Facts of the Case

  1. Regency Creations Ltd. was engaged in export activities relating to artware handicrafts, home furnishing products and software exports through its software division known as Maxtech iSolution.
  2. The assessee claimed exemption under Section 10B on software export income.
  3. The Assessing Officer denied the claim on the ground that the assessee lacked approval from the Board appointed under Section 14 of the Industries (Development and Regulation) Act, 1951.
  4. The Assessing Officer also noted alleged deficiencies concerning the Memorandum of Association and authorization of software business activities.
  5. The Commissioner of Income Tax (Appeals) allowed the claim and relied upon CBDT circulars and STPI registration.
  6. Similar issues arose in the case of Valiant Communications Ltd., which was engaged in manufacturing and export of telecom transmission equipment and had registration as a 100% EOU under EHTP/STPI Scheme.
  7. The ITAT allowed the assessees' claims holding that STPI registration constituted sufficient approval for claiming deduction under Section 10B.
  8. Revenue challenged the Tribunal's decision before the Delhi High Court.

Issues Involved

  1. Whether approval granted by Software Technology Park of India (STPI) constituted valid approval for claiming deduction under Section 10B of the Income Tax Act?
  2. Whether approval by the Inter-Ministerial Standing Committee or STPI Director could be deemed approval by the Board constituted under Section 14 of the Industries (Development and Regulation) Act, 1951?
  3. Whether STPI units could automatically claim benefits available to 100% Export Oriented Units under Section 10B?

Petitioner’s Arguments (Revenue)

The Revenue argued that:

  • Section 10A and Section 10B operate independently and provide different statutory benefits.
  • The benefit under Section 10B specifically requires approval by a Board constituted under Section 14 of the Industries (Development and Regulation) Act.
  • Press Notes and CBDT Circulars relied upon by the Tribunal merely dealt with administration of STPI units and could not substitute statutory approval requirements.
  • Approval granted by STPI or the Inter-Ministerial Standing Committee was never intended to operate as approval under Section 10B.
  • No statutory notification existed delegating Board powers for purposes of Section 10B.

Respondent’s Arguments (Assessees)

The assessees contended that:

  • The objective of the STPI Scheme was promotion of software exports and foreign trade growth.
  • Inter-Ministerial Standing Committee approvals effectively performed functions similar to those of the Board.
  • CBDT Circulars and governmental clarifications supported recognition of STPI approvals.
  • Beneficial provisions granting incentives for economic growth must receive liberal interpretation.
  • Revenue could not adopt inconsistent positions in different assessment years.
  • Reliance was placed on principles laid down in Radhasoami Satsang and Bajaj Tempo Ltd.

Sections Involved

Income Tax Act, 1961

  • Section 10A – Special provision for newly established industrial undertakings in Free Trade Zones/STP/EHTP
  • Section 10B – Special provision relating to newly established 100% Export Oriented Undertakings
  • Section 33B
  • Section 80-I

Industries (Development and Regulation) Act, 1951

  • Section 14

Foreign Trade (Development and Regulation) Act, 1992

  • Section 3

Court Findings / Order

The Delhi High Court held:

  • Mere approval under the STPI Scheme could not automatically be treated as approval under Section 10B.
  • The Board constituted under Section 14 of the Industries (Development and Regulation) Act possessed a specific statutory role.
  • There was no express statutory authorization or delegation empowering STPI or the Inter-Ministerial Standing Committee to grant approvals under Section 10B.
  • Benefits under Section 10A and Section 10B were intentionally separated by Parliament.
  • In the absence of proper statutory delegation, approvals granted by a third authority cannot substitute the authority specifically contemplated by law.
  • The Tribunal committed an error in granting exemption under Section 10B based solely upon STPI registration.

Accordingly, the question of law was answered in favour of the Revenue and against the assessees and the appeals were allowed.

Important Clarification

The Court specifically clarified that:

Approval under STPI for purposes of Section 10A cannot automatically be regarded as approval under Section 10B unless express statutory authorization or delegation exists.

The Court reiterated the legal principle that where a statute prescribes a particular procedure for exercise of power, such power must be exercised strictly in that prescribed manner.

This decision draws a clear distinction between:

  • STPI approval;
  • Approval by Inter-Ministerial Standing Committee;
  • Approval by Board constituted under Section 14 of the IDR Act.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2012:DHC:5783-DB/SRB17092012ITA692008.pdf 

 

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