S. 10A(9) applied prospectively but its omission has retrospective effect
Till AY 2003-04, the assessee’s shares were held by British Airways and Warburg Pincus. In AY 2003-04, there was a change in the beneficial interest in the shareholding. For AY 2004-05, the assessee claimed s. 10A deduction of Rs. 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 AY 2003-04 & 2004-05 in view of s. 10A(9) which was introduced in AY 2001-02 to provide that if the “beneficial interest” in the undertaking was transferred, s. 10A deduction would not be allowed. For AY 2003-04, the CIT’s stand was upheld by the Tribunal. However, for AY 2004-04, 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 AY 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 AY 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 AY 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 B’lore followed);
(iii) Though for AY 2003–04, the Tribunal upheld the CIT’s stand, this cannot be followed as a precedent because (a) while in AY 2003-04, s. 10A(9) was on the statue and there was a change in shareholding, in AY 2004-05, it was not, (b) In Zycus Infotech 191 TM 13 (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.