Commissioner of Income Tax vs Western Outdoor Interactive P. Ltd.

M.S. Sanklecha, J.—These appeals by the Revenue u/s 260A of the income tax Act, 1961 ("the Act"), are against the common order dated August 12, 2009, of the income tax Appellate Tribunal ("the Tribunal") in relation to the assessment years 2002-03, 2003-04 and 2004-05. Being aggrieved by the order dated August 12, 2009, the appellant-Revenue has formulated the following identical question of law for the three assessment years for the consideration of this court.

Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing exemption to the assessee-company u/s 10A of the income tax Act in respect of its unit at SEEPZ Mumbai even though it has not complied with the requirements of section 10A(2)(ii) of the income tax Act ?

The facts are similar in all the three appeals. However, for the sake of convenience, we are setting out the facts stated in Appeal No. 1150 of 2010 pertaining to the assessment year 2002-03 as under:

(a) The respondent-assessee is engaged in the business of development of software for in-flight entertainment for aircrafts. The software developed by the respondent-assessee is exported to one M/s. MAS Ltd. USA. The respondent-assessee has two divisions one in Fort, Mumbai which commenced its operation in 1997-98 and the other at Santacruz Export Processing Zone (SEEPZ) which commenced operation during 2000-01.

(b) In respect of its unit at SEEPZ, the respondent-assessee has claimed the benefit of section 10A of the Act from the assessment year 2000-01 onwards. The income tax Department allowed the claim for exemption of the SEEPZ unit u/s 10A for the assessment years 2000-01, 2001-02 and 2002-03. However, for the assessment years 2003-04 and 2004-05, the benefit of section 10A of the Act was not extended to the SEEPZ unit on the ground that the same was formed by splitting of the Fort unit.

(c) Consequent to the above, the assessment for the assessment year 2002-03 was reopened u/s 147/ 148 of the Act. The Assessing Officer by his order dated July 24, 2007, for the assessment year 2002-03 rejected the appellant''s claim for exemption for the SEEPZ unit u/s 10A of the Act on the ground that it was formed by splitting the Fort unit as is evident from the fact that the same kind of software is being exported by both units and export realization was received by single payment in many cases and many expenses like foreign travel expenses were incurred by the Fort unit and transferred to the SEEPZ unit.

(d) In appeal, the Commissioner of income tax (Appeals) by an order dated March 24, 2008, set aside the order dated July 24, 2007, for the assessment year 2002-03 disallowing the claim of exemption u/s 10A of the Act to the SEEPZ unit. The order dated March 24, 2008, while holding that benefit of section 10A is available to the SEEPZ unit records that the order for the assessment years 2003-04 and 2004-05 by the Assessing Officer denying the benefit of section 10A of the Act had been set aside by his predecessor. Therefore, the Assessing Officer was directed to grant relief u/s 10A of the Act to the respondent-assessee in respect of its SEEPZ unit.

(e) Being aggrieved, the Revenue filed an appeal before the Tribunal. The Tribunal, by its common order dated August 12, 2009, dismissed the Revenue''s appeal for the assessment years 2002-03, 2003-04 and 2004-05 by holding that the respondent''s SEEPZ unit is entitled on the merits to the benefit of section 10A of the Act. The Tribunal records a finding that for the assessment years 2000-01 and 2001-02 the claim of the respondent u/s 10A of the SEEPZ unit was allowed in scrutiny assessment u/s 143(3) of the Act. Further, on the merits, it was held that two units were functioning at different location and were functioning independently. Further, nothing has been brought on record to suggest that any plant, machinery or equipment of the existing unit was transferred to the new unit. Further, there were separate books of account and bank accounts for both the units. The Tribunal also held that merely because the two units manufactured the same product it cannot lead to a conclusion that they are not two separate units. Thus, the grant of benefit of section 10A of the Act was upheld.

Mr. Vimal Gupta, counsel appearing for the Revenue in support of the appeal, submits that the SEEPZ unit is formed by splitting up the Fort unit as is evident from the fact that both units develop the same software product, export it to the same party and many a times common remittance is also received from the foreign party. It is his case that merely by opening a bank account, taking separate premises and purchasing of few computers would not result in an independent unit being set up. Mr. Gupta further submits that the Tribunal erred in proceeding on the basis that as the respondent-assessee had been granted benefit of section 10A of the Act for assessment years 2000-01 and 2001-02, it is not open to take a contrary view for subsequent years. Mr. Gupta submits that each year is an independent year and there is no concept of res judicata in tax matters. Therefore, the Revenue is entitled to take a different view in subsequent year.

On the other hand, Mr. Percy Pardiwalla, senior counsel appearing on behalf of the respondent-assessee, submitted that in view of the decision of this court in the matter of Commissioner of Income Tax Vs. Paul Brothers, and M/s. Direct Information Private Limited Vs. The Income Tax Officer, 9(1) and Others, the issue is no longer open to debate. In the above case, it is held that once a benefit of deduction was extended in respect of a provision for a particular number of years then unless the benefit is withdrawn for the first year it cannot be withdrawn for subsequent years, particularly, when there is no change in the facts. Therefore, he states that once a benefit of section 10A was extended to the respondent-assessee for the assessment years 2000-01 and 2001-02 in respect of its claim for exemption u/s 10A of the Act and the same not having been withdrawn for those years it cannot be denied in the subsequent assessment years. This is for the reason that the benefit u/s 10A of the Act is available, inter alia, if the unit has not been formed by splitting up or reconstruction of business already in existence. This aspect of the matter was examined while completing assessment u/s 143(3) for the assessment years 2000-01 and 2001-02 and the benefit was extended after reaching a conclusion that the same was not formed by splitting up or reconstruction of the business already in existence. Further, the benefit which is given to the respondent-assessee u/s 10A is for the period of 10 consecutive assessment years beginning with the assessment year in which the undertaking begins to export computer software. Besides the above, he submitted that both the Commissioner of income tax (Appeals) and the Tribunal have concluded on examination of evidence that the SEEPZ unit was an independent unit not formed by splitting up of the Fort unit. Therefore, this court should not interfere with this finding of fact.

We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this court in the matter of Paul Brothers (supra) and Director of Information Pvt. Ltd. (supra) merits acceptance. Therefore, in this case, it is not necessary for us to decide whether the SEEPZ unit was set up/formed by splitting up of the first unit. In both the above decisions, this court has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the income tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the income tax Officer cannot withdraw the relief for subsequent years. More particularly so, when the Revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years. In this case, for the assessment years 2000-01 and 2001-02 the relief granted u/s 10A of the Act to the SEEPZ unit has not been withdrawn. There is no change in the facts which were in existence during the assessment year 2000-01 vis-�-vis the claim to exemption u/s 10A of the Act. Therefore, it is not open to the Department to deny the benefit of section 10A for subsequent assessment years, i.e., the assessment years 2002-03 and 2003-04 and 2004-05. Besides that, on consideration of the facts involved both the Commissioner of income tax (Appeals) and the Tribunal have recorded a finding of fact that the SEEPZ unit is not formed by splitting up of the first unit. In view of the above, the question as formulated in the present facts, do not give rise to any substantial question of law. Therefore, appeal is dismissed. No order as to costs.