DISCURSO DE DESPLAZAMIENTO TEMPORAL

in respect of Export Oriented Units (S. 10A/ 10B)

The provisions provide for deduction in respect of profits and gains derived by an undertaking from export of articles or things or computer software.

These deductions are available for period of ten consecutive assessment years in graded manner. The deductions are granted with reference to the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things for computer software.

Thus an undertaking set up on or before March 31,2000 shall be entitled to the deduction for period of ten years. The undertaking set up between April 01,2000 and March 31,2001 shall be entitled for deduction for a period of nine years and so on. However, no deductions shall be allowed to any undertaking beyond the assessment year 2011/12. The existing units will get the deductions for the unexpired period of ten years only. In case, an Export Promotion Zone (EPZ) is converted in Special Economic Zone (SEZ), the period of ten consecutive years shall include the period during which such units was located in EPZ.

Further, with a view to promoting the development in SEZ the sub-section (1A) of section 10A provides for deduction of 100% export profits of an undertaking which begins to manufacture or produce articles or things or computer software during the previous year relevant to assessment year 2003/04 for a five consecutive years and thereafter, 50% of such profits and gains for further two consecutive assessment years and thereafter for next three consecutive assessment years upto 50% of profit as are credited to reserve account to be utilized for the purpose of the business.

Sub-section (1B) of section 10A provides that the reserve account as mentioned above is to be utilized for the acquisition of new plant or machinery which is put to use before the expiry of period of three years following the previous year in which reserve was created. It has also been provided that until the acquisition of new plant or machinery the said reserve may be utilized for the purposes of business of undertaking other than for distribution by way of dividends or profits, or for remittance outside India as profits or for the creation of any assets outside India.

Sub-section 1(1C) of section 10A provides that any amount credited to reserve account:

(a) has been utilized for any purpose other than those mentioned above, the amount so utilized shall be deemed to be the profits in the year in which the amount was so utilized; or;

(b) has not been utilized before the expiry of the period mentioned above, the amount not so utilized shall be deemed to be the profits in the year immediately following the period of three years.

Sub-section 2 of sections 10A provides the conditions for the applicability of the provisions, which are as under:

(i) begins to manufacture or produce articles or things or computer software during the previous year (a) commencing on or after April 01,1981 in any free trade zone, or; (b) commencing on or after April 1, 1994 in any electronic hardware park or software technological park, or; (c) commencing on or after April 01,2001 in any SEZ;

(ii) should not be formed by the splitting or reconstruction of a business already in existence except under the circumstances referred to in section 33B;

(iii) should not be formed by the transfer to a new business any plant or machinery used for any purpose.

For this purpose any plant or machinery which was used outside India by any person other than the assessee shall not be regarded as plant or machinery previously used for any purpose; if

(a) such plant or machinery was not at any time previous to the date of installation by the assessee used in India;

(b) such plant or machinery is imported into India, and

(c) no deduction on account of depreciation in respect of such plant or machinery has been allowed.

Further, for this purpose, any plant or machinery or any part thereof previously used for any purpose is transferred to a new business and the total value of the plant or machinery so transferred does not exceed twenty per cent of the total value of plant or machinery used in business; then for the purpose of clause (iii), the condition specified therein shall be deemed to have been complied with.

Sub section (3) of section 10A provides a further condition that in order to avail the deduction, the sale proceeds of articles or things or computer software exported out of India should be received in or brought into India

within a period of six months from the end of the previous year or within such further period as the competent authority (RBI) may allow. If such sale proceeds are credited to a separate account maintained for the purpose with any bank outside India with the approval of RBI, the sale proceeds shall be deemed to have been received in India.

For the computation of profits derived from the export of articles or things or computer software, sub section (4) of section 10A provides that profit derived from such exports shall be the 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. The profits of the business mean the profits of the business carried on by the undertaking to which the provisions apply. The formula for arriving at the export profits is as under:

Export profits = Profits of the undertaking × Export Turnover Total Turnover

The Board vide its circular no. 794 dated June 23,2002 clarified that the export turnover and the total turnover for the purposes of sections 10A & 10B shall be of the undertaking located in specified zones or 100% export oriented undertakings, as the case may be and this shall not have any material relationship with the other business of the assessee outside these zones or units.

Sub-section (5) of section 10A provides that the assessee must furnish in the prescribed form report by an accountant certifying that the deduction has been correctly claimed in accordance with the provisions of the section.

Sub-section (6) of section 10A provides that during the eligible period deductions, under sections 32, 32A, 33, 35 and 36(1)(ix) deemed to have been allowed and no loss referred to in section 72(1) or section 74(1)/(3) shall be allowed to carry forward where the deductions or loss relates to any assessment year before 2001-02. After the eligible period no deduction shall be allowed under section 88HH or section 80HHA or section 80I or section 80IA or section 80IB in relation to the profits and gains of the undertaking and in computing depreciation allowance under section 32 the written down value of any assets used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed an actually allowed the deduction in respect of depreciation for each of the relevant assessment year.

Sub-section (7) of section 10A refers to sub-section (8) and (10) of section 80IA of the Act, to enable the Assessing Officer to make adjustment to certain transactions entered into by the eligible business, and in respect of transactions which are not at arm’s length between closely connected parties.

Sub-section (7A) of section 10A provides that where an undertaking of an Indian company is transferred to another company under a scheme of amalgamation or demerger, the deduction shall be allowed in the hands of amalgamated or the resulting company. However, no deduction shall be admissible under this section to the amalgamating or demerged company for the previous year in which the amalgamation or demerger takes place.

Sub-section (7B) provides that the provisions of this section shall not apply to any undertaking, being a Unit referred to in clause (zc) of section 216 of the Special Economic Zones Act, 2005, which has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone.

Sub-section (8) of section 10A provides that if an assessee before the due date for furnishing the return of income under section 139(1) 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 relevant assessment year and subsequent assessment years.

Vide Explanation (2) to section 10A, the meaning of ‘computer software’ is enlarged to include customized electronic data or such other services as may be notified by the board

Explanation (4) to the said section clarifies that ‘manufacture or produce’

shall include the cutting and polishing of precious and semi precious stones.

The aforesaid provisions would apply mutates mutandis to 100% export oriented units under section 10B.

Special provisions in respect of Newly