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Deductions Under Section(s) 80IA,80IB, 80IC & 80JJA

All India Chartered

Accountants Society

6

th

Annual Workshop onDirect Taxes

9th July , 2010

Presented By: Mr. Anil Chopra

Dewan P.N. Chopra & Co.

H-57 Connaught Circus

N.Delhi-110001Ph : 24645891, 92,93

E-mail: [email protected]
mailto:[email protected]:[email protected]


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Section 80 A Deductions to be made in computing

total income

Assessee will be allowed deduction specified under section 80 Cto 80U from his Gross Total Income (GTI)

The aggregate amount of deduction shall not exceed, in any

case, the GTI

If any deduction is allowed under Chapter VI A to any AOP or

BOI, then no deduction shall be allowed to any member of such

AOP or BOI from share of income from such AOP or BOI

If deduction allowed under section 10A, 10AA, 10B and 10BA,

it should not exceed GTI and further no deduction shall be

allowed under any other provision of the Act


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No deduction to be allowed If the assessee fails to make the

claim.

Transfer of goods and services to any other business of the

assessee shall be taken to be at market value for computing

deduction under this chapter

Market Value defined in Explanation to be the value which the

goods and service will fetch if sold in the market or will cost if

acquired from the market.


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Section 80AB Deduction to be made withreference to the income included in the gross

total income

Where any deduction is required to be made or allowed under any

section included in this chapter under the heading CDeduction

in respect of certain income in respect of any income of the

nature specified in that section which is included in the gross total

income of the assessee, then notwithstanding anything contained

in that section, the amount of income of that nature as computed

in accordance of the provision of this Act, (before making anydeduction under this chapter) shall alone be deemed to be the

amount of income of that nature which is derived or received by

the assessee and which is included in his gross total income.


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Section 80AC Deduction not to be allowed unless

return furnished

No deduction under section 80IA, 80IAB, 80IB, 80IC, 80ID,

80IE, shall be allowed unless return is furnished on or before due

date u/s 139 (1)


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80-IA Deductions in respect of profits and gains

from industrial undertakings or enterprises engaged

in infrastructure development, etc.

Assessment years from which applicable 01.04.2000

Original Section was for only industrial undertakings etc.

w.e.f. 01.04.1991

Deduction

100% deduction for 10 Consecutive Years out of 15 Years

(20 years in case of Development etc of specifiedInfrastructure Facilities)

In case of Telecommunication Services 100% for first 5

years and 30% for further 5 years


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Deduction is available to

Undertaking engaged in development or operation &

maintenance or development, operation and maintenance ofInfrastructure facilities

o Starts Operation on or after 01.04.1995

o Owned by Indian Company or their consortium

o Agreement with central/state government etc.

o Infrastructure facility means road, toll road, a bridge,

rail system, highway projects, water supply projects,water treatment system, irrigation project, sanitation and

sewerage system or solid waste management system,

port, airport, inland waterway, inland port or

navigational channel in sea.


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Undertaking engaged in Telecommunication Services

o Which starts operation during 01.04.1995 to 31.03.2005

Undertaking engaged in development and operation or

operation and maintenance in industrial park and Special

economic zone

oNotified by the government for 01.04.1997 to

31.03.2006

o In case of industrial park notified upto 31.03.2011 in

place of 31.03.2006

o Benefit of deduction available to transferee if operation

& maintenance is transferred to another undertaking.


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Undertaking engaged in Power generation, transmission

and distribution of power

o Begins to generate or distribute power between

01.04.1993 to 31.03.2011

o Begins to transmit or distribute power between

01.04.1999 to 31.03.2011 by laying network of new

distribution lines.

o Begins to undertake substantial renovation and

modernization between 01.04.2004 to 31.03.2011


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Undertaking owned by Indian company & set up for

reconstruction of a Power generating plants

o Company formed before 30.11.2005 with majority

equity participation by PSU

o

Such Indian company notified by central Governmentbefore 31.12.2005

o Begin to generate power before 31.03.2011

Deduction under clause v to an Undertaking operating a

cross country natural gas distribution has been withdrawn

with effect from 1/4/2010.


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Computation of deduction as and independent and stand alone

unit

Transfer of goods/services at fair market value

Deduction to the extent allowed under this section not to be

allowed under any other sections

Accountants Report in form 10CCB read with Rule 18 BBB.

No tax on Profits arising from Housing Projects or other

activities forming part of Highway Projects provided profits

are transferred to a special reserve account and utilized before3 years for Highway Project (excluding Housing).

Accountants Report in Form 10 CCC read with Rule 18

BBE.


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AO has the power to re-compute profit of the undertaking if

owing to close connection, the eligible undertaking result in

higher profits

Provision of this section not to apply to any eligible business in

the nature of work contract

Power of Central Government to issue notification directing thatthe exemption shall not apply to any class(s) of undertaking(s)

In case of amalgamation or demerger on or after 01.04.2007,

benefit under the section will not be available to the amalgamated

or demerged company

In case of SEZ notified on or after 01.04.2005, provisions of this

section will not apply as separate deduction u/s 80IAB was

introduced w.e.f. 10.02.2006 by Special Economic Zones Act,

2005


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Undertaking engaged in providing Telecommunication

services or generation of power referred to in Clause ii & iv

of s/s 4:

Should not be formed by splitting up, or reconstruction

Should not be formed by the transfer of a used plant and

machinery except where the used plant and machinery does

not exceed 20% of total value of plant and machinery. Userof P & M used outside India subject to fulfillment of

specified conditions would not amount to used of

previously used P & M.

Relevant Circulars on Section (s) 80IA

Circular No. 1 dated Jan 12, 2006 clarifies that the effluent

treatment and conveyance system treated as Infrastructure

Facility


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Circular No.7 dated August 26, 2002 provides that benefitunder section 80-IA would be available in respect ofinfrastructure facilities for which agreement was executed

between 01.04.1995 to 31.03.2001 & notified by Central

Board of Direct Taxes prior to March 31, 2001.

Circular No.793 classifies port as infrastructure facility forthe purpose of sections 10 (23G) and 80-IA of the IncomeTax Act, 1961.

Circular No. 4/2010 dated May 18, 2010 clarifies thatwidening of an existing road by constructing additionallanes as a part of a highway project by an undertakingwould be regarded as a new infrastructure facility.

Circular No.733 dated January 3, 1996 clarifies that theBOLT Scheme of the Indian Railways shall be eligible forthe benefit of section 80-IA of the Income Tax Act, 1961.


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80IB. Deduction in respect of profits & gains from

certain industrial undertakings other than

infrastructure development undertakings

Assessment years from which applicable 01.04.2000

Eligible Business

Business of Industrial Undertaking in backward area

Operation of Ship

Hotel

Multiple Theaters/Convention centre

Scientific research

Production of mineral oil

Developing and building housing projects

Integrated handling, storage & transportation of food grains

units

Operation and maintenance of hospital in rural area


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Specific Condition

Business of Industrial undertaking in backward states

o Does not manufacture article specified in EleventhSchedule

o Set up in an industrial backward area

o

Employ 10 or more worker, 20 or more in case ofmanufacturing process without the aid of power

o Deduction varies according to nature of undertakingranging from 25% to 100% for 8 to 12 years

o Commences production from the dates specified insub sections.

oNot formed by splitting up, or reconstruction


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o Should not be formed by the transfer of a used plant

and machinery except where the used plant and

machinery does not exceed 20% of total value of plant

and machinery. User of P & M used outside Indiasubject to fulfillment of specified conditions would

not amount to used of previously used P & M.

Operation of a Ship

o Owned by an Indian company and wholly used for the

business

o Brought in use between 1.04.1991 to 31.03.1995

oNot used in Indian Territorial water by a person

resident in India.

o Deduction @ 30% for first 10 years

ifi d l / ifi d l


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Specified Hotels/ Non- Specified Hotels

oOwned by an Indian company with paid up capital of 5 lacs

or more

oLocated in a hilly area, rural area, place of pilgrimage or

other places specified by Central Government

oSpecified Hotel starts functioning during 01.01.1990 to

31.03.1994 or during 01.04.1997 to 31.03.2001 & Non-Specified Hotel starts functioning during 01.01.1991 to

31.03.1995 or during 01.04.1997 to 31.03.2001 in places

other than 4 metropolitan cities

oApproved by the prescribed authority as per Rule 18BBC


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oDeduction : 50% for Specified and 30% for Non

Specified Hotels for first 10 years

o Not formed by splitting up, or reconstruction or transferto new business building or plant and machinery

previously used .

Multiplex theaters/Convention Centre

o Construction during 01.04.2002 to 31.03.2005

o Located except municipal jurisdiction of four

metropolitan cities in case of multiplex theaters

oNot formed by splitting up, or reconstruction or transfer

to new business building or plant and machinery

previously used .


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o Accountants Report in Form 10 CCBA r/w Rule 18 DB for

Multiplex and Form 10 CCBB r/w Rule 18DC for convention

centre certifying deduction.

o Deduction 50% for initial 5 years

Scientific Research

o Company registered in India

o Main object of the company scientific and industrial research

and development

o Approved by prescribed authority in accordance with Rule

18 BBD.

o Deduction if approved before 01.04.1999 100% for initial 5

years

o Deduction if approved after 31.03.2000 to 31.03.2007 100%

for initial 10 years


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Production / Refining of Mineral Oil

o Is located in North-Eastern Region and started

commercial production before 1.04.1997

o Is located in any part of India and started commercial

production after 1.04.1997

o Is engaged in refining of mineral oil and begins such

refining on or after 1.10.1998 but on or before

31.03.2012.

o Is engaged in commercial production of natural gas in

blocks licensed under New Exploration LicensingPolicy of Govt. of India and begins production on or

after 1.4.2009.


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o Is engaged in commercial production of natural gas in

blocks licensed for Coal Bed Methane blocks and

begins commercial production on or after 1.04.2009.

o Deduction: 100% for first 7 years

Developing and Building Housing Project approved by

local authority upto 31/3/2008

o Size of plot of land minimum of one acre

o Commences construction after 1.10.1998 and completes

On or before 31.03.2008, if housing project

approved before 01.04.2004

Within 4 years, if housing project approved between

01.04.2004 to 31.03.2005


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Within 5 years, if housing project approved after

01.04.2005

o

Stipulation regarding size of plot or date of completionnot to apply for projects in slum area as notified by the

Board.

oBuilt up area of commercial establishment not exceed

3% or 5000sq ft whichever is less

oMaximum limit of built up area of a unit within city of

Delhi and Mumbai or within 25 Kms thereof 1000 sq

ft (1500 sq ft for any other place)

oNot more than one residential unit in the housing

project is allotted to any person not being an individual

(w.e.f. 01.04.2010)


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o if any unit is allotted to an individual, no other unit in

such housing project, shall be allotted to the individual,

spouse or minor children of such individual or to HUF in

which he is the karta or to any person representing suchindividual, spouse, minor children or HUF in which he is

the karta (w.e.f. 01.04.2010)

oDeduction 100% of the profits.

oProvisions of section would not apply to a contractor

Processing, preservation , integrated handling, storage and

transportation of food grains, vegetables, poultry etc.

o Begins operation on or after 01.04.2001

o Deduction 100% for first 5 years and 25% (30% in case

of Company)for next 5 years


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o Provisions not to apply to an undertaking engaged in the

business of processing, preservation and packaging of

meat or meat products or poultry or marine or dairy

products, if it begins operation before 01.04.2009

Operation and maintaining hospital in rural area

o Such hospital is constructed during 01.10.2004 to

31.03.2008

o Minimum 100 beds for patients

o Construction is as per regulation of local authorities.

o Accountants report 10CCBC r/w Rule 18DD certifying

amount of deduction .

o Deduction 100 % for initial 5 years


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Operation and maintaining hospital located anywhere in

India except excluded area

o The hospital is constructed and starts functioning

between 01.04.2008 to 31.03.2013

o At least 100 beds for patients

o Construction is as per the regulations or the bye-laws of

the local authority

o Accountants report 10CCBD r/w Rule 18DDA

certifying amount of deduction

o Excluded area to include Greater Mumbai, Delhi,

Kolkata, Chennai, Hyderabad, Bangalore, Ahemdabad,

Districts of Faridabad, Gurgaon, Gautam Budh Nagar,

Ghaziabad, Gandhinagar and City of Secunderabad

o Deduction 100% for initial 5 years


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Accountants Report in form 10CCB to be obtained..

Subsections 5 & 7 to 12 of Section 80IA shall apply to 80 IB .

In case of amalgamation and demerger, deductions to be

allowed to amalgamated or demerged undertaking

Relevant Circular on Section 80IB

Circular No.788 dated 11.4.2000 clarifies that the WordState in sub-section (4) of section 80-IB includes Union

Territories specified I Eighth Schedule.


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80IC Special provisions in respect of certain

undertakings or enterprises in certain special

category states

Applicable from AY 01.04.2004 to an undertaking carrying on

or undertaking substantial expansion of specified business in a

special category state.

ConditionsNot formed by splitting up or reconstruction except

business discontinued due to extensive damage etc.

Not formed by the transfer of a used plant and machinery

except where the used plant and machinery does not exceed

20% of total value of plant and machinery.

Set up in certain special category states

Manufacture or produce specified goods


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Deduction varies from 25% to 100% for 10 years,

according to the nature of undertaking, article

manufactured and produced, and the specified category of

states

Accountants Report in form 10CCB to be obtained..

Subsections 5 & 7 to 12 of Section 80IA shall apply to 80 IB .

Substantial expansion means increase in an investment in plant

and machinery by at least 50% of book value (without

considering depreciation) of plant and machinery as on the 1stday of the previous year in which substantial expansion is

undertaken


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80JJA Deduction in respect of profits and gains from

business of collecting and processing of bio-

degradable waste

Business of collecting and processing or treating of bio-

degradable waste for generating Power or producing bio-

fertilizers, bio-pesticides or other biological agents for

producing bio-gas or making pellets or briquettes for fuel ororganic manure.

Deduction 100% for 5 initial years


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Propositions

Meaning of undertaking

A unit qualifies to be an undertaking when it undertakes

production or manufacture of articles or things in its own right

and produces such articles or things by itself as a separate and

independent unit.

114 ITD 189 (Mum.) Joint CIT Vs. Associated

Capsules P. Ltd.

Meaning of the word Derived from

Duty drawback receipts & DEPB benefits are not derived fromeligible industrial undertakings for the purpose of the deduction

under section 80-I / 80-IA / 80-IB of the Income-tax Act,1961.

317 ITR 0218 (SC) - Liberty India v. CIT

[1999] 237 ITR 579 (SC) CIT v. Sterling Foods


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Interest on deposit not derived from business of

undertaking

[2003] 262 ITR 278 (SC) Pandian Chemicals Ltd. v. CIT

Favouring Assessee

301 ITR 427 ( Jharkhand) CIT vs. Eastern Tar ( P.) Ltd.

Interest on late payment received from customers is

part of sale price and derived from Industrial

Undertaking

324 ITR 221 (Bom)CIT v. Vidyut Corporation (after

considering decision of SC on Liberty India)

303 ITR 0411 (P &H)- Phatela Cotgin Industries P. Ltd. v. C I T

286 ITR 201 ( Mad) CIT vs. Indo Matsushita Carbon Co. Ltd.


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Amounts realised from sale of packing material not

part of profit of Industrial undertaking

219 CTR (MP) 499 CIT vs. Alpine Solvex Ltd.

Amounts received from insurance company for loss ofgoods by fire is from industrial undertaking

183 Taxman 312 (Delhi) CIT vs. Sportking India Ltd.


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Splitting up or Reconstruction

Succession or sale does not amount to

reconstruction

167 ITR 586 (A.P.) CIT vs U Foam Private Limited s. 80J

35 ITR 662 (Mum)CIT vs Gaekwar Foam & Rubber Company

Limited.s. 15C

Take over of a firm by a company is not

reconstruction

35 ITR 662 (Mum)CIT vs Gaekwar Foam & Rubber Company

Limited.s. 15C


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Transfer of Plants & Machineries previously used-

negligible value or less than 20% value of Plant &

Machinery previously used would not make anundertaking disentitled to benefit

[2009] 30 SOT 340 Pembril Indl. & Engg. Co. (P) Ltd. v. DCIT

304 ITR 365 (GUJ.)CIT Vs. Lakhanpal National Ltd.

196 ITR 188 (SC) Bajaj Tempo vs. CIT

137 ITR 851 CIT v. Hindustan General Industries Ltd. (Delhi)

Factory destroyed in fire, new machinery installed,

no reconstruction of old business, assessee entitled to

deduction

167 ITR 586 CIT v. U Foam Private Limited (Andhra Pradesh)


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Undertaking need not to have its own P&M to

manufacture goods and article.

124 ITD 249 (DEL)ITO V. Techdrive (India) (P.) Ltd.

130 ITR 477 (DEL)- Orient Longman Ltd. Vs. CIT

113 ITR 718 (CAL) ACIT vs. A Mukherjee & Co. P. Ltd.

137 ITR 879 (BOM.) CIT vs. Neo Pharma Pvt. Ltd.


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Computation of deduction only with reference to

profits of the undertaking and not total profit of the

business and without adjusting loss of other units161 ITR 320 (SC) CIT, (Central) Madras vs Canara Workshops

Pvt. Limited s. 80E

160 Taxman 343 (Delhi) CIT vs. Dewan Kraft System P LTD.[2008] 297 ITR 0305

251 ITR 471 (A.P.) CIT vs Visakha Industries Ltds. 80AB , s.

80B , s. 80HH , s. 80J


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Loss from other unit to be adjusted before allowing

deduction

299 ITR 444 ( SC) Synco Industries Ltd. Vs. AO

243 ITR 26 (SC) CIT vs. Motilal Pesticides Pvt. Ltd.

245 ITR 605 ( Mad) CIT vs. Sundaravel Match Industries P.

Ltd.

Profit and gain are to be reduced by current

depreciation including initial depreciation relating to

new undertaking318 ITR 352 ( Bom) (FB) Plastiblends India Ltd vs. ACIT

213 ITR 721 (Raj) CIT vs Loonkar Tools Pvt. Limiteds. 80AB,

s. 80HH


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Previous Years losses & unabsorbed depreciation to be

adjusted before claiming deduction

234 ITR 529 (Mad) CIT vs. Veeraraghava Textiles P. Ltd.

Past depreciation/ business losses already set off against

other income of that year, are not to be set off againstthe income of the unit in subsequent year

115 ITR 640 (SC) CIT, Patiala vs Patiala Flour Mills Co. Pvt.

Limited s. 80J

96 ITD 160 (Mum.) ACIT vs. Ashok Alco Chem Ltd., 80-IA(7)

2010 (231) CTR 0368 MAD Velayudhaswamy spining Mills (P)

Ltd.


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Meaning of words Manufacture/ Production

235 ITR 5 (Ker)CIT vs Indian Resins And Polymers

204 ITR 412 (SC) CIT vs N.C. Budharaja and Co. & another (P)

Ltd. 80HH

Production" has a wider connotation than the word

"manufacture

Delhi Cold Storage Pvt. Limited. Vs CIT. 191 ITR 656 (SC)


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The expression process is wider than manufacture,

production

Conversion of Polymer Granules into powder amounts to

manufacture u/s 80 IB

300 ITR 115 (MAD) CIT vs. Shri Swasan Chemicals ( M) Pvt.

Ltd.

Blending & bottling of IMFL would amount to

manufacture u/s 80 IB

218 CTR ( Mad) 634 CIT vs. Vinbros & Co.


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Twisting & texturing of partially oriented yarn

amounts to manufacture

305 ITR 309 (Bom) CIT vs. Emptee Poly- Yarn (P.) Ltd.

Cutting & Polishing of marble stones into marbleslabs and tiles amounts to manufacture

295 ITR 148 ( Raj) Arihant Tiles & Marbles Pvt. Ltd

225 CTR (Delhi) 410 CIT vs. Sophisticated Marbles & GraniteIndustries


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Conversion of a blank disc to a software loaded disc is

a manufacturing activity

292 ITR 353 ( Delhi) CIT vs. Oracle Software India Ltd.

Conversion of jumbo rolls into saleable packets/ rolls

of standard size does not amount to manufacture

308 ITR 96 ( Mad) Computer Graphics Ltd vs. ACIT

Poultry business is not entitled to 80 I deduction

159 Taxman 93 ( P & H) CIT vs. Bee Pee Poultries


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Common expenditure to be proportionately

distributed

243 ITR 26, (SC) Motilal Perticides (I) Pvt Ltd. Vs CIT, s

80AA,80AB,80HH

95 TTJ 139 ITAT Chennai C Bench Alstom Ltd. Vs Deputi CIT

84 TTJ 241 (Del) DCIT vs. Catvision Products Ltd.

Fair Market Value of Consideration in sister concern /

Inter Unit

254 ITR 187 (Bom) CIT Vs Win Laboratories P. Ltd.s. 80HH

103 ITD 19 West Coast Paper Mills Ltd. V Asst CIT ITAT

Mumabi


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Both 80HHC and 80IB may be claimed but not to

exceed GTI

292 ITR 1 (SC) JCIT vs. Mandideep Eng. & Pkg Ind. (P) Ltd. s.

80HH, 80I

285 ITR 423 (Del) CIT vs S. K. G. Engineering P. Limiteds.

80HH , s. 80I

W k


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Worker

Worker mean casual, permanent or temporary.

152 ITR 152 (Kar) CIT vs. K.G. Udiyurappa & Co., s.80HH

Average number to be worked out

122 ITR 259 (Bom) CIT vs Sawyer's Asia Limited. s.40(c), s.

84(2)

176 ITR 470 (Bom) CIT vs Ormerods (I.) Pvt. Limited. s. 84(2)

Owner can not be counted as worker

173 ITR 82 (Mad)CIT vs P. R. Alagappan s. 80J


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Position during abnormal situation like strike should not be

considered

220 ITR 84 (A.P.) CIT. Vs Abirami Cotton Mills (Private)

Limited. s. 80J

Employment during substantial period may suffice

CIT vs Taluja Enterprises (P.) Ltd 250 ITR 675 (Del)

Contract labourer, job worker etc can not be counted

for determination of the number of worker

279 ITR 536 (ALL) R & P Exports vs CITs. 80HH , s. 80-I

Contra Case 280 ITR 94 (Guj) CIT vs. Prithviraj Bhoorchand,

s.80I


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Filing of audit report with return is not a mandatory

condition

317 ITR 249 (Delhi) CIT vs. Contimeters Electricals Pvt. Ltd s.

80 IA (7)

209 ITR 63 (BOM) CIT vs Shivanand Electronics. s. 80J

238 ITR 257 (Calcutta) Murali Export House And Others vs CIT

s. 80HHC


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DISCLAIMER

The contents in this presentation are merely for

reference and must not be taken as havingauthority of or binding in any way on the

author. For authoritative information please

refer to the relevant provisions of the IncomeTax Act , Rules, Circulars and Judicial

Precedents.


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Thank You

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