ABHILASH SOFTWARE DEVELOPMENT CENTRE vs GOVERNMENT OF INDIA

- 1 - IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 18TH DAY OF NOVEMBER 2015 BEFORE THE HON’BLE MR.JUSTICE ANAND BYRAREDDY

WRIT PETITION NO.13172/2013 (GM-RES)

BETWEEN:

Abhilash Software Development Centre, a partnership Firm, represented by its Managing Partner, Sri S. Prasad, having its office at No.10, 3rd floor, 80 feet Road, Raj Mahal Vilas Extension, 2nd stage, Bangalore-560 094.

PETITIONER.

(By Sri D.L.N. Rao, Senior counsel for Smt. S.R. Anuradha, Advocate)

AND:

Government of India, Ministry of Commerce and Industries, Udyog Bhavan, New Delhi – 110 011, Represented by its Director.

Department of Industrial Policy and Promotion, Government of India,

- 2 - Ministry of Commerce and Industries, Udyog Bhavan, New Delhi – 110 011. Represented by its Joint Secretary.

The Empowered Committee of the Industrial Parks Scheme, 2002, represented by its Secretary, Government of India, Udyog Bhavan, New Delhi – 110 011.

RESPONDENTS.

(By Sri Krishna S. Dixit, Additional Solicitor General for respondents)

This Writ Petition is filed under Articles 226 and 227 of the Constitution of India praying to call for records of the file of respondents pursuant to show cause notice as per Annexure ‘J’ culminating in the order impugned as at Annexure ‘S’ issued by respondent Nos.1 and 2 in No.15/61/2005-IP & ID-II Udyoga Bhavan, New Delhi – 110 011 dated March, 2013.

This Writ Petition coming on for hearing – interlocutory application this day, the Court made the following:

ORDER

Heard the learned Senior Advocate, Shri D.L.N. Rao, appearing for the petitioner and the learned Assistant Solicitor General of India appearing for the respondents.

- 3 - 2. It is the case of the petitioner that it is a registered partnership firm and it is the absolute owner of immovable properties bearing No.96 and 104, P-2, EPIP Industrial Area, Whitefield, Bangalore. It consists of land and building forming an Information Technology Park developed by the petitioner. Respondent No.1, namely, Ministry of Commerce and Industries, represented by the Department of Industrial Policy and Promotion, the 2nd respondent herein, had introduced a Scheme known as the “Industrial Park Scheme, 2002”. In terms of the Scheme, entrepreneurs were entitled to establish an industrial park and as a direct benefit thereto were entitled to tax benefits as provided for under the Scheme. The petitioner had submitted an application for establishment of an industrial park under the Scheme and chose the “Automatic Route”, as provided for under paragraph 5 of the Scheme. Respondent No.1, through respondent No.2, had accorded sanction as per approval dated 08.08.2003. The petitioner, however, was unable to fulfill the requirements for approval, under the

- 4 - “Automatic Route”. Therefore, the petitioner had sought to surrender the permission granted under the Automatic Route while simultaneously making a fresh application under the provisions of the Industrial Park Scheme choosing the “Non- Automatic Route”, by a letter dated 14.04.2005. The application was accompanied by an affidavit and the petitioner had also submitted the necessary documents. The application form was a standard form pre-printed form, which was common to both the “Automatic Route” and the “Non-Automatic Route”, for Industrial Model Town, Industrial Parks and Growth Centres. The application was approved. The petitioner having satisfied the conditions required under the Non- Automatic Route, the park was established and was operating since the year 2006. It is by a show cause notice dated 27.04.2012, the petitioner was called upon to show cause as to why the approval ought not to be cancelled as the petitioner had violated the conditions imposed. Though the petitioner had filed a reply to demonstrate that there was no such violation of

- 5 - any condition prescribed under the Scheme, the respondents chose to overrule the said reply and cancelled the approval by an order received by the petitioner on 14.03.2013. It is thereafter the present petition is filed.

This Court, while entertaining the present petition, had granted an interim order of stay of operation of the impugned order. The respondents have entered appearance and have filed statement of objections disputing the claim of the petitioner.

In order to examine whether there was indeed a violation of the conditions, it is necessary to note the provisions of the Scheme, which is available at Annexure ‘A’ to the petition. Under paragraph 5, the Automatic Approval Route is defined and the manner in which an application shall be made, as also the criteria for automatic approval is provided for under paragraph 6. And under paragraph 6(f), it is specifically laid down as follows:-

- 6 - “(f) No single unit referred to in column (2) of the Table given in the sub-paragraph (b) of paragraph 6 shall occupy more than fifty per cent, of the allocable industrial area of an industrial model town or industrial park or Growth Centre;”

In so far as the Non-Automatic Route is concerned, it is provided for at paragraph 7 of the Scheme. And paragraph 7(3) provides for the manner in which the application shall be considered and approval granted by an Empowered Committee, which incidentally is not the same procedure for consideration of an application under the Automatic Route. Therefore, it is evident that the condition prescribed, in so far as obtaining an automatic approval would not be the condition also applicable under the Non-Automatic Route; This is evident on a plain reading of sub-clause (3) of paragraph 7, which is as follows:- “(3) The Empowered Committee shall consider each application on a case to case basis, subject to its complying with the statutory requirements as prescribed by the Ministry of Finance under the Income Tax Act, 1961, and other applicable statutory rules / obligations. The Committee will consider each case on its merit and grant approval subject to such other conditions as may be deemed fit by it. However, in all cases of rejection of proposals, the applicants shall be afforded an opportunity of being heard by the Committee and the orders shall be passed and communicated within twelve weeks. The Committee may also periodically review implementation of the approved proposals.”

- 7 -

It is evident that the Empowered Committee would consider each application on a case to case basis and would on its merit grant approval subject to such other conditions as deemed fit by it. It is those conditions, which are imposed by the Committee, which would be relevant; As seen from the approval granted by the Committee, which is at Annexure ‘H’. The contents of the approval granted, are as follows: “ I am directed to refer to your application dated 09-07-2005. This is to convey the approval of the Government of India to your proposal for setting up an Industrial Park, in terms of the Industrial Park Scheme, 2002, notified by this Department in exercise of powers under Section 80 IA, Sub Section 4(iii) of the Income Tax Act, 1961, subject to the following terms and conditions:- i) Name of the Industrial undertaking M/s. Abhilash Software Development Centre ii) Address of the proposed location of the park Plot No.96 and 104 P2, E.P.I.P. Industrial Area, Whitefield, Bangalore, Karnataka- 560 066 iii) Proposed Area of the Industrial Park 17,000 sq.m iv) Proposed Activities

Section Division Group Class

A 8 89 892 2 Software supply services v) Percentage of allocable area earmarked for industrial use 90.00% vi) Percentage of allocable area earmarked for commercial use 10.00% vii) Proposed number of industrial units 3 units

- 8 -

Necessary approvals, including that for Foreign Direct Investment/Non-Resident Indian Investment by the Foreign Investment Promotion Board/Reserve Bank of India, shall be obtained separately as per the policy and procedure in force.

Industrial park should be in operation during the period for which the benefits under Sub Section 4(iii) of Section 80 IA of the Income Tax Act, 1961 are to be availed.

The conditions mentioned in Para 1 above are as per the proposal made by the undertaking and are within the provisions of the Industrial Park Scheme, 2002, notified by this Department vide S.O. No.354(E) dated 1.4.2002. The conditions mentioned in this letter and those included in the Industrial Park Scheme, 2002, should be adhered to during the period when benefits under the Scheme are to be availed. The Government may withdraw the above approval in case of failure to comply with any of the conditions. 5. Following conditions in Para 9 of the Industrial Park Scheme, 2002, may particularly be noted for suitable compliance:

(i) The income tax benefits under Sub Section 4 (iii) of Section 80 IA of the Income Tax Act, 1961 will be available only after the proposed number of industrial units mentioned in Para 1 (vii) of this approval letter, are located in the industrial park.

(ii) In case the commencement of the Industrial Park is delayed by more than one year from the date as indicated in Para 1 (xi) of this approval letter, fresh approval shall be required under the Industrial Park Scheme, 2002, for viii) Total investment proposed Rs.29,50,00,000/- ix) Investment on built up space for industrial use Rs. 9,55,95,000/- x) Investment on Infrastructure Development including investment on built up space for industrial use Rs.29,50,00,000/- xi) Expected date of commencement of the Industrial Park 31-10-2005

- 9 - availing benefits under Sub-Section 4 (iii) of Section 80 IA of the Income Tax Act, 1961.

This approval shall be invalid and the applicant shall be solely responsible for any repercussions of such invalidity, if

(i) The application on the basis of which the approval is accorded contains incorrect information/misinformation or some material information has not been provided in it.

(ii) It is for the location of the industrial park for which approval has already been accorded in the name of another undertaking.

You shall submit a half yearly report to us in the IPS-II form enclosed with this letter on the 1st January and 1st July of every year, during the period in which the benefits under Sub Section 4(iii) of Section 80 IA of the Income Tax Act 1961 are to be availed. This report may also be emailed to us on murali@ub.nic.in.

You are requested to confirm acceptance of the above terms and conditions to us within one month of the issuance of this letter.”

It is evident from the above that there is no such condition imposed as is the case in respect of applications filed under the Automatic Approval Route. In that, the specific condition under 6(f) is that no allocable area exceeding 50% of the Industrial Park shall be occupied by a single unit. The allegation against the petitioner in the impugned order is that the petitioner had allotted an area comprising more than 90% of

- 10 - the area in favour of one entity, namely, Tata Consultancy Services (TCS). The petitioner would point out that not only did no such condition was imposed in so far as the petitioner’s park was concerned, that even if such a condition was to be made applicable, TCS was in turn not operating all the 16 entities, which may be under its umbrella. The 16 units were being independently run as distinct and independent units and this was sought to be emphasized in several different ways apart from producing certificates issued by Joint Director, District Industries Centre, to certify that petitioner had 18 separate, independent and identifiable units located in the park. As well as a certificate from the Department of Information Technology, Biotechnology and Science and Technology, Government of Karnataka, who also endorsed the same. In addition, the Department of Industries and Commerce, Government of Karnataka had also certified the same. The said certificates are produced at Annexures ‘P’, ‘Q’ and ‘R’, respectively, to the petition. It is this primary aspect and the

- 11 - limited ground on which the present petition is filed questioning the action of the respondents in withdrawing the approval.

On the above allegation that there has been violation of the terms of allotment by the petitioner and it is this stand of the respondents, which is sought to be reiterated in the statement of objections, which Sri Dixit would highlight and emphasize to reiterate that there has indeed been a violation as admittedly, the petitioner in its application had undertaken not to allocate more than 50% of the area to any one unit and further, had also filed an affidavit to undertake that there would not be any such allotment. In the face of which, it is not tenable for the petitioner now to retract from the sworn statement in this regard. And it is also not demonstrated that 16 units said to be under the umbrella of TCS are independent taxable units as would be the requirement under the Scheme to bring a unit under the definition of ‘independent unit’ and since the petitioner admittedly cannot retract the statements made in the

- 12 - application or undertaking in the affidavit, the petition itself is misconceived and ought to be rejected outright. Apart from the above, other contentions are taken in the statement of objections to demonstrate that the petitioner is not in a position to deny that the so called independent units under the umbrella of TCS are indeed a single entity and not independent taxable units as sought to be claimed.

In the above background, the question whether there has been a violation of any of the conditions imposed by the Empowered Committee, which has addressed the application of the petitioner and accorded the approval is examined with reference to the provisions of the Scheme. It is evident that the conditions, which are to be met as a precondition for the Automatic Approval Route are not applicable in so far as the Non-Automatic Approval Route is concerned. This is evident from a plain reading of the relevant provisions, namely, paragraphs 6 and 7. They are independent

- 13 - and the tenor of the provisions also indicate that the manner in which approval is granted is not the same. In that, the Empowered Committee examines the application on a case to case basis and considers the same on merits and thereafter, imposes conditions. There is no condition forthcoming, in the approval granted in favour of the petitioner, relating to restriction of allocation of any extent of industrial area to any one particular unit. Even if the TCS and its several units in the park is considered as a single unit, the prohibition contained in so far as the allocation applicable in respect of the Automatic Approval Route cannot be made applicable to the Non- Automatic Approval Route. It is also to be kept in view that if the object of the Scheme was to encourage and ensure that prosperous industries are set up, the move on the part of the respondents is counterproductive and it would result in killing a successful industrial park. Therefore, on merits, it cannot be said that the respondents were justified in withdrawing the approval and in the interest of the country, it would not be

- 14 - advisable to kill a prosperous industry. Therefore, the action of the respondents was ill-advised and not sustainable.

The writ petition is, accordingly, allowed. The impugned order stands quashed.

Sd/- JUDGE

sma

ABHILASH SOFTWARE DEVELOPMENT CENTRE vs. GOVERNMENT OF INDIA