SHOULD BE CONSIDERED. 14. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND MATERIALS ON RECORD AND THE DECISION RELIED ON. EXEMPTION UNDER SECTION 10B IS ALLOWABLE FOR THE UN DERTAKING WHICH ARE 100% EXPORT ORIENTED UNDERTAKING. EXPLAN ATION 2 TO SUB-CLAUSE (IV) OF SECTION 10B DEFINES WHAT IS 100% EXPORT ORIENTED UNDERTAKING, WHICH READS AS UNDER: - 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 15 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 15. AS COULD BE SEEN FROM THE ABOVE DEFINITION, IN ORDER TO BE 100% EXPORT-ORIENTED UNDERTAKING AND CLAIM EXEM PTION UNDER SECTION 10B, AN UNDERTAKING MUST HAVE BEEN AP PROVED BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRA L GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY S ECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) A CT, 1951 AND THE RULES MADE UNDER THAT ACT. IN THIS CASE, TH E ASSESSEE IS A UNIT RECOGNIZED BY THE STPI. NOTHING IS PLACED ON RECORD TO SUGGEST THAT THIS IS A HUNDRED PERCENT EXPORT OR IENTED UNDERTAKING APPROVED BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT UNDER SECTION 14 OF THE INDUSTRIES (DEV ELOPMENT AND REGULATION) ACT, 1951. AN IDENTICAL SITUATION A ROSE IN THE CASE OF CIT VS. REGENCY CREATIONS LTD. (79 DTR 24) AND THE HONBLE DELHI HIGH COURT HELD THAT UNITS SET UP UND ER STP SCHEME ARE DIFFERENT FROM THOSE THAT GOVERN UNITS SET UP AS HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING AND SO APPROVED BY THE BOARD. THE HONBLE HIGH COURT HELD THAT A UNIT WHICH IS NOT APPROVED BY THE BOARD APPOINTED B Y THE CENTRAL GOVT. IN EXERCISE OF POWERS CONFERRED UNDER SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) A CT, 1951 IS NOT ENTITLED FOR EXEMPTION UNDER SECTION 10B OF THE ACT. 16 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 THE HONBLE HIGH COURT HELD THAT ASSESSEE HOLDING A PPROVAL UNDER SOFTWARE TECHNOLOGY PARK SCHEME IS NOT ENTITL ED TO EXEMPTION UNDER SECTION 10B OF THE ACT. THIS DECISI ON SQUARELY APPLIES TO THE ASSESSEE IN THE ABSENCE OF ANY APPROVAL PLACED ON RECORD BY THE ASSESSEE FROM THE BOARD APPOINTED BY THE CENTRAL GOVT. 16. THE ALTERNATIVE PLEA IN THE CROSS OBJECTION FIL ED BY THE ASSESSEE IS THAT THE ASSESSEE UNDERTAKING SHOULD BE CONSIDERED FOR DEDUCTION UNDER SECTION 10A OF THE A CT AS IT SATISFIES THE CONDITIONS LAID DOWN UNDER SECTION 10 A OF THE ACT. THE ASSESSEE IN ITS SUBMISSIONS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) STATED THAT IT SATISFIES THE REQUIREMENT OF RELIEF UNDER SECTION 10A OF THE ACT. COMMISSIONER OF INCOME TAX (APPEALS) EXTRACTED THE SUBMISSIONS IN HIS ORDER AT PAGE 5 & 6 AS UNDER:- THE REQUIREMENT OF RELIEF UNDER SECTION 10A ARE SATISFIED: 1. STPI APPROVAL HAS BEEN OBTAINED IN RESPECT OF AN IDENTIFIABLE SEPARATE SPACE. 2. THE BUSINESS OF THE STPI WAS NEW AND DIFFERENT FROM THE EXISTING CONTRACTS OF THE DOMESTIC TARIFF UNIT. 17 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 3. THE PROFITS CLAIMED AS EXEMPT UNDER SECTIONS.10A RELATES TO THE NEW EXPORT BUSINESS CARRIED ON THE STPI UNIT AFTER THE APPROVAL OF THE SAME AS A STPI UNIT. 4. ONLY NEW MACHINERY, NOT USED BEFORE FOR ANY OTHER PURPOSES WERE USED IN THE STPI BUSINESS. LEASE/HIRE OF THE MACHINE BY THE ASSESSEE TO HIMSELF CANNOT BE CONSIDERED AS USED FOR ANY OTHER PURPOSES. 5. MERELY BECAUSE HIRE CHARGES WERE SHOWN PAYABLE TO DTA, WOULD NOT MEAN THAT STPI UNIT AS NOT USING NEW MACHINERY. 6. WITHOUT PREJUDICE CIRCULAR NO.1 OF 2005 DATED 6.1.2005 WOULD SHOW THAT EVEN EXISTING OLD UNITS ARE ENTITLED TO RELIEF UNDER SECTIONS.10A/B. THEREFORE EXISTING BUSINESS OR OLD MACHINERY ARE NOT VERY RELEVANT FOR GRANT OF RELIEF UNDER SECTION 10A/B. NEITHER THE ASSESSING OFFICER NOR THE COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED WHETHER THE ASSESSE E IS ENTITLED FOR DEDUCTION UNDER SECTION 10A OF THE ACT IN THE PROCEEDINGS BEFORE THEM. 17. IN VIEW OF OUR ABOVE FINDINGS, WE SET ASIDE TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND REM IT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE UNDER SECTION 10B OF THE ACT IN THE LIGHT 18 ITA NOS.1935 & 1936/MDS/2010 C.O.NO.187/MDS/2013 & ITA NOS.67 & 1634/MDS/2014 OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF REGENCY CREATIONS LTD. (SUPRA) AFTER PROVIDING ADEQ UATE OPPORTUNITY TO THE ASSESSEE. THE ALTERNATIVE PLEA MADE BY THE ASSESSEE MAY ALSO BE EXAMINED BY THE ASSESSING OFFICER IN CASE THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION UNDER SECTION 10B OF THE ACT. 18. IN THE RESULT, APPEALS OF THE REVENUE IN ITA NO S. 1936/MDS/2010, 67 & 1634/MDS/2014 ARE DISMISSED AN D THAT OF ITA NO.1935/MDS/2010 IS PARTLY ALLOWED FOR STATI STICAL PURPOSES. THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 30 TH DAY OF JANUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( ! ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) # / ACCOUNTANT MEMBER % # / JUDICIAL MEMBER /CHENNAI, ' /DATED 30 TH JANUARY, 2015 SOMU !%*+ -+ /COPY TO: 1. ASSESSING OFFICER 2. ASSESSEE 3. . () /CIT(A) 4. . /CIT 5. + !%%1 /DR 6. 4 /GF .