“export oriented unit”
The decision most relied on for export oriented unit is CIT v. Hewlett Packard Global Soft Ltd. (87 Taxmann.com 182), cited in 120 judgments on BharatTax.
Leading authorities on export oriented unit
Incidental income like interest on bank deposits or staff loans, earned by an undertaking eligible for deductions under sections 10A and 10B, constitutes part of the 'profit and gains of the undertaking' and is thus eligible for 100% deduction, as it arises in the ordinary course of the export business even if not a direct result of export.
The Assessing Officer must grant the correct deduction after due verification of claims made by the assessee, even if not perfectly articulated initially. This principle applies in assessment proceedings, including those involving specific deductions like those for export-oriented units under Section 10B.
Interest income derived from funds of an undertaking, such as from FDRs or EEFC accounts, forms part of the "profits of the business of the undertaking" and is eligible for deduction under Sections 10A and 10B, provided there is a direct nexus with the business. This deduction applies to the entire income from the business of the undertaking, not solely to profits from export activities.
For a valid claim of deduction under Section 10B of the Income-tax Act, especially for a 100% Export Oriented Unit under Explanation 2(iv), approval from the Director STPI requires mandatory ratification by the specified "Board". An alternative claim for deduction under Section 10A, even if not initially raised before the Assessing Officer, can be directed for consideration by the Tribunal.
Allocation of R&D expenditure to eligible units is not clearly warranted when R&D units are maintained within manufacturing units and not as independent entities. This is particularly relevant when the Assessing Officer allocates R&D expenses to Export Oriented Units (EOUs) in the ratio of turnover, and the Commissioner (Appeals) has deleted such additions.
Approval from the Director of STPI is sufficient for claiming deduction under Section 10A of the Income-tax Act, even for Export Oriented Units (EOUs).
A business processing gherkins (cucumbers) into gherkin pickles, through various manufacturing processes, is entitled to deduction under Section 10B of the Income-tax Act, 1961.
Interest income earned from loans advanced to a unit in a Special Economic Zone (SEZ) or Export Oriented Unit (EOU) is taxable under the head 'income from other sources' and is not eligible for deduction under Section 10B.
