2013 (11) TMI 835 - AT - Income Tax

Exemption u/s 10AA - SEZ unit - Conversion of partnership firm into Company - trading activity - The definition of services under the SEZ Act includes trading activity Held that - Trading activity has been permitted by the Competent authority under the SEZ Act. As such, there can be no question of denial of exemption u/s. 10AA of the Act Reliance has been held in the case of DCIT v. Goenka Diamond & Jewellers Ltd. 2012 (3) TMI 258 - ITAT JAIPUR in which it has been held that trading of the eligible goods entitles the assessee to the benefit of section 10AA of the Act Judgment of Hon ble Mumbai Bench in M/s Gitanjali Exports Corportion Limited v. ADCIT 2013 (11) TMI 563 - ITAT MUMBAI , reiterates the above order Decided against the Revenue. Non- fulfillment of requisite condition as per Section 10AA(4)(iii) of the Act Condition that undertaking should not be formed by transfer of machinery or plant to a new business which was previously used for any purpose Held that - Assesssee-company is successor of the partnership firm which was originally approved by the competent authority under the SEZ Act to do this business. The said firm claimed exemption u/s. 10AA of the Act for two years before the partnership firm got converted into assessee- company - Assessment of the firm was completed u/s. 143(3) of the Act in which benefit of exemption under this provisions was allowed. The granting of such exemption in earlier years implies that the AO got satisfied with the requisite conditions as per section 10AA(4). Since the assessee-company is nothing but the conversion of the erstwhile firm, at this stage it can not be said that the condition required under clause (iii) is not satisfied Allowed exemption u/s 10AA of the Act Decided against the Revenue.

Summary

Issues:
- Applicability of benefit under section 10AA of the Income-tax Act, 1961.
- Interpretation of the conditions under Section 10AA(4)(iii) of the Act.

Analysis:

Issue 1: Applicability of benefit under section 10AA of the Income-tax Act, 1961

The appeal by the Revenue challenged the order of the Commissioner of Income-tax (Appeals) regarding the allowance of the benefit under section 10AA of the Income-tax Act for the assessment year 2008-09. The assessee, engaged in import/export and trading activities, claimed exemption under section 10AA for its trading business. The Assessing Officer contended that since the assessee was not involved in manufacturing within the SEZ, the benefit of section 10AA was not applicable. However, the assessee argued that trading activities were permissible under section 10AA as it allowed for providing 'any services', including trading. The Commissioner sided with the assessee, restoring the benefit. Upon review, the Tribunal found that the trading activity was permitted by the Competent authority under the SEZ Act, which included trading within the definition of 'services'. Citing relevant tribunal orders, the Tribunal upheld the Commissioner's decision, emphasizing that trading of eligible goods entitled the assessee to the benefit of section 10AA.

Issue 2: Interpretation of the conditions under Section 10AA(4)(iii) of the Act

The second objection raised by the Assessing Officer pertained to the condition under Section 10AA(4)(iii) that the undertaking should not be formed by the transfer of machinery or plant previously used for any purpose. The Assessing Officer argued that the assessee, a successor of a partnership firm approved for the business under the SEZ Act, violated this condition. However, the Tribunal noted that the firm had previously been granted exemption under section 10AA for two years before converting into a company. As the assessee was essentially a continuation of the firm and did not possess machinery or plant due to being a trading company, the condition was deemed to be fulfilled. The Tribunal dismissed the Revenue's appeal, affirming the Commissioner's decision to allow the exemption under section 10AA of the Act.

This detailed analysis of the judgment highlights the key issues involved, the arguments presented by the parties, and the Tribunal's reasoning in arriving at its decision regarding the applicability of the benefit under section 10AA of the Income-tax Act and the interpretation of the conditions under Section 10AA(4)(iii) of the Act.