2016 (9) TMI 509 - SC - Income Tax

Supreme Court remands case for tax determination on SEZ unit trading activity.

Commissioner of Income Tax, Guntur Versus M/s. Bommidala Enterprises Pvt. Ltd.

The Supreme Court remanded the case to the High Court for a determination on whether the trading activity carried out by the SEZ unit qualifies as a ... 'Service' eligible for exemption under Section 10AA - trading activity carried on by the SEZ unit of the respondent-assessee - Held that:- A perusal of the order of the High Court [2013 (10) TMI 1418 - ANDHRA PRADESH HIGH COURT] shows that this aspect is not considered and brushed aside by merely saying that the Tribunal has held it to be a 'service' and that it is a question of fact. No doubt, insofar as activity carried on by the respondent-assessee is concerned, factual aspects are not in dispute. However, whether that would constitute 'service' within the meaning of Section 10AA of the Act would be a question of law and not a question of fact. The High Court is, therefore, in error in not entertaining the said plea and dismissing the appeal of the Revenue by labelling it as a question of fact. We, accordingly, set aside the order of the High Court and remand the case to the High Court to decide the aforesaid question of law. Issues:Interpretation of Section 10AA of the Income Tax Act regarding trading activity carried out by an SEZ unit for exemption as a 'service'.Analysis:The Supreme Court considered the question of law raised by the appellant-Revenue regarding whether the trading activity conducted by the SEZ unit of the respondent-assessee qualifies as a 'service' eligible for exemption under Section 10AA of the Income Tax Act, 1961. The appellant argued that the Income Tax Appellate Tribunal erred in relying on the definition of 'services' as per SEZ Rules, contending that such a provision does not exist under Section 10AA of the Act. The High Court's order was critiqued for not addressing this crucial aspect and dismissing the appeal based on the Tribunal's determination that it was a question of fact. The Supreme Court emphasized that while the factual aspects of the respondent's activity were undisputed, the classification of whether it constitutes a 'service' under Section 10AA was a legal question, not a factual one. Consequently, the Court held that the High Court erred in not considering this legal issue and labeled it as a question of fact, leading to the order being set aside, and the case remanded for a decision on the legal question.In conclusion, the Supreme Court disposed of the appeal by remanding the case to the High Court for a determination on whether the trading activity carried out by the SEZ unit qualifies as a 'service' under Section 10AA of the Income Tax Act. The judgment underscores the distinction between questions of law and questions of fact in tax matters and highlights the importance of a proper legal analysis in such cases to ensure correct interpretation and application of relevant provisions.