Section 10A is now only effective only for SEZ units
and now become obsolete sections for other EOU units STPI etc. However,
the exemption is still disputed at
various levels for the company and hence there is necessity to have knowledge
of the section. Earlier we had discuss
the same in details and for your reference the link is given below.
Given below few more recent case judgments which
enable taxpayer to justify his 10A claim
before tax appellate.
·
Since,
Telecommunication charges and foreign
currency excluded from export turnover so To be excluded from total
turnover. Refer, July Systems and Technologies P. Ltd. v. ITO, VOL 33 PG
643. Same also confirmed in the case
of
(i)
C3 i
Support Services P. Ltd. v. Assistant CIT, VOL 33 PG 174.
(ii)
Sumtotal
Systems India P. Ltd. v. Assistant CIT, VOL 32 PG 446
(iii)
Systech
Integrators India P. Ltd. v. ITO, VOL 31 PG 697 excludes also foreign travel
expenses.
(iv)
Cognizant
Technology Services P. Ltd. .v. ACIT, 28 ITR 125.
(v)
Infotech
Enterprises Ltd. v. Addl. CIT, VOL 30 PG 542 - Softlink charges booked under
communication expenses not to be reduced from export turnover and Gains from
foreign exchange fluctuation accrued on conversion of Euro EEFC account balance
belonging to merged company into Indian rupees--Not to be reduced from profit
of business.
(vi)
Intoto
Software India P. Ltd. v. Asst. CIT, VOL 30 PG 504.
(vii)
Qualcomm
India(P) Ltd. .v. Dy.CIT, 87 DTR 259 - Foreign exchange fluctuation gain
arising on ECB loan raised by the assessee is not derived from the business of
exports of computer software and therefore, does not qualify for deduction u/s.
10A.
(viii)
Patni
Telecom Solutions P. Ltd.; ITO, 23 ITR 534 - Held issue was covered by decision
of Tribunal in ITA No. 354/Hyd/2006 for A.Y. 2000-01. Agreement, invoices and
turnover showed that assessee did not recover travelling expenses and internet charges ; there was no scope of
exclusion of such expenses from the export turnover. Appeal was dismissed
applying principles of consistency.
·
Director's
remuneration liable to be allocated among domestic unit and export oriented
unit in ratio of turnover. Refer, Millipore (India) P. Ltd. v. Deputy CIT, VOL
33 PG 508.
·
A
part of manufacturing activity of the assessee was outsourced. Raw material for
preparation of snack items was not procured and supplied by assessee. Only some
follow up action taken by assessee for packing and storing snacks was done by
the assessee. Held, this did not amount to manufacture or producing an article
or thing. Hence, assesseewas not entitled to exemption. Refer, Deepkiran Foods
P. Ltd. .v. ACIT, 361 ITR 437.
·
Process
of making jewellery amounts to manufacture and assessee is entitled to
exemption under section 10A. Refer, CIT .v. Jayshree Gems and Jewellery, 362
ITR 272.
·
Brought forward losses of non-export processing zone unit cannot be deducted
or reduced from profit/income of export processing zone unit. Refer, CIT .v.
TEI Technologies Pvt. Ltd, 361 ITR 36. . Same
also confirmed in the case of
(i)
Deputy
CIT v. Birla Soft India Ltd, VOL 32 PG 117.
(ii)
Medusind
Solutions India (P) Limited .v. ACIT, 56 SOT 177 - Deduction to be allowed
before set off of brought forward unabsorbed
losses from earlier years against the current year profits of the unit
eligible for deduction under section 10A of the Act.
(iii)
Avineon
India P. Ltd. v. Deputy CIT, VOL 29 PG 404 - Deduction under section 10A to be
computed prior to setting off losses of other industrial units.
(iv)
Himatasingike
Seide Ltd. v. CIT (SC) - Unabsorbed depreciation and business loss of same unit
brought forward from earlier years have to be set off against the profits
before computing exempt profits.
(v)
CIT
v. Ganesh Polychem Ltd, 216 Taxman 179 - Deduction under s. 10B is to be
allowed on profits of current year without setting off unabsorbed depreciation
and brought forward business losses
·
To
claim section 10B one of the condition is that unit should not be formed by reconstructing existing business.
Conversion of domestic area into EOU is not a reconstruction and hence eligible
for deduction. Refer, Super Auto Forge Ltd. v. Addl. CIT, 365 ITR 318. Same also confirmed in the case of
(i)
CIT
v. Foresee Information Systems P. Ltd., 365 ITR 355 where it was partnership
converted into company - Effect of CBDT circular 1 of 2005 dated 6-1-2005
(ii)
Woco
Motherson Elastomer Ltd. .v. DCIT, 59 SOT 147 - S.10B: Export Oriented
undertaking-Splitting up or reconstruction-Takeover of business of undertaking on slump sale cannot be
considered as reconstruction of business and concerned department has not deleted undertaking the
from the category of 100 percent EOU A part of business of MSSL comprising of
an undertaking which was engaged in manufacturing metal and plastic from rubber
was split from rest of business of MSSL and was sold to assessee. The
assessee-company took over business of said undertaking on slump sale basis.
The said undertaking was already registered as 100% Export Oriented Unit and
was eligible for benefit under section 10B. The assessee, while filing returns
of income for years under consideration, continued to claim benefit of section
10B which was rejected by the Assessing Officer on three grounds, firstly,
business of assessee was set up by splitting existing business of MSSL,
secondly, assessee company derived domestic turnover from articles or things
produced by the undertaking and, therefore, it was not a 100% EOU and, thirdly, pre-used machinery
received by assessee from MSSL far exceeded allowable limit of 20% of total
value of plant and machinery used in business of undertaking. It was noticed
from records that whole undertaking consisting of all assets and liabilities as
a going concern was acquired by assessee-company and, thus, it could not be
concluded that undertaking had been formed by re-construction of business
already in existence or assessee-company carried on business with transferred machinery or plant previously
used by another person. Also, the mere fact that some part of sale was effected
in domestic area would not disentitle assessee from claiming exemption under
section 10B unless undertaking was deleted from category of 100% EOU by
concerned Department. Therefore, the impugned order passed by Assessing Officer
was to be set aside and assessee's claim
for deduction was to be allowed.
(iii)
Exemption
cannot be denied on the ground of transfer of plant and machinery previously
used to export unit. Refer, Nagesh Chundur .v. CIT, 358 ITR 521.
·
Whether
where what was purchased by assessee as raw material and exported as handicraft
items of dried flowers and parts of
plants were totally different items and commercially known as a different
products, process involved in producing final product would be 'manufacture' in
terms of Explanation 4 to section 10B. Refer, CIT .v. Deco De Trend, 360 ITR 1
(Mad.)(HC).
·
Conversion
of raw honey procured in the market to finished product to specifications of
customer. Refer, Little Bee Impex v.
Deputy CIT, VOL 32 PG 352.
·
Assessee
is a partnership firm engaged in the business of manufacture and export of
brass items. It claimed 100 percent
export oriented undertaking. Assessee has not provided any interest or
remuneration to partners. Considering the deed of partnership AO excluded the
interest and remuneration from overall profits of business to work out profit
eligible for exemption under section 10B. CIT(A) held that as per the
partnership deed it was not mandatory to provide interest and remuneration
decided the issue in favour of assessee. Appeal by revenue the Tribunal held
that since the clauses of partnership deed did not violate prescription of
section 40(b),interest on capital and remuneration payable to partners were
admissible for deduction and were to be considered for computing profits
eligible for exemption under section 10B, therefore AO correctly excluded
interest on capital and remuneration to partners from overall profits of
business. Refer, ACIT .v. Meridian Impex, 60 SOT 47.
·
Assessee-company
was engaged in blending of iron ore and carried out processes to make crude
ore useable to Ispat industries, which
had a different appearance, use, name and chemical composition, it amounted to
manufacture as per section 2(29BA), and therefore, deduction under section 10B
could not be denied on ground that
no Manufacturing activity was carried on
by assessee. Where assessee had infused new capital in existing units and value
of existing plant was much below threshold limit of 20 per cent required for
substantial investment for setting up of new unit for purpose of section 10B,
deduction could not be denied on ground that assessee had not set up a new
unit. Refer, Sesa Goa Ltd. .v. JCIT, 60
SOT 121.
·
Some
members of partnership firm were director of a closely held company and some
workmen working in assessee's firm deal were also working in said company.
Though both were engaged in similar line of export, while company dealt with
low end products, assessee firm dealt with high end products. Further firm was
constituted with capital contribution by partner's personal fund . On the facts
the court held that it could not be said that assessee-firm was a mere
splitting up of business of company and, thus, relief under section 10B could
not be denied. Refer, CIT .v. Deco De Trend, 217 Taxman 179.
·
The
orders of the lower authorities were based on the order passed by the Tribunal
for the AY 1994- 95 and there were no materials placed before the court to
contend that the assessee had violated the conditions of licence, thereby
disentitling the assessee to the benefit of deduction under section 10B. Hence,
the assessee was entitled to the exemption under section 10B for all the four
assessment years. Refer, CIT .v. Relco P. Ltd, 359 ITR 291.
·
Assessee was an export oriented undertaking
engaged in printing and export of books. After receipt of manuscripts from
abroad, assessee had to do typesetting,
ake/process/print on paper and then bind printed pages into books. Held,
“books” are articles or things and the process involved by assessee was
certainly production, if not manufacture, for purpose of deduction under
section 10B. Refer, Replika Press (P.) Ltd. .v. DCIT, 218 Taxman 399.
·
Where
the assessee raised an additional ground before the Appellate Tribunal claiming
exemption for the enhanced business income under section 10A, held that the
additional ground raised by the assessee before the Tribunal was to be admitted
as there was a reasonable cause for not raising the issue before the lower authorities. The issue
related to treatment of disallowance by the Assessing Officer while computing
the income to be considered for exemption under section 10A and those additions
made by the Assessing Officer would form part of the assessed income. The
inflated business income on account of disallowance of expenditure qualified
for deduction under section 10A. Refer, Brigade Global Services P. Ltd. .v. ITO,
28 ITR 411.
·
The
assessee originally claimed relief under section 10B and alternative relief was
claimed under section 10A. The Court held that what is prohibited in section
10A(2)(iii) is the transfer of used machinery and plant to a new business
undertaking and forming of an industrial undertaking by splitting or
reconstruction of the existing industrial undertaking. There is no specific
prohibition or even inference to an industrial unit formed by transfer of the
entire business. In 2001, KGISL, which enjoyed exemption under section 10A,
transferred the entire undertaking
engaged in the export business of medical transcription along with all
transcriptions contracts, books, records, all rights, all permits, all
warrants, including computer software to the assessee. The transfer was
recognised and allowed by the Software Technology Park of India. By reason of
the transfer of the entire business, the employees of the transferor company
engaged in medical transcription were also transferred and employed by the
assessee. Held, the assessee was entitled to exemption u/s 10A.As the relief
was granted under section 10A, the assessee was not entitled to the relief under
section 80HHE. Refer, CIT .v. Heartland KG Information Ltd., 359 ITR 1.
·
Unfinished
handicraft goods and applied various processes and producing finished
handicrafts-Eligible for exemption. Refer, ITO .v. Makers Mart, 94 DTR 385
(Jd.)(Trib.).
·
Since
no export was made prior to date of registration under Software Technology
Parks of India even though manufacture commenced before registration, the unit
was entitled to deduction. Refer, CIT .v. Expert Outsource P. Ltd, 358 ITR 518.
·
Deduction
was claimed by assessee on branch sales. CIT(A) and ITAT had denied deduction
to assessee. Assessee claimed that branch sales be considered as head office
sales and should be considered as exports. The Tribunal held that, section 10B
speaks only of exports out of India, irrespective of the purchases. Term
"exports out of India" was not defined in Act and it means transfer
of goods physically out of territory of India. Concept of ‘deemed exports’ as
claimed by assessee in export policy, cannot be imported into IT Act unless Act
specifically says so. Assessee goods was not physically exported out of India.
Condition precedent for claiming deduction u/s 10B was not satisfied by
assessee. Assessee’s application was dismissed. Refer, Seven Hills Business
Solutions v. ACIT, 56 SOT 32.
·
Exemption
cannot be allowed on training fees received from professionals, who were
neither employees nor in any way associated with business. Refer, Penta Media
Graphics Ltd. v. ACIT, 217 Taxman 117.
·
Excess
sale proceeds received by assessee due to exchange rate fluctuation in foreign
currency is income from export activity and is eligible for exemption under
section 10A./ Assessee is not entitled to exemption under section 10A in
respect of deemed export to another
Special Economic Zone. Refer, ITO v Electronic Controls & Discharge
Systems (P.) Ltd., 58 SOT 59.
·
Foreign
currency expenditure incurred on software development is to be excluded from
export turnover while computing deduction under sections 10A and 80HHE. Foreign
currency expenses which are not related to onsite software development cannot
be excluded from export turnover for purpose of computing deduction under
sections 10A and 80HHE./ Where assessee had kept deposits with Bank and earned
some interest income which has nothing to
do with business of assessee, same was to be treated as income from
'other sources', and benefit of deduction under section 10A could not be given
to interest income. Refer, Polaris Software Lab v. Add.CIT, 58 SOT 81.
·
The
Assessee Company is engaged in the business of software development, filed its
return of income for the year declaring a total income of Rs. 4,36,600.
Subsequently, the assessee filed revised return on March 31, 2005, declaring
Rs. nil income after claiming deduction under section 10B. The assessment was
completed by the Assessing Officer under section 143(3) read with section 147
determining the total income at Rs. nil. A. O. disallowed the claim of the
Assessee. Before the Commissioner of Income-tax (Appeals), the authorised
representative for the assessee submitted that the assessee had got a
clarification from the Joint Director, Software Technology Park of India,
Hyderabad, where they have clearly mentioned that they have the power to grant
approval and their approval is eligible to get exemption under section 10B of
the Act. on that basis CIT(A) allowed claim of assessee. where assessee did not
produce necessary material before Assessing Officer for consideration on having
identical issue, it was just and proper to set aside order of Commissioner
(Appeals) and remit matter back to Assessing Officer for passing a de novo
order. Refer, ITO v. Singularity Software (India) (P.) Ltd, 143 ITD 483.
·
Provisions
of section 14A are not attracted in the case of the unit suffering losses
eligible for deduction under section 10B and further the assessee is entitled
to set off of loss of STP unit under section 10B against other business income.
Refer, Sandoz P. Ltd. v. DCIT, 25 ITR 347.
·
Held,
plants were supplied in the form of sub-assemblies and components after
manufacturing them or after getting them manufactured in accordance with the
prescribed specifications. These sub-assemblies and components were
manufactured outside and transported to the exports processing zone and
thereafter, certain operations were carried out and disassembling was done
prior to export of the subassemblies and components to the ultimate
destination. This process was required for containerisation and packing of
these items on account of their size which was a necessary process for
transportation and installation. The assessee was engaged in the manufacturing
and assembling the plants which were disassembled for export. Hence, the
assessee was entitled to deduction under s. 10B. Refer, Aar Ess Exim P. Ltd. v.
ITO, 25 ITR 14.
In case you have any further
clarification, feel free to contact me at taxbymanish@yahoo.com or else you can view more articles & news related to Indian tax
& finance at http://taxbymanish.blogspot.in/.
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