Tax Treatment of Goods sent to other States

829, 8th floor, Vikrikar Bhavan,
Mazgaon, Mumbai – 400 010.
TRADE CIRCULAR.
To
………………………
………………………
No.VAT/MMB/1008/15/ADM-6 Mumbai Dt : 29.1.2009
Trade Cir. 5 T of 2009
Sub : Tax Treatment of Goods sent to other States.
Ref : Trade Cir.16T of 2007 dated 20th February 2007.

Gentlemen/Sir/Madam,

This office had issued a Trade Circular dated the 20th February
2007. A view had been taken in that Trade Circular that Section 6A of the
C.S.T.Act, 1956 deals only with transactions between agents and principals
and does not deal with transactions which are on a principal to principal
basis.
2. The Alahabad High Court has delivered a judgment dated the 17th
August 2007 in the case of M/s Ambica Steels Ltd. V/s The State of Uttar
Pradesh. The Petitioner in that case had sent iron and steel ingot to various
Companies situated outside the State of Uttar Pradesh for the purpose of
converting them into iron and steel rounds, bars and flats. The converted
material was to be sent back to the petitioner in Uttar Pradesh. The
Petitioner Company also received iron scrap from various firms outside the
State of Uttar Pradesh for the purpose of converting the same into iron and
steel billets and ingots with a direction to return the converted goods to
those firms. The issue before the Court was whether the petitioner is
required to submit the declaration in Form F in respect of the transactions of
job work performed by it or got done by others. The High Court has taken a
view that it would be necessary to furnish declarations in Form F in such
instances. It also appears that the question whether Section 6A of the CST
Act deals only with transactions between agent and principal or whether it
deals with transactions which are on a principal to principal basis was not
raised before the High Court.
2. In the Trade Circular dated 20th February 2007, a view has
been taken that when goods are sent to another State for job work or for
manufacturing etc., the transaction will normally be on a principal to
principal basis with an independent operator and not on a principal to agent
basis. It is, further stated in the circular that Section 6A will have no
TR 09/5 T 29.1.09.doc1/29/2009
applicability as regards the transactions where the goods are sent on a
principal to principal basis. It is possible that in view of the judgment of the
Uttar Pradesh High Court, dealers situated in other States may require a
declaration in Form F from Maharashtra dealers if any goods are sent from
these States to Maharashtra for job work etc. Similarly, if a Maharashtra
based dealer sends any goods to another State for job work, then the job
worker in that State may require the Maharashtra dealer to issue a
declaration in Form F while returning the goods to Maharashtra. It is,
therefore, decided that in such cases, declaration in Form F will be issued as
per normal procedure to dealers in Maharashtra. There is, however, no
change in the views of the Sales Tax Department as expressed in the said
trade circular. The Trade Circular will continue to apply for the
contingencies laid down in the circular except for the change indicated
above.
3. This circular cannot be made use of for legal interpretation of
provisions of law, as it is clarificatory in nature. If any member of the trade
has any doubt, he may refer the matter to this office for further clarification.
5. You are requested to bring the contents of this circular to the
notice of all the members of your association.
Yours faithfully,
(Sanjay Bhatia.)
Commissioner of Sales Tax
Maharashtra State, Mumbai.
NoVAT/MMB/1008/15/ADM-6 Mumbai Dt : 29.1.2009
Trade Cir 5 T of 2009
1. Copy forwarded To :
a. All the Addl. Commissioners of Sales Tax in the State.
b. All the Joint Commissioner of Sales Tax in the State.
c. All the Sr. Dy. Commissioners of Sales Tax in the State.
d. All the Dy. Commissioner of Sales Tax in the State.
e. All the Asstt. Commissioners of Sales Tax in the State.
f. All the Sales Tax Officers in the State.
2. Copy forwarded with compliments for information to:
a. The Officer on Special Duty, Finance Department, Mantralaya, Mumbai.
b. The Under Secretary, Finance Department, Mantralaya, Mumbai.
c. The Accounts Officer, Sales Tax Revenue Audit, Mumbai and Nagpur.
3. Copy to : All the Desks and Desk Officers in the office of the Commissioner of Sales Tax,
Maharashtra State, Mumbai.
( G.B.Indurkar.)
Joint Commissioner of Sales Tax,
(H.Q.) I, Maharashtra State, Mumbai.

Procedure for online submission of application

Office of the
Commissioner of Sales Tax
Maharashtra State, 8th floor,
Vikrikar Bhavan, Mazgaon,
Mumbai 400010.
Trade Circular
To
..........................................
..........................................
No. VAT/U.O.R.No.105/JC(Reg.) Mumbai, dated 23.01.2009
Trade Circular No. 2 T of 2009
Sub.: Procedure for online submission of application [Statement of Requirement ]
for the statutory forms (C/F/H/EI/EII) under the Central Sales Tax Act,
1956 and delivery at the place of business of the dealer.
Ref.: 1. Trade Circular No.4T of 2006 dated 09/01/06.
2. Trade Circular No.10T of 2006 dated 29/03/06.
3. Trade Circular No.17 T of 2006 dated 28/06/06.
4. Trade Circular No.1 T of 2008 dated 25/01/08
5. Trade Circular No.15 T of 2008 dated 19/04/08
Dear Sir/Madam,
The procedure for issuance of statutory forms under the CST Act, 1956 has earlier been revised by Trade Circulars at Ref.No.1,2,3,4,5. above. Accordingly, Central Repository section has been established at all locations in the State for issuance of these forms. As a move towards e-governance, the facility for online filing of application for issuance of forms has also been introduced in the Central Repository all over the state. As a step towards achieving 100 % e- Governance, the procedure of issuance of statutory forms under the Central Sales tax Act, 1956 is being further changed. To make the entire process faceless and hassle-free; the following revised procedure is being introduced.
(2) The revised procedure for filing on-line application is made applicable to all locations of central repository offices in the state and shall be made effective from 2nd February 2009. Under the revised procedure it now becomes mandatory for all registered dealers to make an online application for obtaining CST declarations. The utility for making an online application is made available on the sales tax Department's website www.mahavat.gov.in. The dealer required to obtain the statutory declarations has to first enroll for e- services facility. The enrollment for e-services is necessary to take the benefit of various e-services provided by the Department, like e-return, e-registration, e-annexure, e-declaration, e-704 etc. Presently many dealers have enrolled for e- services for filing of e-returns; they can use the same login & password which they have created for filing of e-return. The other dealers who are yet to enroll for e-services facility have to first enroll themselves on the website of the department at www.mahavat.gov.in. The detailed procedure of enrollment for e- services is explained separately in another Trade Circular.
(3) The procedure to use the system of online application for CST declaration is self explanatory. However, help desks are being created at every Central Repository locations in case of any difficulty. The dealer may also approach to the concerned Central Repository officers in case of any specific quarry.
(4) After submitting the application for CST declarations online, the same would be accessed by the concerned Sales Tax Officer In-charge of the Central Repository. The officer will verify the following points.
(a) Whether the applicant dealer has applied for more than one form for the same accepting dealer for the same period.
(b) Whether the applicant dealer has filed all the returns for the earlier period and the
turnover of O.M.S. Purchases are properly disclosed in the return.
(c) Are any dues outstanding with the dealer.
(d)Whether the transaction covering the commodity is appearing in the dealers registration record.
Upon verifying these details the concerned officer of Central Repository would either approve or reject the application giving reasons. In some instances the concerned officer may hold the approval for issuance of declarations if it is found that,
a) The dealer has not filed the return /returns for earlier period or the return is not available on the sales tax department automation system (mahavikas)
b) If the concerned officer is of the opinion that further verification is necessary before issuance of declaration.
However, in any case, the dealer would be intimated about approval, hold or rejection
through the e-mail address provided by him at the time of enrollment to e-services.
(5) Since the application is submitted online, the dealer is not required to submit any document in printed copy or otherwise separately. Once the application is submitted online, it is expected that an e-mail or sms, shall reach to dealer within 7 working days stating the decision regarding approval, rejection or holding the declaration. Once the application is approved the dealer should get declaration in another 10 days by post or courier. It will be the endevour of the department to reduce this period as far as possible. However, dealer should make enquiries only after the above period is over. It may please be noted that request for any early issuance of declaration shall not be entertained in any case.
(6) If the application is kept on hold the dealer should comply the requirements mentioned in e- mail or communicated otherwise by the respective officers of the Central Repository.
(7) Once the application has been approved, the Central Repository staff would print the required number and type of statutory forms, sign and dispatch them to the dealer's main place of business either through courier or Post. The dealer or his authorized representative available on the main business premises would be required to give acknowledgment / receipt of envelope containing the forms with dated signature indicating his name and designation and duly stamped with office seal / designation stamp.
(8)In case of non-delivery or wrong delivery of the forms, the dealer is required to approach the concerned Central Repository with full details after 17 working days of making online applications so that, necessary action can be taken as per due procedure.
(9)Sub Rule (6) of Rule 4 of the Central Sales Tax (Bombay) Rules, 1957 prescribes fees payable in the form of court fee stamp to be paid at the time of obtaining Forms or declarations. It has now been administratively decided that no fees shall be charged for issuance of any declarations and delivery of forms. Thus dealers need not pay any amount as prescribed in the rule for obtaining declaration or any amount towards delivery charges.
(10) This new procedure for issuance of declaration is available online for the declarations pertaining to period from 01.04.2008 onward. Any application seeking declarations for the period prior to 01.04.2008 shall be made as per the existing manual system only (on CD). However such application shall be made prior to 31.03.2009. It may please be noted that the declarations prior to period 01.04.2008 shall not be issued after 31.03.2009.
(11) It may be noted that the present procedure of manual submission of application (on CD) & online application facility available on the website of Govt. of Maharashtra (www.vat.maharashtra.gov.in) will be discontinued w.e.f. 02.02.2009.
(12) The procedure for the cancellation, rectification and issuance of duplicate declarations will remain same as earlier.
(13) This circular cannot be made use of for legal interpretation of provisions of law. If any member of the trade has any doubt, he may refer the matter to this office for clarification.
You are requested to bring the contents of this circular to the notice of all the members of your association.
Yours faithfully,

(SANJAY BHATIA)
Commissioner of Sales Tax,
Maharashtra State, Mumbai

Submission of MVAT Audit Report for year 2007-08

Office of the
Commissioner of Sales Tax,
Maharashtra State,
829, 8th Floor, Vikrikar Bhavan,
Mazgaon, Mumbai-400 010.
TRADE CIRCULAR
To
……………………………….
……………………………….
……………………………….
No. VAT/ AMD-1008/IB/ADM-06U Mumbai Dt: 23rd January, 2009
Trade Cir. 3 T of 2009

Sub: Submission of Audit Report for year 2007-08.

Ref.:
1. Government Notification No. VAT-1508/C.R.-69/ Taxation-1 dated 10th November, 2008.
2. Trade Circular 39 T of 2008 No. VAT/ AMD-1008/IB/ADM-06 dated 15th November, 2008. 3. Trade Circular 41 T of 2008 No. VAT/ AMD-1008/IB/ADM-06 dated 18th November, 2008. 4. Representations received from Trade and Associations.

Gentlemen/Sir/Madam,

You are aware that the existing Form-704 of Audit Report is replaced by a New Form-704. Representations have been received about the difficulties likely to be faced in filling up the Audit Report in New Form-704. Considering these representations, a Trade Circular cited at Ref.-3 above was issued. By this Trade Circular an option was given to the dealers to submit Audit Report either in Old or in New Form-704. However, in the intervening period some time was lost due to which the Auditors did not, in some cases, prepare the Audit Report. The Sales Tax Practitioners Association of Maharashtra and various Trade Associations have now requested to extend the due date for submission of Audit Report in respect of the period 2007-08. The due date for filing Audit Report for period 2007-08 is 31st January, 2009.
2. It has now been decided on administrative grounds to provide a concession for submission of Audit Report in respect of the period 2007-08 upto 2nd March, 2009 subject to fulfillment of certain conditions.

3. The concession to file Audit Report during the extended period will be available only to those dealers, who along with Audit Report in Form-704 submit copy of an acknowledgement (duly signed by a person authorized to sign the returns) of enrollment with the Sales Tax Department for availing various e-services including filing of electronic return. For availing these e-services it is mandatory for the dealers to get enrolled with the Department’s web-site i.e. http://www.mahavat.gov.in/. In other words this concession is applicable only to those dealers who submit the copy of the acknowledgement (duly signed by a person authorized to sign the returns) along with the Form-704.

4. Needless to state that all those dealers who do not submit an acknowledgement along with the Form-704, but file the Audit Report after 31st January, 2009 shall be treated as late filers of the Audit Report and may attract the penalty as per provisions of section 61.�

5. A separate Trade Circular is being issued which explains the procedure for enrollment with the Department’s web-site. The dealers are requested to follow the instructions given in that Trade Circular.

7. In Mumbai form 704 will be accepted in the office of Joint Commissioner of Sales Tax (Business Audit)1, 5th floor, New Building, Vikrikar Bhavan, Mazgaon, Mumbai 400 010.
8. In areas other than Mumbai, form 704 will be accepted in the office of the respective Joint Commissioner of Sales Tax (Adm). In the places where the office of the Joint Commissioner of Sales Tax is not located, it will be accepted in the office of the Deputy Commissioner of Sales Tax (Adm) or Assistant Commissioner of Sales Tax (Adm), as the case may be.
9. This circular cannot be made use of for legal interpretation of provisions of law as it is clarificatory in nature. If any member of the trade has any doubt, he may refer the matter to this office for further clarification.
10. You are requested to bring the contents of this circular to the notice of the members of your association.
Yours faithfully,
(Sanjay Bhatia)
Commissioner of Sales Tax
Maharashtra State, Mumbai.

No. VAT/ AMD-1008/IB/ADM-06 Mumbai Dt : : 23rd January, 2009
Trade Cir. 3 T of 2009
1. Copy forwarded To:
a. All the Addl. Commissioners of Sales Tax in the State.
b. All the Joint Commissioner of Sales Tax in the State.
c. All the Senior Deputy Commissioners of Sales Tax in the State.
d. All the Deputy. Commissioner of Sales Tax in the State.
e. All the Assistant Commissioners of Sales Tax in the State.
f. All the Sales Tax Officers in the State.
2. Copy forwarded with compliments for information to:
a. The Officer on Special Duty, Finance Department, Mantralaya,�� Mumbai.
b. The Under Secretary, Finance Department, Mantralaya, Mumbai.
c. The Accounts Officer, Sales Tax Revenue Audit, Mumbai� and Nagpur.
3. Copy to:-
All the Desks and Desk Officers in the office of the Commissioner of Sales Tax, Maharashtra State, Mumbai.


(G. B. Indurkar)
Joint Commissioner of Sales Tax,
(H.Q.) I, Maharashtra State,
Mumbai

Enrolment for eServices

Office of the Commissioner of Sales Tax,
Maharashtra State,
829, 8th Floor, Vikrikar Bhavan,
Mazgaon, Mumbai-400 010.
TRADE CIRCULAR

To
……………………………….
……………………………….
No. VAT/ AMD-1008/IB/ADM-06 Mumbai Dt: 23rd January, 2009
Trade Cir. 4 T of 2009

Sub: Enrollment for E-Services

Ref.:
1. Notification No. VAT-1007/IB/ADM-6 dated 14th March, 2008.
2. Trade Circular No.8T of 2008 dated 19th March, 2008.
3. Notification No. VAT-1007/IB/ADM-6 dated 19th April, 2008.
4. Trade Circular No. 16T of 2008 dated 19th March, 2008.
5. Notification No. VAT-1007/IB/ADM-6 dated 30th August, 2008.
6. Notification No. VAT-1007/IB/ADM-6 dated 16th Sept., 2008.
7. Trade Circular No.31T of 2008 dated 8th Sept., 2008.
8. Trade Circular No.33T of 2008 dated 30th Sept., 2008.
9. Trade Circular No.40T of 2008 dated 18th November, 2008.
10. Notification No. VAT-1007/IB/ADM-6 dated 20th Dec., 2008.
11. Trade Circular No.1 T of 2009 dated 12th January, 2009.
Gentlemen/Sir/Madam,
You are aware that the scheme of filing returns electronically was made applicable from 1st March, 2008. The scheme was implemented in a phased manner. Now, it has been made mandatory for all the registered dealers to file returns electronically in respect of the periods starting on or after 1st October, 2008.
2.The Department proposes to provide the compendium of e-services viz., e-return, e-registration, e-declarations, e-annexure, e-Form-704 etc. For availing of these e-services it is mandatory for the dealers to get enrolled with the Department’s web-site i.e. http://www.mahavat.gov.in/
3.Enrollment for e-services: - The enrollment for e-services is a one time activity. Once the dealer gets enrolled for e-services with the Department, the same Log-in ID and password so created and confirmed by him while enrolling himself, shall be used for availing compendium of e-services viz., e-return, e- registration, e- declarations, e-annexure, e-Form-704 etc. The computer system will generate an acknowledgement once the dealer is enrolled for e-services. The enrolled dealer should submit to the Department a copy of an acknowledgment duly signed by a person authorized to sign the returns. Once he does so, thereafter it will not be necessary for him to periodically submit to the Department the copy of the acknowledgment that he gets at the time of filing e-returns. Thus, after the enrollment for e-services, the dealer shall be free from the hassles of submitting the signed copy of an acknowledgement to the Department every time he files an e-return.
4. Procedure for Enrollment: - A large number of dealers have already been enrolled (registered) with the Sales Tax Department web-site http://www.mahavat.gov.in/ and are filing e-returns. Many dealers are however yet to be enrolled. The procedure for enrollment for e-services is slightly different for the dealers who have already been enrolled for e-returns than the procedure for dealers who are yet to be enrolled. The procedure of enrollment for both of these categories is described below:-
[a] Dealers who are yet to be enrolled: - The dealer who for the first time proposes to get enrolled with Departments web-site i.e. http://www.mahavat.gov.in/ has to use TIN (11 Digit Number without suffix) as log-in ID. However, after log-in, the dealer is required to fill information in the mandatory fields. After, filling these fields the dealer shall create his own password and confirm the same. After successful enrollment, the system will generate an acknowledgement; the dealer shall take the print-out of the same. The acknowledgement so generated shall be duly signed by him/her or by authorised person who is authorized to sign returns and shall be submitted to the Department along with the Audit Report for the period 2007-08. The password so created and confirmed by the dealer is to be used for uploading the e-return or availing any of the other e-services.
[b] Dealers who are already Enrolled (registered) for e-returns: - The dealers who are already enrolled (registered) with the Sales Tax Department for filing of e-return will continue to use their existing log-in ID i.e. 11 digit TIN without suffix and the existing password which they have already created for filing e-return. It may be noted that the already enrolled dealers (i.e. dealers enrolled for e-returns) are not required to create a new password. But they also need to submit the duly signed acknowledgment the Department. For this purpose after log-in, the dealer may view acknowledgement at >Dealers Information>Transaction Details >Acknowledgement. The dealers are requested to download the acknowledgement and take a print out. The acknowledgement shall be signed by the person who is authorized to sign returns and submit the same along with the Audit Report.
5.The dealers who are not liable to submit Audit Report shall submit the copy of duly signed acknowledgement:-
[a] In Mumbai, in the office of Joint Commissioner of Sales Tax (Registration Branch), Ground floor, New Building, Vikrikar Bhavan, Mazgaon, Mumbai 400 010.
[b] In areas other than Mumbai, Registering Authorities of the respective locations.
6.This circular cannot be made use of for legal interpretation of provisions of law as it is clarificatory in nature. If any member of the trade has any doubt, he may refer the matter to this office for further clarification.
7.You are requested to bring the contents of this circular to the notice of the members of your association.
Yours faithfully,
(Sanjay Bhatia)
Commissioner of Sales Tax
Maharashtra State, Mumbai.

No. VAT/ AMD-1008/IB/ADM-06 Mumbai Dt : 23rd January, 2009
Trade Cir.4 T of 2009
1. Copy forwarded To:
a. All the Addl. Commissioners of Sales Tax in the State.
b. All the Joint Commissioner of Sales Tax in the State.
c. The Joint Commissioner of Sales Tax (Mahavikas), with a request to upload this Trade Circular to the Departments web-site.
d. All the Senior Deputy Commissioners of Sales Tax in the State.
e. All the Deputy. Commissioner of Sales Tax in the State.
f. All the Assistant Commissioners of Sales Tax in the State.
g. All the Sales Tax Officers in the State.
2. Copy forwarded with compliments for information to:
a. The Officer on Special Duty, Finance Department, Mantralaya, Mumbai.
b. The Under Secretary, Finance Department, Mantralaya, Mumbai.
c. The Accounts Officer, Sales Tax Revenue Audit, Mumbai and Nagpur.
3. Copy to:-
All the Desks and Desk Officers in the office of the Commissioner of Sales Tax, Maharashtra State, Mumbai.
(G. B. Indurkar)
Joint Commissioner of Sales Tax,
(H.Q.) I, Maharashtra State, Mumbai

Commercial Vehicle will be eligible for depreciation at 50%

INCOME-TAX (THIRD AMENDMENT) RULES, 2009 - AMENDMENT IN NEW APPENDIX 1
NOTIFICATION NO. 10/2009, DATED 19-1-2009
In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:—
1. (1) These rules may be called the Income-tax (Third Amendment) Rules, 2009
(2) They shall come into force on the 1st day of April, 2009.
2. In the Income-tax Rules, 1962, in the Table to New Appendix 1, in Part-A relating to TANGIBLE ASSETS, under the heading III. MACHINERY AND PLANT, in item (3), after sub-item (vi) and entries relating thereto, the following shall be inserted, namely:—
“(via) New commercial vehicle which is acquired on or after the 1st day of January, 2009 but before the 1st day of April, 2009 and is put to use before the 1st day of April, 2009 for the purposes of business or profession [See paragraph 6 of the Notes below this Table] 50”.

Section 10A - Case law on sub-contracting

Exemption-Deduction: Export oriented unit - Export of software purchase from others November, 12th 2008 ITO vs Techdrive India (P) Ltd. Citation 2008 25 SOT 152 Exemption-Deduction: Export oriented unit - Export of software purchase from others The assessee was a 100 percent Export Oriented Unit (EOU). It exported computer software purchased from a sister concern. It was not necessary under s.10B that assessee itself must produce articles or software. It was entitled to deduction under s.10B.ITAT, New Delhi ITO vs Techdrive India (P) Ltd.ITA No. 2407/Del/2006, Assessment Year: 2002-2003 R.V. Easwar, V.P and Deepak R. Shah, A.M 27 June 2008 M.P. Rastogi and P.N. Shastry, CAs for the Appellant K.C. Jain, CIT DR and A.M. Govil, Sr. DR for the Respondent ORDER R.V. Easwar: The following ground has been taken by the revenue in this appeal: "On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs. 46,34,091/- made by the A.O. for not allowing deduction u/s 10B of the I.T. Act." 2. The appeal relates to the assessment year 2002-2003. The assessee is a private limited company. In the return of income filed, it claimed deduction of Rs. 1,56,70,680/- under section 10B of the Income-tax Act. The return was first processed under section 143(1) but was later picked up for scrutiny. The Assessing Officer verified the claim under section 10B. He found that the assessee did not have any plant or machinery to develop any computer software on its own. It had purchased computers/accessories only for a paltry amount of Rs. 24,872/- towards the end of the year. It had however paid Rs. 41,87,577/- to another company in this group by name M/s. Seacom Solutions (India) Limited (hereinafter referred to as 'Seacom') for development/purchase of computer software. The Assessing Officer further held that even if it is presumed that the computer parts were purchased in the beginning of March 2002 and were thus available with the assessee for a considerable period of time, the facts disclosed that the export orders were executed before March 2002 and this was possible only because the assessee had outsourced the development of software business to Seacom. According to the Assessing Officer, one of the basic conditions for claiming deduction under section 10B is that the assessee company should have its own infrastructure and should develop the software itself. The condition was not satisfied by the assessee as it had got the software developed by Seacom for which software development charges were paid. The Assessing Officer further found that the amount of Rs. 41,88,577/- paid to Seacom was accounted for by Seacom as "domestic software sales. The Assessing Officer, for these reasons, held that the assessee was not entitled to the exemption. He however allowed deduction under section 80HHE in respect of the export of software. 3. On appeal, the assessee submitted the following facts before the CIT(A):(a) The actual export of the software was done by the assessee. The project of developing the software was given to it by M/s. Techdrive Inc. USA. The software was exported to the USA company which paid the assessee company which fact was accepted by the Assessing Officer while granting deduction under section 80HHE. (b) Software development is primarily a human resource oriented exercise. The assessee had highly qualified software development experts in its rolls, whose skills were used for the development of the software. These persons were (1) Raj Singh, Director of the company who was involved in software development as Executive President of PCL Mindshare from 1986 to 1996; (2) Rajender Reddy, Electronic Engineer who worked as software engineer developing programmes on Oracle platforms; (3) Anant Mishra, computer science graduate from IIT, Kanpur who had worked as project manager to develop web organizers on Windows platform; and (4) Vivek Mishra, computer engineering graduate from Nanyang Technological University, Singapore with specialization in developing trading sides on the internet using Java programming.(c) Seacom was a subsidiary company of the assessee and was located at SEZ, Pune. Its income was fully exempt under section 10A. The assessee therefore did not gain any tax advantage by shifting the income of the Seacom to itself.(d) Section 10B does not insist that the software must be developed by the assessee in its own premises. It could be developed with the assistance of infrastructure and computer work stations which were available with Seacom.(e) Seacom did not claim any exemption or deduction in respect of the software sales to the assessee either under section 10A or under section 80HHE.(f) There are several judgments starting from that of the Calcutta High Court in Addl. CIT vs. A. Mukherjee and Co. Pvt. Ltd. 113 ITR 718 which have held that in order to claim tax deductions or exemptions on the footing that the assessee is engaged in the manufacture or production of priority items, it is not necessary that the assessee should own the plant and equipment. The manufacturing process can be carried out through other entities, which have the necessary facilities/ infrastructure subject to the condition that the assessee exercises sufficient control and supervision over the process.(g) Circular No.694 dated 22.11.1994 issued by the CBDT recognises the position that for the purpose of section 1 OB it should not matter whether the programme is actually written within the premises of the assessee or outside. If the assessee develops software by writing the same at the client's site abroad the exemption cannot be denied on the ground that it was prepared on site, so long as the software is the product of the assessee. The Assessing Officer has not doubted that the software was the product of the assessee. The contract to develop the software was given to the assessee by the USA company. The actual export was also done by the assessee company.4. The CIT (Appeals) accepted the above facts and submissions and held that the assessee was entitled to the exemption under section 10B.5. The revenue is in appeal. Its main contention was that the intention of section 10B was that the undertaking itself should own plant and equipment to develop the software for export and this was clear from the marginal heading to the section, that admittedly the assessee did not own the equipment and was, therefore, incapable of developing the software by itself, that therefore it had to engage the services of its subsidiary company in Pune. that there was nothing to show that the assessee exercised any supervision or control over the development of the software by Seacom nor was there anything to show that client-based instructions were issued to the assessee which were carried out by it in the premises of Seacom and that in these circumstances, the assessee cannot be said to have fulfill all the conditions of the section. Our attention was drawn to clause (iii) of subsection (2) to the section and it was submitted that a reading thereof would indicate that the assessee itself should own the plant and machinery which condition has not been fulfilled by the assessee. It was vehemently argued that the circular dealt with a different situation and was not applicable to the assessee's case. It was pointed out in this behalf that it was not the assessee's case that the software was being developed abroad in the place of the client (customized software) in which case alone the circular would apply and that it was not applicable to a case of outsourcing the development of the software. It was submitted that both the assessee and the CIT (Appeals) were wrong in relying on the circular.6. In reply, the learned counsel for the assessee drew our attention to pages 49 and 80 of the paperbook and submitted that these contained the background of the arrangement between the assessee and Seacom and also showed that the software was developed at Seacom under the instructions, control and supervision of the assessee. It was reiterated that the circular was fully applicable to the assessee's case and provided a complete answer to all the arguments of the department. It was emphasized that no plant and machinery was essential as development of software was based on human skill and intellect which was the main requirement and if these are available the software can be developed wherever the equipment is available. Several authorities were also cited before us in support of the contention that in order to produce or manufacture an article or thing it was not necessary that the assessee should itself own the plant and machinery and it was sufficient compliance with the law if the manufacturing process is carried out on equipment belonging to other persons, provided the assessee exercises sufficient control and supervision over the same.7. We have carefully considered the facts and the rival submissions. We have also gone through the paperbook filed by the assessee and obtained clarifications during the hearing wherever necessary.8. The real controversy in the present case is whether the assessee should own plant and equipment in which the software is developed for export or whether the job can be outsourced to a person who possesses the necessary equipment and infrastructure. It is necessary to look into the section first. The marginal heading of the section is "special provisions in respect of newly established hundred per cent export oriented undertakings". Clause (iii) of sub-section (2) provides that the undertaking should not have been formed by the transfer to a new business of machinery or plant previously used for any purpose. The argument of the department is that these are sufficiently indicative of the requirement that the assessee itself should own the plant and machinery for developing the software. But a look at the decided cases in which other sections of the Income-tax Act and Finance Acts containing similar requirements have been examined, shows that the courts were not inclined to read such a requirement into those provisions. We may consider some of them now. In the case of A. Mukhejee and Co. (supra), the question was whether a publisher of books who did not own a printing press nor had the facilities to bind the books, can be said to be a manufacturer of books where the books were got printed from an outside contract. This question arose under section 104 of the Income-tax Act (now omitted) read with section 109 (also omitted). Section 109 contained a definition of "industrial company". It was defined as a company whose business consisted, inter alia, wholly in the manufacture or processing of goods. The Calcutta High Court held that it was wholly unnecessary for a publisher of books to be the owner of a printing press or to be himself a book-binder to be a manufacturer of goods. It was observed that a publisher may get the books printed from any printer, but the printer would be a mere contractor and it is the publisher (assessee) who carries on the business of manufacturing or processing of goods. This judgment has been accepted by the CBDT and a circular no.347 dated 7th July 1982 (137 ITR Statues 14) was accordingly issued that for the purpose of section 104 as well as for any concessional tax treatment to be given to industrial companies, book publishing companies may be treated as industrial companies even though they may themselves not being engaged in the printing of books.9. In Orient Longman Limited vs. CIT (1981) 130 ITR 477, a similar question arose before the Delhi High Court. Section 2 (6)(c) of the Finance Act, 1970, contained a definition of an industrial company for purposes of concessional tax treatment and the same was substantially the same as in section 109 of the Act. In this case, the assessee did own a printing press, unlike the assessee in the case before the Calcutta High Court in the judgment cited supra, but the quantum of printing in the press was found to be less than 51% of the business and this led the Tribunal to reach the conclusion that merely because the manuscript was received from the author and touched up here and there and then handed over to the printer it would not mean that the assessee had converted the manuscript into something else so that it can be held to be a company manufacturing or processing books and hence an industrial company. The High Court disapproved the conclusion of the Tribunal and in doing so applied the judgment of the Calcutta High Court (supra). It is significant to notice that the High Court did not consider it material that at least some work was done by the assessee in its own printing press. The ratio appears to us to be that even if the printing job was done by someone else it would not imply that that person is the manufacturer.10. In CIT vs. Neo Pharma Private Limited (1982) 137 ITR 879, the assessee company was incorporated with the object of manufacturing and processing pharmaceuticals. It entered into an agreement with another company by name Pharmed under which Pharmed was to make available to the assessee plant, machinery and services of its staff to the assessee company. The manufacturing licence was in the name of the assessee company. The raw materials and packing materials were also supplied by the assessee. The products were manufactured in the premises of Pharmed in the direct supervision of the assessee's own technically qualified staff and under the assessee's own quality control. It was the assessee's name that was printed on the packing, labels and cartoons. Pharmed kept accounts of all the materials supplied by the assessee and consumed in the manufacture. The risk for the entire operation was undertaken by the assessee. The products were manufactured at the cost of the assessee and were its property. On these facts, the question arose before the Bombay High Court as to whether the assessee company can be considered to be an industrial company entitled to the concessional rate of tax under section 2(7)(d) of the Finance Act, 1966. Affirming the decision of the Tribunal, it was held that although the plant and machinery employed for the purpose of manufacture belonged to Pharmed and the services of certain employees of Pharmed were also utilised in that process, the manufacturing activity was really that of the assessee. Before the High Court, a specific contention was taken on behalf of the income-tax department, which is referred to in the last paragraph of page 883, ''that this manufacturing activity was conducted not by the assessee but by Pharmed as the machinery and plant used in the process of manufacture belonged not to the assessee but to Pharmed. It was submitted by him that the idea of giving a concessional rate of tax was to give relief only to such companies as had invested their own funds in the purchase of plant and machinery and hence, in the present case, the assessee was not entitled to that benefit. It was submitted by him that the assessee in fact was merely a trader, and not a manufacturer at all". These arguments of the counsel for the income-tax department were rejected by the Bombay High Court at page 884 - 885 of the Report and we find therein that the High Court has referred to the judgment of the Calcutta High Court (supra) and have observed that their view finds strong support from the judgment of the Calcutta High Court. Reference was also made to the earlier judgment of the Bombay High Court in Griffon Laboratories (P.) Limited vs. CIT (1979) 119 ITR 145 where it was held that a manufacturer may hire a plant or machinery and employ hired labour and manufacture a goods and that the activity of manufacture may be undertaken by the assessee either by itself or by someone under its supervisory control or direction. The Bombay High Court also referred to the judgment of the Delhi High Court in Orient Longman (supra).11. In CIT vs. Acrow India Limited (1991) 188 ITR 485, the facts before the Bombay High Court were almost similar. Section 2 (6)(c) of the Finance Act, 1969, defines industrial company as including a company engaged in the manufacture or processing of goods. The Tribunal noticed the following facts: (1) The plant and machinery for fabrication was supplied by the assessee company to the other company; (2) the raw materials were mostly supplied by the assessee company; (3) the technical know-how was made available by the assessee through its sister concern in London; (4) the assessee exercised control over the manufacturing process undertaken by the other company and reserved to itself the right to inspect the process. On these facts, the High Court held relying upon, inter alia, its earlier judgment in Neo Pharma (supra) and the judgment of the Calcutta High Court in A. Mukherjee and Co. Pvt. Ltd. (supra) that the assessee must be taken to be the manufacturer of the goods and hence an industrial company.12. Again in CIT vs. Anglo French Drug Co. (Eastern) Limited (1991) 191 1TR 92, it was held by the Bombay High Court that in order to enjoy concessional tax treatment as an industrial company within the meaning of Finance Act it is not necessary that the manufacturing activity should be undertaken by the assessee itself and the concession would be available even if the assessee employs another company to manufacture the goods under the supervision and control of the assessee. It was held that it was not necessary that the assessee must manufacture the goods by its own plant and machinery at its own factory.13. In Sond Bharat Pedals (India) vs. ITO (2003) 84 ITD 89, the Chandigarh Bench of the Tribunal was concerned with the provisions of section 80I of the Act. In that case, the assessee did not have the necessary infrastructure to undertake all activities for the manufacture of cycle pedals. Some of the operations, such as, heat treatment, nickel plating, etc. were got done by outside agencies and even the conversion of MS wire and MS rounds into pedal axles and pedal rods was got done through outside agencies. After these activities are carried out by the outside agencies, all the components were brought back, added with other components purchased from the market and fed to power driven machines for tightening of the components resulting in production of bye-cycle pedals. The question arose on these facts whether the assessee can be said to have itself manufactured the cycle pedals for purposes of section 80I. The Tribunal noticed that the Punjab government had issued a certificate showing the assessee as a registered small scale industrial unit, that the assessee paid labour/ service charges to the outside agencies and that it was not necessary that the assessee itself should carry out all the manufacturing operations by itself in order to be eligible for the deduction under section 801 and that the deduction was available even though part of the operations was got done by outsiders. Many of the judgments noticed by us in the earlier paragraphs, along with other relevant judgments, were adverted to by the Tribunal.15. In all the above cases, except in the cases of Sond Bharat Pedals (India) decided by the Tribunal, the definition of "industrial company" contained either in section 109 of the Act or in the relevant Finance Acts was considered. It is pertinent to note that the definition did not contain elaborate provisions relating to plant and machinery. The definition of industrial company in section 109 (i-a) was as under:"Industrial company means an Indian company whose business consists wholly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power".The definition in the Finance Act was that an industrial company means "a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining". The argument of the department before us is that section 10B of the Act makes elaborate provisions in connection with plant and machinery which is indicative of the requirement that the assessee should itself own the necessary equipment or plant to manufacture or produce computer software and the software should be produced with the help of such plant or equipment and it would not suffice if the assessee outsources the development of the computer software to another entity which owns the necessary equipment and plant and the infrastructure. It is also argued that the marginal heading to the section indicates that the undertaking of the assessee should be "newly established". The question before us is whether the existence of certain provisions in the section specifying conditions relating to the machinery or plant and the marginal heading to the section make any difference to the legal position adumbrated in the authorities to which we have already referred.16. On a careful consideration of the matter, we are of the view that the legal position has not changed and even under section 10B it is not the requirement that the assessee company should itself own plant, machinery or equipment and manufacture or produce computer software on the same in order to be eligible for the exemption. In order to understand and appreciate the nature of a computer software, it is necessary to look into the note dated 6th September 2004 filed before the Assessing Officer regarding creation of softwares for export. A copy of the note has been filed at pages 45 to 49 of the paperbook. It has firstly been explained that computer software is a package of programmes which enable the computer to do the desired work. It is an intellectual property and it is of no use without the hardware, namely, the computer itself along with the Servers, LAN, WAN, MODEMS, Printers, etc. Though for manufacturing computer hardware large plant and machinery is needed, for producing computer software what is required is more of human skill, intelligence and knowledge and less of physical equipment. The hardware has been compared to the laying of the road or producing the vehicles and the software has been compared to the road map showing the routes.17. It has further been stated in the note that creation or production of computer software involves the following steps: (1) ANALYSIS, which means the understanding and appreciation of the requirements, problems and solutions for the clients. This step requires only knowledge and logical skills and no physical equipment is required. It has been stated that the directors of the assessee company, whose background has already been adverted to briefly, are by virtue of their knowledge and experience capable of understanding the requirements of the clients and possible solutions. (2) CONCEPT, which means developing the software programme with the help of flow charts and discussion with the clients and demonstrating to them as to how their requirements are being addressed and solutions are being offered. This step involves a clear and thorough understanding of the business intricacies and procedures adopted by the client. Again, this step involves purely human knowledge and skill without much of physical equipment. Here again, the directors of the assessee company and the key personnel (whose details were filed before the Assessing Officer) were capable of understanding the requirements of the clients and giving them the concept. (3) DESIGN, which means the deciding of the sub-programmes of the software which will address the problems of the client. This in turn involves three further steps, namely, the integration of the sub-programmes and creation of loops and sub-loops for the flow of data, the designing of master files, data files, etc. for storing the processed data and formatting the input and output, and lastly the deciding of the language in which the programmes are to be developed, such as, Visual Basic, Oracle, MS Office, etc. In order to select the language, judicious views of different languages may sometimes be necessary. It may also depend upon the type of hardware available to the client, the working of the internet and satellites, familiarity with the reports generated from various locations across the globe etc. All these steps in designing again are capable of being executed by the directors and key personnel of the assessee company by virtue of their educational background and experience. (4) CODING, which is required to put in place a tamper-proof system to prevent misuse of the data by competitors or other undesirable elements. Confidentiality of the data requires building of key codes and access codes which can be developed only by human skill, experience and background in the software field. Hardly any equipment is required. (5) WRITING OF SOFTWARE PROGRAMMES OR DTA ENTRY, which requires a large work force of programmers and computers for writing and entering the component programmes for actual use. This job is to be entrusted to the programmers in such a manner that no single programmer writes the entire programme. This is to maintain the confidentiality of the programme and to prevent copying. (6) TESTING and DEBUGGING, to ensure that the data is behaving properly and giving the necessary output. It requires the use of computer but for a very small period of time. The person who has written the component has to ensure that there are no bugs or errors and if there are any they would be removed. (7) INTEGRATION, which means the bringing together of all the component programmes that are developed and they are integrated into the main software which is to be delivered to the client. This is done by the personnel of the assessee company.18. The aforesaid note filed before the Assessing Officer, the contents of which are not in doubt or in dispute, gives a complete picture of what are the various steps in the manufacture or production of a computer programme. The note shows that for development of a computer programme, what is required is more of human skill, training, intellect and experience compared to the use of physical equipment or plant. The development of the computer software is a very specialized field and requires specialized education, training and expertise in the concerned field. Since it has to be developed in such a manner as to address the particular requirements of the client or the customer, which may vary from client to client and may not be uniform, it may become necessary to customize the programme to suit the particular client or customer. The human element is brought to the forefront in this aspect. Development of the computer software is thus a highly specialized job which comes out of the specialized education, skills acquired and developed over a period of years, experience in dealing with different types of clients and customers and so on and so forth. It is not a mechanical job and more than the machines and equipments it is the value addition that is made by the application of the human skills that counts.19. Thus in the very nature of things it appears to us that the plant and equipment required to produce the computer software is subsidiary to the element of human skill, training and experience that are the main requirements. The requirements of section 10B of the Act have to be understood in this context. It is significant to note that the section does not provide for a positive requirement that the assessee who claims the exemption should own plant and machinery, it only provides for certain negative requirements, such as in clause (iii) of sub-section (2), which says that the undertaking should not have been formed by the transfer to a new business of machinery or plant previously used for any purpose. This requirement is to be read with Explanations 1 and 2 below sub-section (2) of section 80-1. These Explanations provide for cases and circumstances in which machinery or plant previously used will not be considered as prohibited machinery or plant. For example, plant or machinery used outside India by a person other than the assessee is not a prohibited item of plant or machinery for use in India in the undertaking of the assessee, subject to certain conditions. A concession is also given to the effect that if the plant or machinery previously used and transferred to the assessee's undertaking does not exceed 20% of the total value of the plant and machinery, the exemption will not be denied. These provisions, in our opinion, apply where the manufacture or production of the article or thing or the computer software is done in the undertaking of the assessee; once it is carried out in the undertaking of the assessee, then all conditions of the section would apply. But where the activity is not carried out in the undertaking of the assessee or where the assessee does not have its own plant or machinery, in the absence of any provision in the section containing a positive requirement that the assessee shall own plant and machinery, then these requirements are not applicable. This, coupled with the fact that production of a computer software is basically a job requiring more of human skill and expertise than use of plant and machinery, persuades us to hold that there is no change in the legal position laid down earlier that even if the manufacture or production is got done by outside agencies or contractors but under the supervision and control of the assessee the claim for deduction or exemption has to be allowed.20. The matter can be looked at from another angle also. Sub-section (2) of section 10B prescribes three conditions: (i) that the undertaking should manufacture or produce any articles or thing or computer software; (ii) that the undertaking should not have been formed by the splitting up, or the reconstruction, of a business already in existence and (iii) that the undertaking should not have been formed by the transfer to a new business of machinery or plant previously used for any purpose. These are cumulative conditions, as can be seen from the use of the word "all" in the opening part of the sub-section. In a number of decisions, which we have referred to earlier, it has been held that even if the assessee gets the articles manufactured by another person by using the plant and machinery owned by that person and by paying him some charges for the hire or use of the machinery, but under the control and supervision of the assessee who supplies the raw material etc., it must be taken as if it is the assessee who is the manufacturer. These decisions have held the field for a considerable period of time, though they were rendered in the context of the definition of an industrial company under section 109 or under the relevant Finance Act. The legislature was quite aware of the interpretation placed by the courts upon those provisions. However, in section 10B (and other sections such as 80-I, 80-IA, 80-HH, 80-IB etc.) no express provision was incorporated to the effect that the assessee which claims the deduction/exemption should itself own the plant and machinery and should itself manufacture or produce the article or thing or the computer software with the help of the said plant and machinery. In other words, the legal position laid down by the courts earlier, based on the maxim 'qui facit per alium facit per se' (one who does something through others does it himself), was not sought to be altered. In Banarasi Debi vs ITO (1964) 53 ITR 100 the Supreme Court, citing the decision in Barras vs. Aberdeen Steam Trawling and Fishing Co. Ltd (1933) A.C. 402, 411, held that where a word of doubtful meaning has received clear judicial interpretation, the subsequent statute which incorporates the same word or phrase in a similar context must be construed so that the word or phrase is interpreted according to the meaning that has previously been assigned to it. In F.S. Ghandhi vs. CWT (1990) 184 1TR 34, it was observed that where, while substituting section 2(e) of the Wealth-tax Act by the Finance Act, 1969, the Parliament repeated the same language which was used in the section as it stood prior to its substitution and the earlier section had received a particular way of interpretation by the Supreme Court in CWT vs. R.A. Muthukrishna Ammal (1969) 72 ITR 801, then "It must be assumed that while enacting the Finance Act, 1969, Parliament was aware of the construction placed by this court on these words in CWT vs. R.A. Muthukrishna Ammal (1969) 72 ITR 801. In repeating the said words in the amended clause (e) of section 2, Parliament must be taken to have used the said words to bear the meaning which has been put upon them by this court in CWT vs. R.A. Muthukrishna Ammal (1969) 72 ITR 801". Applying this rule of construction, it seems to us that when section 10B uses the word "manufacture" or "produce" without any conditions or reservations and in the same way in which they were used in the earlier provisions which were the subject-matter of interpretation by the courts, it must follow that the same meaning has to be given to those words and if there is no condition expressly added to the contrary or to express a different intention it must also follow that no condition can be read into the provision and it must be interpreted in exactly the same way in which it was interpreted earlier by the courts. It is also necessary to bear in mind that no decision rendered under section 109 of the Act or under the Finance Act was brought to our notice in which it was held that in order to enjoy the concessional rate of tax, the assessee itself should own plant and machinery and manufacture the goods himself with the help of those plant and machinery. In the light of this legal position, we are persuaded to hold that even under section 10B it is not necessary that the manufacturing activity has to be carried on by the assessee himself by using his own plant and machinery. If this first condition of clause (iii) of sub-section (2) is satisfied then the other two conditions of the clause are not applicable and, therefore, there is no question of assessee fulfilling the same.21. The circular no.694 dated 23.11.1994 also supports the assessee's stand. It is necessary to reproduce the relevant part of the circular which is as below:"5. Since computer programmes are not physical goods but are developed as a result of an intellectual analysis of the systems and methods followed by the purchaser of the programme, it is often prepared on site, with the software personnel going to the client's premises. Doubts have been raised whether units taking up such production of software at the client's premises would be eligible for the tax holiday.6. The Government's policy on tax incentive to software exports is reflected in the provisions of section 80HHE introduced in 1991. Under this provision, technical services provided outside India, for the development or production of computer software, are included for the purpose of the tax incentive.7. Similarly, for the purpose of section 10A or 10B as long as a unit in the EPZ/EOU/STP itself produces computer programmes and exports them, it should not matter whether the programme is actually written within the premises of the unit. It is, accordingly, clarified that, where a unit in the EPZ/EOU/STP develops software sur place, that is, at the client's site abroad, such unit should not be denied the tax holiday under section 10A or 10B on the ground that it was prepared on site, as long as the software is a product of the unit, i.e., it is produced by the unit."The circular recognises several aspects. Firstly, it accepts that computer programmes are not physical goods but are developed as a result of an intellectual analysis of the systems and methods followed by the purchasers of the program. This is exactly what the assessee before us contends. Secondly, it recognises that because of the fact that it represents an intellectual analysis it is often prepared on site with the software personnel of the assessee going to the client's premises to produce or prepare or develop the programme. Thirdly, the precise question that arose before the CBDT for being clarified was "whether units taking up such production of software at the client's premises would be eligible for the tax holiday". Taking cue from the language used (quoted), it appears to us that it was accepted by the CBDT that it is possible for the assessee to produce software at the client's premises. Obviously, if the software has to be produced or developed in the client's premises, the software personnel sent by the assessee will be using the equipment belonging to the client. Since the circular says that the tax holiday should not be denied under section 10A or 10B on the ground that the software was prepared on site at the client's premises, it seems to us that even according to the CBDT, it is not necessary, for the purpose of section 10A or section 10B, that the computer programme should be manufactured or produced by the assessee in his own premises by using his own plant or equipment. In paragraph 7 of the circular, the CBDT has recognised that so long as the assessee itself produces computer programmes and exports them, it should not matter whether the programme is actually written within (or without) the premises of the assessee. This means that so long as it is the assessee's personnel who go abroad and sit in the premises of the client to write the computer programme and thus it is the assessee who exercises supervision and control over the work and takes responsibility for the same, there should be no objection to considering it as a production of computer programme by the assessee. We were not presented with any convincing reason as to why the spirit and intention behind the circular cannot be extended to a case where the computer programme is produced, though not at the client's premises, but at the premises of a person whose infrastructure and equipment are utilised by the assessee on payment of necessary charges for using the facilities. In such a case also, there is production of software and the same is done under the control and supervision of the assessee. Thus, in our humble opinion, the circular seems to support the assessee's stand.22. Coming to the facts of the present case, it is seen that the assessee was incorporated on 21-3-1994 as "Next Overseas Pvt. Ltd" and did not do any business till 31-3-1999. It commenced computer software business in the financial year 1999-2000. On 29-3-2000 it got itself registered with Software Technology Park of India (STPI). It got export orders from Techdrive Inc. of USA which insisted that its name be changed in such a manner that people in USA may get the impression that the assessee is a BPO of the USA company. Accordingly it changed its name to Techdrive India Pvt. Ltd. Seacom Solutions (India) Limited is a subsidiary of the assessee and is located in the SEZ at Pune. It is eligible for the exemption of income under section 10A for a period of 10 years commencing from the assessment year 2000-2001. The assessment order of Seacom passed under section 143(3) of the Act for the assessment year 2001-2002 has been filed from which it is seen that deduction of Rs. 91,89,903/- was .given under section 10A out of the claim of Rs. 92,92,451/-. Seacom, as seen from the assessee's note to the Assessing Officer, has nearly 100 computers and skilled programmers on its rolls. The assessee has admitted that all the computer software development was being done in Seacom. The assessee thought it prudent and economically more profitable to use the facilities available with Seacom instead of duplicating them in its own premises involving huge costs. Therefore, it availed of the services of the personnel as well as the infrastructure of Seacom and paid the cost thereof as "software development charges". In the note, the assessee has also stated that it has four directors and some key personnel who had all the capability of producing and developing the computer software and details of these persons were furnished as an enclosure to the note. It was further explained both in this note and in another letter dated 22.11.2004 addressed to the Assessing Officer that there is no written agreement between the assessee and Seacom, that Seacom charged a sum of Rs. 75,000/- per month per work station which consists of a working table with a computer (including CPU, Monitor, Keyboard and Mouse) with internet and printer facility and power back-up and a trained computer professional capable of carrying out the normal instructions on the computer. The assessee's directors and key personnel issue the necessary programming instructions and directions to the computer professional sitting at the work station. In its letter dated 20n November 2004 written by Seacom to the Assessing Officer (page 80 of the paperbook) in response to the notice issued under section 133 (6), it has been clearly stated by it that the representatives of the assessee "were responsible for giving the necessary programming instructions and directions of the work". The assessee has also furnished in its letter dated 22.11.2004 the details of the software development charges paid by it. These are as under:"Charges for work-stationsprovided Reimbursement ofexpenses on our a/c Rs. 27,95,000 Debited to softwaredevelopment chargesSalaries paid toour employees 7,51,800 (except last two months)Travelling, boardingand lodging exp.on their a/c 4,91,777 Rs. 12,43,577 Total Rs. 40,38.577 Less Credit notes given Rs. 16,168 Software Development charges as per a/cs Rs. 40,21.409 Salaries for two months (Feb. and March) have been debited to the head of salaries as already submitted. It has also been submitted that the TDS has bee done on the total salaries (including those shown in software development charges) and the necessary TDS certificates etc. already furnished."It was further clarified that the assessee did not give any certificate to Seaeom as a supporting manufacturer and that Seaeom has treated the software development charges received by it from the assessee as domestic receipts and has not claimed any deduction thereon under section 10A. This has been confirmed by Seaeom also in its letter dated 20.11.2004.23. All the above facts, which have not been disputed by the Assessing Officer, show that though the assessee was using the infrastructure and facilities available with Seaeom for producing the computer software, it was being done under the supervision and control of the personnel of the assessee. The assessee company also had its own computers and its personnel also had their Laptop computers for doing the integration of the component programmes produced at Seaeom, Pune. This aspect has been brought to the notice of the Assessing Officer in the assessee's note dated 6.9.2004. The software development charges paid by the assessee were partly for the work stations provided by Seacom (Rs. 27,95,000/-) and the balance of Rs. 12,43,577/- represented reimbursement of salaries paid by Seacom to the assessee's employees (Rs. 7,51,800/-) and expenses on traveling, boarding and lodging for them reimbursed (Rs. 4,91,777/-). Apparently, the assessee's employees were required to stay in Pune for sometime to carry out the work of developing the software and they have to be paid salaries and the expenses on their boarding and lodging had to be taken care of. The salaries and expenses were paid by Seacom and the assessee reimbursed Seacom the same. The software developed by the assessee with the help of the infrastructure and equipment provided by Seacom were exported by the assessee and for the year under appeal such exports amounted to Rs. 2,04,82,556/-. The other conditions of the section, such as, receipt of the sale proceeds into India in convertible foreign exchange within the prescribed period, have been satisfied. In these circumstances, we are of the view that the CIT (Appeals) has rightly accepted the assessee's claim for exemption under section 10B of the Act. We affirm his order and dismiss the appeal filed by the department with no order as to costs.Order pronounced in open court this day of June 27th 2008.

Computation of turnover U/s 10A - Case law

IN THE INCOME TAX APPELLATE TRIBUNAL,BANGALORE BENCH ‘B’ BANGALORE
ITA No.248 & 249/Bang/2007(Asst. Year 2002-03 & 2003- 04)
M/s I-GATE GLOBAL SOLUTIONS LTD158-162(P) & 165(P)-170(P), EPIP,Phase-II, Whitefiled, Bangalore-560006
Vs
THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-11(3), BANGALORE

Though there is no definition of the term 'total turnover' in section 10A, there is also nothing in the said section to mandate that what is excluded from the numerator (export turnover) would nevertheless form part of the denominator. One would have to apply consistent standards in understanding and applying a term, particularly when, such term, viz. export turnover has an independent function and at the same time a part of a larger term viz., total turnover. Thus, if some expenses, for any reason are excluded in arriving at the 'export turnover' the same should be reduced form 'total turnover' also.

ORDER
The assessee has filed the appeals against the order of learned Commissioner of Income-tax (Appeals) - I, Bangalore dated 19th Dec, 2006 and 6th Jan, 07. Some of the grounds of appeal for both the asst. years are the same, therefore, these appeals are being decided by a single consolidated order.
2. One of the common ground of appeal raised is that the learned CIT(A) has erred in concluding 80% of the up-linking charges are to be reduced from export turnover in arriving at the amount of deduction eligible under section 10A.
3. The learned CIT(A) during the course of appellate proceedings referred to the definition of export turnover as given in clause – IV of explanation 2 below section 10A(8). From the consideration received, freight, telecommunication charges or insurance attributable to delivery of software have to be reduced. The learned CIT(A) noticed that no expenditure was reduced from the export turnover. Hence, it was indicated to the learned AR that income has to be enhanced. Expenditure on delivery of software has not been reduced from the export turnover. Before the learned CIT(A), the assessee made the following submissions in respect of the above issue."Link lines are obtained using a WAN (Wide area Network). The WAN provides video, data and voice connectivity services across a large geographical area from iGATE locations in India. A wide area network (WAV) or leased line link includes communication lines and equipment up to and including the router at a particular and user site, excluding local area networks (LANs). Our links are connected between offices as well as to our overseas Collocation Centres. AT&T provides a Rack Space specifically for iGate. iGate will use this rack space through the telecom infrastructure/telecom lines and put the network equipments in that rack and finally connect to the end customer.
These link lines are required to receive inputs i.e (raw data and information) from the customer who is based outside and to transmit the software outside India which is based on the inputs received from the customer.
Hence at any time link lines are always used for two transfers :
1. Transfer in i.e receiving raw data and information from the customer.2. Transfer out i.e transmission of software to the customer site. At any given point of time the raw data and information received from the customer is very voluminous and requires 60% of the time whereas the software transmitted to the customers is in a processed form and the same requires 40% of the time. However, so to say if not 40% at least a minimum of 50% of the leased lines will always be used for inbound transmission of data and balance 50% of the leased lines will always be used for outbound transmission of data.
During the FY 01-02, as per the profit account total expenditure incurred on data processing transmission was Rs.17,159,189/. The break up of the same is as follows :
S.N Description Amount (in Rs.)
1 Expenses towards computer consumables, office supplies, computer supplies, computer printing and stationery etc. 47,24,974
2 Expenses towards Link Charges 1,24,34,215
TOTAL AS PER PROFIT & LOSS A/C 1,71,59,189
As per the above table, Rs.1,24,34,215/- is the link costs incurred out of which 50% i.e Rs.62,17,108/- can be considered as being telecommunication charges attributable to the delivery of computer software outside India."
4. The learned CIT(A) discussed the business model of software company with representatives of various companies. From the discussion, the learned CIT(A) gathered that in a software development product, initial discussions are held in the form of personal meetings and conferences. Hence, for initial discussions, not much of the dedicated facilities utilized for inward transmission of data. Once the development works starts, the software developer has to continuously send data outwards. In many instances, development of software done in separate modules. It is sometimes done by different individuals or entities. All the modules need not be developed from India. Software development also includes modification of software already developed. The dedicated line is used for all such operations. The learned CIT(A), therefore, held that estimate of 50% of data link charges as made by the assessee, as attributable to delivery of software is on the lower side. The learned CIT(A) estimated it at 80% of the up-linking charges.
5. On the above referred issue, we have heard both the parties. The details of expenses incurred towards link charges are available with the assessee company. It would not have been difficult for the assessee company to have asked the services provider to give the details of expenses incurred in transmitting information from India. The assessee could have obtained the details of expenses of outward transmission of data. When a specific information is available with the assessee and if the same is not produced, then adverse inference can be drawn. The assessee in the course of proceedings before the learned CIT(A) estimated such expenditure for transmission of data at 50% of the expenditure on link charges. The learned CIT(A) discussed the software development with a number of representatives of various companies. Facts as mentioned by the learned CIT(A) in his order has not been controverted by the learned AR. Therefore, we decline to interfere with the finding of the learned CIT(A) in estimating that 80% of up linking charges are to be reduced from the export turnover. Such finding is upheld for both the asst. years.
6. The second common grievance for the asst. year is that the learned CIT(A) has erred in not appreciating that uplinking charges reduced from the export turnover are also to be reduced form the total turnover.
7. The above referred issue has been decided by the Bangalore Bench in the following cases :
1) M/s Tata Elxsi Ltd., 315/Bang/2006 dt. 16/10.07
2) ACIT VS. M/s Infosys Ltd., 653 & 969/Bang/06
8. In the case of Tata Elxsi Ltd., it was submitted as under :"The term 'total turnover' no doubt is not defined in section 10A. However, the term 'total turnover' would be an enlargement of the term 'export turnover'. In other words, the sum total of export turnover and domestic turnover would constitute 'total turnover'. The formula for computation of the deduction u/s 10A, when re-stated in the above manner, would be as under :
Export turnoverProfits of the business X ----------------------------------(Export turnover + domestic turnover)
The term 'export turnover' would then be a component or part of the denominator; the other component being the domestic turnover. In other words, to the extent of 'export turnover' there would be a commonality between the numerator and denominator of the formula. In view of the commonality, the understanding should also be the same. In other words, if the 'export turnover' in the numerator is to be arrived at after excluding certain expenses, the same should be also be excluded in computing the 'total turnover' in the denominator. Though there is no definition of the term 'total turnover' in section 10A, there is also nothing in the said section to mandate that what is excluded from the numerator (export turnover) would nevertheless form part of the denominator. One would have to apply consistent standards in understanding and applying a term, particularly when, such term, viz. export turnover has an independent function and at the same time a part of a larger term viz., total turnover. Thus, if some expenses, for any reason are excluded in arriving at the 'export turnover' the same should be reduced form 'total turnover' also.
Even otherwise, in the context of section 80HHC where under a similar formula is applicable, it has been held that the components entering into export turnover and the total turnover should be the same. In other words, one should compare apples with apples and not apples with oranges."
9. Reliance was also placed on the number of judgments of the high courts, vide which, it has been held that excise duty and sales-tax should not be included in the total turnover, as the same are not includible in the export turnover. The learned Apex court in the case of CIT VS. Lakshmi Machine Works, 290 ITR 667 and in the case of CIT Vs. Catapharma (India) Pvt. Ltd., 292 ITR 641 has held that excise duty and sales-tax are not includible in the total turnover. It was, therefore, held in the case of Tata Elxsi and Infosys Technologies that expenditure incurred in foreign currency by the assessee should be excluded from the total turnover, as the same is not to be considered in export turnover. Following the same reasoning, it is held that uplinking charges which are reduced for ascertaining the export turnover are also not to be considered for the purposes of total turnover, as total turnover is sum total of export turnover and internal turnover.

Case Law on Section 10 A - New Unit

THE Chennai Tribunal has held that where new undertaking has been formed by making substantial investments in new plant & machinery, sizeable addition to the workforce, revenue, client and nature of service offered, it cannot be regarded as a split up of the existing unit even if it has used some of the existing infrastructure. In the relevant case the tribunal considered, the assessee company was engaged in the business of development of software. During the financial year, it setup a new STPI unit and claimed deduction under Section 10A on the same. AO denied the claim for deduction of assessee on the ground that new unit is formed by the splitting of existing unit as technology, most of the workers and clients were transferred from the existing business. The tribunal found that the new unit was clearly established by substantial investments in plant and machinery. Though the new unit took some of the old employees, there was almost a three-fold increase in thenumber of employees. There was substantial addition to nature and type of services rendered to the clients and also in the volume of business. There was good increase in the number of clients also. Therefore, the tribunal held that there was no splitting up of the existing unit and allowed deduction under Section 10A to the new unit.

IN THE INCOME TAX APPELLATE TRIBUNALBENCH 'A' CHENNAI
I.T.A.No. 2345/Mds/05Assessment Year 2001-02
INCOME TAX OFFICER (OSD),COMPANY RANGE I,CHENNAI-600 034
Vs
M/s DSM SOFT (P) LTD,(OLD-9),15 CROSS STREET,SHASTRI NAGAR, ADYAR, CHENNAI-600 020
Shri N. Vijayakumaran, JM and Shri Shamim Yahya, AM

Appellant Rep by : Shri B. Ramakrishanan Respondent Rep by : Shri Shaji, P. Jacob
Income Tax - Assessee Co., engaged in development of software for export and local market, sets up a new unit in the financial year under consideration on which a rebate u/s 10A is claimed - A.O. denies on the ground that the new unit is formed by splitting of existing business as most of the workers and clients were transferred from the existing unit - Rebate u/s Sec.10A is a special provision which provides for exemption to a new undertaking set up in free trade zones on fulfilling certain conditions one of which under clause 2(ii) of the said section is that the new unit should not be formed by splitting or reconstruction of an existing undertaking and in order to hold that the new unit is formed by splitting the existing one, there should be sufficient material to hold that new unit was formed by diverting of assets of existing one or it is an integral part of the existing business - In the instant case setting up of a new unit is established as there was substantial amount spent on new plant & machinery instead of diversion of assets and moreover sizeable addition was made to the workforce, revenue, clients and nature of services offered in the relevant financial year - Revenue's appeal dismissed - (Para 6,7,14,17).
ORDER
Per : Shri Shamim Yahya:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-VIII, Chennai-34 dated 29.07.2005 and pertains to assessment year 2001-02.
2. The issue raised in the appeal is that the learned Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer to allow relief u/s 10A in respect of STPI Unit-I at Trichy.
3. The brief facts of the case are brought out as under:-
The assessee company, with a unit in Chennai, was incorporated on 8.6.1991 and since then has been engaged in development of software both for export and local market. The assessee had claimed deduction u/s 80HHE till assessment year 2000-01. During the present financial year, assessee had started a new STPI Unit at Trichy and has claimed that the entire export has been affected by its export unit situated at Trichy. During the course of scrutiny assessment, the Assessing Officer noted that the STPI Unit continued to have the same export clients like that of last year. The majority of the employees of the Chennai Unit were taken into the STPI Unit. The Assessing Officer further noted that there were huge losses in the domestic unit. The domestic unit in earlier years has been showing handsome profits from its business but substantially in this year has shown huge losses. The telephone, fax, internet and e-mail expenses of STPI Unit at Trichy were actually much less then those of the Chennai Unit. From these facts, the Assessing Officer came to the conclusion that export of software which is accomplished by the assessee through internet has been handled from Chennai and not from Trichy. Consequently, the Assessing Officer held that the unit at Trichy was established by splitting the earlier business and hence was not eligible for Section 10A rebate.
4. Upon assessee's appeal, the learned Commissioner of Income Tax (Appeals) asked for remand report from the Assessing Officer and concluded as under:-
"i) Substantial fresh investment in Plant & Machinery exceeding Rs. 50 lakhs was made in STPI Unit at Trichy.
ii) A net addition of 153 employees by STPI Unit at Trichy was made during the year under consideration.
iii) Four new foreign clients were added to the existing six clients during the year under consideration. More than two crore worth of export has been made in rendering new services of Geographical Information Systems (GIS), Photogrammatary, Software exports in addition to CAD services which have been rendered in earlier years as well."
5. On the basis of above, the learned Commissioner of Income Tax (Appeals) concluded that there was substantial force in the contention of the assessee that STPI Unit at Trichy was not formed by splitting up or reconstruction of its earlier business. Aggrieved by this order of the Commissioner of Income Tax (Appeals), the Revenue is in appeal before us.
6. We have heard the rival contentions and perused the relevant records. We find that section 10A which provides for special provision in respect of newly established undertakings in free trade zones provides vide clause (2) the conditions which are to be satisfied by the undertakings in order to claim exemption granted by the Section as under:-
"(2) This section applies to any undertaking which fulfils all the following conditions, namely :—
(1) 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 of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park;
(c) commencing on or after the 1st day of April, 2001 in any special economic zone;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation.- provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that subsection."
7. Admittedly, it is Revenue's case that assessee has not complied with clause 2 (ii). In other words, the Assessing Officer has made up a case that the STPI Unit at Trichy was formed by splitting up or by reconstruction of the business already set up at Chennai.
8. The first objection of the Assessing Officer is with regard to the employees. It is the contention of the Assessing Officer that employees of the new unit basically came from the old unit. On this issue the learned Commissioner of Income Tax (Appeals) had obtained remand report from the Assessing Officer and following facts have emerged:-
"The STPI Unit had 86 employees in April, 2000 which were taken over from the existing unit at Trichy. However, 214 more employees were added during the financial year 2000-2001 in the STPI Unit. The assessee has also furnished a month-wise chart from April, 2000 to March, 2001 giving details of the number of employees at the beginning of the month, number of employees added during the month and number of employees resigned / deleted during the month. From this chart, it is seen that to the opening number of 86 employees in the month of April, 2000, 214 new employees were added by recruitment during the entire year. The number of employees resigned / deleted during the year is shown at 61 with the result, at the end of the year there were 239 employees in the STPI Unit at Trichy. Thus, there was net addition of 153 employees during the previous year relevant to assessment year, 2001-02."
9. Another objection of the Assessing Officer in this regard was that less skilled and inexperienced new employees of the STPI Unit at Trichy would not be competent to develop highly complicated software as required by foreign clients of the assessee. In this regard, assessee submitted before the learned Commissioner of Income Tax (Appeals) that all the newly recruited employees were technically competent holding ITT certificates and were duly trained by the company.
10. The next objection of the Assessing Officer is regarding the transfer of old clients to the new unit. In this regard, it is the submission of the assessee that out of total ten export clients, six were old clients and four new clients were added during the assessment year. While in the previous unit assessee provided only Computer Aided Design (CAD) services for the current assessment year, the STPI Unit has rendered new technological services even to the old clients, namely, Geological Information Systems (GIS), Photogrammatary & Software Services. Out of the total turn over of Rs.2,69,57,499/-, only Rs.65,57,765/-were from CAD services.
11. Another objection by the Assessing Officer was that despite very successful track record in earlier years, all of a sudden during the relevant assessment year, the new STPI Unit at Chennai has suffered huge losses. In this regard, following submission of the assessee was accepted by the learned Commissioner of Income Tax (Appeals) :-
"a. During the financial year 1999-2000, the major customer for the local unit was Reliance Petroleum Ltd., Jam Nagar, Gujarat.
b. During 2000-2001, Reliance Petroleum Ltd. at Jam Nagar completed their project constructions and commenced their commercial production. The assessee had Reliance Petroleum Ltd. projects only upto June, 2000.
c. The billing rate on Reliance Petroleum Ltd. was very high during 1999-2000 and the bills were to the order of Rs.2,60,48,518/- for the 1999-2000 financial year as against Rs.39,88,695/- for the financial year 2000-2001, which resulted in a fall in the turnover to the extent of Rs.2,20,59,823/- which accounted for the serious fall in income resulting in a loss ultimately for the financial year 2000-2001. The net income from Reliance Petroleum Ltd. projects was nearly 50% of the gross receipts as the expenditure was to the order of Rs. 1,39,67,539/-.
d. After July 2000, the assessee got Reliance Engineering Associates (P) Ltd. projects at Jam Nagar, Hyderabad, Bangalore, Chennai, Lucknow, Cochin and Calcutta and the receipts from the above projects amounted to Rs.1,01,95,480/- and but for these receipts the loss for the financial year 2000-2001 would have been still higher.
e. The net income would be 7% to 10% from Reliance Engineering Associates P. Ltd. projects done during the financial year 2000-2001, whereas the net income percentage was around 50% during the financial year 1999-2000 from the projects of Reliance Petroleum Ltd."
12. The fifth objection raised by the Assessing Officer states that the expenditure on telephone, fax, internet and e-mail charges were more for Chennai Unit and less for STPI Unit at Trichy which clearly establishes that the software exported by the assessee company were uploaded mostly from Chennai. In this regard, the learned Commissioner of Income Tax (Appeals) noted that the assessee had furnished a detailed explanation wherein it has been clarified that the Assessing Officer has not considered an amount of Rs.4,74,530/- which related to STPI Unit at Trichy but were incurred at Chennai. The assessee has furnished the details of such expenses. Thus, after considering this, the actual expenses relating to STPI Unit at Trichy worked out to Rs.7,57,563/- whereas the domestic unit at Chennai had incurred an amount of Rs.3,12,991/- on telephone, fax, internet and e-mail charges during the year under consideration.
13. The learned Commissioner of Income Tax (Appeals) further noted that assessee's claim is further strengthened by the fact that new Plant & Machinery at Trichy was procured at a cost of more than Rs.50 lakhs.
It was in the background of aforesaid analysis and fact finding whereby all the objections of Assessing Officer were cogently rebutted that Commissioner of Income Tax (Appeals) decided the issue in favour of assessee.
14. It is well settled that in order to hold that a business was formed by splitting up of a business already in existence, there must be some material to hold that either some assets of the existing business is diverted and another business is set up from such splitting up of assets or that the two businesses are same and the one formed was an integral part of the earlier one. Admittedly, in this case, it is not the case of the revenue that the new business involved diversion of assets from the old unit. The new unit was established by procuring machinery worth more than Rs.50 lakhs. In our opinion, whether there is reconstruction of a business in terms of this section depend on facts of the case. If the alterations or changes are substantial, there would be little scope of describing what emerges as a reconstruction of business. Hence, in these matters one has to look at the substance of a transaction and not at the form.
15. In this context, it will be worthwhile to refer to Hon'ble Apex Court decision in the case of Textile Machinery Corporation Ltd. Vs. Commissioner of Income Tax, West Bengal (1977) 107 ITR 195 wherein it was held that,
"A new activity launched by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced and at least a minimum of ten persons with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of Section 15C the industrial units set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. In order to deny the benefit of Section 15C the new undertaking must be formed by reconstruction of the old business.
If an undertaking is not formed by the reconstruction of the old business that undertaking will not be denied the benefit of section 15C merely because it goes to expand the general business of the assessee in some directions.
Use by the assessee of the articles produced in its existing business or the concept of expansion are not decisive tests in construing section 15C."
16. Some other important case laws in this regard are discussed as under:-
i) Hon'ble jurisdictional High Court in the case of CIT Vs. Metropolitan Springs (P) Ltd. 191 ITR 288 has held in the context of provisions of Section 80J that, even if some members of the staff were common to the old and new unit, it will not be a bar on the eligibility or deduction u/s 80J.
ii) Hon'ble Apex Court decision in the case of CIT Vs. Indian Aluminium Company Ltd. 108 ITR 367 has held that, even if the new undertaking was involved in manufacturing the same commodity as manufactured by the old unit, it will still be treated eligible undertaking for Section 80J.
iii) Hon'ble jurisdictional High Court decision in the case of CIT Vs. Premier Cotton Mills Ltd. 240 ITR 434 has held that, it was not required for deciding the question of splitting up or reconstruction of the existing business that the new undertaking should produce different article to that produced by the old unit.
17. On the anvil of aforesaid discussion and case laws, we find that in this case there is a clear establishment of new unit by substantial investment in Plant & Machinery. The new unit though, took some of the old unit's employees but during the financial year itself the substantial expansion led to almost three-fold increase in the number of employees. There was substantial addition to the nature and type of services rendered to the clients and also in the volume of business. Furthermore, there was good increase in the number of customers also. The old unit's incurring losses has been duly explained as mainly due to completion of Reliance Petroleum Ltd., Jam Nagar Project which led to substantial reduction in assessee's business.
18. Another objection raised by the Revenue is that the learned Commissioner of Income Tax (Appeals) failed to note that in the earlier year the assessee had claimed relief u/s 80HHE which profits / receipts from Trichy Unit also and hence as per 80HHE(5), the assessee is not permitted to claim relief u/s 10A.
19. In this regard the learned counsel of the assessee submitted that this is factually wrong. He referred to Assessing Officer's finding in page number 3 of the assessment order where it is clearly mentioned that the STPI Unit commenced its commercial operation from April, 2001. The learned Departmental Representative did not dispute this finding.
In this regard, we further find that Hon'ble jurisdictional High Court in the case of L.G. Balakrishnan and Brothers Ltd. Vs. CIT 151 ITR 270 has held that a new undertaking can be said to have been formed only when it is ready to commence the production of article for which the undertaking was established and the formation of company will not include the initial steps taken for its establishment.
Considering the aforesaid, we find that this objection by the Revenue is unfounded.
20. In the background of above discussion and case laws cited above, it is clear that it cannot be said that the STPI Unit at Trichy was established as a result of splitting up or reconstruction of the Unit at Chennai. Hence, we uphold the order of the learned Commissioner of Income Tax (Appeals) in this regard and decide the issue in favour of the assessee.
21. It will not be out of place here to mention that it is a settled proposition often reiterated by the Hon'ble Apex Court that in cases where two views are possible, the one favourable to the assessee should be adopted. CIT v. Podar Cements Ltd. and another 226 ITR 625 (SC) and Mysore Minerals Ltd. Vs. Commissioner of Income Tax 239 ITR 775 (SC). Further more, the Hon'ble Apex Court in the case of Bajaj Tempo Ltd. Vs. Commissioner of Income Tax 196 ITR 188 with respect to relief for new industrial undertaking u/s 15C of the Income Tax Act, 1922 has held that such provisions should be construed liberally. Very literal construction which defeats the very purpose of enacting the provision should be avoided.
22. In the result, this appeal by the Revenue is dismissed.