Classic Linen International Pvt Ltd., CHENNAI V. DCIT Corporate Circle 1(2), CHENNAI

ITA 2406/CHNY/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1762 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 29-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Assessee Lawyers: RAGHUNATHAN S
• Keywords: Business income; Depreciation; Double taxation relief; Opportunity of being heard; Services rendered outside India; Permanent establishment; Date of conversion; Competent authority; Scheme of amalgamation; TDS; Set aside
• Section: 143(3); 10AA; 195; 80HH; 143(2); 208; 43; 48; 73; 72; 13; 27; 90

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.2406/CHNY/2017 $ $ /ASSESSMENT YEAR: 2011-12 M/S.CLASSIC LINENS INTERNATIONAL PVT. LTD., UNIT 13 & 14, SDF III, PHASE II, MEPZ TAMBRAM, CHENNAI-600 045. V . THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(2), CHENNAI. [PAN: AABCC 3510 F ] ( ' /APPELLANT) ( ()' /RESPONDENT) ' * / APPELLANT BY : MR.RAGHUNATHAN.S, ADV. ()' * /RESPONDENT BY : MR.M.SRINIVASA RAO, CIT * /DATE OF HEARING : 16.09.2019 * /DATE OF PRONOUNCEMENT : 11.12.2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY ASSESSEE AGAINST APPELL ATE ORDER DATED 02.08.2017 PASSED BY LEARNED COMMISSIONER OF INCOM E TAX (APPEALS)-5, CHENNAI (HEREINAFTER CALLED AS THE CIT(A)) IN ITA NO.74/CIT(A)-5/2014- 15 FOR ASSESSMENT YEAR(AY) 2011-12, THE APPELLATE P ROCEEDINGS BEFORE LEARNED CIT(A) HAD ARISEN FROM ASSESSMENT ORDER DAT ED 07 TH MARCH 2014 PASSED BY LEARNED ASSESSING OFFICER ( HEREINAFTER C ALLED THE AO ) U/S 143(3) OF THE INCOME-TAX ACT,1961( HEREINAFTER CALL ED THE ACT) . ITA NO.2406/CHNY/2017 :- 2 -: 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL IN MEMO OF APPEAL FILED WITH INCOME TAX APPELLATE TRIBUNAL , 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 ASSES SEE 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 HEARIN G DATE AND THE MATTER WAS ADJOURNED BY THE LEARNED CIT (A) ON VARIOUS DAT ES, 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 E RRED IN DENYING THE BENEFIT OF DEDUCTION UNDER SECTION 10AA OF THE INCO ME 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 RESPECTIN G THE HON'BLE ITAT ORDER IN THE ASSESSEES OWN CASE IN THE EARLIER YEA R. 5. THE APPELLANT CRAVES TO RAISE ANY OTHER APPROPR IATE GROUND AT THE TIME OF HEARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS IN THE BUSINESS OF MANUFACTURING PILLOWS AND CUSHIONS. THE FIRST ISSUE CONCERNS ITSELF WITH DISALLOWANCE OF DEDUCTION TO THE TUNE OF RS. 47,19, 678/- U/S.10AA OF THE 1961 ACT BY BOTH THE AUTHORITIES BELOW. THE ASSESS EE IN ITS RETURN OF INCOME FILED WITH REVENUE CLAIMED DEDUCTION U/S 10A A OF THE 1961 ACT TO THE TUNE OF RS. 47,19,678/-. THE CASE OF ASSESSE WAS SELECTED BY RE VENUE FOR FRAMING SCRUTINY ASSESSMENT U/S 143(3) READ WIT H SECTION 143(2) OF THE 1961 ACT. THE ASSESSEE DURING THE COURSE OF ASS ESSMENT PROCEEDINGS CONDUCTED BY AO U/S 143(3) READ WITH SECTION 143(2) OF THE 1961 ACT, FILED FORM NO. 56F BEFORE THE AO, WHEREIN IT IS STA TED THAT INITIAL DATE OF REGISTRATION OF BUSINESS UNDERTAKING OF THE ASSESSE E IN MEPZ IS 30.08.2000 AND DATE OF COMMENCEMENT OF MANUFACTURE OF PRODUCTION IS 09.12.2000. THUS, THE AO OBSERVED THAT THIS IS 11 TH CONSECUTIVE YEAR IN WHICH ASSESSEE HAS CLAIMED DEDUCTION. THE AO OBSERV ED THAT ASSESSEE ITA NO.2406/CHNY/2017 :- 3 -: HAS CLAIMED DEDUCTION U/S 10A FOR TEN CONSECUTIVE A SSESSMENT YEARS FROM AY:2001-01 TO AY: 2010-11, WHILE IN THIS YEAR UNDER CONSIDERATION VIZ. 2011-12 , THE ASSESSEE HAS CLAIMED DEDUCTION U/S 1 0AA OF THE 1961 ACT. THE AO OBSERVED THAT AS PER PROVISIONS OF SECTION 1 0AA OF THE 1961 ACT , THE ASSESSEE CAN CLAIM DEDUCTION U/S 10AA FOR 15 CO NSECUTIVE YEARS BUT AS PER EXPLANATION IN PROVISO TO SUB-SECTION (3) OF SECTION 10AA, IT IS CLARIFIED THAT IN CASE OF UNDERTAKING WHICH HAS ALR EADY AVAILED THE BENEFIT BEFORE THE COMMENCEMENT OF THE SPECIAL ECONOMIC ZON E ACT,2005 , THE DEDUCTION REFERRED TO IN SECTION 10A FOR TEN CONSEC UTIVE ASSESSMENT YEARS, SUCH UNIT SHALL NOT BE ELIGIBLE FOR CLAIMING DEDUCTION FROM INCOME UNDER THE PROVISIONS OF SECTION 10AA OF THE 1961 AC T. THE AO SHOW CAUSED ASSESSEE WHY A SUM OF RS. 47,19,678/- CLAIMED AS DEDUCTION U/S 10AA OF THE 1961 ACT BY THE ASSESSE SHOULD NOT BE D ISALLOWED. THE ASSESSEE IN REPLY THEREOF SUBMITTED BEFORE THE AO A S UNDER: WE ARE GIVING BELOW A DATE CHART OF CLAIM MADE BY THE ASSESSEE COMPANY IN RESPECT OF ITS OPERATIONS IN MEPZ UNIT. THE DEDUCTI ON CLAIMED VARIED BASED ON THE AMENDMENTS MADE IN THE INCOME TAX ACT. DATE OF INCORPORATION MEPZ UNIT-FEBRUARY 2000 DATE OF COMMENCEMENT OF PRODUCTION DECEMBER 2000 PARTICULARS DEDUCTION REMARKS CLAIM MADE UNDER SECTION 10A(1) 100% DEDUCTION FOR ASSESSMENT YEARS 2001-02, 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 (4 TH AND 5 TH 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 ITA NO.2406/CHNY/2017 :- 4 -: 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 READ S AS FALLOWS- EXPLANATION- FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT AN UNDERTAKING, BEING THE UNIT WHICH HAD ALREADY AVAILED, BEFORE TH E COMMENCEMENT OF THE SPECIAL ECONOMIC ZONES ACT, 2005, THE DEDUCTION REFERRED TO IN SECTION 10A FOR TEN CONSECUTIVE ASSESSMENT YEARS. UNIT SHALL NOT BE ELI GIBLE FOR DEDUCTION FROM INCOME UNDER THIS SECTION. THE PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS NEED TO BE SEEN ONLY AS BEFORE COMMENCEMENT OF THE SPECIAL ECONOMIC ZONE ACT 2005. AS ON THE COMMENCEMENT OF ASSESSMENT YEAR 2006-07, WHICH IS THE EFFECTIVE DATE OF OPERATION OF SEC.10AA, THE UNIT HAS JUST CL AIMED DEDUCTION UNDER SECTION 10A ONLY FOR FIVE ASSESSMENT YEARS AND THEREFORE, I S ENTAILED FOR DEDUCTION UNDER SECTION 10AA. THE HISTORY OF INTRODUCTION OF SECTION 10AA MAY BE RECALLED. THE SPECIAL ECONOMIC ZONE ACT 2005 ('THE SEZ ACT) HAS INSERTED THE ABOVE SECTION 10AA INTO INCOME TAX ACT 1961 (AS AN EXTERNAL ACT.) THE MOST IMPORTANT F UNDAMENTAL LEGAL PRINCIPAL THAT GOVERNED THROUGH THE SEZ ACT WAS THAT THE SEZ ACT O F 2005 OVERRIDE THE PROVISIONS OF THE OTHER TAXING STATUTES INCLUDING T HE INCOME TAX ACT, THE CENTRAL EXCISE ACT AND THE CUSTOMS ACT, AND THE TAXING STAT UTE RELEVANT TO SERVICE TAX. THIS LEGAL POSITION WAS MADE VERY CLEAR BY SECTION 51 OF THE SEZ ACT, WHICH STATED AS UNDER. THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT NOTWIT HSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME B EING IN FORCE OR IN ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY LAW OTHER THAN THIS ACT. THE SEZ ACT, 2005 (28 OF 2005) VIDE SECTION 27 STAT ED: THE PROVISIONS OF THE INCOME-TAX ACT, 1961, AS IN F ORCE FOR THE TIME BEING, SHALL APPLY TO, OR IN RELATION TO, THE DEVELOPER OR ENTRE PRENEUR FOR CARRYING ON THE AUTHORIZED OPERATIONS IN A SPECIAL ECONOMIC ZONE OR UNIT SUBJECT TO THE MODIFICATIONS SPECIFIED THE SECOND SCHEDULE. THIS IMPLIED THAT PROVISIONS OF INCOME-TAX ACT, 196 1 WOULD APPLY WITH CERTAIN MODIFICATIONS IN RELATION TO DEVELOPERS AND ENTREPR ENEURS AS DEFINED IN THE SEZ ACT, 2005. THERE WERE DOUBTS EXPRESSED BY SOME TAX COUNSELS THAT THERE WERE CERTAIN LACUNAS, AS SEZ ACT PROVIDED DEFERENT EXPRE SSIONS (THE SECOND SCHEDULE OF THE SEZ ACT CLEARLY STATED MODIFICATIONS TO THE INC OME-TAX ACT, 1961 WHILE THE THIRD SCHEDULE OF THE SEZ ACT STATES 'AMENDMENT TO CERTAIN ENACTMENTS, WHICH IN LEGAL PARLANCE ARE NOT AT PAR). THE COUNSELS DISCOU RAGED APPLYING DIRECTLY THE PROVISIONS OF SECTION 10AA AS INTRODUCED BY THE SAI D SEZ ACT UNLESS THE SECTION STANDS JUDICIALLY NOTICED UNDER INCOME TAX ACT BY A FINANCE BILL. THE ASSESSES, BASED ON THE COUNSELS ADVISE, 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 A CT NOTED THE AMENDED ITA NO.2406/CHNY/2017 :- 5 -: PROVISIONS OF SEZ ACT, WHILE THE HON'BLE FINANCE MI NISTER, MR P.CHIDAMBAROM, WENT AHEAD AND PROVIDED FOR CERTAIN AMENDMENTS THER EIN THROUGH INCOME TAX ACT TO THE SAID SECTION 10AA (WITHOUT MAKING ANY AMENDM ENT IN THE SAID SECTION UNDER THE SEZ ACT), THE FACTS TO BE NOTED ARE:- EVEN THOUGH THE COMPANY SHOULD HAVE CLAIMED 100% FO R 10 ASSESSMENT YEAR TILL A.Y 2010-11. HOWEVER IN VIEW OF CHANGE IN THE CHARA CTER 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 E XCESS DEDUCTION HAS BEEN EVER CLAIMED'. 3.2 THE AO AFTER CONSIDERING REPLY FILED BY ASSESSE E , REJECTED CLAIM OF THE ASSESSEE,VIDE ASSESSMENT ORDER DATED 07.03.2014 PAS SED 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 TH E UNIT BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR PROVIDE ANY SERVICES DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2006-07 ONWARDS. IN THE PRESENT CA SE THE ASSESSEE HAS BEGAN MANUFACTURE IN PREVIOUS YEAR RELEVANT TO A.Y. 2001- 02. THEREFORE, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 10AA. FURTHER, PROVISIO TO SECTION 10AA (3) READS AS UNDE R., PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNIT FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED B Y APPLICATION OF THE PROVISIONS OF SUB-SECTION (7B) OF SECTION 10A, THE UNDERTAKING, B EING THE UNIT SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY F OR THE UNEXPIRED PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS AND THEREAFTER IT SHAL L BE ELIGIBLE FOR DEDUCTION FROM INCOME AS PROVIDED IN CLAUSE (II) OF SUB-SECTION (1 ). EXPLANATIONFOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT ON UNDERTAKING, BEING THE UNIT, WHICH HAD ALREADY AVAILED, BEFORE T HE COMMENCEMENT OF THE SPECIAL ECONOMIC ZONES ACT, 2005, THE DEDUCTIONS RE FERRED TO IN SECTION 10A FOR TEN CONSECUTIVE ASSESSMENT YEARS, SUCH UNIT SHALL N OT BE ELIGIBLE FOR DEDUCTION FROM INCOME UNDER THIS SECTION: THEREFORE, FIRST PROVISO TO SECTION 10AA (3) CLEARL Y STATES THAT THE DEDUCTION IS ONLY FOR THE UNEXPIRED PERIOD AND EXPLANATION BELOW SUCH PROVISO IS TO CLARIFY THE PROVISO IE., IF A UNIT HAS ALREADY AVAILED DEDUCTIO N IN 10 YEARS, SUCH UNIT WILL NOT BE ELIGIBLE AT ALL. AN EXPLANATION WILL ONLY CLARIF Y THE PROVISIONS OF THE ACT AND IT WILL NOT CONFER ANY ADDITIONAL BENEFIT/MAKE NEW LEV Y. FURTHER, SECOND PROVISIO TO SECTION 10AA (3) READS AS UNDER, PROVIDED FURTHER THAT WHERE A UNIT INITIALLY LOCATE D IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIA L ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCES SING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CONSECUTIVE ASSESS MENT YEARS REFERRED TO ABOVE SHALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH ITA NO.2406/CHNY/2017 :- 6 -: THE UNIT BEGAN TO MANUFACTURE, OR PRODUCE OR PROCES S SUCH ARTICLES OR THINGS OR SERVICES IN SUCH FREE TRADE ZONE OR EXPORT PROCESSI NG ZONE. THEREFORE, SECOND PROVISO TO SEC.10AA(3) CLEARLY ST ATES THAT, IN THE CASE OF CONVERSION OF FTZ OR EPZ TO SEZ, PERIOD OF 10 YEARS WILL BE COUNTED FROM THE PREVIOUS YEAR IN WHICH THE UNIT BEGINS TO MANUFACTU RE OR PRODUCE ARTICLES OR THINGS - WHICH IS A.Y. 2001-02 IN THIS CASE. FURTHER, THIRD PROVISIO TO SECTION 10AA (3) READS A S UNDER PROVIDED ALSO THAT WHERE A UNIT INITIALLY LOCATED I N ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIA L ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCES SING ZONE INTO A SPECIAL ECONOMIC ZONE AND HAS COMPLETED THE PERIOD OF TEN C ONSECUTIVE ASSESSMENT YEARS REFERRED TO ABOVE, IT SHALL NOT BE ELIGIBLE F OR DEDUCTION FROM INCOME AS PROVIDED IN CLAUSE (II) OF SUB-SECTION (1) WITH EFF ECT FROM THE 1ST DAY OF APRIL, 2006. THUS THE, THIRD PROVISO IS ONLY TO CLARIFY THE SECO ND PROVISO I.E., IF A UNIT HAS ALREADY AVAILED DEDUCTION IN 10 YEARS, SUCH UNIT WI LL NOT BE ELIGIBLE AT ALL. THEREFORE, IN VIEW OF THE DISCUSSION AS ABOVE, IT I S 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 OR DER 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 PLEASED TO DISMISS APPEA L OF THE ASSESSE, VIDE APPELLATE ORDER DATED 02.08.2017 PASSED BY LEARNED CIT(A). THE CONTENTIONS RAISED BY ASSESSEE DURING APPELLATE PRO CEEDINGS BEFORE LEARNED CIT(A) AND DECISION OF LEARNED CIT(A) ARE R EPRODUCED HEREUNDER: 5. DURING THE APPELLATE PROCEEDINGS, THE AR OF THE APPELLANT FILED WRITTEN SUBMISSION ON 11.04.2017, AS UNDER: 'A. ASSESSEE STARTED A UNIT IN MEPZ ON 21.02.2 000 AND COMMENCED PRODUCTION IN BEGINNING OF THE FINANCIAL YEAR 2001. ASSESSEE CLAIMED DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT @100% OF PROFITS DERIVED FROM EXPORTS FOR THE ASSESSMENT YEA RS 2001-02, 2002-03 (2 YEARS) THE UNIT IN MEPZ HAS BEEN LOCATED INTO SPECIAL ECON OMIC ZONE (SEZ ZONE) BY REASON OF CONVERSION OF MEPZ FROM EXPORT PROCESSING ZONE STATUS INTO SEZ ZONE WITH EFFECT FROM 01.01.2003. CONSEQUENTLY, THE ASSESSEE CONTINUED TO CLAIM DEDUC TION UNDER SEC.10A READ WITH THE PROVISIONS OF SEC. 10A(1A) FOR ASSESSMENT YEAR 2 003-04 (90%), 2004-05 AND 2005-06 (3 YEARS). THUS, IN TOTAL FOR 5 ASSESSMENT YEARS 100% DEDUCTIO N WAS CLAIMED. B. IN THE MEANTIME A NEW ACT, NAMELY, THE SPECIAL E CONOMIC ZONES ACT, 2005 (SEZ ACT) WAS INTRODUCED AND IT MODIFIED INCOME TAX BY INTRODUCING A NEW SECTION 10AA PROVIDING FOR 'SPECIAL PROVISIONS IN RESPECT O F NEWLY ESTABLISHED UNITS IN SPECIAL ECONOMIC ZONES'. THE SAID NEWLY INTRODUCED SEC.10AA WAS INTER ALIA PROVIDED FOR THE FOLLOWING: I) UNDER SUB SECTION (3) THE FOLLOWING SECOND PROVISO: PROVIDED FURTHER THAT WHERE A UNIT INITIALLY LOCATE D IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIAL ECONOMIC ZONE ITA NO.2406/CHNY/2017 :- 7 -: BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CON SECUTIVE ASSESSMENT YEARS REFERRED TO ABOVE SHALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNIT BEG AN TO MANUFACTURE, OR PRODUCE OR PROCESS SUCH ARTICLES OR THINGS OR SERVI CES IN SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE: II) UNDER SUB SECTION (3) THE FOLLOWING FIRST PROVISO: PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F 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 ASSESSM ENT 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 REPR ODUCED BELOW, WAS ALSO INSERTED BY THE SEZ ACT UNDER SECTION 10A. 10A(7B) THE PROVISIONS OF THIS SECTION SHALL NOT APP LY 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 MANUFA CTURE 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 AC T) GOVERNING THE DEDUCTION FOR THE SEZ UNIT, BASED ON LEGAL ADVISE, THE ASSESSEE C OMPANY CONTINUED TO CLAIM DEDUCTION UNDER SEC.10A(1A) FOR ITS MEPZ UNIT, WHICH READ AS FOLLOWS: SEC 10A(1A) NOTWITHSTANDING ANYTHING CONTAINED IN SU B-SECTION (1), THE DEDUCTION, IN COMPUTING THE TOTAL INCOME OF AN UNDE RTAKING, WHICH BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COM PUTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO ANY ASSESSMENT YEAR C OMMENCING 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 FR OM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF FIVE CO NSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH A RTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, AND THEREAFTER, FIFTY PERCENT OF SUCH PROFITS AND GAINS FOR FURTHER TWO CONSECUTIVE ASSESSMENT YEARS, AND T HEREAFTER; (II) FOR THE NEXT THREE CONSECUTIVE ASSESSMENT YEARS , SO MUCH OF THE AMOUNT NOT EXCEEDING FIFTY PER CENT OF THE PROFIT AS IS DEBITE D TO THE PROFIT AND LOSS ACCOUNT OF THE PREVIOUS YEAR IN RESPECT OF WHICH THE DEDUCTION IS TO BE ALLOWED AND CREDITED TO A RESERVE ACCOUNT (TO BE CALLED THE 'SPECIAL ECONOM IC ZONE RE-INVESTMENT ALLOWANCE RESERVE ACCOUNT') TO BE CREATED AND UTILIS ED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE IN THE MANNER LAID DOWN IN SUB-SECTION (1B). BASED ON ABOVE PROVISIONS, THE ASSESSEE HAS CLAIMED EXEMPTION OF 50% OF THE PROFITS UNDER SECTION I0A FOR THE ASST. YEARS 2006-07 & 200 7-08 (2 YEARS) AND CONTINUED TO CLAIM FOR THE NEXT THREE ASST. YEAR 2008-09 TO 2010-11 A DEDUCTION OF 50% OF EXPORTS PROFITS HAVE BEEN CLAIMED AFTER CREATING 'SPECIAL ECONOMIC ZONE RE-INVESTMENT ALLOWANCE RESERVE ACCOUNT' TO THE EXTENT REQUIRED UNDER THE ACT, (3 Y EARS). THEREFORE, A PERIOD OF 7 YEARS WAS CLAIMED (5 YEARS 100% AND NEXT 2 CONSECUTIVE ASSESSMENT YEARS AT 50% AND FOR THE NEXT 3 CONSECUT IVE ASSESSMENT YEARS AT 50% BY CREATING SUITABLE RESERVE ACCOUNT CALLED THE 'SPECI AL ECONOMIC ZONE RE-INVESTMENT ALLOWANCE RESERVE ACCOUNT'. THE TAX DEPARTMENT ALSO ACCEPTED THE ABOVE DEDUCTIO N AND ASSESSED THE INCOME ACCORDINGLY. D. THE ASSESSEE WAS ADVISED LEGALLY ABOUT TH E PRECEDENTS ACCEPTING THE SUPREMACY OF SECTION 51 OF THE SEZ ACT. ITA NO.2406/CHNY/2017 :- 8 -: 'THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT NOTWI THSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME B EING IN FORCE OR IN ANY INSTRUMENT HAVING EFFECTIVE BY VIRTUE OF ANY LAW OT HER THAN THIS ACT.' 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 MEP Z FROM EXPORT PROCESSING ZONE STATUS INTO SEZ ZONE WITH EFFECT FROM 01.01.2003, THE ASSE SSEE STOOD BENEFITED BY THE DEDUCTION AT THE RATE 100% OF ITS PROFITS FROM THE SEZ UNIT F OR 5 YEARS AN 50% OF ITS PROFITS FROM THE SEZ UNIT ONLY FOR THE NEXT 2 YEARS AND 50% OF ITS P ROFITS FROM THE SEZ UNIT ONLY FOR THE NEXT 3 YEARS, BY FULFILLING THE CONDITIONS BY THE C OMPANY. THUS, HAVING PARALLELY COMPLIED WITH AN ALTERNATE CLAIM UNDER THE PROVISIONS OF PAR I MATERIA SEC.10AA, THE ASSESSEE SHALL COULD CONTINUE TO GET THE BENEFIT OF 50% (SUBJECT T O FULFILLING THE CONDITIONS, IF ANY, BY THE ASSESSEE COMPANY). THE DEPARTMENT REFUSED TO GIVE THE ABOVE BENEFITS A FTER 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 DEDUCT ION AT 50% OF ITS PROFITS FROM THE SEZ UNIT IN TERMS OF SECTION 10AA FOR THE ASSES SMENT YEAR 2011-12 ONWARDS. 2. IF THE DEPARTMENT WERE TO CONTEND THAT THE DEDU CTION GRANTED FROM ASSESSMENT YEARS 2001-02 TO ASSESSMENT YEAR 2010-11 WERE UNDER THE NORMAL PROVISIONS OF 5EC.10A(1) WITHOUT APPLICATION OF SEC.10A(1A), THE D EPARTMENT SHOULD HAVE ALLOWED 100% DEDUCTION FOR ALL THESE 10 YEARS. HAVI NG ACCEPTED THE STAND OF THE ASSESSEE OF RESTRICTED 50% DEDUCTION FROM AY 2006-0 7 ONWARDS, THE ASSESSEE IS NOT TO BE DENIED THE BENEFIT OF DEDUCTION FROM AY 2 011-12 ONWARDS FOR THE BALANCE PERIOD AS PER SEC.10AA. THE ASSESSEE SHOULD BE ENTITLED FOR DEDUCTION ALTER NATIVELY AND ONLY UNDER SEC.10AA IN RESPECT OF AL! THESE ASSESSMENT YEARS 2006-07 TO 20 10-11 AND THE DEPARTMENT HAVING ACCEPTED THE DEDUCTION AT THE RATE OF 50% OF ITS PR OFITS FROM THE SEZ UNIT (IN TERMS OF A NON EXISTING PROVISION UNDER SECTION 10A(1A) WHICH H AS BEEN NULLIFIED BY SECTION 10A (7B)) CANNOT DENY A RIGHTFUL DEDUCTION UNDER SEC.10AA OF 50% OF ITS PROFITS FROM THE SEZ UNIT FOR THE BALANCE 5 ASSESSMENT YEARS FROM ASSESSMENT YEAR 2011-12 ONWARDS.' 6. I HEARD THE CONTENTIONS OF THE AR AND PERUS ED THE GROUNDS OF APPEAL, ASSESSMENT ORDER, WRITTEN SUBMISSION AND MATERIAL AVAILABLE ON RECORD. MY OBSERVATIONS IN RESPECT OF THE GROUNDS RAISED BY THE APPELLANT ARE AS FOLLOWS: 7. DISALLOWANCE OF DEDUCTION U/S.10AA: 7.1 IN THE RETURN OF INCOME FOR A.Y. 2011-12, THE ASSESSEE COMPANY CLAIMED DEDUCTION U/S.10AA FOR A SUM OF RS.47,19,678/-. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 10A FOR TEN CONSECUTIVE ASSESSMEN T YEARS FROM AY 2000-01 TILL AY 2010-11 AND IN THE A.Y 2011-12 THE ASSESSEE CLAI MED DEDUCTION UNDER SECTION 10AA. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSE SSEE FOR DEDUCTION U/S 10AA AS THE ASSESSEE HAD ALREADY AVAILED DEDUCTION FOR 10 YEARS . 7.2 IN THE GROUNDS OF APPEAL THE APPELLANT CONTEST ED AS UNDER: '2. THE LEARNED ASSESSING OFFICER ERRED IN LAW IN DI SALLOWING A SUM OF RS.47,19,678/- UNDER SECTION 10AA ON THE GROUNDS TH AT AN UNDERTAKING WHICH HAS ALREADY AVAILED THE BENEFIT BEFORE THE COMMENCEMENT OF THE SEZ ACT 2005, THE DEDUCTION REFERRED TO IN SECTION 10A FOR THE TEN CO NSECUTIVE ASSESSMENT YEARS, SUCH UNIT SHALL NOT BE ELIGIBLE FOR DEDUCTION FROM INCOM E IN THIS SECTION. 3. THE COMPANY HAS CLAIMED DEDUCTION UNDER SECTION 10AA ON THE FOLLOWING GROUNDS: THE COMPANY WAS INCORPORATED IN FEBRUARY 2000 IN TA MBARAM, MEPZ CHENNAI, WHICH WAS LATER CONVERTED INTO SEZ AND COMMENCED THE PRODUCTI ON IN DECEMBER 2000. THE COMPANY HAD CLAIMED DEDUCTION UNDER THE INCOME TAX ACT IN T HE 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% DEDUCT ION AS PER SECTION 10A(1) TILL THE ASSESSMENT YEAR 2010-2011. ITA NO.2406/CHNY/2017 :- 9 -: IN THE MEANWHILE, THE SPECIAL ECONOMIC ZONES ACT 20 05 INSERTED SECTION 10AA EFFECTIVE FROM 01/04/2006 AND AS PER PROVISO TO SECTION 10AA, 5 0% DEDUCTION WAS CLAIMED BY THE COMPANY FROM ASSESSMENT YEAR 2006-2007 TILL 2010-20 11 (5 YEARS) AND 50% FROM ASSESSMENT YEARS 2011-2012 FOR FIVE YEARS. EXPLANATION TO SECTION 10A STATES THAT, FOR THE REM OVAL OF DOUBTS, IT IS HEREBY DECLARED THAT AN UNDERTAKING, BEING THE UNIT, WHICH HAD ALREADY A VAILED, BEFORE THE COMMENCEMENT OF THE SPECIAL ECONOMIC ZONES ACT, 2005, THE DEDUCTION S REFERRED TO IN SECTION 10A FOR TEN CONSECUTIVE ASSESSMENT YEARS, SUCH UNIT SHALL NOT B E ELIGIBLE FOR DEDUCTION FROM INCOME UNDER THIS SECTION. THE PERIOD OF TEN CONSECUTIVE Y EARS NEED TO BE SEEN ONLY AS BEFORE COMMENCEMENT OF THE SPECIAL ECONOMICZONE ACT 2005. AS ON THE COMMENCEMENT OF ASSESSMENT YEAR 2006-07, WHICH IS THE EFFECTIVE DATE OF OPERATION OF SEC.10AA, THE UNIT HAS JUST CLAIMED DE DUCTION UNDER SECTION 10AA ONLY FOR FIVE ASSESSMENT YEARS AND THEREFORE, IS ENTITLED FOR DED UCTION UNDER SECTION 10AA. THE HISTORY OF INTRODUCTION OF SECTION 10AA MAY BE RECALLED. THE SPECIAL ECONOMIC ZONE ACT 2005 ('THE SEZ ACT) HAS INSERTED THE ABOVE SECTI ON 10AA INTO INCOME TAX ACT 1961 (AS AN EXTERNAL ACT), THE MOST IMPORTANT FUNDAMENTAL LE GAL PRINCIPLE THAT GOVERNED THROUGH THE SEZ ACT WAS THAT THE SEZ ACT OF 2005 OVERRIDE THE P ROVISIONS OF THE OTHER TAXING STATUTES INCLUDING THE INCOME TAX ACT, THE CENTRAL EXCISE AC T AND THE CUSTOMS ACT, AND THE TAXING STATUTE RELEVANT TO SERVICE TAX. THIS LEGAL POSITION WAS MADE VERY DEAR BY SECTION 5 1 OF THE SEZ ACT, WHICH STATED AS UNDER; 'THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME B EING IN FORCE OR, IN ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY LAW OTHER THAN TH IS ACT'. THE SEZ ACT, 2005 (28 OF 2005) VIDE SECTION 27 STATE D: THE PROVISIONS OF THE INCOME-TAX ACT, 1961, AS IN FORCE FOR THE TIME BEING, SHALL APPLY TO, OR IN RELATION TO, THE DEVELOPER OR ENTREPRENEUR FOR CARRYING ON THE AUTHORIZED OPERATIONS IN A SPECIAL ECONOMIC ZONE OR UNIT SUBJE CT TO THE MODIFICATIONS SPECIFIED IN THE SECOND SCHEDULE'. THIS IMPLIED THAT PROVISIONS OF INCOME-TAX ACT, 196 1 WOULD APPLY WITH CERTAIN MODIFICATIONS IN RELATION TO DEVELOPERS AND ENTREPRENEURS AS DEFI NED IN THE SEZ ACT, 2005. THERE WERE DOUBTS EXPRESSED BY SOME TAX COUNSELS THAT THERE WE RE CERTAIN LACUNAS, AS SEZ ACT PROVIDED DIFFERENT EXPRESSIONS (THE SECOND SCHEDULE OF THE SEZ ACT CLEARLY STATED 'MODIFICATIONS TO THE INCOME-TAX ACT 1961' WHILE TH E THIRD SCHEDULE OF THE SEZ ACT STATES 'AMENDMENT TO CERTAIN ENACTMENTS', WHICH IN LEGAL P ARLANCE ARE NOT AT PAR). THE COUNSELS DISCOURAGED APPLYING DIRECTLY THE PROVISIONS OF SEC TION 10AA AS INTRODUCED BY THE SAID SEZ ACT UNLESS THE SECTION STANDS JUDICIALLY NOTICED UN DER INCOME TAX ACT BY FINANCE BILL. THE ASSESSEE, BASED ON THE COUNSEL'S ADVISE, THEREF ORE, PLACED ITS CLAIM OF SEC 10AA, UNDER THE PARI RNATERIA PROVISIONS OF SEC. 10AA(1A) ORIGIN ALLY. 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. CHIDAMBAR AM, WENT AHEAD AND PROVIDED FOR CERTAIN AMENDMENTS THEREIN THROUGH INCOME TAX ACT T O THE SAID SECTION 10AA (WITHOUT MAKING AN AMENDMENT IN THE SAID SECTION UNDER THE S EZ ACT). BY VIRTUE OF EXPLANATION AND PROVISOS TO SECTION 10 AA 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 UNI T HAS NOT CLAIMED DEDUCTION UNDER SECTION 10A(1) FOR THE PERIOD OF 10 YEARS. 4. THE LEARNED ASSESSING OFFICER FAILED TO GIVE AN O PPORTUNITY TO THE APPELLANT, BEFORE CONCLUDING, THAT THE PAYMENTS MADE TOWARDS EXPORT S ALES COMMISSION, WERE TOWARDS FEE FOR TECHNICAL SERVICES.' ITA NO.2406/CHNY/2017 :- 10 -: 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) B Y REASON OF CONVERSION OF MEPZ FROM EXPORT PROCESSING ZONE STATUS INTO SEZ ZONE WITH EF FECT FROM 01.01.2003. 7.4 PROVISO AND EXPLANATION TO SECTION 10AA(3) READ S AS UNDER: PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNIT FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICAT ION OF THE PROVISIONS OF SUB-SECTION (7B) OF SECTION 10A, THE UNDERTAKING, BEING THE UNIT SHA LL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF T EN 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 HEREB Y DECLARED THAT AN UNDERTAKING, BEING THE UNIT, WHICH HAD ALREADY AVAILED, BEFORE THE COM MENCEMENT OF THE SPECIAL ECONOMIC ZONES ACT, 2005, THE DEDUCTIONS REFERRED TO IN SECT ION 10A FOR TEN CONSECUTIVE ASSESSMENT YEARS, SUCH UNIT SHALL NOT BE ELIGIBLE FOR DEDUCTIO N FROM INCOME UNDER THIS SECTION : 7.5 THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 10 A FOR TEN CONSECUTIVE ASSESSMENT YEARS FROM AY 2000-01 TILL AY 2010-11. HENCE THE DISALLOWANCE OF CLAIM OF DEDUCTION CLAIME D U/S 10AA IS UPHELD. 5. AGGRIEVED BY AN APPELLATE ORDER DATED 02.08.2017 PASSED BY LEARNED CIT(A), THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR ASSESSEE OPENED ARGUMENTS AND SUBMITTED BEFORE US THAT ASSESSEE IS AN INDUSTRIAL UNDERTAKING ENGAGED IN TH E BUSINESS OF MANUFACTURING OF PILLOWS AND CUSHIONS. THE ASSESSE E IS LOCATED IN SEZ AND CLAIMED DEDUCTIONS U/S.10AA OF 1961 ACT. OUR A TTENTION WAS DRAWN TO PROVISO TO SEC.10AA(3) AND FURTHER TO SEC.10A(1A ) AND SECTION 10(7B) OF THE ACT, AND IT WAS SUBMITTED THAT ASSESSEE WAS ALLOWED DEDUCTION U/S.10A OF THE 1961 ACT FOR 10 YEARS FROM AY:2001- 02 TO 2005-06 @ 100% OF PROFITS FROM EXPORT OF GOODS AND FROM FOR A Y: 2006-07 TO 2010- 11 @50%. IT WAS SUBMITTED THAT ASSESSEE IS ENTITLE D FOR DEDUCTION U/S.10AA OF THE 1961 ACT FROM AY: 2011-12 FOR A PER IOD OF 5 YEARS . IT WAS SUBMITTED THAT IMPUGNED AY BEFORE THE BENCH IS 11 TH YEAR AND ASSESSEE HAS BEEN DENIED DEDUCTION U/S.10AA OF 1961 ACT. IT WAS SUBMITTED THAT DEDUCTION U/S 10AA TO THE TUNE OF 50% OF PROFITS DE RIVED FROM EXPORTS IS TO BE ALLOWED TO THE ASSESSEE. IT WAS ALSO SUBMITT ED THAT LD.CIT(A) HAS ALLOWED DEDUCTION FOR AY: 2012-13 AND 2013-14. THE SAID APPELLATE ORDERS ARE PLACED ON RECORD BEFORE THE BENCH, WHERE IN LD.CIT(A) VIDE APPELLATE ORDER DATED 16.05.2017 FOR AY: 2012-13 H AS HELD IN FAVOUR OF ASSESSEE , BY HOLDING AS UNDER: 9. I HAVE CAREFULLY CONSIDERED THE FACTS, ORDER OF THE AO, SUBMISSIONS MADE BY THE APPELLANT AND MATERIAL ON RECORD. THE DISPUTE R ELATES TO THE CLAIM OF DEDUCTION ITA NO.2406/CHNY/2017 :- 11 -: 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 I TS OPERATION IN THE MEPZ UNIT. THE MEPZ UNIT SUBSEQUENTLY WAS CONVERTED INTO A SEZ UNI T 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 THIN G. 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 MEA NWHILE, 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 RESP ECTIVELY). THEREAFTER AVAILING THE BENEFIT OFFERED IN NEW SECTION 10AA AP PLICABLE TO SPECIAL ECONOMIC ZONES (SPECIAL ECONOMIC ZONES ACT, 2005) THE APPELL ANT CLAIMED 50% OF THE ELIGIBLE PROFITS AS DEDUCTION FOR THE A.Y. 2006-07 ONWARDS TILL A.Y. 2010-11 (5 YEARS) AND AGAIN 50% FROM A.Y. 2011-12 ONWARDS FOR THE BALANCE PERIOD OF 5 YEARS U/S 10AA. 10. IN THE CASE OF THE APPELLANT IT IS AN UNDERTAKI NG WHICH HAD ALREADY AVAILED DEDUCTION U/S 10A BEFORE THE COMMENCEMENT OF THE SP ECIAL ECONOMIC ZONES ACT, 2005. FOR THIS BAR TO APPLY THE PERIOD OF 10 CONSEC UTIVE ASSESSMENT YEARS NEED TO BE SEEN ONLY AS BEFORE / PRIOR TO THE COMMENCEMENT OF THE SPECIAL ECONOMIC ZONE ACT, 2005. AS ON THE COMMENCEMENT OF THE ASSESSMENT YEAR 2006-07, WHICH IS THE EFFECTIVE DATE OF OPERATION OF S.10AA, THE UNIT HAD CLAIMED U/S 10A ONLY FOR 5 ASSESSMENT YEARS AS STATED ABOVE AND THEREFORE CLAI MED FOR THE DEDUCTION U/S 10AA THEREAFTER. IN SUM, THE APPELLANT WAS ELIGIBLE TO AVAIL DEDUCTION OF 100% OF THE PROFITS AND GAINS OF THE INDUSTRIAL UNDERTAKING FOR 10 ASSESSMENT YEARS TILL A.Y. 2010-11. HOWEVER, IN VIEW OF CHANGE IN THE CHARACTE R OF TAMBARAM MEPZ INTO SEZ ZONE, THE APPELLANT CLAIMED 100% DEDUCTION FOR 5 ASSESSMENT YEARS INITIALLY AND 50% OF THE DEDUCTION IN THE FOLLOWING 10 ASSESS MENT YEARS THEREAFTER. 11. AS REGARDS THE OBJECTION RAISED BY THE AO IN PA GE 6 OF THE ASSESSMENT ORDER WITH REGARD TO THE BAR PLACED BY THE SECOND PROVISO OF S.10AA(3) THE SAME DOES NOT APPEAR TO BE IN ALL FOURS. IT IS SO FOR THE REA SONS THAT SEC.10A(7B) INTRODUCED WITH EFFECT FROM 10.2.2006 PROVIDES THAT ANY UNDERT AKING WHICH HAD ALREADY BEGUN MANUFACTURING WILL NOT BE ELIGIBLE FOR THE DE DUCTIONS U/S.10A FROM THE AY 2006-07 ONWARDS. IN SUCH CASES, THE PROVISIONS OF S EC.10AA WILL APPLY. THE FIRST PROVISO TO THE PROVISIONS OF SEC.10AA (13) PROVIDES THAT IN SUCH CASES FOR THE UNEXPIRED PERIOD OF 10 CONSECUTIVE YEARS AND THEREA FTER IT SHALL BE ELIGIBLE FOR DEDUCTION U/S.10AA. THE SECOND PROVISO PROVIDES THA T IN SUCH CASES, THE PERIOD OF ELIGIBILITY SHALL BE RECKONED FORM THE AY RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH UNITS STARTED MANUFACTURING. WHILE IN THE CASE OF THE APPELLANT, THE MANUFACTURING STARTED IN THE PERIOD RELEVANT TO AY 2001-02. THEREFORE , UP TO AY 2005-06 THE PROVISIONS OF SEC.10A WOULD BE APPLICAB LE TO IT AND THEREAFTER THE PROVISIONS OF SEC.10AA WOULD FOLLOW FOR THE UNEXPIR ED PERIOD. 12. AS PER THE PROVISIONS OF SEC.10AA, THE ELIGIBLE DEDUCTION IS GIVEN BEING 100% FOR FIRST FIVE YEARS, 50% FOR NEXT FIVE YEARS, 50% FOR THE REMAINING FIVE YEARS, SUBJECT TO THE CONDITION PRESCRIBED THEREIN, SUCH A S, CREATION OF RESERVE ETC. THERE IS NO DISPUTE OR FINDING FROM THE AO THAT THE APPEL LANT HAS NOT FULFILLED THOSE CONDITIONS. THEREFORE, THE APPELLANT SHALL BE ELIGI BLE FOR DEDUCTION U/S.10A FROM AY 2001-02 TO 2005-06 (5 YEARS). THEREAFTER 50% U/S.10 AA FOR FIVE YEARS FOLLOWED BY 50% FOR NEXT FIVE YEARS SUBJECT TO FULFILLMENT O F CONDITIONS. IT IS PERTINENT TO NOTE THAT THE THIRD PROVISO TO SEC.10AA (3) BARS AL LOWING 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 COMPLET ED TEN YEARS OF CLAIM AS ON AY ITA NO.2406/CHNY/2017 :- 12 -: 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 DA TED 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. PRESEN TLY, WE ARE CONCERNED WITH AY: 2011-12 WHICH IS THE ELEVENTH YEAR IN WHIC H THE ASSESSE IS CLAIMING DEDUCTION AND BEING FIRST YEAR WHEN THE DE DUCTION U/S 10AA IS CLAIMED BY THE ASSESSE. THE LEARNED CIT(A) HELD AGA INST ASSESSE FOR AY: 2011-12 WHILE FOR AY: 2012-13 AND 2013-14, THE LEAR NED CIT(A) HAS ADJUDICATED THE SAME ISSUE IN FAVOUR OF ASSESSEE, W HICH WE HAVE DULY NOTED ABOVE. 6. THE LD.DR, ON THE OTHER HAND, RELIED UPON ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT ASSESSE IS NOT ELIGIBLE FOR DEDU CTION U/S 10AA OF THE 1961 ACT FOR IMPUGNED AY UNDER CONSIDERATION . IT W AS SUBMITTED THAT ASSESSE HAS ALREADY AVAILED DEDUCTION U/S 10A OF TH E ACT FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS AND NOW ASSESSE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 10AA OF THE 1961 ACT FOR FURTHER PERI OD OF FIVE YEARS AS THE ASSESSEE HAS RIGHTLY CLAIMED DEDUCTION FOR TEN CONS ECUTIVE ASSESSMENT YEARS BEGINNING FROM AY: 2001-02 TO 2010-11 U/S 10A OF THE 1961 ACT WHICH IS THE SECTION UNDER WHICH ASSESSE WAS ACTUAL LY ENTITLED FOR DEDUCTION FOR TEN CONSECUTIVE AYS BEGINNING FROM A Y: 2001-02 AND NOW ASSESSEE CANNOT CLAIM DEDUCTION U/S 10AA OF THE 196 1 ACT. 7. WE HAVE CAREFULLY CONSIDERED RIVAL CONTENTIONS A ND PERUSED MATERIAL PLACED ON RECORD INCLUDING ORDERS OF THE AUTHORITIE S RELIED UPON. WE HAVE OBSERVED THAT ASSESSEE IS IN BUSINESS OF MANUFACTUR ING AND EXPORT OF PILLOWS AND CUSHIONS. IT IS OBSERVED THAT INITIAL DATE OF REGISTRATION OF THE BUSINESS UNDERTAKING OF THE ASSESSEE FOR MANUFACTUR ING OF PILLOWS AND CUSHION IN TAMBARAM MPEZ WAS 30.08.2000 AND DATE O F COMMENCEMENT OF MANUFACTURING OF AFORESAID PRODUCTS WAS 09.12.20 00. THE ASSESSEE ITA NO.2406/CHNY/2017 :- 13 -: CLAIMED DEDUCTION U/S 10A EFFECTIVE FROM AY: 2001-0 2 FROM PROFITS DERIVED FROM EXPORT OF PILLOWS AND CUSHIONS MANUFACTURED FR OM ITS UNIT LOCATED IN TAMBARAM MEPZ. LATER, THERE WAS CONVERSION OF ASSES SEES UNIT LOCATED IN TAMBARAM MEPZ INTO AN SEZ UNIT EFFECTIVE FROM 01.01 .2003. THE ASSESSEE HAD CLAIMED AND WAS ALLOWED DEDUCTION U/S 10A OF THE 1961 ACT BY REVENUE FOR PERIOD COMMENCING FROM AY: 2001-02 T O 2010-11 VIZ. TEN CONSECUTIVE ASSESSMENT YEARS , WHILE IN THE IMPUGNE D AY: 2011-12 WHICH IS UNDER CONSIDERATION BEFORE US IS THE ELEVENTH YE AR OF CLAIM OF DEDUCTION BY THE ASSESSEE IN WHICH ASSESSEE HAD CLAIMED DEDUC TION U/S. 10AA OF THE 1961 ACT IN THE RETURN OF INCOME FILED WITH THE REV ENUE. THIS CLAIM OF DEDUCTION U/S 10AA OF THE 1961 ACT FOR IMPUGNED AY: 2011-12 WAS CONCURRENTLY DENIED/DISALLOWED BY BOTH THE AUTHORIT IES BELOW VIZ. AO AND LEARNED CIT(A) AND NOW WE ARE SEIZED OF THE MATTER AND ARE NOW CALLED UPON TO ADJUDICATE THIS ISSUE AS TO WHETHER ASSESSE E WILL BE ENTITLED FOR DEDUCTION U/S. 10AA OF THE 1961 ACT FOR AY: 2011-1 2 , 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 1 0A OF THE 1961 ACT BY REVENUE FOR TEN CONSECUTIVE ASSESSMENT YEARS BEG INNING FROM AY: 2001-02 TO AY: 2010-11. IT IS AN UNDISPUTED FACT BETWEEN RIVAL PARTIES THAT ASSESSEES UNIT WAS SET UP AND COMMENCED MANU FACTURING OF PILLOWS AND CUSHIONS IN TAMBARAM MEPZ IN PREVIOUS YEAR RELE VANT 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 F ROM EXPORT OF PILLOWS AND CUSHIONS WERE CLAIMED AND ALLOWED BY REVENUE U/ S 10A OF THE 1961 ACT, WHILE FOR NEXT FIVE YEARS, DEDUCTION @50% OF P ROFITS DERIVED FROM ITA NO.2406/CHNY/2017 :- 14 -: EXPORT OF PILLOWS AND CUSHIONS WERE CLAIMED BY ASSE SSEE AND WAS ALLOWED BY REVENUE U/S 10A OF THE 1961 ACT. THE ASSESSEE HA S ALSO CLAIMED THAT IT CREATED RESERVES AS ARE CONTEMPLATED U/S 10A(1A)(II ) OF THE 1961 ACT FOR THE 8 TH -10 TH YEAR OF ITS CLAIM OF DEDUCTION U/S 10A OF THE 1961 ACT. THUS, IN NUTSHELL THE ASSESSEE SUBMITTED THAT OWING TO CONVE RSION OF ITS EPZ UNIT TO SEZ UNIT EFFECTIVE 01.01.2003, IT DID NOT CLAIM DED UCTION OF 100% OF PROFITS DERIVED FROM EXPORT OF PILLOWS AND CUSHIONS FOR TEN CONSECUTIVE ASSESSMENT YEAR AS IS CONTEMPLATED U/S 10A(1) OF TH E 1961 ACT BUT THE ASSESSEE RELIED UPON AND COMPLIED WITH PROVISIONS OF SECTION 10A(1A) OF THE 1961 ACT TO CLAIM DEDUCTION FROM THE PROFITS ON EXPORT OF PILLOWS AND CUSHIONS OF 100% OF PROFITS DERIVED FROM EXPORT OF PILLOWS AND CUSHIONS FOR FIRST FIVE YEARS AND THEREAFTER CLAIMED DEDUCTI ON @50% OF PROFITS DERIVED FROM EXPORT OF PILLOWS AND CUSHIONS . THIS DEDUCTION AS CLAIMED BY ASSESSEE U/S 10A OF THE 1961 ACT WERE ALLOWED BY REVENUE UNTIL AY: 2010-11. IT IS ONLY IN THIS ELEVENTH YEAR VIZ. IMPU GNED AY: 2011-12 WITH WHICH WE ARE PRESENTLY SEIZED WITH, THE ASSESSEE IN VOKED PROVISIONS OF SECTION 10AA OF THE 1961 ACT FOR THE FIRST TIME TO CLAIM BENEFIT OF DEDUCTION TO THE TUNE OF 50% OF THE PROFITS DERIVED FROM EXPORT OF PILLOWS AND CUSHIONS, WHICH CLAIM OF THE ASSESSEE WAS REPEL LED BY REVENUE AUTHORITIES BOTH BY AO AS WELL LEARNED CIT(A) AND S AID DEDUCTION CLAIMED BY ASSESSEE U/S 10AA STOOD DISALLOWED FOR IMPUGNED AY: 2011-12. HOWEVER, IT IS MATTER OF RECORD THAT LEARNED CIT(A) WAS PLEASED TO ALLOW BENEFIT OF DEDUCTION U/S 10AA TO THE ASSESSEE FOR I MMEDIATELY SUCCEEDING AYS: 2012-13 AND 2013-14 WHILE ADJUDICATING FIRST APPEAL OF THE ASSESSEE. THIS IS PURELY A LEGAL ISSUE WHICH REQUIRES INTERPR ETATION OF LAW APPLIED TO AS FACTS ARE UNDISPUTED AND ADMITTED AND THERE IS N O DISPUTE SO FAR AS FACTS ARE CONCERNED BETWEEN RIVAL PARTIES. THE QUE STION OF LAW WHICH IS TO BE ADJUDICATED IS AS TO WHETHER THE ASSESSEE ON FAC TS AND CIRCUMSTANCES OF THE CASE IS ENTITLED TO DEDUCTION U/S 10AA OF TH E 1961 ACT FOR IMPUGNED AY: 2011-12 WHICH IS ELEVENTH YEAR OF COMMENCEMENT OF PRODUCTION. BEFORE WE PROCEED FURTHER IT IS IMPORTANT TO REPROD UCE RELEVANT PROVISIONS ITA NO.2406/CHNY/2017 :- 15 -: OF SEC. 10A AND 10AA OF THE 1961 ACT AS WERE IN FOR CE FROM TIME TO TIME DURING THE RELEVANT 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 TH IS SECTION APPLIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. (2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTAK ING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY: [(I) IT HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODU CE ARTICLES OR THINGS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR (A) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 19 81, IN ANY FREE TRADE ZONE; OR (B) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 19 94, IN ANY ELECTRONIC HARDWARE TECHNOLOGY PARK OR, AS THE CASE MAY BE, SOFTWARE TE CHNOLOGY 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 XPORTS OF SUCH ARTICLES OR THINGS ARE NOT LESS THAN SEVENTY-FIVE PER CENT OF THE TOTAL SALES THEREOF DURING THE PREVIOUS YEAR;] (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE R ECON-STRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF ANY INDUSTRIAL UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECO NSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN TH AT SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION.THE PROVISIONS OF EXPLANATION 1 AND EX PLANATION 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 PUR-POSES OF CLAUSE (II) OF THAT SUB-SECTIO N. [(3) THE PROFITS AND GAINS REFERRED TO IN SUB-SECT ION (1) SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE IN RESPECT OF ANY [TEN] CONS ECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS. (4) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YE AR RELEVANT TO THE ASSESSMENT YEAR ITA NO.2406/CHNY/2017 :- 16 -: IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASS ESSMENT 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 DED UCTION REFERRED TO THEREIN AND RELATING TO OR ALLOWABLE FOR ANY OF THE RELEVANT ASSESSMENT YEARS, IN RELATION TO ANY BUILDING, MACHINERY, PLANT OR FURNITURE USED FOR THE PURPOSES OF THE BUSINESS OF THE INDUSTRIAL UNDERTAKING IN THE PREVIOUS YEAR RELEVANT TO SUCH A SSESSMENT 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 ACCOR DINGLY SUB-SECTION (2) OF SECTION 32, CLAUSE (II) OF SUB-SECTION (3) OF SECTION 32A, CLAU SE (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 SECT ION 72 OR SUB-SECTION (1) 8 [OR SUB- SECTION (3)] OF SECTION 74 AND NO DEFICIENCY REFERR ED 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 8 0HH OR SECTION 80HHA OR SECTION 80-I [OR SECTION 80-IA] [OR SECTION 80-IB] OR SECTION 80 J 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 AC TUALLY ALLOWED THE DEDUC-TION IN RESPECT OF DEPRECIATION FOR EACH OF THE RELEVANT AS SESS-MENT YEARS. (5) WHERE AN INDUSTRIAL UNDERTAKING IN ANY FREE TRA DE ZONE HAS BEGUN TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS IN ANY PREVIOUS YEAR REL EVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1977, BUT BEFORE THE 1ST DAY OF APRIL, 1981, THE ASSESSEE MAY, AT HIS OPTION, BEFORE THE EXPIRY OF THE TIME ALLOWED UNDER SUB-SECTION (1) OR SUB-SECTION (2) OF SECTION 139, WHETHER FIXE D ORIGINALLY OR ON EXTENSION, FOR FURNISHING THE RETURN OF INCOME FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1981, FURNISH TO THE 11 [ASSESSING OFFICER] A DECLARATION IN WRITING THAT THE PROVISIONS OF SUB-SECTION (1) MAY BE MADE APPLICABL E TO HIM FOR EACH OF THE RELEVANT ASSESSMENT YEARS AS REDUCED BY THE NUMBER OF ASSESS MENT YEARS WHICH EXPIRED BEFORE THE 1ST DAY OF APRIL, 1981, AND IF HE DOES SO, THEN THE PROVI-SIONS OF SUB-SECTION (1) SHALL APPLY TO HIM FOR EACH OF SUCH RELEVANT ASSESSMENT Y EARS AND THE PROVISIONS OF SUB- SECTION (4) SHALL ALSO APPLY IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEARS AND ANY SUBSEQUENT ASSESSMENT YEAR. (6) THE PROVISIONS OF SUB-SECTION (8) AND SUB-SECTI ON (9) OF SECTION 80-I SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE INDUSTRIAL UNDERTA KING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE INDUSTRIAL UNDERTAKIN G REFERRED TO IN SECTION 80-I. (7) NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREG OING PROVISIONS OF THIS SECTION, WHERE THE ASSESSEE, [BEFORE THE DUE DATE FOR FURNISHING T HE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139] [***], FURNISHES TO THE [ASSES SING] OFFICER A DECLARATION IN WRITING THAT THE PROVISIONS OF THIS SECTION MAY NOT BE MADE APPLICABLE TO HIM, THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO HIM FOR ANY OF THE RELEVANT ASSESSMENT YEARS. ITA NO.2406/CHNY/2017 :- 17 -: [(8) REFERENCES IN SUB-SECTION (5) TO ANY OTHER PRO VISION OF THIS ACT WHICH HAS BEEN AMENDED OR OMITTED BY THE DIRECT TAX LAWS (AMENDMEN T) ACT, 1987 SHALL, NOTWITHSTANDING SUCH AMENDMENT OR OMISSION, BE CONS TRUED, FOR THE PURPOSES OF THAT SUB-SECTION, AS IF SUCH AMENDMENT OR OMISSION HAD N OT BEEN MADE.] EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (I) FREE TRADE ZONE MEANS THE KANDLA FREE TRADE Z ONE AND THE SANTACRUZ ELECTRONICS EXPORT PROCESSING ZONE AND INCLUDES ANY OTHER FREE TRADE ZONE WHICH THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZ ETTE, SPECIFY FOR THE PURPOSES OF THIS SECTION; [(II) RELEVANT ASSESSMENT YEARS MEANS THE TEN CON SECUTIVE 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, PERF ORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE;] [(IV) ELECTRONIC HARDWARE TECHNOLOGY PARK MEANS A NY PARK SET UP IN ACCORDANCE WITH THE ELECTRONIC HARDWARE TECHNOLOGY PARK (EHTP) SCHE ME NOTIFIED BY THE GOVERNMENT OF INDIA IN THE MINISTRY OF COMMERCE; (V) SOFTWARE TECHNOLOGY PARK MEANS ANY PARK SET U P IN ACCORDANCE WITH THE SOFTWARE TECHNOLOGY PARK SCHEME NOTIFIED BY THE GOVERNMENT O F INDIA IN THE MINISTRY OF COMMERCE; (VI) PRODUCE, IN RELATION TO ARTICLES OR THINGS R EFERRED 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 ASS ESSEE 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) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXP ORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE A SSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR T HINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL IN COME 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 IMMEDIAT ELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, THE UNDERTAKING SHALL BE ENTITLE D TO DEDUCTION REFERRED TO IN ITA NO.2406/CHNY/2017 :- 18 -: THIS SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF T HE AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS: PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALL Y LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SU BSEQUENTLY LOCATED IN A SPECIAL ECONOMIC ZONE BY REASON OF CON VERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE INTO A SP ECIAL ECONOMIC ZONE, THE PERIOD OF TEN CONSECUTIVE ASSESSMENT YEAR S REFERRED TO IN THIS SUB-SECTION SHALL BE RECKONED FROM THE ASSESSM ENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING WAS FIRST SET UP IN SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE: PROVIDED ALSO THAT THE PROFITS AND GAINS DE RIVED FROM SUCH DOMESTIC SALES OF ARTICLES OR THINGS OR COMPUTER SOFTWARE AS DO NOT E XCEED TWENTY-FIVE PER CENT OF TOTAL SALES SHALL BE DEEMED TO BE THE PROFITS AND G AINS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE : PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON TH E 1ST DAY OF APRIL, 2010 AND SUBSEQUENT YEARS. (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 RELEVA NT 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, S OFTWARE 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 RECON-STRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPL Y 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 UNDERTAKIN G AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUM-STANCES AND WITHIN THE PERIOD SP ECIFIED IN THAT SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BU SINESS 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 PUR POSES OF CLAUSE (III) OF THIS SUB- SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE (I I) 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 A RE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHAN GE, WITHIN A PERIOD OF SIX ITA NO.2406/CHNY/2017 :- 19 -: 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 IND IA OR SUCH OTHER AUTHORITY AS IS AUTHORISED UNDER ANY LAW FOR THE TIME BEING IN F ORCE FOR REGULATING PAYMENTS AND DEALINGS IN FOREIGN EXCHANGE. EXPLANATION 2.THE SALE PROCEEDS REFERRED T O IN THIS SUB-SEC-TION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE SUCH SA LE PROCEEDS ARE CREDITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF THE RESERVE BANK OF INDIA. (4) FOR THE PURPOSES OF SUB-SECTION (1), TH E PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE TH E AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. (5) THE DEDUCTION UNDER SUB-SECTION (1) SHA LL NOT BE ADMISSIBLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR AFTER THE 1ST DAY O F APRIL, 2001, UNLESS THE ASSESSEE FURNISHES IN THE PRESCRIBED FORM, ALONGWIT H THE RETURN OF INCOME, THE REPORT OF AN ACCOUNT-ANT, AS DEFINED IN THE EXPLANA TION BELOW SUB-SECTION (2) OF SECTION 288, CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. (6) NOTWITHSTANDING ANYTHING CONTAINED IN A NY OTHER PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE P REVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEARS, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUB SEQUENT 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 RELEVAN T ASSESSMENT YEARS, IN RELA-TION TO ANY BUILDING, MACHINERY, PLANT OR FURNITURE USED FOR THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING IN THE PREVIOUS YEAR RE LEVANT TO SUCH ASSESSMENT YEAR OR ANY EXPENDITURE INCURRED FOR THE PURPOSES OF SUC H BUSINESS IN SUCH PREVIOUS YEAR HAD BEEN GIVEN FULL EFFECT TO FOR THAT ASSESSM ENT YEAR ITSELF AND ACCORDINGLY SUB-SECTION (2) OF SECTION 32, CLAUSE (II) OF SUB-S 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 SECTIO N 36, AS THE CASE MAY BE, SHALL NOT APPLY IN RELATION TO ANY SUCH ALLOWANCE OR DEDU C-TION; (II) NO LOSS REFERRED TO IN SUB-SECTION (1) OF SE CTION 72 OR SUB-SECTION (1) OR SUB- SECTION (3) OF SECTION 74 IN SO FAR AS SUCH LOSS RE LATES TO THE BUSINESS OF THE UNDERTAKING, SHALL BE CARRIED FORWARD OR SET OFF WH ERE 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 R ELATION TO THE PROFITS AND GAINS OF THE UNDERTAKING; AND (IV) IN COMPUTING THE DEPRECIATION ALLOWANCE UNDE R SECTION 32, THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR THE PURPOSES OF THE BUS INESS 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 TH E RELEVANT ASSESSMENT YEAR. ITA NO.2406/CHNY/2017 :- 20 -: (7) THE PROVISIONS OF SUB-SECTION (8) AND S UB-SECTION (10) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE U NDERTAKING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE UNDER TAKING REFERRED TO IN SECTION 80-IA. (8) NOTWITHSTANDING ANYTHING CONTAINED IN T HE FOREGOING PROVISIONS OF THIS SECTION, WHERE THE ASSESSEE, BEFORE THE DUE DATE FO R FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139, FURNIS HES TO THE ASSESSING OFFICER A DECLARATION IN WRITING THAT THE PROVISIONS OF THIS SECTION MAY NOT BE MADE APPLICABLE TO HIM, THE PROVISIONS OF THIS SECTION S HALL NOT APPLY TO HIM FOR ANY OF THE RELEVANT ASSESSMENT YEARS. (9) WHERE DURING ANY PREVIOUS YEAR, THE OWN ERSHIP OR THE BENEFICIAL INTEREST IN THE UNDERTAKING IS TRANSFERRED BY ANY MEANS, THE DEDUCTION UNDER SUB-SECTION (1) SHALL NOT BE ALLOWED TO THE ASSESSEE FOR THE AS SESSMENT YEAR RELEVANT TO SUCH PREVIOUS YEAR AND THE SUBSEQUENT YEARS. EXPLANATION 1FOR THE PURPOSES OF THIS SECT ION, IN THE CASE OF A COMPANY, WHERE ON THE LAST DAY OF ANY PREVIOUS YEAR, THE SHA RES OF THE COMPANY CARRYING NOT LESS THAN FIFTY-ONE PER CENT OF THE VOTING POWE R ARE NOT BENEFICIALLY HELD BY PERSONS WHO HELD THE SHARES OF THE COMPANY CARRYING NOT LESS THAN FIFTY-ONE PER CENT OF THE VOTING POWER ON THE LAST DAY OF THE YEA R IN WHICH THE UNDER-TAKING WAS SET UP, THE COMPANY SHALL BE PRESUMED TO HAVE TRANS -FERRED ITS OWNERSHIP OR THE BENEFICIAL INTEREST IN THE UNDERTAK-ING. EXPLANATION 2FOR THE PURPOSES OF THIS SECT ION, (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 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 CONVE RTIBLE FOREIGN EXCHANGE FOR THE PURPOSES OF THE FOREIGN EXCHANGE REGULATION ACT, 19 73 (46 OF 1973), AND ANY RULES MADE THEREUNDER OR ANY OTHER CORRESPONDING LA W FOR THE TIME BEING IN FORCE; (III) 'ELECTRONIC HARDWARE TECHNOLOGY PARK' MEANS ANY PARK SET UP IN ACCORDANCE WITH THE ELECTRONIC HARDWARE TECHNOLO-GY PARK (EHTP ) SCHEME NOTIFIED BY THE GOVERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUSTRY; (IV) 'EXPORT TURNOVER' MEANS THE CONSIDERATION 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 INSUR ANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFT WARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING T HE TECHNICAL SERVICES OUTSIDE INDIA; (V) 'FREE TRADE ZONE' MEANS THE KANDLA FREE TRAD E ZONE AND THE SANTACRUZ ELECTRONICS EXPORT PROCESSING ZONE AND INCLUDES ANY OTHER FREE TRADE ZONE WHICH ITA NO.2406/CHNY/2017 :- 21 -: THE CENTRAL GOVERNMENT MAY, BY NOTI-FICATION IN THE OFFICIAL GAZETTE, SPECIFY FOR THE PURPOSES OF THIS SECTION; (VI) 'RELEVANT ASSESSMENT YEAR' MEANS ANY ASSESSM ENT 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 GOV ERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUS-TRY; (VIII)'SPECIAL ECONOMIC ZONE' MEANS A ZONE WHICH TH E CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY AS A SPECIAL ECONOMIC ZONE FOR THE PURPOSES OF THIS SECTION. 7.4 THUS AS COULD BE SEEN THAT FINANCE ACT, 2000 IT SELF SUBSTITUTED SECTION 10A OF THE 1961 ACT W.E.F. 01.04.2001 WHEREIN IT WA S , INTER-ALIA, PROVIDED THAT IN CASE UNITS WHICH ARE INITIALLY LOCATED IN E XPORT PROCESSING ZONES OR IN FREE TRADE ZONES ARE SUBSEQUENTLY LOCATED INTO AN SEZ OWING TO CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCES SING ZONE INTO AN SPECIAL ECONOMIC ZONE(SEZ) , THEN PERIOD OF TEN CON SECUTIVE ASSESSMENT YEARS SHALL BE RECKONED FROM ASSESSMENT YEAR RELEVA NT TO THE PREVIOUS YEAR IN WHICH UNDERTAKING WAS FIRST SET UP IN SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE. SIMILARLY CLAUSE (C ) WAS I NTRODUCED IN SECTION 10A(2) BY FINANCE ACT,2000 EFFECTIVE FROM 01.04.200 0 PROVIDING THAT BENEFIT OF DEDUCTION U/S 10A SHALL BE APPLICABLE TO UNDERTAKING WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR COMMENCING ON OR AFTER 1 ST DAY OF APRIL 2001 IN SPECIAL ECONOMIC ZONE(SEZ). SO , IN THE YEAR 2000 ITSELF, WHEN SEZ ACT, 2005 WAS NOT E VEN IN STATUTE, PROVISIONS WERE INTRODUCED IN THE 1961 ACT IN SECT ION 10A ITSELF FOR GRANTING BENEFIT OF DEDUCTION U/S 10A TO THE UNIT S WHICH ARE LOCATED IN SPECIAL ECONOMIC ZONES(SEZ) AND AT THAT TIME IT WA S THROUGH A NOTIFICATION IN OFFICIAL GAZETTE, CENTRAL GOVERNMEN T WAS NOTIFYING SEZS. SECTION 2(K) READ WITH SECTION 2(ZA) OF THE SPECIAL ECONOMIC ZONE ACT, 2005 RECOGNIZES SUCH EXISTING SEZ WHICH WERE IN EXI STENCE ON OR BEFORE THE COMMENCEMENT OF SEZ ACT, 2005. IT WAS ON 01.0 1.2003, THE ASSESSEE UNIT WAS CONVERTED INTO AN SEZ UNIT. IN TH E MEANTIME FINANCE ITA NO.2406/CHNY/2017 :- 22 -: ACT, 2002, FURTHER AMENDED PROVISIONS OF SECTION 10 A OF THE 1961 ACT AND PROVISIONS OF SECTION 10A OF THE 1961 ACT AS WERE A PPLICABLE FOR AY : 2003-04 ARE REPRODUCED HEREUNDER: [SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHE D UNDERTAKINGS IN FREE TRADE ZONE, ETC. 10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF AR TICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BE GINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS TH E CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED B Y APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITU TION 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 A SSESSMENT YEARS : PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALL Y LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED I N A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXP ORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CONSECUTIV E ASSESSMENT YEARS REFERRED TO IN THIS SUB-SECTION SHALL BE RECKONED FROM THE ASSE SSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE [UNDERTAKING BEGAN TO MA NUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE] IN SUCH FR EE TRADE ZONE OR EXPORT PROCESSING ZONE : 1[***] THE FOLLOWING THIRD PROVISO SHALL BE INSERTED TO SU B-SECTION (1) OF SECTION 10A BY THE FINANCE ACT, 2002, W.E.F. 1-4-2003 : PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNIN G ON THE 1ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THIS SUB-SECTION SHALL BE NINETY PER CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE : PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON TH E 1ST DAY OF APRIL, 2010 AND SUBSEQUENT YEARS. THE FOLLOWING SUB-SECTION (1A) SHALL BE INSERTED AFT ER SUB-SECTION (1) OF SECTION 10A BY THE FINANCE ACT, 2002, W.E.F. 1-4-2003 : (1A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1), THE DEDUCTION, IN COMPUTING THE TOTAL INCOME OF AN UNDERTAKING, WHICH BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DUR ING THE PREVIOUS YEAR RELEVANT TO ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST 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 COMPU TER SOFTWARE FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASS ESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CAS E MAY BE, AND THEREAFTER, FIFTY PER CENT OF SUCH PROFITS AND GAINS FOR FURTHER TWO ASSESSMENT YEARS. (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH FU LFILS ALL THE FOLLOWING CONDITIONS, NAMELY : (I) IT HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE AR TICLES OR THINGS OR COMPUTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR ITA NO.2406/CHNY/2017 :- 23 -: (A) COMMENCING ON OR AFTER THE 1ST DAY O F APRIL, 1981, IN ANY FREE TRADE ZONE; OR (B) COMMENCING ON OR AFTER THE 1ST DAY O F APRIL, 1994, IN ANY ELECTRONIC HARDWARE TECHNOLOGY PARK, OR, AS THE CASE MAY BE, SOFTWARE T ECHNOLOGY PARK; (C) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2001 IN ANY SPECIAL ECONOMIC ZONE; (II) IT IS NOT FORMED BY THE SPLIT TING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDIT ION 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 UNDERTAKINGS A S IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN TH AT SECTION; (III) IT IS NOT FORMED BY THE TRANS FER 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 RECEIVE D 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 AUTHO RITY 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 THI S SUB-SECTION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE SUCH SALE PROCEEDS ARE CREDITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF THE RESERVE BANK OF INDIA. 2[(4) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFI TS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHI CH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPO RT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL T URNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING.] (5) THE DEDUCTION UNDER SUB-SECTION (1) SHALL NOT BE ADMISSIBLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR AFTER THE 1ST DAY OF APRIL, 2001, U NLESS THE ASSESSEE FURNISHES IN THE PRESCRIBED FORM 3, ALONGWITH THE RETURN OF INCOME, THE REPORT OF AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288, CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVI SIONS OF THIS SECTION. (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR R ELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASS ESSMENT YEARS, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMENT YEAR, (I) SECTION 32, SECTION 32A, SEC TION 33, SECTION 35 AND CLAUSE (IX) OF SUB- SECTION (1) OF SECTION 36 SHALL APPLY AS IF EVERY AL LOWANCE OR DEDUCTION REFERRED TO THEREIN AND RELATING TO OR ALLOWABLE FOR ANY OF THE RELEVAN T ASSESSMENT YEARS, IN RELATION TO ANY BUILDING, MACHINERY, PLANT OR FURNITURE USED FOR TH E PURPOSES OF THE BUSINESS OF THE UNDERTAKING IN THE PREVIOUS YEAR RELEVANT TO SUCH A SSESSMENT 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 ACCORDINGLY SUB-SECTION (2) OF SECTION 32, CLAUSE (II) ITA NO.2406/CHNY/2017 :- 24 -: 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 (I X) OF SUB-SECTION (1) OF SECTION 36, AS THE CASE MAY BE, SHALL NOT APPLY IN RELATION TO ANY SUCH ALLOWANCE OR DEDUCTION; (II) NO LOSS REFERRED TO IN SUB-SE CTION (1) OF SECTION 72 OR SUB-SECTION (1) OR SUB-SECTION (3) OF SECTION 74, IN SO FAR AS SUCH LOS S RELATES TO THE BUSINESS OF THE UNDERTAKING, SHALL BE CARRIED FORWARD OR SET OFF WH ERE 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 R ELATION 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 BUS INESS OF THE UNDERTAKING SHALL BE COMPUTED AS IF THE ASSESSEE HAD CLAIMED AND BEEN AC TUALLY ALLOWED THE DEDUCTION IN RESPECT OF DEPRECIATION FOR EACH OF THE RELEVANT AS SESSMENT 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 REFERR ED 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 FOREGO ING PROVISIONS OF THIS SECTION, WHERE THE ASSESSEE, BEFORE THE DUE DATE FOR FURNISHING TH E 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, THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO HIM FOR ANY OF THE RELEVANT ASSESSMENT YEA RS. (9) WHERE DURING ANY PREVIOUS YEAR, THE OWNERSHIP OR THE BENEFICIAL INTEREST IN THE UNDERTAKING IS TRANSFERRED BY ANY MEANS, THE DEDUCT ION UNDER SUB-SECTION (1) SHALL NOT BE ALLOWED TO THE ASSESSEE FOR THE ASSESSMENT YEAR REL EVANT TO SUCH PREVIOUS YEAR AND THE SUBSEQUENT YEARS. THE FOLLOWING SUB-SECTION (9A) SHALL BE INSERTED AFT ER SUB-SECTION (9) OF SECTION 10A BY THE FINANCE ACT, 2002, W.E.F. 1-4-2003 : (9A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (9), WHERE AS A RESULT OF REORGANISATION OF BUSINESS, A FIRM OR A SOLE PROPRI ETARY CONCERN IS SUCCEEDED BY A COMPANY AND THE OWNERSHIP OR BENEFICIAL INTEREST IN THE UND ERTAKING 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, A S THE CASE MAY BE, IF THE REORGANISATION HAD NOT TAKEN PLACE: PROVIDED THAT, (A) IN THE CASE OF A FIRM THE AG GREGATE 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 S UCH FOR THE PERIOD FOR WHICH THE COMPANY IS ELIGIBLE FOR DEDUCTION UNDER THIS SECTIO N; (B) IN THE CASE OF A SOLE PROPRI ETARY CONCERN, THE SHAREHOLDING OF THE SOLE PROPRIETOR IN THE COMPANY IS NOT LESS THAN FIFTY-ON E PER CENT OF THE TOTAL VOTING POWER IN THE COMPANY AND HIS SHAREHOLDING CONTINUES TO REMAIN AS SUCH FOR THE PERIOD FOR WHICH THE COMPANY IS ELIGIBLE FOR DEDUCTION UNDER THIS SECTIO N. EXPLANATION 1.FOR THE PURPOSES OF THIS SECTION, IN THE CASE OF A COMPANY, WHERE ON THE LAST DAY OF ANY PREVIOUS YEAR, THE SHARES OF THE CO MPANY CARRYING NOT LESS THAN FIFTY-ONE PER CENT OF THE VOTING POWER ARE NOT BENEFICIALLY H ELD BY PERSONS WHO HELD THE SHARES OF THE COMPANY CARRYING NOT LESS THAN FIFTY-ONE PER CENT O F THE VOTING POWER ON THE LAST DAY OF THE YEAR IN WHICH THE UNDERTAKING WAS SET UP, THE COMPA NY SHALL BE PRESUMED TO HAVE TRANSFERRED ITS OWNERSHIP OR THE BENEFICIAL INTERES T IN THE UNDERTAKING : ITA NO.2406/CHNY/2017 :- 25 -: 4[PROVIDED THAT NOTHING CONTAINED IN THIS EXPLANAT ION SHALL APPLY TO ANY CHANGE IN THE SHAREHOLDING OF THE COMPANY AS A RESULT OF (A) ITS BECOMING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED; OR (B) DISINVESTMENT OF ITS EQUITY SH ARES 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 A NY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE; OR (B) ANY CUSTOMIZED ELECTRONIC DATA OR AN Y PRODUCT OR SERVICE OF SIMILAR NATURE, AS MAY BE NOTIFIED 5 BY THE BOARD, WHICH IS TRANSMITTED OR EXPORTED FROM INDI A 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, 19 73 (46 OF 1973), AND ANY RULES MADE THEREUNDER OR ANY OTHER CORRESPONDING LAW FOR THE T IME BEING IN FORCE; (III) ELECTRONIC HARDWARE TECHNOLO GY 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; (IV) EXPORT TURNOVER MEANS THE CO NSIDERATION IN RESPECT OF EXPORT 6[BY THE UNDERTAKING] OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE 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 SOFT WARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL SERVICES OUTSIDE INDIA. (V) FREE TRADE ZONE MEANS THE K ANDLA 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 OFFIC IAL GAZETTE, 7 SPECIFY FOR THE PURPOSES OF THIS SECTION; (VI) RELEVANT ASSESSMENT YEAR MEA NS ANY ASSESSMENT YEAR FALLING WITHIN A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SECTION; (VII) SOFTWARE TECHNOLOGY PARK MEA NS ANY PARK SET UP IN ACCORDANCE WITH THE SOFTWARE TECHNOLOGY PARK SCHEME NOTIFIED BY THE GOV ERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUSTRY; (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.] 7A [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 SOFTWARE) OUTSIDE INDIA SHALL BE DEEM ED TO BE THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA. ] 7.5 NOW, TWO EVENTS HAPPENED , FIRST THE ASSESSEE U NIT WHICH WAS LOCATED IN EXPORT PROCESSING ZONE GOT CONVERTED INTO AN SEZ UNIT EFFECTIVE FROM ITA NO.2406/CHNY/2017 :- 26 -: 01.01.2003 AND SECONDLY, PROVISION WAS INTRODUCED B Y FINANCE ACT, 2002 W.E.F. 01.04.2003 BY WAY OF SECTION 10A(1A) OF THE 1961 ACT WITH A NON OBSTANTE CLAUSE THAT NOTWITHSTANDING ANYTHING CONTA INED IN SECTION 10A(1) OF THE 1961 ACT , THE DEDUCTION U/S 10A IS TO BE AL LOWED FOR A TOTAL PERIOD OF SEVEN YEARS TO A UNIT LOCATED IN SEZ WHICH BEGIN S TO MANUFACTURE OR PRODUCE ARTICLE OR THINGS OR COMPUTER SOFTWARE DURI NG THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR BEGINNING FROM 01.04.20 03 AND THEREAFTER. AT THE SAME TIME , DEDUCTION U/S 10A(1) WAS RESTRICTE D TO UNITS OTHER THAN TO WHOM SECTION 10A(1A) APPLIES TO 90% OF THE PROFI TS DERIVED FROM EXPORT OF ARTICLES OR GOODS OR COMPUTER SOFTWARE FO R 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 R ELEVANT TO AY: 2003-04. THE ANSWER IS EMPHATIC NO, THE ASSESSEE UNIT BEGI NS TO MANUFACTURE OR PRODUCE PILLOWS OR CUSHIONS IN PREVIOUS YEAR RELEVA NT TO AY: 2001-02 IN MEPZ AND ONCE THE UNIT BEGINS TO MANUFACTURE OR PRO DUCE ARTICLES IN PREVIOUS YEAR RELEVANT TO AY: 2001-02 , THEN IT CAN NOT BE SAID THAT IT AGAIN BEGINS TO MANUFACTURE OR PRODUCE ARTICLES IN SEZ WH EN IT GOT CONVERTED ITSELF FROM EPZ UNIT TO SEZ UNIT. IT IS MERELY A CO NVERSION OF EPZ UNIT INTO AN SEZ UNIT BUT THE FACT REMAINS THAT UNIT WAS ALR EADY IN OPERATION SINCE PREVIOUS YEAR RELEVANT TO AY: 2001-02 ONWARDS AND I T COULD NOT BE SAID THE UNIT OF THE ASSESSEE BEGINS TO MANUFACTURE OR P RODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE IN THE PREVIOUS YEAR RE LEVANT TO ASSESSMENT YEAR 2003-04 IN SEZ AS IT IS A CLEAR CASE OF MERE C ONVERSION OF EPZ INTO AN SEZ AND NOT SETTING UP OF NEW UNIT IN SEZ.THE TERMI NOLOGY USED IN SECTION 10A(1A) IS ONLY BEGINS TO MANUFACTURE. WHILE THE WORD BEGUN WHICH IS ALSO SIMULTANEOUSLY USED ALONG WITH BEGINS TO MANU FACTURE. IN SECTION 10A(2) IS MISSING IN SECTION 10A(1A) OF THE 1961 AC T THE SECOND PROVISO TO SECTION 10A(1) OF THE 1961 ACT SHALL CONTINUE TO GOVERN CASES OF CONVERSION OF EPZ INTO SEZ AND BENEFIT OF DEDUCTION U/S 10A SHALL BE AVAILABLE FOR TEN CONSECUTIVE ASSESSMENT YEAR START ING FROM THE YEAR IN ITA NO.2406/CHNY/2017 :- 27 -: WHICH THE UNIT BEGINS TO MANUFACTURE CUSHIONS AND P ILLOWS IN MEPZ VIZ. AY: 2001-02. IF THAT INTERPRETATION AS IS CANVASS ED BY ASSESSEE IS ADOPTED THAT IT BEGINS TO MANUFACTURE OR PRODUCE AR TICLES OR THINGS IN SEZ DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR CO MMENCING ON 01.04.2003 ON BEING CONVERTED INTO SEZ UNIT FROM EP Z UNIT EFFECTIVE FROM 01.01.2003 AND WILL BE GOVERNED BY NEWLY INSERTED SECTION 10A(1A) OF THE 1961 ACT, THEN IN THAT CASE , IT WILL ALSO BE H IT BY SUB-SECTION 2 , CLAUSE (II) AND/OR (III) THAT BUSINESS SHOULD NOT B E FORMED BY SPLITTING OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE , OR THAT IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OF P LANT PREVIOUSLY USED FOR ANY PURPOSE AND THEN IN THAT SITUATION , THE AS SESSEE WILL NOT AT ALL BE ENTITLED FOR DEDUCTION IF SECTION 10A(1A) IS INVOKE D. WHEN THERE IS A SPECIFIC PROVISIONS WHEREIN LANGUAGE USED IS SIMPLE , PLAIN , CLEAR AND UNAMBIGUOUS THAT IN CASE OF CONVERSION OF UNDERTAKI NG FROM EPZ TO SEZ UNIT, THE DEDUCTION SHALL BE ALLOWED FOR A PERIOD O F TEN CONSECUTIVE ASSESSMENT YEARS STARTING FROM THE AY WHEN THE UNDE RTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLE OR THING OR COMPUTER SOFTWARE IN EPZ WHICH IN THE INSTANT CASE THE ASSESSEE BEGAN TO MANUFACTU RE OR PRODUCE PILLOWS AND CUSHIONS DURING PREVIOUS YEAR RELEVANT TO AY: 2 001-02 , THEN IN THE CASE THERE IS NO NEED TO REFER TO PROVISIONS OF SEC TION 10(1A) AS IT WILL BE APPLICABLE ONLY TO NEWLY SET UP UNDERTAKING WHICH B EGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR BEGINNING FROM 1 ST APRIL , 2003 AND ONWARDS. IT IS ONLY IN THOSE CASES, WHEN THE UNDERTAKING BEG INS TO MANUFACTURE OR PRODUCE ARTICLE OR THINGS OR COMPUTER SOFTWARE IN S EZ DURING PREVIOUS YEAR RELEVANT TO AY: 2003-04 OR THEREAFTER , PROVISIONS OF SECTION 10A(1A) OF THE 1961 ACT WILL COME INTO PLAY. THE NON-OBSTANTE CLAUSE IN SECTION 10A(1A) IS ALSO PLACED IN STATUTE BECAUSE THERE WER E SEZ UNITS WHICH WERE GRANTED DEDUCTION U/S 10A(1)OF THE 1961 ACT WHICH H AD BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLE OR THINGS OR COMP UTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO THE AY COMMENCING ON OR AFTER THE 1 ST DAY OF ITA NO.2406/CHNY/2017 :- 28 -: 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 D EAL WITH NEWLY ESTABLISHED SEZ IN PREVIOUS YEAR RELEVANT TO AY: 20 03-04 AND ONWARDS. IT CAN BE SEEN THAT VIDE FINANCE ACT, 2002 , SECTION 1 0A(1A) OF THE 1961 ACT WAS INTRODUCED WHICH CURTAILED THE PERIOD OF DEDUCT ION 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 PR IOR TO PREVIOUS YEAR RELEVANT TO AY: 2002-03. NOT ONLY PERIOD OF DEDUCTI ON 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 DEDUCTION WAS REDUCED TO 50% OF P ROFITS DERIVED FROME EXPORTS FOR SIXTH AND SEVENTH ASSESSMENT YEARS. UND ER NORMAL CIRCUMSTANCES , ONCE SUCH TYPE OF FISCAL INCENTIVE IS PROVIDED BY STATE ON FULFILLMENT OF CONDITION SUCH AS SETTING UP OF MANU FACTURING UNIT IN EPZ/FTZ/SEZ FOR A PARTICULAR PERIOD OF TIME TO ACHI EVE STATE POLICY FOR ENCOURAGING EXPORTS, BRINGING IN FOREIGN INVESTMENT S, ENHANCING EMPLOYMENT ETC. AND THE TAX-PAYER HAS ALTERED ITS P OSITION BY COMPLYING WITH STATE POLICY BY SETTING UP ACCORDINGLY MANUFAC TURING UNIT IN SEZ/FTZ/EPZ ON THE FAITH THAT IT WILL CONTINUE TO E NJOY FISCAL INCENTIVES FOR A CERTAIN NUMBER OF YEARS AS PROVIDED IN THE STATUT E AT THE TIME OF SETTING UP OF ITS UNIT, THEN NORMALLY THE STATE LARGESSE AR E NOT WITHDRAWN IN SUCH TYPE OF CASE MIDWAY AS IT CREATES A VESTED RIGHT IN FAVOUR OF THE TAX-PAYER WHO HAS ALTERED ITS POSITION BASED ON STATE COMMITM ENT AS IN THIS CASE BY SETTING UP UNDERTAKING IN EPZ/FTZ/SEZ ETC. , WHICH ALSO STRENGTHEN THE VIEW THAT SECTION 10A(1) WILL CONTINUE TO APPLY TO EPZ/FTZ UNITS WHICH ARE CONVERTED INTO SEZ UNITS AND SECTION 10A(1A) IS ONL Y APPLICABLE TO NEWLY SET UP SEZ UNITS . AS WE WILL SEE LATER THIS RESTRI CTION OF DEDUCTION U/S 10A TO NEWLY SET UP SEZ VIDE SUB-SECTION 10A(1A) WAS LA TER RELAXED WITH CERTAIN CONDITIONS VIDE FINANCE ACT,2003 EFFECTIVE FROM 01.4.2003. AS ITA NO.2406/CHNY/2017 :- 29 -: COULD BE SEEN THAT THE FINANCE ACT, 2000 ITSELF REC OGNIZES SEZ UNITS AND BROUGHT THE BENEFIT OF AFORESAID DEDUCTION U/S 10A TO SEZ UNITS, WHICH BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO AY CO MMENCING ON OR AFTER THE 1 ST DAY OF APRIL , 2001 IN ANY SEZ(REFER SEC. 10A(2)(I )(C) OF THE 1961 ACT). THUS, THE ASSESSEE WAS ENTITLED FOR DEDUCTIO N U/S 10A FOR A PERIOD OF A TEN CONSECUTIVE ASSESSMENT YEARS COMMENCING FR OM AY: 2001-02 ONWARDS AND PROVISIONS OF SECTION 10A(1) WILL CONTI NUE TO APPLY TO IT EVEN AFTER BEING CONVERTED INTO AN SEZ UNIT EFFECTIVE F ROM 01.01.2003 KEEPING IN VIEW SECOND PROVISO TO SECTION 10A(1) OF THE 196 1 ACT. THE FINANCE ACT, 2002 RESTRICTED DEDUCTION U/S 10A(1) OF THE 19 61 ACT TILL AY: 2009-10 AS IT PROVIDED THAT NO SUCH DEDUCTION U/S 10A(1) SH ALL BE ALLOWED FOR AY: 2010-11 AND SUBSEQUENT AYS , BUT RIGORS OF THE SAI D LIMITATION WERE LATER RELAXED AND DEDUCTION U/S 10A(1) WAS FINALLY NOT AL LOWED FROM ASSESSMENT YEAR COMMENCING FROM 1 ST APRIL 2012 AND SUBSEQUENT AYS. IT IS NOW NO MORE RES-INTEGRA THAT EXEMPTION/DEDUCTION PROVISION S ARE TO BE STRICTLY CONSTRUED AND REFERENCE IS MADE TO CONSTITUTIONAL B ENCH DECISION OF HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER O F CUSTOMS V. DILIP KUMAR IN CIVIL APPEAL NO. 3327 OF 2007, JUDGMENT DA TED 30.07.2018. THE COURTS CANNOT GO FURTHER AND ENLARGE THE SCOPE OF B ENEFIT OF LARGESSE GRANTED BY STATE THROUGH THESE DEDUCTIONS/EXEMPTION AND THESE EXEMPTION/DEDUCTION PROVISIONS ARE TO BE STRICTLY C ONSTRUED AND ONUS IS ON THE TAX-PAYER TO ESTABLISH THAT IT FALLS WITHIN FOU R CORNERS OF RIGORS OF EXEMPTION/DEDUCTION PROVISIONS AS ARE EXISTING IN S TATUTE. FURTHER, WITH INTRODUCTION OF SECTION 10A(1A) OF THE 1961 ACT, TH E 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 1 ST DAY OF APRIL 2003. THEN AGAIN BY FINANCE ACT, 2003, THE AMENDMENTS WER E BROUGHT IN SECTION 10A OF THE 1961 ACT WHEREIN SECTION 10A(1A) TO SECTION 10A(1C) WERE SUBSTITUTED FOR THE EXISTING SECTION 10A(1A) T HEREBY ALLOWING ITA NO.2406/CHNY/2017 :- 30 -: DEDUCTION U/S 10A TO NEWLY SET UP SEZ TO A TOTAL PE RIOD OF 10 YEARS , W.E.F. 01.04.2004 . THE SECTION 10A AS INTRODUCED BY FINANCE ACT, 2003 READ AS UNDER: [SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHE D UNDERTAKINGS IN FREE TRADE ZONE, ETC. 10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF AR TICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BE GINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS TH E CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE: PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED B Y APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITU TION 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 AFORE-SAID TEN CONSECUTIVE ASSESSMENT YEARS : PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALL Y LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED I N A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXP ORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CONSECUTIV E ASSESSMENT YEARS REFERRED TO IN THIS SUB-SECTION SHALL BE RECKONED FROM THE ASSE SSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE [UNDERTAKING BEGAN TO MA NUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE] IN SUCH FR EE TRADE ZONE OR EXPORT PROCESSING ZONE : [PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNI NG ON THE 1ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THIS SUB-SECTION SHALL BE NINETY PE R CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAK-ING FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT-WARE :] PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APR IL, 2010 AND SUBSEQUENT YEARS. [(1A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (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 YEA R RELEVANT TO 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 WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR C OMPUTER 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 SU BSTITUTED FOR THE EXISTING SUB- SECTION (1A) BY THE FINANCE ACT, 2003, W.E.F. 1-4-2 004 : (1A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1), THE DEDUCTION, IN COMPUTING THE TOTAL INCOME OF AN UNDERTAKING, WHICH BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DUR ING THE PREVIOUS YEAR RELEVANT TO ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST 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 PERIO D OF FIVE CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDER-TAKING BEGINS TO MANUFACTUR E OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, AN D THEREAFTER, FIFTY PER CENT OF SUCH PROFITS AND GAINS FOR FURTHER TWO CONSECUTIVE ASSESSMENT YEARS, AND THEREAFTER; ITA NO.2406/CHNY/2017 :- 31 -: (II) FOR THE NEXT THREE CONSECUTIVE ASSES SMENT YEARS, SO MUCH OF THE AMOUNT NOT EXCEEDING FIFTY PER CENT OF THE PROFIT A S IS DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE PREVIOUS YEAR IN RESPECT OF WHI CH THE DEDUCTION IS TO BE ALLOWED AND CREDITED TO A RESERVE ACCOUNT (TO BE CA LLED THE SPECIAL ECONOMIC ZONE RE-INVESTMENT ALLOWANCE RESERVE ACCOUNT) TO B E CREATED AND UTILISED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE IN THE MANNER LAID DOWN IN SUB- SECTION (1B). (1B) THE DEDUCTION UNDER CLAUSE (II) OF SUB-SECTION (1A) SHALL BE ALLOWED ONLY IF THE FOLLOWING CONDITIONS ARE FULFILLED, NAMELY: (A) THE AMOUNT CREDITED TO THE SPECIAL EC ONOMIC ZONE RE-INVESTMENT ALLOWANCE RESERVE ACCOUNT IS TO BE UTILISED (I) FOR THE PURPOSES OF ACQUIRING NEW MACHIN ERY OR PLANT WHICH IS FIRST PUT TO USE BEFORE THE EXPIRY OF A PERIOD OF THREE YEARS NE XT FOLLOWING THE PREVIOUS YEAR IN WHICH THE RESERVE WAS CREATED; AND (II) UNTIL THE ACQUISITION OF NEW MACHINERY O R PLANT AS AFORESAID, FOR THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING OTHER T HAN FOR DISTRIBUTION BY WAY OF DIVIDENDS OR PROFITS OR FOR REMITTANCE OUTSIDE INDI A AS PROFITS OR FOR THE CREATION OF ANY ASSET OUTSIDE INDIA; (B) THE PARTICULARS, AS MAY BE PRESCRIBED IN THIS BEHALF, HAVE BEEN FURNISHED BY THE ASSESSEE IN RESPECT OF NEW MACHINERY OR PLAN T ALONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR RELEVANT TO THE PREV IOUS YEAR IN WHICH SUCH PLANT OR MACHINERY WAS FIRST PUT TO USE. (1C) WHERE ANY AMOUNT CREDITED TO THE SPECIAL ECONO MIC ZONE RE-INVESTMENT ALLOWANCE RESERVE ACCOUNT UNDER CLAUSE (II) OF SUB- SECTION (1A), (A) HAS BEEN UTILISED FOR ANY PURPOSE OTH ER THAN THOSE REFERRED TO IN SUB- SECTION (1B), THE AMOUNT SO UTILISED; OR (B) HAS NOT BEEN UTILISED BEFORE THE EXPIR Y OF THE PERIOD SPECIFIED IN SUB- CLAUSE (I) OF CLAUSE (A) OF SUB-SECTION (1B), 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 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 F ULFILS 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 APRI L, 1981, IN ANY FREE TRADE ZONE; OR (B) COMMENCING ON OR AFTER THE 1ST DAY OF APRI L, 1994, IN ANY ELECTRONIC HARDWARE TECHNOLOGY PARK, OR, AS THE CASE MAY BE, SOFTWARE T ECHNOLOGY PARK; (C) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2 001 IN ANY SPECIAL ECONOMIC ZONE; ITA NO.2406/CHNY/2017 :- 32 -: (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NO T APPLY IN RESPECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECONST RUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKINGS 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 SUB-SECTION (2) OF SECTION 80-I SHALL APPLY FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB-SECTION AS THEY APPLY FOR THE PUR-POSES 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 RECEIVE D IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CON-VERTIBLE 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 EX-PRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHO RITY 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 THI S SUB-SECTION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE SUCH SALE PROCEEDS ARE CREDITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF THE RESERVE BANK OF INDIA. 6[(4) FOR THE PURPOSES OF [SUB-SECTIONS (1) AND (1A)] , THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE TH E AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTIO N AS THE EXPORT TURNOVER IN RE-SPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING.] (5) THE DEDUCTION UNDER [THIS SECTION] SHALL NOT BE A DMISSIBLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR AFTER THE 1ST DAY OF APRIL, 2001, U NLESS THE ASSESSEE FURNISHES IN THE PRESCRIBED FORM 7, ALONGWITH THE RETURN OF INCOME, THE REPORT OF AN ACCOUNT-ANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288, CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVI SIONS OF THIS SECTION. (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR R ELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASS ESSMENT YEARS, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMENT YEAR, (I) SECTION 32, SECTION 32A, SECTION 33, S ECTION 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, MACHINE RY, 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 THA T ASSESSMENT YEAR ITSELF AND ACCORD-INGLY SUB-SECTION (2) OF SECTION 32, CLAUSE (II) OF SUB-S ECTION (3) OF SECTION 32A, CLAUSE (II) OF SUB-SECTION (2) OF SECTION 33, SUB-SECTION (4) OF SEC TION 35 OR THE SECOND PROVISO TO CLAUSE (IX) OF SUB-SECTION (1) OF SECTION 36, AS THE CASE MA Y 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 SUB- SECTION (3) OF SECTION 74, IN SO FAR AS SUCH LOSS RE LATES TO THE BUSINESS OF THE UNDERTAKING, SHALL BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS 7A [ENDING BEFORE THE 1ST DAY OF APRIL, 2001]; ITA NO.2406/CHNY/2017 :- 33 -: (III) NO DEDUCTION SHALL BE ALLOWED UNDER SE CTION 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 ALLOW ED THE DEDUCTION IN RESPECT OF DEPRECIATION FOR EACH OF THE RELEVANT ASSESSMENT YE AR. (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 REFERR ED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE UNDERTAKING REFERRED TO IN SECTION 80-IA. THE FOLLOWING SUB-SECTION (7A) SHALL BE INSERTED AFT ER SUB-SECTION (7) OF SECTION 10A BY THE FINANCE ACT, 2003, W.E.F. 1-4-2004 : (7A) WHERE ANY UNDERTAKING OF AN INDIAN COMPANY WHIC H IS ENTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED, BEFORE THE EXPIRY OF T HE PERIOD SPECIFIED IN THIS SECTION, TO ANOTHER INDIAN COMPANY IN A SCHEME OF AMALGAMATION OR DEMERGER, (A) NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SECTION TO THE AMALGAMATING OR THE DEMERGED COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR THE DEMERGER TAKES PLACE; AND (B) THE PROVISIONS OF THIS SECTION SHALL, A S FAR AS MAY BE, APPLY TO THE AMALGAMATED OR THE RESULTING COMPANY AS THEY WOULD HAVE APPLIED TO THE AMALGAMATING OR THE DEMERGED COMPANY IF THE AMALGAMATION OR DEMERGER HAD NOT TAK EN PLACE. (8) NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREGO ING PROVI-SIONS OF THIS SECTION, WHERE THE ASSESSEE, BEFORE THE DUE DATE FOR FURNISHING TH E 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, THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO HIM FOR ANY OF THE RELEVANT ASSESSMENT YEA RS. [(9) WHERE DURING ANY PREVIOUS YEAR, THE OWNERSHIP O R THE BENEFICIAL INTEREST IN THE UNDERTAKING IS TRANSFERRED BY ANY MEANS, THE DEDUCT ION UNDER SUB-SECTION (1) SHALL NOT BE ALLOWED TO THE ASSESSEE FOR THE ASSESSMENT YEAR REL EVANT TO SUCH PREVIOUS YEAR AND THE SUBSEQUENT YEARS. [(9A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SEC TION (9), WHERE AS A RESULT OF REORGANISATION OF BUSINESS, A FIRM OR A SOLE PROPRI ETARY CONCERN IS SUCCEEDED BY A COMPANY AND THE OWNERSHIP OR BENEFICIAL INTEREST IN THE UND ERTAKING 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, A S THE CASE MAY BE, IF THE REORGANISATION HAD NOT TAKEN PLACE: PROVIDED THAT, (A) IN THE CASE OF A FIRM, THE AGGREGATE O F 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 S UCH FOR THE PERIOD FOR WHICH THE COMPANY IS ELIGIBLE FOR DEDUCTION UNDER THIS SECTIO N; (B) IN THE CASE OF A SOLE PROPRIETARY CONCE RN, THE SHAREHOLDING OF THE SOLE PROPRIETOR IN THE COMPANY IS NOT LESS THAN FIFTY-ONE PER CENT OF THE TOTAL VOTING POWER IN THE COMPANY AND HIS SHAREHOLDING CONTINUES TO REMAIN AS SUCH FO R THE PERIOD FOR WHICH THE COMPANY IS ELIGIBLE FOR DEDUCTION UNDER THIS SECTION.]] 8A[EXPLANATION 1.FOR THE PURPOSES OF THIS SECTION, IN THE CASE OF A COMPANY, WHERE ON THE LAST DAY OF ANY PREVIOUS YEAR, THE SHARES OF TH E COMPANY CARRYING NOT LESS THAN FIFTY- ONE PER CENT OF THE VOTING POWER ARE NOT BENEFICIAL LY HELD BY PERSONS WHO HELD THE SHARES ITA NO.2406/CHNY/2017 :- 34 -: OF THE COMPANY CARRYING NOT LESS THAN FIFTY-ONE PER CENT OF THE VOTING POWER ON THE LAST DAY OF THE YEAR IN WHICH THE UNDER-TAKING WAS SET UP, T HE COMPANY SHALL BE PRESUMED TO HAVE TRANS-FERRED ITS OWNERSHIP OR THE BENEFICIAL INTERE ST IN THE UNDERTAK-ING : 9[PROVIDED THAT NOTHING CONTAINED IN THIS EXPLANAT ION SHALL APPLY TO ANY CHANGE IN THE SHAREHOLDING OF THE COMPANY AS A RESULT OF (A) ITS BECOMING A COMPANY IN WHICH THE P UBLIC ARE SUBSTAN-TIALLY INTERESTED; OR (B) DISINVESTMENT OF ITS EQUITY SHARES BY A NY 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 DIS C, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE; OR (B) ANY CUSTOMIZED ELECTRONIC DATA OR ANY PROD UCT OR SERV-ICE OF SIMILAR NATURE, AS MAY BE NOTIFIED 10 BY THE BOARD, WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO ANY PLACE OUTSIDE INDIA BY ANY MEANS; (II) CONVERTIBLE FOREIGN EXCHANGE MEANS F OREIGN EXCHANGE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK OF INDIA AS CONVE RTIBLE FOREIGN EXCHANGE FOR THE PURPOSES OF THE FOREIGN EXCHANGE REGULATION ACT, 19 73 (46 OF 1973), AND ANY RULES MADE THEREUNDER OR ANY OTHER CORRESPONDING LAW FOR THE T IME BEING IN FORCE; (III) ELECTRONIC HARDWARE TECHNOLOGY PARK MEANS ANY PARK SET UP IN ACCORDANCE WITH THE ELECTRONIC HARDWARE TECHNOLO-GY PARK (EHTP) SCH EME NOTIFIED BY THE GOVERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUSTRY; (IV) EXPORT TURNOVER MEANS THE CONSIDERATI ON IN RESPECT OF EXPORT 11[BY THE UNDERTAKING] OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EX-CHANGE 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 SOFT WARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL 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 OFFIC IAL GAZETTE, SPECIFY FOR THE PURPOSES OF THIS SECTION; (VI) RELEVANT ASSESSMENT YEAR MEANS ANY AS SESSMENT YEAR FALLING WITHIN A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THI S SECTION; (VII) SOFTWARE TECHNOLOGY PARK MEANS ANY PA RK SET UP IN ACCORDANCE WITH THE SOFTWARE TECHNOLOGY PARK SCHEME NOTIFIED BY THE GOV ERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUS-TRY; (VIII) SPECIAL ECONOMIC ZONE MEANS A ZONE WH ICH THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY AS A S PECIAL ECONOMIC ZONE FOR THE PURPOSES OF THIS SECTION.] [EXPLANATION 3.FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT THE PROFITS AND GAINS DERIVED FROM ON SITE DEVELOPMENT OF COMPUTER SOFTWA RE (INCLUDING SERVICES FOR DEVELOPMENT OF SOFT-WARE) OUTSIDE INDIA SHALL BE DEEMED TO BE TH E PROFITS AND GAINS DERIVED FROM THE EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA.] ITA NO.2406/CHNY/2017 :- 35 -: THE FOLLOWING EXPLANATION 4 SHALL BE INSERTED AFTER EXPLANATION 3 BY THE FINANCE ACT, 2003, W.E.F. 1-4-2004: EXPLANATION 4.- FOR THE PURPOSES OF THIS SECTION, MANUFACTURE OR PRODUCE SHALL INCLUDE THE CUTTING AND POLISHING OF PRECIOUS AND SEMI-PRECIOUS STONES. 7.6 THUS, AS COULD BE SEEN THAT FINANCE ACT, 2003 , INERT-ALIA, AMENDED SECTION 10A BY SUBSTITUTING SECTION 10A(1A) OF THE 1961 ACT BY A NEWLY INSERTED SECTION 10A(1A) TO 10A(1C) WITH EFFECT FRO M 01.04.2004 , WHEREIN IT PROVIDED FOR DEDUCTION AVAILABLE TO SEZ UNIT FOR A PERIOD OF 10 YEARS AS AGAINST PERIOD OF 7 YEARS PROVIDED BY FINA NCE ACT, 2002 PROVIDED THAT FOR 8 TH TO 10 TH YEAR, DEDUCTION U/S 10A SHALL BE ALLOWED TO SEZ UN IT PROVIDED IT CREATES AN RESERVE CALLED SPECIAL ECONOMIC ZONE RE- INVESTMENT ALLOWANCE RESERVE ACCOUNT AND THE SAID RESERVES CAN ONLY BE UTILIZED FOR SPECIFIED PURPOSES WITHIN STIPULATED P ERIOD, AS STIPULATED U/S 10A (IB) OF THE 1961 ACT AND CONSEQUENCES ARE PROVI DED IN STATUTE FOR NON-UTILIZATION OF SAID RESERVES WITHIN SPECIFIED P ERIOD OR UTILIZATION FOR PURPOSES OTHER THAN SPECIFIED U/S 10A(IB) , WHICH C ONSEQUENCES ARE PROVIDED U/S 10A(1C) OF THE 1961 ACT. 7.7 IT WILL BE PROFITABLE AT THIS STAGE TO REFER TO NOTES ON CLAUSES AND MEMORANDUM TO FINANCE BILL, 2003. THE NOTES ON CLAU SE IN FINANCE BILL, 2003 PROPOSING TO AMEND SECTION 10A OF THE 1961 ACT STIPULATED AS UNDER: CLAUSE 7 SEEKS TO AMEND SECTION 10A OF THE INCOME- TAX ACT RELATING TO SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZON E, ETC. UNDER THE EXISTING PROVISION CONTAINED IN SUB-SECTI ON (1) OF THE SAID SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDE RTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CON SECUTIVE ASSESSMENT YEARS IS ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, NO DEDUCTION IS ALLOWABLE TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON TH E 1ST DAY OF APRIL, 2010 AND SUBSEQUENT YEARS. SUB SECTION (1A) OF THE SAID SECTION PROVIDES THAT AN UNDERTAKING SET UP IN A SPECIAL ECONOMIC ZONE ON OR AFTER THE 1ST DAY OF APRIL, 200 3 IS ELIGIBLE FOR A DEDUCTION OF HUNDRED PER CENT OF EXPORT PROFITS FOR FIVE YEARS AND FIFTY PER CENT FOR FURTHER TWO ASSESSMENT YEARS. UNDER SUB-SECTION (9), NO DEDUCTION UNDER SUB-SECTI ON (1) IS ALLOWED TO THE ASSESSEE WHERE THE OWNERSHIP OR THE BENEFICIAL INTEREST IN THE UNDERTA KING IS TRANSFERRED BY ANY MEANS. HOWEVER, THIS ITA NO.2406/CHNY/2017 :- 36 -: CONDITION IS NOT APPLICABLE WHERE AS A RESULT OF TH E REORGANISATION OF THE BUSINESS, A FIRM OR SOLE PROPRIETARY CONCERN IS SUCCEEDED BY A COMPANY. IT IS PROPOSED TO INSERT THE REFERENCE OF SUB-SECTI ON (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 T O INSERT THE REFERENCE OF THIS SECTION INSTEAD OF SUB-SECTION (1). THE PROPOSED AMENDMENT IS CONS EQUENTIAL IN NATURE. THESE AMENDMENTS WILL TAKE EFFECT RETROSPECTIVELY F ROM 1ST APRIL, 2003 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2003-2004 AND SU BSEQUENT YEARS. IT IS ALSO PROPOSED TO OMIT SUB-SECTIONS (9) AND (9 A) AND EXPLANATION 1 OCCURRING BELOW SUB-SECTION (9A). IT IS ALSO PROPOSED TO INSERT A NEW SUB-SECTIO N (7A) TO PROVIDE THAT WHERE A COMPANY IS TRANSFERRED TO ANOTHER COMPANY UNDER A SCHEME OF AM ALGAMATION OR DEMERGER, THE DEDUCTION SHALL BE ALLOWABLE IN THE HANDS OF THE AMALGAMATED OR THE RESULTING COMPANY. HOWEVER, NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SECTION TO THE AMALG AMATING COMPANY OR THE DEMERGED COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR DEME RGER TAKES PLACE. IT IS ALSO PROPOSED TO INSERT EXPLANATION 4 AT THE END SO AS TO PROVIDE THAT FOR THE PURPOSES OF THIS SECTION, MANUFACTURE OR PRODUCE SHALL INCLUDE THE CUTTING AND POLISHING OF PRECIOUS AND SEMI- PRECIOUS STONES. THESE AMENDMENTS WILL TAKE EFFECT FROM 1ST APRIL, 2 004 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2004-2005 AND SUBSEQUENT YEARS. 7.8 THUS AS CAN BE SEEN ABOVE THAT NOTES ON CLAUSES AND MEMORANDUM TO FINANCE BILL, 2003 CLEARLY STIPULATED THAT SECTION 10A(1A) IS APPLICABLE TO NEWLY SET UP UNITS IN SEZ ON OR AFTER 1 ST DAY OF APRIL 2003 AND IT CANNOT BE STRETCHED TO THE UNITS WHICH ARE CONVERTED FROM EPZ UNITS TO SEZ UNITS. THE INTENTION OF LAW MAKERS IS MANIFESTLY CLEAR THA T THEY INTENT TO APPLY SECTION 10A(1A) TO NEWLY SET UP UNITS IN SEZ DURING PREVIOUS YEAR RELEVANT TO AY: 2003-04 ONWARDS AS TERMINOLOGY USED IN BEGINS TO MANUFACTURE AND THE WORD BEGUN IS CONSPICUOUSLY MISSING IN SECTION 10A(1A) AND BY NO STRETCH OF IMAGINATION PROVISIONS OF SECTION 10A(1A) CAN BE MADE APPLICABLE TO EXISTING EPZ/FTZ UNITS WH ICH GOT THEMSELVES CONVERTED INTO AN SEZ UNIT WHICH SHALL CONTINUE TO BE GOVERNED BY PROVISIONS OF SECTION 10A(1) OF THE 1961 ACT. FOR T HE UNITS WHICH ARE CONVERTED FROM EPZ/FTZ UNITS TO SEZ UNITS, SECOND P ROVISO TO SECTION 10A(1) SHALL CONTINUE TO APPLY. FOR A NEWLY ESTABLI SHED SEZ , NOW DEDUCTIONS ARE 100% OF PROFITS DERIVED FROM EXPORT S FOR FIRST FIVE YEARS AND 50% FOR NEXT 2 YEARS, WHILE FOR THE NEXT THREE YEARS, DEDUCTION U/S 10A(1A) WILL BE 50% SUBJECT TO CREATION OF SPECIFIE D RESERVES WHICH CAN ONLY BE USED FOR SPECIFIED PURPOSES WITHIN STIPULAT ED TIME LIMITS AS ITA NO.2406/CHNY/2017 :- 37 -: PROVIDED IN SECTION 10A ITSELF. . THE LEGISLATURE I N ITS OWN WISDOM WHILE GRANTING BENEFIT OF DEDUCTION U/S 10A(1A) TO NEWLY SET UP SEZS UNITS HAVE PUT ADDITIONAL CONDITIONS FOR CREATION OF RESE RVES IN 8 TH TO 10 YEAR AND THEIR UTILIZATION IN A PRESCRIBED MANNER, WHILE FOR THE UNITS WHICH ARE SET UP PRIOR TO PREVIOUS YEAR RELEVANT TO AY: 2003- 04, OR ARE MERELY CONVERTED FROM EPZ TO SEZ, THIS CONDITION SHALL NOT APPLY AND THEY WILL CONTINUE TO GET BENEFIT OF DEDUCTION U/S 10A(1) OF 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 R ESTRICTED 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 LAT ER FINANCE ACTS 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 WA S 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 COM PUTING THE TOTAL INCOME OF AN ASSESSEE, BEING AN ENTREPRENEUR AS REFERRED TO IN C LAUSE (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 PREVIO US YEAR RELEVANT TO ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2 006, A DEDUCTION OF (I) HUNDRED PER CENT OF PROFITS AND G AINS DERIVED FROM THE EXPORT, OF SUCH ARTICLES OR THINGS OR FROM SERVICES FOR A PERIOD OF FIVE CONSEC UTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNIT BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR PROVIDE SERVICES, AS THE CASE MAY BE, AND FIFTY PER CENT OF SUCH PROFITS AND GAINS FOR FURTHER FIVE ASSESSMENT YEARS AND THE REAFTER; (II) FOR THE NEXT FIVE CONSECUTIVE ASS ESSMENT YEARS, SO MUCH OF THE AMOUNT NOT EXCEEDING FIFTY PER CENT OF THE PROFIT AS IS DEBITED TO THE P ROFIT AND LOSS ACCOUNT OF THE PREVIOUS YEAR IN RESP ECT OF WHICH THE DEDUCTION IS TO BE ALLOWED AND CREDITE D TO A RESERVE ACCOUNT (TO BE CALLED THE SPECIAL ECONOMIC ZONE RE-INVESTMENT RESERVE ACCOUNT) TO BE CREATED AND UTILIZED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE IN THE MANNER LAID DOWN IN SUB-SECTION (2). (2) THE DEDUCTION UNDER CLAUSE (II) OF SUB-SECTION (1 ) SHALL BE ALLOWED ONLY IF THE FOLLOWING CONDITIONS ARE FULFILLED, NAMELY : ITA NO.2406/CHNY/2017 :- 38 -: (A) THE AMOUNT CREDITED TO THE SPECIAL ECONOMIC ZONE RE-INVESTMENT RESERVE ACCOUNT IS TO BE UTILISED (I) FOR THE PURPOSES OF ACQUIRING MACHINER Y OR PLANT WHICH IS FIRST PUT TO USE BEFORE THE EXPIRY OF A PERIOD OF THREE YEARS FOLLOWING THE PRE VIOUS YEAR IN WHICH THE RESERVE WAS CREATED; AND (II) UNTIL THE ACQUISITION OF THE MACHINERY OR PLANT AS AFORESAID, FOR THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING OTHER THAN FOR DISTRIBU TION BY WAY OF DIVIDENDS OR PROFITS OR FOR REMITTANCE OUTSIDE INDIA AS PROFITS OR FOR THE CREA TION OF ANY ASSET OUTSIDE INDIA; (B) THE PARTICULARS, AS MAY BE SPECIFI ED BY THE CENTRAL BOARD OF DIRECT TAXES IN THIS BEHALF, UNDER CLAUSE (B) OF SUB-SECTION (1B) OF SECTI ON 10A HAVE BEEN FURNISHED BY THE ASSESSEE IN RESPECT OF MACHINERY OR PLANT ALONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH PLANT OR MACHINERY WAS FIRST PUT TO USE. (3) WHERE ANY AMOUNT CREDITED TO THE SPECIAL ECONOMI C ZONE RE-INVESTMENT RESERVE ACCOUNT UNDER CLAUSE (II) OF SUB-SECTION (1), (A) HAS BEEN UTILISED FOR ANY PURPOSE OTHER THAN THOSE REFERRED TO IN SUB-SECTION (2), TH E AMOUNT SO UTILISED; OR (B) HAS NOT BEEN UTILISED BEFORE THE E XPIRY OF THE PERIOD SPECIFIED IN SUB-CLAUSE (I) OF CLAUSE (A) OF SUB-SECTION (2), THE AMOUNT NOT SO UTI LISED, 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 O F THE UNIT FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPL ICATION OF THE PROVISIONS OF SUB-SECTION (7B) OF SECTION 10A, THE UNDERTAKING, BEING THE UNI T SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPI RED PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS AND THEREAFTER IT SHALL BE ELIGIBL E FOR DEDUCTION FROM INCOME AS PROVIDED IN CLAUSE (II) OF SUB-SECTION (1). EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT AN UNDERTAKING, BEING THE UNIT, WHICH HAD ALREADY AVAILED, BEFORE THE COM MENCEMENT OF THE SPECIAL ECONOMIC ZONES ACT, 2005, THE DEDUCTIONS REFERRED TO IN SECT ION 10A FOR TEN CONSECUTIVE ASSESSMENT YEARS, SUCH UNIT SHALL NOT BE ELIGIBLE F OR DEDUCTION FROM INCOME UNDER THIS SECTION : PROVIDED FURTHER THAT WHERE A UNIT INITIALLY LOCATE D IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIA L ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCES SING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CONSECUTIVE ASSESSMENT YEAR S REFERRED TO ABOVE SHALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO THE P REVIOUS YEAR IN WHICH THE UNIT BEGAN TO MANUFACTURE, OR PRODUCE OR PROCESS SUCH AR TICLES OR THINGS OR SERVICES IN SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE : PROVIDED ALSO THAT WHERE A UNIT INITIALLY LOCATED I N ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIA L ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCES SING ZONE INTO A SPECIAL ECONOMIC ZONE AND HAS COMPLETED THE PERIOD OF TEN CONSECUTIV E 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. ITA NO.2406/CHNY/2017 :- 39 -: (4) THIS SECTION APPLIES TO ANY UNDERTAKING BEING TH E UNIT, WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR SERVIC ES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2006, IN ANY SPECIAL ECONOMIC ZONE. (5) WHERE ANY UNDERTAKING BEING THE UNIT WHICH IS EN TITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED, BEFORE THE EXPIRY OF THE PERIOD SPECIF IED IN THIS SECTION, TO ANOTHER UNDERTAKING, BEING THE UNIT IN A SCHEME OF AMALGAMATION OR DEMERGER, (A) NO DEDUCTION SHALL BE ADMISSIBLE U NDER THIS SECTION TO THE AMALGAMATING OR THE DEMERGED UNIT, BEING THE COMPANY FOR THE PREVIOUS Y EAR IN WHICH THE AMALGAMATION OR THE DEMERGER TAKES PLACE; AND (B) THE PROVISIONS OF THIS SECTION SH ALL, AS THEY WOULD HAVE APPLIED TO THE AMALGAMATING OR THE DEMERGED UNIT BEING THE COMPANY AS IF THE AM ALGAMATION OR DEMERGER HAD NOT TAKEN PLACE. (6) LOSS REFERRED TO IN SUB-SECTION (1) OF SECTION 72 OR SUB-SECTION (1) OR SUB-SECTION (3) OF SECTION 74, IN SO FAR AS SUCH LOSS RELATES TO THE BUSINESS OF THE UNDERTAKING, BEING THE UNIT SHALL BE ALLOWED TO BE CARRIED FORWARD OR SET OFF. (7) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFITS DERIVED FROM THE EXPORT OF ARTICLES 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 SA ME 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 SECT ION 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 1 ST APRIL, 2006 HAD BEEN SUBSTITUTED; (B) FOR THE WORD UNDERTAKING, THE WO RDS 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 CONSI DERATION IN RESPECT OF EXPORT BY THE UNDERTAKING, BEING THE UNIT OF ARTICLES OR THINGS OR SERVICES RE CEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHA RGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OUTSIDE INDIA OR EXPENSES, I F ANY, INCURRED IN FOREIGN EXCHANGE IN RENDERING OF SERVICES (INCLUDING COMPUTER SOFTWARE) OUTSIDE INDIA ; (II) EXPORT IN RELATION TO THE SPECIA L ECONOMIC ZONES MEANS TAKING GOODS OR PROVIDING SERVICES OUT OF INDIA FROM A SPECIAL ECONOMIC ZONE BY LAND, SEA, AIR, OR BY ANY OTHER MODE, WHETHER PHYSICAL OR OTHERWISE; (III) MANUFACTURE SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN CLAUSE (R) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONES ACT, 2005 66B; (IV) RELEVANT ASSESSMENT YEAR MEANS A NY ASSESSMENT YEAR FALLING WITHIN A PERIOD OF FIFTEEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SECTION; (V) SPECIAL ECONOMIC ZONE AND UNIT SHALL HAVE THE SAME MEANINGS AS ASSIGNED TO THEM UNDER CLAUSES (ZA) AND (ZC) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONES ACT, 2005. EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT THE PROFITS AND GAINS DERIVED FROM ON SITE DEVELOPMENT OF COMPUTER SOFTWARE (INCL UDING SERVICES FOR DEVELOPMENT OF SOFTWARE) OUTSIDE INDIA SHALL BE DEEMED TO BE THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA.] ITA NO.2406/CHNY/2017 :- 40 -: 7.10 SUB-SECTION 7B WAS ALSO SIMULTANEOUSLY ADDED T O SECTION 10A BY THE SPECIAL ECONOMIC ZONES ACT, 2005 W.E.F. 10.02.2006 , WHICH READS AS UNDER: SECTION 10A [(7B) THE PROVISIONS OF THIS SECTION SHALL NOT APPL Y TO ANY UNDERTAKING, BEING A UNIT REFERRED TO IN CLAUSE (ZC) OF SECTION 2 OF THE SPECIAL ECONOMIC ZO NES ACT, 2005, WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUT ER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 2006 IN ANY SPECIAL ECONOMIC ZONE.]: 7.11 BEFORE WE PROCEED FURTHER, IT IS IMPORTANT TO UNDERSTAND THE CONCEPT RATIONALE OF SPECIAL ECONOMIC ZONES AND REASONS FOR BRINGING A SEPARATE STATUTE NAMELY SPECIAL ECONOMIC ZONE ACT, 2005, DE ALING WITH SEZ IN INDIA . WE HAVE REFERRED TO GOI WEB-SITE SEZINDIA.N IC.IN TO UNDERSTAND THE CONCEPT OF SEZ , WHEREIN RELEVANT EXTRACT IS FROM T HE SAID GOI WEBSITE IS REPRODUCED AS UNDER: INDIA WAS ONE OF THE FIRST IN ASIA TO RECOGNIZE TH E EFFECTIVENESS OF THE EXPORT PROCESSING ZONE (EPZ) MODEL IN PROMOTING EXP ORTS, WITH ASIA'S FIRST EPZ SET UP IN KANDLA IN 1965. WITH A VIEW TO OVERCO ME THE SHORTCOMINGS EXPERIENCED ON ACCOUNT OF THE MULTIPLICITY OF CONTR OLS AND CLEARANCES; ABSENCE OF WORLD-CLASS INFRASTRUCTURE, AND AN UNSTA BLE FISCAL REGIME AND WITH A VIEW TO ATTRACT LARGER FOREIGN INVESTMENTS I N INDIA, THE SPECIAL ECONOMIC ZONES (SEZS) POLICY WAS ANNOUNCED IN APRIL 2000. THIS POLICY INTENDED TO MAKE SEZS AN ENGINE FOR ECO NOMIC GROWTH SUPPORTED BY QUALITY INFRASTRUCTURE COMPLEMENTED BY AN ATTRACTIVE FISCAL PACKAGE, BOTH AT THE CENTRE AND THE STATE LEVEL, WI TH THE MINIMUM POSSIBLE REGULATIONS. SEZS IN INDIA FUNCTIONED FROM 1.11.2000 TO 09.02.2006 UNDER THE PROVISIONS OF THE FOREIGN TRAD E POLICY AND FISCAL INCENTIVES WERE MADE EFFECTIVE THROUGH THE PROVISIO NS OF RELEVANT STATUTES. TO INSTILL CONFIDENCE IN INVESTORS AND SIGNAL THE G OVERNMENT'S COMMITMENT TO A STABLE SEZ POLICY REGIME AND WITH A VIEW TO IM PART 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 STAKE HOLDERS. A NUMBER OF MEETINGS WERE HELD IN VARIOUS PARTS OF THE COUNTRY BOTH BY THE MINISTER FOR COMMERCE AND INDUSTRY AS WELL AS SENIOR OFFICIALS F OR THIS PURPOSE. THE SPECIAL ECONOMIC ZONES ACT, 2005, WAS PASSED BY PAR LIAMENT IN MAY, 2005 WHICH RECEIVED PRESIDENTIAL ASSENT ON THE 23RD OF J UNE, 2005. THE DRAFT SEZ RULES WERE WIDELY DISCUSSED AND PUT ON THE WEBS ITE OF THE DEPARTMENT OF COMMERCE OFFERING SUGGESTIONS/COMMENT S. AROUND 800 SUGGESTIONS WERE RECEIVED ON THE DRAFT RULES. AFTER EXTENSIVE CONSULTATIONS, THE SEZ ACT, 2005, SUPPORTED BY SEZ RULES, CAME INTO EFFECT ON 10TH FEBRUARY, 2006, PROVIDING FOR DRASTI C SIMPLIFICATION OF ITA NO.2406/CHNY/2017 :- 41 -: PROCEDURES AND FOR SINGLE WINDOW CLEARANCE ON MATTE RS RELATING TO CENTRAL AS WELL AS STATE GOVERNMENTS. THE MAIN OBJECTIVES O F THE SEZ ACT ARE: GENERATION OF ADDITIONAL ECONOMIC ACTIVITY PROMOTION OF EXPORTS OF GOODS AND SERVICES PROMOTION OF INVESTMENT FROM DOMESTIC AND FOREIGN S OURCES CREATION OF EMPLOYMENT OPPORTUNITIES DEVELOPMENT OF INFRASTRUCTURE FACILITIES IT IS EXPECTED THAT THIS WILL TRIGGER A LARGE FLOW OF FOREIGN AND DOMESTIC INVESTMENT IN SEZS, IN INFRASTRUCTURE AND PRODUCTIV E CAPACITY, LEADING TO GENERATION OF ADDITIONAL ECONOMIC ACTIVITY AND CREA TION OF EMPLOYMENT OPPORTUNITIES. THE SEZ ACT 2005 ENVISAGES KEY ROLE FOR THE STATE G OVERNMENTS IN EXPORT PROMOTION AND CREATION OF RELATED INFRASTRUCTURE. A SINGLE WINDOW SEZ APPROVAL MECHANISM HAS BEEN PROVIDED THROUGH A 19 M EMBER INTER- MINISTERIAL SEZ BOARD OF APPROVAL (BOA). THE APPLIC ATIONS DULY RECOMMENDED BY THE RESPECTIVE STATE GOVERNMENTS/UT ADMINISTRATI ON ARE CONSIDERED BY THIS BOA PERIODICALLY. ALL DECISIONS OF THE BOARD O F APPROVALS ARE WITH CONSENSUS. THE SEZ RULES PROVIDE FOR DIFFERENT MINIMUM LAND RE QUIREMENT FOR DIFFERENT CLASS OF SEZS. EVERY SEZ IS DIVIDED INTO A PROCESSI NG AREA WHERE ALONE THE SEZ UNITS WOULD COME UP AND THE NON-PROCESSING AREA WHERE THE SUPPORTING INFRASTRUCTURE IS TO BE CREATED. THE SEZ RULES PROVIDE FOR: ' SIMPLIFIED PROCEDURES FOR DEVELOPMENT, OPERATION, AND MAINTENANCE OF THE SPECIAL ECONOMIC ZONES AND FOR SETTING UP UNITS AND CONDUCTING BUSINESS IN SEZS; SINGLE WINDOW CLEARANCE FOR SETTING UP OF AN SEZ; SINGLE WINDOW CLEARANCE FOR SETTING UP A UNIT IN A SPECIAL ECONOMIC ZONE; SINGLE WINDOW CLEARANCE ON MATTERS RELATING TO CENT RAL AS WELL AS 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 L ARGE FOREIGN INVESTMENTS IN INDIA AND TO MAKE SEZ AS AN ENGINE F OR ECONOMIC GROWTH SUPPORTED BY QUALITY INFRASTRUCTURE AND COMPLEMENTE D BY AN ATTRACTIVE FISCAL PACKAGE BOTH BY CENTRAL AND STATE GOVERNMENT S. THE OBJECTIVE WAS TO INSTILL CONFIDENCE IN INVESTORS AND SIGNAL GOVER NMENT COMMITMENT TO A STABLE SEZ POLICY WITH A VIEW TO ACHIEVE GREATER EC ONOMIC ACTIVITY AND EMPLOYMENT THROUGH ESTABLISHMENT OF SEZS. PREAMBLE TO SEZ ACT, 2005 PROVIDES THAT IT IS AN ACT TO PROVIDE FOR ESTABLISH MENT , DEVELOPMENT AND ITA NO.2406/CHNY/2017 :- 42 -: 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 ALS O INCLUDED EXISTING SEZS WHICH WERE IN EXISTENCE ON OR BEFORE COMMENC EMENT OF THE 2005 ACT . THE SEZ ACT, 2005 VIDE SECTION 2(ZC) READ WIT H SECTION 2(L) WHILE DEFINING UNIT IN SEZ ALSO INCLUDED UNITS IN SEZ WHI CH WAS SET UP ON OR BEFORE COMMENCEMENT OF THIS ACT. THUS THIS ACT OF 2 005 BROUGHT WITHIN ITS FOLD NOT ONLY NEWLY SET UP SEZS OR UNITS IN SEZ WH ICH ARE SET UP POST COMMENCEMENT OF THIS ACT OF 2005 BUT ALSO BRING WIT HIN ITS FOLD EXISTING SEZS OR UNITS IN SEZ WHICH WERE IN EXISTENCE AT TH E TIME WHEN THIS NEW ACT OF 2005 CAME INTO FORCE. SECTION 51 OF THE ACT OF 2005 STIPULATES THAT THE PROVISIONS OF THE 2005 ACT SHALL HAVE EFFECT NO TWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW F OR THE TIME BEING IN FORCE OR IN ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY LAW OTHER THAN THIS ACT. SECTION 44 OF THE 2005 ACT STIPULATES THA T ALL THE PROVISIONS OF THIS ACT(EXCEPT SECTION 3 AND 4) SHALL , AS FAR AS MAY BE APPLY, TO EVERY EXISTING SPECIAL ECONOMIC ZONES. SECTION 27 OF THE 2005 ACT STIPULATES THAT THE PROVISIONS OF THE 1961 ACT , AS IN FORCE F OR THE TIME BEING, SHALL APPLY TO , OR IN RELATION TO, THE DEVELOPER OR ENTR EPRENEUR FOR CARRYING ON THE AUTHORIZED OPERATIONS IN A SPECIAL ECONOMIC ZON E OR UNITS SUBJECT TO THE MODIFICATION SPECIFIED IN THE SECOND SCHEDULE. SECTION 10AA WAS INCORPORATED IN SECOND SCHEDULE TO THE 2005 ACT AND THROUGH IT GOT INCLUDED IN THE 1961 ACT EFFECTIVE FROM 10.02.2006 AND SIMULTANEOUSLY SUB-SECTION 7B WAS INSERTED IN SECTION 10A OF THE 1 961 ACT THROUGH INSERTION IN SECOND SCHEDULE TO THE 2005 ACT. 7.13 THE SECTION 10AA(1) OF THE 1961 ACT , INTER-AL IA, STIPULATES THAT SUBJECT TO PROVISIONS OF SECTION 10AA, ITS APPLICAB ILITY IS LIMITED TO UNITS IN SEZ WHICH BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE IN SEZ DURING THE PREVIOUS YEAR R ELEVANT TO ASSESSMENT YEAR COMMENCING ON OR AFTER 1 ST APRIL, 2006. SIMILARLY SECTION 7B ITA NO.2406/CHNY/2017 :- 43 -: SIMULTANEOUSLY EXCLUDES ALLOWABILITY OF DEDUCTION U NDER SECTION 10A OF THE 1961 ACT TO UNDERTAKINGS BEING UNITS REFERRED TO IN SECTION 2(ZC) OF THE 2005 ACT WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLE OR THING DURING THE PREVIOUS YEAR RELEVANT TO ASSESSME NT YEAR COMMENCING ON OR AFTER 1 ST APRIL 2006 IN ANY SEZ. CAREFUL PERUSAL OF SUB-SEC TION 7B OF THE 1961 ACT WHICH WAS INSERTED IN SECTION 10A OF THE 1961 ACT BY SEZ ACT, 2005 W.E.F. 10.02.2006, CLEARLY REVEALS THAT IT EXCLUDES APPLICABILITY OF ENTIRE SECTION 10A TO ANY UNDERTAKING , BEING A UNIT REFERRED TO IN CLAUSE (ZC) OF SECTION 2 OF THE SEZ ACT, 2005 WHICH HAS BEGUN TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUT ER SOFTWARE IN SEZ OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE COMMENCING ON OR AFTER THE 1 ST 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 10 AA OF THE 1961 ACT AND HENCEFORTH PROVISIONS OF SECTION 10AA SHALL BE APPL ICABLE TO UNITS IN SEZ, EVEN IF THESE UNITS ARE EXISTING UNITS IN SEZ ON O R BEFORE COMMENCEMENT OF SEZ ACT, 2005. WE HAVE ALREADY SEEN THAT SEZ ACT , 2005 IS A BENEFICIAL LEGISLATION WITH OBJECTIVE TO PROMOTE EXPORTS, ENCO URAGE 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 C OULD BE SEEN, SECTION 10AA OF THE 1961 ACT WHICH WAS INSERTED EFFECTIVE F ROM 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 C OMPUTING 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 UNDERTAKING BEING UNIT SHALL BE E NTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPI RED PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS AND THEREAFTER IT SHAL L BE ELIGIBLE FOR DEDUCTION FROM INCOME AS PROVIDED IN CLAUSE (II) OF SUB-SECTION (1) OF SECTION 10AA OF THE 1961 ACT. WE HAVE ALREADY SEEN THAT PROVISIONS OF ITA NO.2406/CHNY/2017 :- 44 -: SECTION 10AA(1) OF THE 1961 ACT IS SUBJECT TO PROVI SIONS OF OTHER SUB- SECTIONS OF SECTION 10AA OF THE 1961 ACT. THE SECTI ON 10AA(1) PROVIDES FOR DEDUCTION FOR A TOTAL PERIOD OF 15 YEARS, FIRST 5 YEARS DEDUCTION IS PROVIDED @100% OF PROFITS DERIVED FROM EXPORTS, WH ILE FOR REST TEN YEARS DEDUCTION IS PROVIDED @50% OF PROFITS DERIVED FROM EXPORTS SUBJECT TO FULFILMENT OF CONDITIONS AS ARE STIPULATED U/S 10AA OF THE 1961 ACT. AS WE HAVE OBSERVED THAT BY INSERTION OF SUB-SECTION 7B T O SECTION 10A , THE ENTIRE UNITS IN SEZ WHICH WERE EXISTING ON OR BEFOR E COMMENCEMENT OF SEZ ACT WERE TAKEN OUT FROM APPLICABILITY OF SECTIO N 10A AND NEW REGIME OF SECTION 10AA WAS MADE APPLICABLE EVEN TO EXISTIN G UNITS IN SEZ. THE FIRST PROVISO CLEARLY STIPULATES THAT THE EXISTING SEZ UNITS WHICH BEGUN TO PRODUCE OR MANUFACTURE ARTICLES OR THINGS IN OLD RE GIME WILL BE ENTITLED FOR DEDUCTION U/S 10A OF THE 1961 ACT ONLY FOR UNEXPIRE D PERIOD OF CONSECUTIVE TEN YEARS AND THEREAFTER THEY WILL BE E NTITLED FOR A FURTHER DEDUCTION FOR A PERIOD OF FIVE YEARS UNDER NEWLY E NACTED PROVISIONS OF SECTION 10AA(1)(II) OF THE 1961 ACT. IT IS ALSO PER TINENT TO MENTION THAT PROVISIONS OF SECTION 10A OF THE 1961 ACT REFERS TO GRANT OF DEDUCTION FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS AND SECT ION 10AA FOR A NEWLY SET UP SEZ UNITS DID NOT USES THE TERMINOLOGY TEN CONSECUTIVE ASSESSMENT YEARS, WHICH FURTHER STRENGTHEN THE BELIEF THAT SE CTION 10AA SHALL BE APPLICABLE TO ALL SEZ WHETHER THESE WERE ESTABLISHE D UNDER OLD REGIME OR UNDER NEWLY ENACTED SEZ ACT, 2005. THE SECOND PROVI SO WHICH IS PLACED AFTER SUB-SECTION 10AA(3) ALSO PROVIDES THAT IN CAS E OF UNITS INITIALLY LOCATED IN EPZ OR FTZ BUT SUBSEQUENTLY LOCATED IN S EZ BY REASONS OF CONVERSION OF SUCH FTZ OR EPZ INTO SEZ , THE PERIO D OF TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO ABOVE SHALL BE RECKONE D FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNIT BEGINS TO MANUFACTURE OR PRODUCE OR PROCESS SUCH ARTICLES OR THINGS OR SERVICE IN SUCH FTZ OR EPZ , WHICH IS IN FACT THE CASE OF THE ASSESSEE, THE ASSESSEE THUS WILL BE ENTITLED FOR DEDUCTION FOR UNEXPIRED P ERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING FROM AY: 2006-07 U/S 10A OF THE 1961 ACT ITA NO.2406/CHNY/2017 :- 45 -: WHICH ENDED ON AY: 2010-11 AND THEREAFTER FURTHER D EDUCTION OF 50% OF PROFITS DERIVED FROM EXPORTS FOR FURTHER PERIOD OF FIVE YEARS UNDER THE PROVISIONS OF SECTION 10AA OF THE 1961 ACT BEGINNIN G 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 YEAR S REFERRED TO ABOVE BEFORE THE COMMENCEMENT OF SEZ ACT, 2005 AND SIMUL TANEOUS INSERTION OF SUB-SECTION 7B TO SECTION 10A OF THE 1961 ACT, W EF 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 C LAUSES WHICH HAVE MADE APPLICABLE PROVISIONS OF NEWLY INSERTED SECTI ON 10AA TO EXISTING SEZ UNITS UNDER OLD REGIME WHICH HAVE NOT EXHAUSTED DEDUCTION FOR TEN CONSECUTIVE ASSESSMENT YEARS ON THE DATE OF INTRODU CTION OF SECTION 10AA , AS WAS AVAILABLE TO THEM U/S 10A OF THE 1961 ACT ON COMMENCEMENT OF SEZ ACT, 2005 AND THUS THESE SEZ UNITS SHALL BE ENTITLED FOR DEDUCTION FOR FURTHER PERIOD OF 5 YEARS BEYOND PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS OWING TO NEWLY INSERTED SECTION 10AA OF THE 1 961 ACT KEEPING IN VIEW PROVISIONS OF SECTION 10AA(1)(II) OF THE 1961 ACT. THUS, VIDE OUR DETAILED DISCUSSIONS ABOVE, WE HOLD THAT THE ASSESS EE IS ENTITLED FOR DEDUCTION U/S 10AA(1)(II) OF THE 1961 ACT FOR THE I MPUGNED ASSESSMENT YEAR, SUBJECT TO FULFILMENT OF OTHER CONDITIONS FOR GRANT OF DEDUCTION U/S 10AA OF THE 1961 ACT. WE ORDER ACCORDINGLY. 8. THE SECOND ISSUE CONCERNS ITSELF WITH DISALLOWAN CE MADE BY AO OF SALES COMMISSION OF RS. 34,98,309/- PAID BY ASSESSEE TO ITS FOREIGN AGENTS FOR PROCURING SALES ORDERS IN FAVOUR OF THE ASSESSEE ON THE GROUNDS THAT THE ASSESSEE HAD FAILED TO DEDUCT INCOME-TAX AT SOURCE AS IS REQUIRED TO BE DEDUCTED U/S.195 OF THE ACT READ WITH PROVISIONS OF SEC.40(A)(I) AND ITA NO.2406/CHNY/2017 :- 46 -: SECTION 9(1)(VII) OF THE 1961 ACT. THE AO WAS OF T HE VIEW THAT THIS DEDUCTION OF RS. 3 4,98,309/- DEBITED BY ASSESSEE TO ITS P&L A/C AS S ELLING COMMISSION PAID TO FOREIGN AGENTS CANNOT BE ALLOWED , BY HOLDING AS UNDER VIDE ASSESSMENT ORDER DATED 07.03.2014 PASSED U/S. 143(3) OF THE 1961 ACT: AS PER THE COPY OF THE AGREEMENT SUBMITTED BY THE ASSESSEE DATED 1-4- 2010,1-07-2010 IN RESPECT OF M/S, DARROW LANE CORPO RATION AND DATED 1- 04-2010 IN RESPECT OF M/S. SCHONK BV, THE COMMISSIO N FEE IS PAID TO NON- RESIDENT ON TOTAL VALUE OF EVERY ORDER GIVEN TO THE ASSESSEE COMPANY THROUGH NON-RESIDENTS. THEREFORE, THE SERVICES ARE NOT JUST PERTAINING TO A SALE AGENT OR A DEALER, BUT ARE MANAGERIAL AND TECH NICAL. IN ORDER TO IDENTIFY POTENTIAL CUSTOMERS IN THEIR COUNTRY, THE TWO AGENTS, M/S. DARROW LANE CORPORATION AND M/S. SCHONK BV HAVE TO NECESSA RILY CARRY OUT EXTENSIVE MARKETING AND ADVERTISING ACTIVITIES SUCH AS RELATIONSHIP MARKETING, INTERNAL MARKETING, INTEGRATED MARKETING , CAPTURING MARKETING ETC., TO BUILD A STRONG BRAND NAME OF THE ASSESSEE COMPANY IN THE OFFSHORE MARKETS. IN ORDER TO SHOW CAUSE THEIR PRODUCTS AND TO GET TH E ORDERS IN FAVOUR OF THE ASSESSEE COMPANY, THE FOREIGN AGENTS WOULD REQU IRE TO ENGAGE IN PUBLIC RELATIONS AND SALES PROMOTION ACTIVITIES SUC H AS TRADE SHOWS, AQUA FAIRS OR EXHIBITIONS, MEDIA, NON-MEDIA MARKETING CO MMUNICATIONS ETC. THESE FUNCTIONALITIES WOULD REQUIRE AN ORGANIZED MA RKETING 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 TEC HNICAL 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) INSERT ED 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 AC CRUE AS PER SECTION 9 (1) (VII). THEREFORE AS PER SECTION 5 (2) R. W. S. 9 (1) (VII) OF THE INCOME- TAX, THE PAYMENT MADE BY THE ASSESSEE TO THE NON-RE SIDENT IS AN INCOME ACCRUED IN INDIA. FURTHERMORE AS PER EXPLANATION 2 TO SECTION 195 INS ERTED 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 T HAT THE OBLIGATION TO COMPLY WITH SUB-SECTION (1) AND TO MAKE DEDUCTION T HERE-UNDER APPLIES AND SHALL BE DEEMED TO HOVE ALWAYS APPLIED AND EXTE NDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO. ALL PERSONS, RES IDENT OR NON-RESIDENT, WHETHER OR NOT THE NON-RESIDENT PERSON HAS ITA NO.2406/CHNY/2017 :- 47 -: (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA THEREFORE, THE JUDGMENTS RELIED ON BY THE ASSESSEE IN THE CASE OF CIT VS. R.D. AGARWAL & CO, 56 ITR 20 (1965) (SC), CIT V. TO SHOKU LTD. (21980) 125 ITR 525 (SC), TVS MOTOR CO. LTD. V ACIT (ITA NO . 697 & 7S7/ MDS/2009, DCIT V. DIBI'S LABORATORIES LTD AND CIT V . EON TECHNOLOGY PVT LTD. WILL NOT COME IN AS RESCUE TO THE ASSESSEE. IN VIEW OF THE DISCUSSION AS ABOVE THE PAYMENT OF C OMMISSION MADE TO FOREIGN AGENTS BEING SUM OF RS.34,98,309 IS DISALLO WED UNDER SECTION 40 A (IA). 9. AGGRIEVED BY AN ASSESSMENT ORDER DATED 07.03.201 4 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT, THE ASSESSEE FILED FIRS T APPEAL WITH LEARNED CIT(A) BUT WITH NO SUCCESS AS LD.CIT(A) WAS PLEASE D TO DISMISS THE APPEAL OF THE ASSESSEE VIDE APPELLATE ORDER DATED 0 2.08.2017 , BY HOLDING AS UNDER: 8.3 IN THE WRITTEN SUBMISSION FILED ON 11/4/2017 T HE A.R DID NOT GIVE ANY EXPLANATION REGARDING THIS GROUND OF APPEAL. THUS T HE A.R DID NOT BRING ANY MATERIAL ON RECORD TO PROVE THAT THE PAYMENT OF RS 34,98,309/- DOES NOT COME UNDER 'FEES FOR TECHNICAL SERVICES' AND TD S IS NOT REQUIRED TO BE DEDUCTED ON THAT PAYMENT. IN THE ABSENCE OF EVIDENCE IN SUPPORT, THIS GROUND OF APPEAL IS DISMISSED AND THE DISALLOWANCE OF ` 34,98,309/- U/S 40(A)(I) IS UPHELD. 9.2 THUS, AS COULD BE SEEN FROM ABOVE , THE ASSESSE E DID NOT GIVE ITS ARGUMENTS ON ABOVE ISSUE IN WRITTEN SUBMISSION FILE D BEFORE LEARNED CIT(A) AND IN THE ABSENCE THEREOF , THE LEARNED CIT (A) DISMISSED APPEAL OF THE ASSESSEE . THE ASSESSEE HAS FILED PAPER BOOK WITH TRIBUNAL ON 24.10.2018 AND ON GOING THROUGH THE SAME (PAGE 1-3) , WE HAVE OBSERVED THAT THE ASSESSEE DID NOT FILED ANY WRITTE N SUBMISSION ON THIS ISSUE OF DISALLOWANCE OF SALES COMMISSION PAID TO F OREIGN AGENTS BEFORE LEARNED CIT(A), BUT IT IS A MATTER OF RECORD THAT A SSESSEE MADE ELABORATE ITA NO.2406/CHNY/2017 :- 48 -: ARGUMENTS IN STATEMENT OF FACTS AND GROUNDS OF APPE AL FILED BY ASSESSEE IN MEMO OF APPEAL FILED WITH LEARNED CIT(A). THE LE ARNED CIT(A) HAS ALSO REPRODUCED GROUNDS OF APPEAL FILED BY ASSESSEE IN M EMO OF APPEAL FILED WITH LEARNED CIT(A), WHEREIN PARA 8.1 AND 8.2 OF TH E APPELLATE ORDER PASSED BY LEARNED CIT(A) IS REPRODUCED HEREUNDER: DISALLOWANCE U/S.40(A)(I) 8.1 THE ASSESSING OFFICER NOTICED THAT THE ASSESS EE DID NOT DEDUCT TDS ON SALES COMMISSION OF RS.34,98,309/-. THE A.R STATED THAT T HESE PAYMENTS WERE MADE TO FOREIGN AGENTS FOR SERVICES RENDERED OUTSIDE INDIA. THE ASSESSING OFFICER CONCLUDED THAT THE SERVICES RENDERED WOULD FALL WIT HIN THE AMBIT OF THE SECTION 9(L)(VII) WHEREIN IT IS DEFINED AS 'FEES FOR TECHNI CAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION ) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SE RVICES (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 CONTES TED 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-DEDUC TION OF TDS ON PAYMENTS MADE TO FOREIGN AGENTS AS COMMISSION FOR SERVICES R ENDERED OUTSIDE INDIA, TREATING THEM AS PAYMENTS FOR PROVISION OF TE CHNICAL KNOWLEDGE, EXPERIENCE, SKILL KNOWHOW. 6. THE LEARNED OFFICER FAILED TO UNDERSTAND THAT TH E AGREEMENTS ENTERED WITH THE FOREIGN AGENTS AJN SCHONK BV, THE NETHERLANDS AND T HE DARROW LINE TEXTILES CORPORATION, USA ARE ONLY SALES COMMISSION AGREEMEN TS WHICH CLEARLY STATES THAT THE PERCENTAGE OF COMMISSION TO BE PAID ON THE VALU E OF SALES INVOICE TO THE BUYERS INTRODUCED BY THEM TO THE APPELLANT AND ARE TO BE PAID THEM ON THE REALIZATION OF THE EXPORTS SALES INVOICES. NO OTHER SERVICES ARE RENDERED BY THEM OTHER THAN INTRODUCING NEW CUSTOMERS. THEY ARE NEIT HER INVOLVED IN THE DESIGN OF THE PRODUCT OR IN THE PROCESS OF MANUFACTURE AND TH EREFORE, NO TECHNICAL KNOWHOW KNOWLEDGE IS IMPARTED BY THEM TO THE APPELLANTS. TH E ASSESSEE RELIES ON FOLLOWING CASE LAWS IN SUPPORT OF THE CLAIMS SUBMITTED. IN CEAT INTERNATIONAL S.A. VS. COMMISSIONER OF INCO ME-TAX(1999) 237 ITR 259 (BOM.). A NON-RESIDENT COMPANY, RECEIVED PAYMENT FR OM AN INDIAN COMPANY FOR FORGOING EXPORTS IN FAVOR OF THE INDIAN COMPANY OR TRANSFERRING EXPORT ORDERS TO THE INDIAN COMPANY AND BY DOING SO, ASSESSEE DID NO T IMPART ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCI ENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL NOR RENDER ANY MANAGERIAL, TECHNICAL OR CO NSULTANCY SERVICE. HENCE PAYMENT ATTRIBUTABLE TO SUCH SERVICES CANNOT BE TRE ATED AS ROYALTY OR FEES FOR TECHNICAL SERVICES FALLING UNDER CLAUSE, (VI) AND ( VII) OF SEC.9(1). FURTHER THE DELHI HIGH COURT IN THE CASE OF SHERATON INTERNATIO NAL INC. (2009) 313 ITR 267 (DEL) HELD THAT PAYMENTS FOR ADVERTISING, PUBLICITY AND SALES PROMOTION SERVICES CANNOT BE TREATED AS EITHER ROYALTY OR FTS AND WOUL D BE TREATED AS BUSINESS INCOME. SINCE THE SERVICES ARE RENDERED BY A NON-RE SIDENT OUTSIDE INDIA AND IT DOES NOT HAVE A PE IN INDIA HENCE THE INCOME IS NOT TAXABLE. ITA NO.2406/CHNY/2017 :- 49 -: IN THE CASE ACIT V. MAINETTI (INDIA) (P) (LTD.) (20 11)12 TAXMANN.COM 60 CANVASSING OF ORDERS ABROAD COULD NOT BE REGARDED A S MANAGERIAL SERVICES, NOR COULD IT BE SAID TO BE ANY CONSULTATION. THUS DEFIN ITELY, TECHNICAL SERVICES AS PER EXPLANATION 2 TO SECTION 9(L)(VII) OF THE ACT WOULD HAVE NO APPLICATION. IN THE CASE OF ACIT VS MODERN INSULATORS LTD (2011) 10 ITR 147 (JP) IT WAS OBSERVED THAT SECTION 40(A)(I) OF THE ACT PROVIDES DISALLOWANCE OF PAYMENTS TO A NON-RESIDENT IN THE NATURE OF INTEREST, ROYALTY, FE E FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THE ACT ON WHICH TAX HAS NOT B EEN 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 AS SESSEE CANNOT BE SAID TO HAVE RENDERED ANY TECHNICAL, MANAGERIAL OR CONSULTANCY S ERVICES AS ENVISAGED IN EXPLANATION 2 TO SECTION 9(1)(VII) AS HELD BY THE A AR IN THE CASE OF CUSHMAN AND WAKEFIELD (S) PTE LTD., IN R [2008] 305 ITR 208 (AA R-NEW DELHI). 7. MOREOVER, SECTION 90 OF THE INDIAN INCOME TAX AC T PROVIDE THAT IF A NON- RESIDENT TAXPAYER IS A TAX RESIDENT OF A FOREIGN CO UNTRY WITH WHICH INDIA HAS A DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA), THEN SU CH NON-RESIDENT TAXPAYER CAN APPLY EITHER THE PROVISIONS OF THE INCOME TAX A CT 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 M EANS: (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATIO N FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC, OR SCIE NTIFIC; WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEAN OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING , ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR I NFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAIN S DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR DISPOSITION THEREOF; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL, OR SCIENTIFIC EQUI PMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 O F ARTICLE 8 (SHIPPING AND AIR TRANSPORT)FROM ACTIVITIES DESCRIBED IN PARAGRAPH2(C ) OR 3 OF ARTICLE 8.' 2. 'ROYALTY AND FEES FOR INCLUDED SERVICES' MEANS P AYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TE CHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TEC HNICAL OR OTHER PERSONNEL) IF SUCH SERVICES : (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIB ED IN PARAGRAPH 3 IS RECEIVED ; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSF ER OF A TECHNICAL PLAN OR TECHNICAL DESIGN.' 9. AS PER ARTICLE 12 OF DTAA WITH NETHERLAND S ITA NO.2406/CHNY/2017 :- 50 -: '1. THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE ME ANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPY RIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CIN EMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROC ESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCE. '2. 'FEES FOR TECHNICAL SERVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES(INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR O THER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIB ED IN PARAGRAPH 4 OF THIS ARTICLE IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENC E, SKILL, KNOW-HOW OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRA NSFER 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 M ENTIONED IN ARTICLE 12 OF DTAA WITH USA AND THE NETHERLANDS AND THE SERVIC ES 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 KNOWLED GE/KNOWHOW TRANSFER AND MERELY PROCURING ORDERS AND SALES PROMOTION WILL NOT RES ULT IN ANY SUCH SPECIFIC KNOWLEDGE TRANSFER AS ENVISAGED UNDER THE FTS CLA USE AND HENCE THE PAYMENTS SHOULD BE MERELY TREATED AS BUSINESS PROFITS OF T HE AGENT. SINCE THE SERVICES WERE RENDERED OUTSIDE INDIA, THE PROVISIONS OF SECT ION 5 OF THE ACT COULD NOT BE APPLIED TO THE COMMISSION PAID. AS THE FOREIGN AG ENT DOES NOT HAVE ANY PE IN INDIA AND THE COMMISSION TO BE CONSIDERED AS BUSINE SS INCOME, IT CANNOT BE TAXED IN INDIA AS PER THE TAX TREATIES. FOR REASONS CITED ABOVE, COMMISSION INCOME DOES NOT SATISFY THE TEST OF FEES FOR TECHNICAL SERVICES AND IT IS TO BE CLASSIFIED AS BU SINESS INCOME AND HENCE TAXABILITY WILL DEPEND UPON PE IN INDIA. AS THE FOR EIGN AGENTS OPERATE OUTSIDE INDIA THEY DO NOT HAVE PE IN INDIA, PAYMENTS MADE T O FOREIGN ENTITIES WITH NO PERMANENT ESTABLISHMENT IN INDIA THE QUESTION OF TAX DEDUCTION AT SOURCE DOES NOT ARISE AND HENCE NOT DISALLOWABLE UNDER SECT ION 40(A)(I) OF THE INCOME TAX ACT. FOR THESE AND OTHER GROUNDS THAT MAY BE PERMITTED T O BE RAISED AT THE TIME OF HEARING AND IT IS REQUESTED THAT THE ADDITIONS MADE BY THE ASSESSING OFFICER BE DELETED AND RENDER JUSTICE.' 9.3 FURTHER , STATEMENT OF FACTS WAS ALSO FILED BY ASSESSEE ALONG WITH MEMO OF APPEAL FILED WITH LEARNED CIT(A) WHEREIN A LL THE FACTS AS CLAIMED BY ASSESSEE WERE STATED (PAGE 53/PB). THERE WAS NO CONCESSION GIVEN BY ASSESSEE BEFORE LEARNED CIT(A) WAIVING ITS RIGHT TO AGITATE THIS ISSUE AND ITA NO.2406/CHNY/2017 :- 51 -: LEARNED CIT(A) WAS OBLIGATED U/S 250(6) OF THE 1961 ACT TO PASS SPEAKING AND REASONED ORDER ON MERITS BUT THE LEARNED CIT(A) DISMISSED APPEAL OF THE ASSESSEE ON THE GROUNDS THAT NO WRITTEN SUBMISS IONS ARE FILED BY ASSESSEE BEFORE HIM. THE ASSESSEE HAS ALSO FILED BE FORE US , COPIES OF AGREEMENTS ENTERED INTO BY IT WITH FOREIGN AGENTS. THE ASSESSEE HAS ALSO CLAIMED BEFORE US THAT FOR EARLIER YEARS , THE CHEN NAI-TRIBUNAL IN ASSESSEES OWN CASE VIDE ITS APPELLATE ORDER DATED 14.08.2013 IN ITA NO. 947/MDS/2013 FOR AY: 2009-10 HAS ALLOWED SALE COMMI SSION PAID TO FOREIGN AGENT WITHOUT DEDUCTION OF INCOME-TAX AT SO URCE U/S 195 OF THE 1961 ACT. BE THAT IT MAY BE BUT LEARNED CIT(A) HAS NOT ADJUDICATED THIS ISSUE IN ITS APPELLATE ORDER ON MERITS FOR IMPUGNED ASSESSMENT YEAR UNDER CONSIDERATION AND HAS SIMPLY DISMISSED APPEAL OF THE ASSESSEE AT THRESHOLD ON THE GROUND THAT NO WRITTEN SUBMISSIONS ARE FILED BY ASSESSEE ON THIS ISSUE AND IN THE INTEREST OF SUBSTANTIAL JU STICE, THIS ISSUE NEED TO BE RESTORED TO THE FILE OF LEARNED CIT(A) FOR FRESH ADJUDICATION ON MERITS IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT LEARNED C IT(A) WILL GIVE PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE IN THE INTEREST OF JUSTICE . THE ASSESSEE SHALL BE ALLOWED TO PRODUCE EVIDENCES/EXPLANATION IN ITS DEFENSE IN DENOVO ADJUDICATION OF ITS APPEAL BY LEARNED CIT(A) WHICH EVIDENCES/EXPLANATIONS SHALL BE ADMITTED BY LEARNED CIT(A) IN THE INTEREST OF SUBSTANTIAL JUSTICE AND THEN ADJUDICATED ON MERI TS IN ACCORDANCE WITH LAW. WE CLARIFY THAT WE HAVE NOT COMMENTED ON MERIT S OF THE ISSUES IN APPEAL FILED BEFORE US. IT IS WELL SETTLED THAT POW ERS OF LEARNED CIT(A) ARE CO-TERMINUS WITH POWERS OF THE AO AND NEED FOR SET ASIDE TO LEARNED CIT(A) HAS ARISEN AS LAW AS ENSHRINED IN SECTION 9 AND 195 OF THE 1961 ACT HAS UNDERGONE SUBSTANTIAL CHANGE OVER THE YEARS AND NEED MAY ARISE TO APPLY AMENDED LAW FOR IMPUGNED AY AND HENCE LEAR NED CIT(A) WHO HAS POWER CO-TERMINUS WITH POWERS OF THE AO IS BEST EQU IPPED TO LOOK INTO, ENQUIRE AND VERIFY FACTS AND APPLY LAW AS APPLICABL E ACCORDINGLY. CBDT CIRCULAR NO. 786 DATED 07.02.2000 STIPULATING NO DE DUCTIBILITY OF INCOME- TAX AT SOURCE ON SALES COMMISSION PAID TO FOREIGN A GENTS UNDER CERTAIN ITA NO.2406/CHNY/2017 :- 52 -: SITUATION WITHIN PROVISIONS OF SECTION 195 OF THE 1 961 ACT ALSO STOOD WITHDRAWN BY A NEW CBDT CIRCULAR NO. 7/2009 DATED 2 2.10.2009. THUS, IN OUR CONSIDERED VIEW THIS ISSUE NEED TO BE RESTORED TO THE FILE OF LEARNED CIT(A) FOR DENOVO ADJUDICATION OF THIS ISSUE ON MER ITS IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. IN THE RESULT, THE APPEAL FILED BY ASSESSEE IN ITA NO.2406/CHNY/2017 FOR AY: 2011-12 IS ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 11 TH DAY OF DECEMBER, 2019 IN CHENNAI. SD/- SD/- ( . . . ) ( N.R.S. GANESAN ) /JUDICIAL MEMBER ( 1 ) ( RAMIT KOCHAR ) /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 11 TH DECEMBER , 2019. TLN * (13 43 /COPY TO: 1. ' /APPELLANT 4. 5 /CIT 2. ()' /RESPONDENT 5. 3 ( /DR 3. 5 ( ) /CIT(A) 6. $ /GF