Clarification on Transfer of Employees from STPI/Other Units to SEZ - Sec 10AA (Increased from 20% to 50%)

F.No.178/84/2012-ITA.I
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF DIRECT TAXES
NEW DELHI

Dated: October 8, 2014

CIRCULAR NO 14/2014

Subject: Clarification regarding allowability of deduction under section 10A/10AA on transfer of Technical Man-Power in the case of software industry.

 

CBDT had issued Circular No.12/2014 dated 18th July, 2014 to clarify that mere transfer or re-deployment of existing technical manpower from an existing unit to a new SEZ unit in the first year of commencement of business will not be construed as splitting up or reconstruction of an existing business, provided the number of technical manpower so transferred does not exceed 20 per cent of the total technical manpower actually engaged in developing software at any point of time in the given year in the new unit.

 

2. Representations have been received stating that the aforesaid limit of 20% is inadequate and restrictive since it impacts the competitiveness of Indian Software Industry in global market in terms of quality of product and delivery time-lines. Global competitiveness can be ensured only when highly skilled and experienced manpower is deployed for software development. Requests have, therefore, been made seeking enhancement of the limit of 20% in line with the recommendation of Rangachary Committee, which was set up to review the taxation of IT Sector and Development Centers.

 

3. The matter has been re-examined by the Board. In supersession of the Circular No.12/2014 dated 18th July, 2014, It has now been decided that the transfer or re-deployment of technical manpower from existing units(s) to a new unit located in SEZ, in the first year of commencement of business, shall not be construed as splitting up or reconstruction of an existing business, provided the number of technical manpower so transferred as at the end of the financial year does not exceed 50 per cent of the total technical manpower actually engaged in development of software or IT enabled products in the new unit.

 

4. Further, in the alternative, if the assesses (enterprise) is able to demonstrate that the net addition of the new technical manpower in all units of the assessee (enterprise) is at least equal to the number that represents 50% of the total technical manpower of the new SEZ unit during such previous year, deduction under section 10A/10AA would not be denied provided the other prescribed conditions are also satisfied.

 

5. For the sake of clarity, it is stated that the assessee will have a choice of complying with any one of the two alternatives given in Paras 3 and 4 above.

 

6. It is also clarified that this Circular shall be applicable only in the case of assessees engaged in the development of software or in providing IT Enabled Services in SEZ units eligible for deduction u/s 10A or u/s 10AA of the Act.

 

7. This Circular shall not apply to the assessments which have already been completed Further, no appeal shall be filed by the Department in cases where the issue is decided by an appellate authority in consonance with this Circular.

(Deepshikha Sharma)
Deputy Secretary to the Government of India

Clarification regarding allowability of deduction under section 10A/10AA on transfer of Technical Man-power in the case of software industry

GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NEW DELHI CIRCULAR NO 12/2014, Dated: July 18, 2014   Subject:- Clarification regarding allowability of deduction under section 10A/10AA on transfer of Technical Man-power in the case of software industry.   Section 10AA of the Income-tax Act, 1961, inter-alia, provides for deduction in respect of the profits derived by a unit set up in SEZ from export of computer software or from providing any ITES services. The said deduction available to a new SEZ unit is subject to certain conditions including: i) it is not formed by the splitting up, or the reconstruction of a business already in existence; ii) it is not formed by the transfer to a new business, of machinery or plant previously used for any purpose. 2. In this regard, attention of the Board has been drawn to the issue of transfer/redeployment of technical manpower from the existing units of an assessee engaged in computer software development to its new SEZ unit. This, at times, is considered as splitting up or reconstruction of the existing business by some of the assessing officers resulting in denial of benefit u/s 10AA of the Income-tax Act, 1961 to the assessee.   3. It has been represented by the software industry that there is only a limited pool available with a software developer of skilled, talented and experienced manpower with domain knowledge. Given the highly technical and competitive nature of software development, some technical persons having prior experience are required to manage the critical functions of software development in a new unit. It has thus been submitted that movement of technical manpower from an existing unit to a new SEZ unit should not be a constraint in availing deduction u/s 10AA of the Income-tax Act. Attention has also been drawn to Instruction No.70 dated 09.11.2010 issued by the Ministry of Commerce which states that there is no bar on transfer of manpower to SEZ units. It has also been submitted that while there is a specific prohibition on transfer of plant or machinery from an existing unit to a new SEZ unit [Sec.10AA(4)(iii)], subject to a ceiling of 20 per cent, no such bar on transfer or redeployment of manpower has been explicitly laid down in the Section.   4. The matter has been examined in the Board. It is clarified that mere transfer or re-deployment of existing technical manpower from an existing-unit to a new SEZ unit in the first year of commencement of business will not be construed as splitting up or reconstruction of an existing business, provided the number of technical manpower so transferred does not exceed 20 per cent of the total technical manpower actually engaged in developing software at any point of time in the given year in the new unit.   5. This Circular shall be applicable only in the case of assesees engaged in the development of software or in providing IT Enabled Services in SEZ units eligible for deduction u/s 10A or u/s 10AA of the Act.   F.No.178/84/2012 -ITA.I   (Deepshikha Sharma) Deputy Secretary to the Government of India

Guidelines regarding “Transfer of In-principle or Formal approval issued to a SEZ Developer to its subsidiary or SPV”

No. C.8/3/2009-SEZ

Government of India
Ministry of Commerce and Industry
Department of Commerce
Udyog Bhawan, New Delhi

Dated the 16th July , 2009

INSTRUCTION NO. 21

Subject: Guidelines regarding “Transfer of In-principle or Formal approval issued to a SEZ Developer to its subsidiary or SPV” – Reg.

The undersigned is directed to enclose herewith guidelines regarding Transfer of In-principle or Formal approval issued to a SEZ Developer to its subsidiary or SPV as per the decision taken in the 31st meeting of the Board of
Approvals held on 15.01.2009 for information and necessary action of all concerned.

2. These guidelines will be valid henceforth with respect to change of name/ transfer of approval cases.

3. Cases not covered in these guidelines would be decided by Board of Approvals.

(T. Srinidhi)
Director

(Annexure to Instruction No. 21)

Guidelines on Transfer of In-principle or Formal approval issued to a SEZ
Developer/approved Co-developer to its subsidiary or SPV

The Board, in its meeting held on 15-01-2009, approved following guidelines for changeof name/transfer of approvals in the following categories:-

(i) Category I – Where there is mere change in name and no change in share holding pattern of the original developer.

(ii) Category II – Where approval is transferred to a 100% SPV or a wholly owned subsidiary (WOS) of the developer company,

(iii) Category III- De-merger in terms of a Court decision in respect of M/s. Bajaj Holdings Pvt. Ltd.

(iv) Category IV- Where partly the equity is held by State Government or one of its organisations by virtue of the State Government’s requirement BOA further indicated that these guidelines will be valid henceforth with respect to
change of name/ transfer of approval cases.

It was further decided that in regard to the rest of the cases the Department of Commerce would separately examine the matter in consultation with the Department of Revenue and come up with separate policy guidelines.

SEZ - AUTHORIZED ACTIVITIES WHICH CAN BE UNDERTAKEN BY THE DEVELOPER /APPROVED CO-DEVELOER BY DEFAULT

Instruction no. 20 has been issued to clarify the activities that CAN BE UNDERTAKEN BY THE DEVELOPER APPROVED CO-DEVELOER BY DEFAULT FROM THE DATE OF NOTIFICATION August 2, 2009

Since a time gap exists between the date of notification and actual approval of the authorized operations by the Board of Approval, to avoid delays in the project implementation, the authorized activities were approved by the Board of Approval as default operations which may be carried out by the Developer or Co-Developer, as the case may be, after the SEZ is notified.

The list of default activities has been given to annexure to the instruction.

The list of authorized operations are as under:

(A) Information Technology/Information Technology Enabled Services, Biotechnology
and Gems and Jewellery Special Economic Zone:

1. Roads with Street lighting, Signals and Signage

2. Water treatment plant, water supply lines (dedicated lines up to source), sewage lines, storm water drains and water channels of appropriate capacity.

3. Sewage and garbage disposal plant, pipelines and other necessary infrastructure for sewage and garbage disposal, Sewage treatment plants

4. Electrical, Gas and Petroleum Natural Gas Distribution Network including necessary sub-stations of appropriate capacity, pipeline network etc.

5. Telecom and other communications facilities including internet connectivity

6. Rain water harvesting plant

7. Air conditioning of processing area

8. Fire protection system with sprinklers, fire and smoke detectors

9. Landscaping and water bodies

10. Boundary wall

11. Built up processing area not less than minimum prescribed 1 lakh sq. m.

12. Office space for Customs and Security staff not exceeding 500 sq.m.

(B) Sector Specific Special Economic Zones

1. Roads with Street lighting, Signals and Signage

2. Water treatment plant, water supply lines (dedicated lines up to source), sewage lines, storm water drains and water channels of appropriate capacity.

3. Sewage and garbage disposal plant, pipelines and other necessary infrastructure for sewage and garbage disposal, Sewage treatment plants

4. Electrical, Gas and Petroleum Natural Gas Distribution Network including necessary substations of appropriate capacity, pipeline network etc.

5. Effluent treatment plant and pipelines and other infrastructure for Effluent treatment.

6. Telecom and other communications facilities including internet connectivity

7. Rain water harvesting plant

8. Landscaping and water bodies

9. Wi Fi and / or Wi max Services

10. Drip and Micro irrigation systems.

11. Boundary wall

12. Factory sheds in processing area

13. Office space for Customs and Security staff not exceeding 500 sq.m.

(C) Multi Product Special Economic Zones

1. Roads with Street lighting, Signals and Signage

2. Water treatment plant, water supply lines (dedicated lines up to source), sewage lines, storm water drains and water channels of appropriate capacity.

3. Sewage and garbage disposal plant, pipelines and other necessary infrastructure for sewage and garbage disposal, Sewage treatment plants

4. Electrical, Gas and Petroleum Natural Gas Distribution Network including necessary substations of appropriate capacity, pipeline network etc.

5. Effluent treatment plant and pipelines and other infrastructure for Effluent treatment.

6. Play ground

7. Landscaping and water bodies

8. Wi Fi and / or Wi max Services

9. Drip and Micro irrigation systems.

10. Boundary wall

11. Factory sheds

12. Office space for Customs and Security staff not exceeding 500 sq.m.