INCOME TAX

F.No. 200/20/2006-ITA-I

Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)

Dated : March 31, 2006

Sub : Deduction under section 10A - Clarification - reg.

Section 10A of the Income-tax Act, 1961 provides for 100% deduction of profits and gains derived by an 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 such articles or things or computer software. The tax benefit u/s. 10A is available to an undertaking which fulfills and the following conditions :

(i) it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year -

(a) commencing on or after 1st April, 1981, in any Free Trade Zone; or

(b) commencing on or after 1st April, 1994, in any Electronic Hardware Technology Park of Software Technology Park; or

(ii) it is not formed by the slitting up or the reconstruction of a business already in existence except in the circumstances and within the period specified in section 33B of the Income-tax Act;

(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

2. 'Software Technology Park' has been defined to mean any par set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry.

3. In exercise of the powers conferred by sub-section (1) of section 3 of the Foreign Trade (Development and Regulation) Act, 1992, the Ministry of Commerce notified the Software Technology Park Scheme wherein it was provided that a Software Technology Park may be set up by the Central Government, State Government, Public or Private Sector Undertakings or any combination thereof. An STP may be an individual unit by itself or it may be one of such units located in an area designated as STP Complex by the Department of Electronics. The Scheme was required to be administered by the Department of Electronics, Govt. of India, through Directors of respective Software Technology Parks which form part of the Software Technology Parks of India (STPI), a society established by the Department of Electronics and registered under the Societies Registration Act, 1860. An application in the prescribed form for establishing a STP unit was required to be submitted to the Chief Executive of STP Complex along with the details of the Software project. Such application was to be considered by an Inter-Ministerial Standing Committee (IMSC) constituted under the Chairmanship of Secretary, Department of Electronics, Government of India.

4. Subsequently, vide Notification No. 4/(RE-95/92-97) dt. 30.4.1995 issued by the Director General (Foreign Trade), Ministry of Commerce, in exercise of powers conferred in sub-section (1) of section 3 of the Foreign Trade (Development and Regulation) Act, 1992, notified the amended STP Scheme. Para 2.3 of the aforesaid notification provides that the scheme is administered by the Department of Electronics, government of India, through directors of respective STPs with form part of the STPI, a society established by the Department of Electronics and registered under the Societies Registration Act, 1860. An application in the prescribed format for establishing a STP unit may be submitted to the Chief Executive of STP Complex along with the details of the software project. such application will be considered by an Inter-Ministerial Standing Committee constituted under the Chairmanship of Secretary Department of Electronics.

5. Instances have been brought to the notice of the Board that a large number of units registered/approved by the Director of the STPI are claiming deduction u/s. 10A whereas the STP scheme requires approval by the Inter-Ministerial Standing Committee of the Department of Electronics. Accordingly, the cases of such claimants have been reopened by the field authorities.

6. The matter has been examined in consultation with the officers of the Department of Information Technology (earlier Department of Electronics). In view of the ambiguity in the legal status of the approval by Director of STPs, the Inter-Ministerial Standing Committee will meet to consider the approvals by Director of STPs issued in the past. Therefore, with a view to avoid infructuous demand raised in assessment and reassessment of assessees claiming deduction u/s. 10A, it has been decided that the claim of deduction u/s. 10A of the Income-tax Act, shall not be denied to STP units only on the ground that the approval/registration to such units has been granted by the Directors of Software Technology Parks. However, it has to be ensured that all other conditions specified in section 10A are fully satisfied before allowing any such claims.

7. In cases where assessments/reassessments have already been completed, and the claim u/s. 10A has been disallowed only on the ground that the approval to the STP has not been granted by the Inter-Ministerial Standing Committee in accordance with the Scheme, the demand so arising should be kept in abeyance until further orders.

(Upamanyu Basu)
Secretary to the Central Board of Direct Taxes