THE COMMISSIONER OF INCOME TAX V. M/S CARITOR (INDIA) PVT LTD

ITA/403/2008

AI Insights

The case involves two appeals by the revenue against M/s. Caritor(India) Pvt. Ltd., concerning the eligibility of the assessee to claim deductions under Section 10A of the Income Tax Act, 1961, for the Assessment Years 2001-02 and 2003-04. The primary legal issue was whether the assessee's units, which commenced production before obtaining customs bonding, were eligible for deductions under Section 10A. The Tribunal had previously ruled in favor of the assessee, leading to the revenue's appeal to the High Court. The court examined the compliance of the assessee with the conditions of the STPI scheme and the requirements of Section 10A, ultimately deciding in favor of the assessee.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 701465 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 20-06-2014
• Assessment Year: misc
• Other Referred Cases: M/s.Infosys Technologies Ltd. Vs. JCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CHYTHANYA
• Assessee Lawyers: K V ARAVIND
• Keywords: Customs Bonding; Exemption Claim; Income Tax; Software Technology Park; STPI
• Section: 10A; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 20th DAY OF JUNE 2014 PRESENT THE HON'BLE MR. JUSTICE N. KUMAR AND THE HON’BLE MR. JUSTICE B MANOHAR ITA No.403 OF 2008 c/w ITA.No.402/2008 IN ITA.No.403/2008: 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, Advocate) AND: M/s.Caritor(India) Pvt. Ltd., No.17 & 17/1, 3rd Floor, South End Road, Basavanagudi Bangalore-560 004 ...RESPONDENT (By Sri.Chythanya.K.K., Advocate) 2 This ITA is filed under Section 260-A of I.T. Act, 1961 arising out of Order dated 8.11.2007 passed in ITA.No.395/BNG/2005, for the Assessment Year 2001- 02 praying to formulate the substantial questions of law stated therein and to allow the appeal and set aside the order passed by the ITAT, Bangalore in ITA No.395/BNG/2005 dated 08.11.2007 confirm the orders of the Appellate Commissioner and Assistant Commissioner of Income Tax Officer, Ward-11(1), Bangalore. IN ITA.No.402/2008: BETWEEN; 1.The Commissioner of Income-Tax, C.R.Building, Queens Road, Bangalore. 2.The Assistant Commissioner of Income-Tax, Circle-11(4), C.R. Building, Queens Road, Bangalore. ...APPELLANTS (By Sri.K.V. Aravind, Advocate) AND: M/s.Caritor(India) Pvt. Ltd., No.17 & 17/1, 3rd Floor, South End Road, Basavanagudi Bangalore-560 004 ...RESPONDENT (By Sri.Chythanya.K.K., Advocate) -0-0-0-0-0- This ITA is filed under Section 260-A of I.T. Act, 1961 arising out of Order dated 8.10.2007 passed in ITA.No.970/BNG/2006, for the Assessment Year 2003- 3 04 praying to formulate the substantial questions of law stated therein and to allow the appeal and set aside the order passed by the ITAT, Bangalore in ITA No.970/BNG/2006 dated 08.11.2007 confirm the orders of the Appellate Commissioner and Assistant Commissioner of Income Tax Officer, Circle-11(4), Bangalore. These appeals coming on for hearing this day, N. KUMAR, J. delivered the following:- JUDGMENT These two appeals are preferred by the revenue where the common question of law is involved, which is held in favour of the assessee by the Tribunal. 2. The undisputed facts are that the assessee is in the business of computer software development and established in a software technology park. The assessee claimed deduction under Section 10(A) amounting to Rs.11,58,99,954/-. The said claim was in respect of the units situated at different places in Bangalore and Chennai. During the assessment proceedings, the assessee was asked to file details of STPI registration dates, customs approval for setting bonded wearhouse, date of commencement of 4 production etc. The assessee company furnished all the particulars. The particulars furnished showed the date of commencement of production and date of initial registration with the STPI are on the same day. One of the primary conditions stipulated in Section 10A is that the undertaking should have been newly formed after registration with STP. The relevant provision namely Section 10A(2)(i) reads as under:- “(2)This section applies to any undertaking which fulfills all the following condition namely:- (i)It has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year. (a)commencing on or after the 1st day of April, 1981 in any free trade zone; or (b)commencing on or after the 1st day April 1994, in any electronic 5 hardware technology park, or as the case may be, software technology park.” While granting permission for setting up of the units, the STPI authorities have put some conditions. Condition No.5 is the units should be customs bonded. The other condition mentioned in the Annexure to the permission letter of the STPI Authorities is the production of the undertaking under the Scheme shall be carried out in the customs bounded area. The location of the undertaking would be subject to the clearance by the concerned Collector of Customs. From that it is clear that the unit registered with the STPI authorities should commence production only in the customs bounded area. The Assessee after fulfilling the formalities obtained licence for Private Bonded Wearhouse from the Customs Department. This licence for private bonded wearhouse obviously would be a date after the permission granted by the STPI authorities to set up the STPI Units. The assessing authority was of 6 the view that the assessee would be entitled to the benefit under Section 10 only if production commences in the customs bonded area after such permission. As the assessee commenced production before that date the assessee is not entitled to the benefit. Accordingly, the claim for exemption was denied to the assessee. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals)-I, Bangalore, who set aside the order of the assessing authority and allowed the appeal holding that all the four units of the assessee have begun manufacture/purchase of computer software during the previous year relevant to the assessment year commencing on or after 1.4.1994 in a software technology park. All the four STP units are newly established undertaking situated under different geographical locations having new plant and machinery. It is not compulsory for a STP unit to have a prior customs approval to commence any software development export. The commercial production can be 7 commenced before bonding. Customs bonding is required only if the assessee intends to avail duty concessions i.e. customs duty/excise duty. For the purpose of Section 10A what is to be seen is whether the conditions stipulated by the EXIM Policy/STPI authorities have been fulfilled or not in addition to the conditions stipulated in Section under Section 10A. Once STPI registration is obtained, the condition stipulated under Section 10A are fulfilled. Merely because the production was commenced before the actual customs bonding took place the assessee cannot be denied the benefit of exemption. Aggrieved by the said order, the Revenue preferred an appeal to the Tribunal. The Tribunal on reappreciation of the entire material on record after considering the relevant provisions of law and relying on the decision of the Bench in the case of M/s.Infosys Technologies Ltd. Vs. JCIT passed earlier held that after the first sale is effected, the unit is recognized as STP unit then the assessee is entitled to the benefit of Section 10A 8 eventhough the unit started production before it became a STP unit and therefore, it dismissed the appeal. It is against the said order, the present appeals are filed. These appeals were admitted to consider the following substantial question of law:- a)Whether the appellate authorities were correct in holding that the assessee was entitled to claim deduction under Section 10A of the Act, in respect of its units despite the assessee failing to satisfy the conditions stipulated in the STPI Scheme which stipulated commencement of units from a particular date when the assessee’s unit had already commenced much before obtaining the license for the bonded warehouse?” From the aforesaid facts, it is clear that the assessee company has set up its unit in the software technology park and had applied to the STPI Authorities for approval. Unit-I was approved on 11.11.1995. Unit II 9 was approved on 9.6.1998; Unit III was approved on 29.6.1998 and Unit IV was approved on 9.8.1999. The particulars are clearly set out in Para(2) of the Tribunal’s order, which is extracted as hereunder:- Sl. No. Unit & Address STPI Approval No.& Date Customs Approval No.&date Date of commencement of production as per Form No.56F Income claimed u/s 10A as exempt 1. Caritor India Pvt. Ltd., 17, 17/1,Southend Road, Basavanagudi, Bangalore. 95/2334 11.11.95 40/3/96/ EOU/III 7.2.1996 11.11.1995 47,674,230 2. 100, Bull Temple Rd., Bangalore. 98060901/ 1400 9.6.1998 NIL 11.6.98 9.6.1998 13,475,793 3. 6, Pycrofts Garden Rd, Chennai G-197-98- 99/61 99 29.6.98 S4/449/ 98 20.7.98 29.6.1998 12,236,579 4. 6/1, Pycrofts Rd, Chennai G-197/ 1999-2000 /1282 9.8.1999 NIL 15.9.1999 9.8.1999 42,514,352 The assessee commenced production prior to the customs bonding. However, the invoices were raised after the customs bonding. The conditions stipulated in the permission granted by the STPI is the units shall be customs bonded. The benefit of such customs bonding is that the assessee would be entitled to the benefit of customs duty and excise duty. It has nothing to do with 10 the grant of exemption under Section 10A of the Income Tax Act. To be eligible for exemption under Section 10A, the conditions stipulated in Sub-Section(2) (i) of Section 10A has to be fulfilled i.e. the assessee has to begin manufacturing the products on or after the first day of April 1994 in any Electronic Hardware Technology Park. In order to start the unit in software technology park, the permission is required. Once permission is obtained and the unit is started in software technology park, after the aforesaid date, the assessee is entitled to the benefit under Section 10A of the Act. Customs bonding is not a requirement or a condition precedent for granting exemption under Section 10A. As is clear from the facts set out above, both the Appellate Authorities were justified in granting relief to the assessee. Therefore, we do not see any merit in this appeal. The substantial question of law is answered in favour of the assessee and against the revenue. 11 Accordingly, these appeals are dismissed. Sd/- JUDGE. Sd/- JUDGE. *alb/-. "