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THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 26.02.2013
+ ITA 100/2012
CIT ..... Appellant
versus
TECHNOVATE E SOLUTIONS PVT LTD ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Rohit Madan, Adv.
For the Respondent : Mr Salil Kapoor and Mr Vikas Jain,
Advs.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. The revenue is aggrieved by the order dated 20.06.2011 passed by
the Income Tax Appellate Tribunal in ITA 135/Del/2011 in respect of the
assessment year 2003-04. The revenue has proposed the following
questions as substantial questions of law: -
(A) Whether the Tribunal erred in law in coming to the
conclusion that the approval granted by the Director of STPI
was sufficient approval so as to satisfy the conditions
relating to approvals under section 10A of the Act?
ITA 100/2012 Page 1 of 8
(B) Whether the Tribunal erred in law in concluding that
the software expenses incurred by the assessee was revenue
in nature?
(C) Whether Tribunal failed to appreciate that as regards
the software it was a case of a sale of copyrighted article and
hence the expenditure could not be treated as revenue in
nature?
2. Insofar as proposed questions B and C are concerned, the learned
counsel for the respondent-assessee points out that the issues are covered
by the decision of this Court in CIT Vs. GE Capital Services Ltd. (2008)
300 ITR 400 (Del.). The learned counsel for the appellant agrees that the
issues of software expenses stand covered by that decision of this Court.
3. The issue involved in proposed question A is whether the approval
granted by the Director of the Software Parks of India was sufficient
approval so as to satisfy the conditions stipulated in Section 10A of the
Income Tax Act, 1961. Sub-section (2) of section 10A prescribes the
conditions which an undertaking must fulfill in order to get the benefit of
Section 10A(1). The said sub-section (2) of Section 10A reads as under :-
(2) This section applies to any undertaking which fulfils all
the following conditions, 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 --
ITA 100/2012 Page 2 of 8
(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;
(c) commencing on or after the 1st day of 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 :
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 undertakings 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.
From section 10A(2)(i)(b) it is apparent that one of the conditions is that
the respondent-assessee should have started manufacture or production of
articles or things or computer software in any electronic hardware
technology park or as the case may be a software technology park if the
said manufacture commenced after 1.4.1994. The expression "Software
Technology Park" has been defined in clause (vii) of Explanation 2 of
section 10A as: -
"software technology park" means any park set up in
accordance with the Software Technology Park Scheme
ITA 100/2012 Page 3 of 8
notified by the Government of India in the Ministry of
Commerce and Industry;"
4. In this backdrop it would be necessary to note that the respondent-
assessee had furnished a registration issued by the Software Technology
Parks of India (STPI) in support of its claim under section 10A
amounting to `1,18,05,695/-. The assessing officer had rejected the claim
under Section 10A of the said Act on the ground that the approval by a
Director of STPI was not a valid approval from a specified authority. The
view taken by the assessing officer was that only the inter-ministerial
standing committee was competent to grant approval to units functioning
within the Software Technology Park for the purposes of deduction under
Section 10A of the said Act. However, this issue was considered by the
Central Board of Direct Taxes and an instruction (Instruction No.1/06
dated 31.3.2006) was issued clarifying the position with regard to the
deduction under Section 10A. The relevant portion of the said instruction
is given below:-
"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 authorities.
ITA 100/2012 Page 4 of 8
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, 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."
(underlining added)
It is apparent from the above instruction that it had been decided by the
Board that the claim of deduction under Section 10A of the said Act
should not be denied to the Software Technology Park units only on the
ground that the approval/registration to such units had been granted by
Directors of the Software Technology Parks. A reference may also be
made to the inter-ministerial communication dated 23.3.2006 issued by
ITA 100/2012 Page 5 of 8
the Secretary, Ministry of Communications and Technologies to the
following effect:-
"1. Software Technology Park of India (STPI) is a society
owned and administered by the Govt. of India and therefore
is state under Article 12 of the Constitution of India.
2. The STPI Directors are duly authorized and fully
empowered to issue approvals as 100% EOUs to the unit
under the STP Scheme under delegated powers granted as
per para 9.36 of the Handbook of Procedures (Vol.1) 1997-
2002.
3. All the approvals issued by the STPI Directors have
the authority of Inter Ministerial Standing Committee
(IMSC). The IMSC has periodically reviewed the various
approvals granted by the STPI Directors in accordance
with the Govt. of India guidelines/notifications. All the
current approvals granted by the STPI Directors are
therefore, deemed to be valid. "
(emphasis supplied)
The above communication makes it clear that the approvals issued by the
Directors of the Software Technology Parks of India have the authority of
the Inter-Ministerial Standing Committee and that all approvals granted
by the STPI Directors are therefore deemed to be valid. The position is
also clear from a letter dated 6.5.2009 issued by the Central Board of
Direct Taxes to the Joint Secretary, Ministry of Commerce and Industry
wherein a distinction has been drawn between the provisions of section
ITA 100/2012 Page 6 of 8
10A and 10B of the Income Tax Act, 1961 and in which it has been
clarified that a unit approved by the Director under the Software
Technology Parks scheme will be allowed exemption only under Section
10A as a STPI unit and not under 10B as a 100% export oriented unit. It
is therefore, clear from the above instruction and communications that the
view of the Central Board of Direct Taxes is that approvals granted by the
Directors of Software Technology Parks of India would be deemed to be
valid inasmuch as the said directors were functioning under the delegated
authority of the Inter-Ministerial Standing Committee.
5. In this view of the matter, question A which has been proposed by
the learned counsel for the revenue does not raise any substantial issue of
law. The same has been covered by the CBDT's instruction and
correspondence. It is therefore, clear that the respondent-assessee would
be entitled to the deduction claimed under Section 10A inasmuch as
approval granted by a director of the Software Technology Parks of India
would be a deemed approval of the Inter-Ministerial Standing Committee
and, therefore, the condition stipulated under Section 10A(2) of the said
Act would stand complied with.
ITA 100/2012 Page 7 of 8
6. The learned counsel for the appellant sought to raise an argument
on the basis of the decision of this Court in CIT Vs. Regency Creations
Ltd. in ITA 69/2008 and other connected appeals which was decided on
17.9.2012, however, we feel that the said decision would be of no use to
the appellant inasmuch as that decision was concerned specifically with
the provisions of Section 10B which stand on an entirely different footing
than the provisions of Section 10A.
7. For the following reasons we find that there is no substantial
question of law in this appeal which requires determination by this Court.
The appeal is dismissed.
BADAR DURREZ AHMED, J
R.V.EASWAR, J
FEBRUARY 26, 2013
vld
ITA 100/2012 Page 8 of 8
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