Benefit u/s 10A of I-Tax Act can be availed only if manufacturing activity is carried out in SEZ: Madras HC

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Read Judgement: M/s FCA ENGINEERING INDIA PVT LTD vs. ASSISTANT COMMISSIONER OF INCOME TAX & ANR 

Pankaj Bajpai

Chennai, August 7, 2021: While dismissing the petition of the assessee, the Madras High Court has ruled that Benefit of Section 10A of the Income Tax Act can be availed only if manufacturing activity is carried out by the company in a Special Economic Zone. 

A Bench of Justice S M Subramaniam observed that a manufacturer is not entitled to claim benefit u/s 10A for manufacturing activity done prior to 2001, simply because such activity was done in any software technology park. 

The Judgment came to be passed in relation to denial of exemption u/s 10A of the Income Tax Act to a manufacturer, on the ground that the manufacturing activity was carried out in a software technology park. 

The assessee company is engaged in the business of providing engineering and design services to its group companies. Although the assessment was finalized extending the benefit of Section 10A to assessee, the AO after some time issued notice u/s 148 for reopening the assessment. The assessee objected to the same contending that reopening was the result of mere change of opinion, however, the same were rejected. This led to filing of the present petition. 

“The case of the assessee, is admitted that the manufacture was commenced in the year 2008. When the manufacture or produce articles or things or computer software commences in the year 2008, then the case of the assessee squarely falls under sub-clause (i)(c) to sub-section (2) of Section 10A of the Income Tax Act. Therefore, the assessee must manufacture in any Special Economic Zone as the manufacture, admittedly, commenced in the year 2008,” observed the High Court. 

Justice Subramanium found that the assessee is not entitled to claim the benefit under sub-clause (i)(b) software not manufacturing prior to 2001, so as to claim the benefit of Section 10A of the Income Tax Act on the ground that they are manufacturing in a software technology park. 

The scope of provisions would unambiguously portray that the case of the assessee is falling under Section 10A of sub-section (2) to sub-clause (i)(c) of the Income Tax Act, and therefore, if the assessee is manufacturing or producing articles or things of computer software, it must be in any Special Economic Zone, added the Court. 

The High Court noted that Form 56-F submitted by the assessee would reveal that they have not mentioned their location of functioning. However, they have furnished their address and the AO have filed counter stating that the Unit is not located in Special Economic Zone. 

This factum of location being established, the assessee company is not entitled to avail the benefit of Section 10A, added Justice Subramanium. 

The Court, however, made it clear that if at all any “contra materials” are available with the assessee, it is for them to place it before the AO for the purpose of availing the benefit for which they are entitled under the provisions of the Income Tax Act.

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