Chapter VIA of the Income Tax Act, 1961 Provisions & Issues Vikram Naik 21 st March 2009
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Transcript of Chapter VIA of the Income Tax Act, 1961 Provisions & Issues Vikram Naik 21 st March 2009
Chapter VIAof the Income Tax Act, 1961
Provisions & Issues
Vikram Naik21st March 2009
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Contents
Introduction
Deduction in Respect of Certain Payments
Deduction in Respect of Certain Incomes
80C
80IA, 80IB, 80IC
Overview
Issues
80P
80G
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Overview of Chapter VIA
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In computing the total income of the assessee, there shall be allowed from gross total income, in accordance with the provisions of this Chapter, the
deductions specified in sections 80C to 80U
Introduction
80A
Chapter VIADeductions to be made in computing total income
Sections 80A to 80U
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Introduction
80A: Aggregate total deduction under sections 80C to 80U cannot exceed gross total income
Essential rules governing deductions
Income from Salary xxxx
Income from House Property xxxx
Income from Business or Profession xxxx
Income from Capital Gains (with exceptions) xxxx
Income from Other Sources xxxx
Total xxxx
Less: Set off and carry forward of
losses (sections 70 to 74A) xxxx
Gross Total Income (section 80B) xxxx
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Deductions in respect of certain Payments
Deduction in respect of Payment Towards
80C* Life insurance premia, and others 100% of the amount paid or deposited, not
exceeding INR 1,00,000
Life insurance premia, Deferred annuity, Provident fund, Saving certificate, Superannuation fund, any scheme of the Central Government, Pension fund, Deposit scheme, Tuition fees, Mutual Fund, Others
80CCC* Contribution to certain pension funds100% of the amount paid or deposited, not
exceeding INR 1,00,000
Any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the fund
80CCD* Contribution to pension scheme of Central Government
100% of the amount paid or deposited, not exceeding 10% of salary
Contribution by the employee and contribution by the Central Government or any other employer towards pension scheme The 10% limit applies to both the above eligible contributions individually
80D Health insurance premia 100% of the amount paid or deposited with any
insurer, not exceeding INR 15,000 (INR 20,000 in case of senior citizens)
In case of an individual - Insurance for assessee and family, and Insurance for parentsIn case of a HUF, insurance for each member
80DD Maintenance of a dependant who is a disabled person
INR 50,000 for a disabled person and INR 75,000 for a severely disabled person
Medical treatment, training, or rehabilitation of a disabled dependant or amount paid or deposited with an insurer for a scheme of maintenance of a disabled person
Return of income along with a medical certificate is required
80DDB Medical treatment100% of the amount paid not exceeding INR
40,000 (INR 60,000 in case of a senior citizen)
Medical treatment of individual, family, or member of HUFCost of treatment to be reduced by the amount paid by an insurer or
employer*80CCE prescribes an aggregate limit of INR 1,00,000 for 80C, 80CCC, 80CCD
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Deductions in respect of certain Payments
Deduction in respect of Payment Towards
80E Interest on loan taken for higher education100% of the amount paid
Interest on a loan from a financial institution or a charitable institution for the purpose of higher education, for the assessee or a relative
Deduction allowed for initial assessment year (AY) and seven AYs after that or until the interest is paid back in full, whichever is earlier
80G Donations to certain funds, charitable institutions, etc.
50% or 100% of the eligible amount paid
Donations to specified funds or institutions
80GG Rents paidExcess of rent over 10% of adjusted gross income
or INR 2000 per month or 25% of total income, whichever is less
Any expenditure incurred in excess of 10% of total income towards payment of rent
For the purposes of own residence
80GGA Certain donation for scientific research and rural development Any sum paid
Scientific, social science, or statistical research to a scientific research association, a university, college or other institutionAn institution, public sector undertaking, or local authority undertaking a rural development program, or a rural development fundAssessee should not have income chargeable under the head “Profits and Gains of business or profession”
80GGB Contributions by companies to political parties100% of sums donated
Contributions to political parties
80GGC Contributions by any person to political parties100% of sums donated
Contributions to political parties
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Deductions in respect of certain Incomes
Deduction in respect of Eligible Business
80IA Profits and gains from industrial undertakings or enterprises engaged in infrastructure
development, etc.100% deduction on the profits and gains from
eligible businesses for a period of 10 years
Infrastructure facility Telecommunication services Industrial Park or Special Economic Zone (SEZ) Generation and distribution of power Transmission and distribution network Substantial renovation and modernization of a network Reconstruction of a power plant Laying and operating a cross-country natural gas distribution
networkKey Conditions Should not be formed by reconstruction or splitting up Should not be formed by transfer of plant and machinery Should have begun to operate between 1st April 1993 and 31st
March 2010, depending on the eligible business
80IAB Profits and gains by an undertaking or enterprise engaged in development of Special
Economic Zone100% deduction on income for developers of
Special Economic Zones (SEZ)
Developers of SEZs after 1st April 2005 100% for 10 consecutive years out of 15 years from the year in
which notified by the central government In case transfer of operating and maintenance of SEZ, then
deduction shall be allowed to transferee developer for unexpired period
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Deductions in respect of certain Incomes
Deduction in respect of Eligible Business
80IB Profits and gains from certain industrial undertakings other than infrastructure
development undertakingsDeductions on income from certain industrial
undertakings
Deduction on profits from an industrial undertaking in the − States of Jammu & Kashmir − Preservation and packaging of fruits and vegetables − Handling, storage and transportation of food grains
100% for the first five years, and 25% (30% in case of companies) for the next five years (7 years in case of co-operative societies)
Deduction on profits from the operation of a hospital in India of 100% for 5 years
Key Conditions Should not be formed by reconstruction or splitting up Should not be formed by transfer of plant and machinery
80IC Undertakings or enterprises in certain special category States
Deductions on income from certain industrial undertakings in certain states
Deduction on profits from an industrial undertaking in the specified areas in states of Himachal Pradesh and Uttaranchal of 100% for the first five years, and 25% for the next five years (30% in case of companies)-until April 1, 2012
Same conditions as above
80ID Profits and gains from business of hotels and convention centers in specified area
100% deduction on income from hotels and convention centers
Deduction on profits from the business of hotels and convention centers and hotels in World Heritage sites of 100% for 5 consecutive years
Same conditions as above
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Deductions in respect of certain Incomes
Deduction in respect of Eligible Business
80IE Certain undertakings in North-Eastern states100% on income from certain industrial undertakings in North Eastern States
Deduction on profits from an undertaking eligible manufacturing or other eligible business in the states of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura-upto April 1, 2017
100% of income for 10 consecutive assessment years. Eligible business- hotel, old age home, adventure and leisure sports
etc.
80JJA Profits and gains from business of collecting and processing of bio-degradable waste
100% on income
Deduction of 100% for 5 years on any profits from the business of collecting and processing or treating of bio-degradable waste for generating power, producing bio-fertilizers, bio-pesticides or other biological agents, producing bio-gas, making pellets or briquettes for fuel or organic manure
80JJAA Employment of new workmen30% of additional wages of new workmen
Industrial undertaking (by an Indian company) engaged in manufacturing of any article or thing
Deduction of 30% of additional wages to new regular workmen for a period of 3 years
Undertaking should not be formed by reconstruction or splitting up
80LA Certain incomes of Offshore Banking Units (OBU) and International Financial Services
Center (IFSC)
A bank with income from an OBU in an SEZ or income of a unit of an IFSC
Deduction of 100% for the first 5 years, and 50% for the next 5 years
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Deductions in respect of certain Incomes
Deduction in respect of Eligible Business
80P Income of co-operative societies Deduction on profits of a co-operative society of 100%, INR 1,00,000, INR 50,000 depending on the business the society is engaged in
80QQB Royalty income, etc., of authors of certain books other than text-books
100% of the eligible income or INR 3,00,000, whichever is less
An author (individual) − Resident in India− Income from the assignment or grant of his/her interests in the copyright of any book being a work of literary, artistic or scientific nature, or of royalty or copyright fees in respect of such book
Where there is no lump sum consideration, income in excess of 15% of the value of the books sold will be ignored
Income earned outside India
80RRB Royalty on payments100% of the royalty received or INR 3,00,000
whichever is less
Deduction of income from royalty to an individual who is resident in India
When the source is outside India, deduction is allowed on the amount brought into India within 6 months from the end of the year
Prescribed certificate must be furnished
Other Deductions80U A person with a disability
Deductions on income of a person with a disability Deduction of INR 50,000 from the total income of a person with a
disability Deduction of INR 75,000 from the total income of a person with a
severe disability Return of income to be furnished along with a medical certificate
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Important Issues
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Deductions in respect of life insurance premia and others
Issue: Whether investment out of borrowings are eligible
Case: CIT vs. Ramesh Chandra Khandelwal (2005) 273 ITR 363 (All). Such investments are eligible for deduction u/s 80C
Points: Source need not be currently taxable incomeearned. Assessee may well spend taxable income and invest borrowings
All incomes are amalgamated and spent, so it is not possible to distinguish savings from borrowings
80C is for the encouragement of thrift and its interpretation shouldn’t nullify that object
In favorof: Assessee
Issues80C
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Donations to certain funds, charitable institutions, etc.
Issue: Whether sums donated out of sources other than chargeable income are allowed
Case: Infosys Technologies vs. JCIT (2007) 10 TTJ (Bang) 631
Points: No stipulation that donation has to be only out of income chargeable to tax
Deduction available even when donations are out of■ Capital or gifts received■ Exempted Income■ Income out of earlier years
In favorof: Assessee
Issues80G
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Deduction in respect of profits and gains from industrial undertakings80IA(3), 80IB(2), 80IC(4): “This section applies to an undertaking…not formed by splitting up, or reconstruction, of a
business already in existence”
Case: Textile Machinery Corporation ltd vs. CIT (1977) 107 ITR 195 (SC)CIT vs. Hindustan General Industries Ltd (1982) 137 ITR 851 (Delhi)
Points: Reconstruction involves ■ Substantially the same persons carrying on substantially the same business■ Complete absorption and loss of identity into the old business
The following is NOT reconstruction■ Expansion of the existing undertaking (this would not deprive the assessee of the
benefit)■ New emergence of a separate unit which may exist on its own as a viable industrial
unitSplitting up indicates
■ That the integrity of a business earlier in existence is broken up■ Different sections of the activities previously carried out are carried on independently
In favorof: Assessee - Textile Machinery Corporation ltd vs. CIT
Assessee -CIT vs. Hindustan General Industries Ltd
Issues80IA, 80IB, 80IC
Issue: What constitutes reconstruction / splitting up?
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Deduction in respect of profits and gains from industrial undertakings80IA(3), 80IB(2), 80IC(4): “This section applies to an undertaking…not formed by splitting up, or reconstruction, of a
business already in existence”
Issues80IA, 80IB, 80IC
Issue: What constitutes reconstruction / splitting up?
Where there is substantial investment in new plant & machinery, and new employees are recruited substantially along with new services provided to new clients, then the new unit is not formed by splitting up of existing unit and is eligible for tax incentives on export profits
To hold that a business is formed by reconstruction, there must be some material to hold that Some assets of the existing business were diverted into another business This other business was formed from such splitting up The two business were the same and the business formed was an integral part of the earlier one
ITO vs. DSM Soft P. Ltd. (unreported) (Chennai ITAT)
Other Principles
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Deduction in respect of profits and gains from industrial undertakings
Issue: What constitutes reconstruction / splitting up?
Case: CIT vs. M/s Mahaan foods Ltd. (2008) 177 Taxman 274 (Del)
Points: 80-IA does not require the new industrial undertaking to be on a separate plot of land leaving the earlier undertaking totally untouched
Deduction allowed where the entire business is a new industrial undertaking with
■ Newly acquired technology for increased production capacity■ A fresh dose of investment
In favorof: Assessee
Issues80IA, 80IB, 80IC
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Deduction in respect of profits and gains from industrial undertakings80IA(3), 80IB(2), 80IC(4): “This section applies to an undertaking…not formed by the transfer to a new business of
machinery or plant previously used for any purpose”Explanations: Where the total value of transferred plant and machinery does not exceed 20% of the total plant and
machinery of the business, the provision is deemed to be complied with
Issue: Where the limit was exceeded in earlier years, can a subsequent reduction of old machinery below 20% secure deduction in a later year?
Issues80IA, 80IB, 80IC
Case: CIT vs. Satellite Engineering Co ltd (1978) 113 ITR 208 (Guj)
Points: No additional limitation (to satisfy the condition on commencement) to be eligible for deduction in the subsequent years
If an undertaking satisfies the condition in the subsequent years, deduction is allowed
In favorof: Assessee - CIT vs. Satellite Engineering Co ltd
Case 1 :
Deduction allowed post-formation, if 20% condition is rectified
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Deduction in respect of profits and gains from industrial undertakings80IA(3), 80IB(2), 80IC(4): “This section applies to an undertaking…not formed by the transfer to a new business of
machinery or plant previously used for any purpose”Explanations: Where the total value of transferred plant and machinery does not exceed 20% of the total plant and
machinery of the business, the provision is deemed to be complied with
Issue: Where the limit was exceeded in earlier years, can a subsequent reduction of old machinery below 20% secure deduction in a later year?
Issues80IA, 80IB, 80IC
Case: CIT vs. Nippon Electronics (India) Pvt Ltd (1990) 181 ITR 518 (Kar)
Points: Deduction allowed for an undertaking not “formed” by transfer of plant and machinery
Eligibility for deduction has to be tested at the initial AY
In favorof: Revenue- CIT vs. Nippon Electronics (India)
Case 2 :
Deduction allowed only if 20% condition satisfied on formation
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Deduction in respect of profits and gains from industrial undertakings80IA(3), 80IB(2), 80IC(4): “This section applies to an undertaking…not formed by the transfer to a new business of
machinery or plant previously used for any purpose”Explanations: Where the total value of transferred plant and machinery does not exceed 20% of the total plant and
machinery of the business, the provision is deemed to be complied with
Issue: Where the limit was exceeded in earlier years, can a subsequent reduction of old machinery below 20% secure deduction in a later year?
Issues80IA, 80IB, 80IC
Case: ITO v. Laxmi Packers [2007] 14 SOT 303 (Mum)
Points: Legislature does not intend to keep the taxpayer (after formation of the undertaking) from purchasing second hand machinery to meet future demands
Additional machinery beyond the 20% limit can be purchased post-formation
In favorof: Assessee
Case 3 :
Deduction allowed post-formation, even if 20% condition is not subsequently met
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Deduction in respect of profits and gains from industrial undertakings80IA(3), 80IB(2), 80IC(4): “This section applies to an undertaking…not formed by the transfer to a new business of
machinery or plant previously used for any purpose”Explanations: Where the total value of transferred plant and machinery does not exceed 20% of the total plant and
machinery of the business, the provision is deemed to be complied with
Issue: Where the limit was exceeded in earlier years, can a subsequent reduction of old machinery below 20% secure deduction in a later year?
Issues80IA, 80IB, 80IC
?
When considering the value of plant and machinery transferred, do we consider 20% of the book value, tax value, or market value?
?
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Deduction in respect of profits and gains from industrial undertakings
Issue: Does leasing of property amount to formation by transfer?
Case: Bajaj Tempo vs. CIT (1992) 196 ITR 188 (SC)
Points: Undertaking established on premises taken on lease does not amount to formation by transfer of building
To amount to “formation by transfer”, it must be implied that but for the transfer, the undertaking would not have come into being
In favorof: Assessee
Issues80IA, 80IB, 80IC
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Deduction in respect of profits and gains from industrial undertakings 80IA(5): “…the profits and gains of an eligible business … shall be computed as if such eligible business were the
only source of income of the assessee during the previous year …”
Issues80IA, 80IB, 80IC
Illustration
AY 2008-09 80IA Unit Other Unit Total 80IA Unit Other Unit TotalNet Profit / (Net Loss) (100) 200 100 (300) 200 (100) Less: Deduction u/s 80IA - - - - Total Income 100 (100) AY 2009-10 80IA Unit Other Unit Total 80IA Unit Other Unit TotalNet Profit / (Net Loss) 200 300 500 200 300 500Less: Set off of carry forward losses (notional) u/s 80IA(5) (100) 100 (200) - Total Income 400
Set off of Loss (100) Total Income 400
AY 20010-11 80IA Unit Other Unit TotalNet Profit / (Net Loss) 400 600 1000Less: Set off of carry forward losses (notional) u/s 80IA(5) (100) 300Total Income 700
Scenario 1 Scenario 2
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Deduction in respect of profits and gains from industrial undertakings 80IA(5): “… the profits and gains of an eligible business … shall be computed as if such eligible business were the
only source of income of the assessee during the previous year relevant to the initial assessment year …”
Issue: What is the “initial assessment year”?
Case: Mohan Breweries & Distilleries ltd vs. ACIT (2008) 114 TTJ 532
Points: It is at the option of the assessee to choose the initial AY from which deduction can be claimed
Initial AY is the AY in which assessee has chosen to claim deduction under the section. It cannot be the year when operations began
Provisions of s. 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which assessee opted to claim relief for the first time.
In favorof: Assessee
Issues80IA, 80IB, 80IC
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Deduction in respect of profits and gains from industrial undertakings 80IA(5): “…the profits and gains of an eligible business … shall be computed as if such eligible business were the
only source of income of the assessee during the previous year …”
Issue: Whether the profit from the eligible business has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years
Case: ACIT vs. Goldmine Shares and Finance (P) Ltd. (2008) 116 TTJ 705
Points: 80IA(5) is an over-riding provision. A fiction is created for determining the quantum of deduction of the eligible unit as if such unit is the only source of income of the assessee
Deduction would be computed after setting off carried forward losses of the eligible unit against profit of the eligible unit alone
Losses of earlier years, though already absorbed against other sources are once again to be notionally brought forward and set off against profits of the eligible unit to compute eligible deduction
In favorof: Revenue
Issues80IA, 80IB, 80IC
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Deduction in respect of profits and gains from industrial undertakings 80IA Explanation: “… nothing contained in this section shall apply to a person who executes a work contract
entered into with an undertaking or enterprise…”80IA(4)(i): “Any enterprise carrying on the business of developing….an infrastructure facility which fulfills the
following conditions, namely…it is owned by a company registered in India…”Issue: Availability of benefit to a sub-contractor
Case: Patel Engineering Ltd vs. DCIT (2005) 94 ITD 411 (Bom)
Points: “Contractor”, as mentioned in a infrastructure development facility, is not necessarily contradictory to the term “developer”, who is eligible for deduction
Incentive intended for entrepreneurs who undertake entrepreneurial and business risk, and not contractors who only undertake business risk
In favorof: Assessee
Issues80IA, 80IB, 80IC
Note*: Considering the huge infrastructure funding requirement of about USD 300 billion in the next 5 years, the withdrawal of tax incentives to works contractors will need to be reconsidered
*FICCI pre-budget memorandum
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Deduction in respect of profits and gains from industrial undertakings 80IA/IB/IC(1): “Where the gross total income….includes any profits and gains derived…from any business referred
to…”
Examples of income not derived from a business:
Import / export entitlements from an Export Incentive SchemeLease money from leasing property to an eligible undertakingSale of scrapInterest earned on deposit with a State Electricity Board
Issues80IA, 80IB, 80IC
“Derived from” cannot have a wide import, unlike the phrase “attributable to”
There has to be a direct nexus between the profit and gains and the undertaking
Issue: When is income “derived from” an eligible business?
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Deduction in respect of profits and gains from industrial undertakings
80IA(12): Deduction shall be available to any enterprise transferred in a scheme of amalgamation or demerger
80IA(12A): Nothing in sub-section 12 shall apply to any enterprise transferred in a scheme of amalgamation or demerger
Issue: Is 80IA(12A) applicable to 80IB and 80IC?
Points: 80IA(12A) inserted as 80-IA benefit was intended to provide incentive to take initial investment and entrepreneur risk
80IA(5) and 80IA(7) to (12) apply to 80IB and 80IC. No mention of 80IA(12A) in 80IB and 80IC
CBDT Circular 3 of 2008 confirms the above.
Issues80IA, 80IB, 80IC
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Deduction in respect of profits and gains from industrial undertakings
80IA(12): Deduction shall be available to any enterprise transferred in a scheme of amalgamation or demerger
80IA(12A): Nothing in sub-section 12 shall apply to any enterprise transferred in a scheme of amalgamation or demerger
Issue: Is deduction available if there is transfer via slump sale or share sale?
Points: Amalgamation, as defined u/s 2(1B), doesn’t include slump sale or share sale
80IA(12) and 80IA(12A) do not mention transfer via slump sale or share sale
Deduction u/s 80IA is for an “undertaking”. One possible view is that deduction will be available in the case of a slump sale as only ownership changes
Issues80IA, 80IB, 80IC
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Issues80IA, 80IB, 80IC
Deduction u/s 80IA allowed to well integrated new units with a separate and distinct identity. It is not very relevant that The new units have the same management / premises The new units produce similar goods, or procure raw materials from a common source
– JCIT vs. Associated Capsules P. Ltd. (2008) 304 ITR (AT) 85 (Mum)
Deduction u/s 80IB(10) is allowed to the developer, even if the developer is not the owner, as The developer opted for the business risks associated, therefore could not be called a contractor Deduction is not exclusively to a taxpayer, but to a developing undertaking, be it an owner or contractor
– Radhe Developers & Ors vs. ITO (2008) 113 TTJ 300 (Ahm)
Deduction u/s 80-IB(10) is allowed to units of a larger housing project, as 80IB(10) uses the words ‘residential unit’, therefore deduction should be computed unit-wise The provision should be construed liberally so as to advance its objective
– DCIT vs. Brigade Enterprises (P.) Ltd. (2008) 119 TTJ 269 (Bangalore)
Other Principles
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Issues80IA, 80IB, 80IC
Deduction u/s 80IB is available even if, once the requirements are met, the services provided by the eligible unit are used by the taxpayer itself or a third party
– Sanchita Marine Products (P.) Ltd. vs. DCIT 15 SOT 280 (Mum)
Other Principles
Mere facilitation from the head office of an eligible unit would not disentitle the eligible unit from claiming deduction– DCIT vs. Tribhovandas Bhimji Zaveri (2007) 110 TTJ 942 (Mum)
Providing installation, testing, commissioning facilities etc. of the cranes to a port in a BOLT scheme is an infrastructure facility u/s 80IA
– DCIT vs. ABG Heavy Industries Ltd. (2008) 20 SOT 525 (Mum)
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Deduction in respect of profits and gains from industrial undertakings
80IA(12): Deduction shall be available to any enterprise transferred in a scheme of amalgamation or demerger
80IA(12A): Nothing in sub-section 12 shall apply to any enterprise transferred in a scheme of amalgamation or demerger
Issue: Should 80IA(12A) be reconsidered?
Thoughts*:Companies’ need to reposition themselves quickly, especially in the current economic environment
Mergers / demergers crucial to companies’ global competitiveness
Earlier position of 80IA(12) to be continued and benefit to be available to the amalgamated or resulting company
Issues80IA, 80IB, 80IC
*FICCI pre-budget memorandum
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Deduction in respect of profits and gains from industrial undertakings
80IB(9): Deduction to an undertaking which begins commercial production of mineral oil
Issues: Undertakings unable to avail benefit for the full 7 years due to the huge depreciation claims in the initial 3-4 years
Commercial viability of upcoming refineries affected by the Sunset Clause (tax holiday not available for undertaking beginning refining on or after 1st April 2009)
The term ‘mineral oil’ does not include petroleum and natural gas, unlike other sections of the Act
Thoughts*:100 % tax holiday for a period of any 10 consecutive years out of 15 years under section 80-IA instead of 80-IB
Flexibility to be provided of choosing any 7 consecutive years out of 15 years
Drop the sunset clause or extend to 31st March 2012 for private sector undertakings, to be on par with public sector undertakings
Issues80IA, 80IB, 80IC
*FICCI pre-budget memorandum
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Deduction in respect of profits and gains from industrial undertakings
80IB(9): Deduction to an undertaking with profits from operating and maintaining a hospital
Issues: Current 5 year tax holiday is very short. Entrepreneurs would hardly reach the break even point in the first 5 years
Thoughts*:5 year holiday to be extended to 10 years
Infrastructure status to be granted to the healthcare industry
Companies creating the following training and educational facilities to be eligible for exemption
■ Medical■ Dental■ Nursing■ Midwifery■ Paramedical■ Lab Technicians■ Biomedical Engineering
Issues80IA, 80IB, 80IC
*FICCI pre-budget memorandum
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Deduction in respect of income of co-operative societies
Issue: When a co-operative society (other than a credit co-operative) provided credit facilities to its members, is the interest earned eligible for deduction?
Case: CIT vs. Krishak Sahkari Ganna Samiti (2002) 258 ITR 594CIT vs. Madras Autorickshaw Drivers Co-operative Society (1983) 143 ITR 981
Points: Income “attributable to” an activity includes income from sources other than the main activity of the society
Interest from statutory investment in government securities deductible
However
Interest earned from goods sold on credit not deductible as the element of sale predominates the element of financing
In favorof: Assessee - CIT vs. Krishak Sahkari Ganna Samiti
Revenue - CIT vs. Madras Autorickshaw Driver’s Co-op
Issues80P
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Deduction in respect of income of co-operative societies
Issue: Whether income from activities of a co-operative housing society is eligible for deduction u/s 80P(2)(c )
Case: CIT vs. Film Nagar Co-operative Housing Society Ltd (2004) 91 ITD 27Maker Tower A & B Co-op. Hsg. Society vs. ITO (2008) 20 SOT 253
Points: Income of a co-operative housing society is eligibleas a case of “other co-operative societies” (80P(2)(c )
Profit and gains are not from “business” but from “activities” carried out
In favorof: Assessee - CIT vs. Film Nagar Co-operative
Assessee - Maker Tower A & B Co-op.
Issues80P
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Deduction in respect of income of co-operative societies
Issue: Whether a co-operative bank needs to carry on business only with members to be eligible for exemption
Case: Milli Co-op Urban Bank vs. ITO (2007) 106 ITD 151 (Hyd)
Points: Co-operative bank can do business with non-members and be eligible for deduction u/s 80P(2)(i)
The section should be read as income to a co-operative society carrying on the business of“banking” or “providing credit facilities to its members”
In favorof: Assessee
Issues80P
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Questions?
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Disclaimer
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