Bombay High Court
The Pr. Commissioner Of Income ... vs M/S. Hinduja Ventures Ltd on 26 July, 2017
Bench: S.V. Gangapurwala
72-ITXA-63-2016.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.63 OF 2016
THE PR.COMMISSIONER OF INCOME )
TAX -10 )...APPELLANT
V/s.
M/S.HINDUJA VENTURES LTD. )...RESPONDENT
Mr.Arvind Pinto, Advocate for the Appellant.
Mr.Kamal Sawhney a/w. Mr.Abhishek Tilak, Advocate for the
Respondent.
CORAM : S.V.GANGAPURWALA &
A. M. BADAR, JJ.
DATE : 26th JULY 2017
ORAL JUDGMENT : (PER S. V. GANGAPURWALA, J.)
1 The present appeal pertains to Assessment Year 2005-
2006.
2 The assessee claims that it has four units engaged in
the business of IT and IT enabled services. The assessee claimed
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deduction under Section 10A of the Income Tax Act (hereinafter
referred to as the Act) in respect of Unit II and Unit III. The
Assessing Officer did not allow deduction under Section 10A. In
appeal, the Commissioner (Appeals) called for the remand report.
The Assessing Officer submitted the remand report. The remand
report favoured the assessee. However, the Commissioner
(Appeals) dismissed the appeal. The assessee filed an appeal
before the Tribunal. The Tribunal allowed the appeal and held
that Unit II and Unit III are entitled for the benefit under Section
10A of the Act. Aggrieved thereby, the present appeal by the
department.
3 The Revenue has filed the appeal on following
grounds:
7.1 Whether on the facts and in the circumstances
of the case and in law, the Hon.ITAT erred in
concluding that the benefits of Section 10A of the
Act in respect of Unit II and Unit III are allowable by
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treating such units as distinct undertaking by
ignoring the fact that assessee in his application to
the STPI Authorities has stated that these units are
expansion and not distinct undertakings ?
7.2Whether on the facts and in the circumstances
and in law, the perversity has crept into the order of
the Hon'ble ITAT by ignoring and not appreciating
the evidence in the form of assessee's own
declaration and admission in application to STPI to
the effect that works under reference constituted
expansion of existing units and not a new and
distinct undertaking or unit ?
4 Mr.Pinto, the learned counsel for the appellant,
strenuously contends that the assessee itself had represented vide
its letter to the STPI that Unit II and Unit III are in the nature of
expansion of business. As such, the assessee cannot now turn
around and contend otherwise. According to the learned counsel,
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even permission was granted by the STPI presumably on the
ground that Unit II and Unit III are expansion units of the
assessee. This fact has been considered by the Assessing Officer
and the Commissioner (Appeals). However, the Tribunal without
considering the finding of the Commissioner (Appeals) has set
aside the said finding. The learned counsel relied on the
judgment of the Delhi High Court in the case of HCL Technologies
vs. Assistant Commissioner of Income Tax decided on 15 th April
2015. According to the learned counsel, the said judgment would
squarely apply in the present case and even the judgment of the
Apex Court in Textile Machinery Corporation Ltd. vs. CIT
reported in 107 ITR 195 was referred thereto. He further submits
that there was no independent registration of Unit II and Unit III
with STPI which would demonstrate that it was not
independent new undertaking. This fact has been lost sight of by
the Tribunal. If the said business was not merely an
expansion but a new undertaking, then certainly a fresh
permission would have been required. The same is not
forthcoming. In view of that, it was not appropriate for the
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Tribunal to reverse finding of fact arrived at by the Commissioner
(Appeals) and the Assessing Officer. The learned counsel submits
that the Tribunal has failed to consider provision of Section
10A(2) in its correct perspective and thereby has arrived at
erroneous conclusion.
5 According to the learned counsel, the provisions of
Section 10A(2) would apply only if the undertaking is not formed
by splitting up or reconstruction of the business already in
existence. In the present matter, as it was not a new undertaking,
the assessee would not be entitled for the benefit of sub-section
(2) of Section 10A of the Act.
6 The learned counsel for the respondent supports the
order and submits that the Commissioner (Appeals) had called for
the remand report from the Assessing Officer. The said remand
report clearly shows that Unit II and Unit III of the assessee were
independent and a new business. According to the learned
counsel, various factors on record could clearly demonstrate the
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independent nature of business of Unit II and Unit III. The same
has been spelt out by the Tribunal in its judgment. The learned
counsel, to substantiate his contention, relies on the judgment of
the Apex Court in case of Textile Machinery Corporation Ltd. vs.
CIT reported in 107 ITR 195. The learned counsel submits that
the Tribunal has relied on the judgment in Patni Computer
Systems Ltd. vs. Deputy Commissioner of Income Tax, Circle 4.
In the said case also permission was granted for expansion of the
business and the same was held to be an independent business.
The said finding is upheld by this court in appeal filed by the
Revenue against the judgment of the Tribunal in Patni Computer
Systems Ltd. vs. Deputy Commissioner of Income Tax, Circle 4.
The learned counsel also relies on the judgment of this court in
the case of The Commissioner of Income Tax-IV vs. Symantee
Software India (P) Ltd. bearing Income Tax Appeal No.1534 of
th
2012, decided on 12 December 2014
.
7 The learned counsel submits that provisions of Section
10A will have to be liberally construed with regard to the object in
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view. The benefit is to be given to the new undertaking by way of
incentive under Section 10A of the Act. The restriction imposed
therein will have to be liberally construed. The learned counsel
relies on the judgment of Bharat General Insurance vs.
Commissioner of Income Tax reported in 188 ITR Vol 196 page
188.
8 We have considered the submissions canvassed by the
learned counsel for the respective parties.
9 It is not a matter of debate that vide letter dated 19 th
July 2000 the assessee sought permission to start Unit II at
Bangalore for carrying out business of processing insurance claims
and vide letter dated 26 th July 2000 the STPI authorities at
Bangalore granted the said permission to start a BPO for claim
processing. On or about 12th September 2001, permission was
granted to Unit III to do the business of international call center.
It was observed by the Tribunal that on 28 th October 2003, the
assessee has taken a separate registration with STPI, Mumbai, for
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BPO call processing activity at Bangalore for the purpose of back
end data backup.
10 The Assessing Officer in his remand report has held
that both Unit II and Unit III duly fulfill all the conditions laid
down in Section 10A(2) of the Act. The remand report of the
assessee spells out following facts :
1. Both units were set up with fresh investments,
the assessee purchased new plant and machinery for
these units and it was not the case that these units
were formed by splitting or reconstructing existing
business. As such this condition is fully satisfied.
2. Separate books of accounts have been
maintained by each units.
3. The employees employed in each of the units
were fresh set of employees and were not
transferred from existing business.
4. The nature of activity of both the units is totally
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different not only vis-a-vis each other but also vis-a-
vis the activity carried on by the first unit.
5. The customers of each unit are completely
different / unrelated and both units have new and
independent sources of income.
6. While Unit-1 is engaged in the business of
software development, Unit-2 is engaged in non-
voice BPO business (Insurance claim processing)and
Unit 3 engaged in voice BPO (Call Center).
7. While Unit-1 earns revenue predominantly from
within India, Units 2 and 3 earn revenues wholly
from exports outside India.
11 The Assessing Officer in his remand report has
specifically observed that both units were set up with fresh
investments. The assessee purchased plant and machinery for
these units and it was not the case that these units were formed by
splitting or reconstructing existing business. It was also
contended that separate books of accounts were maintained. The
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employees of each of the units were fresh set of employees and
were not transferred from existing business. The nature of activity
of both units is totally different, not only vis-a-vis each other, but
also vis-a-vis the activity carried on by the first unit. It was also
observed by the Assessing Officer in its remand report that
customers of each unit are completely different and unrelated and
both the units have new and independent sources of income.
While Unit I is engaged in the business of software development,
Unit II is engaged in non-voice BPO business (Insurance claim
processing) and Unit III is engaged in voice BPO (Call center).
While Unit I earns revenue predominantly from within India, Unit
II and Unit III earn revenue wholly from exports outside India.
12 In light of aforesaid facts, it would be clear that the
Unit II and Unit III cannot be said to be formed by reconstruction
nor can be said to be an expansion of earlier same business.
Though the permission was sought by way of an expansion, the
facts on record categorically and succinctly establish that the
business of Unit II and Unit III were independent, distinct and
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separate and are not related with each other or even with Unit I.
13 The Tribunal also considered the letter from Director,
STPI, issued to the Assessing Officer dated 10 th December 2008,
the letter of the Director, STPI, intimating formation of Unit II so
also another letter to Director, STPI, seeking permission for
bonding facility for Unit II and approval from Director, STPI for
Unit II, the letter to the Director, STPI, intimating formation of
Unit III, letter to Director, STPI, seeking permission for bonding
facility for Unit III and approval from Director, STPI for Unit III.
After considering all the documentary evidence and the remand
report of the Assessing Officer, the Tribunal agreed with the
remand report of the Assessing Officer and held that the assessee
would be entitled for benefit of Section 10A of the Act.
14 The assessee has relied on the judgment of Patni
Computer Systems Ltd. referred to supra which has been upheld
by this court. In the said judgment also, the Tribunal had held
that permission was sought by Patni Computers Systems Ltd. for
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expansion and benefit under Section 10A was accorded. The said
order is upheld by this court in appeal.
15 In case of Textile Machinery Corporation Ltd.
referred to supra, the Apex Court was considering the provisions
of Section 15(C) of the Act as it stood then, dealing with similar
provisions. The Apex Court in the said case observed that the true
test is not whether the new industrial undertaking connotes
expansion of the existing business of the assessee but whether it is
all the same a new and identifiable undertaking, separate and
distinct from the existing business. No particular decision in one
case can lay down an inexorable test to determine whether a given
case comes under Section 15C or not.
16 Considering the aforesaid conspectus, the Tribunal has
not committed any error while passing the impugned order.
17 The plausible finding of fact has been arrived at after
appreciating the documents on record and remand report of the
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Assessing Officer.
18 In light of above, no substantial question of law arise.
The appeal is dismissed. No costs.
(A. M. BADAR, J.) (S.V.GANGAPURWALA, J.)
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