TMI Blog2013 (7) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... professionals who are not employees, who are not, in any way, associated with the business of the assessee in the matter of production and manufacture of an article or thing, and the receipts not being profits and gains derived by the undertaking in the manufacture or production of article or thing, we do not find any justifiable ground to confer benefit of the provision based on the policy decision taken either under the customs enactment, or for that matter, under the Software Technology Park Scheme. - Decided against the assessee. - Tax Case (Appeal) Nos.34 of 2010, Tax Case (Appeal) Nos.332 and 333 of 2011 - - - Dated:- 5-6-2013 - Chitra Venkataraman And K. B. K. Vasuki,JJ. For the Appellant : Dr. Anita Sumanth For the Respondent : Mr. N. V. Balaji Standing Counsel for Income Tax JUDGMENT (Judgment of the Court was delivered by Chitra Venkataraman, J.) The assessee is on appeal as against the order of the Income Tax Appellate Tribunal relating to the assessment year 1996-97. The following is the substantial question of law raised by the assessee in this Tax Case Appeal:- Whether on the facts and in the circumstances of the case, the Income Tax Appellate T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he training programme could be treated as an integral part of the business. In the light of the order of the Tribunal dated 17th February 2006 remanding the matter, once again the issue was taken up for consideration. 3. The Assessing Officer pointed out that the faculty in the training unit were the very employees engaged in software development were also used as a faculty to train the students; by this, the income of the assessee was optimised and ensured efficient utilisation of its assets viz., computers and manpower. In the circumstances, the Officer rejected the submission of the assessee to considers its training as part of the business of the company. The Assessing Officer further pointed out that training was given only on receipt of fixed fee. The training was for a fixed timing for a fixed period. The training was conducted in batches and each batch consisted of fixed number of students. The relationship between the trainee and the faculty was that of a student and teacher. The assessee admitted this fact. In the background of the provisions of Section 10B of the Income Tax Act, the assessment was completed rejecting the claim for exemption. 4. Aggrieved by this, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant period, earning income to the tune of Rs.102,03,10,481/-. Apart from that, it had domestic software sales and service to the tune of Rs.10,66,96,808/-, which means, the domestic sales were 25% and less than that. Thus, according to the assessee, it satisfied the condition stipulated under Section 10B(2) of the Income Tax Act. Learned counsel placed before us the scheme viz., Software Technology Parks (STP) Scheme and given the objectives of the scheme, one of them being to train the employees, the activity of the assessee in training graduates who are professionals, the receipt is part of the exempt income given under Section 10B of the Income Tax Act. Consequently, the Tribunal committed a serious error in ignoring the very scheme while approaching the issue. Laying emphasis on the Circular No.37/95 dated 18.04.1995, Circular No.24/ 97- Cus. dated 07.07.1997 in F.No.305 / 7 / 95 -FTT of the Government of India, Ministry of Finance, Department of Revenue, as well as the letters of Software Technology Park of India, Chennai dated 06.08.1998 (addressed to the Tamil Nadu Electricity Board) and 04.08.2001 respectively, she submitted that the Tribunal ought to have considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perused the material placed on record. 10. On the materials placed before this Court and considering the orders of the authorities below, we do not find any justifiable ground to agree with the submissions made by the learned counsel appearing for the appellant. We have no hesitation in rejecting the same and confirming the order of the Tribunal. 11. Before going into the merits of the case, one needs to see the scheme of Scheme of Section 10B as it existed originally. The relevant portion of the provisions under Section 10B of the Income Tax Act, as it existed during the relevant assessment year 1996-97 is as follows: 10B. Special provision in respect of newly established hundred per cent. export-oriented undertakings.-- (1) Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent. export-oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in the total income of the assessee. (2) This section applies to any undertaking which fulfils all the following conditions, namely:-- (i) it manufactures or produces any article or thing; (ia) in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of the powers conferred by Section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951) and the rules made thereunder. Sub Section (2) specifies among other things that exemption under the Section applied to an assessee/undertaking which "manufactures or produces any article or thing", that it started producing or manufacturing article or thing on or after 1.4.1994 and that it is not formed by transfer to a new business of machinery or plant primarily used for any purpose. Thus going by the very scheme of the provision, exemption considered under Section 10B is related only to those undertakings which are engaged in the manufacture or production of any article or thing and has relevance to the receipts which are out of the activities relating to the profits and gains arising from the manufacture or production of an article or thing. The benefit under Section 10B as exemption was available for ten consecutive years. From 2001, Section 10B was amended to make the claim a deduction provision. Thus the benefit under Section 10B is referable not only with reference to the approved undertaking, but it must also be with reference to profits and gains derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. (c) To promote development and export of software and software services through technology assessments, market analysis, marketing segmentation, marketing support etc. (d) To train professionals and to encourage design and development in the field of Software Technology and Software Engineering. 15. In the context of these objectives, it is also not in doubt that in the matter of import of computers, other infrastructure and capital goods, the Government of India, Ministry of Finance, considered the duty liability on the import of 100% export oriented units for training purposes. Circular No. 37/95 dated 18/4/95 in F.No. 305/7/95-FTT reads as under:- "Circular No. 37/95 dated 18/4/95 F.No. 305/7/95-FTT Government of India Ministry of Finance Department of Revenue, New Delhi Subject : Imports by 100% Export Oriented Unit Software Technology Park units for training purpose. I am directed to say that the Board is in receipt of a reference from the Department of Electronics that a Software Technology Park (STP) Unit has not been permitted to import certain equipment's meant for utilisation within the unit for training of professionals. In this regard, the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raining in an STP unit is totally different from permitting manufacture of goods for domestic market by an EOU. It has also been noted that STP units are set up with the primary intention of developing and exporting software but if they in addition use the equipment for training of the personnel of the units there should be no objection. The same principle can equally be applied to training of persons other than employees of the concerned unit. 3. In view of the aforesaid facts, I am directed to clarify that the STP units should be permitted by the Customs authorities in terms of the relevant provisions even if later on when units have completed their Export Obligations, the equipment's are used for training including commercial training purpose, provided the training is conducted within the bonded premises. 4. The Board's instruction contained in Circular No. 37/ 95 dated 18th April, 1995 issued from F.No. 305/ 7/ 95- FTT deemed to have been modified accordingly. Sd /- (O.P. Khanduja) Senior Technical Officer (FTT) " 17. Considering the difference in the tax treatment granted by the Customs and Central Excise Board in the absence of any such concession contemplated und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same view, as had been done by the Mumbai Bench of the Income Tax Appellate Tribunal in the decision referred to above. 20. Learned counsel appearing for the assessee submitted that after training, some of the trained personnel were employed in the assessee in its business; consequently, this Court should consider liberal interpretation of the provision for grant of relief to the assessee. Whatever be the post event on training, as on the date of receipt of income, there existed no relationship between the assessee and the trainees as master and servants, to hold that for the purpose of business, training was given to aid in the business of the assessee. The employment of the trained personnel came only after the training was completed to the satisfaction of the institution. Hence, the plea of the assessee for a proportionate allowance cannot be considered. In the circumstances, so long as the receipt was only for the purpose of training, treating the trainee as a student, we do not find any reason to accept the plea of the assessee to allow this appeal. Hence, we reject the submissions of the learned counsel appearing for the assessee and dismiss the Tax Case Appeal, thereby con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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