tax planning through investments

CA. Rajat MohanB.Com(H),ACA, ACS, DISA

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Tax Planning through Investments

SECTION 80-IBDEDUCTION IN RESPECT OF PROFITS

AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER

THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

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This deduction is available to all categories of taxpayers.

(A). TAXPAYER CATEGORY SECTION 80-IB


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(B). COMMON CONDITIONS FOR ALL THE CASES:(a) New Business undertaking criteria — Eligible Undertakingshall not be formed by splitting up, or the reconstruction, of abusiness already in existence. However, this condition shall notapply in respect of an undertaking which is formed as a result of there-establishment, reconstruction or revival by the assessee of thebusiness of any such undertaking as is referred to in section 33B.

(b)New Plant and Machinery criteria — Eligible Undertaking shall not be formed by the inward transfer to a new business, of machinery or plant previously used for any purpose.

This condition shall be deemed to be complied with, if value of used machinery or plant or any part thereof transferred to a new business does not exceed 20% of the total value of the machinery or plant used in the business.


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(B).COMMON CONDITIONS FOR ALL THE CASES:Any machinery or plant used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled:

(i) Such machinery or plant was not, at any time prior to the date of the installation by the assessee, used in India;

(ii) Such machinery or plant is imported into India from any country outside India; and

(iii) No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the assessee.


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(c) Negative list of goods produced criteria — Eligible Undertaking shall manufacture or produce any article or thing not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India. However in relation to a small-scale industrial undertaking or an industrial undertaking referred in section 80-IB(4) Eligible Undertaking shall manufacture or produce any article or thing, or operates one or more cold storage plant or plants, in any part of India.

(B).COMMON CONDITIONS FOR ALL THE CASES:


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d) Minimum no. or workers criteria — In a case where the industrial undertaking manufactures or produces articles or things, the undertaking shall employee at least following no. of workers:


Situation No. or workers

Manufacturing process carried on with the aid of power.

10 or more workers.

manufacturing process carried on without the aid of power.

20 or more workers.


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(e) Amalgamation or Demerger criteria — Where any undertaking of an Indian company which is entitled for deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger:

(i)Amalgamating or the Demerged company — No deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and

(ii) Amalgamated or the Resulting company — Deduction shall be admissible under this section to the amalgamated or the resulting company for the unexpired period of deduction.



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(f) Computation of profits criteria — For the purposes of computing deduction under this section profits and gains of an eligible business shall be computed on stand alone basis. In other words it should be assumed that eligible business was the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.


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g) Audit of Accounts criteria — The deduction shall not be admissible unless the accounts of the undertaking audited by an accountant[1] for the previous year for which the deduction is claimed. Report of such audit is to be furnished in the Form no. 10CCB duly signed and verified by such accountant. This report shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. The form shall also be accompanied by a copy of the agreement, approval or permission, as the case may be, to carry on the activity signed or issued by the Central Government or the State Government or the local authority for carrying on the eligible business.


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(B).COMMON CONDITIONS FOR ALL THE CASES:(h) Inter-unit transaction at market value criteria — Where any goods or services are transacted (purchase or sale) between eligible business or any other business carried on by the assessee shall be at market value. However where the consideration for such transfer as recorded in the accounts of the eligible business does not correspond to the market value as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer had been made at the market value of such goods or services.

Where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.


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(B).COMMON CONDITIONS FOR ALL THE CASES:(i) Transaction between closely connected assessee criteria —

Where it appears to the assessing officer that, owing to the close connection between the assessee carrying on the eligible business and any other person, that the business transacted between them produces more than the ordinary profits to such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived there from.(j) Dual benefit not allowed criteria — Where any amount of profits and gains is claimed and allowed under this section, deduction to the extent of such profits and gains shall not be allowed under any other provisions of Chapter-VIA under the heading ‘C. Deductions in respect of certain incomes’. Deduction under this section shall not exceed the profits and gains of eligible business.


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(B).COMMON CONDITIONS FOR ALL THE CASES:(k) Dual benefit to member AOP/BOI not allowed criteria —

Where, benefit of this deduction is given to an association of persons or a body of individuals, no deduction under this section shall again be allowed to member of the association of persons or body of individuals in relation to the share of such member.

(l) Powers of Central Government criteria — Central Government may, after making inquiry, direct, by notification in the Official Gazette that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification.


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(m) Compulsory filing Return of Income criteria — No deduction shall be allowed to assessee under this section unless he furnishes a return of his income for such assessment year on or before the due date specified under section 139(1). In addition, the claim of this deduction shall be compulsorily made in the return of income.


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Case(i): Industrial undertaking(C) ADDITIONAL CONDITIONS SECTION 80-IB

(a) Commencement of operations criteria —Situation PeriodIndustrial undertaking is a small scale industrial undertaking begins to manufacture or produce articles or things or to operate its cold storage plant not specified in Section 80-IB (4) or Section 80-IB (5).

At any time during the period beginning on 1 April, 1995 and ending on 31 March, 2002.

Industrial undertaking begins to manufacture or produce, articles or things or to operate such plant or plants notified by Central Government in the Official Gazette.

At any time during the period beginning from 1 April, 1991 and ending on 31 March, 1995 or such further period as the Central Government by notification in the Official Gazette, specify.


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Case (i): (D).AMOUNT OF DEDUCTION SECTION 80-IBSituation Deduction Period of deduction

Industrial undertaking owned by Cooperative Society.

25% the profits and gains derived from such industrial undertaking.

12 consecutive assessment years.

Industrial undertaking owned by a company.



Industrial undertaking owned by any other person.




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Case (i): (E). MEANING SECTION 80-IB •Small scale industrial undertaking means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951.


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Case (ii): Industrial undertaking in an industrially backward State specified in the Eighth Schedule

Case (ii): (C). ADDITIONAL CONDITIONS & AMOUNT OF DEDUCTION

Situation Item produces

Time period for commencement of operations

% of deduction

Period of deduction

other condition

Industrial undertaking in an industrially backward State specified in the Eighth Schedule.

Manufacture or produce articles or things or to operate its cold storage plant.

1 April, 1993 and 31 March, 2004.

100 % of the profits and gains.

First 5 assessment years.

Owned by company.

30% of the profits and gains.

Next 5 assessment years.


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Manufacture or produce articles or things or to operate its cold storage plant

1 April, 1993 and 31 March, 2004



Owned by co-operative society.25% of the

profits and gains.




1 April, 1993 and 31 March, 2004.



Owned by any other person.





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Industrial undertaking in State of Jammu and Kashmir.


1 April, 1993 and 31 March, 2012.



Owned by company.





1 April, 1993 and 31 March, 2012.

100 % of the profits and gains


Owned by co-operative society.





1 April, 1993 and 31 March, 2012.








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(E). MEANING

‘North-Eastern Region’ means the region comprising the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.


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Case (iii): Industrial undertaking located in such industrially backward districts as the Central Government may, prescribe.

(C). ADDITIONAL CONDITIONS & AMOUNT OF DEDUCTION

The amount of deduction in the case of an industrial undertaking located in such industrially backward districts as the Central Government may, by notification in the Official Gazette, which shall be as follows:


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Case (iv): (D). AMOUNT OF DEDUCTION

Case (iii): Industrial undertaking located in such industrially backward districts as the Central Government may, prescribe.

Deduction shall be 30% of the profits and gains derived from such ship for a period of 10 consecutive assessment years(including the initial assessment year)


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Case (iv): Business of a ship. SECTION 80-IB(C). ADDITIONAL CONDITIONS

(i) Ownership Criteria — Industrial undertaking is owned by an Indian company and is wholly used for the purposes of the business carried on by assessee.

(ii) Industrial undertaking was not, prior to the date of its acquisition by an Indian company, owned and used in Indian territorial waters by a person resident in India; and

(iii) Commencement of operations Criteria — Industrial undertaking is brought into use by the Indian company at any time during the period beginning on 1 April, 1991 and ending on 31 March, 1995.


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Case (iv): (D). AMOUNT OF DEDUCTION

Deduction shall be 30% of the profits and gains derived from such ship for a period of 10 consecutive assessment years(including the initial assessment year).

Case (iv) Business of a ship .SECTION 80-IB


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Case (v)-I: Hotel located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations, specify by notification in the Official Gazette.: (C). ADDITIONAL CONDITIONS

(a) Ownership Criteria — Hotel is owned and carried on by a company registered in India with a paid-up capital of not less than Rs. 5,00,000.

(b) Approval Criteria — Hotel is approved by the prescribed authority (Rule 18BBC). However any hotel approved by the prescribed authority before 1 April, 1999 shall be deemed to have been approved.

(c) Hotel is also approved by the prescribed authority in accordance with the rules made under this Act.

(d) Commencement of operations Criteria — Hotel starts functioning at any time during the period beginning on 1 April, 1990 and ending on 31 March, 1994 or beginning on 1 April, 1997 and ending on 31 March, 2001.


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However deduction shall not be available wherein hotel located at a place within the municipal jurisdiction of Calcutta, Chennai, Delhi or Mumbai, which has started or starts functioning on or after 1 April, 1997 and before 31 March, 2001.

Case (v)-I: Hotel located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations, specify by notification in the Official Gazette.


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(D). AMOUNT OF DEDUCTION

50% of the profits and gains derived from the business of such hotel for a period of 10 consecutive years beginning from the initial assessment year.



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(E). MEANING(I)‘Hilly area’ means any area located at a height of one thousand meters or more above the sea level.(II)‘Place of pilgrimage’ means a place where any temple, mosque, gurdwara, church or other place of public worship of renown throughout any State or States is situated.(III) ‘Rural area’ means any area other than:

(i) An area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee or by any other name) or a cantonment board and which has a population of not less than 10 thousand according to the preceding census of which relevant figures have been published before the first day of the previous year; or



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(ii) An area within such distance not being more than fifteen kilometers from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the stage of development of such area including the extent of, and scope for, urbanization of such area and other relevant considerations specify in this behalf by notification in the Official Gazette (Notification No. SO 1013(E), dated 6-10-1999).



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Case (v)-II: Any other hotel.(C). ADDITIONAL CONDITIONS

(a) Ownership Criteria — Hotel is owned and carried on by a company registered in India with a paid-up capital of not less than Rs. 5,00,000;

(b) Approval Criteria — Hotel is approved by the prescribed authority (Rule 18BBC). However any hotel approved by the prescribed authority before 1st April, 1999 shall be deemed to have been approved.


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(c) Commencement of operations Criteria — Hotel has started or starts functioning at any time during the period beginning on 1 April, 1991 and ending on 31 March, 1995 or beginning on 1 April, 1997 and ending on 31 March, 2001.

However deduction shall not be available wherein hotel located at a place within the municipal jurisdiction of Calcutta, Chennai, Delhi or Mumbai, which has started or starts functioning on or after 1 April, 1997 and before 31 March, 2001.

Case (v)-II: Any other hotel.


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30% of the profits and gains derived from the business of such hotel for a period of 10 consecutive years beginning from the initial assessment year.

Case (v)-II: Any other hotel.


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Case (vi): Multiplex theatre.

(C). ADDITIONAL CONDITIONS(a) Owner of industrial undertaking carries on

business of building, owning and operating a multiplex theatre.

(b) Commencement of operations Criteria — Multiplex theatre is constructed at any time during the period beginning on 1 April, 2002 and ending on 31 March, 2005

(c) Report of an audit in Form No. 10CCBA and containing such particulars as may be prescribed (Refer Rule 18DB) and duly signed and verified by an accountant.


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50% of the profits and gains derived, from the business of building, owning and operating a multiplex theatre, for a period of 5 consecutive years beginning from the initial assessment year in any place. However deduction shall not be available where multiplex theatre is located at a place within the municipal jurisdiction of Chennai, Delhi, Mumbai or Kolkata;



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(E). MEANING •Multiplex theatre means a building of a prescribed area, comprising of two or more cinema theatres and commercial shops of such size and number and having such other facilities and amenities as may be prescribed.



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Case (vii): Any convention centre.(C). ADDITIONAL CONDITIONS

(a) Owner of industrial undertaking carries on business of building, owning and operating a convention centre.

(b) Commencement of operations Criteria — Convention centre is constructed at any time during the period beginning on 1 April, 2002 and ending on 31 March, 2005.

(c) Report of an audit in Form No. 10CCBB and containing such particulars as may be prescribed and duly signed and verified by an accountant.


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50% of the profits and gains derived, from the business of building, owning and operating a convention centre, for a period of 5 consecutive years beginning from the initial assessment year in any place.

Case (vii): Any convention centre.


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Case (vii): Any convention centre.(E). MEANING ‘Convention centre’ means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities, as may be prescribed.


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Case (viii): Any company carrying on scientific research and development.

(C). ADDITIONAL CONDITIONS

(i) Company is registered in India.

(ii) Company has the main object of scientific and industrial research and development.

(iii) Company is for the time being approved by the prescribed authority at any time before 1 April, 1999.


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(D).AMOUNT OF DEDUCTION

Amount of deduction 100% of the profits and gains of such business for a period of 5 assessment years beginning from the initial assessment year.

Case (viii): Any company carrying on scientific research and development.


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Case (ix): Any company carrying on scientific research and development. (C). ADDITIONAL CONDITIONS

(i) Company is registered in India.

(ii) Company has the main object of scientific and industrial research and development.

(iii) Company is for the time being approved by the prescribed authority at any time after 31 March, 2000 but before 1 April, 2007.

(iv) Fulfils such other conditions as may be prescribed (Rule 18DA).


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Amount of deduction 100%of the profits and gains of such business for a period of 10 assessment years beginning from the initial assessment year.

Case (ix): Any company carrying on scientific research and development.


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Case (x): Undertaking produces mineral oil, natural gas.

(C). AMOUNT OF DEDUCTIONDeduction to an undertaking shall be 100% of the profits for a period of 7consecutive assessment years, including the initial assessment year, if such undertaking fulfils any of the following:

(a) Undertaking located in North-Eastern Region has begun or begins commercial production of mineral oil before 1 April, 1997;

(b) Undertaking is located in any part of India and has begun or begins commercial production of mineral oil on or after 1 April, 1997;

(c) Undertaking is engaged in refining of mineral oil and begins such refining on or after 1 October, 1998 but not later than 31 March, 2012.


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(d) Undertaking is engaged in commercial production of natural gasin blocks licensed under the VIII Round of bidding for award ofexploration contracts (hereafter referred to as NELP-VIII) under theNew Exploration Licensing Policy announced by the Government ofIndia vide Resolution No. O-19018/22/95 ONG.DO.VL, dated 10February, 1999 and begins commercial production of natural gas onor after 1 April, 2009;

(e) Undertaking is engaged in commercial production of natural gas in blocks licensed under the IV Round of bidding for award of exploration contracts for Coal Bed Methane blocks and begins commercial production of natural gas on or after 1 April, 2009.



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However, section 80- IB (9) shall not apply to blocks licensed under a contract awarded after the 31st day of March, 2011 under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated the 10th February, 1999 or in pursuance of any law for the time being in force or by the Central or a State Government in any other manner.



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(D). MEANING‘North-Eastern Region’ means the region comprising the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.



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Case (xi): Developing and building housing project.

(C). ADDITIONAL CONDITIONS

•Undertaking is developing and building housing projects.

•Housing projects are approved before 31 day of March, 2008 by a local authority.

•Such undertaking has commenced or commences development and construction of the housing project on or after 1 October, 1998.


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Development and construction of the housing project is completed within time limits as specified below:

Situation Time limit for completionHousing project has been approved by the local authority before 1 April, 2004.

On or before 31 March, 2008.

Where a housing project has been, or, is approved by the local authority on or after 1 April, 2004 but not later than 31 March, 2005.

Within 4 years from the end of the financial year in which the housing project is approved by the local authority.

Housing project has been approved by the local authority on or after 1 April, 2005.

Within 5 years from the end of the financial year in which the housing project is approved by the local authority.



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Where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority.•The project is on the size of a plot of land which has a minimum area of one acre.•Residential unit has a maximum built-up area of 1000 square feet where such residential unit is situated within the city of Delhi or Mumbai or within 25 kilometers from the municipal limits of these cities and 1500 square feet at any other place.•Built-up area of the shops and other commercial establishments included in the housing project does not exceed higher of:

(a) 3% of the aggregate built-up area of the housing project; or

(b) 5,000 square feet.



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Maximum units shall be allotted to assessee or his relatives: Situation1 Residential unit in the housing project is allotted to Individual.

No other residential unit shall be allotted in such housing project. to:(i) The same individual or the spouse or the

minor children of such individual;(ii) The Hindu undivided family in which

such individual is the karta;(iii) Any person representing such

individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.

1 Residential unit in the housing project is allotted to any other person.

No other residential unit shall be allotted in such housing project to the same person.



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(D). AMOUNT OF DEDUCTION100% of the profits derived in the previous year from such housing project is deductible.

(E). MEANING•‘Built-up area’ means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units.



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Case (xii): Business of setting up and operating a cold chain facility for agricultural produce. (C). ADDITIONAL CONDITIONS

(i) Industrial undertaking derives profit from the business of setting up and operating a cold chain facility for agricultural produce.

(ii) Commencement of operations criteria — Industrial undertaking begins to operate such facility on or after 1 April, 1999 but before 1 April, 2004.


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Case (xii): Business of setting up and operating a cold chain facility for agricultural produce.

Situation % of deduction Period of deductionOwned by company. 100 % of the profits and

gains.First 5 assessment years.



Owned by co-operative society.











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Case (xii): Business of setting up and operating a cold chain facility for agricultural produce.

MEANING

‘Cold chain facility’ means a chain of facilities for storage or transportation of agricultural produce under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce.


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Case (xiii): Business of processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products or from the integrated business of handling, storage and transportation of food grains. (C). ADDITIONAL CONDITIONS(i) Undertaking deriving profit from:

(a) The business of processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products; or

(b) From the integrated business of handling, storage and transportation of food grains.

(ii) Commencement of operations criteria — It begins to operate such business on or after 1 day of April, 2001. However benefit of this section shall not be given 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 to operate such business before 1 April, 2009.


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Case (xiii): Business of processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products or from the integrated business of handling, storage and transportation of food grains.

Situation % of deduction Period of deduction

Owned by company. 100 % of the profits and gains. First 5 assessment years.

30% of the profits and gains. Next 5 assessment years.

Owned by any other person. 100 % of the profits and gains. First 5 assessment years.

25% of the profits and gains. Next 5 assessment years.


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Case (xiv): Business of operating and maintaining a hospital in a rural area

(C). ADDITIONAL CONDITIONS(i) Undertaking is engaged in the business of operating

and maintaining a hospital in a rural area.(ii) Such hospital is constructed at any time during the

period beginning on 1 October, 2004 and ending on 31 March, 2008.(iii) Hospital has at least 100 beds for patients.

(iv) Construction of the hospital is in accordance with the regulations, for the time being in force, of the local authority.

(v) Assessee shall furnishes along with the return of income, the report of audit in Form No. 10CCBC duly signed and verified by an accountant


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Deduction shall be 100%of the profits and gains of such business for a period of 5 consecutive assessment years, beginning with the initial assessment year.



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(E). MEANING i)‘Rural area’ means any area other than(i) An area which is comprised within the jurisdiction of municipality(whether known as a municipality, municipal corporation, notifiedarea committee, town area committee or by any other name) or acantonment board and which has a population of not less than 10thousand according to thE preceding census of which relevantfigures have been published before the first day of the previous year;



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ii) An area within such distance not being more than fifteen kilometers from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the stage of development of such area including the extent of, and scope for, urbanization of such area and other relevant considerations specify in this behalf by notification in the Official Gazette (Notification No. SO 1013(E), dated 6-10-1999).



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Case (xv): Business of operating and maintaining a hospital located anywhere in India, other than the excluded area.(C). ADDITIONAL CONDITIONS(i)Undertaking derives profits from the business of operating and maintaining a hospital located anywhere in India, other than the excluded area.(ii) Hospital is constructed and has started or starts functioning at

any time during the period beginning on 1 April, 2008 and ending on 31 March, 2013.

(iii) Hospital has at least 100 beds for patients.

(iv) Construction of the hospital is in accordance with the regulations or bye-laws of the local authority

(v) Assessee furnishes along with the return of income, a report of audit in form no. 10CCBD duly signed and verified by an accountant.


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(D). AMOUNT OF DEDUCTIONDeduction shall be 100% of the profits and gains derived from

such business for a period of 5 consecutive assessment years, beginning with the initial assessment year.

Case (xv): Business of operating and maintaining a hospital located anywhere in India, other than the excluded area.

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THANK YOUYour comments and suggestions are of utmost

importance and are always welcomed.

CA. Rajat Mohan B.Com(H), ACA, ACS, DISAMOHAN AGGARWAL & ASSOCIATESChartered AccountantsHead OfficeF-31 D.B. Gupta Market, Karol Bagh, New Delhi-110005Office Phone: 011-23672609 / 23535809Branch Office18A, IInd Floor, North Avenue Road, West Punjabi Bagh, New Delhi-110026office Phone: 011-47322696/97

Website: www.delhicamohan.comE-mail: [email protected]

mailto:[email protected]

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