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Issues: Whether the assessee, being an SEZ unit engaged in blending of fuel oil and allied operations, was entitled to deduction under section 10AA of the Income-tax Act, 1961, and whether related incomes arising from the business operations were also eligible for such deduction.
Analysis: The deduction under section 10AA has to be read with the special definitions contained in the Special Economic Zones Act, 2005. The expression "manufacture" in section 2(r) of the SEZ Act is wide enough to include blending activity, and the assessee's operational process of importing fuel oil, blending it in hired tanks, and re-exporting bunker fuel brought the activity within that meaning. The SEZ framework also recognizes "services" under section 2(z), and rule 76 of the Special Economic Zone Rules, 2006 includes trading in the nature of import for re-export. The SEZ Act further has overriding effect under section 51, so inconsistent reliance on the Income-tax Act definition of manufacture could not defeat the SEZ-based entitlement. Income such as currency fluctuation and interest, being intrinsically connected with the SEZ business operations, was also treated as eligible for deduction.
Conclusion: The assessee was entitled to deduction under section 10AA, and the disallowance made by the Assessing Officer could not be sustained.
Final Conclusion: The Revenue's challenge failed, and the relief granted by the appellate authority in favour of the assessee was maintained.
Ratio Decidendi: For an SEZ unit, the entitlement under section 10AA is determined by the SEZ Act's expanded definitions and overriding scheme, and blending or trading in the nature of re-export may qualify for the deduction where the activity falls within the statutory meaning of manufacture or services.
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