10AA. Special provisions
in respect of newly established Units in Special Economic
Zones.- (1) Subject to the provisions of this section,
in computing the total income of an assessee, being an entrepreneur
as referred to in clause (j) of section 2 of the Special Economic
Zones Act, 2005, from his Unit, who begins to manufacture
or produce articles or things or provide any services during
the previous year relevant to any assessment year commencing
on or after the 1st day of April, 2006, a deduction of—
(i) hundred per cent of profits and gains derived from the
export, of such articles or things or from services for a
period of five consecutive assessment years beginning with
the assessment year relevant to the previous year in which
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 thereafter;
(ii) for the next five consecutive assessment years, so
much of the amount not exceeding fifty per cent of the profit
as is debited 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
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 :—
(a) the amount credited to the Special Economic Zone Re-investment
Reserve Account is to be utilised—
(i) for the purposes of acquiring machinery or plant which
is first put to use before the expiry of a period of three
years following the previous 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 distribution by way of dividends or profits
or for remittance outside India as profits or for the creation
of any asset outside India;
(b) the particulars, as may be specified by the Central Board
of Direct Taxes in this behalf, under clause (b) of sub-section
(1B) of section 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 Economic 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), the amount so utilised; or
(b) has not been utilised before the expiry of the period
specified in sub-clause (i) of clause (a) of sub-section (2),
the amount not so utilised,
shall be deemed to be the profits,—
(i) in a case referred to in clause (a), in the year in
which the amount was so utilised; or
(ii) in a case referred to in clause (b), in the year immediately
following the period of three years specified in sub-clause
(i) of clause (a) of sub-section (2),
and shall be charged to tax accordingly :
Provided that where in computing the total income of the
Unit for any assessment year, its profits and gains had not
been included by application of the provisions of sub-section
(7B) of section 10A, the undertaking, being the Unit shall
be entitled to deduction referred to in this sub-section only
for the unexpired period of ten consecutive assessment years
and thereafter it shall be eligible for deduction from income
as provided in clause (ii) of sub-section (1).
Explanation.—For the removal of doubts, it is hereby
declared that an undertaking, being the Unit, which had already
availed, before the commencement of the Special Economic Zones
Act, 2005, the deductions referred to in section 10A for ten
consecutive assessment years, such Unit shall not be eligible
for deduction from income under this section :
Provided further that where a Unit initially located in any
free trade zone or export processing zone is subsequently
located in a Special Economic Zone by reason of conversion
of such free trade zone or export processing zone into a Special
Economic Zone, the period of ten consecutive assessment years
referred to above shall be reckoned from the assessment year
relevant to the previous year in which the Unit began to manufacture,
or produce or process such articles or things or services
in such free trade zone or export processing zone :
Provided also that where a Unit initially located in any
free trade zone or export processing zone is subsequently
located in a Special Economic Zone by reason of conversion
of such free trade zone or export processing zone into a Special
Economic Zone and has completed the period of ten consecutive
assessment years referred to above, it shall not be eligible
for deduction from income as provided in clause (ii) of sub-section
(1) with effect from the 1st day of April, 2006.
(4) This section applies to any undertaking, being the Unit,
which fulfils all the following conditions, namely:—
(i) it has begun or begins to manufacture or produce articles
or things or provide services during the previous year relevant
to the assessment year commencing on or after the 1st day
of April, 2006 in any Special Economic Zone;
(ii) it is not formed by the splitting up, or the reconstruction,
of a business already in existence:
Provided that this condition shall not apply in respect of
any undertaking, being the Unit, which is formed as a result
of the re-establishment, reconstruction or revival by the
assessee of the business of any such undertaking as is referred
to in section 33B, in the circumstances 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 Explanations 1 and 2
to sub-section (3) of section 80-IA 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.
(5) Where any undertaking being the Unit which is entitled
to the deduction under this section is transferred, before
the expiry of the period specified in this section, to another
undertaking, being the Unit in a scheme of amalgamation or
demerger,—
(a) no deduction shall be admissible under this section
to the amalgamating or the demerged Unit, being the company
for the previous year in which the amalgamation or the demerger
takes place; and
(b) the provisions of this section shall, as they would
have applied to the amalgamating or the demerged Unit being
the company as if the amalgamation 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 same proportion as the export turnover in respect of such
articles or things or services bears to the total turnover
of the business carried on by the under-taking :
Provided that the provisions of this sub-section as amended
by section 6 of the Finance (No. 2) Act, 2009 (33 of 2009)
shall have effect for the assessment year beginning on the
1st day of April, 2006 and subsequent assessment years.
(8) The provisions of sub-sections (5) and (6) of section
10A shall apply to the articles or things or services referred
to in sub-section (1) as if—
(a) for the figures, letters and word “1st April,
2001”, the figures, letters and word “1st April,
2006” had been substituted;
(b) for the word “undertaking”, the words “undertaking,
being the Unit” had been substituted.
(9) The provisions of sub-section (8) and sub-section (10)
of section 80-IA shall, so far as may be, apply in relation
to the undertaking referred to in this section as they apply
for the purposes of the undertaking referred to in section
80-IA.
Explanation 1.—For the purposes of this section,—
(i) “export turnover” means the consideration
in respect of export by the undertaking, being the Unit of
articles or things or services received in, or brought into,
India by the assessee but does not include freight, telecommunication
charges or insurance attributable to the delivery of the articles
or things outside India or expenses, if any, incurred in foreign
exchange in rendering of services (including computer software)
outside India;
(ii) “export in relation to the Special 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;
(iv) “relevant assessment year” means any 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 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 deemed to be the profits
and gains derived from the export of computer software outside
India.
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