By TIOL News Service

NEW DELHI, APR 17, 2015: THE issue before the Bench is - Whether when the assessee has multiple STPI units registered under a single ‘mother’ license, each STPI unit cannot be considered as a separate undertaking for the purpose of claiming the section 10A deduction. And the verdict goes against the assessee.

Facts of the case

The assessee company provides software development services through its various STP units. The assessee had 31 independent software development undertakings, registered under 13 licenses with STP authorities. The assessee in its return, claimed the section 10A deduction by considering the 13 mother licenses as 13 eligible undertakings. Later, the assessee revised its return of income by enhancing the section 10A deduction. It now sought to treat the 31 undertakings registered with STPI under 13 mother licenses as independent undertakings eligible for this deduction separately and individually. The assessee thus showed business losses. According to the assessee, each software development Centre was a separate undertaking for the purpose of section 10A. Just because in the earlier years, it had not considered these 31 undertakings as separate undertakings for computing the section 10A deduction, it could not be estopped from making this claim in the subsequent assessment years falling within the ten year period.

The Assessing Officer disallowed the additional deduction claimed under section 10A by way of revised return. The AO held that the units set up in earlier years were mere expansion of the existing units as there was no separate approval as a new unit by the STPI authorities. The AO noted that the assessee had belatedly claimed these units as independent and separate without placing any evidence on record to establish that each unit had a separate bank account or separate books of account. The AO thus restricted the assessee's claim of the section 10A deduction to 13 mother licenses and not the 31 independent and eligible units.

The DRP confirmed the AO's action holding that software development centres added under each license were only extensions of the original undertaking and they could not consequently be treated as separate undertakings for the purpose of claiming deduction under section 10A.

The Tribunal also dismissed the assessee's appeal holding that it could not claim the enhanced section 10A deduction by departing from its earlier position that the units in question were only extension or expansion of the pre-existing units and were not new units. Also, the assessee had never placed on record the documents seeking STPI permission.

Having heard the parties, the High Court held that,

++ the approach of other High Courts on this issue is in consonance with the assessee's contention. As held by the Allahabad High Court in the case of Laxmi Metal Industries, the assessee's failure to claim benefit under a (statutory) provision initially, would not constitute a bar from the grant of such benefit if claimed subsequently.

++ if, on an application of the statutory provision, the party is entitled to the benefits under the Act, the mere circumstance that for the past 5 to 7 years, or even 10 years, it did not claim such benefit would not preclude it from availing it in the assessment year in question. What the appellant cannot resile from is the existence of a given set of facts which it has not challenged earlier. However, if, based on the same set of facts, it now seeks to claim deduction under Section 10A which it had foregone earlier, the appellant's claim must be allowed, provided, of course, the requirements of Section 10A are satisfied. Therefore, in the instant case, in the event that the appellant establishes that the 31 units constitute separate undertakings for the purposes of Section 10A, it would be entitled to the claims made in the revised return. Accordingly, the first question is answered in favour of the appellant and against the revenue.

++ (considering) the pre-requisites for availing the benefit under Section 10A(2)..., the appellant has contended that it has maintained separate books of accounts. However, the AO and the ITAT rejected the appellant's contentions and held that there was no material on record to establish that the appellant had treated the 31 units as distinct undertakings.

++ as held by the Supreme Court in the case of Textile Machinery Corporation, the answer (as to whether a unit is a separate undertaking) depends upon the peculiar facts and circumstances of each case and no hard and fast rule can be laid down to determine the issue. Indeed, the answer to such a query, ultimately, ought to be fact specific, and the lower authorities have arrived at their conclusion based on an adequate examination of facts.

+ the assessee had urged that only the basis of the claim of deduction under Section 10A of the Act was sought to be altered in the revised return by treating each of the 31 undertakings created under the umbrella of 13 licences as separate undertakings. However, since the deduction under Section 10A is available to each undertaking, and given the concurrent finding of fact of lower authorities wherein they have held the material on record to be insufficient to treat each of the 31 units as separate undertakings, this Court holds that no interference on this issue is warranted. Consequently, it is held that the 31 units cannot be treated as separate undertakings for the purposes of availing benefit under Section 10A of the Act.

+ thus, the second question on the merits of the rejection of the claim for deduction under Section 10-A is answered in favour of the revenue and against the assessee. As a result, its appeal fails and is accordingly dismissed.

(See 2015-TIOL-931-HC-DEL-IT)