9911796707
TMI Blog2013 (11) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... tanjali Export Corporation Limited, the assessee has raised grounds in regard to treating the FDs kept as margin money with Bank against credit facilities as income from other sources instead of income from business and not netting such interest against interest payment to Banks, for calculation of deduction under Section 10AA & 10A for assessee's unit at SEZ and thereby reducing the claim of deduction under Section 10AA & 10A, the amount of deduction was reduced at Rs.75,12,493/- for assessment year 2006-07 and an amount of Rs.31,42,069/- for assessment year 2007-08. 5. The AO denied netting of interest income and expenditure and deduction under Section 10AA & 10A of the Act on interest income was reduced because according to him the interest income has not derived from manufacturing activities and, therefore, the same need to be reduced from business profits and accordingly, he reduced the deduction under Section 10AA/10A of the Act. He also denied the deduction on the delay in payments which was received after the prescribed time and, therefore, he reduced the amount from export turnover for calculation of deduction under Section 10A of the Act. 6. Against the order of the AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the AO in disallowing interest under Section 36(1)(iii) of the Act by treating the same as interest which is attributable to capital borrowed for purchase/acquisition of assets. For assessment year 2006-07, the disallowance has been made at Rs.52,18,944/- and for assessment year 2007-08, the disallowance has been made at Rs.17,06,082/-. 11. During the assessment proceeding, the AO noticed that the assessee has given advances for the purpose of two units at Bharat Diamond Bourse and Gujarat Hira Bourse. The assessee has shown the same under the capital work-in-progress. The assessee was asked to produce the detail of source of investment. Thereafter the AO found that the assessee could not explain the investment properly, therefore, the impugned additions were made by the AO, which has been confirmed by the learned CIT(A). 12. Learned counsel of the assessee stated that this issue is squarely covered by the decision of the Tribunal in case of Mehta Brothers Gems Pvt. Ltd. Vs. ACIT, decided in ITA No.6245/Mum/2010, for assessment year 2006-07, vide order dated 25-1-2012. Copy of which has also been filed. 13. On the other hand, learned DR fairly stated that the issue is cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal wile deciding the appeal for assessment year 2007-08 in the above case. 15. Facts are similar before us. Therefore, respectfully following the decision of the Tribunal in the case of Mehta Brothers (supra), we allow the issue for both of the years in favour of the assessee. 16. Now, we will take up the appeals of the department i.e. ITA Nos.6781&6783/Mum/2011 for Assessment Years 2006-07 & 2007-08. 17. The department in both of its appeals raises following ground :- "Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to allow deduction u/s 10AA of the IT Act of Rs. Rs. : 2.33 Crs. and Rs. 4.59 Crs. for A.Yrs. 2006-07 & 2007-08, respectively on profit arising from the trading activity of the assessee holding that as per the definition of 'services' given in the SEZ Rules, 'trading' is covered by the term 'services', ignoring the fact, that, see. 2(z) of the SEZ Act itself defines 'services' to mean "tradeable services" satisfying sub-clause (i), (ii) & (iii), thereon" 18. The AO disallowed the deduction under Section 10AA for both of the years by observing that the exemption claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering any kind of 'service' intellectual aspect plays the dominant role. The vocation of a lawyer, doctor, architect or a chartered accountant (there are' other similar vocations also) involves deep intellectual exercise and physical skill involved in their vocational activities is minimal." Therefore, Income Tax Act defines "service' essentially as professional and technical services as can be seen by the provisions of the Income-tax Act uls.9 and u/s.194J. As right/y observed by Hon. Delhi High Court, providing a service is generally in connection with intellectual rather than physical aspects. The assessee is mainly involved in trading which involves purchases and sale of goods rather than rendering any services. Transfer, delivery or supply of any good shall be deemed to be a sale of goods according to the established concept of sale under Sale of Goods Act, 1930. The Hon. Supreme Court in the case of Tamil Nadu Kalyana Mandapam Association v/s. Union of India (267 ITR 9) discussing of difference between supply of services and sale of goods clearly defined that "Art 366 (29A)(f) of the Constitution does not conceptually or otherwise include the supply of services within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this connection appellant make the following submissions. A. Section 10AA (1) is as under- 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 sec ion 21..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 10 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices, other human health services, tourism and travel related services, recreational, cultural and sporting services, entertainment services, transport services, services auxiliary to all modes of transport, pipelines transport. E. We are enclosing copy of Schedule to SEZ which clearly gives directions or modification to the Income tax Act, 1961 for inserting section 10AA. (Page Nos. 11 to 15). F. Please find enclosed herewith Instruction No. 412006 which clearly guides to grant deduction u/.s. 10AA t-J units carrying on trading in the nature of re-export of imported goods. (Page Nos. 16 to 17). G. view of the above it is stated as under :- 1. The Income tax Act, 1961, clearly provides a deduction of hundred per cent profits and gains derived from the export of such articles or things or from services (Section 10AA(1) and section 10AA(1)(i) 2. SEZ Act has clearly included "Trading" as services (Second schedule to the SEZ Act) 3. "Trading for the purpose of the Second Schedule of the Act, shall mean import for the purpose of re-export". (Please refer to special Economic Zones (Amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 (73) E.L.T. 769 (SC). It was also stated that circular is binding, however, learned CIT(A) has ignored the circular. It was further submitted that the assessee has made trading and, therefore, they cannot be equated with the manufacturing activity. It was also submitted that the issue in respect of trading its services, is not decided by the learned CIT(A) and, therefore, that has to be considered separately for this purpose. Attention of the Bench was drawn on Explanation to subclause 4 of Section 10AA and Explanation to sub clause 3 of Section 80IA. 21. Learned counsel on the other hand, firstly placed reliance on the order of CIT(A). Further reliance was placed on the decision of Jaipur Bench in the case of Goenka Diamond and Jewellery Limited, reported in 146 TTJ 68. It was further stated that identical issue was involved before the Jaipur Bench and after discussing the issue in great detail, the Tribunal has allowed the issue in favour of the assessee. It was further submitted that under the SEZ Act, it has been provided that the provision of SEZ Act will override the provision of Income Tax Act and, therefore, there is no ambiguity or incorrectness in the finding of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted after processing. It is further very clear from Section 51 of the SEZ Act which provides as under: "Section 51 of the SEZ Act provides as follows:"51(1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act". Hence, by virtue of Section 51 of the SEZ Act, the provisions of the SEZ Act and the Rule will have overriding effect over the provisions contained in any other Act. it can be seen from the wordings of Section 51 (1) of SEZ Act the provisions of the SEZ Act and Rules has overriding effect in case of contradiction between the SEZ Act and other Act. Thus the provisions of SEZ Act will be applicable and since there is no doubt that trading is covered by services and services include trading as per SEZ Act. Therefore the appellant is fully entitled for deduction u/s.10M of the Act on goods imported and re-exported from SEZ Act. However, no such deduction will be available on the local purchase and sales made by the Appellant and that is why Government has made it clear that local purchase and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , reported in 238 CTR 142 (Delhi), were also taken into consideration and thereafter it was concluded that in view of the Instruction No.1 of 2006, dated 24-3-2006 as modified by Instruction No.4 of 2006, dated 24-5-2006 issued by the Ministry of Commerce & Industry, Government of India and the definition of service given in the SEZ Act, 2005, which overrides the word 'service' accruing in Section 10AA by virtue of Section 51 of the SEZ Act. The assessee engaged in trading in nature of re-export of imported goods and for the same the assessee was entitled deduction under Section 10AA of the Act. Facts are similar before us, as the assessee is engaged in trading of re-export of imported goods and, therefore, the assessee is entitled for deduction under Section 10AA of the Act. All the arguments advanced by the learned DR before us have also been taken care of by the Tribunal while discussing the appeal in the case of Goenka Diamonds and Jewellery Limited (supra). It is further noted that the main plank of argument of learned DR is that rules provided under the SEZ Act cannot partake the character of the Section of the Income Tax Act. We find that in the SEZ Act under Section 51, it ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
