$ * IN HIGH COURT OF DELHI AT NEW DELHI Decided on : 15.04.2015 ITA 46/2015 HCL TECHNOLOGIES Appellant Through: Sh. Ajay Vohra, Sr. Advocate with Sh. Neeraj Jain and Sh. Aditya Vohra, Advocates. Versus ASSISTANT COMMISSIONER OF INCOME TAX ..Respondent Through: Sh. N.P. Sahni and Sh. Nitin Gulati, Advocates. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K. GAUBA MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1. This appeal under Section 260-A of Income Tax Act by assessee, questions order dated 30.05.2014 of Income Tax Appellate Tribunal (hereafter ITAT ) in ITA No.5623/Del/2010 for, assessment year 2005-06 (AY). ITAT by impugned order disallowed appellant s claim for certain deductions under Section 10A of Income Tax Act, 1961 (hereafter referred to as Act ). following substantial questions of law are urged for this Court s determination in this appeal: (1) Whether assessee is estopped under law from availing benefits under Section 10A of Act in respect of units for which it had not availed said benefits previously, by treating such units as distinct ITA 46/2015 Page 1 undertakings as opposed to expanded units of single undertaking (as was done earlier)? (2) Whether, on facts, appellant s contention that new units claimed by it to be separate undertakings for purposes for Section 10A of Act is correct? 2. appellant is public limited company engaged in providing software development services through its software development undertakings set up in Software Technology Park (STP) in NOIDA and Chennai. During relevant assessment year, assessee/appellant had 31 independent software development units or undertakings set up at distinct locations. These were registered under 13 licenses with STP authorities. appellant filed its original return of income on 31.10.2005, where gross business income of ` 2,58,17,15,909/- was shown and deduction under section 10A of Act was claimed at ` 2,57,24,87,070/-, considering 13 mother licenses issued by STP authorities as 13 eligible undertakings or units. Net taxable business income was shown at ` 92,28,838/-. 3. Later, appellant filed its revised return of income on 30.03.2007, where deduction under section 10A of Act was enhanced to ` 2,75,57,24,990/-. assessee now sought to treat 31 undertakings registered with STPI under 13 mother licenses as independent undertakings eligible for said deduction, separately and individually. return of income was accordingly, revised showing income from business or profession at ` 2,58,77,95,991/- and claiming deduction under section 10A of Act at ` 2,75,57,24,990/-, resulting in loss from business or profession of ` 16,79,29,000/-. assessee had filed certificates in Form 56F in support of its claim of deduction under Section 10A of Act, ITA 46/2015 Page 2 claimed in original as well as in revised return. In original return assessee had claimed deduction under Section 10A only in respect of 13 units and in revised return number of units eligible for benefits under section 10A was increased from 13 to 31 and separate Form 56F was filed for each of these 31 units. 4. Assessing officer ( AO ) in assessment order dated 26.12.2008 for relevant assessment year, disallowed aforesaid additional deduction claimed under section 10A of Act by way of revised return, inter alia, on grounds that units set up in earlier years were mere expansion of existing units; there was no separate approval as new unit by STPI authorities; and that claim that units set up were independent and separate new units, was raised belatedly which could not be gone into at this late stage. AO, therefore, restricted assessee s claim of deduction under section 10A of Act to 13 mother (original) licenses/ undertakings instead of 31 independent and eligible units. 5. appellant challenged AO s order before Dispute Resolution Panel ( DRP ). DRP, by its Order dated 30.09.2010, affirmed AO s action and held that software development centres added under each license were only extensions of original undertaking and they could not consequently be treated as separate undertakings for purpose of claiming deduction under section 10A of Act. On basis of DRP s directions, AO passed final assessment order dated 28.10.2010, ITA 46/2015 Page 3 wherein additional deduction under section 10A of Act claimed by appellant in revised return of income was not accepted. 6. ITAT, by impugned order, dismissed appeal against DRP s order and held that appellant could not claim enhanced deduction under Section 10A by departing from its earlier position that units in question were only extension or expansion of pre-existing units and were not new units. ITAT held that fact that STPI authorities endorsed on existing licenses meant that new and separate locations added were in nature of expansion of existing unit(s) / undertaking(s). Further, it held that enhanced claim made through revised return was clearly belated and could not be said to be in nature of inadvertent mistake. Thus, at this belated stage, it was not possible to verify satisfaction of pre-requisite conditions attached to formation of eligible undertakings, which was necessary for allowing claim of deduction under section 10A of Act. Submissions made on behalf of Assessee 7. Mr. Ajay Vohra, learned senior counsel appearing for assessee, contended that ITAT failed to appreciate that mere fact that in earlier years appellant did not compute deduction under section 10A of Act by considering these 31 units as separate undertakings and instead computed deduction under that section on basis of 13 STPI licenses, does not, in law, operate as estoppel. It could not, said counsel prevent appellant from correctly computing and claiming deduction under said section in relevant previous year by treating each of 31 units as ITA 46/2015 Page 4 separate and independent undertaking. Reliance is placed on this Court s decision in CIT v. Bharat General Reinsurance, 81 ITR 303 for proposition that assessee can anytime resile from incorrect position already taken in return of income. Further, appellant has cited CIT vs Natraj Stationery Products (P) Ltd, 312 ITR 22 (Delhi HC), CIT v. Laxmi Metal Industries, 236 ITR 130 (Allahabad HC), CIT v. Seeyan Plywoods, 190 ITR 564 (Kerala HC), CIT v. Satellite Engineering Ltd, 113 ITR 208 (Gujarat HC) to contend that even if assessee was to make claim of deduction for first time in year subsequent to initial assessment year, claim could not be dismissed as belated one. 8. Learned senior counsel submits that deduction under section 10A of Act is available for period of 10 assessment years following initial assessment year in which undertaking begins to produce computer software. Even though deduction may not be claimed in initial year(s) for variety of reasons, assessee is, in law not estopped from claiming deduction under said section in any of subsequent assessment years falling within ten year period. Reliance is placed on decisions of Supreme Court in Commissioner of Income Tax v. C. Parakh & Co (India) Ltd, 29 ITR 661 and Commissioner of Income Tax v. VMRP Firm, 56 ITR 67 to contend that estoppel does not apply against statute and that assessee s entitlement to deduction depends upon statutory provision and not assessee s view regarding same. 9. Mr. Vohra submitted that to claim deduction in terms of clause (i)(b) of sub-section (2) of section 10A of Act, undertaking should have begun manufacture of article or things or production of computer ITA 46/2015 Page 5 software in Software Technology Park. provision does not specify manner in which approval/ registration is to be issued by STPI authorities. Further, provision does not require separate license as condition precedent for holding unit operating in Software Technology Park as eligible for deduction under that section. Once it is not disputed that each of 31 undertakings of appellant are set up for production of computer software in Software Technology Park and are registered with STPI Authority, manner of approval/ registration with STPI authorities would not determine whether each of 31 units qualify as undertaking eligible for deduction under section 10A of Act. 10. assessee submits that ITAT did not apply ratio of Supreme Court s decision in Textile Machinery Corporation Ltd. v. CIT, 107 ITR 195, which settled principles regarding setting up of new unit. Further, ITAT did not deal with various decisions of co-ordinate benches of ITAT which were relied upon during hearing (one of which is approved by Bombay High Court) and which, relying on Textile Machinery Corporation Ltd. (supra), had laid down that manner of seeking approval from STPI was irrelevant. assessee contends that these units were set up as independent viable units with investment of fresh capital, having separate identifiable work force, etc., and fully satisfied tests laid down in Textile Machinery Corporation Ltd. (supra). 11. It is highlighted by assessee that to demonstrate that requisite conditions to claim deduction under section 10A of Act are satisfied by each of 31 undertakings, it (the appellant) had placed on record evidence, inter alia, in form of application to STPI authority, approval of STPI authority, lease deed for new premises, list of additions ITA 46/2015 Page 6 of plant and machinery and list of imported plant and equipment made available by customer(s) supported with necessary evidence, custom bond register, number of employees, organizational hierarchy chart, audited profit and loss account and Form 56F, etc., for each of 31 undertakings which clearly demonstrated that each of units were set up independently in their own right. 12. It is submitted that each software development center which assessee owns is and has always been treated as separate undertaking. Reference was made to assessment order issued for assessment year 1999-2000, wherein reference to each of fifteen (15) undertakings (which were existing as on 31/03/2001) had been made by assessing officer. Therefore, appellant prays that impugned judgment be set aside and appellant s claim for deduction of 31 units under Section 10A be allowed. Revenue s contentions 13. Mr. O.P. Sahni, learned counsel for revenue, defends impugned judgment and submits that given that appellant resiled from its own assessment of facts and its earlier position of availing benefit under Section 10A only with respect to 13 units, ITAT s finding cannot be faulted with. On behalf of Respondent/Revenue, it is submitted that decisions on estoppel cited by appellant would not apply in peculiar facts and circumstances of case. 14. revenue argued that observations in AO s order dated 28.10.2010 had comprehensively dealt with relevant facts, to determine if appellant s claim of 31 units being distinct undertakings was correct, and AO had correctly concluded against appellant. ITA 46/2015 Page 7 ITAT s order elaborately discussed AO s findings; ITAT also noted contents of order for assessment year 1999-2000, -relied upon by appellant to say that 31 units were always treated as distinct undertakings. Mr. Sahni submitted that ITAT had duly considered relevant precedent on submissions made by appellant, including decision in Textile Machinery Corporation Ltd., and rightly held that said ruling does not assist appellant in any manner whatsoever. Analysis and Conclusion 15. first issue that this Court has to determine is whether in event of assessee s failure to avail benefits of statutory provision, such as Section 10A of Act, creates estoppel precluding it from availing such benefits in future. AO, DRP as well as ITAT concurrently have rejected appellant s claims under its revised return primarily on ground that appellant itself did not treat all 31 units as separate undertakings previously, and in fact, for subject assessment year as well, it originally adopted its earlier approach. On examination of authorities relied upon by appellant, this Court notices that they are overwhelmingly in its favour and therefore, this Court answers first question in favour of appellant. 16. starting point for discussion is Supreme Court s decision in CIT v. C.Parakh & Co. (supra), where Court held that assessee s treatment of claim would not be determinative of treatment that it ought to be given under provisions of statute. Court noted: ITA 46/2015 Page 8 On question of admissibility of deduction of Rs. 1,23,719 contention of appellant is that as respondent had itself split up commission of Rs. 3,12,699 paid to managing agents, and appropriated Rs. 1,23,719 thereof to profits earned at Karachi and had debited same with it, it was not entitled to go back upon it. and claim amount as deduction against Indian profits. We do not see any force in this contention.Whether respondent is entitled to particular deduction or not will depend on provision of law relating thereto, and not on view which it might take of its rights, and consequently, if whole of commission is under law liable to be deducted against Indian profits, respondent cannot be estopped from claiming benefit of such deduction, by reason of fact that it erroneously allocated part of it towards profits earned in Karachi. What has therefore to be determined is whether, notwithstanding apportionment made by respondent in profit and loss statements, deduction is admissible under law. 17. Courts in subsequent rulings have held that assessee can even resile from its earlier position in order to claim benefits available to it under Income Tax Act. For instance, Division Bench of this Court in Bharat General Insurance (supra) noted: It is true that assessee itself had included that dividend income in its return for year in question but there is no estoppel in Income tax Act and assessee having itself challenged validity of taxing dividend during year of assessment in question, it must be taken that it had resiled from position which it had wrongly taken while filing return. Quite apart from it, it is incumbent on income-tax department to find out whether particular income was assessable in particular year or not. Merely because assessee wrongly included income in its return for particular year, it cannot confer jurisdiction on department to tax that income in that year even though legally such income did not pertain to that year. ITA 46/2015 Page 9 18. This Court in its recent decision in CIT v. Nalwa Investment Ltd., 322 ITR 233, has approved consequences of ITAT s decision allowing assessee s claim made under revised return, whereunder asseessee had put forward more favourable claim before tax authorities. Court also relied upon Apex Court s decision in C. Parakh (supra) in this regard. 19. This Court notices that approach of other High Courts on this issue is in consonance with appellant s contention. For instance, Allahabad High Court in Laxmi Metal Industries (supra) in context of Section 80J of Act held that assessee s failure to claim benefit under said provision initially would not constitute bar from grant of such benefit, if claimed subsequently. Court noted: Learned standing counsel could not bring to our notice any statutory compulsion or provision which may go to show that if claim under section 80J is not made in any one or more of assessment years comprising period of five years, then relief will not be admissible during balance of exemption period notwithstanding that all other conditions of section 80J stand satisfied. It has to be borne in mind that provisions under consideration are relating to exemption and are, therefore, to be construed liberally. It is settled rule of interpretation of statutes that expressions used therein should ordinarily be understood in sense in which they best harmonise with object of statute and which effectuates object of legislation At cost of repetition it may be observed that according to scheme of section 80J, benefit contemplated under section 80J is permissible independently for each year of exemption, whether or not exemption was availed of in preceding or succeeding assessment year falling within period of exemption. ITA 46/2015 Page 10 Similarly, Uttarakhand High Court in CIT v. Enron Expat Services, 327 ITR 626, relied upon this Court s decision in Bharat General Insurance (supra) and ruled that fact that assessee had offered to pay tax in previous years under Section 44BB of Act cannot operate as estoppel against it. 20. impugned judgment erred in holding that assessment would be guided by appellant s treatment of its internal affairs and that assessee s claim must fail because it has consistently taken decision as per facts exclusively available to it in its personal domain on basis of which assessee has chosen to treat expanded units as part of 13 units . authorities quoted above unequivocally establish that assessee s treatment of facts in any given manner is not relevant for purposes of determining liability under Act. If, on application of statutory provision, party is entitled to benefits under Act, mere circumstance that for past 5 to 7 years, or even 10 years, it did not claim such benefit would not preclude it from availing it in assessment year in question. What appellant cannot resile from is existence of given set of facts which it has not challenged earlier. However, if, based on same set of facts, it now seeks to claim deduction under Section 10A which it had foregone earlier, appellant s claim must be allowed, provided, of course, requirements of Section 10A are satisfied. Therefore, in instant case, in event that appellant establishes that 31 units constitute separate undertakings for purposes of Section 10A, it would be entitled to claims made in revised return. ITA 46/2015 Page 11 Accordingly, first question is answered in favour of appellant and against revenue. 21. On second issue, this Court affirms that concurrent findings approved by ITAT as justified in facts and circumstances of case. As noted by AO and ITAT, pre-requisites for availing benefit under Section 10A(2) of Act are as follows: a) unit must begin manufacture or production of computer software in STP in previous year relevant to AY 1994-95 or thereafter and should be set up in STP. b) unit should not be formed by splitting up/reconstruction of business already in existence. c) unit should not be formed by transfer to new business of machinery or plant previously used for any purpose. d) assessee must furnish report of accountant in prescribed format certifying that exemption has been properly claimed. This report should be submitted alongwith return of income. 22. appellant, as proof of fact that each and every location with single license is separate undertaking and that there 31 distinct undertakings, has submitted that there are separate lease deeds for each premise, separate STPI approval documents, and separate Customs Bond certificates, and has relied upon application to STPI authority and approval of STPI authority. Further, appellant has contended that it has maintained separate books of accounts. However, AO and ITAT rejected appellant s contentions and held that there was no material on record to establish that appellant had treated 31 units as distinct ITA 46/2015 Page 12 undertakings. AO, in this regard, noted in its draft assessment order dated 26.12.2008 as follows: As mentioned in STPI regulations above, unit to be registered under approved STPI has to be granted license by respective STPL After having granted license, unit gets registered and is permitted to commence operations, Thereafter, unit is permitted to expand its area of operation by seeking permission for expansion, At time of seeking permission for expansion, it is logical that assessee will have to execute lease deeds for separate premises and will also have to approach customs authorities for bonding certificate. Hence mere existence of these documents does not establish that each expansion is new undertaking. 12.3. assessee, as example has furnished letter from STP Chennai authorities dated 24th October 2008 in respect of Chennai I STP wherein it has been stated that company is eligible to expand its operations by setting up new undertakings. However, it is surprising that same STPI authorities have actually not issued separate licenses but have merely treated new premises as mere extensions. Hence it is not possible to treat letter of STPI Chennai I authorities as conclusive evidence that assessee has set up new undertakings. only inference which can be drawn from this letter is that assessee is operating in multiple locations under single license. Hence it is single undertaking with multiple locations. 12.4. This fact is reinforced by letter written by STPI Chennai dated 28th January 2005 produced by assessee in Volume I of detailed submission referred to above. In this letter, STPI has mentioned that assessee has three STP units in Chennai with multiple locations. Besides, AO noted that appellant placed no evidence on record to establish that each and every unit had separate bank account and held that appellant had not been maintaining separate books of accounts for 31 ITA 46/2015 Page 13 units. Further, AO while looking at concept of expansion of undertaking under relevant regulations, held that: mere expansion of undertaking does not lead to formation of new undertaking. In fact term used in STPI Regulations is extension of premises. Hence undertaking established in STPI is permitted to seek new premises for carrying out its operation i.e. single undertaking can have multiple locations within STPI. This is termed as expansion of undertaking and hence is not issued separate license but merely extension certificate . AO, in his conclusions, held as follows: There has been no emergence of fresh new undertaking and no fresh investments have been made. profits and capital of 31 units have been carved out from original 13 units. assessee has not been able to produce any documentary evidence to show that in years in which units were formed, there was separate capital investment: No record of profits has been shown by assessee from year of inception thus clearly showing that so called separate units did not exist prior to current Assessment Year. No evidence has been provided that new units were engaged in executing jobs which were distinct from original units. Hence it is reasonable to assume that so called new units were carrying out same jobs as original units. 23. These observations of AO were upheld by ITAT and based on material available on record, it did not find any infirmity in AO s finding. appellant had urged before ITAT that each software ITA 46/2015 Page 14 development Centre owned by it is and always had been treated as separate undertaking. For this, it relied upon assessment order for 1999-2000, where reference to 15 undertakings was been made by AO. ITAT rejected this contention after having examined contents of assessment order. Facially, assessment order for assessment year 1999-00, as extracted by ITAT in impugned judgment, indicates that contrary to assessee s submission, unit-wise break-up of profits was not provided by it. assessee contended that complete copy of assessment order was provided to ITAT during course of hearing. However, this Court is inclined to reject this contention in light of following pointed observations of ITAT on this issue: 7.6. Before parting we deem it appropriate to record that there is no document available on record on basis of which inference can be drawn that assessee s application before STPI Authorities was for setting up new undertaking and not for expanding existing undertaking. reliance placed on Certificate of STPI, Chennai is of no help as it is ambiguously worded. record shows that assessee has never placed on record document seeking STPI permission either before AO nor before DRP and as observed has also not even been placed before us. In fact assessee has never even pleaded that any such document was available with it despite pointed arguments of Revenue. It is curious to note that no attempt in course of hearings has been made on behalf of assessee to either seek permission to place any such evidence on record or seek permission to file same before AO. Considering entirety of facts, circumstances, decisions, findings and pleadings of parties, we are inclined to agree with departmental stand that had any such document been available with assessee then attempt to bring same on record ITA 46/2015 Page 15 would have been done. (emphasis supplied) 24. appellant places great reliance on Supreme Court s decision in Textile Machinery Corporation Ltd. (supra) to contend that 31 units were separate undertakings for purposes of Section 10A. While said decision did deal with issue of determining existence of new undertaking (albeit under Section 15C of Income Tax Act, 1922), Supreme Court itself held that answer (as to whether unit is separate undertaking) depends upon peculiar facts and circumstances of each case and no hard and fast rule can be laid down to determine issue. Indeed, answer to such query, ultimately, ought to be fact specific, and lower authorities have arrived at their conclusion based on adequate examination of facts. 25. appellant had urged that only basis of claim of deduction under Section 10A of Act was sought to be altered in revised return by treating each of 31 undertakings created under umbrella of 13 licences as separate undertakings. However, since deduction under Section 10A is available to each undertaking, and given concurrent finding of fact of lower authorities wherein they have held material on record to be insufficient to treat each of 31 units as separate undertakings, this Court holds that no interference on this issue is warranted. Consequently, it is held that 31 units cannot be treated as separate undertakings for purposes of availing benefit under Section 10A of Act. ITA 46/2015 Page 16 26. Thus, second question on merits of rejection of claim for deduction under Section 10-A is answered in favour of revenue and against assessee. As result, its appeal fails and is accordingly dismissed. S. RAVINDRA BHAT (JUDGE) R.K. GAUBA (JUDGE) APRIL 15, 2015 ITA 46/2015 Page 17 HCL Technologies v. Assistant Commissioner of Income-tax