The Income Tax Act, 1961 provides an incentive for units in SEZs under section – 10AA. The exemption is required to be calculated based on profits earned by such units from their export. The provision of Sec – 10AA(7) provides the way in which the exempted profit is required to be determined as under:
|Exemption = Total Profit X Export Turnover|
However, the disputes were arising on interpretation of the term “Total Turnover”. Where the assessees were considering the total turnover of the eligible unit under SEZ, the department, in absence of clarity was considering the total turnover of the business of the assessee, including the turnover from activities other than that of the SEZ unit.
With a view to settling the dispute, the Finance (No. 2) Act, 2009 amended the provisions and clarified that the total profit and the total turnover shall be considered in respect of total business of the undertaking and not of the assessee. The amendment was made effective from 1st April 2010. However, it was necessary to make the amendment with retrospective effect. Accordingly, the amendment is proposed to apply the change in law with retrospective effect from 1st April, 2006.