Direct Tax

Allow ability of deduction under section 10A/ 10AA on transfer of Technical Man-power in the case of software industries

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  1. CBDT on his Cir­cu­lar No 12/2014 dat­ed 18th July, 2014 to clar­i­fy that mere trans­fer or re-deploy­ment of exist­ing tech­ni­cal man pow­er from an exist­ing unit to a new SEZ unit in first year of com­mence­ment of the busi­ness will not con­strued as split­ting up or recon­struc­tion of an exist­ing busi­ness, pro­vid­ed the num­ber of tech­ni­cal man­pow­er so trans­ferred does not exceeds 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. Rep­re­sen­ta­tion have been received stat­ing that the afore said 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 ensur­ing 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 is set up for review the tax­a­tion of IT sec­tor and Devel­op­ment Centre.
  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-devel­op­ment of tech­ni­cal man­pow­er from exist­ing unit(s) to a new unit locat­ed in the SEZ, in the first year of com­mence­ment of the busi­ness, shall not be con­strued as split­ting up or recon­struc­tion of the exist­ing busi­ness, pro­vid­ed the num­ber of tech­ni­cal man­pow­er so trans­ferred as at the end of the finan­cial year does not exceed 50 % 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 assesse (enter­prise) is able to demon­strate that the net addi­tion of the 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 the clar­i­ty, it is stat­ed that the assessee will have a choice of com­ply­ing with any one of the above two alter­na­tives giv­en in the Para 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 which the issue is decid­ed by an appel­late author­i­ty in con­so­nance with this Circular.

 

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