TMI Blog2014 (4) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... n of a new business to attract section 10B(2)(iii) of the Act - there is no specific prohibition to an industrial unit formed by transfer of entire business, there is no transfer at all to a new business and what was already in existence as a DTA unit, by reason of the recognition granted by the statutory authority, it became a 100% EOU unit - Thus the status granted to a DTA unit as a 100% EOU unit does not result in a transfer or splitting up or re-construction of a business already in existence so as to fall u/s 10(2)(iii) of the Act - going by the Circular No.1 of 2005 dated 06.01.2005.17 clarifying the stand that the DTA unit on conversion to 100% EOU unit eligible for exemption under Section 10B of the Income Tax Act also – thus, the order of the Tribunal is set aside – Decided in favour of Assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... .3.2000. Thus the unit came into existence from 31.3.2000 as EOU unit. 4. It is seen from the narration of facts in the order of the Assessing Officer that the value of the new machinery installed at Tirumudivakkam unit as on 31.3.2000 was Rs.3,33,78,440/-. For the period 1.4.2000 to 31.3.2001, there was further addition of new machinery to the tune of Rs.1,37,17,032/-. The Assessing Officer viewed that going by Clause (iii) to sub-section (2) of Section 10B of the Income Tax Act, the value of the old machinery transferred ought not to have exceeded 20% of the total value of the machinery. Even though the unit at Tirumudivakkam was ready to commence production by third week of March, 2000 itself, the value of the transferred machinery being more than 20%, the assessee failed the test of eligibility as prescribed under Section 10B(2) of the Income Tax Act. It was further pointed out that since the EOU at Tirumudivakkam was formed by 31.3.2000, the subsequent addition of machinery from 1.4.2000 to 31.3.2001 amounting to Rs.1,37,17,032/- could not be included in the computation of the value of the total machinery; consequently, the assessee was not entitled to any relief under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld machinery fell below 20% of the total value of the plant and machinery. Thus, after analysing the value of the old plant and machinery and the investment in the new machinery, the Commissioner of Income Tax (Appeals) came to the conclusion that by using the method of valuation by the Registered valuer as on 1.8.2000, the percentage of the value of the old machinery would be less than 20% and accordingly, the assessee would be entitled to exemption under Section 10B of the Income Tax Act from 1.8.2000 to 31.3.2001 and the assessee would also be entitled for deduction under Section 80HHC of the Income Tax Act in respect of "profits of business" from exports for the period upto 31.7.2000. Aggrieved by the restricted relief under Section 10B from 1.8.2000 to 31.3.2001, the assessee preferred an appeal before the Income Tax Appellate Tribunal and the Revenue, on its part, preferred an appeal as against the grant of relief to the assessee from 1.8.2000 to 31.3.2001. 7. On a reading of the provisions under Section 10B(2), the Tribunal pointed out that the benefit under the said Section would not be available to an undertaking, if the said undertaking is formed by transfer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that the structure of the industry constitutes building and is not eligible to be included in computing the plant and machinery for the purpose of determining the eligibility under section 10B of the Act?" 10. Learned senior counsel appearing for the assessee submitted that the Tribunal had committed a serious error in holding that the assessee had not satisfied the eligibility test to grant the claim of exemption under Section 10B of Income Tax Act. He pointed out that the unit in question was not the one which was set up as an 100% EOU but converted in status from DTA to EOU as per the laws relating to setting up of EOUs. When the Unit was set up as DTA, transfer of machinery was permitted by law and subsequently it got converted in status by virtue of the trade policy of the Government. Thus, he submitted that the Tribunal committed serious error in taking a narrow view as regards the scope of Section 10B(2)(iii) of the Income Tax Act. He further pointed out that the Tribunal committed an error in taking a narrow view that any addition to the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd week of March, 2000. The assessee was granted EOU status on 31.3.2000. 15. On the question as to whether by the grant of EOU status, there was formation of new business by a transfer, this Court considered the said issue in the decision reported in (2013) 359 ITR 1 (Commissioner of Income Tax V. Heartland KG Information Ltd.). The issue arose as regards the grant of exemption under Section 10A of the Income Tax Act. The facts therein were that in 2001, KGISL, which enjoyed exemption under Section 10A of the Income Tax Act transferred its entire undertaking engaged in the export business of Medical Transcription along with all transcriptions contracts, books, records, all rights, all permits, all warranties, including computer software to the assessee company Heart Land KG Information Limited by letter dated 28.5.2001 and 28.6.2001. The transfer was recognised and allowed by Software Technology Park of India. The transferee company claimed exemption under Section 10B of the Income Tax Act. The Assessing Officer rejected the claim that the assessee had not satisfied the conditions on account of transfer of business. On appeal, the claim of the assessee was allowed by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery or plant previously used for any purpose. Explanation. The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section." "Special provisions in respect of newly established hundred per cent export-oriented undertakings 10B (1)....... (2) This section applies to any undertaking which fulfils all the following conditions, namely : (i).... (ii)... (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation. The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section." 18. Explanation (2) to sub-section (2) of Section 80 I of the Income Tax Act, with which we are concerned, reads as under: "Deduction in respect of profits and gains from industrial undertakings after a certain date, etc. 80-I. (1)....... (2) This section applies to any industrial undertaking which fulfils all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause (iii) of sub-section (2) of Section 10B of the Income Tax Act. 22. In fact, the Board itself has clarified the position in the circular issued by it in Circular No.1 of 2005 dated 06.01.2005.17. The Department of Revenue (Central Board of Direct Taxes) clarified the question as to whether an undertaking set up in Domestic Tariff Area, which is subsequently approved as 100% EOU by the Board appointed by the Central Government in exercise of powers conferred under section 14 of the Industries (Development and Regulation) Act, 1951, is eligible for deduction under Section 10B of the Income-tax Act. On the representation received from various quarters, the Board clarified as follows: "4. The matter has been examined and it is hereby clarified that an undertaking set up in Domestic Tariff Area (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into a EOU, shall be eligible for deduction u/s 10B of the IT Act, on getting approval as 100% export oriented undertaking. In such a case, the deduction shall be available only from the year in which it has got the approval as 100% EOU and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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