Circular No. 01/2005
F.No. 149/194/2004-TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
New Delhi, the 6th January, 2005
To
All Chief Commissioners/
Directors General of Income-tax.
Sub : Tax holiday under section 10B of the Income-tax Act to 100% Export Oriented Undertaking – Certain clarification – reg.
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Section 10-B of the Income Tax Act provides for 100% deduction of profits derived by a hundred per cent Export Oriented Undertaking, from export of articles or things or computer software manufactured or produced by it. The deduction is available for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software. However, no deduction under section 10-B is available after assessment year 2009-10.
2. The deduction u/s 10-B is available to an undertaking which fulfils all the following conditions:-
(i) it manufactures or produces any article or thing or computer software;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence except in the circumstances specified under section 33B of the IT Act.
(iii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
3. Representations have been received from various quarters as to whether an undertaking set up in Domestic Tariff Area, which is subsequently approved as 100% EOU by the Board appointed by the Central Government in exercise of powers conferred under section 14 of the Industries (Development and Regulation) Act, 1951, is eligible for deduction u/s 10B of the Income Tax Act.
4. The matter has been examined and it is hereby clarified that an undertaking set up in Domestic Tariff Area (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into a EOU, shall be eligible for deduction u/s 10B of the IT Act, on getting approval as 100% Export Oriented Undertaking. In such a case, the deduction shall be available only from the year in which it has got the approval as 100% EOU and shall be available only for the remaining period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOU. Moreover, the deduction to such units in any case will not be available after assessment year 2009-10.”
5. To clarify the above position, certain illustrations are given as under:-
(i) Undertaking ‘A’ is set up in Domestic Tariff Area and starts manufacture or production of computer software in Financial Year 1999-2000 relevant to assessment year 2000-01. It gets approval as 100% EOU on 10th September, 2004 in the Financial Year 2004-05 relevant to assessment year 2005-06. Accordingly, it shall be eligible for deduction under section 10B from assessment year 2005-06 i.e., the year in which it fulfils the basic condition of being a 100% EOU. Further, the deduction shall be available only for the remaining period of ten years i.e. from A.Y. 2005-06 to A.Y.2009-10. This deduction under section 10B for A.Y. 2005-06 shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOU.
(ii) Undertaking ‘B’ set up in Domestic Tariff Area, begins to manufacture or produce computer software in financial year 96-97 relevant to assessment year 1997-98. It gets approval as 100% EOU in financial year 2007-08 relevant to assessment year 2008-09. No deduction under Section 10B shall be admissible to undertaking B as the period of 10 years expires in F.Y. 2005-06 relevant to A.Y. 2006-07, prior to its approval as 100% EOU.
(iii) Undertaking ‘C’ is set up in Domestic Tariff Area in the financial year 2000-01 relevant to assessment year 2001-02 and engaged in the business of providing computer related services, other than those notified by the Board for the purpose of Section 10B. In financial year 2002-03, it acquires more than 20% of old plant & machinery and starts manufacturing computer software. It also gets approval as 100% EOU in financial year 2002-03. Undertaking ‘C’ shall not be eligible for Deduction under section 10B, as there has been transfer of old plant and machinery.
(iv) Undertaking ‘D’ is set up and starts producing computer software in financial year 2003-04 relevant to AY 2004-05. It gets approval as 100% EOU in FY 2006-07 relevant to AY 2007-08. It shall be eligible for deduction u/s 10B from AY 2007-08. However, the deduction shall not be available after AY 2009-10.
(v) Undertaking ‘E’ is set up and starts producing computer software prior to 31.3.1994. It gets approval as 100% EOU in FY 2004-05 relevant to AY 2005-06. Undertaking ‘E’ shall not be eligible for deduction u/s 10B as the period of deduction of 10 years expires prior to AY 2005-06.
Sd/-
(Chandrajit Singh)
Under Secretary to the Govt. of India