THE COMMISSIONER OF INCOME TAX V. M/S AMERICAN DATA SOLUTIONS INDIA PVT LTD

ITA/1069/2008

AI Insights

The case involves two income tax appeals filed by the Commissioner of Income Tax and the Income Tax Officer against M/s American Data Solutions India Pvt Ltd, concerning the assessment years 1999-2000 and 2000-2001. The appeals challenged the ITAT's decisions which had favored the assessee. The primary legal issues revolved around the interpretation of Section 10A of the Income Tax Act, particularly whether telecommunication charges should be included in the total turnover for deduction purposes and whether the assessee was eligible for deductions despite commencing production before obtaining the necessary STPI permission. The High Court, referencing a prior decision in Commissioner of Income Tax and another Vs Tata Elxsi Ltd, ruled in favor of the assessee on both counts.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 701222 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 20-10-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax and another Vs Tata Elxsi Ltd (2012) 349 ITR 98 (Karn)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: C P AYAPPA
• Assessee Lawyers: K V ARAVIND
• Keywords: Commencement of production; Deduction under Section 10A; Income Tax; Telecommunication Charges; Computation of Total Turnover; STPI Permission
• Section: 10A; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 20TH DAY OF OCTOBER, 2014 PRESENT THE HON’BLE MR. JUSTICE N. KUMAR AND THE HON’BLE MR. JUSTICE B. MANOHAR INCOME TAX APPEAL No.1069 OF 2008 C/W INCOME TAX APPEAL No.1070 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 [COMMON IN BOTH THE APPEALS] (BY SRI: K V ARAVIND ADV) AND: M/S AMERICAN DATA SOLUTIONS INDIA PVT LTD No.149, RATHNA AVENUE RICHMOND ROAD BANGALORE-560 025. ... RESPONDENT [COMMON IN BOTH THE APPEALS] (BY SRI: C P AYAPPA, ADV) 2 ITA NO.1069/2008 IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 25.07.2008 PASSED IN ITA NO. 1205/BNG/2007, FOR THE ASSESSMENT YEAR 2000-2001, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.1205/BNG/2007, DATED 25.07.2008 CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-11(1), BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. ITA NO.1070/2008 IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 25.07.2008 PASSED IN ITA NO.1204/BNG/2007, FOR THE ASSESSMENT YEAR 1999-2000, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO. 1204/BNG/2007, DATED 25.07.2008 CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-11(1), BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. THESE ITAs COMING ON FOR FINAL HEARING, THIS DAY N.KUMAR J DELIVERED THE FOLLOWING: COMMON JUDGMENT The revenue has preferred these appeals against the order passed by the Tribunal, granting relief to the assessee. 3 2. These appeals were admitted to consider the following substantial questions of law on 08.07.2009 as under: “1. Whether the Appellate Authorities were correct in holding that telecommunication charges have to be excluded for the purpose of computation of total turnover when computing deduction under Section 10A of the Act? 2. Whether the Appellate Authorities were correct in holding that commencement of production on 23.10.1997 i.e., before obtaining STPI permission which was done subsequently on 23.12.1997 and after commencement of production the same was done outside the customs bonded area contrary to STPI permission despite this lacuna Section 10A deduction was allowable?” 4 3. In so far as the first substantial question of law is concerned, this Court in the case of Commissioner of Income Tax and another Vs Tata Elxsi Ltd reported in (2012) 349 ITR 98 (Karn), has answered the said question of law in favour of the assessee and against the revenue. Therefore, following the said judgment, the substantial question of law No.1 is answered in favour of the assessee and against the revenue. 4. However, he has submitted that the revenue has challenged the judgment of this Court in the Apex Court and is pending consideration. In the event of Apex Court holding the other substantial question of law in favour of the assessee, then consequently, the order shall be passed in terms of Section 260(1A) of the Income Tax Act, 1961. 5. In so far as the second substantial question of law is concerned, the argument of the revenue is 5 that production was commenced on 23.10.1997 even before the date of registration of units on 23.12.1997 and therefore, as the condition stipulated in Sub Section 2 (i) of Section 10A is not fulfilled, the assessee is not entitled to the benefit of exemption from payment of Income Tax under Section 10A of the Act. 6. We do not find any substance in the said contention. The three conditions to be fulfilled for getting the benefit under Section 10A are the assessee should begin to manufacture or produce articles or things or computer software on or before the 1st day of April 1994 in software technology park, and it is not formed by the splitting up or the reconstruction of a business already in existence and it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. It is not disputed that all the three conditions are fulfilled in this case. It 6 is contended that without registration, no manufacturing activity could ever take place and therefore, the registration is shown in 23.12.1997 and the manufacturing activity prior to registration, the assessee is not entitled to the benefit. 7. The material on record discloses application for registration was filed on 23.10.1997 whereas, the permission was granted on 23.12.1997 after incorporation of the assessee on 03.09.1997. The assessee taken steps for registration by filing application and thereafter he has commenced production on 23.10.1997 and therefore, as it has fulfilled the requirement as mentioned in Sub Section (2)(i) of Section 10A, the assessee cannot be denied the benefit. Therefore, the substantial question of law No.2 is answered in favour of the assessee and against the revenue. 7 For the aforesaid reasons, we do not see any merit in these appeals. The appeal is dismissed subject to the observations, aforesaid. Office to show the name of C P Ayappa, as counsel appearing for the respondent. Sd/- JUDGE Sd/- JUDGE *bgn/- "