Section 10A

Section 10A — the law in short

What the courts have decided on section 10A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v HCL Technologies Ltd Supreme CourtHelps taxpayer
  The AO knocked freight and telecom charges out of my export turnover but left them in total turnover. Can he do that?
  No. What is excluded from export turnover must also come out of total turnover, because export turnover is a component of total turnover. Reading the exclusion into the numerator alone would make the s.10A formula produce an absurd result. The Court declined to construe the section in a way that would work an injustice on the assessee.
• ITO v TechSpan India (P) Ltd Supreme CourtHelps taxpayer
  What actually counts as a 'change of opinion'?
  Formulating an opinion and then changing it. To constitute a change of opinion the earlier assessment must, expressly or by necessary implication, have expressed a view on the subject now being reopened.
• CIT v Yokogawa India Ltd Supreme CourtHelps taxpayer
  Must my 10A unit's profits be reduced by other units' losses before the deduction?
  No. After the Finance Act 2000 the relief is a deduction rather than an exemption, but it is worked out while computing the profits of the eligible undertaking, before the setting off and aggregation that produces total income. Losses of other units and brought-forward losses therefore do not eat into it.
• Mastek Limited v ACIT High CourtHelps taxpayerHigh Courts differ
  The officer says my section 154 notice is in time because he is rectifying the order giving effect to the appeal. Is that right where the point was never in appeal?
  The Gujarat High Court said no. Following its own decision in Poonjabhai Vanmalidas, it held that where the issue was not the subject matter of the appeal the appellate order does not subsume the original order, so the time for correcting the mistake relates back to the original order and not to the appellate or appeal effect order. It also held that a notice founded on the interpretation of a Supreme Court decision cannot be a mistake apparent from the record.
• PCIT v Macquarie Global Services Pvt Ltd — s.10AA(4) is unit specific, and the splitting-up objection belongs to the first year High CourtHelps taxpayer
  The Assessing Officer says my client's SEZ unit is a reconstruction of its existing EOU business, and he is raising it in year three after allowing the claim twice. Can he?
  The Delhi High Court held that the conditions in s.10AA(4) are unit specific and not assessee specific, so an assessee who already runs an export business — even one that enjoyed s.10A relief — is not disqualified from claiming s.10AA on a genuinely new SEZ unit. It also held, following its own earlier decisions, that the objection under clause (ii) that the undertaking was formed by splitting up or reconstruction relates to the date of formation and must be taken in the first year in which the exemption is claimed, not in a later year. The Revenue's appeal was dismissed with no substantial question of law arising.
• 360 One Distribution Services Ltd v DCIT — s.80A(5) kills a s.80JJAA claim first made before the Commissioner (Appeals) ITATHelps departmentNo later treatment found
  We missed the s.80JJAA claim in the return and raised it for the first time in appeal, with the Form 10DA report in hand. Can the Commissioner (Appeals) or the Tribunal still allow it?
  No. The Mumbai Tribunal held that s.80A(5) disentitles an assessee from claiming a deduction under s.80JJAA where the claim was not made in the return of income, and that this disposes of the matter without going into any other aspect. It was no answer that the chartered accountant's Form 10DA had been issued, because the Tribunal found nothing on record that prevented the assessee from raising the claim and filing Form 10DA before the Assessing Officer during the scrutiny proceedings, which ran on until the assessment order was passed. The appeal was dismissed.
• Dell International Services India Pvt Ltd v DCIT ITATHelps taxpayerNo later treatment found
  You offered extra income to give effect to a MAP resolution. The officer says the proviso denying a Chapter III deduction on enhanced income applies. Does it?
  No, on this Bench's view. The proviso applies only to a transfer pricing adjustment made by the Assessing Officer. It does not reach income enhanced under a mutual agreement procedure resolution, which is one of several distinct modes by which an arm's length price can come to be determined, and where the assessee actually invoices its associated enterprise and brings the foreign exchange in.
• Dar Al Handasah Consultants (Shair & Partners) India Pvt Ltd v DCIT ITATHelps taxpayerNo later treatment found
  I signed an APA with rollback and filed a modified return under s.92CD offering additional income. The officer says the proviso to s.92C(4) bars any Chapter III deduction on that extra income. Is he right?
  He is not. The proviso to s.92C(4) bars a s.10A deduction on income by which the total income is ENHANCED by a transfer pricing addition made by the authorities; income the assessee itself offers in a modified return under the APA is not such an addition. Section 92CD(2) then supplies the positive answer: save as otherwise provided in that section, all other provisions of the Act apply as if the modified return were a return under s.139, so any deduction otherwise available applies to the income offered in the modified return.
• M/s Divya Creation v Pr. CIT — AMT under s.115JC is not attracted where the deduction claimed is under s.10A ITATHelps taxpayerNo later treatment found
  The Commissioner has revised my assessment under s.263 saying the Assessing Officer never examined AMT. My only deduction is under s.10A. Does s.115JC even apply to me?
  It does not. Section 115JC(2) is a closed list: adjusted total income is the total income increased only by deductions under Chapter VI-A heading C other than s.80P, by a deduction under s.10AA, and by a deduction under s.35AD net of the notional depreciation. A deduction under s.10A is not in that list, so where that is the only claim the provisions of s.115JC are clearly not applicable and the Assessing Officer was under no duty to enquire into them.
• In re Morgan Stanley and Co. Inc. Advance RulingCuts both waysPartly overruled — read this first
  Our Indian subsidiary does back-office work for us and we pay it cost plus a mark-up, and we send some of our own people over. Is the subsidiary our permanent establishment, and can the Revenue attribute anything more to us once the subsidiary has been paid an arm's length price?
  It depends on which limb. The Authority ruled that Morgan Stanley Advantage Services was not a fixed-place permanent establishment of Morgan Stanley & Co. Inc., because the US company did not carry on its business through MSAS's premises, and not an agency permanent establishment, because MSAS could not conclude contracts, held no stock and secured no orders. But it would be a service permanent establishment under article 5(2)(l) if employees were sent to India for more than 90 days, whether for stewardship or on deputation. On attribution, once MSAS was remunerated at arm's length no further income could be attributed to the permanent establishment. The ruling binds only that applicant.
• Statutory position — s.10AA: what "export turnover" excludes, and the six-month realisation condition in s.10AA(4A) CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer has reduced my client's s.10AA export turnover by freight and insurance. What exactly does the definition exclude, and is there a time limit for bringing the money in?
  Both the current definition of "export turnover" and the six-month realisation condition date from the Finance Act 2023 and apply from AY 2024-25. "Export turnover" in Explanation 1 to s.10AA is the consideration for export by the Unit of articles or things or services received in, or brought into, India in convertible foreign exchange in accordance with s.10AA(4A), and it excludes four things: freight, telecommunication charges and insurance attributable to the delivery of the articles or things outside India, and expenses incurred in foreign exchange in rendering services (including computer software) outside India. Separately and independently, from AY 2024-25 s.10AA(4A) makes the section apply to a Unit only if the sale or service proceeds are received in, or brought into, India in convertible foreign exchange within six months from the end of the previous year or such further period as the Reserve Bank of India (or the authority regulating foreign exchange) may allow.
• Statutory position — the Explanation to s.10AA(1): the SEZ deduction is capped at total income, and a late return kills it CBDT Circulars & InstructionsCuts both ways
  My client has an SEZ unit in profit and other units in loss. Does the s.10AA deduction come off the unit's own profit before the other units' losses, or only after? And does a late return matter?
  The Explanation to s.10AA(1) now settles the arithmetic against the taxpayer at the outer limit: the deduction "shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee". So whatever the unit-wise computation produces, the allowance cannot exceed the assessee's total income computed after every other provision of the Act — including the set-off provisions — has been applied. Separately, the proviso to s.10AA(1) denies the deduction outright to an assessee who does not furnish a return of income on or before the due date under s.139(1).

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.