By TIOL News Service

BENGALURU, JULY 02, 2018: THE issue before the Bench is - Whether benefit of deduction u/s 10B(1) can be restricted merely because the third party, through which the export has been made by the assessee, is not a 100% Export Oriented Unit. NO is the answer.

Facts of the case

The Revenue had preferred an appeal challenging the order passed by the Tribunal wherein, it was held that the assessee was entitled to the deduction u/s 10B in respect of its profits and gains from its business. The assessee, a 100% Export Oriented Unit (EOU) for the AYs in respect of the 'deemed export of goods' made by it during the period under consideration through a third party.

The High Court held that,

++ the provisions in the I.T.Act, 1961, in Chapter-III providing for "Incomes which do not form part of total income", in the series of Sec. 10A (Special provision in respect of newly established undertakings in free trade zone) Sec. 10AA (Special provisions in respect of newly established Units in Special Economic Zones), Sec. 10B (Special provisions in respect of newly established 100% EOU), Sec. 10BA (Special provisions in respect of export of certain articles or things), Sec. 10BB (Meaning of computer programmes in certain cases), Sec. 10C (Special provision in respect of certain industrial undertakings in North-Eastern Region). All the said provisions were intended to provide for incentive or benefit of exemption or deduction from the total income in respect of profit and gain earned by the undertaking of the specified nature falling in the specified category as specified in these provisions. The substantive terms of these provisions are in pari materia defining the criteria for specification of the units or nature of assessee, who will be entitled to such deduction viz. SEZ, 100% EOU, North-East India Territory, subject to fulfillment of certain other conditions as well;

++ Sec. 10(2) only determines the eligibility of the unit in question, while Sec. 10B(1) is the main provision which grants the deduction in respect of profit and gains to the assessee-unit in question. It is true that the assessee unit in question in order to be entitled to avail the benefit of Sec. 10B has to be a manufacturing unit and it cannot be merely a trading house, but on a plain reading of sub-section(1) the deduction u/s 10B cannot be restricted to the goods manufactured or produced by the assessee-unit himself or itself. There is no restriction imposed u/s 10B(2) on the quantum of deduction eligible u/s 10B(1) with reference to export of goods manufactured by unit itself. The purpose of sub-section (2) is only to ensure that the conditions of unit not formed by splitting up of a new industrial unit and which is engaged in manufacturing of goods and articles is satisfied by the assessee in question. We do not see any restriction of export of goods purchased from the domestic units also by the assessee to be included for the purpose of deduction u/s 10B(1);

++ in the present case, according to the Revenue, the entity through whom the export has been made by the assessee is not 100% EOU and therefore, the benefit of Sec. 10B should be denied to the assessee before this Court. We do not find any good reason to take a narrow and pedantic approach in construing the words "by an Undertaking" and restricting the benefit u/s 10B only in respect of the direct export of such goods manufactured by such Unit as contended by the Counsel for the Revenue. If the Parliament intended to put any restrictive meaning for curtailing the said deduction, such words could be employed in sub-section(1) itself, which could have excluded 'Deemed Export' from the ambit and scope of word 'export' employed in Sec. 10B(1). The Explanation defining 'Export Turnover' in both these provisions does not make any such distinction between the 'Direct Export' and 'Deemed Export';

++ for a harmonious reading of these provisions of the Act which are undoubtedly beneficial provisions, the word 'export' read with the background of Exim Policy of Union of India would certainly include 'Deemed Export' also within the ambit and scope of the 'Export Turnover' as explained in Explanation-2 of sub-section (9A) of the said Sec. 10B. Therefore, the contentions raised by the Counsel for the Revenue to restrict the deduction in the hands of the assessee by excluding the 'Deemed Exports', does not have any merit and the said contention deserves to be rejected and the same is accordingly rejected. The Revenue before us was unable to establish that both the assessees before us and the entity through whom such export was made by the assessee for the period in question, have claimed any double or repetitive benefit u/s 10B for the same transaction of export.

(See 2018-TIOL-1226-HC-KAR-IT)