THE SECOND SCHEDULE
(See section 27)
MODIFICATIONS TO THE INCOME-TAX ACT, 1961.
(43 of 1961)
(a) in section 10,-
(A) in clause (15), after sub-clause (vii), the following clause shall be
inserted at the end, namely:-
“(viii) any income by way of interest received by a non-resident or a person who
is not ordinarily resident, in India on a deposit made on or after the 1st day
of April, 2005 in an Offshore Banking Unit referred to in clause (u) of section
2 of the Special Economic Zones Act, 2005;â€;
(B) in clause (23G), after the words, brackets, figures and letters “sub-section
(4) of section 80-IAâ€, the words brackets, figures and letters “or sub -section
(3) of section 80- IAB.†shall be inserted;
(C) in clause (34), the following Explanation shall be inserted, namely:-
“Explanation.- For the removal of doubts, it is hereby declared that the
dividend referred to in section 115-O shall not be included in the total income
of the assessee, being a Developer or entrepreneur.â€;
(b) in section 10A, after sub-section (7A), the following subsection shall be
inserted, namely:-
“(7B) The provisions of this section shall not apply to any undertaking, being a
Unit referred to in clause (zc) of section 2 of the Special Economic Zones Act,
2005, which has begun or begins to manufacture or produce articles or things or
computer software during the previous year relevant to the assessment year
commencing on or after the 1st day of April, 2006 in any Special Economic
Zone.â€;
Special provisions in respect of newly established
Units in Special Economic Zones.
(c) after section 10A, the following section shall be inserted,
namely:-
‘10AA. (1) Subject to the provisions of this section, in computing the total
income of an assessee, being an entrepreneur as referred to in clause (j) of
section (2) of the Special Economic Zones Act, 2005, from his Unit, who begins
to manufacture or produce articles or things or provide any services during the
previous year relevant to any assessment year commencing on or after the 1st day
of April, 2006, a deduction of –
(i) hundred per cent. of profits and gains derived from the export, of such
articles or things or from services for a period of five consecutive assessment
years beginning with the assessment year relevant to the previous year in which
the Unit begins to manufacture or produce such articles or things or provide
services, as the case may be, and fifty per cent. of such profits and gains for
further five assessment years and thereafter;
(ii) for the next five consecutive assessment years, so much of the amount not
exceeding fifty per cent. of the profit as is debited to the profit and loss
account of the previous year in respect of which the deduction is to be allowed
and credited to a reserve account (to be called the "Special Economic Zone
Re-investment Reserve Account") to be created and utilised for the purposes of
the business of the assessee in the manner laid down in sub-section (2).
(2) The deduction under clause (ii) of sub-section (1) shall be allowed only if
the following conditions are fulfilled, namely:-
(a) the amount credited to the Special Economic Zone Reinvestment Reserve
Account is to be utilised-
(i) for the purposes of acquiring machinery or plant which is first put to use
before the expiry of a period of three years following the previous year in
which the reserve was created; and
(ii) until the acquisition of the machinery or plant as aforesaid, for the
purposes of the business of the undertaking other than for distribution by way
of dividends or profits or for remittance outside India as profits or for the
creation of any asset outside India;
(b) the particulars, as may be specified by the Central Board of Direct Taxes in
this behalf, under clause (b) of subsection (IB) of section 10A have been
furnished by the assessee in respect of machinery or plant along with the return
of income for the assessment year relevant to the previous year in which such
plant or machinery was first put to use.
(3) Where any amount credited to the Special Economic Zone Re-investment Reserve
Account under clause (ii) of subsection (1),-
(a) has been utilised for any purpose other than those referred to in
sub-section (2), the amount so utilised; or
(b) has not been utilised before the expiry of the period specified in
sub-clause (i) of clause (a) of sub-section (2), the amount not so utilised,
shall be deemed to be the profits,-
(i) in a case referred to in clause (a), in the year in which the amount was so
utilised; or
(ii) in a case referred to in clause (b), in the year immediately following the
period of three years specified in sub-clause (i) of clause (a) of sub-section
(2), and shall be charged to tax accordingly:
Provided that where in computing the total income of the Unit for any assessment
year, its profits and gains had not been included by application of the
provisions of sub-section (7B) of section 10A, the undertaking being the Unit
shall be entitled to deduction referred to in this sub-section only for the
unexpired period of ten consecutive assessment years and thereafter it shall be
eligible for deduction from income as provided in clause (ii) of sub-section
(1):
Explanation.- For the removal of doubts, it is hereby declared that an
undertaking being the Unit, which had already availed before the commencement of
the Special Economic Zone Act, 2005, the deductions referred to in section 10A
for ten consecutive assessment years, such Unit shall not be eligible for
deduction from income under this section.
Provided further that where a Unit initially located in any free trade zone or
export processing zone is subsequently located in a Special Economic Zone by
reason of conversion of such free trade zone or export processing zone into a
Special Economic Zone, the period of ten consecutive assessment years referred
to above shall be reckoned from the assessment year relevant to the previous
year in which the Unit began to manufacture, or produce or process such articles
or things or services in such free trade zone or export processing zone:
Provided also that where a Unit initially located in any free trade zone or
export processing zone is subsequently located in a Special Economic Zone by
reason of conversion of such free trade zone or export processing zone into a
Special Economic Zone and has completed the period of ten consecutive assessment
years referred to above, it shall not be eligible for deduction from income as
provided in clause (ii) of sub-section (1) with effect from the 1st day of
April, 2006.
(4) This section applies to any undertaking being the Unit, which has begun or
begins to manufacture or produce articles or things or services during the
previous year relevant to the assessment year commencing on or after the 1st day
of April, 2006, in any Special Economic Zone;
(5) Where any undertaking being the Unit which is entitled to the deduction
under this section is transferred, before the expiry of the period specified in
this section, to another undertaking, being the Unit in a scheme of amalgamation
or demerger,-
(a) no deduction shall be admissible under this section to the amalgamating or
the demerged Unit, being the company for the previous year in which the
amalgamation or the demerger takes place; and
(b) the provisions of this section shall, as they would have applied to the
amalgamating or the demerged Unit being the company as if the amalgamation or
demerger had not taken place.
(6) Loss referred to in sub-section (1) of section 72 or subsection (1) or
sub-section (3) of section 74, in so far as such loss relates to the business of
the undertaking, being the Unit shall be allowed to be carried forward or set
off.
(7) For the purposes of sub-section (1), the profits derived from the export of
articles or things or services (including computer software) shall be the amount
which bears to the profits of the business of the undertaking, being the Unit,
the same proportion as the export turnover in respect of such articles or things
or services bears to the total turnover of the business carried on by the
assessee.
(8) The provisions of sub-sections (5) and (6) of section 10A shall apply to the
articles or things or services referred to in sub-section (1) as if –
(a) for the figures, letters and word “1st April, 2001â€, the figures, letters
and word “1st April, 2006†had been substituted;
(b) for the word “undertakingâ€, the words “undertaking, being the Unit†had been
substituted.
(9) The provisions of sub-section (8) and sub-section (10) of section 80-IA
shall, so far as may be, apply in relation to the undertaking referred to in
this section as they apply for the purposes of the undertaking referred to in
section 80-IA.
Explanation 1.- For the purposes of this section,-
(i) "export turnover" means the consideration in respect of export by the
undertaking, being the Unit of articles or things or services received in, or
brought into, India by the assessee but does not include freight,
telecommunication charges or insurance attributable to the delivery of the
articles or things outside India or expenses, if any, incurred in foreign
exchange in rendering of services (including computer software) outside India;
(ii) "export†in relation to the Special Economic Zones†means taking goods or
providing services out of India from a Special Economic Zone by land, sea, air,
or by any other mode whether physical or otherwise;
(iii) “manufacture†shall have the same meaning as assigned to it in clause (r)
of section 2 of the Special Economic Zones Act, 2005;
(iv) "relevant assessment year" means any assessment year falling within a
period of fifteen consecutive assessment years referred to in this section;
(v) “Special Economic Zone†and “Unit†shall have the same meanings as assigned
to them under clause (za) and (zc) of section 2 of the Special Economic Zones
Act, 2005.
Explanation 2. – For the removal of doubts, it is hereby declared that the
profits and gains derived from on site development of computer software
(including services for development of software) outside India shall be deemed
to be the profits and gains derived from the export of computer software outside
India;
Exemption of capital gains on transfer of assets in
cases of shifting of industrial undertaking from urban area to any Special
Economic Zone.
(d) after section 54G, the following section shall be inserted,
namely:-
“54GA. (1) Notwithstanding anything contained in section 54G, where the capital
gain arises from the transfer of a capital asset, being machinery or plant or
building or land or any rights in building or land used for the purposes of the
business of an industrial undertaking situate in an urban area, effected in the
course of, or in consequence of the shifting of such industrial undertaking to
any Special Economic Zone, whether developed in any urban area or any other area
and the assessee has within a period of one year before or three years after the
date on which the transfer took place, -
(a) purchased machinery or plant for the purposes of business of the industrial
undertaking in the Special Economic Zone to which the said undertaking is
shifted;
(b) acquired building or land or constructed building for the purposes of his
business in the Special Economic Zone;
(c) shifted the original asset and transferred the establishment of such
undertaking to the Special Economic Zone; and
(d) incurred expenses on such other purposes as may be specified in a scheme
framed by the Central Government for the purposes of this section, then, instead
of the capital gain being charged to income-tax as income of the previous year
in which the transfer took place, it shall, subject to the provisions of
sub-section (2), be dealt with in accordance with the following provisions of
this section, that is to say, -
(i) if the amount of the capital gain is greater than the cost and expenses
incurred in relation to all or any of the purposes mentioned in clauses (a) to
(d) (such cost and expenses being hereafter in this section referred to as the
new asset), the difference between the amount of the capital gain and the cost
of the new asset shall be charged under section 45 as the income of the previous
year; and for the purpose of computing in respect of the new asset any capital
gain arising from its transfer within a period of three years of its being
purchased, acquired, constructed or transferred, as the case may be, the cost
shall be nil; or
(ii) if the amount of the capital gain is equal to, or less than, the cost of
the new asset, the capital gain shall not be charged under section 45; and for
the purpose of computing in respect of the new asset any capital gain arising
from its transfer within a period of three years of its being purchased,
acquired, constructed or transferred, as the case may be, the cost shall be
reduced by the amount of the capital gain.
Explanation.-In this sub-section,-
(a) “Special Economic Zone†shall have the meaning assigned to it in clause (za)
of the Special Economic Zones Act, 2005;
(b) “urban area†means any such area within the limits of a municipal
corporation or municipality as the Central Government may, having regard to the
population, concentration of industries, need for proper planning of the area
and other relevant factors, by general or special order, declare to be an urban
area for the purposes of this sub-section.
(2) The amount of capital gain which is not appropriated by the assessee towards
the cost and expenses incurred in relation to all or any of the purposes
mentioned in clauses (a) to (d) of sub-section (1) within one year before the
date on which the transfer of the original asset took place, or which is not
utilised by him for all or any of the purposes aforesaid before the date of
furnishing the return of income under section 139, shall be deposited by him
before furnishing such return [such deposit being made in any case not later
than the due date applicable in the case of the assessee for furnishing the
return of income under sub-section (1) of section 139] in an account in any such
bank or institution as may be specified in, and utilised in accordance with, any
scheme which the Central Government may, by notification, frame in this behalf
and such return shall be accompanied by proof of such deposit; and, for the
purposes of sub-section (1), the amount, if any, already utilised by the
assessee for all or any of the aforesaid purposes together with the amount so
deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this subsection is not utilised
wholly or partly for all or any of the purposes mentioned in clauses (a) to (d)
of sub-section (1) within the period specified in that sub-section, then, - (i)
the amount not so utilised shall be charged under section 45 as the income of
the previous year in which the period of three years from the date of the
transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with
the scheme aforesaid.â€;
(e) in section 80-IA, after sub-section (12), the following section shall be
inserted, namely:-
“(13) nothing contained in this section shall apply to any Special Economic
Zones notified on or after the 1st day of April, 2005 in accordance with the
scheme referred to in subclause (iii) of clause (c) of sub-section (4)â€.
Deductions in respect of profits and gains by an
undertaking or enterprise engaged in development of Special Economic Zone.
(f) after section 80-IA, the following section shall be inserted,
namely:-
“80-I AB.(1) Where the gross total income of an assessee, being a Developer,
includes any profits and gains derived by an undertaking or an enterprise from
any business of developing a Special Economic Zone, notified on or after the 1st
day of April, 2005 under the Special Economic Zone Act, 2005, there shall, in
accordance with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction of an amount equal to
one hundred per cent. of the profits and gains derived from such business for
ten consecutive assessment years.
(2) The deduction specified in sub-section (1) may, at the option of the
assessee, be claimed by him for any ten consecutive assessment years out of
fifteen years beginning from the year in which a Special Economic Zone has been
notified by the Central Government:
Provided that where in computing the total income of any undertaking, being a
Developer for any assessment year, its profits and gains had not been included
by application of the provisions of sub-section (13) of section 80-1A, the
undertaking being the Developer shall be entitled to deduction referred to in
this section only for the unexpired period of ten consecutive assessment years
and thereafter it shall be eligible for deduction from income as provided in
sub-section (1) or sub-section (2) as the case may be:
Provided further that in a case where an undertaking, being a Developer who
develops a Special Economic Zone on or after the 1st day of April, 2005 and
transfers the operation and maintenance of such Special Economic Zone to another
Developer (hereafter in this section referred to as the transferee Developer),
the deduction under sub-section (1) shall be allowed to such transferee
Developer for the remaining period in the ten consecutive assessment years as if
the operation and maintenance were not so transferred to the transferee
Developer.
(3) The provisions of sub-sections (5) and sub-sections (7) to (12) of section
80-IA shall apply to the Special Economic Zones for the purpose of allowing
deductions under sub-section (1).
Explanation.- For the purposes of this section, “Developer†and “Special
Economic Zone†shall have the same meanings respectively as assigned to them in
clauses (g) and (za) of section 2 of the Special Economic Zones Act, 2005â€;
Deduction in respect of certain incomes of Offshore
Banking Units and International Financial Services Centre
(g) for section 80LA, the following section shall be substituted,
namely:–
‘80LA. (1) Where the gross total income of an assessee,—
(i) being a scheduled bank, or, any bank incorporated by or under the laws of a
country outside India; and having an Offshore Banking Unit in a Special Economic
Zone; or
(ii) being a Unit of an International Financial Services Centre, includes any
income referred to in sub-section (2), there shall be allowed, in accordance
with and subject to the provisions of this section, a deduction from such
income, of an amount equal to—
(a) one hundred per cent of such income for five consecutive assessment years
beginning with the assessment year relevant to the previous year in which the
permission, under clause (a) of sub-section (1) of section 23 of the Banking
Regulation Act, 1949 or permission or registration under the Securities and
Exchange Board of India Act, 1992 or any other relevant law was obtained, and
thereafter;
(b) fifty per cent. of such income for five consecutive assessment years.
(2) The income referred to in sub-section (1) shall be the income —
(a) from an Offshore Banking Unit in a Special Economic Zone; or
(b) from the business referred to in sub-section (1) of section 6 of the Banking
Regulation Act, 1949 with an undertaking located in a Special Economic Zone or
any other undertaking which develops, develops and operates or develops,
operates and maintains a Special Economic Zone; or
(c) from any Unit of the International Financial Services Centre from its
business for which it has been approved for setting up in such a Centre in a
Special Economic Zone.
(3) No deduction under this section shall be allowed unless the assessee
furnishes along with the return of income,—
(i) the report, in the form specified by the Central Board of Direct Taxes under
clause (i) of sub-section (2) of section 80LA, as it stood immediately before
its substitution by this section, of an accountant as defined in the Explanation
below sub-section (2) of section 288, certifying that the deduction has been
correctly claimed in accordance with the provisions of this section; and
(ii) a copy of the permission obtained under clause (a) of sub-section (1) of
section 23 of the Banking Regulation Act, 1949.
Explanation.—For the purposes of this section,—
(a) “International Financial Services Centre†shall have the same meaning as
assigned to it in clause (q) of section 2 of the Special Economic Zones Act,
2005;
(b) “scheduled bank†shall have the same meaning as assigned to it in clause (e)
of section 2 of the Reserve Bank of India Act, 1934;
(c) “Special Economic Zone†shall have the same meaning as assigned to it in
clause (za) of section 2 of the Special Economic Zones Act, 2005;
(d) “Unit†shall have the same meaning as assigned to it in clause (zc) of
section (2) of the Special Economic Zones Act, 2005;
(h) in section 115JB, after sub-section (5), the following subsection shall be
inserted, namely:-
“(6) The provisions of this section shall not apply to the income accrued or
arising on or after the 1st day of April, 2005 from any business carried on, or
services rendered, by an entrepreneur or a Developer, in a Unit or Special
Economic Zone, as the case may be.â€.
(i) in section 115-0, after sub-section (5), the following subsection shall be
inserted, namely:-
“(6) Notwithstanding anything contained in this section, no tax on distributed
profits shall be chargeable in respect of the total income of an undertaking or
enterprise engaged in developing or developing and operating or developing,
operating and maintaining a Special Economic Zone for any assessment year on any
amount declared, distributed or paid by such Developer or enterprise, by way of
dividends (whether interim or otherwise) on or after the 1st day of April, 2005
out of its current income either in the hands of the Developer or enterprise or
the person receiving such dividend not falling under clause (23G) of section
10.â€;
(j) in section 197A, after sub-section (1C), the following subsection shall be
inserted, namely:-
‘(1D) Notwithstanding anything contained in this section, no deduction of tax
shall be made by the Offshore banking Unit from the interest paid-
(a) on deposit made on or after the 1st day of April, 2005, by a non-resident or
a person not ordinarily resident in India; or
(b) on borrowings, on or after the 1st day of April, 2005, from a non-resident
or a person not ordinarily resident in India.
Explanation.- For the purposes of this sub-section “Offshore Banking Unit†shall
have the same meaning as assigned to it in clause (u) of section 2 of the
Special Economic Zones Act, 2005.’.