Manufacturing of a new product with a new technology at the same place after taking a fresh approval from SEZ authority does not amount to ‘splitting up or reconstruction’ of an existing business for the purpose of section 10A of the Act.
Recently, the Mumbai bench of the Income Tax Appellate Tribunal (the Tribunal) in the case of Portescap India P. Limited Vs. DCIT (ITA No. 1015/Mum/2008) has held that the manufacturing of a new product with a new technology at an existing place after taking a fresh approval from SEZ authorities does not amount to ‘splitting up or reconstruction’ of an existing business for the purpose of section 10A of the Income-tax Act, 1961 (the Act). Therefore, the taxpayer was eligible to claim benefits provided under section 10A of the Act.
Facts of the case
- The taxpayer was an Indian Company engaged in the business of manufacture and sale of Brushless DC motors and stepper motors based on the technology received from its erstwhile business partner, based out of USA. The taxpayer was having its manufacturing units Nos. 2, 3 and 4 in SEZ.
- During the year under reference, the taxpayer proposed to start manufacturing a different kind of motors with a technology received from the Swiss company. For this purpose, the taxpayer surrendered the Unit No. 2 which was not fully used for producing the existing motors and made a fresh application to the SEZ authorities for starting a new undertaking (‘Portescap’) for the manufacture of new motors at the same premise i.e. Unit no. 2.
- The SEZ authorities granted permission to manufacture new motors in Unit No.2. The taxpayer imported new machinery in the 6 July 2003 and after completing necessary formalities started manufacturing new motors from 14 July 2003. The taxpayer claimed deduction under section 1 0A of the Act for the new Unit No. 2.
- The Assessing Officer (AO) disallowed the taxpayer’s claim concluding that the taxpayer started manufacturing new motors in Unit No.2 which was an existing unit and therefore, new undertaking was formed by splitting up of a business which is in existence. The Commissioner of Income-tax [CIT(A)] upheld the order of AO.
Tax department’s contention
