A division bench of the Delhi High Court has held that a claim for deduction under section 10AA of the Income Tax Act which was accepted in previous years cannot be denied later due to a mere change in Business of the assessee.
A bench comprising Justices Sanjiv Khanna and Anup Jairam Bhambhani was hearing an appeal filed by the revenue against the Tribunal order in the case of assessee Macquarie Global Services Pvt. Ltd wherein the Tribunal held that once the claim of section 10AA deduction under the Income Tax Act 1961 has been accepted in the first year of the operations and also in the second year, the same cannot be withdrawn in the third year by examining the factors which were required to be seen in the first year of the claim.
Assessee Company is a wholly owned subsidiary of ‘Macquarie Global Services Limited and a captive contract service provider engaged in the business of provision of back office support services to its associated enterprises. For rendering such services, the assessee is remunerated on a cost-plus markup basis. During the financial year 0101-2011 the assessee company was operating from two separate units such as EOU unit and SEZ unit and had claim deduction under section 10AA of the act in the assessment year 2010-2011 and 2012-2013 and also claimed the same deduction in the current assessment year also. During the assessment proceedings, the Assessing Officer (AO) denied assessee’s claim of deduction for the current assessment year by holding that there is some kind of splitting up or reconstruction of the old business in terms of clause (ii) of sub-section (4) section 10AA in the assessee company.
The bench observed that the Tribunal had examined technical manpower employed in the new unit and has noted that percentage of new employees in the SEZ unit was 83% and 64% during the period relevant to the assessment years 2011- 12 and 2013-14. Clearly, new employment opportunities and jobs were created.
“Business had grown and increased substantially on setting up of the new unit, which was a legitimate and wise business decision and not subterfuge and an illegal act,” the bench said.
Dismissing the departmental appeal, the bench held that “In the factual background, the Tribunal has accepted that the new unit was a separate identity for its income to qualify for exemption under Section 10AA for it was not formed and created by ‘splitting up’ or ‘reconstructing’ the existing business. The new unit was also not formed by transferring any machinery or plant previously used. A fresh investment was made in the new unit. The revenue earning and profits generated were clearly attributable to the new unit.”
Advocates Salil Kapoor, Mr. Shivansh Pandya, Ms. Soumya Singh and Advocate Ms. Ananya appeared for the assessee.
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