TaxTMI 
TaxTMI 
2016 (7) TMI 1552
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on 13th October 2010, declaring nil income after claiming deduction under section 10AA for an amount of Rs. 67,64,222. In the course of assessment proceedings, in response to the query of the Assessing Officer to justify its claim of deduction under section 10AA, the assessee submitted, the matter relating to assessee's claim of deduction under section 10AA was examined in detail during the scrutiny assessment proceedings for assessment year 2007-08 and the Assessing Officer being satisfied that the assessee has fulfilled the conditions of the said provision accepted assessee's claim. In support of such contention, assessee also submitted a copy of the assessment order passed for the assessment year 2007-08. It was also submitted by the assessee that as per instruction no.4 of 2006, dated 24th May 2006, issued by the Department of Commerce, Ministry of Commerce and Industry, Government of India, all the activities relating to SEZ shall be guided by the provisions contained under the said Act and not under any provisions of any other Act. This is in view of the overriding effect of section 51 of the SEZ Act. The Assessing Officer, however, did not find merit in the submissions of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... export sales as per the provision of SEZ Act, 2005, which has overriding effect over all other Acts. Further, the learned counsel submitted as the assessee's claim of deduction under section 10AA, has been allowed by the Department in the preceding assessment years, no disallowance of deduction claimed in the impugned assessment year can be made unless such disallowance made in the initial year of claim is withdrawn / disallowed. In this context, learned counsel relied upon a decision of Hon'ble Jurisdictional High Court in CIT v/s Western Outdoor Interactive Pvt. Ltd., [2012] 349 ITR 309 (Bom.). 7. We have considered the submissions of the parties and perused the material available on record. Before delving to decide the issue arising for consideration before us, it is necessary to provide a brief factual back-drop. The hearing of appeal was initially concluded on 15th February 2016. Subsequently, on the basis of a decision of the Hon'ble Kerala High Court in CIT v/s Electronic Controls and Discharge Systems Pvt. Ltd., [2011] 245 CTR 465 (Ker.) on the issue of eligibility of exemption under section 10A in the event of sale of products to another SEZ unit, the matter was put ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct export sales by the assessee but sales to other SEZ units within the country. It is the claim of the assessee that such sales to SEZ units should also be considered as deemed export in terms of the definition of "export" contained under section 2(m) of the SEZ Act. Before deciding the validity of the aforesaid claim of the assessee, it is necessary to look into some of the provisions contained under Special Economic Zone Act, 2005 as well as Income Tax Act, 1961 which are relevant for the purpose of deciding the present issue. SEZ Act, 2005, enacted by the Parliament came into effect from 23rd June 2005. The object of bringing the said enactment was to provide for the establishment, development and management of SEZ for the promotion of export and for matters connected therewith or incidental thereto. In section 2(m) of the SEZ Act, "Export" has been defined as under:- "2(m) "Export" means - (i) taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or (ii) supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or (iii) supplyi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ings outside India or expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India;" 13. Export in relation to SEZs, as defined in Explanation-1(ii) of section 10AA of the I.T. Act, reads as under:- "(ii) "export in relation to special economic zones" means taking goods or providing service out of India from a special economic zone by land, sea, air, or by any other mode, whether physical or otherwise." 14. If the definition of "export in relation to SEZs" as provided under Explanation-1(ii) of section 10AA of the I.T. Act, is kept in juxtaposition to the definition of "Export" under section 2(m) of the SEZ Act, it is to be seen while clause (i) of section 2(m) of SEZ Act, was incorporated under Explanation-1(ii) of section 10AA of the I.T. Act, however, clause (ii) and (iii) of section 2(m) of the SEZ Act, 2005, were left out. Thus, from the aforesaid fact, it is clear that the legislature took a conscious decision in leaving out certain portion of definition of "export" as provided under section 2(m) of SEZ Act, while defining "export in relation to the SEZs" under Explanation-1(ii) of section 10AA of the I.T. Act. Thus, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s export. Sale effected to another SEZ unit either within the same SEZ or a different SEZ cannot be considered to be an export of goods or services out of India in terms of explanation 1(ii) of section 10AA. Therefore, to that extent goods sold to another SEZ unit would not qualify for exemption under section 10AA. 15. The Hon'ble Kerala High Court in Electronic Controls and Discharge Systems Pvt. Ltd. (supra) while examining similar claim of sale to another SEZ whether qualifies for deduction under section 10A of the Act, even after taking note of definition of "Export" contained in section 2(m)(iii) of SEZ Act, however, did not agree with assessee's claim. The Hon'ble High Court observing that I.T. Act, 1961, is a self contained code held as under:- "6. After hearing both sides and after going through the above referred provisions of the Income-tax Act and the provisions of the Special Economic Zones Act, 2005, we are unable to uphold the order of the Tribunal because the concept of deemed export under the Special Economic Zones Act is not incorporated in the scheme of exemption under section 10A of the Income-tax Act and it is the settled position that the Income-tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... receipt in convertible foreign exchange, the Tribunal, in our view, has no justification to extend it to profits received on local sales within India against payment received in Indian rupees. For the above reasons, we are unable to sustain the orders of the Tribunal and we, therefore, allow the appeals by reversing the orders of the Tribunal and by restoring the orders cancelled by the Tribunal." 16. The ratio laid down by the Hon'ble Kerala High Court, as referred to above, clearly applies to the facts of the present case. Undisputedly, section 10AA has been incorporated into the Act by virtue of section 27 of SEZ Act, 2005, and provides exemption to SEZ units subject to conditions mentioned therein. Therefore, a unit / developer claiming exemption under section 10AA, has to come within the four corners of the said provision. Unless, the conditions prescribed therein are fulfilled the exemption cannot be granted. Attempt of learned Authorised Representative to draw a distinction between section 10A and 10AA by pointing out that there is no need to obtain sale proceeds in convertible foreign exchange under section 10AA, unlike section 10A(3) is of not much help to the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... splitting up or reconstruction of business already in existence. Considering the aforesaid factual position, the Hon'ble High Court held that unless exemption granted in earlier assessment year under identical facts and circumstances and on satisfaction of certain conditions of the provision is withdrawn, exemption in a subsequent assessment year cannot be denied. In the present case, there is no dispute that assessee being a SEZ unit is eligible to claim exemption u/s 10AA subject to fulfillment of conditions prescribed therein. Therefore, as far as assessee's claim of eligibility u/s 10AA is concerned, there is no doubt about that. We are only concerned with the computation of exemption u/s 10AA which is restricted only to export sales. In other words, exemption u/s 10AA has to be computed on each assessment year independently on the quantum of export sales made by assessee. If we pose a question to ourselves, can an assessee be allowed exemption u/s 10AA without exporting any goods or services in a particular assessment year only because in past assessment years it has been allowed such exemption? The answer will be "No"! Allowance of exemption in such a case would not only....