Income Tax Appellate Tribunal - Ahmedabad
Netvision Web Technologies Pvt.Ltd.,, ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL : 'A' BENCH : AHMEDABA D
(Before Hon'ble Shri T.K. Sharma, J.M. & Hon'ble Shri A.N. Pahuja, A.M.)
I.T.A. No. 2120/AHD./2007
Assessment Year : 2004-2005
Assistant Commissioner of Income Tax, -vs.- Net Vision Web Technologies Pvt. Ltd.,
Circle-5, Ahmedabad Ahmedabad )PAN : AABCN 6146 G)
(Appellant) (Respondent)
&
I.T.A. No. 212 & 1138/AHD/2008
Assessment Year : 2002-2003 & 2003-2004
Deputy Commissioner of Income Tax, -vs.- Net Vision Web Technologies Ltd.
Circle-5, Ahmedabad Ahmedabad
(Appellant) (Respondent)
Appellant by : Shri Anil Kumar, D.R.
Respondent by : Shri S.N. Divetia
ORDER
Per Shri T.K. Sharma, Judicial Member :
These three appeals filed by the Revenue are against three different orders dated 14.03.2007, 22,11,2007 & 23.01.2008 of Learned Commissioner of Income Tax (Appeals)-XI, Ahmedabad deleting the addition of Rs.8,39,18,730/-, Rs.2,55,75,629/- and Rs.9,28,58,052/- made by the Assessing Officer on account of disallowance of exemption claimed under section 10A of the Income Tax Act, 1961 for the assessment year 2004-05, 2002-03 & 2003-04 respectively.
2. All these appeals were heard on the same date, involved only one common issue, argued by common ld. representative, therefore, these are decided by this common order for the sake of convenience.
3. First we take up the ITA No. 2120/AHD/2007 for the assessment year 2004-05.
Brief facts are that the assessee is a Company engaged in the business of (i) imparting computer education, (ii) Software Development sales & export thereof. For this assessment year, the Assessing Officer framed the assessment under section 143(3) on 28.12.2006 at total income of Rs.6,91,13,770/-. In this assessment order, the Assessing Officer disallowed the deduction 2 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/2008 under section 10A of Rs.8,39,18,730/- claimed by the assessee. According to Assessing Officer, the deduction under section 10A(1) is admissible only where following conditions are satisfied :-
(a) It is not formed by splitting up or the reconstruction of a business already in existence.
(b) It is not formed by transfer to a new business of machinery or part previously used for any purpose.
The Assessing Officer observed that the assessee has failed to satisfy the above conditions due to the following reasons :-
(i) Since the assessee-company was formed as a result of reconstruction of two separate companies already in existence.
(ii) All assets (including computers in large number) and liabilities of erstwhile "Infoetch Capital Market Ltd." were transferred to the newly formed company.
Thereafter after discussing the issue are length in the assessment order, the Assessing Officer rejected the assessee's claim of deduction/ exemption under section 10A of the Income Tax Act, 1961 and added the sum of Rs.8,39,18,730/- to the income declared by the assessee.
4. On appeal, before the Learned Commissioner of Income Tax(Appeals) the assessee filed written submissions and contended as under :-
1.1. The Ld. AO has issued notice u/s 143(3) on 22fld November, 2005 fixing the date of hearing as on 29th November, 2005, on appearance, the assessee was served with Notice u/s 142(1) of the Act, calling information requisite to assess the income by 6th December, 2006. The appellant assessee has submitted all the details requisite for the purpose of the assessment on the hearing adjourned to 19th December, a copy of which is enclosed herewith and Marked as Exhibit -1.
All other information, emanated from the first submissions as aforesaid nave been submitted instantaneously, on subsequent hearings.
History of Amalgamation 2.1. The assessee-company, i e Netvision Web Technologies Limited (NVWTL) is a resultant Company out of amalgamation of the two companies, namely, Netvision Webtechnologies Private Limited (NVWTPL) and Indotech Capital Market Limited (ICML) with effect from 1st April, 2000 being an appointed date, as per the Scheme of Amalgamation as approved by the shareholders etc. and Hon'ble' Gujarat High Court, which is enclosed herewith and marked as Exhibit- 2 hereto.
2.2. Thus, all the business divisions came into being on or after 1s' day of April, 2000 have been set-up by ins resultant Company i.e. NVWTL only.
The Company's Business Units:
3 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/20083.1. The Company was formed by way of amalgamation of two Companies namely, Indotech Capital Market Ltd ('ICML' 'for short") and Netvision Web Technologies Private Ltd. (NVWPL for short). ICML was engaged in the capital market related service business, which was never seen further carried on by the Netvision Web Technologies Ltd ('NVWL' or 'the resultant company' for short).
3.2. The NVWPL was engaged in the business of Imparting the computer educations through franchisees. There was no activities ever conducted relating to software development and/or safes by the NVWPL until it got amalgamated with the ICML. This is seen from the profit and loss accounts up to the year just prior to said amalgamations The P&L account shows entire income from (a) course fees Rs. 12.13 lacs (b) franchisee fees Rs. 2500 (c) Rent income Rs. 1500 and (d) Miscellaneous income Rs. 500/-. So it is amply dear of the nature of business was net of software development and sales.
3.3. The software development and sales income was started being earned only after January 2007 or say post amalgamation The same can be observed for the Annual Report for FY 1999-2000 of NVWPL which is enclosed herewith and Marked as Exhibit - 3. Also, the fixed assets of NVWPL for PY 1999-00 (prior to amalgamation) was for Rs. 30.52 lacs only) and fixed assets of ICML was for Rs. 20.62 lacs including goodwill of Rs. 13 lacs (See Exhibit -1 supra). As against these the fixed assets for PY 2000-01, 2001-02, 2002-03 and 2003-04 were respectively stood at Rs.1785.64 lacs, Rs.1762.50 lacs, Rs.1573.17 lacs, Rs.1343.71 lacs. All the annual reports are annexed hereto and marked as Exhibit 4, 5, 6 7.
.
3 4 Thus it was clear (1) that prior to amalgamation there were two collective business units, one for computer education division belongs to NVWPL and another of capital market related services belongs to ICML, (2) both the business units have continued having separate existence even after post amalgamation, (3) Software development unit came into existence from the date 1-1-2001 onwards, (4) there is a rise of 2920% in the collective fixed assets as compared to collective assets of NVWPL and ICML post amalgamation. This itself suggest and proves that the new assets in huge amount and quantity were purchased and used to set- up Software Development Unit being 100% EOU.
Evidence for Software Development Business Unit came into existence post Amalgamation 4.1. Software Development Business was established at Netvision House, B/h Core House, Opp. Doctor house, Nr Parimal Railway Crossing, Ahmedabad and this place was registered as 100% EOU by STP Scheme on 10-1-2001 vide reference No. STPIG/ EXlM/ S/ NWTPL-SWED/339/71, which is enclosed and marked as Exhibit_-8 hereto .The said letter reads as "With reference to the above mentioned sub/set and reference, Govt. is pleased to extend you ail the facilities and privileges admissible under the STP Scheme for the establishment of new undertaking at Netyision House, B/h Core House, OPP. Doctor House, Nr. Parimal Railway Crossing, Ellisbridge, Ahmedabad-380 006 in the state of Gujarat for the development of the following items . Computer Software" here we supply emphasis to the words "for the establishment of new undertaking". Thus, the registration under STPI Scheme has ensured that the new undertaking was 4 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/2008 established at the said Netvision House in the year 2001 itself and not prior to its amalgamation.
4 2 Central Excise License for setting up bonded ware house at said Netvision House, was granted only en 25-1-2001 vide there letter no. V/MISG- 22/100%EOU/2000 BOND (Enclosed hereto and Marked as Exhibit - 9) So there can be no functioning of EOU prior to amalgamation.
4.3 Permission for duty free import of capital good against the said STPl License was granted on 10-1-2001 vide letter bearing No. STPIG/EXIM/S/ NWTPL- SWED/339/Imp/74 (Enclosed and Marked as Exhibit- 10) and for indigenous goods was issued on 10-1-2001 vide their letter bearing No. STPIG/ EX/M/ S/ NWTPL-SWED/339/Ind/75(Enclosed and Marked as Exhibit-11). The capital goods covered by these permissions were actually purchased for aggregating to Rs.18.08 lacs covered by four invoices(Enclosed and Marked as Exhibit- 12) which were used for the purpose of sorting up Software Development. Unit being 100% EOU.
4.4 The site at which the Software Development Unit is located i.e. Netvision house, B/h Core House, Nr. Parimal Railway Crossing, Ellisbridge, Anmedabad - 380 006 was put to use only after January 2001. A copy of certificate of Ahmedabad Municipal Corporation that the said Netvision House was vacant from 1998 till the year early 2001. This is evidence of unit have same into being only after year early 2001.The same is enclosed herewith and marked as Exhibit-
13. 4.5 The STPI unit situated at Netvision House, B/h Core House, Opp. Doctor House, Nr. Parimal Railway Crossing, Ellisbridge, Ahmedabad - 380 006 was not having any electricity connection till 19'" January, 2001, the connection estimate charges and security deposits to obtain all the new connections were made on 19'' January. 2001 vide Receipt No. 25768 (Enclosed and Marked as Exhibit - 14), 2nd February, 2001 v/de Receipt No. 56954 (Enclosed and Marked as Exhibit -
15) 2"" February, 2001 vide receipt No. 56965 (Enclosed and Marked as Exhibit -
16), 2nd February. 2001 vide Receipt No 56966 (Enclosed and Marked as Exhibit -
17), 2nd February, 2001 vide Receipt No. 56967 (Enclosed and Marked as Exhibit
- 18) and rests are on 9th' May, 2002 vide Receipts Nos. 87918 to 87921 (enclosed and marked as exhibit-19 to 22), while clearly proves that no business activities were being done there at till the first electricity connections were become functional in the year 2001 only.
4.6. The appellant also adduce evidence of its being set-up new unit at said Netvision House, in form of its registration with Commissionerate of Information Technology, Government of Gujarat, vide registration No. 81 dated 24'" May, 2001 for having regjstered as "New Unit" for IT Software(Enclosed and Marked as Exhibit - 23).
47 To support the claims that the NVWTPL was engaged in only computer education businesses and that too at places other than places at said Netvision . House, the appellant adduces photographs of opening ceremonies of various franchisee centers and relevant press reports etc. (Enclosed hereto and Marked as Exhibit - 24).
5 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/20084.8 The Fixed Assets (Tangible) held as at 31-3-2000 by NVWPL and ICML was worth Rs. 46 14 lacs only and the same held by NVWL (post amalgamation as at 31-3-2001) was for Rs. 645.15 lacs) i.e. an increase in tangible fixed assets by Rs. 599.01 lacs. Thus prove additional investment of said amount to setting up Software Development Unit being 100% EOU Sec Exhibit from 4 to 7.
4.9. In the year ended 31-3-2001 i.e. post amalgamation there was en income from course fees comprised off Rs. 213.74 Sacs, royalty income was comprised of Rs 97.95 lacs on which no deduction was claimed u/s 10A(2) and which was comprised or came from Computer Education Unit clearly proves that the assets held by NVWPL prior so amalgamation was used for imparting computer education unit only and certainly not tor the purpose of setting up of Software Development Unit being 100%'EOU. See exhibit from 4 to 7.
4.10. There was no computer systems were received by the resultant company i.e.'NVWL under amalgamation. The balance sheet of ICML as on 31.3.2000 (Prior to amalgamation) shows computer systems to be Rs. Nil. See Exhibit-3. .
5.1. In as much as, the condition stated at Section 10A(2) (it) is concerned i e. it is not formed by the splitting up, or me re-construction of a business already in existence, is concerned the appellant would rely on the definition of the term splitting up as defined in advance law lexicon by P. Ramanath Aiyar, 3rd Edition 2005 means splitting up of the business already in existence indicate a case where the integrity of a business is broken up and different section of the activity previously conducted are carried on independently. CIT v. Hindustan General Industries Ltd.,(1982) 137 ITR 851 (Del). In the case of the appellant it is proved beyond doubt that the software development unit under STPI Scheme for which the exemption u/s 10A is claimed, was not formed out of re-construction of any existing business, already in existence.
5.2. The reference is to a 'reconstruction of a business' arid not 'reconstruction of a corporate entity' which carries the business. In that context it has been held that
(i) it is not every alteration in the mode, method or scope of the activities of s business end it is not every transfer of assets from the unit to another that will involve 'reconstruction'. CIT v, Hindustan General industries Ltd., (1982) 137 ITR 851 (Dei), (ii) reconstruction is rejuvenation or rehabilitation of an existing undertaking. The original business or undertaking continues to exist without its identity being lost. Kerala State Cashew Development Corporation -vs.- CIT (1994) 205 ITR 19 (Ker.), (iii) in the reconstruction of a business, as in the reconstruction of a company, there is no element of transfer of assets and some change, however, partial or restricted it may be, of ownership of the assets. The transfer, however, need not be of all the assets. It is nonetheless imperative that there should be continuity and preservation of the old undertaking though in an altered form. The concept of reconstruction of business would not be attracted when a company which is already running are industrial unit sets up another industrial unit. CIT v. Ganga Sugar Corporation Ltd., (1973) 92 ITR 173 (DeL).
(iv) in interpreting these expression 'new industrial undertaking and 'splitting up, or reconstruction of a business already in existence' the purpose of the provision, i.e , to encourage the setting up of new industry must be borne in mind. Though every case must depend upon its own peculiar facts, a broadly correct solution 6 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/2008 can be arrived at by asking to two question, first whether there was any activity in the existing business which could have been reconstructed end could have been assumed a new form on such reconstruction: and second, whether the nature of the business which has assumed a new form as a result of the change which is introduced is the same as the nature of the business which was existing before the change was introduced. If either of these two question is answered in the negative, it would mean, prima facie, there is no reconstruction Nagardas Bechardas Brothers Pvt. Ltd. -vs.- CIT (1976) 104 ITR 255 (Guj.). From the above, it is seen the different meaning of the term 'reconstruction' in the different context. As far as section 10A(2)(ii) is concerned, the meaning of reconstruction is as discussed hereinabove.
5,3. Business already in existence does needs elaborate discussion. If would mean, in the context of the Section 10A(2)(ii), that there must be a business actually earned on in the time frame prior to the exercise of restructuring the very same business i.e. the act of restructuring of a business, may be into a different entity, must be followed by actual running or carrying on the very same business by another undertaking in existence.
6.1. Your appellant craves the leave of your honor to allow it to adduce any further relevant information in this regard to prove its case at future hearing.
6.2 In the light of above submission it is abundantly dear that, all the conditions for availing the exemptions u/s 10A(2) have-been complied with and the assessee thus, have discharged his primary onus to prove its case".
5. After considering the aforesaid submissions made by the ld counsel of the assessee, in the impugned order, the Learned Commissioner of Income Tax(Appeals) observed that while making the addition and rejecting the assessee's claim under section 10A of the Act, the Assessing Officer has not appreciated the facts of the case that the assessee company is a resultant company out of amalgamation of the two companies, namely Netvision Web Technologies Pvt. Ltd. and Infotech Capital Market Ltd. After examining the various documents, the Learned Commissioner of Income Tax(Appeals) further observed that the assessee-company has followed the due procedure with the Registrar of Companies with regard to amalgamation. The Learned Commissioner of Income Tax(Appeals) observed that the scheme of amalgamation was approved by the shareholders and also by the Hon'ble Gujarat High Court. He further observed that the assessee-company was registered with Software Technology Parks of India (in short STPI), which is an autonomous society under Ministry of Information Technology, Government of India on 10.01.2001. The assessee-company has also fulfilled all the conditions as stipulated by the STPI. Therefore, the various reasons given by the Assessing Officer could not justify the denial of the exemption claimed by the assessee.
7 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/20086. In the impugned order, the Learned Commissioner of Income Tax(Appeals) also recorded finding of facts that all the requisite details were filed during the course of assessment proceedings as well as during the course of appellate proceeding with regard to claim of exemption/ deduction under section 10A of the Income Tax Act, 1961. The Software Development and sales income was started only after January, 2001 which is after amalgamation, which can be observed from the annual reports filed. The assessee has also adduced evidences of its set up of new unit in form its registration with Commissioner of Information Technology, Government of Gujarat vide registration No. 81 dated 24.05.2001 for having registered as new unit for I.T. Software. It is also seen that the Central Excise License for 100% EOU was also granted by the Central Excise Authorities vide their letter / certificate No. V/Misc.-22/100% EOU/2000 Bond dated 25.01.2002 which shows that no functioning of EOU or business activities, in question, was prior to amalgamation.
6.1. Finally, the Learned Commissioner of Income Tax(Appeals) also observed that exemption under section 10A of the Act has already been granted by the Assessing Officer in assessee's own case for the assessment years 2002-03 & 2003-04 while finalizing the assessments under section 143(3) of the Act. The only variation for the assessment year under consideration is with regard to amalgamation, which has been done by the assessee in accordance to the procedure laid down by the Registrar of Companies. The Learned Commissioner of Income Tax(Appeals) also observed that the Assessing Officer has not established the fact that income from other sources have been brought to assessee's hands to make claim under section 10A of the I.T. Act. On this basis, he directed the Assessing Officer to allow exemption under section 10A of the Income Tax Act, 1961 as claimed by the assessee. Aggrieved by the order of Learned Commissioner of Income Tax(Appeals), the assessee is in appeal before the Tribunal.
7. The facts relating to the appeals of the Revenue for the assessment years 2002-03 and 2003-04 are as under :-
(a) The assessment for the assessment year 2002-03 was completed under section 143(3) on 28.01.2005 determining total income of Rs.27,66,090/- as returned by the assessee-8 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/2008
company. In the said assessment, the deduction under section 10A of the Act amounting to Rs.2,55,75,629/- as claimed by the assessee was fully allowed. Subsequently, the assessee reopened the assessment by issuing notice under section 148 on the ground that deduction under section 10A of the Act was not admissible because the assessee-company has not fulfilled the conditions laid down in section 10A(2) of the Act. Thereafter he framed the assessment under section 143(3) read with section 147 on 27.09.2007 at total income of Rs.2,83,41,720/- wherein he disallowed the deduction under section 10A amounting to Rs.2,55,75,629/-.
(b) Now coming to the facts relating to the appeal of the Revenue for the assessment year 2003- 04 are that the assessment was completed under section 143(3) of the Act on 06.02.2006 determining total loss of Rs.2,58,72,003/- as returned by the assessee-company. In the said assessment, deduction under section 10A of the Act amounting to Rs.9,28,58,054/- claimed by the assessee-company was fully allowed. Subsequently, the Assessing Officer noticed that the deduction under section 10A was not admissible to the assessee-company because it has not fulfilled the conditions laid down in section 10A(2) of the Act,1961. Consequently the Assessing Officer issued notice under section 148 and reframed the assessment under section 143(3) read with section 147 on 29.11.2007 at total income of Rs.6,69,86,050/-. In this assessment order, the Assessing Officer disallowed deduction under section 10A claimed by the assessee amounting to Rs.9,28,58,054/-.
(c) In re-assessment order for both the assessment years, i.e. assessment years 2002-03 & 2003- 04, the only reason given by the Assessing Officer for disallowing the deduction claimed under section 10A is that the assessee-company was formed as a result of reconstruction of a business, which was already in existence and therefore, it cannot be termed as new undertaking. It was also stated that Net Vision Web Technologies Ltd. was earlier registered as a Private Limited Company on 26.10.1999. The main business of the assessee company was of proving education and coaching, software development and placement of software personnel. Thus the character of business does not change even on account of amalgamation and software development was one of the object businesses of one of the company. The assessee-company was formed as a result of reconstruction of two separate companies already in existence and all assets (including computers in large number) and liabilities of erstwhile "Infotech Capital Market Ltd." was transferred to the newly formed company. For both the assessment years, before the Assessing 9 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/2008 Officer the assessee pleaded that Learned Commissioner of Income Tax(Appeals) for the assessment year 2004-05 on similar points, directed the Assessing Officer to allow the deduction claimed under section 10A amounting to Rs.83,91,870/-, the Assessing Officer observed that the decision of Learned Commissioner of Income Tax(Appeals) for the assessment year 2004-05 has not been accepted and appeal is filed before the ITAT, which is pending.
(d)For both the assessment years, i.e. assessment year 2002-03, on appeal, the Learned Commissioner of Income Tax(Appeals) in the impugned orders following his order for the assessment year 2004-05 directed the Assessing Officer to allow the exemption under section 10A of the Income Tax Act, 1961 for both the assessment years as claimed by the assessee.
8. Aggrieved by the orders of Learned Commissioner of Income Tax(Appeals) dated 22.11.2007 in Appeal No. CIT(A.)-XI/342/07-08 for the assessment year 2002-03 and order dated 23.01.2008 in Appeal No. CIT(A.)-XI/398/07-08 for the assessment year 2003-04, the Revenue is in appeals before the Tribunal.
9. At the time of hearing before us, on behalf of Revenue Shri Anil Kumar, ld. D.R. appeared and relying on the reasoning given by the Assessing Officer in the assessment order for the assessment year 2004-05 contended as under :-
(a) The assessee-company was formed by reconstruction of business, which was already in existence therefore it cannot be termed as a new undertaking.
(b) The merging of two companies already doing business cannot be termed as new unit as the company has continued the business which was already carried on by it.
(c) Net Vision Web Technologies Ltd. was earlier registered as a Private Limited Company on 26.10.1999. The main business of the company was of providing education and coaching, software development and placement of software personnel.
(d) The character of business does not change even on account of amalgamation and software development was one of the object business of one of the companies.
(e) The assessee-company was formed as a result of reconstruction of two separate companies already in existence and all assets (including computers in large number) and 10 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/2008 liabilities of erstwhile "Infotech Capital Market Ltd." was transferred to the newly formed company.
In view of the foregoing, the assessee-company does not satisfy conditions prescribed under section 10A(2) of the Income Tax Act for entitlement of deduction under section 10A and Learned Commissioner of Income Tax(Appeals) is not justified in directing the Assessing Officer to allow the deduction claimed by the assessee under section 10A for all the three assessment years under appeals.
10. On the other hand, Shri S.N. Divetia, ld. counsel appearing on behalf of the assessee vehemently supported the order of Learned Commissioner of Income Tax(Appeals). The ld. counsel of the assessee drew our attention to the submissions made before the Learned Commissioner of Income Tax (Appeals), which, inter alia, include detailed history and facts of the case as well as evidence of software development business unit, which came into existence post amalgamation. He submitted that after appreciation of all the facts, in the impugned order, the Learned Commissioner of Income Tax(Appeals) directed the Assessing Officer to allow deduction as claimed under section 10A for all the three assessment years, therefore, the view taken by the Learned Commissioner of Income Tax(Appeals) for all the three assessment years be upheld.
11. We have carefully gone through the orders of authorities below and perused the material available on record. It is pertinent to note that before the Learned Commissioner of Income Tax(Appeals) the assessee made the following submissions :-
1.1. The Ld. AO has issued notice u/s 143(3) on 22nd November, 2006 fixing the date of hearing as on 23'" November, 2005, on appearance, the assessee was served with Notice u/s 142(1) of the Act, calling information requisite to assess the income by 6th December, 2006. The appellant assessee has submitted all the details requisite for the purpose of the assessment on the hearing adjourned to 19th December, a copy of which is enclosed herewith and Marked_ as Exhibit - 1.-
All other information, emanated from the first submissions as aforesaid have been submitted instantaneously on subsequent hearings.
History of Amalgamation 2.1. The assesses Company i e. Netvision Web Technologies Limited (NVWTL) is a resultant Company out of amalgamation of the two companies, namely, Web Webnologies Private Limited (NVWTPL) and Indotech Capital Market Limited (ICML) with effect from 1st April, 2000 being an appointed date, as per the Scheme of Amalgamation as approved by the shareholders etc and Hon'ble Gujarat High Court, which is enclosed herewith end Exhibit - 2 hereto.
11 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/2008Thus, all the business divisions came into being on or after 1st day of April, 2000 have been set- up by the resultant company, i.e. NVWTL only.
The Company's Business Units,.
3.1. The Company was formed by way of amalgamation of two Companies namely, Indotech Capital Market Ltd (ICML' for short) and Netvision Web Technologies Private Ltd. ('NVWPL' for short. ICML was engaged in the capital market related service business, which was never been earned on by the Netvision Web Technologies Ltd. ('NVWL' or 'the resultant company' for short).
3.2 The NVWPL was engaged in the business of imparting the computer educations through franchisees, There was no activities ever conducted relating to software development and/or sates by the NVWPL until it got amalgamated with the ICML. This is seen from the profit and loss accounts up to the year just prior to said amalgamations. The P&L account shows entire income from (a) course fees Rs. 12.13 lacs (b) franchisee fees Rs. 2500 (c) Rent income Rs. 1500 and (d) Miscellaneous income Rs. 500/-. So it is amply clear of the nature of business was not of software development and sales.
3.3. The software development and income was started being earned only after January 2001 or say post amalgamation. The same can be observed for the annual report for PY 1999-2000 of NVWPL which is enclosed herewith and Marked as Exhjbit_- 3. Also, the fixed assets of NVWPL for PY 1999-00 (prior to amalgamation) was for Rs 30.52 lacs only) and fixed assets of ICML was for Rs 28.62 lacs including goodwill of Rs. 13 lacs. (Sec Exhibit -1 supra). As against these the fixed assets for PY 2000-01, 2001 -02, 2002-03 and 2003-04 were respectively stood at Rs. 1785. 64 lacs, Rs. 1762.50 lacs, Rs.1573.17 lacs, Rs.1343,71 lacs. All the annual reports are annexed hereto and marked as Exhibit-4,5, 6, 7.
3.4. Thus it was clear (1) that prior to amalgamation there were two collective business units, one for computer education division belongs to NVWPL and another of capital market related services belongs to ICML (2) both the business units have continued having separate existence even after post amalgamation (3) Software development unit came into existence from the date 1- 1-2001 onwards (4) there is a rise of 2920% in the collective fixed assets as compared to collective assets of NVWPL and ICML post amalgamation. This itself suggest and proves mat the new assets in huge amount and quantity were purchased and used to set-up Software Development Unit being 100% EOU.
Evidence for ..Software Development Business Unit came into existence post 4.1. Software Development Business was established at Netvision House, B/h Core House, Opp. Doctor HOUSE, Nr. Parimal Railway Crossing, Ahmedabad and this place was registered as 100% EOU by STP Scheme on 10-1-2001 vide reference No. STPIG/ EXIM/S NWTPL- SWED/339/71, which is enclosed and marked as Exhibit-8 hereto. The said letter reads as "With reference to the above mentioned subject and reference, Govt. js pleased to extend you all the facilities and privileges admissible under the STP Scheme for the establishment of new undertaking or Netwsion House, B/h Core House,_Opp._ Doctor House, Nr. Parimal Railway Crossing, Ellisbridge, Ahmedabad 380 006 in the state of Guzarat for development of the following items ... Computer Software" here we supply emphasis to the words "for the establishment of new undertaking", Thus, the registration under STPI Scheme has ensured that the new undertaking was established at the said Netvision House in the year 2001 itself and not prior to its amalgamation.
12 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/20084.2. Central Excise License for setting up bonded warehouse at said Netvision House, was granted only on 25.1.2001 vide there letter No. V/MISC-22/100%- EOU/2000-Bond. (Enclosed hereto and marked as Exhibit- 9). So there can be no functioning of EOU prior to amalgamation.
4.3. Permission for duty free import of capital good against the said STPI License was granted on 10-1-2001 vide letter bearing No. STPG/EXIM/S/NWTPL-SWED/339/Imp./74 (Enclosed and marked as exhibit -10) and for indigenous goods was issued on 10.1.2001 vide their Letter bearing No STPIG/ EXIM/ S/ NWTPL-SWED/339/Ind/75 (Enclosed and marked as Exhibit-11). The capital goods covered by these permissions were actually purchased for aggregating to Rs.18.08 lacs covered by four invoices (Enclosed and Marked as Exhibit- 12) which were used for the purpose of setting up Software Development Unit being 100% EOU.
4.4 The site at which the Software Development Unit is located i.e. Netvision house, B/h Core House, Nr. Parimal Railway Crossing, Ellisbridge, Ahmedabad - 380 006 was put to use only after January 2001. A copy of certificate of Ahmedabad Municipal Corporation that the said Netvision House was vacant from l996 till the year early 2001. This is evidence of unit have came into being only after year early 2001 The same is enclosed and Marked as Exhibit- 13.
4.5. The STPI unit situated at Netvision House, B/h Core House, Opp. Doctor House, Nr. Parimal Railway Crossing, Ellisbridge, Ahmedabad- 380 006 was not having any electricity connection till 19th January, 2001, the connection estimate charges and security deposes to obtain all the new connections were made on 19th January,2001 vide Receipt No. 25768 (Enclosed and Marked as Exhibit - 14), 2nd February, 2001 vide Receipt No. 56964 (Enclosed and Marked as Exhibit -
15), 2nd February, 2001 vide Receipt No. 56964 (Enclosed and Marked as Exhibit - 15), 2nd February, 2001 vide Receipt No 56965 (Enclosed and Marked as Exhibit - 16), 2nd February, 2001 vide Receipt No. 56966 (Enclosed and Marked as Exhibit 17), 2nd February, 2001 vide Receipt No. 56967 (enclosed and marked as Exhibit 18) and rests are on 9th May, 2002 vide receipts Nos. 87918 to 87921 (enclosed and Marked as Exhibits 19 to 22), which clearly proves that no business activities were being done there at till the first connections were become functional in the year 2001 only.
4.6. The appellant also adduce evidence of its being set-up new unit at said Netvision House, in form of its registration with Commissionerate of Information Technology, Government of Gujarat, vide registration No. 81 dated 24th May, 2001 for having registered as "New Unit" for IT Software. (Enclosed and Marked as Exhibit - 23) 4.7. To support the c/a/ms that the NVWTPL was engaged in only computer education businesses and that too at places other than places at said Netvision House, the appellant adduces photographs of opening ceremonies of various franchises centers and relevant press reports etc. Enclosed hereto and Marked as Exhibit - 24).
4.8 The Fixed Assets (Tangible) held as at 31-3-2000 by NVWPL and ICML was worth Rs. 46.14 lacs only and the same held by NVWL (post amalgamation as at 31-3-2001) was for Rs.
645. 15 lacs) i.e. increase in tangible fixed assets by Rs. 599.01 lacs. Thus prove additional investment of said amount to setting up Software Development Unit being 100%EOU. See Exhibit from 4 to 7 4.9. In the year ended 31-3-2001 i e post amalgamation there was an income from course fees comprised off Rs 213.74 lacs, royalty income was comprised of Rs 97.95 lacs on which no deduction was claimed u/s 10A(2) and which was comprised or came from Computer Education 13 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/2008 Unit clearly proves that the assets held by NVWPL prior to amalgamation was used for imparting computer education unit only and certainly not for the purpose of setting up of Software Development Unit being 100%' EOU. See exhibit from 4 to 7.
4.10. There was no computer systems were received by the resultant company i.e.' NVWL under amalgamation The balance sheet of ICML as en 31-3-2000 (Prior to amalgamation) shows computer systems to be Rs Nil. See Exhibit-3.
5.1. In as much as, the condition stated at Section 10A(2)(ii) is concerned, i.e. it is not formed by the splitting up, or the re-construction of a business already in existence, is concerned the appellant would rely on the definition of the term 'splitting-up' as defined in Advanced Law Lexicon by P, Ramanath Aiyar, 3rd Edition 2005 means splitting up of the business already in existence indicate a case where the integrity of a business is broken up and different section of the activity previously conducted are carried on independently CIT -vs.- Hindustan General Industries Ltd., (1982) 137 ITR 851 (Del.). In the case of the appellant it is proved beyond doubt that the software development unit under STPL Scheme for which the exemption u/s 10A is claimed, was not formed out of reconstruction of any existing business, already in existence.
5.2 The reference is to a 'reconstruction of a business1 and not 'reconstruction of a corporate entity' which carries the business. In that context it has been held that (i) it is not every alteration in the mode, method or scope of the activities of a business and it is not every transfer of assets from one unit to another that will involve 'reconstruction'. C/T v. Hindustan General Industries Ltd. (1982) 137 ITR 851 (Del.), (ii) reconstruction is rejuvenation or rehabilitation of an existing undertaking. The original business or undertaking continues to exist4 without its identity being lost. Kerala State Cashew Development Corporation -vs.- CIT (1994) 205 ITR 19 (Ker.),
(iii) in the construction of a business, as in the reconstruction of a company, there is an element of transfer of assets and some change, however, partial or restricted it may be, of ownership of the assets. The transfer, however, need not be of all the assets, it is nonetheless imperative that there should be continuity and preservation of the old undertaking though in an altered form. The concept of reconstruction of business would not be attracted when a company which is already running are industrial unit sets up another industrial unit CIT v. Ganga Sugar Corporation Ltd., (1973) 92 ITR 173 (Dei.) (iv) in interpreting these express/on 'New industrial undertaking' and 'splitting up, or reconstruction of a business already in existence' the purpose of the provision, i.e., to encourage the setting up of new industry must be borne in mind. Though every case must depend upon its own peculiar facts, a broadly correct solution can be arrived at by asking to two question', first whether there was any activity in the existing business which could have been reconstructed and could have assumed a new form on such reconstruction; and second, whether the nature of the business which has assumed a new form as a result of the change which is introduced is the same as the nature of the business which was existing before the change was introduced, if either of these two question is answered in the negative, it would mean, prime facie, there is no 'reconstruction' Nagardas Bechardas Brothers pvt. Ltd, v. CIT (1976) 104 ITR 255 (Guj.). From the above it is seen the different meaning of the term 'reconstruction' in the different context. As far as Section 10A(2)(ii) is concerned, the meaning of 'reconstruction' is as discussed hereinabove.
5.3. Business already in existence aces needs elaborate discussion. It would mean, in the context of the Section 10A(2)(ii) that there must be a business actually carried on in the time frame prior to the exercise of restructuring the very same business i.e. the act of restructuring of a business, may be into a different entity, must be followed by actual running or carrying on the very same business by another undertaking in existence.
14 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/20086.1 Your appellant craves the leave of your honor to allow it to adduce any further relevant information in this regard to prove its case at future hearing.
6.2. In the light of above submission it is abundantly clear that all the conditions for availing the exemptions u/s 10A(2) have been complied with and the assessee thus, have discharged his primary onus to prove its case.
10.1. After carefully going through the submissions made before the Learned Commissioner of Income Tax(Appeals) and evidences furnished, we are convinced that the assessee-company is a resultant company out of amalgamation of the two companies, namely Netvision Web Technologies Private Limited and Indotech Capital Market Ltd. and the assessee-company has followed the due procedure with the Registrar of Companies with regard to amalgamation. The scheme of amalgamation is proved by the shareholders and also by the Hon'ble Gujarat High Court. The assessee-company is also registered with Software Technology Parks of India (in short 'STPI'), which is an autonomous society under Ministry of Information Technology, Government of India on 10.01.2001. It has fulfilled all the conditions as stipulated by the STPI. Therefore, in our opinion, the Assessing Officer is not justified in denying exemption claimed by the assessee for all the three assessment years under appeals.
10.2. It is also pertinent to note that all the requisite details were filed during the course of assessment proceedings as well as before the Learned Commissioner of Income Tax(Appeals) with regard to deduction/ exemption claimed under section 10A of the Income Tax Act, 1961. The software development and sales income was started only after January, 2001 which is after amalgamation. This cannot be observed from the annual reports filed by the assessee before the Learned Commissioner of Income Tax(Appeals) as well as before us. The assessee company also adduced evidences of its set up of new unit in form of its registration with Commissioner of Information Technology, Government of Gujarat vide registration No. 81 dated 24.05.2001 for having registered as new unit for I.T. Software. The Central Excise License for 100% EOU was also granted by the Central Excise Authorities vide their letter/ Certificate No.V/Misc- 22/100%EOU/2000 BOND dated 25.01.2002 which showed that no functioning of EOU or business activities in question was prior to amalgamation.
15 ITA Nos. 2120/AHD/2007, 212/AHD/2008 & 1138/AHD/200811. In view of the above, we are convinced that the Learned Commissioner of Income Tax (Appeals) after appreciating the correct fact held that the assessee is entitled to deduction under section 10A of the Income Tax Act for all the three assessment years under appeals. We, therefore, incline to uphold the orders of Learned Commissioner of Income Tax (Appeals).
12. In the result, all the appeals filed by the Revenue in respect of three assessment years are dismissed.
The Order was pronounced in the Court on 01.10.2010
Sd/- Sd/-
(A.N. Pahuja) (T.K. Sharma)
Accountant Member Judicial Member
DATED : 01/ 10 / 2010
Copy of the order is forwarded to :
1) The Assessee
(2) The Department.
3) CIT(A.) concerned, (4) CIT concerned, (5) D.R., ITAT, Ahmedabad.
True Copy By Order Deputy Registrar, ITAT, Ahmedabad Laha/Sr.P.S.