STABILIX SOLUTIONS (P) LTD Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) The appellant-assessee M/s Stabilix Solutions Pvt.Ltd. is a company incorporated on 11.02.2002 as a 100% Export Oriented Unit (for short 'EOU') at Technopark Campus in Thiruvananthapuram. The venture was started in a premise, having an extent of 4,000.00 sq.ft. built up area, sublet by the assessee's sister concern, namely, M/s Stabilix Techonologies Pvt.Ltd. (for short 'STPL'). The assessee-company and STPL are both wholly owned subsidiary of M/s Stabilix Corporation, USA, which holds 99.99% share in each of them. STPL had leasehold right over a total extent of 6,000 sq.ft. built up area from M/s Electronics Technology Parks, Kerala and M/s Health Care Media Pvt.Ltd. and was itself a 100% EOU, producing computer software and supplying the same to the parent company.

(2.) The Assessing Officer (for short "A.O.") observed in Annexure A order pertaining to assessment year 2004-05 that the ratio of the plant and machinery leased by STPL was highly incongruent with or disproportionate to the space leased out, which was 4,000 sq.ft., out of 6,000 sq.ft., consisting of 66.66% of the total area. According to the A.O., the corresponding value of the machineries given on lease or allowed to be used by the assessee ought to have come to the tune of Rs. 66 lakhs, which is ?rd of the investment of Rs. 95.45 lakhs by STPL. The A.O. had inferred that the entire space utilised by the STPL for its purpose was sublet to the assessee on "as is where is" basis, involving only minor adjustments, as against the wholesale dislocation of plant and machinery and thus he came to the conclusion that the lease would qualify to be a transfer within the meaning of Sec. 10B(2)(iii) of the Income Tax Act, 1961 (for short 'the Act'), which provides that an eligible undertaking under the Sec. should not be formed by the transfer to a new business, of plant and machinery that stands previously used for any purpose. The A.O. was of the view that the leased machinery disqualify the assessee from being eligible for its claim under Sec. 10B(1) as the assessee through the instrumentality of a lease could not circumvent the provisions of Sec. 10B(2) (iii).

(3.) Aggrieved by the deletion of disallowance of assessee's claim for deduction under Sec. 10B(1), the assessee appealed before the C.I.T.(Appeals). On considering the arguments placed before him, the C.I.T. (Appeals) allowed the claim of the assessee for exemption under Sec. 10B(1) vide Annexure B order.