IT : Eligibility of a 100 per cent EOU for
deduction under section 10B is that it should be approved by Central Govt.
through appropriate authority constituted under section 14 of Industries
(Development and Regulation) Act; and if a 100 percent EOU is only approved by
Director, STPI it would not be a valid approval
■■■
HIGH COURT OF DELHI
Commissioner of Income
tax
v.
Regency Creations Ltd.*
S. RAVINDRA BHAT
AND R.V. EASWAR, JJ.
IT Appeal Nos. 69 of
2008, 783 of 2009 & 1239 of 2011
SEPTEMBER 17, 2012
Section 10B, read with
section 10A, of the Income-tax Act, 1961 - Export oriented undertaking - Grant
of approval - Assessment years 2003-04, 2004-05, 2006-07 and 2007-08 - Whether
though considerations which apply for granting approval under sections 10-A and
10-B may to an extent, overlap, yet deliberate segregation of these two
benefits by statute reflects Parliamentary intention, that to qualify for
benefit under either, specific procedure enacted for that purpose has to be
followed - Held, yes - Whether, therefore, approval granted to a 100 per cent
EOU set up under Software Technology Park Scheme cannot be deemed to be an
approval under section 10-B - Held, yes [Para 14] [In favour of revenue]
Circulars and
Notifications : Circular Nos. 1 of 2005, dated 6-1-2005, 149/194/2004/TPL,
dated 6-1-2005, 200/20/2006, dated 31-3-2006 and 694, dated 23-11-1994;
Instruction No. 1 of 2006, dated 6-1-2005
FACTS
Facts
• Assessee
was engaged in 100 per cent export of artware handicrafts, home furnishing and
software exports and had three respective divisions.
• It
claimed deduction under section 10B in respect of its software export income.
• The
Assessing Officer, however, denied the claim on ground that the assessee should
be a 100 per cent export oriented unit approved by the Central Government
through its appropriate authority under section 14 of the Industries
(Development and Regulation) Act, 1951, which it was not.
• On
appeal, the Commissioner (Appeals) held that the claim for exemption under
section 10B was admissible to the assessee since it was registered with the
Central Government i.e. Software Technology Park of India, (STPI).
• The
Tribunal confirmed the order of the Commissioner (Appeals) by relying upon
Circular No. 149/194/2004/TPL dated 6-1-2005 and Circular No.
200/20/2006/Income tax Act, 1961-I, dated 31-3-2006, wherein it was directed
that the grant of registration by STPI be treated as valid for the purposes of
section 10B.
• Being
aggrieved, the revenue preferred instant appeals.
Arguments of revenue
• Benefit
of deduction under section 10B is radically different from the one envisioned
under section 10A.
• None of
the circulars or clarifications, as relied upon by the Commissioner (Appeals)
or Tribunal, ever spelt out any misunderstanding on the part of the income tax
authorities that approval by the Director, STPI could be deemed valid approval
for the purpose of section 10-B.
Arguments of the
assessee
• The
rationale for granting approval to software technology park units was to
augment export of services and products. The intention of section 10B has
therefore, to be read into the context of the concerned scheme, i.e. STPI
which was meant to permit growth of foreign trade in the sector,i.e.,
computer software.
• The
Appellate Commissioner and the Tribunal were alive to the fact that the power
to give approvals was initially with the Inter-Ministerial Standing Committee
which was later delegated to the Director, STPI.
Issues involved
• Whether
approval granted to start 100 per cent EOU under the STP scheme could be deemed
to be one issued under section 10B.
HELD
Pre-conditions that
govern units set up under STP scheme and units set up as 100 per cent EOUs are
different, though certain other conditions does overlap :
• The
assessee had received approval to start 100 per cent EOU under STP scheme. The
question is whether this approval can be deemed one under section 10-B. For
that purpose a 100 per cent EOU is only that which is so approved by the Board
appointed by Central Government in exercise of powers conferred under section
14 of IDAR Act, 1951. The preconditions that govern units set up under STP
scheme are different from those that govern the units set up as 100 per cent
EOUs and so approved by the Board. Some conditions may undoubtedly overlap yet,
criteria, such as fulfilment of the employment criteria, foreign exchange, etc., are
not common. [Para 13]
• The
Interministerial Standing Committee set up for granting licences under STP
scheme is also appointed by the Central Government in exercise of powers
conferred under, section 14 of IDAR Act. However, the question is whether that
part of the Board's function (under section 14 IDR Act) - to grant approval
under section 10-B also stands delegated. For the Court to conclude that the
Inter-ministerial Committee was authorized to issue approval under section 10-B
and that its imprimatur or approval under section 10-A ought to be deemed as an
approval under section 10-B, there ought to be more direct, or express authorization.
[Para 14]
• Section
10A extends the exemption to the units set up under STP scheme which start
production of goods during the previous year relevant to the assessment year
commencing on or after 1-4-1994. The assessee's plea about eligibility of a 100
per cent EOU STP eligible for exemption would render the amendment brought
about by the Finance Act, 1993 (extending the benefit under section 10A to the
STPs from 1-4-1994) superfluous. There is no reason for Parliament to amend the
law, and extend benefits of section 10A to units under STP scheme and, restrict
the benefits to those commencing their operations in the year of account
relevant to the Assessment year 1994-95, if a STP unit is otherwise eligible
for exemption under section 10B of the Act on the ground of its being 100 per
cent EOU. [Para 15]
Interpretation of
statutes
• It
is a settled principle of law that unless there is express authorization, in
terms of a statue, and an actual delegation of power, a statutory authority in
whom jurisdiction or power is reposed, is alone vested with it, to the
exclusion of others. In the absence of a statutory power to delegate, and,
further, to that power, an actual delegation in accordance with law, such
functions cannot be performed or deemed to have been performed by a third
agency or authority. Another cardinal rule which binds the court to interpret
statutes is that where power is given to do a certain thing in a certain way,
the thing must be done in that way or not at all, and other methods of
performance are necessarily forbidden. [Para 16]
Conclusion
• In
the instant case, there is no notification or official document suggesting that
either the Interministerial Committee, or any other officer or agency was
nominated to perform the duties of the Board (constituted under section 14 of
the IDR Act), for purposes of approvals under section 10-B. Though the
considerations which apply for granting approval under sections 10-A and 10-B
may to an extent, overlap, yet the deliberate segregation of these two benefits
by the statute reflects Parliamentary intention that to qualify for benefit
under either, the specific procedure enacted for that purpose has to be
followed. There is nothing in any of the circulars or instructions relied on by
the Tribunal in all the orders, implying that approval for purposes of an STP
also entitled the unit to a benefit under section 10-B. The orders of the
Tribunal are consequently, erroneous, and its reasoning, unsupportable. [Para
17]
• In
the light of the above discussion, the question of law framed is answered in
favour of the revenue, and against the assessee; the appeals are, therefore,
allowed. [Para 18]
CASES REFERRED TO
Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248
(SC) (para 7), CIT v. Jagson International Ltd. [IT
Appeal No. 75 of 2006, dated 14-11-2007] (para 7), Bajaj Tempo Ltd. v. CIT [1992]
196 ITR 188/62 Taxman 480 (SC) (para 9), Hari Chand Aggarwal v. Batala
Engineering Co. Ltd. AIR 1969 SC 483 (para 16), Ajaib Singh v. State
of Punjab AIR 1965 SC 1619 (para 16) and Nazir Ahmed v. King
Emperor [1936] ILR 17 Lah 629 (para 16).
Ms. Rashmi Chopra and Harpeet Singh Ajmani for the
Appellant. Kuldip Singh, Harish Malhotra and Rajender
Aggarwal for the Respondent.
JUDGMENT
S. Ravindra Bhat, J. - These appeals have been preferred by the Revenue claiming
to be aggrieved by the common orders of the Income Tax Appellate Tribunal
(ITAT) in respect of the two assessees, i.e. M/s. Regency Creations Ltd. and
Valiant Communications Ltd. The questions of law which arises in all the
appeals is common, i.e.
"Whether the
Tribunal fell into error in holding that the claim of deduction under Section
10-B of the Income Tax Act in respect of the assessees' income derived from
export of computer software was permissible."
2. The
facts pertaining to the cases of Regency Creations Ltd. [IT Appeal Nos. 69/2008
and 783/2009] in respect of Assessment Years 2003-04 and 2004-05 are that it is
engaged in 100% export of artware handicrafts, home furnishing and software
exports. The assessee had three divisions respectively, in connection with the
said three activities - i.e. artware handicrafts, home
furnishing and software division, which was named M/s. Maxtech iSolution. The
assessee claimed exemption under Section 10B in respect of its software export
income. The Assessing Officer held that to qualify for such benefit, the
assessee should be a 100% Export Oriented Unit (EOU) and approved by the
Central Government through its appropriate authority under Section 14 of the
Industries (Development and Regulation) Act, 1951 (IDR Act). The Assessing
Officer concluded that the Assessee had no valid certificate for software
export and had not mentioned in its Articles of Memorandum of Association that
it could carry-out business in computer software and that M/s. Maxtech
iSolution was not shown to be an undertaking of the assessee, in its Articles
of Memorandum of Association. The assessees' appeal was allowed for academic
years 2003-07; the Appellate Commissioner held that the claim for exemption
under Section 10B was admissible since it was registered with the Central
Government, i.e. Software Technology Park of India (STPI) and that the business
activity of software export was permissible with the main and the ancillary
object spelt-out in the Memorandum of Association. The CIT (Appeals) relied
upon a Circular of the Central Board of Direct Taxes (CBDT). The Revenue
appealed to the Tribunal, which dismissed the appeal, holding as follows:
"5. We have
considered the rival contentions and found from the record that the assessee
had established a software division under the name and style of Maxtech
iSolutions, which was approved and registered with the STPI, a unit of Ministry
of Information and Technology. This is a nodal agency for grant of approval for
establishment of 100% export oriented software. As per the permission letter
dated 7th November, 2006, as placed on the record, we found that STPI had
granted registration to the assessee vide letter dated 5.12.2000 for setting up
a 100% EOU under Software Technology Park Scheme which was valid for 5 years.
The assessee was granted extension to continue the operations under Software
Technology Park Scheme up to 31.03.2009. CBDT in its Circular No.
149/194/2004/TPL dated 06.01.2005 and Circular No. 200/20/2006/Income Tax Act,
1961-I dated 31.3.2006 has directed to treat the grant of registration by STPI
as valid agency for purposes of Section 10B.
6. In the instant case,
the assessee has got approval from STPI, an organization of government duly
authorized by CBDT Circular as stated above. Memorandum of Association of the
Company in its main object clause clearly states the export of all kinds of
goods all over the world. Goods thus includes computer software. Clause 11 of
the Incidental objects as set out in memorandum empowers to set up any unit or
division by the company for carrying on any business. Thus the setting up of
Maxtech iSolution is one of the divisions of assessee is authorized by
Memorandum. The details about branches and production units of assessee have
been clearly informed to Assessee Officer during the assessment proceedings
which he ought to have treated as sufficient compliance. The information about
the places of business of assessee have been clearly mentioned in CA report
which accompanies the return.
7. In view of the above,
we do not find any infirmity in the order of the CIT (Appeals) for granting
exemption under sec. 10-B to the assessee unit. The finding recorded by the CIT
(Appeals) at pages 5 & 6 of his appellate order has not been controverted
by the department by bringing any positive material on record."
3. For the
assessment year 2004-05, the Assessing Officer disallowed the claim for
deduction under Section 10B. The Appellate Commissioner accepted the assessees'
argument following his previous order for the assessment year 2003-04 and also
after observing that the appellant had exported computer software through
proper banking channels and after duly complying with conditions for getting
export invoices endorsed by the STPI, (the Central Government body which is
also the nodal agency established for monitoring exports of computer software).
The Revenue's appeal was allowed by the ITAT which followed its previous order.
4. For
the assessment year 2007-08, the Assessing Officer and the Appellate
Commissioner rejected the claim for benefit under Section 10B. The assessee in
its appeal relied upon the previous two orders of the Tribunal. Before the
Tribunal, the assessee relied upon Ex. No. 62 - Press Note 5 (1997 Series) and
Ex. No. 38 - Press Note 2 (1993 Series) and also the letter dated 31.03.2011
issued by the Ministry of Commerce and Industry. The Tribunal noticed that
Press Notes 2 and 5 which had been relied upon clearly stated that the
Inter-Ministerial Standing Committee for EHTPS and ESTPC was competent to grant
approval for STPI units to claim 100 % benefits under EOU Scheme. On the basis
of this interpretation placed upon the letter dated 09.03.1993 (which was
disclosed through communication dated 31.03.2011), the Tribunal held that the
assessee was entitled to benefit of deduction under Section 10B of the Act. The
said communication/letter dated 31.03.2011 reads as follows:
"Please refer to
your RTI application dated March 10, 2011 received on 17.03.2011) on the
subject mentioned above and to inform that no approval/ratification of STPI
approval is required from BOA formed by Ministry of Commerce by power conferred
under Section 14 of IDR Act, 1951. Inter-Ministerial Standing Committee for
EHTPs and ESTPs (IMSC) is competent in grant approval for STPI unit to claim
all benefits under 100% EOU Scheme as per Press Note 2 of 1993 (copy
enclosed)."
5. The
facts in respect of M/s Valiant Communications (ITA 2002/2010 - Assessment Year
2005-06; ITA 438 to 441/2012 - Assessment Years 2003-04, 2004-05, 2006-07 and 2007-08)
are that the assessee, like in the case of Regency claimed deduction under
Section 10B. It is engaged in the business of manufacturing and export of
telecom transmission equipment. It had a registered unit with the Software
Technology Park of India as a 100% EOU under Electronic Hardware Technology
Park (EHTP) Scheme. The Assessing Officer had rejected the claim, stating that
approval from STPI cannot be equated with the approval of the Board appointed
under Section 14 of the Industries (Development and Regulation) Act, 1951. The
CIT (Appeals) had held that the assessee was entitled to the benefit. The
Revenue's appeal before the Tribunal for the appeal year 2005-06 was rejected;
the Tribunal had relied upon its ruling in the case of Regency Creations.
6. It is argued by
the Revenue in all the appeals that the benefit of deduction under Section 10B
of the Act is radically different from the one envisioned under Section 10A. It
was held that the Press Note -2 and Press Note 5 which had been relied upon by
the Tribunal merely indicated that the Inter-Ministerial Standing Committee had
been set-up for considering applications to set-up units under EHTP Scheme and
the STP Scheme. Such Inter-Ministerial committees were deemed to be for the
purpose of Section 10A. This position was clarified by Circular No. 1 of 2005
relied upon during the course of Tribunal's orders. Similarly, Instruction No.
1 of 2006 also underlined the fact that the Software Technology Park Scheme
notified under Section 3 of the Foreign Trade Development (Regulations) Act,
approvals received by the Inter-Ministerial Standing Committee qualified for
deduction under Section 10A. It was submitted that neither of these circulars
nor even the subsequent clarification dated 06.05.2009 ever spelt-out any
misunderstanding on the part of the income tax authorities that approval by the
Director STPI could be deemed valid approval for the purpose of Section 10-B.
7. Learned counsel
for the assessees contended that the rationale for granting approval for
Software Technology Park units was with the intention of their exporting
services and products. The intention of Section 10B had to be, therefore, read
in the context of the concerned Scheme, i.e. ETPI and STPI which was meant to
permit growth of foreign trade in the sector, i.e. computer software. It was
argued, besides, that the rule of consistency, enunciated by the Supreme Court
in Radhasoami Satsang v. CIT [1992] 193 ITR
321/60 Taxman 248 (SC) and followed by this Court in CIT v. Jagson
International Ltd. [IT Appeal No. 75 of 2006, Dated 14-11-2007],
estopped the Revenue from contending that the assessee did not possess the
requisite approval. It is also submitted that the Tribunal had correctly relied
upon a clarification dated 31.03.2011 which put the matter beyond any shadow of
doubt, i.e. that Press Notes 2 and 5 enured in favor of the assessee. They
could clearly avail the benefit of deduction under Section 10B.
8. It
is argued that the Appellate Commissioner and Tribunal were alive to the fact
that the power to give approvals was initially with the Inter-Ministerial
Standing Committee which was later delegated to the Director STP by the Note
No. 5 (1997 Series). The assessee further relied upon the following extract of
the CBDT circular dated (Notification under SO 388(E) dated 30.04.1995, which
by para 2.10 stated as follows:
"2.10 The
provisions of paragraphs 96,104,109, 110 and 112 to 117 of Chapter IX of the
Export and Import Policy (1992-97) applicable to export oriented units (EOUs)
and units in Export Processing Zones (EPZs) shall also apply to the STP units
subject to the following modifications:
a. The word "STP" shall be substituted for the word
"EOU/EPZ" "EOU" OR "EPZs" wherever they occur, in
the paragraphs.
b. The words "Development Commissioner" wherever they occur
shall be substituted by the words "Chief Executive of the STP
Society."
c. The word "BOA" wherever it occurs, shall be substituted
by the word "IMSC"."
9. Learned counsel
for the assessee urged that the construction or interpretation to be adopted by
the Court should be in consonance with the liberal interpretation of Parliament
in promoting growth and development. In this regard judgment of the Supreme Court
in Bajaj Tempo Ltd. v.CIT [1992] 196 ITR 188/62
Taxman 480 was relied upon. The Supreme Court in that case had held as follows:
"A provision in
taxing statute granting incentive for promoting growth and development should
be construed liberally, the restriction on it too has to be construed so as to
advance objective of the provision and not to frustrate it."
Provisions of Law
10. Before a discussion
about the rival contentions regarding merits of the case, it would be necessary
to extract the relevant provisions, i.e.sections 10-A and Section
10B. They read as follows:
"Section 10A
.Special Provision in Respect of Newly Established Industrial Undertakings in
Free Trade Zones
(1) Subject to the
provisions of this section, any profits and gains derived by an assessee from
an industrial undertaking to which this section applies shall not be included
in the total income of the assessee.
(2) This section applies
to any industrial undertaking which fulfils all the following conditions,
namely :-
(i)
It has begun or begins to manufacture or produce articles or things 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 of April, 1994, in any electronic hardware
technology park or, as the case may be, software technology park;
(ia) In
relation to an undertaking which begins to manufacture or produce any article
or thing on or after the 1st day of April, 1995, its exports of such articles
or things are not less than seventy-five per cent of the total sales thereof
during the previous year;
(ii) It is
not formed by the splitting up, or the reconstruction, of a business already in
existence :
Provided that this
condition shall not apply in respect of any industrial undertaking which is
formed as a result of the re-establishment, reconstruction or revival by the
assessee of the business of any such industrial undertaking as is referred to
in section 33B, in the circumstances and within the period specified in that
section;
(iii) It is
not formed by the transfer to a new business of machinery or plant previously
used for any purpose.
Explanation : The provisions of Explanation 1 and Explanation 2
to sub-section (2) of section 80-I shall apply for the purposes of clause (iii)
of this sub-section as they apply for the purposes of clause (ii) of that
sub-section.
(3) The profits and
gains referred to in sub-section (1) shall not be included in the total income
of the assessee in respect of any five consecutive assessment years, falling
within a period of eight years beginning with the assessment year relevant to
the previous year in which the industrial undertaking begins to manufacture or
produce articles or things specified by the assessee at his option
Provided that nothing in
this sub-section shall be construed to extend the aforesaid five assessment
years to cover any period after the expiry of the said period of eight years……
Explanation : For the purposes of this section, -
(i)
"free trade zone" means the Kandla Free Trade Zone and the Santacruz
Electronics Export Processing Zone and includes any other free trade zone which
the Central Government may, by notification in the Official Gazette, specify
316 for the purposes of this section;
(ii)
"Relevant assessment years" means the five consecutive assessment
years specified by the assessee at his option under sub-section (3);
(iii)
"Manufacture" includes any -
(a )
Process, or
(b)
Assembling, or
(c)
Recording of programmes on any disc, tape, perforated media or other
information storage device.
(iv)
"Electronic hardware technology park" means any park set up in
accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified
by the Government of India in the Ministry of Commerce 318b ;
(v)
"Software technology park" means any park set up in accordance with
the Software Technology Park Scheme notified by the Government of India in the
Ministry of Commerce;
(vi)
"Produce", in relation to articles or things referred to in clause
(i) of sub-section (2), includes production of computer programmes…."
"Section 10B.
Special Provision in respect of Newly Established Hundred Per Cent
Export-Oriented Undertakings.
(1) Subject to the
provisions of this section, any profits and gains derived by an assessee from a
hundred per cent export- oriented undertaking (hereafter in this section
referred to as the undertaking) to which this section applies shall not be
included in the total income of the assessee.
(2) This section applies
to any undertaking which fulfils all the following conditions, namely :-
(i)
It manufactures or produces any article or thing;
(ia) In
relation to an undertaking which begins to manufacture or produce any article
or thing on or after the 1st day of April, 1994, its exports of such articles
and things are not less than seventy-five per cent of the total sales thereof
during the previous year;
(ii) It is
not formed by the splitting up, or the reconstruction, of a business already in
existence :
Provided that this
condition shall not apply in respect of any undertaking which is formed as a
result of the re-establishment, reconstruction or revival by the assessee of
the business of any such industrial undertaking as is referred to in section
33B, in the circumstances and within the period specified in that section;
(iii) it is
not formed by the transfer to a new business of machinery or plant previously
used for any purpose.
Explanation : The provisions of Explanation 1 and Explanation 2
to sub-section (2) of section 80-I shall apply for the purposes of clause (iii)
of this sub-section as they apply for the purposes of clause (ii) of that
sub-section.
(3) The profits and
gains referred to in sub-section (1) shall not be included in the total income
of the assessee in respect of any consecutive assessment years, falling within
a period of eight years beginning with the assessment year relevant to the
previous year in which the undertaking begins to manufacture or produce
articles or things, specified by the assessee at his option :
Provided that nothing in
this sub-section shall be construed to extend the aforesaid five assessment
years to cover any period after the expiry of the said period of eight years……
Explanation : For the purposes of this section, -
(i)
"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…."
Notifications, circulars
and instructions referred to
11. During the
proceedings in this case, the Tribunal as well as the assessee relied upon certain
circulars to say that once a software technology park received approval to
function as such, since the notified approval was in the Central Government's
circulars, given by an Inter Ministerial Committee, which in turn had been
delegated to the Director, the unit was also entitled to avail the benefit
under Section 10-B. It would therefore, be relevant to notice the circulars;
they are extracted below.
12. The Tribunal relied on a circular of 2005; it reads as
follows:
"CIRCULAR NO.1 OF
2005, DT. 6TH JAN., 2005
Sub: Tax holiday under
section 10B of the Income-tax Act to 100% Export Oriented Undertaking - Certain
clarification - Reg
6/1/2005
Exemptions
Section 10B
Section 10B of the
Income-tax Act provides for 100% deduction of profits derived by a hundred per
cent export oriented undertaking, form export of articles or things or computer
software manufactured or produced by it. The deduction is available for a
period of ten consecutive assessment years beginning with the assessment year
relevant to the previous year in which the undertaking begins to manufacture or
produce articles or things or computer software. However, no deduction under
section 10B is available after assessment year 2009-10.
2. The deduction under
section 10B is available to an undertaking which fulfils all the following
conditions:
(i)
it manufacturers or produces any article or thing or computer software;
(ii) it is
not formed by the splitting up, or the reconstruction, of a business already in
existence except in the circumstances specified under section 33B of the IT
Act.
(iii) it is
not formed by the transfer to a new business of machinery or plant previously
used for any purpose.
3. Representations have
been received from various quarters as to whether an undertaking set up in
Domestic Tariff Area, which is subsequently approved as 100% EOU by the Board
appointed by the Central Government in exercise of powers conferred under
section 14 of the Industries (Development and Regulation) Act, 1951, is
eligible for deduction under section 10B of the Income-tax Act.
4. The matter has been
examined and it is hereby clarified that an undertaking set up in Domestic
Tariff Area (DTA) and deriving profit from export of articles or things or
computer software manufactured or produced by it, which is subsequently
converted into a EOU, shall be eligible for deduction under section 10B of the
IT Act, on getting approval as 100% export oriented undertaking. In such a
case, the deduction shall be available only from the year in which it has got the
approval as 100% EOU and shall be available only for the remaining period of
ten consecutive assessment years, beginning with the assessment year relevant
to the previous year in which the undertaking begins to manufacture or produce
articles or things or computer software, as a DTA unit. Further, in the year of
approval, the deduction shall be restricted to the profits derived from
exports, from and after the date of approval of the DTA Unit as 100% EOU.
Moreover, the deduction to such units in any case will not be available after
assessment year 2009-10.
5. To clarify the above
position, certain illustrations are given as under:
(i)
Undertaking 'A' is set up in Domestic Tariff Area and starts manufacture or
production of computer software in financial year 1999-2000 relevant to
assessment year 2000-01. It gets approval as 100% EOU on 10th September, 2004
in the financial year 2004-05 relevant to assessment year 2005-06. Accordingly,
it shall be eligible for deduction under section 10B from assessment year
2005-06 i.e., the year in which it fulfills the basic condition of being a 100%
EOU. Further, the deduction shall be available only for the remaining period of
ten years i.e. from assessment year 2005-06 to assessment year 2009-10. This
deduction under section 10B for assessment year 2005-06 shall be restricted to
the profits derived from exports, from and after the date of approval of the
DTA unit as 100% EOU.
(ii)
Undertaking 'B' set up in Domestic Tariff Area, begins to manufacture or
produce computer software in financial year 1996-97 relevant to assessment year
1997-98. It gets approval as 100% EOU in Financial year 2007-08 relevant to
assessment year 2008-09. No deduction under section 10B shall be admissible to
undertaking B as the period of 10 years expires in financial year 2005-06
relevant to assessment year 2006-07, prior to its approval as 100% EOU.
(iii)
Undertaking 'C' is set up in Domestic Tariff Area in the financial year 2000-01
relevant to assessment year 2001-02 and engaged in the business of providing
computer related services, other than those notified by the Board for the
purpose of section 10B. In financial year 2002-03, it acquires more than 20% of
old plant and machinery and starts manufacturing computer software. It also
gets approval as 100% EOU in financial year 2002-03. Undertaking 'C' shall not
be eligible for deduction under section 10B, as there has been transfer of old
plant and machinery.
(iv)
Undertaking 'D' is set up and starts producing computer software in financial
year 2003-04 relevant to assessment year 2004-05. It gets approval as 100% EOU
in financial year 2006-07 relevant to assessment year 2007-08. It shall be
eligible for deduction under section 10B from assessment year 2007-08. However,
the deduction shall not be available after assessment year 2009-10.
(v)
Undertaking 'E' is set up and starts producing computer software prior to 31st
March, 1994. It gets approval as 100% EOU in financial year 2004-05 relevant to
assessment year 2005-06. Undertaking 'E' shall not be eligible for deduction
under section 10B as the period of deduction of 10 years expires prior to
assessment year 2005-06."
The second document
relied on were the Instructions of 2006, dated 31st March, 2006:
"INSTRUCTIONS NO.1
OF 2006, DT. 31ST MARCH, 2006
SUB: Deduction under
Section 10A-Clarification-Reg.
31/3/2006
EXEMPTIONS
SECTION 10A
1. Section
10A of the Income-tax Act, 1961 provides for 100 per cent deduction of profits
and gains derived by an undertaking from export of articles or things or
computer software manufactured or produced by it. The deduction is available
for a period of ten consecutive assessment years beginning with the assessment
year relevant to the previous year in which the undertaking begins to
manufacture or produce such articles or things or computer software. The tax
benefit under section 10A is available to an undertaking which fulfils all the
following conditions:
(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 1st April, 1981, in any Free Trade Zone; or
(b)
commencing on or after 1st April, 1994, in any Electronic Hardware Technology
Park or Software Technology Park; or
(c)
commencing on or after 1st April, 2001, in any Special Economic Zone;
(ii) it is
not formed by the splitting up or the reconstruction of a business already in
existence except in the circumstances and within the period specified in
section 33B of the Income-tax Act;
(iii) it is not
formed by the transfer to a new business of machinery or plant previously used
for any purpose.
2. 'Software
Technology Park' has been defined to mean any park set up in accordance with
the Software Technology Park Scheme notified by the Government of India in the
Ministry of Commerce and Industry.
3. In
exercise of the powers conferred by sub-section (1) of section 3 of the Foreign
Trade (Development and Regulation) Act, 1992, the Ministry of Commerce notified
the Software Technology Park Scheme wherein it was provided that a Software
Technology Park may be set up by the Central Government, State Government,
Public or Private Sector Undertakings or any combination thereof. An STP may be
an individual unit by itself or it may be one of such units located in an area
designated as STP Complex by the Department of Electronics. The scheme was
required to be administered by the Department of Electronics, Government of
India, through Directors of respective Software Technology Parks which form
part of the Software Technology Parks of India (STPI), a society established by
the Department of Electronics and registered under the Societies Registration
Act, 1860. An application in the prescribed form for establishing a STP unit
was required to be submitted to the Chief Executive of STP Complex along with
the details of the Software project. Such application was to be considered by
an Inter-Ministerial Standing Committee (IMSC) constituted under the
Chairmanship of Secretary, Department of Electronics, Government of India.
4.
Subsequently, vide Notification No. 4/(RE-95/92-97), dated 30th April, 1995
issued by the Director General (Foreign Trade), Ministry of Commerce, in
exercise of powers conferred in sub-section (1) of section 3 of the Foreign
Trade (Development and Regulation) Act, 1992, notified the amended STP Scheme.
Para 2.3 of the aforesaid notification provides that the scheme is administered
by the Department of Electronics, Government of India, through Directors of
respective STPs which form part of the STPI, a society established by the
Department of Electronics and registered under the Societies Registration Act,
1860. An application in the prescribed format for establishing a STP unit may
be submitted to the Chief Executive of STP Complex along with the details of
the software project. Such application will be considered by an
Inter-Ministerial Standing Committee constituted under the Chairmanship of
Secretary, Department of Electronics.
5. Instances
have been brought to the notice of the Board that a large number of units
registered/approved by the Directors of the STPI are claiming deduction under
section 10A whereas the STP scheme requires approval by the Inter-Ministerial
Standing Committee of the Department of Electronics. Accordingly, the cases of
such claimants have been reopened by the field authorities.
6. The
matter has been examined in consultation with the officers of the Department of
Information Technology (earlier, Department of Electronics). In view of the
ambiguity in the legal status of the approval by Director of STPs, the
Inter-Ministerial Standing Committee will meet to consider the approvals by
Director of STPs issued in the past. Therefore, with a view to avoid
infructuous demand raised in assessment and reassessment of assessees claiming
deduction under section 10A, it has been decided that the claim of deduction
under section 10A of the Income-tax Act, shall not be denied to STP units only
on the ground that the approval/registration to such units has been granted by
the Directors of Software Technology Parks. However, it has to be ensured that
all other conditions specified in section 10A are fully satisfied before
allowing any such claim.
7. In cases
where assessments/reassessments have already been completed, and the claim,
under section 10A, has been disallowed only on the ground that the approval to
the STP has not been granted by the Inter-Ministerial Standing Committee in
accordance with the Scheme, the demand so arising should be kept in abeyance
until further orders."
12.1 It would also be
relevant at this stage to notice that Circular No. 694, dated 23-11-1994, one
of the earliest instructions issued by the Central Government, pertinently
stated that:
"….it is clarified
that units in EPZs/EOUs which export software are as much eligible for availing
of the five-year tax holiday under sections 10A and 10B as any other units in
EPZ/EOU, even for the period prior to the previous year relevant to the
assessment year 1994-95. The conditions stipulated in the provisions have, of
course, to be fulfilled. The insertion of the Explanation of the term
"produce" in 1993 should not be taken as a ground for denying the tax
holiday to such units for earlier years. "
Earlier, the Department
of Industrial Development, Ministry of Industry had, by notification No. 117-E
dated 22-2-1993 constituted a committee to perform the functions specifically
delegated, including the grant of approval for EHTPs and STPs. The said
Notification reads as follows:
"Ministry of
Industry
(Department of
Industrial Development)
New Delhi, the 22nd
Feb., 1993
Notification
S.O. No. 117(E)--In
exercise of the powers conferred by Section 14 of Industries (Development and
Regulation) Act, 1951 (65 of 1951), r/w Sub-rule (2) of Rule 10 of the
Registration and Licensing of Industrial undertakings Rules, 1952 the Ministry
of Industry, Department of Industrial Development, hereby appoints the
following committee which shall perform the functions specified:
Inter-Ministerial
Standing Committee for units in the Electronic Hardware Technology Parks (EHTP)
and Software Technology Parks (STP)
Chairman
1.
Secretary, Department of Electronics, or his nominee
2.
Secretary, Department of Industrial Development, or his nominee
3.
Secretary, Department of Science and Technology, or his nominee
4.
Secretary, Ministry of Commerce, or his nominee
5.
Chairman, Central Board of Excise and Customs, or his nominee
6.
Secretary, Deptt. of Economic Affairs, Ministry of Finance, or his nominee
7.
Secretary, Planning Commission, or his nominee
8. Economic
Adviser, Department of Electronics
9.
Secretary, Department of Small Scale Industries and Agro and Rural Industries
or his nominee
10. Joint
Secretary, Department of Electronics, Member- Secretary.
Functions of the
Inter-Ministerial Standing Committee :
(i)
The Committee shall consider all applications for setting up of units in the
Electronic Hardware Technology Parks (EHTP) under the scheme of special
facility (hereinafter referred to as the said scheme framed under the
Government of India, Ministry of Commerce, Notification No. 42 (N-8)/1992-97
dt. the 14th Sept., 1992). The Committee shall also consider all applications
for setting up of units under Software Technology Park scheme operated under
Customs Notification Nos. 138 and 140 dt. 22nd Oct., 1991. The Committee shall
consider proposals for industrial licence, foreign technical collaboration
agreements and import of capital goods. The Committee shall not consider
applications involving foreign equity with or without any other industrial
approvals.
(ii) The
Committee shall review the progress of implementation of letters of intent and
industrial licences granted under the said scheme upto the stage of actual
commissioning of capacity.
(iii) The
Committee shall consider and make a report on policy questions arising from applications
received under the said scheme or from the implementation of individual
proposals thereunder in accordance with the policy laid down by the Central
Government from time to time.
(iv) The
Committee may refer any matter in its discretion for the consideration and
decision of the Central Government in respect of matters falling within its
competence".
Analysis
13. There is no
dispute about the essential facts. Both assesses had received approval to start
100 per cent EOU under STP scheme. The question is whether this approval can be
deemed one under Section 10-B of the Act. For that purpose a 100 per cent EOU
is only that which is so approved by the Board appointed by Central Government
in exercise of powers conferred under Section 14 of IDAR Act, 1951. The
pre-conditions that govern units set up under STP scheme are different from
those that govern the units set up as 100 per cent EOUs and so approved by the
Board. Some conditions may undoubtedly overlap yet, criteria, such as
fulfilment of the employment criteria, foreign exchange, etc., are not common.
14. The
Inter-Ministerial Standing Committee set up for granting licences under STP
scheme is also appointed by the Central Government in exercise of powers
conferred under, Section 14 of IDAR Act. However, the question is whether that
part of the Board's function (under Section 14 IDR Act) - to grant approval
under Section 10-B also stands delegated. The assesses submit that the
Inter-Ministerial Standing Committee has been replaced by the Board on the
basis of the contents of para 2 of the notification of the Ministry of Commerce
dt. 22nd March, 1994, is unpersuasive. That notification states that for the
purpose of paras 111 to 117 of Chapter IX of the Export and Import Policy
(1992-97), Board of Approval shall be substituted by the Inter-Ministerial
Standing Committee. Paras 111 to 117 of Chapter-DC of Export and Import Policy
(1992-97) do not deal with that aspect, but other questions such as
subcontracting by EOU/EPZ, Sale of imported materials, Disposal of scrap,
Private bonded warehouses, period of bonding, and de-bonding. The notification
therefore extended incentives to EOUs to set up units under the STP scheme.
However, for the Court to conclude that the Interministerial Committee was
authorized to issue approval under Section 10-B and that its imprimatur or
approval under Section 10-A ought to be deemed as an approval under Section
10-B, there ought to be more direct, or express authorization.
15. Section 10A
extends the exemption to the units set up under STP scheme which start
production of goods during the previous year relevant to the assessment year
commencing on or after 1st April, 1994. The assessee's plea about eligibility
of a 100% EOU STP eligible for exemption would render the amendment brought
about by the Finance Act, 1993 (extending the benefit under Section 10A of the
Act to the STPs from 1st April, 1994) superfluous. There is no reason for
Parliament to amend the law, and extend benefits of Section 10A to units under
STP scheme and, restrict the benefits to those commencing their operations in
the year of account relevant to the Assessment year 1994-95, if a STP unit is
otherwise eligible for exemption under Section 10B of the Act on the ground of
its being 100 per cent EOU.
16. It is a settled
principle of law that unless there is express authorization, in terms of a
statute, and an actual delegation of power, a statutory authority in whom
jurisdiction or power is reposed, is alone vested with it, to the exclusion of
others (Ref. Hari Chand Aggarwal v Batala Engineering
Co. Ltd AIR 1969 SC 483; and Ajaib Singh v. State
of Punjab AIR 1965 SC 1619). In the absence of a statutory power to
delegate, and further to that power, an actual delegation in accordance with
law, such functions cannot be performed or deemed to have been performed by a
third agency or authority. Another cardinal rule which binds the court to
interpret statutes is that "where power is given to do a certain thing in
a certain way, the thing must be done in that way or not at all, and other
methods of performance are necessarily forbidden…" (See Nazir
Ahmed vKing Emperor [1936] I. L. R. 17 Lah 629).
17. In the present
case, there is no notification or official document suggesting that either the
Inter Ministerial Committee, or any other officer or agency was nominated to
perform the duties of the Board (constituted under Section 14 of the IDR Act),
for purposes of approvals under Section 10-B. Though the considerations which
apply for granting approval under Sections 10-A and 10-B may to an extent,
overlap, yet the deliberate segregation of these two benefits by the statute
reflects Parliamentary intention that to qualify for benefit under either, the
specific procedure enacted for that purpose has to be followed. There is
nothing in any of the Circulars or instructions relied on by the Tribunal in
all the orders, implying that approval for purposes of an STP also entitled the
unit to a benefit under Section 10-B. The orders of the Tribunal are
consequently erroneous, and its reasoning, unsupportable.
18. In the light of the
above discussion, the question of law framed is answered in favour of the
revenue, and against the assessee; the appeals are therefore allowed.
