CIT, CHD. vs. M/S EXCEL SOFTECH LTD. CHD.

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No. 156 of 2007 DATE OF DECISION : 24.07.2008 Commissioner of Income Tax, Chandigarh-II .... APPELLANT Versus M/s Excel Softech Ltd., H. No. 1257, Sector 37B, Chandigarh ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTAL

HON'BLE MR. JUSTICE AUGUSTINE GEORGE MASIH

Present: Ms. Urvashi Dhugga, Advocate, for the appellant-revenue. Mr. S.K. Mukhi, Advocate, for the respondent-assessee.

* * * SATISH KUMAR MITTAL , J. The Revenue has filed this appeal under Section 260 A of the Income Tax Act, 1961 against the order dated 25.7.2006 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh (hereinafter referred to as `the Tribunal') in ITA No. 319/Chandi/2005 for the Assessment Year 2001-2002, raising the following substantial question of law : “Whether on the facts and in the circumstances of the case, the ITAT is right in law in affirming the order of the CIT (A) in directing the Assessing Officer to allow deduction under -2- section 10B of the Income Tax Act, 1961 in spite of the fact that the assessee company has not fulfilled the conditions laid down under section 10B of the Income Tax Act, 1961 as it was not a newly established undertaking?” The brief facts of the case are that the assessee, who is 100% export oriented undertaking, is engaged in the business of export of computer software. It started production during the year relevant to assessment year 1998-99. In the year under consideration i.e. 2001-2002, the assessee claimed exemption under Section 10B of the Act. The Assessing Officer asked the assessee to justify its claim of exemption under Section 10B of the Act, as it was not a new unit. The assessee claimed that it is a 100% export oriented undertaking and started production in the assessment year 1998-99 and was registered with the Software Technology Park on 23.3.2000. Since the assessee fulfills all the requirements and conditions for claiming exemption under Section 10B of the Act in relation to its profit derived from export of Computer Software, therefore, it claimed the said exemption. It was further submitted that under Section 10B of the Act, the exemption is available to an assessee for a period of 10 years. The assessee submitted that merely because in the assessment year 1998-99, upto 2000-01, it claimed deduction under Section 80HHE of the Act, it is not debarred from claiming exemption under Section 10B of the Act, in the assessment year under consideration, if it fulfills all the conditions mentioned in the said provision. The Assessing Officer did not allow the plea of the assessee for exemption under Section 10B of the Act on the -3- ground that export undertaking of the assessee was not newly established in the year under consideration and the exemption under Section 10B of the Act is available to the undertakings, which are newly established. Feeling aggrieved against the said order, the assessee filed appeal before the Commission of Income Tax (Appeals), who vide his order dated 7.1.2005 allowed the claim of the assessee, while observing that the assessee satisfies all the conditions necessary for claiming exemption under Section 10B of the Act. It was held that the claim under Section 10B of the Act is available for a period of 10 years starting with the assessment year in which the unit starts to manufacture. Therefore, the assessee was entitled for the said benefit upto the year 2007-08. It was further held that it was optional for the assessee to either claim the exemption under Section 10B or deduction under Section 80HHE of the Act in relation to its export profits. Since in the year under consideration, the assessee has not claimed deduction under Section 80HHE of the Act, therefore, it was entitled to claim exemption under Section 10B of the Act, as it fulfilled all the conditions. Feeling aggrieved against the said order, the revenue filed appeal before the Tribunal, which was dismissed vide the impugned order. Against the aforesaid order of the Tribunal, the revenue has filed the instant appeal. Counsel for the revenue submits that Section 10B of the Act is a special provision and under this provision, the deduction is available only to newly established hundred per cent export oriented undertakings. Since -4- the assessee had started production in the assessment year 1998-99, therefore, in the assessment year in question i.e. 2001-02, the assessee unit cannot be taken to be a newly established undertaking. Therefore, the assessee is not entitled to the benefit under Section 10B of the Act. In our opinion, the contention raised by the revenue is liable to be rejected. Section 10B of the Act reads as under : 10B. Special provisions in respect of newly established hundred per cent export-oriented undertakings : (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee.” The aforesaid provision provides that subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. Sub section (2) provides that this section applies to -5- any undertaking which fulfils certain conditions, mentioned in this sub section itself. The exemption under this section is available for 10 years. The initial year is the year in which the eligible undertaking begins to manufacture or produce articles or things or Computer Software. It is not disputed that the assessee unit fulfills all the conditions, as mentioned in sub section (2). In the present case, the assessee had started the development of Computer Software in the assessment year 1998-99 and was registered with the Software Technology Park with effect from 24.3.2000, therefore, the 10 years period has to be reckoned from the assessment year 1998-99. The assessee has claimed exemption for the first time in the assessment year 2001-02, which is well within 10 years. Therefore, the unit of the assessee cannot be denied the said exemption on the ground that it is not the newly established undertaking in the assessment year in question. In our view, the words “newly established undertaking” are only to identify the initial year of the period of 10 years for which the assessee is eligible for claim of exemption under Section 10B of the Act. Section 10B (1) of the Act does not use the words “newly established undertaking”. Only in the heading, the words “newly established hundred per cent export-oriented undertakings” have been mentioned. It is well settled law that headings or titles prefixed to sections or group of sections can be referred to in construing an Act of the legislation, only when the enacting words are ambiguous, but when the language of the section is clear, then the heading cannot be used to give a different effect to clear words in the section. In our view , there is no ambiguity in section 10B of the Act, which provides exemption to certain -6- newly established hundred per cent export-oriented undertakings, on fulfilling certain conditions, for a period of ten consecutive assessment years. The initial year is the year in which the eligible undertaking begins to manufacture or produce articles or things or Computer Software. Section 10B of the Act does not provide any restriction that in each of the year of claim, the export-oriented undertaking should be newly established. Indeed, relevance of “newly established undertaking” is only to identify the initial year of the period of ten years for which the assessee is eligible for claim of exemption under Section 10B of the Act. Since in the present case, undisputedly, the initial year is the assessment year 1998-99, therefore, the assessee was rightly held to be fully eligible for exemption under section 10B of the Act for the assessment year under consideration i.e. 2001-02, as it was the fourth year, out of ten years beginning with the initial assessment year, in which it began to develop and export the computer software. In view of the above, in our opinion, there is no merit in this appeal, as no substantial question of law arises from the impugned order. Dismissed.

( SATISH KUMAR MITTAL ) JUDGE July 24, 2008 ( AUGUSTINE GEORGE MASIH ) ndj JUDGE Refer to Reporter