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

1
Deductions Under Section(s) 80IA, 80IB, 80IC
80JJA

• Presented By Mr. Anil Chopra
• Dewan P.N. Chopra Co.
• H-57 Connaught Circus N.Delhi-110001
• Ph 24645891, 92,93
• E-mail dpnc_at_dpncindia.com

• All India Chartered Accountants Society
• 6th Annual Workshop on Direct Taxes
• 9th July , 2010

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• Section 80 A Deductions to be made in computing
  total income
• Assessee will be allowed deduction specified
  under section 80 C to 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

3

• 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.

4

• Section 80AB Deduction to be made with reference
  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 C Deduction 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 any
  deduction 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.

5

• 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
  specified Infrastructure 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 of Infrastructure facilities
• Starts Operation on or after 01.04.1995
• Owned by Indian Company or their consortium
• Agreement with central/state government etc.
• 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.

8

• Undertaking engaged in Telecommunication
  Services
• 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
• Notified by the government for 01.04.1997 to
  31.03.2006
• In case of industrial park notified upto
  31.03.2011 in place of 31.03.2006
• Benefit of deduction available to transferee if
  operation maintenance is transferred to another
  undertaking.

9

• Undertaking engaged in Power generation,
  transmission and distribution of power
• Begins to generate or distribute power between
  01.04.1993 to 31.03.2011
• Begins to transmit or distribute power between
  01.04.1999 to 31.03.2011 by laying network of new
  distribution lines.
• Begins to undertake substantial renovation and
  modernization between 01.04.2004 to 31.03.2011

10

• Undertaking owned by Indian company set up for
  reconstruction of a Power generating plants
• Company formed before 30.11.2005 with majority
  equity participation by PSU
• Such Indian company notified by central
  Government before 31.12.2005
• 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.

11

• 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 before 3
  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 that the 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

13

• 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. User of 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
  benefit under section 80-IA would be available in
  respect of infrastructure 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 for the purpose of sections 10 (23G) and
  80-IA of the Income Tax Act, 1961.
• Circular No. 4/2010 dated May 18, 2010 clarifies
  that widening of an existing road by constructing
  additional lanes as a part of a highway project
  by an undertaking would be regarded as a new
  infrastructure facility.
• Circular No.733 dated January 3, 1996 clarifies
  that the BOLT Scheme of the Indian Railways shall
  be eligible for the 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
• Does not manufacture article specified in
  Eleventh Schedule
• Set up in an industrial backward area
• Employ 10 or more worker, 20 or more in case of
  manufacturing process without the aid of power
• Deduction varies according to nature of
  undertaking ranging from 25 to 100 for 8 to 12
  years
• Commences production from the dates specified
  in sub sections.
• Not formed by splitting up, or reconstruction

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• 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 India subject to fulfillment of specified
  conditions would not amount to used of previously
  used P M.
• Operation of a Ship
• Owned by an Indian company and wholly used for
  the business
• Brought in use between 1.04.1991 to 31.03.1995
• Not used in Indian Territorial water by a person
  resident in India.
• Deduction _at_ 30 for first 10 years

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• Specified Hotels/ Non- Specified Hotels
• Owned by an Indian company with paid up capital
  of 5 lacs or more
• Located in a hilly area, rural area, place of
  pilgrimage or other places specified by Central
  Government
• Specified 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
• Approved by the prescribed authority as per Rule
  18BBC

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• Deduction 50 for Specified and 30 for Non
  Specified Hotels for first 10 years
• Not formed by splitting up, or reconstruction or
  transfer to new business building or plant and
  machinery previously used .
• Multiplex theaters/Convention Centre
• Construction during 01.04.2002 to 31.03.2005
• Located except municipal jurisdiction of four
  metropolitan cities in case of multiplex theaters
  
• Not formed by splitting up, or reconstruction or
  transfer to new business building or plant and
  machinery previously used .

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• 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.
• Deduction 50 for initial 5 years
• Scientific Research
• Company registered in India
• Main object of the company scientific and
  industrial research and development
• Approved by prescribed authority in accordance
  with Rule 18 BBD.
• Deduction if approved before 01.04.1999 100 for
  initial 5 years
• Deduction if approved after 31.03.2000 to
  31.03.2007 100 for initial 10 years

21

• Production / Refining of Mineral Oil
• Is located in North-Eastern Region and started
  commercial production before 1.04.1997
• Is located in any part of India and started
  commercial production after 1.04.1997
• Is engaged in refining of mineral oil and begins
  such refining on or after 1.10.1998 but on or
  before 31.03.2012.
• Is engaged in commercial production of natural
  gas in blocks licensed under New Exploration
  Licensing Policy of Govt. of India and begins
  production on or after 1.4.2009.

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• 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.
• Deduction 100 for first 7 years
• Developing and Building Housing Project approved
  by local authority upto 31/3/2008
• Size of plot of land minimum of one acre
• 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
• Stipulation regarding size of plot or date of
  completion not to apply for projects in slum
  area as notified by the Board.
• Built up area of commercial establishment not
  exceed 3 or 5000sq ft whichever is less
• Maximum 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)
• Not 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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• 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 such
  individual, spouse, minor children or HUF in
  which he is the karta (w.e.f. 01.04.2010)
• Deduction 100 of the profits.
• Provisions of section would not apply to a
  contractor
• Processing, preservation , integrated handling,
  storage and transportation of food grains,
  vegetables, poultry etc.
• Begins operation on or after 01.04.2001
• Deduction 100 for first 5 years and 25 (30 in
  case of Company)for next 5 years

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• 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
• Such hospital is constructed during 01.10.2004 to
  31.03.2008
• Minimum 100 beds for patients
• Construction is as per regulation of local
  authorities.
• Accountants report 10CCBC r/w Rule 18DD
  certifying amount of deduction .
• Deduction 100 for initial 5 years

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• Operation and maintaining hospital located
  anywhere in India except excluded area
• The hospital is constructed and starts
  functioning between 01.04.2008 to 31.03.2013
• At least 100 beds for patients
• Construction is as per the regulations or the
  bye-laws of the local authority
• Accountants report 10CCBD r/w Rule 18DDA
  certifying amount of deduction
• 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
• 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 Word State 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.
• Conditions
• Not 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 1st day 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 or organic
  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 from eligible 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
  of goods by fire is from industrial undertaking
• 183 Taxman 312 (Delhi) CIT vs. Sportking India
  Ltd.

34

• 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 an
  undertaking 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)

36

• Undertaking need not to have its own PM 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 units
• 161 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 Ltd
  s. 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 undertaking  
• 318 ITR 352 ( Bom) (FB) Plastiblends India Ltd
  vs. ACIT
• 213 ITR 721 (Raj) CIT vs Loonkar Tools Pvt.
  Limited s. 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 against the 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. 

42

• 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 marble
  slabs and tiles amounts to manufacture
• 295 ITR 148 ( Raj) Arihant Tiles Marbles Pvt.
  Ltd
• 225 CTR (Delhi) 410 CIT vs. Sophisticated
  Marbles Granite Industries

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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
  

44

• 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
•  

45

•  
• 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

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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

47

• 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 CIT s. 80HH ,
  s. 80-I
• Contra Case 280 ITR 94 (Guj) CIT vs. Prithviraj
  Bhoorchand, s.80I

48

• 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

49

• DISCLAIMER
• The contents in this presentation are merely for
  reference and must not be taken as having
  authority of or binding in any way on the author.
  For authoritative information please refer to the
  relevant provisions of the Income Tax Act ,
  Rules, Circulars and Judicial Precedents.

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• Thank You