Law:

Section:

Section 10A of the Income-tax Act, 1961 - Free trade zone - Assessment year 2001-02 - Whether Explanation 1 to section 10A(9), which was inserted with effect from 1-4-2001, was not retrospective and it would be applicable only for those undertakings which had been set up after 1-4-2001 - Held, yes - Assessee-company had been treated as a newly established undertaking in free trade zone in accounting period relevant to assessment year 1997-98 and was enjoying deduction of its profits and gains under section 10A - On 31-3-1998, two promoters of company were holding 100 per cent shares of company and were having 100 per cent voting power in respect of shares held by them - However, during year under consideration, due to issue of new shares to NRIs, shareholding of promoters was reduced to 42.63 per cent and voting power in respect of shares held by them was reduced to 51.42 per cent - Revenue authorities held that since percentage of shares held by promoters had been reduced to less than 51 per cent, it was established that beneficial interest in undertaking was transferred and, therefore, in view of Explanation 1 to section 10A(9), assessee was not entitled to deduction under section 10A - Whether Explanation 1 to section 10A(9) was applicable to facts of case - Held, no - Whether even otherwise when assessee-company had issued shares without voting rights and as a result original promoters continued to hold shares of company carrying not less than 51 per cent of voting power, it was clear that ownership of assessee-company was not transferred by any means and, therefore, assessee-company was entitled to deduction under section 10A(1) - Held, yes Circulars and Notifications : CBDT Circular No. 794, dated 9-8-2000 FACTS The assessee-company had been treated as a newly established undertaking in the free trade zone in the accounting period relevant to the assessment year 1997-98 and was enjoying deduction of its profits and gains under section 10A. On 31-3-1998, the two promoters of the company, viz., 'A' and 'N' were having 100 per cent of voting power in respect of shares held by them. During the accounting year ending on 31-3-2001, the assessee-company issued…

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