Section 10AA deduction applies to SEZ trading profits from import and re-export, as trading is treated as a service.

Trading activity carried on from a Special Economic Zone, consisting of import of goods for re-export, falls within the meaning of "services" for section 10AA because the term is read in light of the Special Economic Zones Act, 2005. Section 2(z) treats services as tradable services, Rule 76 of the SEZ Rules expressly includes trading, and the Development Commissioner's clarification states that trading for Second Schedule purposes means import for re-export. On that statutory scheme, profits from such trading qualify for deduction under section 10AA.

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Issues: Whether the assessee was entitled to deduction under section 10AA on profits arising from trading activity consisting of import of goods for re-export from a Special Economic Zone.

Analysis: The expression "services" in section 10AA of the Income-tax Act, 1961 is to be understood in the context of the Special Economic Zones Act, 2005. Section 2(z) of the Special Economic Zones Act, 2005 defines services as tradable services, and Rule 76 of the Special Economic Zones Rules, 2006 expressly includes trading within the list of services. The clarification from the Development Commissioner further stated that trading for the purpose of the Second Schedule means import for the purpose of re-export. On this statutory scheme, trading activity of import and re-export carried on from the Special Economic Zone falls within the ambit of services.

Conclusion: The assessee's trading activity qualified as services for the purpose of section 10AA and the deduction was admissible.

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