Page 145 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes Next 3 years: For the next three assessment years, i.e., 2012-13 to 2014-15, it can claim 50 per cent
deduction (subject to an additional requirement of transferring an equivalent amount to Special
Economic Zone Re-investment Allowance Reserve Account) under section 10A.
Next 5 years: For the next five assessment years, i.e., 2015-16 to 2019-20, it can claim 50 per cent

deduction (subject to an additional requirement of transferring an equivalent amount to Special
Economic Zone Re-investment Reserve Account) under section 10AA(1)(ii).

Y Ltd. owns an industrial undertaking. It was set up in a notified free trade zone on
June 10, 1991. It claims deduction under section 10A for 10 consecutive assessment years (i.e.,
1992-93 to 2001-02). Since the undertaking has already claimed deduction for 10 years before the
assessment year 2006-07, no further deduction is available for the same industrial undertaking
under section 10AA. Suppose in the aforesaid case, the free trade zone is converted into a special
economic zone with effect from January 1, 2001. The undertaking will get deduction under section
10A for 10 consecutive assessment years (i.e., 1992-93 to 2001-02). After claiming deduction for
10 years under section 10A (before the commencement of Special Economic Zone Act, 2005), no
further deduction will be available for the same industrial undertaking under section 10AA.

6.2.3 Consequences for Amalgamation and Demerger

Where an undertaking is transferred to another company under a scheme of amalgamation or
demerger, the deduction under section 10AA shall be allowable in the hands of the amalgamated
or the resulting company. However, no deduction shall be admissible under this section to the
amalgamating company or the demerged company for the previous year in which amalgamation
or demerger takes place.
Consequences of claiming deduction under section 10AA: One should note the following
consequences:
1. For the assessment year(s) succeeding the last assessment year for which the deduction
is claimed under this section, deduction under section 32 and the expenditures under
sections 35 and 36(1)(ix) pertaining to the assessment year 2005-06 (or earlier year) would
be considered as had been given full effect to for the period covered under the period of
deduction. Thus, unabsorbed depreciation allowances or unabsorbed capital expenditure

on scientific research or family planning (pertaining to the assessment year 2005-06 or earlier
years) are not allowed to be carried forward and set off against the income of assessment
years following the period of deduction.

2. The losses under section 72(1) or 74(1) or 74(3) (pertaining to the assessment year 2005-06
or earlier years) are not allowed to be carried forward in assessment years succeeding the
period of deduction. The deductions under section 80-IA or 80-IB shall also not be available
to such undertakings after the expiry of tax holiday period.
3. In the assessment year following period of deduction, the depreciation will be computed
on the written down value of the asset as if the depreciation has actually been allowed in
respect of each assessment year falling in the period of exemption.
Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking
from urban area to any Special Economic Zone: Section 54GA has been inserted to give exemption
in case of shifting of an industrial undertaking from urban area to a special economic zone.
Exemption can be availed if the following conditions are satisfi ed –
1. A capital asset (being plant, machinery, land or building or any right in land or building)
used for the purpose of an industrial undertaking situated in an urban area is transferred.

2. The transfer is affected in the course of, or in consequence of, the shifting of such industrial
undertaking (hereinafter referred to as the “original asset”) to any Special Economic Zone.
Such Special Economic Zone may be situated in urban area of any other area.

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