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CIT Vs. TECHNOVATE E SOLUTIONS PVT LTD
March, 15th 2013
$~10

       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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