Commissioner of Income Tax vs Caritor (India) P. Ltd.

N. Kumar, J.—These two appeals are preferred by the Revenue where the common question of law is involved, which is held in favour of the assessee by the Tribunal. The undisputed facts are that the assessee is in the business of computer software development and established in a software technology park. The assessee claimed deduction under section 10A amounting to Rs. 11,58,99,954. The said claim was in respect of the units situated at different places in Bangalore and Chennai. During the assessment proceedings, the assessee was asked to file details of STPI registration dates, customs approval for setting bonded warehouse, date of commencement of production, etc. The assessee-company furnished all the particulars. The particulars furnished showed the date of commencement of production and date of initial registration with the STPI are on the same day. One of the primary conditions stipulated in section 10A is that the undertaking should have been newly formed after registration with STP. The relevant provision, namely, section 10A(2)(i) reads as under:

"(2) This section applies to any undertaking which fulfils all the following condition, namely:--

(i) it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year,--

(a) commencing on or after the 1st day of April, 1981, in any free trade zone; or

(b) commencing on or after the 1st day April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park."

While granting permission for setting up of the units, the STPI authorities have put some conditions. Condition No. 5 is the units should be customs bonded. The other condition mentioned in the annexure to the permission letter of the STPI authorities is the production of the undertaking under the scheme shall be carried out in the customs bounded area. The location of the undertaking would be subject to the clearance by the concerned Collector of Customs. From that it is clear that the unit registered with the STPI authorities should commence production only in the customs bounded area. The assessee after fulfilling the formalities obtained licence for private bonded warehouse from the Customs Department. This licence for private bonded warehouse obviously would be a date after the permission granted by the STPI authorities to set up the STPI units. The assessing authority was of the view that the assessee would be entitled to the benefit under section 10 only if production commences in the customs bonded area after such permission. As the assessee commenced production before that date the assessee is not entitled to the benefit. Accordingly, the claim for exemption was denied to the assessee. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals)-I, Bangalore, who set aside the order of the assessing authority and allowed the appeal holding that all the four units of the assessee have begun manufacture/purchase of computer software during the previous year relevant to the assessment year commencing on or after April 1, 1994, in a software technology park. All the four STP units are newly established undertaking situated under different geographical locations having new plant and machinery. It is not compulsory for a STP unit to have a prior customs approval to commence any software development export. The commercial production can be commenced before bonding. Customs bonding is required only if the assessee intends to avail of duty concessions, i.e., customs duty/excise duty. For the purpose of section 10A what is to be seen is whether the conditions stipulated by the EXIM Policy/STPI authorities have been fulfilled or not in addition to the conditions stipulated in section 10A. Once the STPI registration is obtained, the condition Stipulated under section 10A are fulfilled. Merely because the production was commenced before the actual customs bonding took place the assessee cannot be denied the benefit of exemption. Aggrieved by the said order, the Revenue preferred an appeal to the Tribunal. The Tribunal on reappreciation of the entire material on record after considering the relevant provisions of law and relying on the decision of the Bench in the case of Infosys Technologies Ltd. v. Joint CIT passed earlier held that after the first sale is effected, the unit is recognised as STP unit then the assessee is entitled to the benefit of section 10A even though the unit started production before it became a STP unit and, therefore, it dismissed the appeal. It is against the said order, the present appeals are filed.

These appeals were admitted to consider the following substantial question of law:

"(a) Whether the appellate authorities were correct in holding that the assessee was entitled to claim deduction under section 10A of the Act, in respect of its units despite the assessee failing to satisfy the conditions stipulated in the STPI Scheme which stipulated commencement of units from a particular date when the assessee''s unit had already commenced much before obtaining the licence for the bonded warehouse?"

From the aforesaid facts, it is clear that the assessee-company has set up its unit in the software technology park and had applied to the STPI authorities for approval. Unit I was approved on November 11, 1995. Unit II was approved on June 9, 1998; unit III was approved on June 29, 1998, and unit IV was approved on August 9, 1999. The particulars are clearly set out in paragraph (2) of the Tribunal''s order, which is extracted as hereunder:

The assessee commenced production prior to the customs bonding. However, the invoices were raised after the customs bonding. The conditions stipulated in the permission granted by the STPI is the units shall be customs bonded. The benefit of such customs bonding is that the assessee would be entitled to the benefit of customs duty and excise duty. It has nothing to do with the grant of exemption under section 10A of the Income-tax Act. To be eligible for exemption under section 10A, the conditions stipulated in sub-section (2)(i) of section 10A has to be fulfilled, i.e., the assessee has to begin manufacturing the products on or after the first day of April, 1994, in any electronic hardware technology park. In order to start the unit in software technology park, the permission is required. Once permission is obtained and the unit is started in software technology park, after the aforesaid date, the assessee is entitled to the benefit under section 10A of the Act. Customs bonding is not a requirement or a condition precedent for granting exemption under section 10A. As is clear from the facts set out above, both the appellate authorities were justified in granting relief to the assessee. Therefore, we do not see any merit in this appeal. The substantial question of law is answered in favour of the assessee and against the Revenue.

Accordingly, these appeals are dismissed.