Infrasoft Technology Ltd, V. DCIT Circle-11 (1),

ITA 1899/DEL/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53497 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 09-05-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 15-05-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: AVDHESH BANSAL
• Keywords: Retrospective amendment; Scheme of amalgamation
• Section: 80HHC; 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI I. P. BANSAL, JM AND SHRI K. D . RANJAN, AM I. T. APPEAL NO. 1899 (DEL) OF 2008 ASSESSMENT YEAR : 2002-03. INFRASOFT TECHNOLOGIES LIMITED, DY. COMMISS IONER OF INCOME-TAX, C/O. SHRI RAVINDER GUPTA, C. A.; VS. C I R C L E : 11 (1), 20 VAKIL LANE, K. G. MARG, N E W D E L H I. N E W D E L H I 110 001. P A N / G I R NO. AAACB 2817R. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI AJAY VOHRA, ADV.; & SHRI AVDHESH BANSAL, ADV.; DEPARTMENT BY : MS. MONA MOHANTY, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 02-03 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XV, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AR E AS FOLLOWS :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF THE CLAIM OF EXEMPTION OF RS.34,83,866/- UNDER SECTION 10-A OF THE ACT; 2 I. T. APPEAL NO. 1899 (DEL) OF 2008 1.1 THAT THE LD. CIT (APPEALS) HAS FAILED TO APPRECIATE THAT THERE WERE TWO DISTINCT UNDERTAKINGS I.E. DOMESTIC & STPI UNDE RTAKING OF THE APPELLANT COMPANY; 1.2 THAT THE LD. CIT (APPEALS) HAS ERRED I N HOLDING THAT THERE WAS CONVERSION OF THE UNDERTAKING ESTABLISHED IN ASSESS MENT YEAR 1996-97 INTO STPI UNIT; 1.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) OUGHT TO HAVE HELD THAT A NEW UNIT UNDERTAKING EXPO RTS WAS ESTABLISHED IN FINANCIAL YEAR 1999-2000; 1.4 THAT THE FINDING OF THE LD. CIT (APPEA LS) THAT THE BUSINESS OF THE STPI UNIT WERE THE SAME AS PROVIDED BY THE DOMESTIC UNIT IS CONTRARY TO THE MATERIAL ON RECORD; 1.5 THAT THE CIRCULAR NO. 1 OF 2005 DATED 6/01/2005 OUGHT TO HAVE BEEN APPLIED IN RELATION TO THE NEW EXPORT UNDERTAKING E STABLISHED IN FINANCIAL YEAR 1999-2000; 2. THAT ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN HOLDING THAT THE OWNERSHIP / BENEFICIAL INTEREST HAS BEEN TRANSFERRED IN THE YEAR UNDER CONSIDERATION IN TERMS OF SECTION 10A(9) READ WITH EXPLANATION 1 OF THE SECTION; 2.1 THAT FOR THE PURPOSE OF SECTION 10A(9) READ WITH EXPLANATION 1 THE COMPARISON OF SHARE-HOLDING OUGHT TO HAVE BEEN DONE AS AT 31/03/2000 AND 31/03/2002; 2.2 WITHOUT PREJUDICE TO THE ABOVE GROUNDS WHETHER TRANSFER IN SHARE- HOLDING MADE BEFORE 1/04/2000 CAN BE RECKONED FOR P URPOSES OF ASCERTAINING CHANGE IN BENEFICIAL SHARE-HOLDING FOR PURPOSES OF SECTION 10A(9) READ WITH EXPLANATION 1; 3. THAT IN ANY CASE THE SECTION 10A IS AN INCENTIVE PROVISION AND SHOULD BE CONSTRUED LIBERALLY. 3. THE ONLY ISSUE FOR CONSIDERATION RELATES TO DISA LLOWANCE OF CLAIM OF DEDUCTION OF RS.34,83,866/- UNDER SECTION 10A OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT]. THE ASSESSEE HAS ASSAILED THE CONFIRMING OF THE DISALLOWANCE ON THE GROUNDS THAT THE LD. CIT (APPEALS) HAS ERRED TO HOLD THAT THE DOMESTIC A ND STPI UNDERTAKINGS WERE THE SAME; THAT THERE WAS CONVERSION OF UNDERTAKING ESTABLISHED IN 1996 INTO STP UNIT; THAT THE LD. CIT (A) HAD FAILED TO HOLD THAT A NEW EXPORT UNDERTAKING WAS E STABLISHED IN 1999-2000; THAT THE BUSINESS OF 3 I. T. APPEAL NO. 1899 (DEL) OF 2008 STP UNIT WAS THE SAME AS THAT OF DOMESTIC UNIT IS C ONTRARY TO MATERIAL ON RECORD; THAT THE LD. CIT (A) HAD OUGHT TO HAVE APPLIED CIRCULAR NO. 1 OF 200 5 DATED 6/01/2005 IN RELATION TO NEW EXPORT UNDERTAKING ESTABLISHED IN 2005; THAT THE OWNERSHIP / BENEFICIAL INTEREST HAS BEEN TRANSFERRED IN THE YEAR UNDER CONSIDERATION IN TERMS OF SECTION 10 A(9) READ WITH EXPLANATION 1 OF THE SECTION; AND AS TO WHETHER THE TRANSFER IN SHARE-HOLDING MAD E BEFORE 1/04/2000 CAN BE RECKONED FOR PURPOSES OF ASCERTAINING CHANGE IN BENEFICIAL SHARE -HOLDING FOR PURPOSES OF SECTION 10A(9) READ WITH EXPLANATION 1. 4. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSING OFFICER FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2001-02 WHICH WAS CONFIRMED BY THE LD. CIT (A) DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT FOR THE FOL LOWING REASONS:- (I) THAT AS PER THE PROVISIONS OF SECTION 80-HHE(5 ) ONCE DEDUCTION UNDER SECTION 80HHE IS CLAIMED BY THE ASSESSEE FOR ANY ASSESSMENT YEAR, NO DEDUCTION UNDER ANY OTHER PROVISION SUCH AS SECTION 10A SHALL BE ALLOWED TO T HE ASSESSEE FOR THE SAME OR ANY OTHER ASSESSMENT YEAR. SINCE THE ASSESSEE COMPANY HAD CLA IMED DEDUCTION UNDER SECTION 80HHE IN ASSESSMENT YEAR 2000-01 NO DEDUCTION U/S 1 0A WAS ALLOWABLE TO THE ASSESSEE IN AY 2001-02; (II) THAT WITH EFFECT FROM ASSESSMENT YEAR 2001-02 A NEW SUB SECTION (1B) HAS BEEN INTRODUCED IN SECTION 80-HHE WHEREBY THE DEDUCTION UNDER SECTION 80HHE WOULD BE GRADUALLY OR DISCRIMINATELY PHASED OFF WITH THE RES ULT THAT IN ASSESSMENT YEAR 2005-06 NO DEDUCTION UNDER SECTION 80HHE WOULD BE AVAILABLE. ON THE CONTRARY DEDUCTION UNDER SECTION 10A WAS AVAILABLE EQUIVALENT TO HUNDRED PER CENT OF PROFIT TILL ASSESSMENT YEAR 2009-10. THEREFORE, IT WAS A DELIBERATE MOVE ON TH E PART OF THE ASSESSEE COMPANY TO SWITCH OVER TO SECTION 10A FROM SECTION 80HHE AND T HEREBY KEPT ON AVAILING EXTENDED BENEFIT, NOT INTENDED TO BE GIVEN BY THE LEGISLATUR E; 4 I. T. APPEAL NO. 1899 (DEL) OF 2008 (III) THAT THE PRINCIPAL OBJECT OF SECTION 10A IS TO ENCOURAGE SETTING UP OF NEW INDUSTRIAL UNDERTAKINGS BY OFFERING TAX INCENTIVES. IN THE CA SE OF THE ASSESSEE THIS PRINCIPAL OBJECT IS GETTING DEFEATED AS NO NEW INDUSTRIAL UNDERTAKING H AS BEEN SET UP AS THE OLD INDUSTRIAL UNDERTAKING ON WHICH THE ASSESSEE WAS HITHER TO WAS CLAIMING DEDUCTION UNDER SECTION 80HHE HAS BEEN USED FOR THE PURPOSES OF CLAIM OF SE CTION 10A BY TAKING UNDUE ADVANTAGE OF THE PROVISIONS OF THE ACT; (IV) THAT SUB SECTION (1) OF SECTION 10A PROVIDES DEDUCTION FOR TEN CONSECUTIVE YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS O R COMPUTER SOFTWARE, AS THE CASE MAY BE. IN THE CASE OF ASSESSEE, MANUFACTURING STARTED IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1996-97 AND HENCE THE CLAIM OF DEDUCTION UNDER SECTION 10A SHOULD HAVE BEEN MADE FOR ASSESSMENT YEAR 1996-97 ITSELF. SINCE THE ASSE SSEE COMPANY DID NOT CLAIM DEDUCTION UNDER SECTION 10A IN ASSESSMENT YEAR 1996-97, IT CO ULD NOT BE PERMITTED TO CLAIM DEDUCTION U/S 10A IN ANY SUBSEQUENT YEAR AS SUB SEC TION (1) CLEARLY PROVIDES THAT DEDUCTION UNDER SECTION 10A IS TO COMMENCE FROM THE VERY FIRST YEAR IN WHICH MANUFACTURING HAD STARTED; AND (V) THAT SECTION 10A(2)(II) CLEARLY SPECIFIES THAT DEDUCTION UNDER SECTION 10A WILL NOT BE ALLOWED TO THE ASSESSEE COMPANY IF ITS BUSINESS IS ALREADY IN EXISTENCE. IN THE INSTANT CASE THE BUSINESS OF THE ASSESSEE COMPANY WAS ALREADY IN EXISTENCE SINCE ASSESSMENT YEAR 1996-97. THE ASSESSING OFFICER HAD NOTED THAT DURI NG THE RELEVANT ASSESSMENT YEAR NEITHER NEW LAND WAS PURCHASED NOR WAS ANY NEW FACTORY ESTA BLISHED. OLD AND EXISTING INFRASTRUCTURE HAD BEEN USED. SINCE THERE HAD BEEN NO CREATION OF A NEW ESTABLISHMENT/UNDERTAKING WHICH WAS ESSENTIAL FOR C LAIM OF DEDUCTION UNDER SECTION 10A, THE ASSESSING OFFICER RELYING ON THE DECISION OF HO NBLE ALLAHABAD HIGH COURT IN CASE OF 5 I. T. APPEAL NO. 1899 (DEL) OF 2008 CIT VS. BABU RAM RAMESH CHAND 190 ITR 535 (ALL.) DI SALLOWED DEDUCTION U/S 10A IN ASSESSMENT YEAR 2001-02. 5. IN THE ASSESSMENT YEAR A.Y.2002-03 UNDER CONSIDE RATION, THE ASSESSING OFFICER FOLLOWING THE DECISION FOR ASSESSMENT YEAR 2001-02 HAD DISALLOWED THE DEDUCTION UNDER SECTION 10A OF THE ACT. 6. ON APPEAL THE LD. CIT (APPEALS) RELYING ON THE D ECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V LEGATO SYSTEMS INDIA PVT. LTD I N ITA NO 400/2005 DATED 12.05. 2005 HAS AGREED WITH THE CONTENTION OF THE ASSESSEE THAT THAT THERE IS NO BAR IN LAW FOR THE CLAIM OF DEDUCTION U/S10A IN THE CASES WHERE DEDUCTION IN EA RLIER YEARS WAS CLAIMED U/S 80HHE OF THE ACT IF ALL OTHER CONDITIONS WERE SATISFIED. HOWEVER , THE LD. CIT(A) EXAMINED THE SCOPE OF SECTION 10A(9), WHICH HAS BEEN OMITTED WITH EFFECT FROM 1.0 4.2004. HE OBSERVED THAT THE PROVISIONS OF SECTION 10A(9) WERE APPLICABLE IN A CASE WHERE DURI NG ANY PREVIOUS YEAR THE OWNERSHIP OR THE BENEFICIAL INTEREST IN THE UNDERTAKING WAS TRANSFER RED BY ANY MEANS. IN SUCH A CASE DEDUCTION UNDER 10A(1) SHALL NOT BE ALLOWED TO THE ASSESSEE F OR SUCH ASSESSMENT YEAR AND SUBSEQUENT YEARS. HE FURTHER NOTED THAT UNDER EXPLANATION 1 TO SECTIO N 10A(9), IN THE CASE OF THE COMPANY, THE DEDUCTION UNDER SECTION 10A(1) SHALL BE ALLOWED ONL Y IF 51 PER CENT OF THE VOTING POWER IS HELD BY THE SAME SET OF PERSONS AS ON THE LAST DAY OF P REVIOUS YEAR IN WHICH UNDERTAKING WAS SET UP. IN OTHER WORDS, IN ORDER TO APPLY EXPLANATION 1, IT MUST BE SHOWN THAT THOSE VERY PERSONS WHO HELD THE SHARES OF THE COMPANY CARRYING NOT LESS TH AN THE 51 PER CENT OF THE VOTING POWER ON THE LAST DAY OF THE YEAR IN WHICH UNDERTAKING WAS SET U P HAVE CEASED TO BENEFICIALLY HOLD THE SHARES CARRYING NOT LESS THAN 51 PER CENT OF VOTING POWER AS ON THE LAST DAY OF THE RELEVANT PREVIOUS YEAR. BEFORE LD. CIT (A) IT WAS ARGUED BY THE ASSESSEE THAT SINCE THE STPI STATUS WAS GRANTED ON 28 TH MARCH, 2000, THE ASSESSEE FOR THE PURPOSE DEDUCTION U/S 10A SHOULD BE TREATED TO HAVE BEEN SET UP ON THIS DATE AND IN THAT VIEW OF MATTER THE BENE FICIAL OWNERSHIP OF NOT LESS THAN 51 PER CENT OF VOTING POWER REMAINED UN-CHANGED AS ON 31 ST MARCH, 2002 WITH REFERENCE TO SHARES HELD AS ON 31.03.2000. IN THIS REGARD LD. CIT (A) HAS NOTED T HAT THE UNDERTAKING WAS SET UP DURING AY 1996-97. THE ASSESSEE HAD RECEIVED APPROVAL OF THE STPI ON 28 TH MARCH, 2000. THEREFORE, THE 6 I. T. APPEAL NO. 1899 (DEL) OF 2008 DATE OF APPROVAL OF STPI WOULD NOT HAVE ANY BEARING ON DECIDING THE DATE WHEN THE UNDERTAKING WAS SET UP FOR THE PURPOSE OF EXPLANATION 1 TO SECT ION 10A(9). HE FURTHER HAS OBSERVED THAT IN A CASE OF AN ASSESSEE WHICH HAD BEEN SET UP IN A DOME STIC TARIFF AREA AND STARTED MANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE IN ANY YEAR, AND SU BSEQUENTLY WHEN IT IS ACCORDED APPROVAL OF STPI IF IT IS OTHERWISE DUE, DEDUCTION UNDER SECTIO N 10A WOULD BE ALLOWED FOR THE UN-EXPIRED PERIOD. THEREFORE, THE UNDERTAKING COULD NOT BE SA ID TO HAVE BEEN SET UP IN THE YEAR IN WHICH THE STPI APPROVAL IS ACCORDED. THE LD. CIT (A) RELIED ON THE CIRCULAR NO. 1 DATED 6/01/2005 WHICH WAS ISSUED IN THE CONTEXT OF SECTION 10B OF THE ACT TO SUPPORT HIS CONCLUSION. THE LD. CIT (A) ALSO OBSERVED THAT THE ASSESSEE IN ITS APPLICATION FOR STPI REGISTRATION DID NOT REFER TO ITS PROPOSAL EITHER FOR ESTABLISHMENT OF A NEW UNDERTAKING OR EX PANSION OF EXISTING STPI UNIT. IT WAS UNEQUIVOCALLY STATED THAT THE PROPOSAL WAS FOR CON VERSION OF AN EXISTING SOFTWARE EXPORT UNIT TO STPI UNIT WHICH HAD BEEN APPROVED BY STPI. HE, TH EREFORE, CONCLUDED THAT CONVERSION OF AN EXISTING SOFTWARE EXPORT UNIT TO STPI UNIT WOULD CO NNOTE CONVERSION OF A UNIT ALREADY SET UP AND NOT AS INTERPRETED BY THE ASSESSEE, THE BIRTH OF A NEW UNIT. THE LD. CIT (A), THEREFORE, HELD THAT THE ASSESSEES INTERPRETATION TO EQUATE THE DATE OF APPROVAL OF STPI AS THE DATE OF SET UP OF UNDERTAKING FOR THE PURPOSES OF SECTION 10A(9) WAS WITHOUT ANY MERITS. 7. THE LD. CIT (APPEALS) THEREAFTER DISCUSSED THE S HARE-HOLDING PATTERN OF ORIGINAL SHARE HOLDERS IN AY 1996-97 AND AY 2002-03. IN ASSESSMENT YEAR 1996-97 IN WHICH THE UNDERTAKING OF THE ASSESSEE COMPANY WAS SET UP, 10,00,000 SHARE S OF RS 10/- EACH WERE HELD BY FIVE PERSONS AS BELOW :- 1. SHRI ROHIT AGGARWAL 2,49,985 2. SHRI RAHUL AGGARWAL 2,49,975 3. MRS. RASHMI AGGARWAL 10 4. SHRI RAHUL & SHRI ROHIT [JOINT] 80 5. SHRI MANOJ MORARKA 4,99,950 10,00,000 7 I. T. APPEAL NO. 1899 (DEL) OF 2008 AS ON 31 ST MARCH, 2002 RELEVANT TO ASSESSMENT YEAR 2002-3 OUT OF SHARE CAPITAL OF RS.6,45,36,650/- COMPRISING OF 64,53,665 SHARES OF RS.10/- EACH, 24,31,000 SHARES WERE BY THEM DETAILED AS UNDER:- 1. SHRI ROHIT AGGARWAL 4,19,875 2. SHRI RAHUL AGGARWAL 4,13,545 3. MRS. RASHMI AGGARWAL 8,91,250 4. SHRI RAHUL & SHRI ROHIT [JOINT] 80 5. SHRI MANOJ MORARKA 7,06,250 24,31,000 ON THE BASIS OF ABOVE MENTIONED SHARE HOLDING PATTE RN ON TWO DIFFERENT DATES, LD. CIT(A) OBSERVED THAT IN THE PREVIOUS YEAR RELEVANT TO AY 1996-97 IN WHICH THE UNDERTAKING WAS SET UP THE SHARE HOLDING OF ABOVE FIVE PERSONS WAS HUNDRED PER CENT. HOWEVER, FOR ASSESSMENT YEAR 2002-03 THE SHARE HOLDING OF THOSE FIVE PERSONS HAD FALLEN TO 37.66 PER CENT OF TOTAL ISSUED CAPITAL OF RS.6,45,36,650/-. THE LD. CIT (A) RELYING ON DE CISION OF ITAT IN THE CASE OF ZYCUS INFOTECH PVT. LTD. VS. ITO [2007] 17 SOT 310 CAME TO THE CON CLUSION THAT THE PROVISIONS OF SECTION 10A(9) READ WITH EXPLANATION-1 THEREOF WERE APPLICA BLE TO THE FACTS OF THE ASSESSEES CASE AND THEREFORE, THE ASSESSEE WAS NOT ENTITLED FOR DEDUCT ION UNDER SECTION 10A OF THE ACT. 7.1 BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 ITS CLAIM FOR DEDUCTION U/S 10A HAD IN PRINCIPLE BEEN ALLOWED BY THE ITAT. HOWEVER, SINCE THE REVENUE AUTHORITIES ON AC COUNT OF TECHNICAL REASONS DID NOT EXAMINE CLAIM OF THE ASSESSEE UNDER SECTION 10A, THE MATTER WAS REMANDED BACK TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE AS TO WHETHER ALL THE COND ITIONS OF SECTION 10A WERE SATISFIED. IT HAS, THEREFORE, BEEN SUBMITTED THAT THE ASSESSEE IS ENTI TLED FOR DEDUCTION UNDER SECTION 10A IN VIEW OF ITAT DECISION IN THE CASE OF THE ASSESSEE. HE FURT HER SUBMITTED THAT LD. CIT (A) FOR THE ASSESSMENT YEAR UNDER CONSIDERATION HAS HELD THAT T HERE IS NO BAR IN LAW TO CLAIM DEDUCTION U/S 10A IN THE CASES WHERE DEDUCTION U/S 80HHE WAS EARL IER CLAIMED AND ALLOWED, PROVIDED THAT ALL 8 I. T. APPEAL NO. 1899 (DEL) OF 2008 THE CONDITIONS OF SECTION 10A WERE SATISFIED. THE DEPARTMENT HAD NOT FILED APPEAL AGAINST THIS PART OF THE DECISION. HOWEVER, THE LD. CIT (A) HAD HELD THAT THERE WAS CONVERSION OF EXISTING UNIT INTO STPI UNIT. HE HAD DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THERE WAS CHANGE IN SHARE-HOLDING AND, THEREFORE, THERE WAS V IOLATION OF PROVISIONS OF SECTION 10A (9) OF THE ACT. THE LD AR OF THE ASSESSEE HAS FAIRLY CONCE DED THAT THE SHARE-HOLDING PATTERN MENTIONED BY THE LD. CIT (A) FOR AY 1996-97 AND FOR ASSESSMEN T YEAR 2002-03 IS CORRECT AND IS NOT DISPUTED. LD. AR OF THE ASSESSEE FURTHER SUBMITTED THAT THE DOMESTIC UNIT OF ASSESSEE WAS SET UP IN YEAR RELEVANT TO ASSESSMENT YEAR 1996-97. DEDUCT ION U/S 80HHE CAN BE CLAIMED BY ANY ASSESSEE WHO HAD EXPORTED COMPUTER SOFTWARE OUT OF INDIA. THE DOMESTIC UNIT WAS FUNCTIONING FROM SECOND FLOOR, KARMAYOG BUILDING, PARSI PANCHAY AT ROAD, ANDHERI EAST, MUMBAI-400069. THE DOMESTIC UNIT WAS SHIFTED TO GROUND FLOOR AND N EWLY SET UP STPI UNIT WAS LOCATED AT SECOND FLOOR OF THE SAME BUILDING. THE ASSESSEE PURCHASED NEW COMPUTERS AND EMPLOYED SEPARATE EMPLOYEES FOR NEW UNIT. HENCE IT IS INCORRECT ON T HE PART OF THE LD. CIT(A) TO HOLD THAT STPI UNIT WAS CONVERTED FROM EXISTING UNIT. 7.2 LD AR OF THE ASSESSEE FURTHER SUBMITTED THAT S INCE STP STATUS WAS GRANTED TO ASSESSEE ON 28.03.2000, THE CHANGE IN SHARE-HOLDING PATTERN AS ON 31.03.2002 (PAGE 186 OF PB) SHOULD BE CONSIDERED WITH REFERENCE TO SHARE-HOLDING PATTERN AS ON 31 ST MARCH, 2000 AND NOT WITH REFERENCE TO 31.03.1996. THE LD. CIT (APPEALS) HAD RELIED ON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF ZYCUS INFOTECH P. LTD. 17 SOT 310 FOR APPLY ING THE PROVISIONS OF SUB-SECTION (9) OF SECTION 10A OF THE ACT. THE DECISION OF ITAT, MUMB AI BENCH HAS BEEN REVERSED BY HONBLE BOMBAY HIGH COURT REPORTED AS ZYCUS INFOTECH P. LTD V CIT 191 TAXMAN 13 (BOM). HONBLE BOMBAY HIGH COURT IN THE CASE OF ZYCUS INFOTECH P. LTD. (SUPRA) HAS HELD THAT THE PROVISIONS OF SECTION 10A(9) WILL NOT BE APPLICABLE TO EXISTING ASSESSEES. IT WILL BE APPLICABLE ONLY FOR THOSE UNDERTAKINGS WHICH HAD BEEN SET UP AFTER 1.4.2001 I .E. AFTER SUBSTITUTION OF THE NEW SECTION 10A. HE, THEREFORE, SUBMITTED THAT THE LEGISLATIVE INTEN TION BEING CLEAR CANNOT BE MADE APPLICABLE FOR ASSESSMENT YEAR UNDER CONSIDERATION AND HENCE, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. ACCORDINGLY, THE CHANGE IN THE SHARE-HOLDING PATTERN WITH REFERENCE TO ASSESSMENT YEAR 1996-97 WOULD NOT AFFECT THE CASE O F THE ASSESSEE FOR ASSESSMENT YEAR UNDER CONSIDERATION. 9 I. T. APPEAL NO. 1899 (DEL) OF 2008 7.3 FURTHER SINCE PROVISIONS OF SECTION 10A(9), 1 0A(9A) AND EXPLANATION 1 WERE OMITTED WITH EFFECT FROM 1.4.2004, RELYING ON THE DECISION OF ITAT, BANGALORE BENCH IN THE CASE OF M/S. G. E. THERMOMETRICS INDIA PVT. LTD. VS. DCIT IN ITA . NO. 257 & 258 OF 2008 FOR ASSESSMENT YEARS 2003-04 AND 2004-05 DATED 30 TH MAY, 2008, LD. AR OF THE ASSESSEE SUBMITTED THAT PROVISIONS OF SECTION 10A HAVE TO BE READ AS IF SUB -SECTION (9) OF SECTION 10A WAS NOT IN EXISTENCE. HE ALSO RELIED ON THE DECISION OF ITAT P UNE IN THE CASE OF JCIT V. PATNI COMPUTERS (P) LTD. IN ITA NO 687/PN/06 FOR AY 2002-03 DATED 3 0.06.2011 FOR THE PROPOSITION THAT DEDUCTION U/S 10A WILL BE ALLOWABLE EVEN WHEN THERE IS EXPANSION OF UNDERTAKING. 8. ON THE OTHER HAND, THE LD. SR. DR SUBMITTED THAT AS PER PROVISIONS OF EXPLANATION 1 TO SECTION 10A(9) OF THE ACT, IN A CASE OF A COMPANY W HERE ON THE LAST DAY OF ANY PREVIOUS YEAR, 51 PER CENT OF THE SHARES ARE NOT BENEFICIALLY HELD B Y THOSE PERSONS, WHO HELD THE SHARES OF THE COMPANY CARRYING NOT LESS THAN 51 PER CENT OF THE V OTING POWER ON THE LAST DAY OF THE PREVIOUS YEAR IN WHICH UNDERTAKING WAS SET UP, SHALL BE PRES UMED TO HAVE TRANSFERRED ITS OWNERSHIP OR THE BENEFICIAL INTEREST IN THE UNDERTAKING. SHE FURTHE R SUBMITTED THAT THE ASSESSEE COMPANY WAS SET UP IN AY 1996-97 AND 100 PER CENT SHARE-HOLDING OF THOSE PERSONS HAS DECLINED TO 37.66 PER CENT OF THE TOTAL ISSUED CAPITAL IN THE YEAR UNDER CONSI DERATION. THEREFORE, PROVISIONS OF SECTION 10A(9) OF THE ACT WILL BE APPLICABLE. SHE FURTHER SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION, PROVISIONS OF SECTION 10A(9) WERE IN EXISTENCE AND SINCE THE PROVISIONS OF SECTION 10A(9) HAVE NOT BEEN OMITTED WITH RETROSPECTIVE EFFECT, THE SAM E WILL BE APPLICABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. SHE STRONGLY SUPPORTED THE OR DER OF THE LD. CIT (APPEALS). 9. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE THR OUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE IT IS CLEAR THAT THE AS SESSEE STARTED MANUFACTURING ACTIVITIES IN FREE TRADE ZONE DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR 1996-97. THE ASSESSEE WAS GRANTED STPI APPROVAL ON 28.03.2000. THERE IS NO DISPUTE AB OUT THIS FACT. IT HAS BEEN CONTENDED BY THE ASSESSEE THAT IN ASSESSMENT YEAR 2001-02 ITAT, DELH I BENCH H IN ITA. NO. 3640 (DEL) OF 2005 DATED 17 TH SEPTEMBER, 2007 HAS HELD THAT THE ASSESSEE WILL BE ELIGIBLE FOR BENEFIT OF SECTION 10A OF THE ACT. WE HAVE GONE THROUGH THE ORDER OF THE ITAT. THE TRIBUNAL ON EXAMINATION OF 10 I. T. APPEAL NO. 1899 (DEL) OF 2008 THE FACTS OF THE CASE AND JUDICIAL PRONOUNCEMENT IN THE CASE OF CIT V. LEGATO SYSTEMS P. LTD. (SUPRA) HAS HELD THAT THE ASSESSEE WHO HAS CLAIMED DEDUCTION U/S 80HHC / 80HHE COULD CLAIM BENEFIT OF SECTION 10A IF ALL THE CONDITIONS OF THE SECTION WERE SATISFIED. SINCE THE ASSESSING OFFICER DID NOT EXAMINE THE APPLICABILITY OF PROVIS IONS OF SECTION 10A THE ISSUE WAS SET ASIDE TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTIONS T HAT THE ASSESSING OFFICER WOULD RE-EXAMINE THE MATTER IN THE LIGHT OF DECISION OF THE TRIBUNAL AND IN ACCORDANCE WITH LAW. THE LD. CIT(A) HAS HELD THAT THERE IS NO BAR IN LAW TO CLAIM DEDUCTION U/S 10A IN THE CASES WHERE DEDUCTION U/S 80HHE WAS EARLIER CLAIMED AND ALLOWED, PROVIDED THA T ALL THE CONDITIONS OF SECTION 10A WERE SATISFIED. IT IS A FACT THAT THE DEPARTMENT HAD NOT FILED APPEAL AGAINST THIS PART OF THE DECISION. THEREFORE, TO THIS EXTENT THE ISSUE IS SETTLED IN F AVOUR OF ASSESSEE IN THE INSTANT CASE. HOWEVER, LD . CIT(A) HAS DISALLOWED THE CLAIM FOR DEDUCTION U/S 1 0A BY HOLDING THAT (I) THERE WAS CONVERSION OF THE UNDERTAKING ESTABLISHED IN ASSESSMENT YEAR 1 996-97 INTO STPI UNIT AND (II) THE OWNERSHIP/ BENEFICIAL INTEREST HAS BEEN TRANSFERRED IN THE YEA R UNDER CONSIDERATION IN TERMS OF SECTION 10A(9) READ WITH EXPLANATION 1 OF THE SECTION. 10.1 NOW WE HAVE TO CONSIDER THE CONTENTION OF THE ASSESSEE AS TO WHETHER THERE IS CONVERSION OF THE UNDERTAKING ESTABLISHED IN ASSESSMENT YEAR 1 996-97 INTO STP UNIT? THE LD. CIT (A) HAS RECORDED A FINDING OF FACT THAT THE ASSESSEE IN ITS APPLICATION FOR STP REGISTRATION DID NOT REFER TO ITS PROPOSAL EITHER FOR ESTABLISHMENT OF A NEW UNDE RTAKING OR EXPANSION OF EXISTING STP UNIT. IT WAS UNEQUIVOCALLY STATED THAT THE PROPOSAL WAS FOR CONVERSION OF AN EXISTING SOFTWARE EXPORT UNIT TO STP UNIT WHICH HAD BEEN APPROVED BY STPI. THE CONTENTION OF LD. AR OF THE ASSESSEE IS THAT A SEPARATE UNIT WAS SET UP FOR WHICH NEW BUILD ING WAS TAKEN ON RENT AND COMPUTERS AND OTHER SYSTEMS WERE ACQUIRED. IN ORDER TO VERIFY THE CONTE NTION OF ASSESSEE WE CALLED FOR THE COPY OF APPLICATION FORM FOR SETTING UP UNITS UNDER SOFTWAR E TECHNOLOGY PARK (STP) SCHEME FOR 100% EXPORT OF COMPUTER SOFTWARE AND THE CASE WAS RE-HEA RD. IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE THAT IN 1996 DOMESTIC UNIT WAS SET UP AND NOT AN EXPORT UNIT. THE ASSESSEE SET UP A NEW UNIT ON 28.03.2000 WHEN STP REGISTRATION WAS GRANTE D. IN ORDER TO ASCERTAIN THE FACTS WE EXAMINED THE APPLICATION FORM FOR STP REGISTRATION FILED DURING THE COURSE OF CLARIFICATION PROCEEDINGS. THE FOLLOWING FACTS EMERGE ON PERUSAL OF THE SAID APPLICATION: 11 I. T. APPEAL NO. 1899 (DEL) OF 2008 (I) IN THE APPLICATION THE ADDRESS OF THE UNDERTAKI NG IS GIVEN AS 2 ND FLOOR KARMAYOG BUILDING PARSI PANCHAYAT ROAD, ANDHERI EAST, MUMBAI - 400069 WHICH IS THE ADDRESS OF THE UNDERTAKING SET UP IN 1996. (II) THE ITEM IV A OF APPLICATION FORM REQUIRED T HE ASSESSEE TO INDICATE WHETHER THE PROPOSAL WAS FOR (1) ESTABLISHMENT OF A NEW UNDERTA KING OR (2) EXPANSION OF EXISTING STP UNIT OR (3) CONVERSION OF AN EXISTING SOFTWARE EXPORT UNIT TO STP UNIT. THE ASSESSEE TICKED ITEM IV A. (3) I.E. CONVERSION O F AN EXISTING SOFTWARE EXPORT UNIT TO STP UNIT. ITEM IV B REQUIRED INFORMATION ABOUT INVESTMENT PROPOSED TO BE MADE BY A NEW UNDERTAKING. AGAINST THIS THE ASSESSEE INDICATE D AS N.A.. (III) ITEM IX CONTAINS THE INFORMATION ABOUT F IXED ASSETS REQUIRED FOR STP UNIT I.E. LAND, BUILDING AND EQUIPMENTS BOTH INDIGENOUS AND I MPORTED. THE ASSESSEE HAD GIVEN DETAILS OF INDIGENOUS EQUIPMENTS UNDER THE COLUMN EXISTING AT 128 AND PROPOSED EQUIPMENTS BOTH INDIGENOUS AND IMPORTED REQUIRED DU RING THE PERIOD OF FIVE YEARS. (IV) IN ITEM XIII THE ASSESSEE GAVE DETAILS OF E XISTING (40) AND PROPOSED STAFF AND LABOUR (837) REQUIREMENTS FOR THE IMPLEMENTATION OF THE STP PROJECT DURING FIVE YEARS. (V) ITEM XVI CONTAINS DETAILS OF SPACE REQUIREM ENT/ BUILT UP LAND. AGAINST THIS, THE ASSESSEE GAVE INFORMATION AS EXISTING UNIT ON APPX. 5000 SFT . BUILD UP . (VI) IN ITEM XVIII THE ASSESSEE WAS REQUIRED TO I NDICATE ESTABLISHMENT TIME REQUIRED FOR COMMENCEMENT OF DEVELOPMENT/EXPORT FROM THE DATE OF ISSUE OF PERMISSION. AGAINST THIS THE ASSESSEE MENTIONED EXPORT DEVELOPMENT IN PROCESS . FROM ABOVE FACTS ONE MAY FIND THAT THE ASSESSEE HA D INTENDED TO USE 280 EXISTING INDIGENOUS EQUIPMENTS, 5000SQ. FT AREA OF EXISTING UNIT, EXIST ING STAFF AND LABOUR NUMBERING 40[MANAGERIAL (4); SUPERVISORY (1); SUPERVISORY NON-TECHNICAL (1) ; LABOUR SKILLED (35)]. THE ASSESSEE HAD ALSO STATED THAT EXPORT DEVELOPMENT WAS IN PROCESS. THER E IS NEITHER ANY WHISPER OF A WORD IN STP REGISTRATION APPLICATION SUGGESTING THAT ASSESSEE H AD INTENDED TO SET UP A NEW UNIT NOR SUCH INTENTION CAN BE GATHERED FROM THE SAID APPLICATION OR FROM THE CONDUCT OF THE ASSESSEE WHILE SEEKING FOR STP REGISTRATION FROM THE COMPETENT AUT HORITY. RATHER FROM THE INFORMATION EXTRACTED 12 I. T. APPEAL NO. 1899 (DEL) OF 2008 FROM STP REGISTRATION APPLICATION AS ABOVE, IT IS C LEAR THAT THE ASSESSEE REQUIRED STP REGISTRATION FOR EXISTING UNDERTAKING AND NOT FOR NEW UNDERTAKIN G. THE ASSESSEE HAD CATEGORICALLY MENTIONED IN APPLICATION FOR CONVERSION OF THE EXISTING UNIT. IF THE ASSESSEE HAD INTENDED TO SET UP ALTOGETHER A NEW UNIT, IT WOULD NOT HAVE INCLUDED INFRASTRUCTU RE, STAFF & SKILLED LABOUR ETC. OF EXISTING UNIT IN STP REGISTRATION APPLICATION FORM. THESE FACTS BEL IE THE CONTENTION OF THE ASSESSEE THAT A NEW UNIT WAS SET UP WHEN STP REGISTRATION WAS OBTAINED. 10.2 NOW COMING TO THE CONTENTION OF THE ASSESSEE THAT NEW UNIT WAS LOCATED AT 2 ND FLOOR OF THE KARMAYOG BUILDING PARSI PANCHAYAT ROAD AND EXIS TING UNIT WAS SHIFTED TO GROUND FLOOR OF THE SAID BUILDING. FOR THIS HE RELIED ON THE BONDED WAR EHOUSE LICENCE GRANTED TO THE ASSESSEE BY THE CUSTOMS DEPARTMENT. WE HAVE GONE THROUGH THE LICEN SE GRANTED BY CUSTOMS DEPARTMENT DATED 30.03.2000 (PAGE 71OF P.B.). THE SAID LICENSE WAS G RANTED TO THE ASSESSEE FOR STORAGE OF IMPORTED CAPITAL GOODS I.E. COMPUTERS, WORKSTATION COMMUNICA TION EQUIPMENTS, SOFTWARE PACKAGES, NETWORK MANAGEMENT EQUIPMENTS WITHOUT PAYMENT OF CU STOMS IMPORT DUTY ON IMPORTATION THEREOF SUBJECT TO CERTAIN CONDITIONS. THE ASSESSEE WAS LICENSED TO WAREHOUSE THESE CAPITAL GOODS AND OTHER REQUIRED ITEMS AS PERMITTED FOR STP UNIT 100% (EXPORT ORIENTED UNIT). THE WAREHOUSE WAS LOCATED AT 2 ND FLOOR OF THE KARMAYOG BUILDING PARSI PANCHAYAT ROA D MUMBAI. FROM THESE FACTS IT IS EVIDENT THAT THE EXISTING FLOOR AREA OC CUPIED BY THE ASSESSEE WAS CONVERTED INTO CUSTOM BONDED WAREHOUSE TO KEEP IMPORTED CAPITAL GOODS FOR THE USE IN MANUFACTURING / PROCESSING AND NOT TO STORE GOODS MANUFACTURED BY THE STP UNIT. 11. ANOTHER CONTENTION OF THE ASSESSEE IS THAT NEW COMPUTERS WERE PURCHASED AND NEW STAFF WAS EMPLOYED FOR NEW UNDERTAKING. IT IS UNDISPUTED FACT THAT TECHNOLOGY IS CHANGING VERY FAST AND COMPUTERS ARE BECOMING OBSOLETE WITHIN SHORT PE RIOD OF DURATION AND THEREFORE, THE ASSESSEE HAD TO PURCHASE NEW COMPUTERS AND THEIR PERIPHERALS . IT IS ALSO FACT THAT THE ASSESSEE HAS INTENDED TO EXPEND THE EXISTING UNIT FOR THE PURPOSE OF 100% EOU. FOR THIS PURPOSE THE ASSESSEE HAD TO RECRUIT MORE STAFF AND PURCHASE COMPUTERS AND OTHER EQUIPMENTS. MERE PURCHASE OF NEW EQUIPMENTS AND EMPLOYING MORE STAFF WILL NOT PROVE THE CONTENTION OF THE ASSESSEE THAT NEW UNIT WAS SET UP. 13 I. T. APPEAL NO. 1899 (DEL) OF 2008 12. THERE IS ANOTHER ASPECT OF THE MATTER. THE ASSE SSEE HAD CLAIMED DEDUCTION U/S 80HHE IN ASSESSMENT YEAR 2001-02 WHICH DISALLOWED ON THE GRO UND THAT ASSESSEE WAS CLAIMING DEDUCTION U/S 80HHE OF THE ACT. THIS FACT IS ALSO CLEAR FROM THE ORDER OF ITAT FOR ASSESSMENT YEAR 2001- 02 WHEREIN IT HAS BEEN HELD THAT DEDUCTION U/S 10 W ILL BE AVAILABLE TO THE UNITS WHICH HAVE ENJOYED BENEFIT OF SECTION 80HHE IN EARLIER YEARS I F ALL THE CONDITIONS OF SECTION 10A WERE SATISFIED. IF IT WAS A CASE OF A NEW UNIT ALTOGETHE R, THE ASSESSEE WOULD NOT HAVE CLAIMED DEDUCTION U/S 80HHE IN ASSESSMENT YEAR 2001-02 AND WOULD NOT HAVE COME TO THE TRIBUNAL IN APPEAL AGAINST DISALLOWANCE OF DEDUCTION U/S 10A. MOREOVER , THE REASONS FOR SWITCH OVER TO DEDUCTION UNDER SECTION 10A FROM 80HHE WAS THAT FROM AY 2001- 02 A NEW SUB SECTION (1B) WAS INSERTED IN SECTION 80HHE THROUGH WHICH DEDUCTION UNDER SECT ION 80-HHE WAS GRADUALLY BEING PHASED OFF WITH THE RESULT THAT FROM AY 2005-06 NO DEDUCTI ON UNDER SECTION 80HHE WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE. THE ASSESSEE WITH A VIE W TO AVAIL OF THE BENEFIT OF SECTION 10A GOT THE EXISTING UNIT REGISTERED AS STP UNIT WHICH WAS SET UP IN FREE TRADE ZONE. 13. FROM ABOVE DISCUSSION IT IS CLEAR THAT THE ASSE SSEE HAD INTENDED TO CONVERT THE EXISTING UNIT SET UP IN ASSESSMENT YEAR 1996-97 TO STP UNIT. THEREFORE, CONTENTION OF THE ASSESSEE THAT A NEW UNIT WAS SET UP IS AN AFTER THOUGHT AND NOTHING MORE. WE, THEREFORE, UPHOLD THE FINDINGS OF THE LD CIT (A) THAT IT WAS A CASE OF CONVERSION OF AN EXISTING SOFTWARE EXPORT UNIT TO STP UNIT WHICH WOULD CONNOTE CONVERSION OF A UNIT ALREADY SE T UP. 14. THE NEXT CONTENTION OF THE ASSESSEE IS THAT FOR THE PURPOSES OF SECTION 10A (9) READ WITH EXPLANATION 1 THE COMPARISON OF BENEFICIAL SHARE-HO LDING OUGHT TO HAVE BEEN DONE AS ON 31 ST MARCH, 2002 WITH REFERENCE TO SETTING UP OF UNDERT AKING ON 31 ST MARCH, 2000 I.E. THE DATE WHEN STP APPROVAL WAS ACCORDED TO THE ASSESSEE. SUB SEC TION (9) OF SECTION 10-A WAS INSERTED BY FINANCE ACT, 2001 WITH EFFECT FROM 1/04/2001. EXPL ANATION 1 WAS ALSO INSERTED FROM THIS DATE. ACCORDING TO EXPLANATION 1 WHERE 51 PER CENT OF SHA RES ARE NOT BENEFICIALLY HELD BY THE PERSONS WHO HELD NOT LESS THAN 51% SHARES ON THE LAST DATE OF THE PREVIOUS YEAR IN WHICH THE UNDERTAKING WAS SET UP, IT WILL BE A CASE OF DEEMED TRANSFER OF OWNERSHIP. THERE IS NO DISPUTE THAT THE 14 I. T. APPEAL NO. 1899 (DEL) OF 2008 ASSESSEE COMPANY WAS SET UP IN THE PREVIOUS YEAR RE LEVANT TO ASSESSMENT YEAR 1996-97. THE CONTENTION OF THE ASSESSEE IS THAT ASSESSEE SHOULD BE DEEMED TO HAVE BEEN SET UP FOR THE PURPOSE OF SECTION10-A ON THE DATE ON WHICH STP STATUS WAS CONFERRED ON IT BY STPI. THIS, IN OUR CONSIDERED OPINION, IS NOT CORRECT. THE STP REGIST RATION ENTITLED THE ASSESSEE TO CLAIM DEDUCTION UNDER SECTION 10A, BUT BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THE UNDERTAKING WAS SET UP AS ON THE DATE ON WHICH STP STATUS WAS GRANTED TO T HE UNDERTAKING. WE HAVE ALSO HELD THAT EXISTING UNIT WAS CONVERTED INTO STP UNIT AND NO NE W UNIT CAME INTO EXISTENCE. THEREFORE, THE COMPARISON OF SHARE HOLDING HAS TO BE MADE WITH REF ERENCE TO SETTING UP OF THE UNIT AND NOT FROM THE DATE ON WHICH STP STATUS WAS GRANTED. SINCE WE HAVE HELD THAT STP UNIT CANNOT BE SAID TO HAVE BEEN SET UP AS ON THE DATE ON WHICH STP REGIST RATION WAS GRANTED, THE COMPARISON OF SHARE- HOLDING PATTERN FOR THE YEAR UNDER CONSIDERATION CA NNOT BE MADE WITH THAT OF 31 ST MARCH, 2000. WE, THEREFORE, REJECT THE CONTENTION OF THE ASSESSE E THAT NEW UNDERTAKING WAS SET UP WHEN STP REGISTRATION WAS GRANTED TO IT ON 28.03.2000. 15. NOW LET US EXAMINE AS TO WHETHER THERE WAS ANY CHANGE IN SHARE HOLDING ATTRACTING THE PROVISIONS OF SECTION 10A(9) OF THE ACT. THE ASSESS EE HAS FILED SHARE HOLDING PATTERN ( PAGE 185 OF PAPER BOOK) FOR VARIOUS YEARS STARTING FROM THE YEAR IN WHICH THE UNDERTAKING WAS SET UP I.E. PREVIOUS YEAR 1995-96 RELEVANT TO ASSESSMENT YEAR 1 996-97 WHICH IS TABULATED AS BELOW IN RESPECT OF FIVE SHARE HOLDERS (OUT OF TOTAL SHARE A LLOTTED IN RESPECTIVE PREVIOUS YEAR) WHO WERE INITIALLY CONTRIBUTED SHARE CAPITAL AS BELOW: NAME OF SHARE 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 H O L D E R. * (1000000) (1450045) (1500000) (200000 0) (5045000) (5045000) (6452665) ROHIT AGGARWAL 249985 ---- 125 00 ---- 145015 - --- 12375 RAHUL AGGARWAL 249975 ---- ---- ---- 151195 ---- 12375 RASHMI AGGARWAL 10 ---- 125 00 181250 697490 --- - ---- RAHUL AND ROHIT 80 ---- ---- ---- ---- ---- ---- AGGARWAL (JOINT) 15 I. T. APPEAL NO. 1899 (DEL) OF 2008 MANOJ MURARKA 499950 ---- 25000 181250 50 ---- ------- 10,00,000 * FIGURES IN BRACKET SHOWS TOTAL NUMBER OF SHARES A LLOTTED BY THE ASSESSEE IN RESPECTIVE PREVIOUS YEAR . 15.1 ON PERUSAL OF ABOVE IT IS SEEN THAT SHARE HOL DING PATTERN HAS BEEN CHANGING IN EACH YEAR STARING FROM PREVIOUS YEAR 1996-97 RELEVANT TO ASSE SSMENT YEAR 1997-98. IN PREVIOUS YEAR 1995- 96 RELEVANT TO ASSESSMENT YEAR 1996-97 ALL 10,00,00 0 SHARES WERE HELD BY FIVE SHARE HOLDERS. IN PREVIOUS YEAR 1997-98, 5,00,000 SHARES WERE ALLOTTE D OUT OF WHICH 50,000 SHARES WERE ALLOTTED TO THESE FIVE PERSONS. THUS THEIR SHARE HOLDING WAS 10,50,000 SHARES OUT OF TOTAL 15,00,000 SHARES. IN PREVIOUS YEAR 1998-99 SHARES HELD BY THE M WERE 14,12,500 OUT OF TOTAL SHARES ALLOTTED AT 20,00,000. AS ON 31.03.2000 AND 31.03.2001 OUT O F TOTAL SHARES ISSUED AT 50,45,000, THESE FIVE PERSONS HELD 24,06,250 SHARES(47.7%). AS ON 31.03.2 002 THEIR SHARE HOLDING WAS 24,31,000 (37.66%) OUT OF TOTAL SHARES ISSUED AT 64,53,665. PROVISIONS OF SECTION 10A(9) WERE INSERTED BY THE FINANCE ACT, 2000 W.E.F. 1.4.2001. THUS AS ON 3 1.03.2001 WHEN PROVISIONS OF SECTION 10A(9) CAME INTO FORCE THE BENEFICIAL SHARE HOLDING OF THE SE FIVE PERSONS FELL FROM 100% TO 47.70% WITH REFERENCE TO SHARES HELD BY THEM AS ON 31.03.1996. THERE IS ALSO NO DISPUTE ABOUT THE FACT THAT SHARE-HOLDING PATTERN HAS AGAIN CHANGED IN ASSESSME NT YEAR 2002-03 TO 37.66%. UNDER SECTION 10A(9) WHERE DURING ANY PREVIOUS YEAR, THE OWNERSHI P OR THE BENEFICIAL INTEREST IN THE UNDERTAKING IS TRANSFERRED BY ANY MEANS, DEDUCTION UNDER SUB SECTION (1) SHALL NOT BE ALLOWED TO THE ASSESSEE FOR THE ASSESSMENT YEAR RELEVANT TO SU CH PREVIOUS YEAR AND SUBSEQUENT YEARS. EXPLANATION 1 BELOW SECTION 10A (9) PROVIDES THAT W HERE ON THE LAST DAY OF ANY PREVIOUS YEAR THE SHARES OF THE COMPANY CARRYING NOT LESS THAN 51 PER CENT OF THE VOTING POWER ARE NOT BENEFICIALLY HELD BY THE PERSONS WHO HELD THE SHARES OF THE COMP ANY CARRYING NOT LESS THAN 51 PER CENT OF THE VOTING POWER ON THE LAST DAY OF THE YEAR IN WHICH U NDERTAKING WAS SET UP, THE COMPANY SHALL BE PRESUMED TO HAVE TRANSFERRED ITS OWNERSHIP OR THE B ENEFICIAL INTEREST IN THE UNDERTAKING. PROVISO TO EXPLANATION 1 SAYS THAT PROVISIONS OF THIS EXPLA NATION SHALL NOT APPLY TO CHANGE IN SHARE HOLDINGS OF THE COMPANY AS A RESULT ITS BECOMING A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED OR DISINVESTMENT OF EQUITY SHARES AS A R ESULT OF DISINVESTMENT OF ITS EQUITY SHARES BY ANY VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND . ADMITTEDLY, THE ASSESSEES CASE DOES NOT 16 I. T. APPEAL NO. 1899 (DEL) OF 2008 FALL IN THE PROVISO TO EXPLANATION 1. FROM ABOVE IT IS CLEAR THAT THE SHARE-HOLDING OF THE FIVE PERSONS AS ON AS ON 31.03.2002 HAS DECLINED TO 37.6 6 PER CENT FROM 100% IN THE PREVIOUS YEAR WHEN UNDERTAKING WAS SET UP. 16. SECTION 10A WAS SUBSTITUTED BY FINANCE ACT, 20 00 WITH EFFECT FROM 1.4.2001 AND SECTION 10A(1) AND SECTION 10A(1B), READS AS UNDER: 10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DE DUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UND ERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWAR E, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UN DERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED B Y APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITU TION BY THE FINANCE ACT, 2000, THE UNDERTAKING SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF THE AFORESAID TEN CONSECUTIVE A SSESSMENT YEARS: PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALLY LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCES SING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CONSECUTIVE ASSESSMENT YEAR S REFERRED TO IN THIS SUB-SECTION SHALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO TH E PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGAN TO MANUFACTURE OR PRODUCE SUCH AR TICLES OR THINGS OR COMPUTER SOFTWARE IN SUCH FREE TRADE ZONE OR EXPORT PROCESSI NG ZONE : PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THIS SUB-SECTION SHALL BE NINETY PE R CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE :] 17 I. T. APPEAL NO. 1899 (DEL) OF 2008 PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLO WED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2010 AND SUBSEQUENT YEARS. (1A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1), THE DEDUCTION, IN COMPUTING THE TOTAL INCOME OF AN UNDERTAKING, WHICH BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING THE PREVIOUS YEA R RELEVANT TO ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2003, IN ANY SPECIAL ECONOMIC ZONE, SHALL BE, (I) HUNDRED PER CENT OF PROFITS AND GAINS DERIVED FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF FIVE CO NSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH A RTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, AND THEREAFTER, FIFTY PER CENT OF SUCH PROFITS AND GAINS FOR FURTHER TWO CONSECUTIVE ASSESSMENT YEARS, AND THERE AFTER; (II) FOR THE NEXT THREE CONSECUTIVE ASSESSMENT YE ARS, SO MUCH OF THE AMOUNT NOT EXCEEDING FIFTY PER CENT OF THE PROFIT AS IS DEBITE D TO THE PROFIT AND LOSS ACCOUNT OF THE PREVIOUS YEAR IN RESPECT OF WHICH THE DEDUCTION IS TO BE ALLOWED AND CREDITED TO A RESERVE ACCOUNT (TO BE CALLED THE SPECIAL ECONOMIC ZONE RE-INVESTMENT ALLOWANCE RESERVE ACCOUNT) TO BE CREATED AND UTILISED FOR TH E PURPOSES OF THE BUSINESS OF THE ASSESSEE IN THE MANNER LAID DOWN IN SUB-SECTION (1B ) : PROVIDED THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLO WED TO AN ASSESSEE WHO DOES NOT FURNISH A RETURN OF HIS INCOME ON OR BEFOR E THE DUE DATE SPECIFIED UNDER SUB- SECTION (1) OF SECTION 139. (1B) THE DEDUCTION UNDER CLAUSE (II) OF SUB-SECTION (1A) SHALL BE ALLOWED ONLY IF THE FOLLOWING CONDITIONS ARE FULFILLED, NAMELY: (A) THE AMOUNT CREDITED TO THE SPECIAL ECONOMIC Z ONE RE-INVESTMENT ALLOWANCE RESERVE ACCOUNT IS TO BE UTILISED 18 I. T. APPEAL NO. 1899 (DEL) OF 2008 (I) FOR THE PURPOSES OF ACQUIRING NEW MACHINERY OR PLANT WHICH IS FIRST PUT TO USE BEFORE THE EXPIRY OF A PERIOD OF THREE YEARS NEXT F OLLOWING THE PREVIOUS YEAR IN WHICH THE RESERVE WAS CREATED; AND (II) UNTIL THE ACQUISITION OF NEW MACHINERY OR PLA NT AS AFORESAID, FOR THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING OTHER THAN FOR DISTRIBU TION BY WAY OF DIVIDENDS OR PROFITS OR FOR REMITTANCE OUTSIDE INDIA AS PROFITS OR FOR THE CREATION OF ANY ASSET OUTSIDE INDIA; (B) THE PARTICULARS, AS MAY BE PRESCRIBED IN THIS BEHALF, HAVE BEEN FURNISHED BY THE ASSESSEE IN RESPECT OF NEW MACHINERY OR PLANT ALONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH SUCH PLANT OR MACHINERY WAS FIRST PUT TO USE. (1C) WHERE ANY AMOUNT CREDITED TO THE SPECIAL ECONO MIC ZONE RE-INVESTMENT ALLOWANCE RESERVE ACCOUNT UNDER CLAUSE (II) OF SUB- SECTION (1A), (A) HAS BEEN UTILISED FOR ANY PURPOSE OTHER THAN THOSE REFERRED TO IN SUB-SECTION (1B), THE AMOUNT SO UTILISED; OR (B) HAS NOT BEEN UTILISED BEFORE THE EXPIRY OF TH E PERIOD SPECIFIED IN SUB-CLAUSE (I) OF CLAUSE (A) OF SUB-SECTION (1B), THE AMOUNT NOT SO U TILISED, SHALL BE DEEMED TO BE THE PROFITS, (I) IN A CASE REFERRED TO IN CLAUSE (A), IN THE Y EAR IN WHICH THE AMOUNT WAS SO UTILISED; OR (II) IN A CASE REFERRED TO IN CLAUSE (B), IN THE YEAR IMMEDIATELY FOLLOWING THE PERIOD OF THREE YEARS SPECIFIED IN SUB-CLAUSE (I) OF CLAUSE ( A) OF SUB-SECTION (1B), AND SHALL BE CHARGED TO TAX ACCORDINGLY. FROM PLAIN READING OF PROVISIONS OF SUBSTITUTED SE CTION 10A(1) IT IS CLEAR THAT THE DEDUCTION U/S 10A IS IN CONTINUATION OF THE BENEFIT ALLOWED UNDE R OLD PROVISIONS OF SECTION 10A OF THE ACT AND WILL BE ALLOWABLE FOR UNEXPIRED PERIOD OF 10 CONSEC UTIVE YEARS. THE BENEFIT WAS TO BE PHASED OUT 19 I. T. APPEAL NO. 1899 (DEL) OF 2008 FROM ASSESSMENT YEAR 2003-04. SECOND PROVISO GIVES BENEFIT TO AN UNDERTAKING INITIALLY LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE WH ICH IS SUBSEQUENTLY LOCATED IN A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE. THE DEDUCTION UNDER SECTION 10A SHALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UND ERTAKING BEGAN TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE IN SUC H FREE TRADE ZONE OR EXPORT PROCESSING ZONE. IN BOTH THE SITUATIONS THE DEDUCTION U/S 10A WILL B E ONLY FOR THE UNEXPIRED PERIOD OF THE TEN CONSECUTIVE ASSESSMENT YEARS. HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONE R OF INCOME-TAX V. DAMCO SOLUTIONS (P.) LTD. 11 TAXMAN.COM 365 (DEL) HAS HELD THAT UNDERTAKINGS WHICH HAVE BEEN ALLOWED DEDUCTION U/S 80HHE CAN CLAIM DEDUCTION U/S 10A SUBJECT TO FULFILLMENT OF ALL CONDITIONS OF SECTION 10A. HOWEVER, IN CASE OF AN UNDERTAKING, WHICH BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2003, IN ANY SPECIAL ECONOMIC ZONE THE DEDUCTION SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 10A (1A), 10A (1B) AND 10A (1C) OF THE ACT. FROM THE PROVISIONS OF SECTION 10 A AND 10A(1A) IT IS CRYSTAL CLEAR THAT IN RESPECT UNDERTAKINGS WHICH BEGAN TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE UPTO 31.03.2002 DEDUCTION U/S 10A WAS ALLO WABLE SUBJECT TO FULFILLMENT OF CONDITIONS OF SECTION 10A OF THE ACT. THUS SUB-SECTION (9) INSERT ED W.E.F. 1.4.2001 WILL BE APPLICABLE TO ALL UNDERTAKINGS WHICH BEGAN TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE UPTO 31.03.2002. THERE IS NOTHING IN SECTI ON 10A WHICH MAY SUGGEST THAT PROVISIONS OF SUB-SECTION (9) OF SECTION 10A WILL BE APPLICABLE I N RESPECT OF THE UNDERTAKINGS WHICH BEGAN TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR C OMPUTER SOFTWARE W.E.F. 1.04.2001. IN THE ABSENCE ANY SUCH PROVISION IN SECTION 10A IN OUR CO NSIDERED OPINION, THE ASSESSEES CASE IS SQUARELY COVERED BY THE PROVISIONS OF SECTION 10A ( 9) OF THE ACT. 17.1 THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE PROVISIONS OF SECTION 10A(9), 10A(9A) AND EXPLANATION 1 HAVE BEEN OMITTED WITH EFFECT FRO M 1/04/2004 AND, THEREFORE, IT SHOULD BE CONSIDERED THAT PROVISIONS OF SECTION 10-A(9) WERE NOT ON STATUTE. WE HAVE GONE THROUGH THE MEMORANDUM EXPLAINING PROVISIONS OF THE FINANCE BIL L, 2003 BY WHICH SECTION 10A (9) WAS 20 I. T. APPEAL NO. 1899 (DEL) OF 2008 OMITTED. THE EXPLANATORY NOTE ON CLAUSES (VII) AND (VIII) OF THE FINANCE BILL, 2003 READS AS UNDER:- UNDER THE EXISTING PROVISIONS OF SUB SECTION (9) OF SECTION 10A AND SUB SECTION (9) OF SUB SECTION 10B, THE DEDUCTIONS UNDE R SECTIONS 10A AND 10B ARE NOT ALLOWED TO THE ASSESSEE WHERE THE OWNERSHIP OR THE BENEFICIAL INTEREST IN THE UNDERTAKING IS TRANSFERRED BY ANY MEANS. HOWEVER, THIS CONDITION IS NOT APPLICABLE WHERE AS A RESULT OF THE RE-ORGANIZATION OF THE BUSINESS, A FIRM OR SOLE PROPRIETARY CONCERN IS SUCCEEDED BY A COMPANY DUE T O THE PROVISIONS OF SUB SECTION (9A) OF SECTION 10A AND SUB SECTION (9A) OF SECTION 10B. THE EXPLANATION 1 BELOW SUB SECTION (9A) ALLOWS THE CONTINUANCE OF BENEFIT, WHERE AS A RESULT OF CHANGE IN OWNERSHIP THE RESULTANT ENTITY IS A PUBLI C LIMITED COMPANY OR A VENTURE CAPITAL COMPANY. WITH THE VIEW TO GIVE BOOST TO THE EXPORT-LED GROWT H, IT IS NECESSARY TO ELIMINATE THE HURDLES IN THE MERGER AND ACQUISITIONS (M & A) AND OTHER MODES OF BUSINESS RE-STRUCTURED. IT IS ACCORDINGLY, PROPOSED TO INSE RT A NEW SUB SECTION (7A) IN SECTION 10A AND SUB SECTION (7A) IN SECTION 10B, TO PROVIDE THAT WHERE AN UNDERTAKING OF AN INDIAN COMPANY IS TRANSFERRED TO ANOTHER COMPANY UNDER SCHEME OF AMALGAMATION OR DE-MERGER, THE DEDUCTION SHALL BE ALLOWED IN THE HANDS OF THE AMALGAMATED OR THE RESULTING COMPANY. HOWEVER, NO DEDUCTION SHALL BE ADMISSIBLE UNDER THESE SECTIONS TO THE AMA LGAMATING COMPANY OR DE- MERGED COMPANY FOR THE PREVIOUS YEAR IN WHICH AMALG AMATION OR DE-MERGER TAKES PLACE. AS A CONSEQUENCE, SUB SECTION (9), (9 A) AND EXPLANATION THEREAFTER IN SECTIONS 10A AND 10B, BECOME REDUNDANT AND ARE P ROPOSED TO BE OMITTED SO THAT THE TAX BENEFIT IS NOT LOST ON CHANGE OF OWNER SHIP OF ELIGIBLE UNDERTAKING. THE PROPOSED AMENDMENTS WILL TAKE EFFECT FROM 1 ST APRIL, 2004 AND WILL ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 2 004-05 AND SUBSEQUENT YEARS. . . . . . 21 I. T. APPEAL NO. 1899 (DEL) OF 2008 17.2 FROM THE EXPLANATORY NOTE IT IS CLEAR THAT THE PROVISIONS OF SECTIONS 10A(9), 10A(9A) AND EXPLANATION 1 WERE OMITTED AS THEY BECAME REDUNDANT BECAUSE OF INSERTION OF SUB SECTION (7A) IN SECTION 10A OF THE ACT W.E.F 1.4.2004. THEREFOR E, UP TO ASSESSMENT YEAR 2003-04 THE PROVISIONS OF SECTIONS 10A (9) AND EXPLANATION 1 WI LL HAVE FULL EFFECT TO ACT AS A BAR IN ALLOWANCE OF DEDUCTION U/S 10A IN A CASE WHERE 51 PER CENT OF SHARES ARE NOT BENEFICIALLY HELD BY THE PERSONS WHO HELD NOT LESS THAN 51% SHARES ON THE LA ST DATE OF THE PREVIOUS YEAR IN WHICH THE UNDERTAKING WAS SET UP. IT WILL BE A CASE OF DEEMED TRANSFER OF OWNERSHIP. SINCE THE PROVISIONS OF SECTION 10A(9) AND EXPLANATION 1 HAVE BEEN OMITT ED WITH EFFECT FROM 1/04/2004, THE LEGISLATIVE INTENTION IS CLEAR THAT PROVISIONS OF S ECTION 10A(9) WILL BE APPLICABLE UP TO ASSESSMENT YEAR 2003-04. IN BHAVNAGAR UNIVERSITY V. PALITANA S UGAR MILL (P.) LTD. [2003] 2 SCC 111 THE APEX COURT HAS HELD THAT IT IS THE BASIC PRINCIPLE OF CONSTRUCTION OF STATUTE THAT THE SAME SHOULD BE READ AS A WHOLE, THEN CHAPTER BY CHAPTER, SECTIO N BY SECTION AND WORDS BY WORDS. RECOURSE TO CONSTRUCTION OR INTERPRETATION OF STATUTE IS NECESS ARY WHEN THERE IS AMBIGUITY, OBSCURITY, OR INCONSISTENCY THEREIN AND NOT OTHERWISE AND AN EFFO RT MUST BE MADE TO GIVE EFFECT TO ALL PARTS OF THE STATUTE AND UNLESS ABSOLUTELY NECESSARY, NO PAR T THEREOF SHALL BE RENDERED SURPLUSAGE OR REDUNDANT. IN HIGH COURT OF GUJARAT V. GUJARAT KISA N MAZDOOR PANCHAYAT [2003] 4 SCC 712 IT HAS BEEN HELD BY THE APEX COURT THAT IT IS A WELL-S ETTLED PRINCIPLE OF LAW THAT AN ATTEMPT SHOULD BE MADE TO GIVE EFFECT TO EACH AND EVERY WORD EMPLO YED IN A STATUTE AND SUCH INTERPRETATION WHICH WOULD RENDER A PARTICULAR PROVISION REDUNDANT OR OTIOSE SHOULD BE AVOIDED. THE DOMINANT PURPOSE IN CONSTRUING A STATUTE IS TO ASCERTAIN THE INTENTION OF THE LEGISLATURE WHICH CONSTITUTES THE LAW OF ANY STATUTE. IN VIEW OF SETTLED POSITION OF LAW PROVISIONS OF SECTION 10A(9) AND EXPLANATION 1 CANNOT BE TREATED AS REDUNDANT FROM T HE DATE OF ITS INSERTION SIMPLY ON THE GROUND THAT THE SAME HAVE BEEN OMITTED W.E.F. 1.4. 2004. I N THE CASE BEFORE US SINCE THE YEAR INVOLVED IS ASSESSMENT YEAR 2002-03, IN OUR CONSIDERED OPINION, THE PROVISIONS OF SECTION 10A(9) WILL BE APPLICABLE WITH FULL FORCE. WE ALSO DO NOT FIND ANY FORCE IN THE CONTENTION OF THE ASSESSEE THAT SECTION 10A (9) AND EXPLANATION 1 SHOULD BE CONSIDE RED NON-EXISTENT FOR THE YEAR UNDER CONSIDERATION ON THE BASIS OF THE DECISION OF ITAT, BANGALORE BENCH IN THE CASE OF M/S. G. E. THERMOMETRICS INDIA PVT. LTD. VS. DCIT (SUPRA) AS T HE TRIBUNAL IN OUR HUMBLE OPINION IS DUTY BOUND TO DECIDE THE ISSUES AS PER RELEVANT PROVISIO NS APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND IT DOES NOT HAVE POWER TO IGNORE THE STATUTORY PROVISIONS. 22 I. T. APPEAL NO. 1899 (DEL) OF 2008 18.1 NOW COMING TO THE DECISION RELIED ON BY THE LD . AR OF THE ASSESSEE IN THE CASE OF ZYCUS INFOTECH P. LTD. (SUPRA). WE HAVE GONE THROUGH TH E DECISION OF THE ITAT AS WELL AS THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ZYCUS I NFOTECH P. LTD. (SUPRA). IN THIS CASE THE ASSESSEE COMPANY HAD BEEN TREATED AS A NEWLY ESTABL ISHED UNDERTAKING IN FREE TRADE ZONE IN ACCOUNTING PERIOD RELEVANT TO ASSESSMENT YEAR 1996- 97 AND WAS ENJOYING DEDUCTION OF ITS PROFITS AND GAINS UNDER SECTION 10A ON 31 ST MARCH, 1998. AS ON 31.03.1996 TWO PROMOTERS OF THE COMPANY WERE HOLDING HUNDRED PER CENT SHARES OF THE COMPANY AND WERE HAVING HUNDRED PER CENT VOTING POWER IN RESPECT OF SHARES HELD BY THEM . HOWEVER, DURING THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2001-02, DUE TO NEW SHARES WERE ISSUED TO NRI, THE SHARE- HOLDING WAS REDUCED TO 42.63 PER CENT AND VOTING PO WER IN RESPECT OF SHARES HELD BY THEM WAS REDUCED TO 51.42 PER CENT. THE REVENUE AUTHORITIES HELD THAT SINCE PERCENTAGE OF SHARES HELD BY PROMOTERS HAD BEEN REDUCED TO LESS THAN 51 PER CENT , IT WAS ESTABLISHED THAT BENEFICIAL INTEREST IN THE UNDERTAKING WAS TRANSFERRED AND, THEREFORE, IN VIEW OF EXPLANATION 1 TO SECTION 10A(9) THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION UNDER SECTIO N 10A OF THE ACT. ON APPEAL BEFORE THE LD. CIT (APPEALS) THE STAND TAKEN BY THE AO WAS CONFIRM ED. ON FURTHER APPEAL IT WAS HELD BY ITAT THAT THE PERSONS WHO HELD THE SHARES CARRYING NOT L ESS THAN 51 PER CENT OF THE VOTING POWER IN THE YEAR IN WHICH THE UNDERTAKING WAS SET UP HAS CEASED TO BENEFICIALLY HOLD SHARES CARRYING NOT LESS THAN 51 PER CENT OF THE VOTING POWER IN THE YEAR UN DER APPEAL. IN FACT THEIR SHARE HOLDING HAD DECLINED TO 42.60 PER CENT AS ON 31 ST MARCH, 2001. THEREFORE, THEY WOULD HAVE VOTING PO WER TO THE EXTENT OF THEIR SHARE HOLDING ONLY. THEY, HOWE VER, CONTINUED TO CONTROL AND MANAGE THE COMPANY AS THEY HAD MAJORITY OF THE VOTING POWER NO T BY VIRTUE OF THEIR HOLDING OF THE SHARES CARRYING NOT LESS THAN 51 PER CENT OF THE VOTING PO WER, BUT BY VIRTUE OF SHARES ALLOTTED TO FOREIGN STRATEGIC FINANCIAL INVESTORS WERE WITHOUT GIVING A NY VOTING RIGHT TO THEM. IT WAS THUS CLEAR THAT THE PROMOTERS HAD CEASED TO BENEFICIALLY HOLD SHARE S CARRYING LESS THAN 51 PER CENT OF VOTING POWER. THEREFORE, THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION UNDER SECTION 10A OF THE ACT. 18.2 ON FURTHER APPEAL HONBLE BOMBAY HIGH COURT HE LD THAT IT IS A SETTLED PRINCIPLE OF INTERPRETATION THAT RETROSPECTIVELY COULD NOT BE LI GHTLY INFERRED UNLESS IT IS CLEARLY PROVIDED IN THE STATUTE. THE FIRST PROVISO TO SECTION 10A IMPLIES CONTINUITY. IF THE INTENTION WAS TO DEPRIVE THE 23 I. T. APPEAL NO. 1899 (DEL) OF 2008 EXISTING INDUSTRIES OR TO IMPOSE A CONDITION, WHICH IS NOT CAPABLE OF BEING FULFILLED IN THE CONTEXT OF TRANSFER HAVING ALREADY OCCURRED PRIOR TO THE ST ATUTE, IT WOULD HAVE BEEN SPECIFICALLY MADE CLEAR. UNDER THESE CIRCUMSTANCES KEEPING IN MIND T HE GENERAL PRINCIPLE THAT VESTED RIGHTS CANNOT BE DIVESTED, ONE CANNOT ASSUME RETROSPECTIVELY TO A GREATER EXTENT THEN WHAT THE SECTION INTENDS. HONBLE BOMBAY HIGH COURT THUS CAME TO THE CONCLUS ION THAT SINCE THE CHANGE IN VOTING POWER HAD OCCURRED PRIOR TO ENACTMENT OF LAW, PROVISIONS OF SECTION 10A(9) OF THE ACT COULD NOT BE MADE APPLICABLE. IT HAS ALSO BEEN HELD THAT THE EX PRESSION THE DATE ON WHICH THE UNDERTAKING WAS SET UP WILL BE APPLICABLE ONLY FOR THOSE ASSES SEES WHO WERE SETTING UP THE UNDERTAKING AFTER THE NEW PROVISIONS SO THAT IN THE CASE OF OTHERS TH E DATE HAS TO BE UNDER-STOOD AT THE BEST AS ON 1/04/2000 THE DATE ON WHICH THE LAW WAS BROUGHT INT O STATUTE. 18.3 IN THE CASE BEFORE US THE FACTS ARE DIFFERENT FROM THE FACTS IN THE CASE OF ZYCUS INFOTECH P. LTD. (SUPRA ). IN THAT CASE THE SHARE HOLDING PATTERN CHANGED IN T HE YEAR RELEVANT TO ASSESSMENT YEAR 1998-99. IN THAT CASE THE ASSESSEE COMPANY WA S TREATED AS NEWLY ESTABLISHED UNDERTAKING IN FREE TRADE ZONE IN ACCOUNTING YEAR RELEVANT TO ASSE SSMENT YEAR 1996-97 AND WAS ENJOYING DEDUCTION OF ITS PROFIT AND GAINS UNDER SECTION 10- A. THE ASSESSEE HAD ISSUED SHARES TO NRIS WITHOUT VOTING RIGHTS. AS A RESULT ORIGINAL PRO MOTERS CONTINUED TO HOLD SHARES OF THE COMPANY CARRYING NOT LESS THAN 51 PER CENT OF VOTING POWER. IT WAS HELD THAT OWNERSHIP OF THE ASSESSEE COMPANY WAS NOT TRANSFERRED BY ANY MEANS AND, THERE FORE, ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 10-A(1) OF THE ACT. HOWEVER IN THE CASE OF ASSESSEE THE UNDERTAKING WAS SET UP DURING THE PERIOD RELEVANT TO ASSESSMENT YEA R 1996-97. STP STATUS WAS ACCORDED ON 28.08.2000. THE ASSESSEE DID NOT ENJOY BENEFIT OF S ECTION 10A FROM ASSESSMENT YEARS 1996-97 TO 2000-01. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHE O F THE ACT IN THE RETURN OF INCOME IN ASSESSMENT YEAR 2001-02 AND CLAIMED BENEFIT OF SECT ION 10A AT ASSESSMENT STAGE FOR THE FIRST TIME. THUS NO RIGHTS BY WAY OF DEDUCTION U/S 10A VE STED IN THE ASSESSEE PRIOR TO INSERTION OF SECTION 10A(9). THE VOTING RIGHTS HAVE FALLEN FROM 100% TO 48.46% AS ON 31.03.2000 AND 31.03.2001 AND FURTHER TO 37 % AS ON THE LAST DAY O F THE RELEVANT ASSESSMENT YEAR. HENCE FACTS OF THE ASSESSEES CASE ARE DISTINGUISHABLE WITH THE FA CTS OF THE CASE OF ZYCUS INFOTECH P. LTD. (SUPRA ). 24 I. T. APPEAL NO. 1899 (DEL) OF 2008 19. AS REGARDS THE DECISION OF THE ITAT, PUNE BENCH IN THE CASE OF JCIT VS. PATNI COMPUTERS (P) LTD. (SUPRA) THE FACTS OF THE CASE WE RE THAT THREE UNITS AT CHINCHWAD, AAKRUTI AND MILLENNIUM PARK WERE SET UP AND STP REGISTRATION WA S OBTAINED. THE ASSESSING OFFICER TREATED THE AFORESAID UNITS AS MERE EXPANSION OF EXISTING U NITS ON THE BASIS OF APPROVAL LETTERS RECEIVED FROM SOFTWARE TECHNOLOGY PARK OF INDIA. ACCORDINGL Y, THE ASSESSING OFFICER HELD THAT PROFITABILITY OF THREE UNITS WAS LIABLE TO BE COMBI NED WITH THAT OF CORRESPONDING OLD UNITS. THE ASSESSING OFFICER ALSO CONCLUDED THAT THE ELIGIBLE PERIOD FOR DEDUCTION UNDER SECTION 10A OF THE ACT WITH RESPECT TO THREE UNITS WOULD ALSO BE RECKO NED FROM THE FIRST YEAR OF THE ELIGIBILITY OF CORRESPONDING OLD UNITS. AGGRIEVED WITH THE AFORES AID STAND OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT (AP PEALS). ON APPEAL THE ASSESSEE CONTENDED THAT ALL THE THREE UNDERTAKINGS HAVE BEEN ESTABLISHED IN SOFTWARE TECHNOLOGY PARK AND WERE REGISTERED WITH STPI. IT WAS ASSERTED THAT ALL THE THREE UNITS SATISFIED THE PRESCRIBED CONDITIONS UNDER SECTION 10A(2) OF THE ACT. IT WAS SUBMITTED THAT THEY WERE SEPARATE AND DISTINCT FROM THE EXISTING UNDERTAKINGS. THE NEW UNITS WERE LOCATED A T LOCATIONS DIFFERENT FROM THEIR CORRESPONDING OLD UNITS. THERE WAS SUBSTANTIAL INVESTMENT IN LA ND, BUILDING AND MACHINERY IN ALL THE THREE UNITS AS DISTINCT FROM OLD UNITS. IT WAS ALSO SUBMITTED THAT THERE WAS SEPARATE PERMISSION FOR CUSTOM WAREHOUSES AND ALSO SEPARATE SHOP AND ESTABLISHMENT LICENSES FOR THE THREE UNITS. THE LD. CIT (APPEALS) ALLOWED THE APPEAL. ON FURTHER APPEAL BE FORE THE ITAT, IT WAS HELD THAT THERE WAS NO PROHIBITION THAT AN EXPANSION IN THE SAME LINE OF B USINESS ACHIEVED BY SETTING UP A NEW INDEPENDENT UNIT WOULD LEAD TO DENIAL OF DEDUCTION UNDER SECTION 10A OF THE ACT. THE FACTS OF THIS CASE ARE DISTINGUISHABLE FROM THE FACTS OF ASS ESSEES CASE. IN THE ASSESSEES CASE AS DISCUSSED ABOVE, STP REGISTRATION WAS RECEIVED FOR THE EXISTI NG UNDERTAKING. NO NEW UNDERTAKING WAS SET UP. THEREFORE, THE FACTS IN THE CASE OF PATNI COMP UTERS (SUPRA) ARE DISTINGUISHABLE FROM THE FACTS OF THE ASSESSEES CASE. SECONDLY, THE ISSUE RELATI NG TO BENEFICIAL OWNERSHIP WAS NOT INVOLVED IN THE CASE OF PATNI COMPUTERS (SUPRA). THEREFORE, TH E DECISION OF THE ITAT, PUNE BENCH IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 20. IN VIEW OF THE ABOVE DISCUSSION IT IS HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. ACCORDINGLY, THE LD. CIT (A) IS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION UNDER SECTION 10A OF THE ACT. 25 I. T. APPEAL NO. 1899 (DEL) OF 2008 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 16 TH DECEMBER, 2011. SD/- SD/- [ I. P. BANSAL ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH DECEMBER, 2011. * MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.