Whether the benefit of deduction under Section 10A can be extended to inter-state sales made to another industrial unit in a SEZ, payment in respect of which is received in Indian rupees?

Commissioner of Income Tax, Cochin Vs Electronic Controls & Discharge Systems (P) Ltd [2011] 13 Taxmann.com 193 (Kerala High Court)- Benefit of deduction under Section 10A is not available in respect of sales made to a unit in Special Economic Zone even though such sales are considered as ‘deemed exports’ under the provisions of the Special Economic Zones Act, 2005.

The provisions in Section 10A are comprehensive and exhaustive and that the mandatory conditions of Section 10A (3) have to be satisfied to get the benefit of deduction on export profits. Thus the benefit is available only on actual exports and if the consideration is received in convertible foreign exchange. The concept of deemed export under the SEZ Act is not incorporated in the scheme of deduction under Section 10A, the ITA is a self- contained code and the validity or correctness of the allowance has to be considered with reference to the relevant statutory provisions as contained therein. Where Section 10A provides for deduction on profits derived from export proceeds received in convertible foreign exchange, it could be stated that the Legislature never intended the benefit to be extended to local sales made by the units in the SEZ, whether as part of Domestic Tariff Area sales or inter-unit sales within the Zone or units in other Zones. Hence the Taxpayer was not entitled to claim the deduction under Section 10A in respect of profits derived from the sales made to a unit in a SEZ.

NF