critical analysis of deductions under chapter via

Critical analysis of deductions under Chapter VIA

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General provisions

• Chapter VIA deductions – Deductions from gross total income - Sections 80C to 80U.

• Gross total income to be computed before allowing deduction under Chapter VIA and after setting off brought forward unabsorbed losses / depreciation.

• Aggregate amount of deductions to be restricted to the amount of gross total income.

• Where deduction is available in respect of certain incomes, such deduction is with reference to the amount of net income.

Slide 2September 2012

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Section 80C - Deduction in respect of life insurance premium etc.

Qualifying amount

• Rs.1,00,000 (aggregate deduction available u/s 80C, 80CCC & 80CCD)

Qualifying investments

• Life insurance premium for policy

• Deferred annuity plan

- Contract should not contain an option to receive cash payment in lieu of annuity

- Sum deducted from salary payable to Government servant for securing deferred annuity or making provision for his wife/children [qualifying amount limited to 20% of salary]

Slide 3

September 2012

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…Section 80C - Deduction in respect of life insurance premium etc.

• Contributions by an individual made under Employees' Provident Fund

• Contribution to Public Provident Fund

• Contribution by an employee to a recognised provident fund

• Contribution by an employee to an approved superannuation fund

• Subscription to any notified security or notified deposit scheme of the Central Government

• Subscription to NSC VIII & NSC IX

• Contribution for participation in ULIP


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• Contribution for participation in Dhanraksha 1989 Plan of LIC Mutual

Fund

• Payment made to effect or keep in force a notified deferred annuity plan of

–

- LIC – New Jeevan Dhara, New Jeevan Dhara I, New Jeevan Akshay, New

Jeevan Akshay I and II, Jeevan Akshay III & VI

- Any other insurer – Immediate Annuity Plan of ICICI Prudential Life

Insurance Co., Tata AIG Retire Annuity Plan

• Contribution to Equity Linked Savings Schemes

• Contribution by an individual to UTI Retirement Benefit Pension Fund


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• Subscription to Home Loan Account Scheme or National Housing Bank

(Tax Saving) Term Deposit Scheme, 2008 of National Housing Bank

• Subscription to Public Deposit Scheme of HUDCO

• Tuition fees (excluding development fees, donation or similar payment) at

the time of admission or thereafter to any university, college, school or

other educational institution in India for full time education of any two

children

• Payment for the purchase or construction of a residential house property

• Subscription to equity shares or debentures forming part of any eligible

issue of capital approved by the Board in the case of a public company /

public financial institution Slide 6September 2012

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• Subscription to any units of mutual fund referred to in Section 10(23D) and

approved by the Board

• Bank Term Deposit Scheme, 2006 for a fixed period of not less than 5 years

with a scheduled bank

• Subscription to NABARD Rural Bonds

• Deposit under Senior Citizens Savings Scheme Rules, 2004

• Deposit as 5 year time deposit in an account under Post Office Time

Deposit Rules, 1981


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Points to be noted

• Amount may be paid or deposited any time during the previous year.

• Deduction shall be restricted to the total income chargeable to tax during the previous year.

• Payment of life insurance premium which is in excess of 20 per cent (10 per cent in case of policies issued on or after 1-4-2012) of the capital sum assured, shall not be included in gross qualifying amount.

• Capital sum assured does not include the value of any premiums agreed to be returned or of any benefit by way of bonus or otherwise, over and above the sum actually assured.


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...Points to be noted

• No deduction allowed to the assessee with reference to sums paid in the previous year and the aggregate amount of deductions allowed in preceding years shall be taxed, if –

- single premium policy terminated within two years after the date of commencement or

- any other insurance policy terminated before premiums have been paid for two years or

- unit-linked insurance plan (ULIP) terminated before contributions have been paid for five years or

- house property transferred before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, or receives back, whether by way of refund or otherwise, any sum specified in that clause.


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...Points to be noted

• Equity shares or debentures, with reference to the cost of which a deduction is allowed, to be held for a period of three years from the date of their acquisition. If not so held, deductions allowed in the preceding years shall be taxed in the year of sale / transfer.

• Date of acquisition of shares / debentures of public company is the date on which name is entered in the register of members or debenture-holders.

• Any amount, including interest accrued thereon, withdrawn from (a) Senior Citizen Saving Scheme or ( b) Post Office Time Deposit Rules, before the expiry of the period of five years from the date of its deposit, shall be deemed to be the income of the assessee of the previous year in which the amount is withdrawn, unless such interest has been taxed in an earlier previous year.


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Case laws•CIT v/s Chelliah [1984] 147 ITR 590 (Mad)

The category of payments which are deducted from the gross total income under Section 80C comprise items of expenditure laid out by an assessee or the wife of a person whose income is included in his total income under Section 64.

•ITO v/s Yogi H. Aggarwal [2005] 278 ITR 116 (Mum)Where the deduction is after arriving at gross total income, which includes the clubbed income, the deduction as for Section 80C, will be allowed only once on the income after clubbing.

•CIT v/s Abraham George [2000] 242 ITR 171 (Ker)•CIT v/s Ram Mohan Rawat [2002] 255 ITR 555 (Raj)•CIT v/s Ramesh Chandra Khandelwal [2005] 273 ITR 363 (All)

The sums paid or deposited need not be out of income chargeable to tax of the previous year.

September 2012Slide 11

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Section 80CCC – Contribution to certain pension funds of LIC or any other insurer

Qualifying amount•Rs.1,00,000 (aggregate deduction available u/s 80C, 80CCC & 80CCD)Qualifying investments

• Payment made to effect or to keep in force a contract for any annuity plan of LIC or any other insurer for receiving pension from the fund

Points to be noted

• Amount received on full / partial surrender of annuity plan or pension received from the plan, deemed to be the income of the assessee / nominee of the year in which amount is withdrawn or pension is received

• Where deduction is claimed under this section, deduction in relation to same amount cannot be claimed under section 80C


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Section 80CCD – Deduction re. contribution to pension scheme of Central Government

Eligible assessee1.Individual employed by the Central Government or any other employer2.Any other assessee being an individual Conditions

• In case (1) above, the Central Government or any other employer makes any contribution to employee’s account.

• In case (2) above, the assessee has, in the previous year paid or deposited any amount in his account under a notified pension scheme.


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…Section 80CCD – Deduction re. contribution to pension scheme of Central Government

Amount of deduction

• The whole of the amount so paid or deposited as does not exceed –

- in the case of an employee, 10% of his salary in the previous year

- in any other case, 10% of gross total income

• Section 80CCE provides that the aggregate amount of deductions under section 80C, section 80CCC and section 80CCD shall not, in any case, exceed Rs. 1,00,000.

• With effect from the assessment year 2012-13, contribution made by the Central Government or any other employer to a pension scheme shall not be included in the limit of deduction of Rs.1,00,000 provided under section 80CCE.


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…Section 80CCD – Deduction re. contribution to pension scheme of Central Government

Points to be noted

• Amount received on closure / opting out of the pension scheme or pension received from the annuity plan purchased or taken on such closure or opting out, is taxable in the year of receipt in the hands of the assessee / nominee.

• If amount received is used for purchasing an annuity plan in the same previous year, the assessee shall be deemed not to have received any amount in the previous year.

• Where deduction has been allowed u/s 80CCD, no deduction with reference to such amount shall be allowed u/s 80C.


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Section 80CCF – Deduction re. subscription to long term infrastructure bonds

• Applicable for AY 2011-12 and AY 2012-13

• Individuals and HUF entitled to deduction u/s 80CCF

• Deduction available for subscription to notified long term infrastructure bonds issued by –

- IFCI

- LIC

- IDFC

- NBFC classified as an infrastructure finance company by RBI

- India Infrastructure Finance Co. Ltd.

• Eligible amount Rs.20,000


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Section 80CCG – Deduction re. of investment made under an equity savings scheme

Eligible assessee

• Resident individual

Conditions

• Applicable w.e.f. 1-4-2013

• Gross total income does not exceed Rs.10,00,000

• Assessee is a new retail investor as specified in the notified scheme

• Acquisition of listed equity shares as per notified scheme

• Lock in period of 3 years

• Any other condition as may be prescribed

Amount of deduction

• 50% of the amount invested subject to a maximum of Rs.25,000.Slide 17

September 2012

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…Section 80CCG – Deduction re. of investment made under an equity savings scheme

Points to be noted

• One time deduction – no deduction under this section for any subsequent assessment year.

• If assessee fails to comply with any specified condition in any previous year, deduction originally allowed, shall be deemed to be the income of such year.


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Section 80D – Deduction in respect of health insurance premium

Eligible assessee • Individuals• HUFConditions • Medical insurance premia paid to GIC or any other insurer approved by

Insurance Regulatory and Development AuthorityAmount of deduction • In case of individuals, premia paid –

- for self, spouse and dependent children : Rs. 15,000 (Rs.20,000 if person insured is a senior citizen)

- for parents of the assessee : additional Rs.15,000 (Rs.20,000 if person insured is a senior citizen)

• In case of HUF, premia paid upto Rs.15,000 (Rs.20,000 if person insured is a senior citizen to insure any member of the family


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…Section 80D – Deduction in respect of health insurance premium

Points to be noted

• Premium to be paid by any mode other than cash

• With effect from 1-4-2013 –

- deduction is available in respect of any payment made by an assessee on account of preventive health check-up of self, spouse, dependent children or parent during the previous year up to a limit of Rs.5,000 within the existing limits prescribed above;

- the age for defining a senior citizen is reduced from sixty five years to sixty;

- cash may be paid on account of preventive health checkup.


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Section 80DD – Deduction re. maintenance / medical treatment of a dependant who is a person with disabilityEligible assessee• Individual• HUF Conditions • Expenditure incurred for the medical treatment (including nursing), training and

rehabilitation of a dependant (spouse, children, parents, brothers and sisters) being a person with disability.

• Any amount paid or deposited under an approved scheme framed by LIC or any other insurer or the Administrator or the specified company for the maintenance of a dependent, being a person with disability.

• The approved schemes provide for payment of annuity or lump sum amount for the benefit of a disabled dependent, on the death of the individual or member of HUF in whose name subscription to the scheme has been made.

• The subscriber is required to nominate the disabled dependent or any other person or a trust to receive the payment on his behalf for the benefit of the disabled dependent.


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…Section 80DD – Deduction re. maintenance / medical treatment of a dependant who is a person with disabilityAmount of deduction

• Rs.50,000

• Rs.1,00,000 in case of severe disability Points to be noted

• Medical certificate in the prescribed form (Rule 11A) to be furnished along with the Return of Income.

• Amount received by the individual / member of HUF, in case disabled dependent predeceases such individual / member of HUF, is taxable in the year of receipt.


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Section 80DDB – Deduction in respect of medical treatment etc.

Eligible assessee

• Individual

• HUF Conditions

• The assessee has actually paid any amount for the medical treatment of specified diseases and ailments (Rule 11DD).

• Payment in the case of individual, for self or dependent (spouse, children, parents, brothers and sisters).

• Payment in the case of HUF, for any member of the HUF.


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…Section 80DDB – Deduction in respect of medical treatment etc.

Amount of deduction

• Amount actually paid upto a maximum of Rs.40,000

• Amount actually paid upto a maximum of Rs.60,000 in case of senior citizen

• Amount actually paid means the amount paid as reduced by insurance claim received / amount reimbursed by employer.

Points to be noted

• Medical certificate in the prescribed form (Rule 11DD) to be furnished along with the Return of Income.

• With effect from 1-4-2013 the age for defining a senior citizen is reduced from sixty five years to sixty. Slide 24

September 2012

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Section 80E – Deduction in respect of loan taken for higher education

Eligible assessee

• Individual

Conditions

• Deduction available for payment of interest on loan, out of income chargeable to tax.

• Loan taken from any financial institution including a bank or any other approved charitable institution.

• Loan taken for pursuing higher education for self or relative (spouse, children or student for whom the individual is the legal guardian.

Amount of deduction

• 100% of the interest paid


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...Section 80E – Deduction in respect of loan taken for higher education

Points to be noted

• Amount paid for repayment of loan does not qualify for deduction.

• Deduction available until the interest on loan is paid in full, subject to a maximum of 8 years.


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Section 80G - Donations

Eligible assessee

• Any assessee

Conditions

• Donations to specified funds, charitable institutions etc.

Amount of deduction

• Donations made to National Defence Fund and other specified Funds e.g. Prime Minister’s National Relief Fund, Prime Minister’s Armenia Earthquake Relief Fund, National Sports Fund, National Cultural Fund etc.

- 100% of qualifying donations

• In any other case

- 50% of qualifying donations


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...Section 80G - Donations

• Qualifying amount of following aggregate donations should not exceed 10% of the gross total income as reduced by deductions permissible under other provisions of Chapter VIA

- By a company to the Indian Olympic Association or to any other notified association / institution established in India for development of infrastructure for sports and games in India or sponsorship of sports and games in India

- To a Government or to any such local authority, institution or association as may be approved by the Central Government for the purpose of promoting family planning

- To approved charitable institutions / funds established in India fulfilling prescribed conditions

- To a corporation established by the Central government / State government for promoting the interests of the members of a minority community


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Points to be noted

• Only donations in form of money and not in kind will qualify for deduction.

• W.e.f. 1-4-2013, deduction in respect of donations in cash will be allowed only upto Rs.10,000.

• Where deduction allowed u/s 80G for any assessment year, deduction in relation to such sum shall not be allowed under any other provision of the Act for the same or any other assessment year.

• Any approval u/s 80G(5)(vi) on or after 1-10-2009 would be a one-time approval which would be valid till it is withdrawn.

• Wholly / substantially whole religious purpose is not a charitable purpose.


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Case laws

• CIT v/s General Textiles [1978] 111 ITR 727 (Cal)

Where deduction allowed u/s 80G to a firm, such relief cannot again be allowed to its partners.

• Upper Ganges Sugar Mills Ltd. v/s CIT [1997] 227 ITR 578 (SC)

Even if one of the objects of the institution or fund is wholly or substantially of a religious character, institution or fund would fall outside scope of Section 80G.

• Reliance Motor Co. Pvt. Ltd. v/s CIT [1995] 213 ITR 733 (Mad)

It is not the actual use of funds by the trust but the likelihood of its being used for the benefit of any particular religious community or caste and the capacity of the trust to do so, which is important.


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…Case laws• Sri Karpagambal Mills Ltd. v/s CIT [1999] 238 ITR 842 (Mad)

For the purpose of Section 80G(4), first the limit of 10% of gross total income should be applied and then 50% of that amount should be allowed as deduction u/s 80G.

• Golecha Properties (P) Ltd. v/s CIT [1988] 171 ITR 47 (Raj)

Proof of donation essential.•Parivar Seva Sanstha v/s DIT (Exemptions) [2002] 255 ITR 132 (Del)

Pendency of demand cannot be a ground for refusal of recognition u/s 80G.• Orpat Charitable Trust v/s CIT [2002] 173 ITR 534 (Guj)

Contravention of Sec. 11(5) will have a bearing at the time of assessment and cannot be a ground for refusal of recognition u/s 80G(5).


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Section 80GG – Deduction in respect of rents paid

Eligible assessee

• Any assessee Conditions

• Rent paid is in excess of 10% of total income before allowing any deduction under this section.

• Rent paid is in respect of accommodation occupied for the purposes of own residence.

• Declaration to be filed in Form 10BA.

• No other residential accommodation is owned by the assessee or by his spouse or minor child or by HUF of which he is a member.


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…Section 80GG – Deduction in respect of rents paid

...Conditions

• Deduction will not be denied if –

- some other residential accommodation is owned at places other than the place where the assessee ordinarily performs his duties of employment or carries on business or profession and

- the assessee does not claim concession in respect of self-occupied house property in respect of such accomodation.

Amount of deduction

• The least of the following 3 limits –

- excess of rent paid over 10% of total income before allowing deduction under this section

- 25% of total income

- Rs.2,000 per monthSlide 33

September 2012

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…Section 80GG – Deduction in respect of rents paid

Point to be noted

• An employee who is entitled to house rent allowance from his employer, is eligible for exemption u/s 10(13A) and not for deduction u/s 80GG.


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Section 80GGA – Deduction re. donations for scientific research or rural development

Eligible assessee

• All assessees not having any income chargeable under the head “Profits and gains of business or profession”.

Conditions

• Donations to a research association, University, college or other institution for scientific, social or statistical research or rural development programme or for carrying out an eligible project or scheme or National Urban Poverty Eradication Fund

Amount of deduction

• 100% of the amount paid Slide 35

September 2012

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...Section 80GGA – Deduction re. donations for scientific research or rural development

Points to be noted

• Where deduction allowed u/s 80GGA for any assessment year, deduction in relation to such sum shall not be allowed under any other provision of the Act for the same or any other assessment year.

• W.e.f. 1-4-2013, deduction in respect of cash donations u/s 80GGA will be allowed only upto Rs.10,000.


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Section 80GGB – Deduction re. contributions given by companies to political parties

Eligible assessee

• Indian Company

Conditions

• Contribution to –

- Political party

- Electoral trust

Amount of deduction

• 100% of amount donated

Points to be noted

• Donations to political parties governed by Section 293A of Companies Act


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Section 80GGC – Deduction re. contributions given by any person to political parties

Eligible assessee

• All assesses, other than local authority and artificial juridical person wholly or partly funded by Government

Conditions

• Contribution to –

- Political party

- Electoral trust Amount of deduction

• 100% of amount donated


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Section 80IA – Deduction re. profits and gains from industrial undertakings etc.

Nature of business activity

Period of commencement of operations

No. of consecutive assessment years for which deduction is available

Rate of deduction from profits and gains

An enterprise developing or operating and maintaining or developing, operating and maintaining infrastructure facility

Conditions specified in Sec. 80IA (4)(i)(a) & (b)

On or after 1-4-1995

10 out of 15 / 20 initial assessment years[Initial assessment year means the A.Y. relevant to previous year in which the undertaking commences the activity]

100% of profits and gains derived from such business for 10 consecutive assessment years


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…Section 80IA – Deduction re. profits and gains from industrial undertakings etc.





An undertaking providing basic or cellular telecommunication services, including radio paging, domestic satellite service, network of trunking, broadband network and internet services

1-4-1995 to 31-3-2005

10 out of 15 initial assessment years

100% of profits and gains derived from such business for first 5 consecutive assessment years and30% for subsequent 5 consecutive assessment years


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An undertaking which develops, develops and operates, or maintains and operates a notified industrial park or special economic zone in accordance with notified scheme

Industrial park 1-4-1997 to 31-3-2011SEZ – 1-4-1997 to 31-3-2006




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An undertaking set up for generation or generation and distribution of power

1-4-1993 to 31-3-2013



An undertaking which starts transmission or distribution by laying network of new transmission and distribution lines

1-4-1999 to 31-3-2013




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An undertaking which undertakes substantial renovation and modernization of the existing network of transmission and distribution lines

1-4-2004 to 31-3-2013




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An undertaking owned by an Indian company formed before 30-11-2005 and notified before 31-12-2005 and set up for reconstruction or revival of a power generating plant

generate or transmit or distribute power before 31-3-2011




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Points to be noted

• The eligible undertaking must fulfil the following conditions –

- not formed by splitting up or reconstruction of a business already in existence

- not formed by transfer to a new business of machinery or plant previously used for any purpose. Exemption from this provision if value of old plant and machinery transferred to new business does not exceed 20% of the total value of plant and machinery used in the business.

• For determining the quantum of deduction, profits and gains of business is to be computed as if such business were the only source of income.

• Audit report to be furnished in Form 10CCB alongwith the Return of Income.


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… Points to be noted

• If deduction allowed u/s 80IA, no other deduction under Chapter VIA with reference to the same profits and gains will be allowed.

• Section 80IA not applicable in relation to a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise.

• Transfer of goods or services from / to an eligible business to / from any other business carried on by the assessee, shall be at market value of such goods / services.


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… Points to be noted

• AO has the power to recompute the profits attributable to an eligible undertaking. Domestic transfer pricing regulations to be applied. Emanates from the decision in the case of CIT v/s Glaxo Smithkline Asia (P) Ltd. [2010] 195 Taxman 35 (SC)

• Depreciation compulsory for computation of relief

• Deduction u/s 80IA shall be granted only if the Return of income is filed within the prescribed time. [Section 80AC]

• For failure to claim deduction u/s 80IA in the Return of Income, deduction will not be allowed.


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Case laws

•Bajaj Tempo Ltd. v/s CIT [1992] 62 Taxman 480 (SC)

Provision in the taxing statute granting incentives for promoting growth and development should be construed liberally.

•Deduction u/s 80IA is available qua undertaking and not qua assessee

- Madras Machine Tools Manufacturers Ltd. v/s CIT 98 ITR 119 (Mad)

- CIT v/s Premier Cotton Mills Ltd. 240 ITR 434 (Mad)

- CIT v/s Chanda Diesels 216 ITR 639 (Bom)


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…Case laws•Textile Machinery Corpn. Ltd. v/s CIT [1977] 107 ITR 195 (SC)

Guidelines to determine whether an undertaking has not been formed by splitting up or reconstruction of a business already in existence –- Separate and distinct identity of the industrial unit set up- Investment of substantial fresh capital- Employment of additional employees- Manufacture or production of articles in the said undertaking

• Rangamma Steels & Malleables v Asst. CIT (2010) 43 DTR 137

(Chennai) (Trib)Co-generation plant (windmill) installed in different years has to be considered as a separate undertaking and the profit/loss cannot be clubbed in order to compute the deduction under s. 80-IA.


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…Case laws•Jt CIT v/s Associated Capsules P. Ltd. 304 ITR 85 Mum

Assessee established new plant and machinery at same premises, producing same product as existing business. AO held new units to be part of existing business. It was held that certain post-manufacturing activities centrally carried out or drawing certain facilities from a common source was not relevant . New units have separate & distinct identity of their own & profits and gains derived from them. Assessee treated each unit as separate and independent in its accounts. Assessee entitled to deduction.

•Tata Communication Internet Services Ltd. v. ITO ITA No. 4214/Del/2010

Bar provided in section 80-IA(3) is to be considered only for first year of claim of deduction u/s 80-IA


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…Case laws•CIT v/s Nestor Pharmaceuticals Ltd. [2010] 322 ITR 631 (Del)

Trial production does not amount to manufacture of products. Assessee entitled to deduction u/s 80IA / 80IB only when commercial production commences.

•Liberty India v/s CIT [2009] 317 ITR 218 (SC)

Duty drawback / DEPB benefits are not eligible for deduction u/s 80IB. Incentives are not profits “derived from” the eligible business. Incentives flow from schemes framed by the Central Government. Decision follows the SC decision in CIT v/s Sterling Foods [1999] 237 ITR 539 (SC)

•Midas Polymer Compounds P. Ltd. 2011-TIOL-92-HC-Ker-LB

Delayed payment charges qualify for deduction u/s 80IA, since offered for tax as business income.


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…Case laws•CIT v/s Sportking India Ltd. [2009] 183 Taxman 312 (Del)

Amount received from insurance company to be taken into account in computing profits and gains of an industrial undertaking entitled to deduction u/s 80IA.

•Treatment of losses of eligible undertaking- Mohan Breweries 116 ITD 241 (Che) and Mewar Oil & General Mills 271

ITR 311 (Raj)The first year of claim will be the “initial year”. If losses of the eligible undertaking already set off against other income in earlier years, such losses to be ignored.

- ACIT v/s Goldmine Shares & Finance P. Ltd. 302 ITR 208 Ahmed. ITAT – SB Did not follow Mewar Oil.

- Velayudhaswamy Spinning Mills 38 DTR 57 (Che) & Rangamma Steels & Malleables 132 TTJ 365 (Ch)The assessee had the option to select the “initial year” (not defined in s. 80-IA) and that losses/depreciation prior thereto were not hit by s. 80-IA (5).


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…Case laws

• Ferani Hotels Pvt Ltd TS-112-ITAT-2012(Mum)

Profits of notified industrial park offered to tax on year to year basis following ‘percentage completion method’ of accounting, eligible for Sec 80-IA deduction; benefit of CBDT instruction allowing Sec 80IB benefit on year-to-year basis in similar situation equally applicable to Sec 80IA deduction

• Natco Pharma Ltd TS-122-ITAT-2012(COCH)

Excess deduction u/s 80IC denied applying provisions of 80IA(8); Reasonable profit to be determined applying profitability of comparable companies.

• Parmeshwar Cold Storage (P) Ltd. v/s ACIT [2011] 8 ITR (Trib) 172 (Ahm)

Whether relief is barred on a revised Return? Even if no relief claimed in the original Return, claim made in the revised Return, is permissible, if original and revised Returns filed in time.


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…Case laws•Videsh Sanchar Nigam Ltd. v/s CIT [2008] 299 ITR (AT) 234 (Mum)(SB)

Earth station not functionally an independent unit. More in the nature of upgrading of assessee’s services through value addition, taking advantage of improved technology. Deduction u/s 80IA denied.

• Tamilnadu Petro Products Ltd. v/s ACIT [2011] 338 ITR 643 (Mad) Merely because power generation is used for captive consumption, it does not lose the right to relief u/s 80IA.

• CIT v/s Hind Lamps Ltd. [1991] 190 ITR 553 (All)• CIT v/s Abhirami Cotton Mills (P) Ltd. [1996] 220 ITR 84 (AP)• CIT v/s Mazagaon Dock Ltd. [1991] 191 ITR 460 (Mum)

Separate accounts need not be kept.


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…Case laws•CIT v/s Gopal Plastics Pvt Ltd. [1995] 215 ITR 136 (Mad)

If second hand machinery even to the extent of less than 20% is used for forming a new unit, such unit may still be treated as not an independent one eligible under Section 80IB, if the other facts and circumstances (e.g. reconstruction or splitting up) warrant such an inference.


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Section 80IAB – Deduction re. profits and gains of an undertaking engaged in development of Special Economic ZoneNature of business activity

Period of commencement of operation

No. of consecutive assessment years for which deduction is admissible


Developer whose gross total income includes profits and gains derived by an enterprise from any business of developing a Special Economic Zone (SEZ), which is notified on or after 1-4-2005 under the SEZ Act 2005.


10 consecutive assessments years (as reduced by the number of years in which deduction allowed u/s 80IA) out of 15 years beginning from the year in which SEZ has been notified.

100% of profits and gains from specified business activity


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…Section 80IAB – Deduction re. profits and gains of an undertaking engaged in development of Special Economic Zone

Points to be noted• Same as for Section 80IA

• Where developer who develops SEZ on or after 1-4-2005, transfers operation and maintenance of such SEZ to another developer, deductionu/s 80IAB allowable to transferee developer for balance period out of 10 years.


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Section 80IB – Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings S. No.





1 Small scale industrial undertaking manufacturing or producing articles or things or operating cold storage plant (other than 2 to 5 below)

1-4-1995 to 31-3-2002

12 for co-op. society10 for others

25% (30% in case of a company)


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…Section 80IB – Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakingsS. No.





2 Industrial undertaking in an industrially backward State specified in the Eighth Schedule, manufacturing or producing articles or things or operating cold storage plant

1-4-1993 to 31-3-2004


100% for 5 initial assessment years25% (30% in case of a company) for the remaining assessment years


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3 Industrial undertaking referred to in(2) above if located in a notified North Eastern Region

1-4-1993 to 31-3-2004

10 in all cases

100%


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4 Industrial undertaking manufacturing or producing articles or things or operating cold storage plant located in notified industrially backward district of category “A”

1-10-1994 to 31-3-2004




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5 Industrial undertaking manufacturing or producing articles or things or operating cold storage plant located in notified industrially backward district of category “B”

1-10-1994 to 31-3-2004




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6 An industrial undertaking deriving profit from the business of setting up and operating a cold chain facility for agricultural produce

1-4-1999 to 31-3-2004




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7 An undertaking which has begun or begins commercial production of mineral oil located in any part of IndiaNot applicable to blocks licensed under contract awarded after 31-3-2011 under the New Exploration licensing policy (NELP)


7 in all cases 100%


PwC






8 An undertaking which begins refining of mineral oil

1-10-1998 to 31-3-2012

7 in all cases

100%

9 An undertaking which begins commercial production of natural gas in blocksLicensed under NELP VIII – all blocks licensed under a single contract shall be treated as a single contractLicensed under the IV Round of bidding for award of exploration contracts for Coal Bed Methane blocks


7 in all cases 100%


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10 An undertaking developing and building housing projects approved before 31-3-2008 by a local authority subject to certain conditions

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

- 100% of the profits derived from such housing project

11 Company regd. for carrying on business of scientific research and development, approved by prescribed authority after 31-3-2000 but before 1-4-2007 and fulfils prescribed conditions

- 10 100%


PwC






12 An undertaking deriving profits from the business of processing, preservation and packing of – fruits, vegetables, foodgrainsmeat and meat products, poultry or marine or dairy products

On or after 1-4-2001On or after 1-4-2009

10 in all cases10 in all cases



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13 The business of building, owning and operating a multiplex theatre and is not located within the municipal jurisdiction of Kolkatta, Chennai, or Mumbai, subject to specified conditions

Constructed during 1-4-2002 to 31-3-2005

5 in all cases 50%

14 The business of building, owning and operating a convention centre subject to specified conditions

Constructed during 1-4-2002 to 31-3-2005

5 in all cases 50%


PwC






15 An undertaking deriving profits from the business of operating and maintaining a hospital in rural area subject to specified conditions

Constructed during 1-10-2004 to 31-3-2008.Hospital deemed to have been constructed on the date on which completion certificate issued by concerned local authority

5 in all cases 100%


PwC






16 An undertaking deriving profits from the business of operating and maintaining a hospital located anywhere in India other than excluded area subject to specified conditions

Constructed and has started or starts functioning during 1-4-2008 to 31-3-2013Hospital deemed to have been constructed on the date on which completion certificate issued by concerned local authority

5 in all cases 100%


PwC

…Section 80IB – Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakingsPoints to be noted•Same as for Section 80IA•The term “manufacture” has now been defined u/s 2(29BA)Case laws• M/s Essem Capital Markets Ltd Vs ITO [2011-TIOL-196-ITAT-MUM]

- Whether while claiming deduction u/s 80IB, it is necessary that the commencement certificate should be in the name of the assessee

- Whether where the development agreement is not registered but the same is not doubted by the AO as non-genuine, deduction cannot be disallowed u/s 80IB

- Whether where the assessee has not commenced the development on the project before 1/10/1998 but received the commencement certificate before the said date, deduction cannot be disallowedAssessee's appeal allowed


PwC

…Section 80IB – Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings…Case laws• Tarnetar Corporation [ TS-229-ITAT-2011(Ahd) ]

Builder eligible for deduction u/s 80-IB for ‘housing project’ even though land was owned by co-operative society.

• CIT v/s Metalman Auto P Ltd. [2011] 336 ITR 434 (P&H)An assessee who has its own manufacturing unit but also does job work for others, the assessee is entitled to deduction in respect of all its manufacturing profits including the income from job work u/s 80IB.


PwC

…Section 80IB – Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings…Case laws

• Enem Nostrum Remedies P. Ltd. v/s ACIT [2009] 314 ITR (AT) 47 (Mum)The conditions u/s 80IB(2) to be a new industrial undertaking, would have no application for scientific research u/s 80IB(8A).

•CIT v/s Sadhu Forging Ltd. [2011] 336 ITR 444 (Del)Sale of scrap generated during the course of manufacturing activity – entitled to deduction u/s 80IB


PwC

Section 80IC – Deduction in respect of certain undertakings in certain special category States





Profits and gains derived by an undertaking or an enterprise in special category States (Himachal Pradesh, Uttaranchal, Manipur, Meghalaya, Mizoram, Nagaland and Tripura) (subject to certain limits, time limits and conditions)

Sikkim23-12-2002 to 1-4-2007

Himachal Pradesh7-1-2003 to 1-4-2012

North Eastern States24-12-1997 to 1-4-2007

10 initial assessment years

Sikkim and North Eastern States 100% for 10 yearsHimachal Pradesh / Uttaranchal Pradesh100% for 5 initial assessment years25% (30% in case of a company) for the remaining assessment years


PwC

…Section 80IC – Deduction in respect of certain undertakings in certain special category States

Conditions• The undertaking / enterprise has begun or begins to manufacture or

produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which undertakes substantial expansion during the specified period.

• The undertaking / enterprise has begun or begins to manufacture or produce any article or thing specified in the Fourteenth Schedule or which undertakes substantial expansion during the specified period.

Points to be noted • Same as for Section 80IA • If deduction claimed u/s 80IC, no deduction will be allowed under any

other section under Chapter VIA or under Sections 10A or 10B.Slide 75

September 2012

PwC

Section 80ID – Deduction in respect of profits and gains from business of hotels and convention centres in specified areasNature of business activity Period of

commencement of operation



Hotels / convention centres located in National Capital Territory of Delhi, , Gurgaon, Gautam Budh Nagar and Ghaziabad

1-4-2007 to 31-7-2010

5 consecutive initial assessment years

100%

Points to be noted• Same as for Section 80IA.

• If deduction claimed u/s 80ID, no deduction will be allowed under any other section under Chapter VIA or under Sections 10A or 10B.


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Section 80IE – Deduction in respect of certain undertakings in North Eastern States





Undertaking manufactures or produces / undertakes substantial expansion to manufacture or produce any eligible article or thingUndertaking carries on any eligible business

1-4-2007 to 31-3-2017

10 consecutive initial assessment years

100%

Points to be noted• Same as for Section 80IA.• If deduction claimed u/s 80ID, no deduction will be allowed under any

other section under Chapter VIA or under Sections 10A, 10AA, 10B or 10BA.


PwC

Section 80JJA – Deduction in respect of profits and gains from business of collecting and processing bio-degradable waste

• Entire income • from business of collecting and processing or treating of bio-degradable

waste for generating power, or producing bio-fertilizers, bio pesticides or other biological agents or for producing bio-gas, making pellets or briquettes for fuel or organic manure

• for 5 consecutive assessment years


PwC

Section 80JJAA – Deduction in respect of employment of new workmen

• Assessee is an Indian Company whose gross total income includes profits and gains derived from any industrial undertaking engaged in the manufacture or production of article or thing

• Deduction -

- equivalent to 30% of additional wages paid to new, regular workmen employed in the previous year

- for 3 assessment years including the assessment year relevant to the previous year in which such employment is provided

- subject to certain conditions

• Panacea Biotec Ltd. v/s ACIT [2009] 314 ITR (AT) 82 (Del)

Percentage of increase in the number of regular workmen to be worked out with reference to the number of employees as on the last day of the preceding year.


PwC

Section 80LA – Deduction re. certain incomes of Offshore Banking Units and International Financial Services Centre

• Certain incomes of Scheduled banks / banks incorporated outside India having Offshore Banking Units in a Special Economic Zone / Units of International Financial Services Centre (subject to certain conditions and limits)


PwC

Section 80P – Deduction in respect of income of co-operative societies

• Co-operative societies engaged in certain businesses and primary co-operative societies engaged in supplying milk, oilseeds, fruits or vegetables – the whole of the amount of profits and gains of such business

• Other co-operative societies –

- consumers’ co-operative societies : profits and gains upto Rs.1,00,000

- other co-operative societies : profits and gains upto Rs.50,000

• 100% of following incomes –

- Interest or dividends derived from investment with any other co-operative society – 100% of such income

- income from letting of godowns or warehouses


PwC

…Section 80P – Deduction in respect of income of co-operative societies

Case laws• Maratha Mandir Co-op. Bank Ltd Vs. CIT TS-380-HC-2011(BOM)

Co-operative bank eligible for deduction u/s 80P on interest on advance rent

•CIT v/s Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241 (SC)

It may not be possible to say that all co-operative societies are mutual associations, so as to be totally exempt. By-laws of the co-operative societies would require to be drafted in a manner, that not only the activities are confined to the members, but the benefit of the surplus is available solely to the participants and not mere investors.

• CIT v/s South Arcot District Co-op. Marketing Society Ltd. [1989] 176 ITR 117 (SC)The word “letting” in Section 80P(2)(e) is wide enough to include user by persons other than members of the concerned co-operative society.


PwC

…Section 80P – Deduction in respect of income of co-operative societies

…Case laws• CIT v/s Karnataka State Co-operative Apex Bank [2001] 251 ITR

194 (SC)(LB)Interest on investment out of statutory reserve fund, eligible for deduction u/s 80P.

• Mehsana District Central Co-operative Bank Ltd. v/s ITO [2001] 251 ITR 522 (SC)Interest on Government securities invested out of reserve fund of a Co-operative society, entitled to deduction u/s 80P.

•Surat District Co-op. Bank Ltd. v/s ITO [2003] 262 ITR (AT) 1 (Ahm)Interest on fixed deposits with other banks, locker rent are eligible for deduction u/s 80P.


PwC

Section 80QQB – Deduction re. royalty income etc. of authors of certain books other than text books

• Resident individual author

• Royalty income of author of certain specified category of books (upto Rs.3,00,000) subject to certain conditions

Section 80RRB – Deduction in respect of royalty on patents • Resident individuals

• Royalty on patents registered on or after 1-4-2003 (upto Rs.3,00,000) subject to certain conditions


PwC

Section 80TTA – Deduction in respect of interest on deposits in savings account

• Inserted w.e.f. 1-4-2013

• Individual or HUF

• Interest on deposits (not being time deposits) in a savings account with

- banking company

- co-operative society engaged in banking business

- Post Office

• Rs.10,000

Point to be noted

• Where income derived from any deposit in a savings account by a firm, AOP or BOI, no deduction available in computing total income of any partner of firm or member of AOP or BOI.


PwC

Section 80U – Deduction in the case of a person with disability

• Resident individual

• Certified by the medical authority at any time during the previous year to be a person with disability

• Certificate issued by the medical authority in the prescribed form to be furnished alongwith the Return of Income

• Deduction of Rs.50,000 / Rs.1,00,000 in case of severe disability


PwC

…Section 80U – Deduction in the case of a person with disability

Case law•CIT v/s Narendra R. Oza [2002] 257 ITR 466 (Guj)

It is not a condition precedent for allowing deduction u/s 80U that the assessee should be unemployed or should not be earning anything. Merely because the assessee is earning income from some business, deduction u/s 80U cannot be disallowed for, had he not suffered from a permanent physical disability, he could have earned more.


critical analysis of deductions under chapter via

Documents

c deduction

notified deposit scheme

aggregate deduction

new jeevan akshay

deductions deductions

boardbank term deposit

year time deposit

annuity plancontribution