S. 10B STPI Commissioner approval should be construed as Board approval

Limtex Infotech Ltd. Vs ITO (ITAT Kolkata)

1. This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-11, Kolkata [in short the ld CIT(A)] in Appeal No. 583/CIT(A)-11/7(4)/Kol/14-15/Kol dated 24.03.2017 against the order passed by the ITO, Ward-7(4), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 26.03.2013 for the Assessment Year 2010-11.

2. The only effective issue involved in this appeal is as to whether the ld CITA was justified in upholding the disallowance of deduction claimed u/s 10B of the Act in the facts and circumstances of the case.

3. The brief facts of this case are that the assessee has two main verticles in its business. One vertical comprises development of software and other vertical comprises of running a call centre, income from which has been claimed as exempt u/s 10B of the Act. The assessee was registered under the Software Technology Park (STP in short) scheme as 100% Export Oriented Unit (EOU in short) on 28.1.2005. The same was subsequently renewed on 27.7.2010. The green card was issued to the assessee by the designated officer for Secretary to the Government of India, Department of Information Technology and Chairman Inter Ministerial Standing Committee on Software Technology Park Scheme. The assessee does not have any approval from the Board of Approval for EOU Scheme. The claim of deduction u/s 10B of the Act was disallowed by the ld AO.

4. The entire debate and argument of the A.O. who has disallowed the benefit u/s 10B and the assessee who has argued his case for eligibility of exemption of its income u/s 10B revolves around certain provisions of Sec. 10B which is clearly mentioned in CBDT Instruction No. 2/2009 dated 09.03.2009 as rectified by Instruction of even number on 08.05.2009. The following is extract of instruction:

“Section 10B of the Income Tax Act provides for exemption of income in case of hundred per cent export oriented undertakings subject to prescribed conditions. Explanation 2(iv) below to the said section defines a ‘hundred per cent export oriented undertaking’ as an undertaking so approved by the Board appointed in this behalf by the Central Government u/s 14 of the Industries Development and Regulation Act, 1951. Subsequent to the delegation of this power by the Ministry of Commerce and Industries to the Development Commissioners, such approvals to 100 per cent EOU’s are now being granted by the Development Commissioners which are later ratified by the Board of Approvals.

The matter regarding validity of approvals given by Development Commissioners has been examined in the Board it has been decided that an approval granted by the Development Commissioner in the case of an hundred per cent export oriented unit will be considered valid once such an approval is ratified by the Board of Approval for EOU Scheme.”

As per this instruction, which tries to interpret the requirement of an enterprise as per section 10B for an undertaking to be eligible as 100% Export Oriented Undertaking, it should fulfill the following conditions:

i) The undertaking must have approved by the Development Commissioner

ii) The approval so granted by the Development Commissioner should be subsequently ratified by the Board of Approval for Export Oriented Unit (EOU) Scheme.

This clarificatory instruction was required to be issued by the Board as the explanation to (iv) of Sec. 10B requires approval to be given by the Board. Subsequently, the Ministry of Commerce made certain delegation of the power whereby the power conferred to the Board u/s 14 of Industries Development and Regulation Act, 1951 was delegated to Development Commissioner.

5. The assessee also placed reliance on the email received from Deputy Director STP Kolkata on 27.3.2013 which is extracted hereunder:-

Dear Mr Ramal,

With regard to rectification, IMSC has clarified that no ratification is required for units approved by the Director STPI after 31/03/1999.

Thanks and regards

6. The assessee stated that based on the above email, it is clear that the ratification by the Board of Approval is not required by STPI units. It was further argued that since all the Commissioner of STPI are members of Combined Board of Approval and therefore, approval granted by a Commissioner of concerned STPI should be construed as approval of Board of Approval as well. The second argument offered by the assessee gives simplistic interpretation that few constituents of the Board constitute the entire Board.

7. The revenue pointed out that the above cited Instruciton of the Board dated 8.5.2009 was much more subsequent to the year 1999, the delegation of which has been made the basis of the opinion of the Deputy Director, STPI has been considered by the Board., as it mentions –

“Subsequent to the delegation of this power by the Ministry of Commerce and Industries”

Accordingly, the ld AO observed that it could be concluded that in order to avail the exemption of income u/s 10B of the Act, the assessee must fulfill the two conditions mentioned above i.e. it should be approved by Deputy Director STPI and subsequent to the same, the approval must be ratified by the Board of Approval. As no such approval has been obtained by the assessee in the instant case, the exemption sought by them u/s 10B of the Act is to be denied. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us.

8. We have heard the rival submissions. We find that this issue is already settled in favour of the assessee by the decision of this tribunal which was authored by the undersigned in the case of ITO vs Wizard Enterprises Pvt Ltd in ITA No. 628/Kol/2011 for Asst year 2007-08 ; Assessee’s CO No. 134/Kol/2013 for Asst Year 2007-08 ; ITA No. 65/Kol/2012 for Asst year 2008-09 ; Assessee’s CO No. 133/Kol/2013 for Asst Year 2008-09 dated 4.3.2016 wherein it was held as under:-

“10. We have heard the ld.AR and perused the materials available on record including the paper book as filed by the assessee before us. The facts as stated herein above remain undisputed and hence the same are not reiterated for the sake of brevity. We find from page 43-46 of the assessee’s paper book containing an agreement entered into by the assessee for software export technology park with the Central Government on 20th day of January, 2006, wherein the following clauses require careful consideration:-

WHEREAS the Government have communicated vide STP:DIR 441:2005-06: 1548 dated 10.01.2006 to the unit the terms and conditions for setting up of the 100% export oriented Software Technology Park under software export scheme of Ministry of Communications & Information Technology for the execution of IT enabled services and the unit has duly accepted the said terms and conditions vide their letter No. NIL dated 13th January, 2006.

AND WHEREAS the unit has been granted the status of 100% export oriented unit as defined in Ministry of Commerce Resolution No. 33/(RE)/92-97 dated 2nd March, 1994 in Technology Park.

AS WHEREAS the unit has been allowed to import the capital goods, raw materials, spares and consumables etc free of import duty for the execution of IT enabled services for export through satellite data link or in form of physical export.”

11. We find from page 47-48 of the paper book regarding copy of the green card issued by the designated officer, Govt. of India, Deptt. Of Information Technology and Chairman, Inter-ministerial standing Committee on software technology park scheme vide green card number STPK/233/06 dated 16th Feb., 2006 as an unit approved under the STP scheme of the Govt. of India as 100% export oriented unit to carry out IT enabled services (call centre). It would be pertinent to reproduce the same herein below:-

“ Sl No. 6047

Green Card No.STPK/233/06

Dated the February 16th 2006

SOFTWARE TECHNOLOGY PARK(STP)

UNIT HAS BEEN APPROVED UNDER THE STP SCHEME OF THE GOVT. OF
INDIA AS A 100% EXPORT ORIENTED UNIT FOR COMPUTER SOFTWARE. THIS
UNIT IS ENTITLED TO TOP PRIORITY TREATMENT FROM ALL CONCERNED
CENTRAL AND STATE GOVERNMENT DEPARTMENTS AND OTHER
ORGANISATIONS IN ALL MATTERS RELATING TO THE PROJECT

Sd/-

DESIGNATED OFFICER FOR SECRETARY TO THE GOVT OF INDIA

DEPARTMENT OF INFORMATION TECHNOLOGY AND CHAIRMAN,

INTERMINISTERIAL STANDING COMMITTEE ON SOFTWARE TECHNOLOGY

PARK SCHEME.”

11.1 The above green card approval has to be understood in its true and fullest sense in the larger interest and purpose behind setting up a unit and the allied benefits it is likely to bring. These export benefits would automatically be eligible for deduction u/s. 10B of the Act. Otherwise, the purpose of granting the same for setting up a unit and registering with STP as 100% EOU status would get defeated.

12. We also find lot of force in the alternative argument made by the ld.AR that the assessee company being registered with STP is entitled for claiming deduction u/s. 10A of the Act. In this connection, the CBDT’s instruction no. 1/2006 dated 31-03- 2006 assumes great significance. The same is reproduced herein below for better appraisal :-

“SECTIONS 10A AND 10B FREE TRADE ZONES / 100% EXPORT ORIENTED UNDERTAKINGS, EXEMPTION FOR NEW INDUSTRIAL UNDERTAKINGS IN [SECS.10A AND 10B]

Deduction to STPs – 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.

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 l0A are fully satisfied before allowing any such claim.

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.”

13. It is not in dispute that a call centre operation has been duly notified as IT enabled services and thereby eligible for deduction for 100% export oriented unit contemplated u/s. 10A/10B of the Act.

14. We also find from page 51 of the paper book containing a letter dt. 02-09-2011 addressed to the assessee by Software Technology Parks of India (STPI), Ministry of Communication & Information Technology, Dept of IT, Govt. of India, Kolkata regarding registration for setting up STP unit ( 100% Export Oriented Unit under STP scheme). The same is reproduced here in below for the sake of convenience:-

“Software Technology Parks of India Ministry of Communication

& Information Technology, Dept of IT, Govt. of India Plot No.5/1

DP Sector-V, Salt Lake, Kolkata-700 091 Ph: 91-33-2367

3598/99-2367 3798/99, Fax 91-33- 2367-3597

Email:infor@kol.stp.in/URLhttp://www.kol.stp.in

To

The Director Wizard Enterprises Pvt. Ltd.

5, Lake Avenue, Kolkata – 700026

SUB: YOUR STP UNIT APPROVAL RATIFICATION REG.

REF: Your letter dt: 29.08.2011

Sir, With reference to above and discussions with your officials, the facts w.r.t, your STP unit registration is produced below:

1. Your unit ‘Wizard Enterprises Pvt. Ltd.’ is registered as a 100% Export Oriented Unit under STP scheme vide LOP no. STPK:DIR:441:2005-06:1548 dt: 10.01.2006 as per notification no. 33/(RE)(92-97 dt: 22.03.1994 read with subsequent amendments and EXIM Policy ( Foreign Trade Policy.

2. As per Para 6.26 of Foreign Trade Policy 2004-2009: ‘In the case of units under EHTP /STP Schemes, necessary approval/ permission under relevant paragraphs of this Chapter shall be granted by the officer designated by the Ministry of Communication and Information Technology, Department of Information Technology instead of the Development Commissioner and by the Inter-Ministerial Standing Committee (IMSC) instead of BOA:

3. Approval of your unit is granted by Director, STPI as per powers delegated on him by the IMSC. Thanking you.

Yours faithfully,

Sd/- [Manjit Nayak]

Officer- In -Charge

Copy to: 1. The Director, STPI-Kolkata / Guwahati

15. It was also brought to our attention by the ld.AR that the Instruction (F.No.178/19/2008-IT-I) dated 9^th March’ 2009 issued by CBDT clarifies that the power to grant approval u/s. 14 of industrial (Development & Regulations) Act, 1951 has been delegated to Development Commissioners and approval granted by the Development Commissioner shall be considered valid for the purpose of exemption u/s. 10B. It would be pertinent to note that in the instant case approval under the STP scheme is granted by the Designated Officer, Department of Information Technology and by the Inter-ministerial Standing Committee (IMSC). Hence, the approval granted under STP Scheme complies with all the requirements contemplated u/s. 10B of the Act when read with Industrial (Development & Regulations) Act, 1951, Foreign Trade Policy 2004-2009, Hand book of Procedures (Volume-I) & Appendix to the Handbook. We also find that the ld.AR further argued before us that to the best of his knowledge the order passed under similar circumstances by the ld.CIT(A)-II, Kolkata in the case of ARB Software (India) Ltd for the assessment year 2003-04 has not been appealed by the revenue before the tribunal. We find force in the case law as relied upon by the assessee on the decision of the co-ordinate bench of the ITAT Chandigarh (supra) in the case of Bebo Technologies P.Ltd Vs. JCIT (supra), wherein the Learned AO denied deduction u/s. 10B to the assessee on the ground that no approval was obtained from the Board appointed by the Central Govt. in exercise of power conferred by section 14 of Industrial (Development & Regulation) Act 1951 & Rules made under that Act. It was ultimately held in that case as under:-

“ 39. The Ld. DR for the Revenue before us has failed to point out any contrary evidence to the same. The Ld. counsel for the assessee drew our attention to the gazetted notification in this regard placed at page 16 of the paper book-II under which the powers had been given to consider the application for setting up of units under STP Scheme operated vide custom notification No. 138 and 140 dated 22.10.1991. The said committee was also empowered to consider the proposals for industrial license, foreign technical collaboration, agreement and import of .capital goods. The assessee has furnished the Registration under the Software Technology Park Scheme of India vide approval No. STPIM/PCMG/PSE/02/199-7492 dated 17.2.2003 registering the assessee as an 100% EOU. The copy of the said certificate is enclosed at pages 105 to 109 of the paper book alongwith the copy of the agreement entered into by the assessee company with STPI on 17.2.2003, a copy of which is enclosed at pages 111 to 113 of the paper book. In view of the above said evidence, upholding the order of CIT(A), we hold that the assessee is entitled to deduction u/s 10B of the Act as a 100% EOU on being registered with STPI. In the entirety of facts and circumstances of the case and in view of our observation in paras hereinabove, we uphold the order of CIT(A) in holding that the assessee is eligible to the exemption claimed u/s. 10B of the Act. Accordingly, ground No.2 raised by the revenue is thus dismissed.”

16. We also find glaring similarities between Section 10A and 10B of the Act as below:-

17. We find that the assessee is also entitled for benefit of deduction u/s. 10A of the Act in the facts and circumstances of the case, though the assessee had not claimed the same under that section in the return of income. In this regard, we would like to place reliance on the decision of the co-ordinate bench of the ITAT Mumbai in the case of ITO Vs. Accentia  Technologies Limited in ITA No. 1871/Mum/2011 dated 08-05-2014, wherein it was held that :

“6. Having regard to the circumstances of the case the learned CIT(A) called for a remand report. Upon obtaining the remand report he noticed the following undisputed facts i.e., (a) there is no dispute regarding the amount which is claimed as exempt under section 10A of the Act, (b) there is no dispute that the assessee is entitled to claim exemption under section 10A of the Act and all the criteria regarding the said claim has been met by the assessee, and (c) There is also no dispute regarding the fact that in the return of income the assessee claimed deduction of the amount admissible as deduction under section 10A by mentioning it as section 10B of the Act. Thus the only dispute that exists is whether the claim of the assessee regarding deduction under section 10A is allowable if the claim was made under section 10B in the return of income.

“The learned CIT(A) observed that section 80A(5) is applicable only when the assessee fails to make a claim in his return of income for any deduction whereas in the instant case the assessee did make the claim though, because of a technical error, the claim was made under section 10B instead of 10A. In his opinion, quoting of wrong section should not deprive the assessee from claiming deduction so long as the other conditions for making such claim are satisfied. He relied upon the circular issued by the CBDT dated 11.04.1955 wherein it was observed that it is the duty of the AO to guide the assessee with regard to eligibility to claim deduction; in the instant case when the assessee claimed deduction under section 10 B the AO ought to have guided the assessee with regard to eligibility to claim deduction under section 10A of the Act.”

18. We also find that the contents of audit report in form no. 56F and 56G together with the computation mechanism remains the same for claiming the deduction u/s. 10A/10B of the Act. It was argued alternatively by the ld.AR that the decision of the ld.AO is to educate the assessee of its rights and entitlements as per law and cannot take advantage of ignorance of assessee. In this regard, he cited the relevant extract of the decision of the Hon’ble Bombay High Court in the case of Sanchi Software & Solutions Pvt. Ltd Vs. CIT reported in (2012) 349 ITR 404 (Bom),wherein it was held as under:-

“Income-tax Department cannot take advantage of the assessee’s mistakes in not claiming the exemption in the Income-tax Return and not deny him exemption. The entire object of administration of tax is to secure the revenue for the development of the country and not to charge the assessee more tax than that which is due and payable by the assessee.”

19. We find that the decision of the Hon’ble Jurisdictional High Court in the case of CIT Vs. India Capacitors Ltd reported in 180 ITR 641 also supports this proposition. We further find that the alternative argument of the ld.AR has got lot of force as it may be appreciated that there was no mala fide intention on the part of the assessee in not claiming the deduction under the correct section. In fact, it could be appreciated that the assessee had only run the risks of not having been able to avail the benefit of justice and not gained anything by not claiming deduction under the correct section. The Hon’ble Supreme  Court in the case of CIT Vs. Mahalaxmi Sugar Mills Co. Ltd reported in (1986) 160 ITR  920(SC) has observed as under:-

“There is a duty cast on the Income-tax Officer to apply the relevant provisions of the Indian Income-tax Act for the purpose of determining the true figure of the assessee’s taxable income and the consequential tax liability_ That the assessee fails to claim the benefit of a set-off cannot relieve the Income-tax Officer of his duty to apply section 24 in an appropriate case.”

Hence, we find that the above principle holds good and in the event it had been applied, the assessee would not have been deprived of justice and admitting the claim under correct section.

20. In view of above facts and circumstances and judicial precedents relied upon hereinabove, we hold that the assessee is entitled to claim the benefit of deduction under the provisions of section 10A as well as section 10B of the Act. Hence we find no infirmity in the impugned orders of the ld.CIT(A) in deleting the disallowance as made by the ld.AO on this issue. We uphold the impugned orders of the ld.CIT(A). Hence, the grounds raised by the department in both the appeals are dismissed.

21. In view of aforesaid facts and circumstances and judicial precedents as relied upon by the ld.AR before us, the grounds of cross objections as filed by the assessee before us are allowed.

22. In the result, the appeals of the revenue are dismissed and cross objections of the assessee are allowed as stated above.”

9. Respectfully following the aforesaid judicial precedent, we direct the ld AO to grant deduction u/s 10B of the Act to the assessee in the facts and circumstances of the case. Accordingly, the grounds raised by the assessee are allowed.

10. In the result, the appeal of the assessee is allowed.

Source- Limtex Infotech Ltd. Vs ITO (ITAT Kolkata); I.T.A No. 1368/Kol/2017; 05/09/2018; 2010-2011