TaxTMI 
TaxTMI 
2019 (12) TMI 536
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....bunal , Chennai( Hereinafter called "the tribunal") : "1. The order passed by the learned CIT (A) is bad in law and is passed without providing adequate opportunity to the Assessee to represent the matter and therefore liable to be quashed. 2. The order passed by the learned CIT(A) is based on the written submission made by the assessee on the first hearing date and the matter was adjourned by the learned CIT (A) on various dates, the last date fixed on 27/07/2017, which was sought to be adjourned by Assessee and acknowledged by the department on 27/07/2017. Under such circumstances , the order of CIT (A) without giving the right of audience to the assessee is contrary to the principles of law. 3. Without prejudice to the above, the CIT(A) has erred in denying the benefit of deduction under section 10AA of the Income tax Act to the Assessee. 4. Without prejudice to the above, the CIT (A) has erred in applying section 40(a)(i) with respect to payments without respecting the Hon"ble ITAT order in the Assessee's own case in the earlier year. 5. The Appellant craves to raise any other appropriate ground at the time of hearing." 3. The bri....
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....02, 2002-03, 2003-04 (3 years) By application of this provision, the company should have claimed 100% deduction for 10 assessment years till assessment year 2010-11 Date of conversion of MEPZ unit into sez unit 01-01-2003 Introduction of section 10A(1A) by Finance Act, 2003 With effect from assessment year 2004-05 Claim made in accordance with Sec.10A(1A) 100% deduction for assessment years 2004-05 and 2005-06 (4th and 5th year) and Introduction of new section 10AA by Special Economic Zones Act, 2005 With effect from assessment year 2006-07 onwards Claim made by the assessee 50% from assessment year 2006-07 onwards till assessment year 2010-11 (5 years) and 50% from assessment years 2011-12 onwards for the balance period of 5 years under sec.10AA The explanation, as referred to in your notice reads as fallows- Explanation- For the removal of doubts, it is hereby declared that an undertaking, being the unit which had already availed, before the commencement of the special economic zones act, 2005, the deduction referred to in section 10A for ten consecutive assessment years. Unit sha....
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....therefore, placed its claim of sec 10AA, under the pari material provisions of Sec.10A(1A) originally. It may be noted that only through the union budget for 2007-08, the finance Act noted the amended provisions of SEZ Act, while the Hon'ble Finance Minister, Mr P.Chidambarom, went ahead and provided for certain amendments therein through Income tax Act to the said section 10AA (without making any amendment in the said section under the SEZ Act), The facts to be noted are:- Even though the company should have claimed 100% for 10 Assessment year till A.Y 2010-11. However in view of change in the character of Tambaram MEPZ into SEZ Zone, the assessee claimed 100% deduction for 5 assessment year and 50% deduction thereafter for the balance 10 years. No excess deduction has been ever claimed". 3.2 The AO after considering reply filed by assessee , rejected claim of the assessee,vide assessment order dated 07.03.2014 passed by AO u/s 143(3) of the 1961 Act, by holding as under: "Assessee is not eligible for deduction u/s.10AA at all since, as per section 10AA (1), the unit is eligible for deduction, only if the unit begins to manufacture or produce arti....
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....o manufacture or produce articles or things - which is A.Y. 2001-02 in this case. Further, third provisio to Section 10AA (3) reads as under Provided also that where a Unit initially located in any free trade zone or export processing zone is subsequently located in a Special Economic Zone by reason of conversion of such free trade zone or export processing zone into a Special Economic Zone and has completed the period of ten consecutive assessment years referred to above, it shall not be eligible for deduction from income as provided in clause (ii) of sub-section (1) with effect from the 1st day of April, 2006. Thus the, Third proviso is only to clarify the second proviso i.e., if a unit has already availed deduction in 10 years, such unit will not be eligible at all. Therefore, in view of the discussion as above, it is ascertained that the assessee is not eligible to claim deduction under section 10AA and the claim of the assessee for deduction under section 10AA is rejected." 4. The assessee being aggrieved by an assessment order dated 07.03.2014 passed by AO u/s 143(3) of the 1961 Act , filed an first appeal before Ld.CIT(A) , who was plea....
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....deduction referred to in this sub-section only for the unexpired period of ten consecutive assessment years and thereafter it shall be eligible for deduction from income as provided in clause (ii) of sub-section (1). iii) Correspondingly a new sub-section (7B), as reproduced below, was also inserted by the SEZ Act under Section 10A. 10A(7B) The provisions of this section shall not apply to any undertaking, being a Unit referred to in clause (zc) of section 2 of the Special Economic Zones Act 2005, which has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone. C. BUT NO SUCH AMENDMENT WAS INTRODUCE BY THE FINANCE BILL IN INCOME TAX CORRESPONDING TO THE ABOVE AMENDMENY BY SEZ ACT, Confused by the complexities of two Acts (SEZ Act and Income Tax Act) governing the deduction for the SEZ Unit, based on legal advise, the Assessee company continued to claim deduction under Sec.10A(1a) for its MEPZ unit, which read as follows: SEC 10A(1A) Notwithstanding anything contained in sub-section (1), the ded....
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.... For every Sec.10A Unit, the deduction is allowed at 100% for 10 years of its profits from Section 10A unit and by reason of conversion of MEPZ from export processing Zone status into SEZ zone with effect from 01.01.2003, the assessee stood benefited by the deduction at the rate 100% of its profits from the SEZ unit for 5 years an 50% of its profits from the SEZ unit only for the next 2 years and 50% of its profits from the SEZ unit only for the next 3 years, by fulfilling the conditions by the company. Thus, having parallely complied with an alternate claim under the provisions of pari materia Sec.10AA, the assessee shall could continue to get the benefit of 50% (Subject to fulfilling the conditions, if any, by the Assessee company). The department refused to give the above benefits after having accepted 50% deduction in the earlier assessment years 2006-07 to 2010-11, in spite of non-existence of Sec.10A(1A). The petitioner seeks suitable relief on 'just cause' from Hon'ble CIT(A) 1. That the assessee company be entitled for deduction at 50% of its profits from the SEZ unit in terms of Section 10AA for the Assessment year 2011-12 onw....
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....Tambaram, MEPZ Chennai, which was later converted into SEZ and commenced the production in December 2000. The Company had claimed deduction under the Income Tax Act in the following manner: a. 100% for the assessment years 2001-2002 to 2005-2006 (five years) under section 10A, b. 50% from 2006-2007 to 2010-2011 (5 years) deduction. The company was rightfully eligible for 100% deduction as per section 10A(1) till the assessment year 2010-2011. In the meanwhile, the Special Economic Zones Act 2005 inserted section 10AA effective from 01/04/2006 and as per proviso to section 10AA, 50% deduction was claimed by the company from assessment year 2006-2007 till 2010-2011 (5 Years) and 50% from assessment years 2011-2012 for five years. Explanation to Section 10A states that, For the removal of doubts, it is hereby declared that an undertaking, being the Unit, which had already availed, before the commencement of the Special Economic Zones Act, 2005, the deductions referred to in section 10A for ten consecutive assessment years, such Unit shall not be eligible for deduction from income under this section. The period of ten consecutive years NEED ....
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....e noted that only through the Union Budget for 2007-08, the Finance Act noted the amended provisions of SEZ Act, while the Hon'ble Finance Minister Mr. P. Chidambaram, went ahead and provided for certain amendments therein through Income Tax Act to the said Section 10AA (without making an amendment in the said section under the SEZ Act). By virtue of explanation and provisos to section 10AA of Income Tax Act the deduction under this section has been made applicable to the units located in Special Economic Zone from the assessment year 2006-2007 provided the unit has not claimed deduction under section 10A(1) for the period of 10 years. 4. The Learned Assessing Officer failed to give an opportunity to the appellant, before concluding, that the payments made towards export sales commission, were towards fee for technical services." 7.3 In the written submission filed on 11/4/2017 the A.R stated that the unit in MEPZ had been located into Special Economic Zone (SEZ Zone) by reason of conversion of MEPZ from export processing Zone status into SEZ Zone with effect from 01.01.2003. 7.4 Proviso and Explanation to section 10AA(3) reads as under: ....
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.... under: "9. I have carefully considered the facts, order of the AO, submissions made by the appellant and material on record. The dispute relates to the claim of deduction u/s 10A and subsequently u/s 10AA of the I.T.Act by the appellant. The appellant originally carried out the eligible business from its operation in the MEPZ unit. The MEPZ unit subsequently was converted into a SEZ unit from 1.1.2003. Following the same the appellant claimed 100% of the profits and gains derived from the industrial undertaking for the period of initial 3 years i.e., from the date when it began to manufacture or produce the article or thing. Therefore 100% of deduction of the profits and gains was claimed for A.Y. 2001-02, 2002-03 & 2003- 04 (1st, 2nd and 3rd year respectively). In the meanwhile, subsequent to conversion of the MEPZ to SEZ and introduction of s.10A(1A) by Finance Act, 2003 w.e.f. A.Y. 2004-05 the assessee would be eligible for 100% deduction for the A.Ys 2004-05 and 2005-06 (the 4th and 5th year respectively). Thereafter availing the benefit offered in new section 10AA applicable to Special Economic Zones (Special Economic Zones Act, 2005) the appellant claimed 50% of the....
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....ive years, subject to the condition prescribed therein, such as, creation of reserve etc. There is no dispute or finding from the AO that the appellant has not fulfilled those conditions. Therefore, the appellant shall be eligible for deduction u/s.10A from AY 2001-02 to 2005-06 (5 years). Thereafter 50% u/s.10AA for five years followed by 50% for next five years subject to fulfillment of conditions. It is pertinent to note that the third proviso to sec.10AA (3) bars allowing deduction u/s.10AA to those unit which have already availed deduction u/s.10AA for ten years prior to AY 2006-07. The appellant in this case has not completed ten years of claim as on AY 2Q06-07 and therefore the bar shall not apply to it. To sum up, the appellant is eligible for deduction u/s.10A and subsequently u/s.10AA as discussed above." Our attentions was also drawn to appellate order dated 16.05.2017 passed by learned CIT(A) for ay: 2013-14 , wherein deduction u/s 10AA of the 1961 Act was allowed to the assessee. Presently, we are concerned with ay: 2011-12 which is the eleventh year in which the assesse is claiming deduction and being first year when the deduction u/s 10AA is claimed by the assesse....
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....judicate this issue as to whether assessee will be entitled for deduction u/s. 10AA of the 1961 Act for ay: 2011-12 , keeping in view of the fact that assessee is now an SEZ unit effective from 01.01.2003 and has claimed and was already allowed deduction u/s 10A of the 1961 Act by Revenue for ten consecutive assessment years beginning from ay: 2001-02 to ay: 2010-11. It is an undisputed fact between rival parties that assessee's unit was set up and commenced manufacturing of pillows and cushions in Tambaram MEPZ in previous year relevant to ay: 2001-02 and assessee was entitled for deduction u/s.10A of 1961 Act commencing from ay: 2001-02 onwards. It is only on 01.01.2003, the Tambaram MEPZ unit of the assessee was converted as SEZ unit but assessee continued to claim benefit of deduction u/s 10A of the 1961 Act for a total period of consecutive ten assessment years commencing from ay: 2001-02 to 2010-11 , which deduction was in-fact undisputedly also allowed by Revenue. It is claimed by assessee before us that for the first five years, deduction to the tune of 100% of profits derived from export of pillows and cushions were claimed and allowed by Revenue u/s 10A of the 1961 Act, w....
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....t period(s). 7.2 Section 10A of the 1961 Act as was existing in the statute immediately before its substitution by Finance Act, 2000 w.e.f. 01.04.2001 , which reads as under immediately prior to ay: 2001-02: "[Special provision in respect of newly established industrial undertakings in free trade zones.1 10A. (1) Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- [(i) it has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year- (a) commencing on or after the 1st day of April, 1981, in any free trade zone; or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park or, as the case may be, software technology park;] [(ia) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1995, its e....
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....f section 36, as the case may be, shall not apply in relation to any such allowance or deduc-tion; (ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) 8 [or subsection (3)] of section 74 and no deficiency referred to in sub-section (3) of section 80J, in so far as such loss or deficiency relates to the business of the industrial undertaking, shall be carried forward or set off where such loss, or, as the case may be, deficiency relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I [or section 80-IA] [or section 80-IB] or section 80J in relation to the profits and gains of the industrial under-taking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the industrial undertaking shall be computed as if the assessee had claimed and been actually allowed the deduc-tion in respect of depreciation for each of the relevant assess-ment years. (5) Where an industrial undertaking in any free trade zone has begun to manufacture or produce articles or things in....
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....ii) "relevant assessment years" means the ten consecutive assessment years referred to in sub-section (3);] [(iii) "manufacture" includes any- (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage device;] [(iv) "electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce; (v) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce; (vi) "produce", in relation to articles or things referred to in clause (i) of sub-section (2), includes production of computer programmes.]" 7.3 Section 10A of the 1961 Act as was substituted by Finance Act, 2000 w.e.f. 01.04.2001 and which stood applicable to assessee for the first year of its commencement of production for ay: 2001-02, reads as under:- '10A. Special provision in respect of newly established undertakings in free trade zones, etc. 10A (1....
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....y park; (c) commencing on or after the 1st day of April, 2001 in any special economic zone; (ii) it is not formed by the splitting up, or the recon-struction, of a business already in existence: Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circum-stances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation. -The provisions of Explanation 1 and Explanation 2 to subsection (2) of section 80-I shall apply for the purposes of clause (iii) of this subsection as they apply for the purposes of clause (ii) of that sub-section. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within ....
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....ection (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduc-tion; (ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or subsection (3) of section 74 in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year. (7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the under....
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....ation in respect of export of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; (v) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by noti-fication in the Official Gazette, specify for the purposes of this section; (vi) "relevant assessment year" means any assessment year falling within a period of ten consecutive assessment years referred to in this section; (vii) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Indus-try; (viii)"special economic zone" means a zone which the Central Government may, by notification in the Official Gazet....
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....y be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years : Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the [undertaking began to manufacture or produce such articles or things or computer software] in such free trade zone or export processing zone : 1[***] The following third proviso shall be inserted to sub-section (1) of section 10A by the Finance Act,....
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....ircumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1.-For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation 2.-The sale proceeds referred to in this sub-section shall be deemed to have been received in India where su....
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....e carried forward or set off where such loss relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year. (7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. (8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him....
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....a result of- (a) its becoming a company in which the public are substantially interested; or (b) disinvestment of its equity shares by any venture capital company or venture capital fund.] Explanation 2.-For the purposes of this section,- (i) "computer software" means- (a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or (b) any customized electronic data or any product or service of similar nature, as may be notified 5 by the Board, which is transmitted or exported from India to any place outside India by any means; (ii) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder or any other corresponding law for the time being in force; (iii) "electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce and Industry....
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....han to whom Section 10A(1A) applies to 90% of the profits derived from export of articles or goods or computer software for ay: 2003-04. The assessee unit got itself converted into an SEZ unit during previous year relevant to ay: 2003-04 but can it be said that it begins to manufacture or produce goods or articles in SEZ in previous year relevant to ay: 2003-04. The answer is emphatic 'no', the assessee unit begins to manufacture or produce pillows or cushions in previous year relevant to ay: 2001-02 in MEPZ and once the unit begins to manufacture or produce articles in previous year relevant to ay: 2001-02 , then it cannot be said that it again begins to manufacture or produce articles in SEZ when it got converted itself from EPZ unit to SEZ unit. It is merely a conversion of EPZ unit into an SEZ unit but the fact remains that unit was already in operation since previous year relevant to ay: 2001-02 onwards and it could not be said the unit of the assessee begins to manufacture or produce articles or things or computer software in the previous year relevant to assessment year 2003-04 in SEZ as it is a clear case of mere conversion of EPZ into an SEZ and not setting up of new un....
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....ante clause in Section 10A(1A) is also placed in statute because there were SEZ units which were granted deduction u/s 10A(1)of the 1961 Act which had begun or begins to manufacture or produce article or things or computer software during the previous year relevant to the ay commencing on or after the 1st day of April 2001 in any SEZ for which reference is drawn to Section 10A(2)(i)(c) of the 1961 Act as well cases covered by conversion of EPZ units into SEZ units vide second proviso to Section 10A(1) of the 1961 Act and hence new sub-section 10A(1A) was introduced which only deal with newly established SEZ in previous year relevant to ay: 2003-04 and onwards. It can be seen that vide Finance Act, 2002 , Section 10A(1A) of the 1961 Act was introduced which curtailed the period of deduction to newly set up undertaking in SEZ to seven years as against period of deduction upto 10 consecutive years enjoyed by existing SEZ set-up prior to previous year relevant to ay: 2002-03. Not only period of deduction was reduced to 7 years by newly inserted Section 10A(1A) by Finance Act, 2002 as against period of ten consecutive assessment years allowed by Section 10A(1) of the 1961 but also deduc....
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....subsequent ay's. It is now no more res-integra that exemption/deduction provisions are to be strictly construed and reference is made to Constitutional Bench decision of Hon'ble Supreme Court in the case of Commissioner of Customs v. Dilip Kumar in Civil Appeal no. 3327 of 2007, judgment dated 30.07.2018. The Courts cannot go further and enlarge the scope of benefit of largesse granted by State through these deductions/exemption and these exemption/deduction provisions are to be strictly construed and onus is on the tax-payer to establish that it falls within four corners of rigors of exemption/deduction provisions as are existing in statute. Further, with introduction of Section 10A(1A) of the 1961 Act, the deduction to SEZ unit was restricted to a period of 7 years, if it begins to manufacture or produce articles or things or computer software in SEZ during the previous year starting on or after 1st day of April 2003. Then again by Finance Act, 2003, the amendments were brought in Section 10A of the 1961 Act wherein Section 10A(1A) to Section 10A(1C) were substituted for the existing Section 10A(1A) thereby allowing deduction u/s 10A to newly set up SEZ to a total period of 10....
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....o any assessment year commencing on or after the 1st day of April, 2003, in any special economic zone, shall be hundred per cent of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, and thereafter, fifty per cent of such profits and gains for further two assessment years.] The following sub-sections (1A) to (1C) shall be substituted for the existing subsection (1A) by the Finance Act, 2003, w.e.f. 1-4-2004 : (1A) Notwithstanding anything contained in sub-section (1), the deduction, in computing the total income of an undertaking, which begins to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2003, in any special economic zone, shall be,- (i) hundred per cent of profits and gains derived from the export of such articles or things or computer software for a p....
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.... which the amount was so utilised; or (ii) in a case referred to in clause (b), in the year imme-diately following the period of three years specified in sub-clause (i) of clause (a) of sub-section (1B), and shall be charged to tax accordingly. (2) This section applies to any undertaking which fulfils all the following conditions, namely :- (i) it has begun or begins to manufacture or produce arti-cles or things or computer software during the previous year relevant to the assessment year- (a) commencing on or after the 1st day of April, 1981, in any free trade zone; or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park; (c) commencing on or after the 1st day of April, 2001 in any special economic zone; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertak....
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....previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,- (i) section 32, section 32A, section 33, section 35 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years 7a[ending before the 1st day of April, 2001], in rela-tion to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accord-ingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduc-tion; (ii) no loss referred to in sub-section (1) of section 72 or sub-section....
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....red by any means, the deduction under sub-section (1) shall not be allowed to the assessee for the assessment year relevant to such previous year and the subsequent years. [(9A) Notwithstanding anything contained in sub-section (9), where as a result of reorganisation of business, a firm or a sole proprietary concern is succeeded by a company and the ownership or beneficial interest in the undertaking of the firm or the sole proprietary concern is transferred to the company, the deduction under sub-section (1) in respect of such undertaking shall be allowed to the company, as the same would have been allowed to such firm or sole proprietary concern, as the case may be, if the reorganisation had not taken place: Provided that,- (a) in the case of a firm, the aggregate of the shareholding in the company of the partners of the firm is not less than fifty-one per cent of the total voting power in the company and their shareholding continues to be as such for the period for which the company is eligible for deduction under this section; (b) in the case of a sole proprietary concern, the shareholding of the sole proprietor in the company is not less th....
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....to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; (v) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; (vi) "relevant assessment year" means any assessment year falling within a period of ten consecutive assessment years referred to in this section; (vii) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Indus-try; (viii) "special economic zone" means a zone which the Central Government may, by notification in the Official Gazette, specify as a special economic zone for the purposes of this section.] [Explanation 3.-For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of sof....
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.... further two assessment years. Under sub-section (9), no deduction under sub-section (1) is allowed to the assessee where the ownership or the beneficial interest in the undertaking is transferred by any means. However, this condition is not applicable where as a result of the reorganisation of the business, a firm or sole proprietary concern is succeeded by a company. It is proposed to insert the reference of sub-section (1A) in sub-section (4) of the said section. The proposed amendment is consequential in nature. It is also proposed to amend sub-section (5) so as to insert the reference of "this section" instead of "sub-section (1)". The proposed amendment is consequential in nature. These amendments will take effect retrospectively from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years. It is also proposed to omit sub-sections (9) and (9A) and Explanation 1 occurring below sub-section (9A). It is also proposed to insert a new sub-section (7A) to provide that where a company is transferred to another company under a scheme of amalgamation or demerger, the deduction shall be ....
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.... the 1961 Act of 100% of profits derived from exports for a period of ten consecutive assessment years ( except for ay: 2003-04 when deduction was restricted to 90%). The deduction u/s 10A(1) was restricted by Finance Act, 2002 with sunset clause till ay: 2009-10 , but later this limitation of sunset clause was subsequently finally extended to ay: 2011-12 by later Finance Act's and finally it is provided that no deduction u/s 10A(1) shall be provided effective from ay: 2012-13 onwards. 7.9 Then , w.e.f. 10.02.2006 vide Special Economic Zones Act, 2005, Section 10AA was inserted as well sub-section 7B was simultaneously inserted in Section 10A of the 1961 Act. The newly inserted Section 10AA read as under : "Special provisions in respect of newly established Units in Special Economic Zones. 10AA. (1) Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005, from his Unit, who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1....
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....i) of clause (a) of sub-section (2), the amount not so utilised, shall be deemed to be the profits,- (i) in a case referred to in clause (a), in the year in which the amount was so utilised; or (ii) in a case referred to in clause (b), in the year immediately following the period of three years specified in sub-clause (i) of clause (a) of sub-section (2), and shall be charged to tax accordingly : Provided that where in computing the total income of the Unit for any assessment year, its profits and gains had not been included by application of the provisions of sub-section (7B) of section 10A, the undertaking, being the Unit shall be entitled to deduction referred to in this sub-section only for the unexpired period of ten consecutive assessment years and thereafter it shall be eligible for deduction from income as provided in clause (ii) of sub-section (1). Explanation.-For the removal of doubts, it is hereby declared that an undertaking, being the Unit, which had already availed, before the commencement of the Special Economic Zones Act, 2005, the deductions referred to in section 10A for ten consecutive assessment years, such Unit shal....
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....s or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the assessee. (8) The provisions of sub-sections (5) and (6) of section 10A shall apply to the articles or things or services referred to in sub-section (1) as if- (a) for the figures, letters and word "1st April, 2001", the figures, letters and word "1st April, 2006" had been substituted; (b) for the word "undertaking", the words "undertaking, being the Unit" had been substituted. (9) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. Explanation 1.-For the purposes of this section,- (i) "export turnover" means the consideration in respect of export by the undertaking, being the Unit of articles or things or services received in, or brought i....
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....in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations. SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes. To instill confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions with the stakeholders. A number of meetings were held....
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....State Governments; * Simplified compliance procedures and documentation with an emphasis on self certification" 7.12 As could be seen from above that aforesaid SEZ Act, 2005 was brought into statute to promote exports, bring in large foreign investments in India and to make SEZ as an engine for economic growth supported by quality infrastructure and complemented by an attractive fiscal package both by Central and state Governments. The objective was to instill confidence in investors and signal Government Commitment to a stable SEZ policy with a view to achieve greater economic activity and employment through establishment of SEZ's. Preamble to SEZ Act, 2005 provides that it is an Act to provide for establishment , development and management of the SEZ for the promotion of exports and for matters connected therewith or incidental thereto. The SEZ Act, 2005 vide Section 2(za) read with Section 2(k) while defining SEZ also included existing SEZ's which were in existence on or before commencement of the 2005 Act . The SEZ Act, 2005 vide Section 2(zc) read with Section 2(l) while defining Unit in SEZ also included Units in SEZ which was set up on or before commencement of t....
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....r begins to manufacture or produce articles or things or computer software commencing on or after the 1st day of April 2006. Thus , the objective of using the word 'begun' is to exclude applicability of Section 10A to all the units in SEZ effective from insertion of Section 10AA of the 1961 Act and henceforth provisions of Section 10AA shall be applicable to units in SEZ, even if these units are existing units in SEZ on or before commencement of SEZ Act, 2005. We have already seen that SEZ Act, 2005 is a beneficial legislation with objective to promote exports, encourage large foreign investments , generate higher employment, develop quality infrastructure development etc and to provide fiscal incentive and stable policy regime to encourage setting up of SEZ and units in SEZ. As could be seen, Section 10AA of the 1961 Act which was inserted effective from 10.02.2006 , has three proviso which are placed after sub-section (3) to Section 10AA of the 1961 Act. The first proviso states that while computing the total income of the unit in SEZ for any assessment year, its profits and gains had not been included by application of provisions of sub-section 7B of Section 10A , the undertakin....
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.... thus will be entitled for deduction for unexpired period of ten consecutive assessment years beginning from ay: 2006-07 u/s 10A of the 1961 Act which ended on ay: 2010-11 and thereafter further deduction of 50% of profits derived from exports for further period of five years under the provisions of Section 10AA of the 1961 Act beginning with impugned assessment year 2011-12. The third proviso contains embargo that in case of conversion of EPZ or FTZ units into an SEZ unit which has already completed period of ten consecutive assessment years referred to above before the commencement of SEZ Act, 2005 and simultaneous insertion of sub-section 7B to Section 10A of the 1961 Act, wef 10.02.2006 shall not be entitled for additional period of deduction for five years as is allowed to SEZ units by provisions of Section 10AA(1)(ii) of the 1961 Act. These three provisos inserted after Section 10AA(3) of the 1961 Act read with sub-section 7B to Section 10A of the 1961 Act inserted by SEZ Act, 2005 effective from 10.02.2006 are in-fact saving clauses which have made applicable provisions of newly inserted Section 10AA to existing SEZ units under old regime which have not exhausted deductio....
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....ns, media, non-media marketing communications etc. These functionalities would require an organized marketing strategy and plans, which amounts to professional and technical services. Therefore, the services rendered would fall within the ambit of the Section 9 (1} (vii) wherein it is defined as. "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel. Further, as per explanation to Section 9 (2) inserted by Finance Act w.r.e.f 1/6/1976, 'Business connection' (Place of permanent establishment) is not required in a case where the income is deemed to accrue as per Section 9 (1) (vii). Therefore as per Section 5 (2) r. w. s. 9 (1) (vii) of the Incometax, the payment made by the assessee to the Non-Resident is an income accrued in India. Furthermore as per Explanation 2 to Section 195 inserted by the Finance Act 2012 w.r.e.f 1/4/1962., it is stated that,, For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and t....
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....n memo of appeal filed with learned CIT(A), wherein para 8.1 and 8.2 of the appellate order passed by learned CIT(A) is reproduced hereunder: "Disallowance u/s.40(a)(i) 8.1 The Assessing officer noticed that the assessee did not deduct TDS on sales commission of Rs. 34,98,309/-. The A.R stated that these payments were made to foreign agents for services rendered outside India. The Assessing Officer concluded that the services rendered would fall within the ambit of the Section 9(l)(vii) wherein it is defined as "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel. Hence the Assessing Officer disallowed Rs. 34,98,309/-u/s.40(a)(i). 8-2 In the grounds of appeal the appellant contested as under: " 5. The Learned Assessing officer erred in law in disallowing a sum of Rs. 34,98,309/- under section 40(a)(i) for non-deduction of TDS on payments made to foreign agents as commission for services rendered outside India, treating them as payments for provision of technical knowled....
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.... Act on which tax has not been deducted. However, the word 'commission' is not specifically covered under Section 40(a)(i) of the Act and the sum is not chargeable to tax in India, Section 40(a)(i) of the Act is not applicable. Moreover, going by the nature of services rendered by way of referring the international clients to CLSA India Limited, the assessee cannot be said to have rendered any technical, managerial or consultancy services as envisaged in Explanation 2 to section 9(1)(vii) as held by the AAR in the case of Cushman and Wakefield (S) Pte Ltd., In r [2008] 305 ITR 208 (AAR-New Delhi). 7. Moreover, Section 90 of the Indian Income Tax Act provide that if a non-resident taxpayer is a tax resident of a foreign country with which India has a Double Taxation Avoidance Agreement (DTAA), then such non-resident taxpayer can apply either the provisions of the Income Tax Act or the provisions of the applicable tax treat, whichever is more beneficial to it. 8. As per article 12 of DTAA with USA, 1. The term "royalties" as used in this Article means: (a) payments of any kind received as a consideration for the use of, or the righ....
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....knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. The two agents Darrow lane Textiles Corporation, USA and the AJN Schonk BV, The Netherlands rendered no such services as mentioned in Article 12 of DTAA with USA and the Netherlands and the services rendered by them cannot be classified as technical services. From the above extracts of DTAA, it is evident that the export commission does not fall in the category of Fee for Technical Services and FTS clause is intended for specific knowledge/knowhow transfer and merely procuring orders and sales promotion will not result in any such specific knowledge transfer as envisaged under the FTS clause and hence the payments should be merely treated as business profits of the agent. Since the services were rendered outside India, the provisions of Section 5 of the Act could not be applied to the commission paid. As the foreign agent does not have any PE in India and the commission to be considered as business income, it cannot be taxed in India as per the tax treaties. For reasons cited above, commission income does not satisfy the....