Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on : 15.04.2015
ITA 46/2015
HCL TECHNOLOGIES ………………Appellant
Through: Sh. Ajay Vohra, Sr. Advocate with Sh. Neeraj
Jain and Sh. Aditya Vohra, Advocates.
Versus
ASSISTANT COMMISSIONER OF INCOME TAX
……………..Respondent
Through: Sh. N.P. Sahni and Sh. Nitin Gulati,
Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K. GAUBA
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
%
1. This appeal under Section 260-A of the Income Tax Act by the
assessee, questions an order dated 30.05.2014 of the Income Tax Appellate
Tribunal (hereafter “ITAT”) in ITA No.5623/Del/2010 for, the assessment
year 2005-06 (AY). The ITAT by the impugned order disallowed the
appellant‟s claim for certain deductions under Section 10A of the Income
Tax Act, 1961 (hereafter referred to as the “Act”). The following substantial
questions of law are urged for this Court‟s determination in this appeal:
(1) Whether an assessee is estopped under law from
availing the benefits under Section 10A of the Act in
respect of units for which it had not availed the said
benefits previously, by treating such units as distinct
ITA 46/2015 Page 1
undertakings as opposed to expanded units of a single
undertaking (as was done earlier)?
(2) Whether, on facts, the appellant’s contention that the
new units claimed by it to be separate undertakings
for the purposes for Section 10A of the Act is correct?
2. The appellant is a public limited company engaged in providing
software development services through its software development
undertakings set up in the Software Technology Park (STP) in NOIDA and
Chennai. During the relevant assessment year, the assessee/appellant had 31
independent software development units or undertakings set up at distinct
locations. These were registered under 13 licenses with STP authorities. The
appellant filed its original return of income on 31.10.2005, where gross
business income of ` 2,58,17,15,909/- was shown and deduction under
section 10A of the Act was claimed at ` 2,57,24,87,070/-, considering 13
mother licenses issued by the STP authorities as 13 eligible undertakings or
units. Net taxable business income was shown at 92,28,838/-.
`
3. Later, the appellant filed its revised return of income on 30.03.2007,
where deduction under section 10A of the Act was enhanced to `
2,75,57,24,990/-. 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. The return of
income was accordingly, revised showing income from business or
profession at ` 2,58,77,95,991/- and claiming deduction under section 10A
of the Act at ` 2,75,57,24,990/-, resulting in loss from business or
profession of ` 16,79,29,000/-. The assessee had filed certificates in Form
56F in support of its claim of deduction under Section 10A of the Act,
ITA 46/2015 Page 2
claimed in original as well as in the revised return. In the original return the
assessee had claimed deduction under Section 10A only in respect of 13
units and in the revised return number of units eligible for the benefits under
section 10A was increased from 13 to 31 and separate Form 56F was filed
for each of these 31 units.
4. The Assessing officer (“AO”) in the assessment order dated
26.12.2008 for the relevant assessment year, disallowed the aforesaid
additional deduction claimed under section 10A of the Act by way of
revised return, inter alia , on the grounds that the units set up in the earlier
years were mere expansion of the existing units; there was no separate
approval as a new unit by the STPI authorities; and that the claim that the
units set up were independent and separate new units, was raised belatedly
which could not be gone into at this late stage. The AO, therefore, restricted
the assessee‟s claim of deduction under section 10A of the Act to 13
“mother” (original) licenses/ undertakings instead of 31 independent and
eligible units.
5. The appellant challenged the AO‟s order before the Dispute
Resolution Panel (“DRP”). 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. On the basis of DRP‟s
directions, the AO passed the final assessment order dated 28.10.2010,
ITA 46/2015 Page 3
wherein the additional deduction under section 10A of the Act claimed by
the appellant in the revised return of income was not accepted.
6. The ITAT, by the impugned order, dismissed the appeal against the
DRP‟s order and held that the appellant could not claim enhanced deduction
under Section 10A by departing from its earlier position that the units in
question were only extension or expansion of the pre-existing units and were
not new units. The ITAT 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 unit(s) / undertaking(s).
Further, it held that the enhanced claim made through the revised return was
clearly belated and could not be said to be in the nature of an inadvertent
mistake. Thus, at this belated stage, it was not possible to verify satisfaction
of the pre-requisite conditions attached to the formation of the eligible
undertakings, which was necessary for allowing the claim of deduction
under section 10A of the Act.
Submissions made on behalf of the Assessee
7. Mr. Ajay Vohra, learned senior counsel appearing for the assessee,
contended that the ITAT failed to appreciate that 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 and instead
computed deduction under that section on the basis of 13 STPI licenses,
does not, in law, operate as an estoppel. It could not, said counsel prevent
the appellant from correctly computing and claiming deduction under the
said section in the relevant previous year by treating each of 31 units as a
ITA 46/2015 Page 4
separate and independent undertaking. Reliance is placed on this Court‟s
decision in 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. Further, the appellant has cited CIT vs
Natraj Stationery Products (P) Ltd , 312 ITR 22 (Delhi HC), CIT v. Laxmi
Metal Industries , 236 ITR 130 (Allahabad HC), CIT v. Seeyan Plywoods ,
190 ITR 564 (Kerala HC), CIT v. Satellite Engineering Ltd , 113 ITR 208
(Gujarat HC) to contend that even if the assessee was to make a claim of
deduction for the first time in a year subsequent to the initial assessment
year, the claim could not be dismissed as a belated one.
8. Learned senior counsel submits that deduction under section 10A of
the Act is available for a period of 10 assessment years following the initial
assessment year in which the undertaking begins to produce computer
software. Even though deduction may not be claimed in the initial year(s)
for variety of reasons, the assessee is, in law not estopped from claiming
deduction under the said section in any of the subsequent assessment years
falling within the ten year period. Reliance is placed on the decisions of the
Supreme Court in Commissioner of Income Tax v. C. Parakh & Co (India)
Ltd , 29 ITR 661 and Commissioner of Income Tax v. VMRP Firm , 56 ITR
67 to contend 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.
9. Mr. Vohra submitted that to claim deduction in terms of clause (i)(b)
of sub-section (2) of section 10A of the Act, the undertaking should have
begun manufacture of the article or things or production of computer
ITA 46/2015 Page 5
software in a Software Technology Park. The provision does not specify the
manner in which the approval/ registration is to be issued by the STPI
authorities. Further, the provision does not require a separate license as a
condition precedent for holding a unit operating in Software Technology
Park as eligible for deduction under that section. Once it is not disputed that
each of the 31 undertakings of the appellant are set up for production of
computer software in a Software Technology Park and are registered with
STPI Authority, the manner of approval/ registration with STPI authorities
would not determine whether each of the 31 units qualify as an undertaking
eligible for deduction under section 10A of the Act.
10. The assessee submits that the ITAT did not apply the ratio of the
Supreme Court‟s decision in Textile Machinery Corporation Ltd. v. CIT , 107
ITR 195, which settled the principles regarding setting up of a new unit.
Further, the ITAT did not deal with the various decisions of the co-ordinate
benches of the ITAT which were relied upon during the hearing (one of
which is approved by the Bombay High Court) and which, relying on Textile
Machinery Corporation Ltd. (supra), had laid down that the manner of
seeking approval from the STPI was irrelevant. The assessee contends that
these units were set up as independent viable units with investment of fresh
capital, having separate identifiable work force, etc., and fully satisfied the
tests laid down in Textile Machinery Corporation Ltd. (supra).
11. It is highlighted by the assessee that to demonstrate that requisite
conditions to claim deduction under section 10A of the Act are satisfied by
each of the 31 undertakings, it (the appellant) had placed on record
evidence, inter alia , in the form of application to the STPI authority,
approval of the STPI authority, lease deed for new premises, list of additions
ITA 46/2015 Page 6
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.
12. It is submitted that each software development center which the
assessee owns is and has always been treated as a separate undertaking.
Reference was made to the assessment order issued for assessment year
1999-2000, wherein reference to each of the fifteen (15) undertakings
(which were existing as on 31/03/2001) had been made by the assessing
officer. Therefore, the appellant prays that the impugned judgment be set
aside and the appellant‟s claim for deduction of 31 units under Section 10A
be allowed.
Revenue’s contentions
13. Mr. O.P. Sahni, learned counsel for the revenue, defends the
impugned judgment and submits that given that the appellant resiled from its
own assessment of the facts and its earlier position of availing the benefit
under Section 10A only with respect to 13 units, the ITAT‟s finding cannot
be faulted with. On behalf of the Respondent/Revenue, it is submitted that
the decisions on estoppel cited by the appellant would not apply in the
peculiar facts and circumstances of the case.
14. The revenue argued that the observations in the AO‟s 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. The
ITA 46/2015 Page 7
ITAT‟s order elaborately discussed the AO‟s findings; 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. Mr. Sahni submitted that the ITAT had duly considered the
relevant precedent on the submissions made by the appellant, including the
decision in Textile Machinery Corporation Ltd. , and rightly held that the
said ruling does not assist the appellant in any manner whatsoever.
Analysis and Conclusion
15. The first issue that this Court has to determine is whether in the event
of an assessee‟s failure to avail the benefits of a statutory provision, such as
Section 10A of the Act, creates an estoppel precluding it from availing such
benefits in future. The AO, DRP as well as the ITAT concurrently have
rejected the appellant‟s claims under its revised return primarily on the
ground that the appellant itself did not treat all 31 units as separate
undertakings previously, and in fact, for the subject assessment year as well,
it originally adopted its earlier approach. On an examination of the
authorities relied upon by the appellant, this Court notices that they are
overwhelmingly in its favour and therefore, this Court answers the first
question in favour of the appellant.
16. The starting point for the discussion is the Supreme Court‟s decision
in CIT v. C.Parakh & Co. (supra), where the Court held that the assessee‟s
treatment of a claim would not be determinative of the treatment that it
ought to be given under the provisions of the statute. The Court noted:
ITA 46/2015 Page 8
“On the question of the admissibility of the deduction of Rs. 1,23,719
the contention of the appellant is that as the respondent had itself split
up the commission of Rs. 3,12,699 paid to the managing agents, and
the appropriated Rs. 1,23,719 thereof to the profits earned at Karachi
and had debited the same with it, it was not entitled to go back upon
it. and claim the amount as a deduction against the Indian profits. We
do not see any force in this contention.Whether the respondent is
entitled to a particular deduction or not will depend on the provision
of law relating thereto, and not on the view which it might take of its
rights, and consequently, if the whole of the commission is under the
law liable to be deducted against the Indian profits, the respondent
cannot be estopped from claiming the benefit of such deduction, by
reason of the fact that it erroneously allocated a part of it towards the
profits earned in Karachi. What has therefore to be determined is
whether, notwithstanding the apportionment made by the respondent
in the profit and loss statements, the deduction is admissible under the
law.”
17. Courts in subsequent rulings have held that an assessee can even
resile from its earlier position in order to claim benefits available to it under
the Income Tax Act. For instance, a Division Bench of this Court in Bharat
General Insurance (supra) noted:
“It is true that the assessee itself had included that dividend
income in its return for the year in question but there is no
estoppel in the Income tax Act and the assessee having itself
challenged the validity of taxing the dividend during the year
of assessment in question, it must be taken that it had resiled
from the position which it had wrongly taken while filing the
return. Quite apart from it, it is incumbent on the income-tax
department to find out whether a particular income was
assessable in the particular year or not. Merely because the
assessee wrongly included the income in its return for a
particular year, it cannot confer jurisdiction on the department
to tax that income in that year even though legally such income
did not pertain to that year.”
ITA 46/2015 Page 9
18. This Court in its recent decision in CIT v. Nalwa Investment Ltd. , 322
ITR 233, has approved the consequences of the ITAT‟s decision allowing
the assessee‟s claim made under a revised return, whereunder the asseessee
had put forward a more favourable claim before the tax authorities. The
Court also relied upon the Apex Court‟s decision in C. Parakh (supra) in
this regard.
19. This Court notices that the approach of other High Courts on this
issue is in consonance with the appellant‟s contention. For instance, the
Allahabad High Court in Laxmi Metal Industries (supra) in the context of
Section 80J of the Act held that the assessee‟s failure to claim benefit under
the said provision initially would not constitute a bar from the grant of such
benefit, if claimed subsequently. The Court noted:
“Learned standing counsel could not bring to our notice any
statutory compulsion or a provision which may go to show that
if the claim under section 80J is not made in any one or more
of the assessment years comprising the period of five years,
then the relief will not be admissible during the balance of the
exemption period notwithstanding that all other conditions of
section 80J stand satisfied. It has to be borne in mind that the
provisions under consideration are relating to exemption and
are, therefore, to be construed liberally. It is the settled rule of
interpretation of statutes that expressions used therein should
ordinarily be understood in a sense in which they best
harmonise with the object of the statute and which effectuates
the object of the legislation…At the cost of repetition it may be
observed that according to the scheme of section 80J, the
benefit contemplated under section 80J is permissible
independently for each year of exemption, whether or not the
exemption was availed of in the preceding or the succeeding
assessment year falling within the period of exemption.”
ITA 46/2015 Page 10
Similarly, the Uttarakhand High Court in CIT v. Enron Expat Services , 327
ITR 626, relied upon this Court‟s decision in Bharat General Insurance
(supra) and ruled that the fact that the assessee had offered to pay tax in
previous years under Section 44BB of the Act cannot operate as an estoppel
against it.
20. The impugned judgment erred in holding that the assessment would
be guided by the appellant‟s treatment of its „internal affairs‟ and that the
assessee‟s claim must fail because it has “consistently taken a decision as
per facts exclusively available to it in its personal domain on the basis of
which the assessee has chosen to treat the expanded units as part of the 13
units” . The authorities quoted above unequivocally establish that an
assessee‟s treatment of facts in any given manner is not relevant for the
purposes of determining liability under the Act. 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.
Therefore, in the instant case, in the event that the appellant establishes that
the 31 units constitute separate undertakings for the purposes of Section
10A, it would be entitled to the claims made in the revised return.
ITA 46/2015 Page 11
Accordingly, the first question is answered in favour of the appellant and
against the revenue.
21. On the second issue, this Court affirms that the concurrent findings
approved by the ITAT as justified in the facts and circumstances of the case.
As noted by the AO and the ITAT, the pre-requisites for availing the benefit
under Section 10A(2) of the Act are as follows:
a) The unit must begin manufacture or production of computer
software in STP in the previous year relevant to AY 1994-95
or thereafter and should be set up in a STP.
b) The unit should not be formed by splitting up/reconstruction
of a business already in existence.
c) The unit should not be formed by transfer to a new business
of machinery or plant previously used for any purpose.
d) The assessee must furnish a report of an accountant in the
prescribed format certifying that the exemption has been
properly claimed. This report should be submitted alongwith
the return of income.
22. The appellant, as proof of the fact that each and every location with a
single license is a separate undertaking and that there 31 distinct
undertakings, has submitted that there are separate lease deeds for each
premise, separate STPI approval documents, and separate Customs Bond
certificates, and has relied upon application to the STPI authority and
approval of the STPI authority. Further, the appellant has contended that it
has maintained separate books of accounts. However, the AO and the ITAT
rejected the appellant‟s contentions and held that there was no material on
record to establish that the appellant had treated the 31 units as distinct
ITA 46/2015 Page 12
undertakings. The AO, in this regard, noted in its draft assessment order
dated 26.12.2008 as follows:
“As mentioned in the STPI regulations above, a unit to be
registered under an approved STPI has to be granted a license
by the respective STPL After having granted a license, the unit
gets registered and is permitted to commence operations,
Thereafter, the unit is permitted to expand its area of operation
by seeking permission for expansion, At the time of seeking the
permission for expansion, it is logical that the assessee will
have to execute lease deeds for separate premises and will also
have to approach the customs authorities for bonding
certificate. Hence the mere existence of these documents does
not establish that each expansion is a new undertaking.
12.3. The assessee, as an example has furnished a letter from
STP Chennai authorities dated 24th October 2008 in respect of
the Chennai I STP wherein it has been stated that the company
is eligible to expand its operations by setting up new
undertakings. However, it is surprising that the same STPI
authorities have actually not issued separate licenses but have
merely treated the new premises as mere extensions. Hence it
is not possible to treat the letter of the STPI Chennai I
authorities as conclusive evidence that the assessee has set up
new undertakings. The only inference which can be drawn
from this letter is that the assessee is operating in multiple
locations under a single license. Hence it is a single
undertaking with multiple locations.
12.4. This fact is reinforced by letter written by STPI Chennai
dated 28th January 2005 produced by the assessee in Volume I
of the detailed submission referred to above. In this letter, the
STPI has mentioned that the assessee has three STP units in
Chennai with multiple locations.”
Besides, the AO noted that the appellant placed no evidence on record to
establish that each and every unit had a separate bank account and held that
the appellant had not been maintaining separate books of accounts for the 31
ITA 46/2015 Page 13
units. Further, the AO while looking at the concept of expansion of an
undertaking under the relevant regulations, held that:
“ the mere expansion of the undertaking does not lead to the
formation of a new undertaking. In fact the term used in the
STPI Regulations is the extension of the premises. Hence an
undertaking established in a STPI is permitted to seek new
premises for carrying out its operation i.e. a single
undertaking can have multiple locations within the STPI. This
is termed as expansion of an undertaking and hence is not
issued a separate license but merely an extension certificate ”.
The AO, in his conclusions, held as follows:
“• There has been no emergence of a fresh new undertaking
and no fresh investments have been made. The profits and
capital of the 31 units have been carved out from the original
13 units.
• The assessee has not been able to produce any documentary
evidence to show that in the years in which the units were
formed, there was a separate capital investment:
• No record of profits has been shown by the assessee from the
year of inception thus clearly showing that the so called
separate units did not exist prior to the current Assessment
Year.
• No evidence has been provided that the new units were
engaged in executing jobs which were distinct from the
original units. Hence it is reasonable to assume that the so
called new units were carrying out the same jobs as the
original units.”
23. These observations of the AO were upheld by the ITAT and based on
the material available on record, it did not find any infirmity in the AO‟s
finding. The appellant had urged before the ITAT that each software
ITA 46/2015 Page 14
development Centre owned by it is and always had been treated as a separate
undertaking. For this, it relied upon the assessment order for 1999-2000,
where reference to the 15 undertakings was been made by the AO. The
ITAT rejected this contention after having examined the contents of the
assessment order. Facially, the assessment order for the assessment year
1999-00, as extracted by the ITAT in the impugned judgment, indicates that
contrary to the assessee‟s submission, unit-wise break-up of profits was not
provided by it. The assessee contended that a complete copy of the
assessment order was provided to the ITAT during the course of the hearing.
However, this Court is inclined to reject this contention in light of the
following pointed observations of the ITAT on this issue:
“7.6. Before parting we deem it appropriate to record that
there is no document available on record on the basis of which
an inference can be drawn that the assessee’s application
before the STPI Authorities was for setting up a new
undertaking and not for expanding an existing undertaking.
The reliance placed on the Certificate of STPI, Chennai is of
no help as it is ambiguously worded. The record shows that
assessee has never placed on record the document seeking
STPI permission either before the AO nor before the DRP and
as observed has also not even been placed before us. In fact
the assessee has never even pleaded that any such document
was available with it despite the pointed arguments of the
Revenue. It is curious to note that no attempt in the course of
the hearings has been made on behalf of the assessee to either
seek permission to place any such evidence on record or seek
permission to file the same before the AO. Considering the
entirety of the facts, circumstances, decisions, findings and
pleadings of the parties, we are inclined to agree with the
departmental stand that had any such document been available
with the assessee then attempt to bring the same on record
ITA 46/2015 Page 15
would have been done.” (emphasis supplied)
24. The appellant places great reliance on the Supreme Court‟s decision
in Textile Machinery Corporation Ltd. (supra) to contend that the 31 units
were separate undertakings for the purposes of Section 10A. While the said
decision did deal with the issue of determining the existence of a new
undertaking (albeit under Section 15C of the Income Tax Act, 1922), the
Supreme Court itself held that the answer (as to whether a unit is a separate
undertaking) depends upon the peculiar facts and circumstances of each case
and no hard and fast rule can be laid down to determine the issue. Indeed,
the answer to such a query, ultimately, ought to be fact specific, and the
lower authorities have arrived at their conclusion based on an adequate
examination of facts.
25. 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, this Court holds that no interference on this issue is warranted.
Consequently, it is held that the 31 units cannot be treated as separate
undertakings for the purposes of availing benefit under Section 10A of the
Act.
ITA 46/2015 Page 16
26. Thus, the second question on the merits of the rejection of the claim
for deduction under Section 10-A is answered in favour of the revenue and
against the assessee. As a result, its appeal fails and is accordingly
dismissed.
S. RAVINDRA BHAT
(JUDGE)
R.K. GAUBA
(JUDGE)
APRIL 15, 2015
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