Deductions Under Section(s) 80IA,
80IB, 80IC & 80JJA
All India Chartered
Accountants’ Society
6th Annual Workshop on
Direct Taxes
9th July , 2010
Presented By: Mr. Anil Chopra
Dewan P.N. Chopra & Co.
H-57 Connaught Circus
N.Delhi-110001
Ph : 24645891, 92,93
E-mail: [email protected]
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
• 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.
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.
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)
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
• Deduction is available to
 Undertaking engaged in development or operation &
maintenance or development, operation and maintenance of
Infrastructure 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.
 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
o Notified
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.
 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
modernization between 01.04.2004 to 31.03.2011
and
 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 Government
before 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.
• 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
• Accountant’s 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).
Accountant’s Report in Form 10 CCC read with Rule 18
BBE.
• 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
• 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’
 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.
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
• Specific Condition
 Business of Industrial undertaking in backward states
o Does not manufacture article specified in ‘Eleventh
Schedule’
o Set up in an industrial backward area
o Employ 10 or more worker, 20 or more in case of
manufacturing process without the aid of power
o Deduction varies according to nature of undertaking
ranging from 25% to 100% for 8 to 12 years
o Commences production from the dates specified in
sub sections.
o Not formed by splitting up, or reconstruction
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 India
subject 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
o Not used in Indian Territorial water by a person
resident in India.
o Deduction @ 30% for first 10 years
 Specified Hotels/ Non- Specified Hotels
o Owned by an Indian company with paid up capital of 5 lacs
or more
o Located in a hilly area, rural area, place of pilgrimage or
other places specified by Central Government
o Specified Hotel starts functioning during 01.01.1990 to
31.03.1994 or during 01.04.1997 to 31.03.2001 & NonSpecified 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
o Approved by the prescribed authority as per Rule 18BBC
o Deduction : 50% for Specified and 30% for
Specified Hotels for first 10 years
Non
o Not formed by splitting up, or reconstruction or transfer
to 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
metropolitan cities in case of multiplex theaters
four
o Not formed by splitting up, or reconstruction or transfer
to new business
previously used .
building or
plant and machinery
o Accountant’s 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
 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 Licensing
Policy of Govt. of India and begins production on or
after 1.4.2009.
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
 Within 5 years, if housing project approved after
01.04.2005
o Stipulation regarding size of plot or date of completion
not to apply for projects in slum area as notified by the
Board.
o Built up area of commercial establishment not exceed
3% or 5000sq ft whichever is less
o 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)
o 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)
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 such
individual, spouse, minor children or HUF in which he is
the karta (w.e.f. 01.04.2010)
o Deduction 100% of the profits.
o Provisions 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
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 Accountant’s report 10CCBC r/w Rule 18DD certifying
amount of deduction .
o Deduction 100 % for initial 5 years
 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 Accountant’s
report 10CCBD
certifying amount of deduction
r/w
Rule 18DDA
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
• Accountant’s 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.
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
 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
• Accountant’s 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
80JJA Deduction in respect of profits and gains from
business of collecting and processing of biodegradable waste
• Business of collecting and processing or treating of bio-
degradable waste for generating Power or producing biofertilizers, 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
 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
Capsules P. Ltd.
(Mum.)
–
Joint CIT
Vs.
Associated
• 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
• 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.
• 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.
• 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
– Transfer of Plants & Machineries previously usednegligible 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)
– 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.
• 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
• 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
• Previous Year’s 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.
• 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)
• “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.
• 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
• 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
• 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
• 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
• 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
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
• 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
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.
Thank You