THE COMMISSIONER OF INCOME TAX, V. M/S CYPRESS SEMI CONDUCTOR TECHNOLOGY INDIA

ITA/1013/2008

AI Insights

The case involves three appeals by the Commissioner of Income Tax and the Deputy Commissioner of Income Tax against M/s Cypress Semiconductor Technology India Pvt Ltd, concerning the eligibility for deductions under Section 10A of the Income Tax Act, 1961, for the assessment years 2002-03, 2003-04, and 2004-05. The primary legal contention was whether the assessee was entitled to deductions despite the unit not being a new establishment and the STPI approval being granted after the commencement of production. The ITAT had ruled in favor of the assessee, leading to these appeals. The High Court's decision affirmed the ITAT's ruling, referencing similar precedents and interpretations of Section 10A.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 701415 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 07-11-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax and another vs Caritor (India) Pvt. Ltd., Commissioner of Income Tax and Another vs Expert Outsource P. Ltd., Commissioner of Income Tax vs Tata Elxsi Ltd & Ors.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: T SURYANARAYANA
• Assessee Lawyers: K V ARAVIND
• Keywords: Deduction under Section 10A; Reconstruction of business; Software export; STPI approval; Telecommunication Charges
• Section: 10A; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 07TH DAY OF NOVEMBER, 2014 PRESENT THE HON' BLE MR.JUSTICE N.KUMAR AND THE HON' BLE MR.JUSTICE B.MANOHAR ITA NO.1013 OF 2008 C/W ITA NOS.1014 OF 2008 & 1015 OF 2008 IN ITA NO.1013 OF 2008 BETWEEN 1.THE COMMISSIONER OF INCOME TAX C.R.BUILDING, QUEENS ROAD, BANGALORE. 2.THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(2) C.R.BUILDING, QUEENS ROAD, BANGALORE. ... APPELLANTS (By Sri. K V ARAVIND – ADV.) AND M/S CYPRESS SEMI CONDUCTOR TECHNOLOGY INDIA PVT LTD SHARADA TOWERS IST FLOOR, 56, NANDIDURGA ROAD BENSON TOWN, BANGALORE ... RESPONDENT (By Sri T.SURYANARAYANA – ADV. FOR M/S KING & PATRIDGE) 2 THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 21-06-2008 PASSED IN ITA NO.819/BNG/2007 FOR THE ASSESSMENT YEAR 2004-05, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO. 819/BNG/2007 DATED 21-06-2008, CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(2) BANGALORE. IN ITA NO 1014 OF 2008 BETWEEN 1. THE COMMISSIONER OF INCOME TAX C.R.BUILDING, QUEENS ROAD, BANGALORE. 2.THE INCOME TAX OFFICER WARD-11(1) C.R.BUILDING, QUEENS ROAD, BANGALORE ... APPELLANTS (By Sri. K V ARAVIND, ADV.,) AND M/S CYPRESS SEMI CONDUCTOR TECHNOLOGY INDIA PVT LTD SHARADA TOWERS IST FLOOR, 56, NANDIDURGA ROAD BENSON TOWN BANGALORE ... RESPONDENT (By Sri T.SURYANARAYANA – ADV. FOR M/S.KING & PARTRIDGE ) THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 21-06-2008 PASSED IN ITA NO. 852/BNG/2007, FOR THE ASSESSMENT YEAR 2003-04, 3 PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO. 852/BNG/2007 DATED 21-06-2008, CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-11(1), BANGALORE. IN ITA NO 1015 OF 2008 BETWEEN 1.THE COMMISSIONER OF INCOME TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE. 2.THE INCOME TAX OFFICER WARD-11(1) C.R.BUILDING, QUEENS ROAD, BANGALORE ... APPELLANTS (By Sri.K V ARAVIND – ADV.) AND M/S CYPRESS SEMI CONDUCTOR TECHNOLOGY INDIA PVT LTD SHARADA TOWERS, IST FLOOR, 56, NANDIDURGA ROAD BENSON TOWN BANGALORE ... RESPONDENT (By Sri T.SURYANARAYANA – ADV. FOR M/S.KING & PARTRIDGE ) THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 21-06-2008 PASSED IN ITA NO. 748/BNG/2007, FOR THE ASSESSMENT YEAR 2002-03, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER 4 PASSED BY THE ITAT BANGALORE IN ITA NO.748/BNG/2007 DATED 21-06-2008 CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER,WARD-11(1),BANGALORE. THESE APPEALS COMING ON FOR HEARING THIS DAY, N.KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT The Revenue has preferred these three appeals against the common order passed by the Tribunal holding that the software was exported only during January, 2002 by which time STPI approval has been received and that the STPI unit-III was not set up by reconstruction or splitting up and therefore, the assessee is entitled to the benefit of deduction under section 10A in respect of the STPI undertaking. 2. The appeal was admitted to consider the substantial questions of law :- 1. Whether the Tribunal was correct in holding that Unit III was entitled to deduction u/s.10A of the Act which was taken over from 5 M/s.Lara Networks despite the unit-III not been a new establishment and the same had been functioning earlier? 2. Whether the Tribunal was correct in allowing deduction u/s.10A of the Act on Unit-III even though the assessee had been reconstituted/reconstructed by virtue of a business already in existence M/s.Lara Networkds which would defeat the purpose of the provision? 3. Whether the Tribunal was correct in allowing deduction u/s.10A of the Act on Unit-III without alternatively considering the disallowance made by the Assessing Officer that the telecommunication charges would be liable to be deducted from export turnover before allowing deduction u/s.10A of the Act? 3. The undisputed facts are, the assessee is a software unit. It started production on 1.10.2001. Licence for custom bonding was granted on 29.1.2002. 6 The STPI approval was granted on 31.1.2002. The first invoice is dated 31.1.2002 and the relevant assessment year is 2002-03. Therefore, the assessee satisfies all the conditions stipulated in Section 10A of the Income Tax Act, 1961 (for short hereinafter referred to as ‘the Act’) and is eligible for deduction. 4. The contention of the Revenue was, production was commenced even before the registration of the STPI and therefore, they are not entitled to deduction. The other ground was, the unit was acquired on 1.10.2001 and therefore it is a case for reconstruction and therefore, they are not entitled to the said benefit. The Tribunal by looking into the material on record by a considered and reasoned order has categorically recorded a finding that Lara Net works did not have STPI net work by the time the unit taken over by the assessee. The circular No.1 of 2005 dated 6.1.2005 by CPDT makes it clear that even if the 7 existing undertaking receives STPI approval, it would still be entitled to deduction under Section 10A and therefore, it was held that the business of STPI Unit-III was not set up by reconstruction or splitting up. Further it was held though registration was subsequent to the production, that is not a condition which is stipulated in Section 10A for claiming the benefit of the said deduction and therefore, the assessee is entitled to the said benefit. In fact, these questions were the subject matter of ITA Nos.403 of 2008 c/w.402 of 2008 decided on 20.6.2014 in the case of Commissioner of Income Tax and another – vs – Caritor (India) Pvt. Ltd. and also in the case of Commissioner of Income Tax and Another – vs – Expert Outsource P. Ltd. reported in (2013) 358 ITR 518 where, on interpreting the aforesaid provisions, it was held neither the customs bonding nor STPI registration before production is not a condition precedent. In that view of the matter, the substantial 8 question of law are answered in favour of the assessee and against the Revenue. There is no merit in this appeal and it is accordingly dismissed. However, while giving effect to these orders, the Assessing Authority also shall give effect to the judgment of this court in the case of Commissioner of Income Tax – vs – Tata Elxsi Ltd. & Ors. reported in (2012) 349 ITR 98. The said judgment is the subject matter of appeal before the Apex Court. However, in the event of the revenue succeeding before Apex Court, then consequential order in terms of Section 260(1)(1A) of the Income Tax Act should be passed and given effect to. Sd/- JUDGE Sd/- JUDGE Rs "