Estoppel does not apply against a Statute

Brief of the case

In the present case the Hon’ble High court while deciding two vital issues held that the estoppels does not apply against a statute and Mere expansion of the Existing Units can’t be termed as a separate undertaking in order to claim deductions under section 10A.

Facts of the Case

The appellant is a public limited company engaged in providing software development services. During the relevant assessment year, the assessee had 31 independent software development units set up at distinct locations which were registered under 13 licenses with STP authorities. Deduction under section 10A was claimed considering 13 mother licenses issued by the STP authorities as 13 eligible undertakings or units. The assessee now sought to treat 31 undertakings registered with STPI under 13 mother licenses as independent undertakings eligible for the said deduction, separately and individually which was disallowed on the two grounds which are as follows:

• The units set up in the earlier years were mere expansion of the existing units
• The issue of units set up were independent and separate was raised belatedly which could not be gone into at this late stage.

Contention of the Assessee

The mere fact that in the earlier years the appellant did not compute the deduction under section 10A of the Act by considering these 31 units as separate undertakings does not create estoppel. The Ld. Counsel of the assessee relied on CIT v. Bharat General Reinsurance, 81 ITR 303 for the proposition that an assessee can anytime resile from an incorrect position already taken in return of income. Reliance was also made on the decisions of the Supreme Court in Commissioner of Income Tax v. C. Parakh & Co (India) Ltd, 29 ITR 661 in which it was observed that that estoppel does not apply against a statute and that the assessee’s entitlement to a deduction depends upon the statutory provision and not the assessee’s view regarding the same.   It was further submitted that requisite conditions to claim deduction under section 10A of the Act are satisfied by each of the 31 undertakings, in the form of application to the STPI authority, approval of the STPI authority, lease deed for new premises, list of additions of plant and machinery and list of imported plant and equipment made available by the customer(s) supported with necessary evidence, custom bond register, number of employees, organizational hierarchy chart, audited profit and loss account and Form 56F, etc., for each of the 31 undertakings which clearly demonstrated that each of the units were set up independently in their own right. It was also submitted that each software development centre which the assessee owns is and has always been treated as a separate undertaking.

Contention of the Revenue

The ld. Counsel for the Revenue contended that the appellant had availed the benefit under Section 10A only with respect to 13 units earlier. It was also contended that the decisions on estoppel cited by the appellant would not apply in the peculiar facts and circumstances of the case.

The revenue argued that the observations in the AOs order dated 28.10.2010 had comprehensively dealt with the relevant facts, to determine if the appellant’s claim of the 31 units being distinct undertakings was correct, and the AO had correctly concluded against the appellant. He also submitted that the ITAT also noted the contents of the order for the assessment year 1999-2000, -relied upon by the appellant to say that the 31 units were always treated as distinct undertakings.

Held by DRP(Dispute Resolution Panel)

The DRP, by its Order dated 30.09.2010, affirmed the AO’s action and held 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 of the Act.

Held by ITAT

The ITAT, by the impugned order, dismissed the appeal of the assessee against the DRP’s order and held that the appellant could not claim enhanced deduction under Section 10A by departing from its earlier position. It was also held that the fact that the STPI authorities endorsed on the existing licenses meant that the new and separate locations added were in the nature of expansion of the existing units.

Held by High Court

The Hon’ble High court while deciding the issue of estoppel in the favour of Assessee held that 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. The Hon’ble High court while affirming the decision of ITAT on the issue of considering of 31 units into separate undertakings held that the appellant 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. Therefore, it was held that the 31 units cannot be treated as separate undertakings for the purposes of availing benefit under Section 10A of the Act.