CIT vs. DSL D Software Ltd (Karnataka High Court)
(i) Income Tax department made liable to pay Cost of Rs.1 lac for making the assessee to contest the appeals in three forums and wasting court’s time and tax payers’ money.
(ii) Deduction u/s 10B available for the extended period up to 10 years- 10 year tax holiday u/s 10B under 1999 amendment available to existing STP units for unexpired period; Benefit cannot be denied even if original 5 years tax holiday period expired per-amendment; Cost imposed on IT department for filing frivolous appeal.
Assessee claimed tax holiday benefit u/s 10B for 5 years from FY 1992-03 to 1996-97 under the old provisions of Sec. 10B. As per the then existing provision assessee was entitled to tax holiday benefit for the period of 5 years in the block of 8 years, beginning with the year in which eligible unit commenced software development.
Section 10A and 10B were amended with effect from 1st April 1999, by which the tax holiday was extended to 10 years. The amendment also provided that in case of undertakings, which en¬joyed the benefit under old provisions, the extended benefit would be available only for unexpired period. The assessee therefore claimed benefit for FY 1998-99 to FY 2000-01.
The AO disallowed the benefit in FY 2000-01, holding that the assessee exhausted tax holiday benefit prior to amendment. The AO held that there was no unexpired period left to claim the benefit, on the date on which amendment became effective, as the assessee exhausted the benefit in FY 1996-97 itself.
The assessee’s appeal was allowed by OIT(A) and ITAT confirmed the order of CIT(A). The Revenue was in appeal before HO against ITAT order.
A divisional bench of Karnataka HO held that the assessee was entitled to claim benefit for remaining period under new provisions. HO observed that object of amendment was to extend the benefit to 10 years, in order to give added thrust to export. The Court held that since it was case of extension from 5 years to 10 years, the unit which had benefit for 5 years, would automatically get the benefit for 10 years, if other conditions were fulfilled. The other condition to be fulfilled was with regards to the period of 10 years beginning with the year, in which the undertaking began to manufacture.
HO observed that benefit could not be denied on the ground that 5 years period had expired on the date on which amended provision came into force. Such an interpretation would defeat the intention behind the amendment.
HO noted that Income-tax department had filed appeal without proper application of mind and wasted precious time of HO.
The Court observed.. “It seems the Department is filing these appeals either for the purpose of statistics or to save their skins without application of mind. In this process, a person eligible for tax holiday has not only been denied the benefit, but made to contest the proceedings in three forums.”
Therefore, HC held , “The only way to bring reason to the department, is by imposing cost, so the appropriate action may be taken against the person who has taken the decision to prefer an appeal and recover the same after enquiry.’
Accordingly, HO imposed a cost of Rs. 1 lakh on the tax department.