deduction u/s 80-IA of income tax act, 1961


 3.1 Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. [Section 80-IA]

3.1.1 Applicability: where GTI includes any profits and gains derived from eligible business.








 

Eligible Business and conditions

Deduction

A.

Any enterprise carrying on the business of :

a)     developing

b)    operating and maintaining; or

c)     developing, operating and maintaining

any infrastructure facility.

Infrastructure facility means:

1.       a road, including toll road, a bridge or a rail system;

2.       a highway project including housing or other activities being an integral part of the highway project;

3.       a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; and

4.       a port, airport, inland waterway or inland port or navigational channel in the sea.

Conditions-

(i)   It must be owned by

Ø an Indian company or a consortium of such companies or

Ø an authority or a board or a corporation or any other body established or constituted under any Central or State Act.

(ii)    there should be an agreement with any Government or a local authority or statutory body for developing (etc.) a new infrastructure facility.

(iii)   It starts operating and maintaining such infrastructure facility on or after 1-4-1995.

Deduction:100% of the profits and gains from such business

 

Period: any 10 consecutive A.Y.s out of 15 years from the year, in which it develops or begins to operate.

Note: for 1, 2 &3: replace 15years with 20 years.

B.

Any undertaking, who starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service or network of trunking (NOT), broadband network and internet services on or after 1-4-1995 but on or before 31-3-2005.

Conditions:

(i) It is not formed by splitting up or reconstruction of a business already in existence.

Exception: undertaking formed as a result of reconstruction, re-establishment or revival of the business of any undertaking

Ø discontinued due to extensive damage or destruction of (any building, machinery, plant or furniture owned and used for such business) due to any natural calamity or other unforeseen circumstances such as:-

(i)     Flood, typhoon, hurricane, cyclone, earthquake or other natural calamity, or

(ii)    riot or civil disturbance, or

(iii)   accidental fire or explosion, or

(iv)  enemy action or action taken in combat,

Ø and such business is re-established or revived within 3 years from the end of such previous year.

(ii) it is not formed by the transfer of machinery or plant previously used for any purpose.

Exception:

Ø  transfer (in whole or part), of machinery or plant previously used by a State Electricity Board.

Ø  Import of second-hand machinery or plant, if the following conditions are fulfilled:

(i)     Such machinery or plant was not used in India prior to the date of installation by the assessee.

(ii)    No deduction on account of depreciation was allowed to any person prior to the date of installation by the assessee.

Ø total value of second hand plant or machinery previously does not exceed 20% of the total value of the machinery or plant used in the new business.

Deduction: 100% for first 5 A.Y.s and thereafter 30% for the further 5 A.Y.

 

Period: Any 10 consecutive A.Y.s out of 15 years from the year, in which it starts services

C.

Any undertaking which develops, develops and operates, or maintains and operates an industrial park or a special economic zone (notified by the CG)

Conditions:

(i) it begins to operate in accordance with the scheme framed and notified by the C.G. for the period beginning on 1-4-1997 and ending on

Ø  31-3-2011 for industrial parks,

Ø  31.3.2006 for SEZs.

Note: deduction would not be available in respect of any SEZ notified on or after 1.4.2005. [deduction for income of developer shall be available u/s 80 IAB (similar to 80 IA)]

Same as ‘A’ except ‘note’

 

D.



Any undertaking which

(i) is set up in India for the generation or generation and distribution of power (begin to generate power during 1.4.1993 to 31.3.2011).

(ii) starts transmission or distribution by laying a network* at any time during 1.4.1999 to 31.3.2011. (deduction in respect of profits from the laying of such network of new lines only)

(iii) undertakes substantial renovation and modernization** of the existing network*, at any time during 1.4.2004 to 31.3.2011.

* of new transmission or distribution lines

**: means an increase in the plant and machinery in the network by at least 50% of the book value of such plant and machinery as on 1-4-2004.

Conditions: same as (i) and (ii) in ‘B’

---do---

E.

an undertaking owned by an Indian company and set up for reconstruction or revival of a power generating plant.

Conditions:

(i) Such company formed before 30.11.2005 and notified before 31.12.2005 by the CG.

(ii) Such undertaking begins to generate or transmit or distribute power before 31.3.2011.

---do---

F.

an undertaking which lays and begins to operate a cross country natural gas distribution network, including pipelines and storage facilities being an integral part of such network.

Conditions:

(i)             same as (i) in ‘B’

(ii)            same as (ii) in ‘B’

(iii)           it must be owned by an Indian company or a consortium of such companies or a board or corporation established or constituted under any Act

(iv)          it must be approved by the Petroleum and Natural Gas Regulatory Board;

(v)           1/3 of its total pipeline capacity must be available for use on common carrier basis by any person other than the assessee or an associated person*;

(vi)          it starts functioning on or after 1st April, 2007.

(vii)         any other prescribed condition

* associated person: a person who—

(1) participates in the management or control or capital of the assessee;

(2) holds shares carrying at least 20% of the voting power.

(3) appoints more than half of the BOD or members of the governing board, or one or more executive directors or executive members of the governing board of the assessee; or

(4) who guarantees at least 10% of the total borrowings.

---do---

 

3.1.2  Other provisions:

1.      where an infrastructure facility or SEZ or Industrial park is transferred on or after 1-4-1999 by an enterprise who developed it for the purpose of operating and maintaining it in accordance with the agreement with the any Government, local authority or statutory body:- this section will apply to the transferee enterprise for the unexpired period of deduction (which was available to the first enterprise). [i.e. the transferee shall not be eligible for deduction for entire period]

2.      Where housing or other activities are an integral part of a highway project and the profits and gains have been calculated in accordance with the section, the profits shall not be liable to tax if the following conditions have been fulfilled:

a.     The profit has been transferred to a special reserve account; and

b.    the same is actually utilised for the highway project excluding housing and other activities before the expiry of 3 years following the year of transfer to the reserve account;

c.     unutilised amount shall be chargeable as income of the year of transfer

 

3.      Deduction u/s 80IA shall not available in relation to an eligible business, in the nature of a works contract awarded by any person (including any Government) and executed by the undertaking or enterprise.

4.      For computing deduction under this section, the profits and gains of the eligible business shall be computed as if such eligible business were the only source of income during the relevant previous years.

5.      The accounts are to be audited by a CA and the audit report in the prescribed form shall be furnished along with ROI

6.      Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or vice versa, and if the consideration for such transfer does not correspond with the market value of the goods or services then the profits and gains of the eligible business shall be computed as if the transfer was made at market value. [

Note:

Ø  if, in the opinion of the A.O., such computation presents exceptional difficulties, the A.O. may compute the profits on such reasonable basis as he may deem fit.

Ø  Market value means the price such goods or services would ordinarily fetch in the open market.

7.      No deduction in respect of such profits will be allowed under any other section under this chapter, and deductions under this section shall not exceed the profits and gains of the eligible business.

8.      Where it appears to the A.O. that the assessee derives more than ordinary profits from the eligible business due to close connection between the assessee and any other person, or due to any other reason, he may consider such profits as may be reasonable for the purpose of computing deduction.

9.      the C.G. may declare any class of industrial undertaking or enterprise as not being entitled to deduction under this section.

10.  Transfer of undertaking before expiration of tax holiday period:

Where an undertaking eligible for deduction is transferred by an Indian company to another Indian company in the scheme of amalgamation or demerger, then:

a.     No deduction to the amalgamating/demerged company, in the year of amalgamation/demerger.

b.    The provisions of this section will apply to the amalgamated/resulting company as they would have applied to the amalgamating/demerged company if the amalgamation/demerger had not taken place.

Note: this point is not applicable for transfer on or after before 1-4-2007

 

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CA Anshu Agarwal 
on 28 January 2010
Published in Income Tax
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