NS Global Services Pvt. Ltd v. ITO ( Mum.)(Trib.)

S.10A : Newly established undertakings – Free trade zone –Section 10A (9) applied prospectively but its omission has retrospective effect.

Till A.Y. 2003-04, the assessee’s shares were held by British Airways and Warburg Pincus. In A.Y. 2003-04, there was a change in the beneficial interest in the shareholding. For A.Y. 2004-05, the assessee claimed S. 10A deduction of ` 19 crores in respect of its STPs which were set up pre-2000. The CIT took the view that the S. 10A deduction was not allowable for

A.Y. 2003-04 & 2004-05 in view of s. 10A(9) which was introduced in A.Y. 2001-02 to provide that if the “beneficial interest” in the undertaking was transferred, s. 10A deduction would not be allowed. For A.Y. 2003-04, the CIT’s stand was upheld by the Tribunal. However, for A.Y. 2004-05, Held by the Tribunal, reversing the CIT:

(i) Circular No.8 of 2002 dated 27.8.2002 states that s. 10A(9) was inserted in A.Y. 2001-02 to “to curb trading in incentives by shell companies and to discourage unscrupulous shopping of EOUs and STPs and not to discourage genuine business re–organizations”. On facts, the change in the assessee’s shareholding was by way of global re–organization of the business and cannot be said to be non-genuine;

(ii) When s.10A(9) was omitted in A.Y. 2004-05, the Finance Minister said in the budget speech that the provision was “illogical” and had to be removed. Given the object & purpose of the omission, it can be held that the omission has retrospective effect and applies to change in the ownership in A.Y. 2003–04. Further, sub–section (9) was omitted without any saving clause and it is not a case of repeal. If a provision in a statute is unconditionally omitted without any saving clause in favour of the pending proceedings, all actions must stop where such an omission is found. As S.10A(9) has been omitted, it is as if the sub-section never existed in the statute (G. E. Thermo Matrix (ITAT Bengeluru followed);

(iii) Though for A.Y. 2003–04, the Tribunal upheld the CIT’s stand, this cannot be followed as a precedent because (a) while in A.Y. 2003-04, s. 10A(9) was on the statue and there was a change in shareholding, in A.Y. 2004-05, it was not, (b) In Zycus Infotech (2011) 331 ITR 72 (Bom.) it was held that s. 10A(9) does not have retrospective effect and is applicable only to undertakings set up after 1.4.2001. As the assessee’s STP undertakings were set up before that date, s. 10A(9) had no application. (A.Y. 2004-05)

NS Global Services Pvt. Ltd v. ITO ( Mum.)(Trib.)