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Unit 6: Deductions: For Special Conditions

15. Where the gross total income of an assessee includes any profits and gains derived by such Notes
an undertaking, a deduction of 100% of the profits and gains derived from such business
for 5 consecutive assessment years

16. Where deduction has been allowed under this section in computing the total income of the
assessee, only 25% deduction shall be allowed under any other section contained in Chapter
VIA or section 10AA in relation to the profits and gains of the undertaking.
17. The profits and gains from the eligible business should be computed as if such eligible
business were the only source of income of the assessee during the relevant assessment
year.

6.5 Application of the above Special Conditions

The application of the deduction available under special circumstance can be availed by an
undertaking or an enterprise only on fulfilment of certain important conditions which though
mentioned above is explained in detail below:
Application of Section Relating to Tax Deductions by SEZ

As per section 10A(7B) of the IT Act, deduction under section 10A can be claimed by the unit in
SEZ, which has begun to manufacture or produce articles or things or computer software between
1 April 2000 to 31 March 2005. No deduction under section 10A will be allowed to the SEZ unit,
which has begun (to manufacture or produce articles or things) on or after 1 April 2005 i.e. year
ended 31 March 2006 (AY 2006-07).
As per the proviso to section 10AA(3) of the IT Act, if due to the application of 10A(7B), deduction
under section 10A is not available to the eligible unit in SEZ, then the said unit shall be able to
claim deduction under section 10AA for the unexpired period of 10 consecutive AYs.
From the above, it can be observed that proviso to section 10AA (3) entitles deduction for
unexpired period of 10 consecutive AYs to an unit, which became ineligible to claim deduction
under section 10A due to application of sub-section 7B of section 10A.
Section 10A (7B) makes those unit ineligible to claim deduction under section 10A, which have
begun after 1 April 2005. Section 10AA (1) provides for deduction only to those units which
began after 1 April 2005.
In view of the above, it is not clear that proviso to section 10AA(3) refers to which units to be
eligible to claim deduction for the unexpired period. This is because by virtue of section 10A(7B),
those units which have begun after 1 April 2005 are not eligible for deduction under section 10A
as such units are automatically eligible to claim deduction under section 10AA as per proviso of
section 10AA(1). In case of such units, there cannot be question of unexpired period because they
began only after 1 April 2005.
Section 80-IAB applies to any industrial undertaking which fulfils all the following conditions,
namely:
1. It is not formed by splitting up, or the reconstruction, of a business already in existence:
Provided that this condition shall not apply in respect of an industrial undertaking which
is formed as a result of the re-establishment, reconstruction or revival by the assessee of
the business of any such industrial undertaking as is referred to in section 33B, in the
circumstances and within the period specified in that section.
2. It is not formed by the transfer to a new business of machinery or plant previously used
for any purpose.
3. It manufactures or produces any article or thing, not being any article or thing specified in
the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in
any part of India: Provided that the condition in this clause shall, in relation to a small

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