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TMI Blog2023 (4) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... authorized operations in the SEZ, subject to modifications specified in the Second Schedule appended to the 2005 Act. The Second Schedule of the 2005 Act, which adverts to the modifications made in the 1961 Act, concededly, refers to Section 10AA of the 1961 Act. Thus, having regard to the fact that the deduction made available to an assessee under Section 10AA of the 1961 Act, which has a unit located in the SEZ, is rooted in the 2005 Act, one would, in our opinion, necessarily have to advert to the definition of expression services contained in the said Act. A plain reading of the Explanation would show that trading for the purposes of the Second Schedule of the 2005 Act means import for the purposes of re-export. Undoubtedly, the 2005 Act and Rule 76 point in the direction that the expression services means services which are offered by way of re-export of articles that are imported into the country. If there was any doubt as regards this aspect of the matter, the same is clarified if one were to peruse Instruction No.4 dated 24.05.2006 issued by the Government of India, Ministry of Commerce and Industry, Department of Commerce.. The aforementioned Instruction has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... January 2008. The trading unit was registered on 16.01.2008. 4.4 Concededly, the trading activities of the respondent/assessee involved import of memory modules, flash drives and electronic chips [which, as noted hereinabove, was also being manufactured by it], which, ultimately, were re-exported. 4.5 In the Assessment Year (AY) in issue, i.e., AY 2010-11, the respondent/assessee declared a profit amounting to Rs.15,50,11,806/-, before adjusting deduction claimed under Section 10AA of the 1961 Act, amounting to Rs.14,81,52,422/-. The respondent/assessee, thus, pegged its taxable income at Rs.1,71,69,860/-. 4.6 The Assessing Officer [AO] via the order dated 12.03.2014 disallowed the deduction claimed by the respondent/assessee under Section 10AA of the 1961 Act. The principal reason put forth by the AO for disallowing the deduction was that the deduction could be claimed only against articles manufactured in, or against the services which emanated from, the NSEZ. 5. Being aggrieved, the respondent/assessee carried the matter in an appeal to the Commissioner of Income Tax (Appeals) [in short, CIT(A) ]. 5.1 The CIT(A), via order dated 23.07.2014, ruled in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in the 1961 Act. 11.2 That being said, a plain reading of the language of Section 10AA of the 1961 Act would show that an assessee can claim deduction equivalent to 100% of profits and gains derived from export of services. The next logical question which, then, arises for consideration is: whether trading services of the nature which the respondent/assessee was involved in would fall within the ambit and scope of Section 10AA of the 1961 Act. For the sake of convenience, the relevant part of Section 10AA are extracted hereafter: 10AA. Special provisions in respect of newly established Units in Special Economic Zones - (1) 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 section 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 to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as extracted above, would show that, inter alia, tradable services, which are prescribed by the Central Government for the purposes of 2005 Act, are included in the definition. As to what those tradable services which are alluded to in Section 2(z)(ii) are, one gets a clue, if one was to refer to Rule 76 of the 2006 Rules. Rule 76, along with the Explanation, reads as follows: 76. The services for the purposes of [clause] (z) of section 2 shall be the following, namely: Trading, warehousing, research and development services, computer software services, including information enabled services such as back-office operations, call centers, content development or animation, data processing, engineering and design, graphic information system services, human resources services, insurance claim processing, legal data bases, medical transcription, payroll, remote maintenance, revenue accounting, support centers and web-site services, off-shore banking services, professional services (excluding legal services and accounting) rental/leasing services without operators, other business services, courier services, audio-visual services, construction and related services, distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly the setting up of the new trading units in the SEZs has been allowed. However, the income tax benefit to such trading units will be available only in accordance with amendments carried out in Rule 76 of the SEZ Rules, 2006, as explained above, on 10/8/2006. Cumulative effect of all the above stated instructions is that a trading activity is allowed in the SEZ for both, the existing units as well as for the new trading units, which may be set up. These trading units are allowed to procure goods from the DTA as well. However, income tax benefit, as given in the IInd Schedule of the SEZ Act, 2005, shall be available only for import for the purpose of re-export . [Emphasis is ours] 17. Thus, having regard to the aforesaid intrinsic evidence available both in 2005 Act and Rules, we have no doubt that it was always intended that the deduction under Section 10AA of the 1961 Act will also be available qua those articles which, upon import to the unit located in SEZ, were thereafter re-exported. CONCLUSION 18. The question of law as framed is answered against the appellant/revenue and in favour of the respondent/assessee. 19. The appeal is disposed of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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