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Wipro `undertaking' in question

D. Murali

Chennai , April 3

HOW does one define "undertaking"? This is what lies at the heart of recent tax demand slapped on Wipro.

The word "undertaking" is important because Sec 10A of the Income-Tax Act speaks of "profits and gains as are derived by an undertaking", "year in which the undertaking begins to manufacture", and so on in about two dozen places. However, "undertaking" is not defined in the section.

Wipro set up its business in 1992, with a licence from Software Technology Parks of India (STPI) that had been established in June 1991.

Over the years, Wipro has been expanding and adding to its facilities, buildings, machinery and also customers. This expansion was approved by the STPI under the original licence, according to knowledgeable sources.

To reckon the period of 10-year tax holiday conferred by Sec 10A, the Income-Tax Department has been counting from 1992.

But the company has been counting the 10-year period for each expansion from the point of such expansion.

Thus, the Department is of the view that all the activities of Wipro have been subsumed by the original licence, and so there is only one undertaking.

But the company contends that each addition to the original licence should be construed as a separate undertaking.

Going by the Department's thinking, tax concessions for the company should cease in assessment year 2002-03, but if one were to toe the company's perception, concessions run for each expansion separately.

That is the crux of the contention.

In short, is it a physical location or is it licence that defines an undertaking? A case that may come handy for Wipro is the Textile Machinery Corporation Limited, Calcutta, case that was decided by the apex court in 1977. "Trade and industry do not run in earmarked channels and particularly so in view of manifold scientific and technological developments," the court observed in that case.

"Every new creation in business is some kind of expansion and advancement."

The court then laid down "the true test": "not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business."

In short, expansion brings forth a new undertaking.

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