Page 140 - DCOM508_CORPORATE_TAX_PLANNING

Unit 6: Tax Planning: FTZ, SEZ and 100 % EOUs

6.2.1 Conditions to be Fulfi lled Notes

For claiming deduction under section 10AA of the Act following conditions are to be satisfi ed:

1. The assessee being an entrepreneur as defined under section 2(j) of the SEZ Act has to set
up a unit in the SEZ;
2. The unit so set up by the assessee should commence to manufacture or produce articles or
things or provide any service during the previous year commencing after 1-4-2006;
3. The undertaking should not be formed:
(a) by splitting up, or by the reconstruction, of a business already in existence; or
(b) by a transfer to new business of machinery and plant previously used for any purpose
by the assessee;
4. The assessee has exported goods or provided services out of India from the SEZ, whether
physically or otherwise;

5. The books of account are audited and audit report is filed along with the return of income
and the assessee claims the deduction in its return of income.
Subject to the provisions of the Section10AA(1), in computing the total income of an assessee,
being an entrepreneur as referred to in clause (j) of section 228 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 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 which the deduction is to be allowed and credited to a reserve account (to
be called the “Special Economic Zone Re-investment Reserve Account”) to be created
and utilised for the purposes of the business of the assessee in the manner laid down in
sub-section (2).
The deduction under clause (ii) of sub-section (1) shall be allowed only if the following conditions
are fulfi lled, namely:
(a) the amount credited to the Special Economic Zone Re-investment Reserve Account is to be
utilised—

(i) for the purposes of acquiring machinery or plant which is first put to use before the
expiry of a period of three years following the previous year in which the reserve
was created; and

(ii) until the acquisition of the machinery or plant as aforesaid, for the purposes of the
business of the undertaking other than for distribution by way of dividends or profi ts

or for remittance outside India as profits or for the creation of any asset outside
India;
(b) the particulars, as may be specified by the Central Board of Direct Taxes in this behalf,

under clause (b) of sub-section (1B) of section 10A have been furnished by the assessee in
respect of machinery or plant along with the return of income 29 for the assessment year

relevant to the previous year in which such plant or machinery was first put to use.

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