2014 (2) TMI 1216 - AT - Income Tax

Entitlement for the benefit of sub-section 6 of section 115JB to assessee to be a Special Economic Zone - whether assessee, functioning from Falta Export Processing Zone, admittedly a Software Technology Park, was eligible for claiming the benefit of sub-section 6 of section 115JB? - Held that - A reading of the sub-section 6 of section 115JBwould clearly show that section 115JB will not apply to a business carried on by an entrepreneur or a Developer in a Unit or Special Economic Zone. The Sub-section does not say that the Unit has to be functioning from a Special Economic Zone. The word Unit has not been defined under the Income Tax Act. Disjunctive expression or has been used by the legislature between the words unit and Special Economic Zone. Implication can only be that there is no condition that a unit has to function in an SEZ for claiming the benefit of sub-section (6). Since sub-section 6 of section 115JB of the Act was inserted by Special Economic Zone, 2005, the meaning of the term Unit given in the said Act will, in our opinion, be relevant since such word is not defined in the Income Tax Act. The necessity to have a physical location inside an SEZ is not essential for applying the exclusionary clause of sub-section 6 of section 115JB of the Act. One of the grounds taken by Revenue says that assessee has not claimed any exemption under section 10AA of the Act for applying Section 6 of Section 115JB of the Act. We do not find any such requirement in sub-section 6 of section 115JB of the Act. Assessee was also governed by the same Rules as applicable to the Special Economic Zone and reported to the same authority mentioned under the Special Economic Zone. Therefore, ld. CIT(Appeals), in our view, was right in holding that assessee was eligible to claim the benefit of sub-section 6 of section 115JB of the Act. - Decided in favour of assessee

Summary

Issues:
Interpretation of sub-section 6 of section 115JB of the Income Tax Act, 1961 regarding eligibility for exemption as a Special Economic Zone (SEZ) Unit.

Detailed Analysis:

Issue 1: Applicability of sub-section 6 of section 115JB
The appeal raised the question of whether the assessee, operating from a Software Technology Park (STP) within Falta Export Processing Zone, qualified as a SEZ Unit under sub-section 6 of section 115JB. The Assessing Officer contended that the assessee did not operate from a notified SEZ and thus was not eligible for the exemption. However, the assessee argued that being in the Falta Export Processing Zone, controlled by the Development Commissioner under the SEZ Act, made it eligible for the exclusion under sub-section 6. The CIT(A) agreed with the assessee's interpretation, emphasizing that the definition of a Unit under the SEZ Act covered existing units as well. The Tribunal upheld the CIT(A)'s decision, stating that physical presence within an SEZ was not a prerequisite for claiming the benefit of sub-section 6.

Issue 2: Definition of 'Unit' under the SEZ Act
The Tribunal analyzed the definition of 'Unit' under the SEZ Act, which included existing units established before or after the commencement of the Act. This definition supported the assessee's claim that physical location within an SEZ was not mandatory for availing the exemption under sub-section 6 of section 115JB. The Tribunal highlighted that the disjunctive use of 'or' between 'unit' and 'Special Economic Zone' in the Income Tax Act indicated that functioning from an SEZ was not a strict requirement for eligibility.

Issue 3: Compliance with SEZ Rules and Reporting Authority
The Tribunal noted that the assessee complied with the rules applicable to SEZs and reported to the same authority mentioned in the SEZ Act. This further reinforced the assessee's eligibility for the benefit of sub-section 6 of section 115JB. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the assessee was entitled to the exemption from Minimum Alternative Tax under section 115JB.

In conclusion, the Tribunal upheld the assessee's eligibility as a SEZ Unit under sub-section 6 of section 115JB, emphasizing that physical presence within an SEZ was not a prerequisite for claiming the exemption. The decision was based on a thorough analysis of the relevant legal provisions and definitions under the SEZ Act, supporting the assessee's position and dismissing the Revenue's appeal.