COMMISSIONER OF INCOME TAX Vs. DSL SOFTWARE LTD

JUDGEMENT

(1.) This is an appeal filed by the revenue challenging the order passed by the income Tax Appellate Tribunal, Bangalore Bench-B, upholding the order passed by the Commissioner of Income Tax (Appeals) who held that the assessee is entitled to the benefit of the extended period of ten consecutive years under Section 10B of the Act though prior to coming into force of the amended provision, he had the benefit of five years period of exemption from payment of income tax as per the amended provision. The assessee is engaged in the business of software development and exports. The assessee is recognized as a 100% export oriented undertaking. Therefore, the respondent/assessee is entitled to the benefit of the tax holiday under Section 10B of the Income Tax Act (for short hereinafter referred to as the Act). Initially, Section 10B conferred a tax holiday for a period of 5 years out of a band of 8 years. The band of 8 years was to commence from the date the eligible unit commenced software development. The respondent claimed the benefit of tax holiday in accordance with the un-amended provision of 10B for a period of 5 years. The said 5 years period ended in the assessment year 1997-98 as the production commenced from 1993-94.

(2.) The Income Tax (Second Amendment) Act. 1998 amended Section 10A and 10B, The amendment extended the tax holiday period to 10 years. The period of 10 years was to be reckoned from the date, the eligible unit started software development. Therefore, the assessee claimed the benefit from payment of tax for the years 1999-2000, 2000-01 and 2001-02 as the amended provision came into force from 01.04.1999. In so far as assessment year 2001-02 is concerned, the assessee was denied the exemption under Section 10B of the Act on the ground that the assessee had already exhausted its claim under Section 10B prior to the amendment. Therefore, the question of allowing the claim for the remaining part of the 10 years period or the extension of the claim does not apply. According to the Assessing Authority, the assessee's case nets covered by the clause 'The undertaking shall be entitled to the deduction referred to in the sub-section only for the unexpired period of aforesaid ten consecutive years'. The understanding of the Assessing Authority is that in the assessee's case, there was no unexpired period left because the claim has got exhausted in the assessment year 1997-98 itself. The second amendment provision has no application. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The Appellate Commissioner held that there is nothing in the Act to provide that the units which have fully availed the benefit of exemption under Section 10B in accordance with the provisions of Section 10B(7) as it stood originally shall not get the benefit of amended provision introduced by Income Tax (Second Amendment) Act, 1998. Therefore, he held that the assessee is entitled for exemption under Section 10B in respect of Its Leela Galleria Units for the assessment year under consideration. Aggrieved by the said order, the revenue preferred an appeal to the Tribunal. The Tribunal after taking note off the object with which the amendment was introduced as well as the amended provisions held that the provisions of Section 10B do not place the old and new EOU units on a different footing. If it were so, there would have been specific mention to the said effect. If the Legislature had intended to make a distinction between the old and new Section. 10B there would have been a specific mention of the same. In the absence of such a specific regimentation, all the 10B units would have to be similarly treated. Further it was held that the assessment for any year would depend upon the law in force on the first day of the relevant year. That the assessee claimed the benefit under Section 10B on the basis of the law as in force on the first day of the relevant year. Section 10B was amended which came into force from 01.04.2001, provided that the unit shall be eligible to the tax holiday under the new section for the unexpired period of 10 years beginning with the assessment year relevant to the previous year in which the said undertaking begins to manufacture. The reference in the proviso is to the unexpired period of 10 years without any qualification. It does not refer to the unexpired period of the tax holiday duration. The substituted section, being without any qualification is therefore to be held as applicable to the assessee. Therefore, it dismissed the appeal preferred by the revenue. Aggrieved by the said order, the revenue is in appeal.

(3.) The learned Counsel for the revenue assailing the impugned order contends that prior to the amendment the benefit of tax exemption was granted for 2 period of 5 years from the date of production. Admittedly, in the instant case, the assessee commenced production in the assessment year 1993-94 and therefore, he has availed the benefit of 5 years consecutively from that day, which ended in 1997-98. The amended provision came into force only in 1999 after the expiry of 5 years period. Therefore, as the assessee had already availed the benefit under the unamended provision, he is not entitled to the benefit of the amended provision. Therefore, the Assessing Authority was justified in denying the said benefit, which has been wrongly interfered with by the Appellate Authorities, and therefore, he submits that a case for interference is made out.