10A & 10B benefit available even under MAT computation (prior to 1.4.2012) – Mum ITAT


Genesys International Corpn. Ltd. v ACIT [ITA No.6903/Mum/2011 dtd 31.10.2012] Mumbai ITAT

Background:

Assessee has two undertakings, one located at SEEP2, Mumbai which is a SEZ unit and other located at Bangalore which is STPI unit. Both units are eligible for tax benefit under section 10A of the Act. The Finance Act, 2007 amended section 115JB with effect from 2008-09 for bringing the amount of income to which provisions of section 10A or 10B apply within the purview of MAT. Further, provisions of sub-section (6) of Section 115JB of the Act were inserted by Special Economic Zone Act, 2005 (SEZ Act) w.e.f. 10.2.2006 which provides that provisions of MAT would not apply to income from any business carried on by an entrepreneur or a developer in a unit or SEZ, as the case may be. The assessee reduced the income u/s 10A from MAT computation.

The AO did not accept said contention of the assessee and held that the scope of Minimum Alternate Tax (MAT) was widened by including the income exempt u/s.10A/10B of the Income tax Act in the book profit. The AO stated that section 115JB(6) is applicable to an assessee claiming deduction under section 10AA of the Act and not an assessee claiming deduction under 10A of the Act. Ld CIT (A) after considering the submissions of assessee has confirmed the action of AO. 

Assessee’s contentions:

  • By Special Economic Zone Act, 2005, Section 10AA was inserted w.e.f. 10.2.2006 to provide deduction/benefit in respect of units established in SEZ i.e. SEZ units and correspondingly, amendment was also made by inserting sub-section (6) to section 115JB of the Act to exclude profits in respect of SE2 unit from book profits for MAT.
  • By the Finance Act, 2007, the amendment in clause (f) to explanation (1) to Section 115JB (2) was made from A.Y. 2008-09 by deleting words “section 10 or 10B” and retained sub­section (6) of Section 115JB which provides exclusion of income of units located in SEZ while computing book profit u/s.115JB of the Act.
  • The AO failed to appreciate that sub -section (6) of Section 115JB does not refer any section, either sec. 10A or 10AA and it refers only to SEZ units.

Tax Authority’s arguments:

  • There should be harmonious interpretation of provisions of the Act. Provisions of section 115JB(6) was inserted w.e.f 10.2.2006 i.e. assessment year 2006-07 and assessee cannot get benefit under two provisions of the Act.
  • Since the assessee is getting exemption u/s.10A and if the assessee’s claim is accepted that assessee is also entitled for benefit of provisions of section 115JB(6).

HELD:

  • By Special Economic Zone Act, 2005 w.e.f 10.2.2006, a new section 10AA has been inserted which provide exemption to the units located in SEZ. Section 2 of SEZ Act, defines SEZ as under:
    “(za)Special Economic Zone — means each Special Economic Zone notified under the proviso to sub-section (4) of section 3 and sub-section(1) of section 4(including Free Trade and Warehousing Zone) and includes an existing Special Economic Zone”
  • It is evident from above that an existing SEZ unit will also be governed by Special Economic Zones Act, 2005. Therefore, the benefits which are to be provided to the newly established unit in SEZ as per section 10AA of the Act will also be available to the existing units in SEZ.
  • Irrespective of the fact that amendment has been made in clause (f) of Explanation (1) to section 115JB(2) of the Act to apply the provisions of MAT in respect of units which are entitled to deduction u/s.10A or 10B but the units which are in SEZ will continue to get benefits from the applicability of provisions of MAT in view of sub-section(6) of the Act.

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