Income Tax, Update

The story of an Income Tax Issue

Data, they say, is the new oil. Much like oil, in its crudest form, data has little use. And while oil needs to be processed in an elaborate refinery, data needs a refinery of no less magnitude. I could go on and this comparison would be fun to stretch but let me get to the point.

While many data scientists and technology companies are hard at work in building refineries for processing data, questions that should always define this effort are:

  • What should the processed product achieve?
  • Who should it empower?

Developing the Riverus Telescope has been an extremely interesting journey in this respect. The journey of procuring data, extracting relevant information, and processing it into insights.

We also had to be very conscious of the design and how users will consume the information. We didn’t want users drinking from a firehose, and what would be the point from taking users from too much information to too many insights. So, we worked hard on applying philosophies like progressive disclosure and minimalism to the end product.

Riverus Telescope for Income Tax empowers tax professionals by providing a ready answer to a tax issue.

Let me show you:

If as a tax practitioner, you wanted to know:

Can claims under section 10AA/10A be disallowed in subsequent years if accepted in the first and second year?

What the law states:

Section 10A

  • Section 10A provides for a deduction of profits and gains on export of articles or computer software until 1 April 2012 for SEZ companies.
  • For the first five years the deduction is 100%, for 5 years thereafter there is a bit of nuance which can be understood by reading the section in greater detail.

Section 10AA

  • Section 10AA provides for a deduction of profits and gains on the manufacture of articles or providing services from 1 April 2006 until 1 April 2021 for SEZ companies.
  • For the first five years, the deduction is 100%, for 5 years and thereafter the deduction is 50%.

What the case laws state:

There are 4 important cases that elaborate on this issue from 2012 to 2018

  • Macquarie Global Services Pvt Ltd vs. DCIT Delhi ITAT, 23 January 2018
  • ACIT vs. Solix Technologies Ltd
    Bombay HC | 10 August 2015
    Mumbai ITAT | 31 January 2013
  • ITO vs. Vasudeo Ramdas Mahajan Pune ITAT | 28 November 2014
  • CIT vs. Western Outdoor Interactive Pvt Ltd,
    Bombay HC, 14 August 2012

Insight from Case Laws

All the above cases favoured the Assessee.

And most judgments concur: unless the deduction allowed in the first assessment year is withdrawn, the same cannot be denied in the subsequent years.

New Litigation

There has been no new litigation around this subject in 2020 far.

The Story

So, what’s your takeaway from this? If your business operates in an SEZ and if according to the law you are eligible for a deduction and have got one in the preceding year, you should be able to continue to derive the benefits of the deduction. Currently, this issue has been litigated up to the High Court level and there isn’t a Supreme Court judgment on it. In some cases, lower court judgments favoured the Revenue and reading of the cases in detail may help to predict risk.

Now, if all such information is available through a ready research platform, imagine the time and effort you save, the pace with which you can take decisions. And if and when the position changes you are informed, and you, in turn, can highlight the associated risks immediately and take evasive action, wouldn’t you feel empowered?

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