Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: Central Excise rule to resale the machines to a new company :: list of goods taxed at 4% :: articles on VAT and GST in India :: cpt :: ACCOUNTING STANDARD :: due date for vat payment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TDS :: VAT RATES :: empanelment :: TAX RATES - GOODS TAXABLE @ 4% :: VAT Audit :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARDS :: form 3cd
« News Headlines »
 How many times one can revise tax returns?
 Income tax exemption for FY19
 How will the new provisions really work?
 How to save income tax? Best tips for young earners
 Forgot to verify your income tax return? Here's help
 Notification of Government e-Marketplace (GeM) under section 138 of the Income-tax Act
 Income tax returns can be filed even if you missed deadline
 What is the difference between a tax return and a tax refund?
 Improving tax compliance in India
 How to invest in the new LTCG tax regime
 5 Tips to help you save tax

Anti-abuse provision deciphered
March, 24th 2008
In a significant decision, the Chennai Tax Tribunal has made important observations with regards to applicability of the anti-abuse provisions contained in section 10A tax holiday provisions for Software Technology Parks (STP). Dismissing the appeal filed by the Revenue, the Chennai Tribunal ruled that tax holiday is available to a new unit, provided the new unit is not set up by way of splitting up or reconstruction of an existing business. 
The Tax payer was engaged in development of software for export and the local market with a unit in Chennai. Subsequently, it set up a new unit in another location and claimed the rebate. 
The Revenue denied the rebate concluding that the new unit was set up by splitting and reconstructing the existing unit at Chennai. To support its claim, the Revenue contended that the new unit rendered services to clients who were also serviced by the Chennai unit. Further, after the setting up of the Trichy unit, the Chennai unit, which had a track record of huge profits, suffered losses. 
The Revenue department conveniently chose to ignore the fact that the new STPI unit was set up with substantial investment in plant and machinery. Further, the new unit had added new exports clients to its portfolio. 
The Tribunal observed that it is well settled, that in order to hold that a business was formed by splitting up of a business already in existence, there must be material to hold that either certain assets of the existing business are diverted to the new business, or the two units were the same and the one formed was an integral part of the earlier one. 
More importantly, the Tribunal held that reconstruction of business would depend on the facts of each case. 
Placing reliance on Supreme Court and High Court decisions, rendered in the context of manufacturing concerns, the Tribunal observed that a new unit must be set up from new investments. It is immaterial whether the new unit engages in same services or those distinct from those of the existing unit. Further, having common clients would not trigger the reconstruction provisions. The Tribunal further retreated that it is a settled proposition where two views are possible, the one favourable to the tax payer should be adopted. 
The principles that emerge from the decision suggests that sufficient investment in new plant and machinery, sizeable addition to the workforce and customers are key to avoid anti-abuse provisions being triggered. The decision will go a long way in clarifying the intent of law and hopefully dissuade Revenue officers from exercising discretionary powers to disallow legitimate tax holiday claims. 
Though, the decision has been rendered in the context of tax holiday provisions applicable to STPs, arguably these principles may be equally applied to SEZ units, given that the anti-abuse provisions are identical. 
Admittedly, the decision is subject to appeal by the Revenue, yet, I believe that the observations of the Chennai Tribunal would provide logical arguments in deciphering the eligibility of new units for tax holiday, particularly where existing STP units are considering migration to SEZ. 
There is no gainsaying the fact that the decision would be welcomes by the software companies, though, it will be interesting to watch the final outcome.  
Mukesh Butani
The author is Partner, BMR & Associates. Views expressed are personal.
Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - We Bring IT. Offshore software outsourcing company. We use Global Delivery Model (GDM) and believe in Follow The Sun principle

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions