IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY MONDAY, THE 14TH MARCH 2011 / 23RD PHALGUNA 1932 ITA.No. 1118 of 2009() ---------------------- ITA.551/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): --------------- M/S.ASSYST INTERNATIONAL (P) LTD., ALUVA. ADV. SRI.DALE P.KURIEN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14/03/2011, ALONG WITH ITA NO. 1469 OF 2009 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR, & BHABANI PRASAD RAY, JJ. -------------------------------------------- I. T. A. Nos. 1118 & 1469 of 2009 -------------------------------------------- Dated this the 14th day of March, 2011 JUDGMENT Ramachandran Nair, J. Heard standing counsel appearing for the appellant and advocate Sri. Dale P Kurian appearing for the respondent. The question raised is whether the Tribunal was justified in confirming the order of the CIT (Appeals) declaring eligibility for exemption to the respondent under Section 10A of the I.T. Act. 2. Appeals relate to assessment years 2001-02 and 2002-03. Admittedly respondent was engaged in development and export of computer software which entitles for 10 year tax holiday under Section 10A as well as under Section 80HHE of the I.T. Act. The assessee- company was formed with two shareholders on 25.11.1999. However, in August, 2000 the company was taken over by an American company through purchase of shares. In the assessment for the year 2001-02 the assessing officer declined the benefit because of the transfer of the undertaking by the original promoters of the respondent-company to an 2 American company. In the first round when the assessment was set aside and the matter was remanded, the Tribunal directed the assessing officer to consider alternatively the assessee's claim for exemption under Section 80HHE of the Act. After remand, the assessing officer declined the benefit under Section 10A for violation of Section 10A(9) and assessee's claim under Section 80HHE was not considered for the reason that the claim was not supported by audit report and other certificates were not furnished in time along with returns. 3. In the second round of appeal, the first appellate authority as well as the Tribunal held that the assessee started business in the previous year relevant for the assessment year 2001-02 and in the previous year itself, the assessee's shares were transferred to the American company and in fact it is as subsidiary of the American company, the assessee carried on business in development and export of computer software. Therefore since the company was set up only in the previous year relevant for the assessment year 2001-02, and in the very same year, the share transfer took place, the Tribunal held that there was no violation of Section 10A(9). So far as the denial of 3 exemption alternatively claimed by the assessee under Section 80HHE is concerned, the Tribunal adversely commented upon the action of the officer in declining the benefit for non-production of documents and audit report because according to the Tribunal the remand was for the purpose of furnishing documents, though furnished with delay. It is against these orders of the Tribunal, revenue has filed these appeals. 4. After hearing both sides we notice that admittedly the respondent was engaged in development and export of computer software. The only reason for denial of exemption under Section 10A is the acquisition of majority shares by the American company of which respondent was a subsidiary company. Section 10A(9) itself was deleted by the Finance Act, 2003 with effect from 1.4.2003 making it clear that on taking over of a company by a foreign company, export exemption on computer software should not be disallowed. The whole purpose of Sections 10A and 80HHE is to promote software development business in India. The Tribunal has decided the issue in favour of the respondent by holding that the company itself was set up in the previous year relevant for the assessment year 2001-02 and 4 therefore there can be no transfer of the assessee to foreign company because the respondent company was really a subsidiary company in India of the American company from the very beginning of relevant assessment year. We find force in the finding of the Tribunal that the denial of assessee's claim of exemption on the profit earned from the export of computer software under Section 80HHE on technicalities as untenable. In the circumstances, and in view of the finding on fact by the Tribunal based on which they held in favour of the assessee, we do not find any substantial question of law arising from the order of the Tribunal. Consequently appeals by the revenue are dismissed. (C.N.RAMACHANDRAN NAIR) Judge. (BHABANI PRASAD RAY) Judge. kk 5