| Question And Answer | |
|---|---|
| Subject: | Special Economic Zone , Utilization Reserve? |
| Category: | Income-Tax |
| Querist: | Ravi aiftp |
| Answered by: | Chartered Accountant ., Mr . H. N. Motiwalla |
| Tags: | Special Economic Zone, Utilization Reserve |
| Date: | January 15, 2024 |
A company’s one of the unit is set up in a “Special Economic Zone”. The company has claiming tax holiday for last 5 years out of 15 years with respect to SEZ profits and has created the “SEZ Reinvestment Reserve” as per section 10AA(ii) of the Act. Now the management of the company would like to utilize, without losing the tax holiday, the said SEZ Reinvestment Reserve for the following
- a) Acquiring assets for their other businesses unit.
- b) Acquire motor cars for SEZ units.
Sub section (2) of section 10AA of the Act reads as under:
The deduction under clause (ii) of sub section shall be allowed only if following conditions are fulfilled:-
a) The amount credited to Special Economic Zone Reinvestment Reserve Account is to utilized-
i) For the purpose of acquiring machinery or plant which is first put to use before the expiry of a period of three years following the previous years in which the reserve was created; and
ii) Until the acquisition of the machinery or plant as a foresaid 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 profit or creation of any asset outside India”
Thus reading the above section, it is clear that acquiring the assets for other business unit or undertaking is not permitted at the peril of loosing the benefit of section 10AA. Further, the word “plant” has been defined under section 43(3) to include ships, vehicles, books, scientific equipment and surgical equipment . As held by the Supreme Court in CIT v. Taj Mahal Hotel [82 ITR 44], the word “plant” must be given a wide meaning and the word “Plant” includes “Vehicles”. Therefore to acquire motor cars is permitted for SEZ units / undertaking.
Source : AIFTP Journal September 23