Supreme Court Judgement on tax holidays for eligible business – section 80-IA- IT Act, 1961

Deduction of income from other sources also alongwith eligible business u/s 80-IA of IT Act, 1961 – Supreme Court verdict

Section 80-IA of the Income Tax Act, 1961 provides tax holiday kind of benefit wherein 100% deduction of profit and gain derived from the ‘eligible businesses’ such as infrastructure, power, telecommunication, developing/maintaining industrial park/special economic zones fulfilling the prescribed conditions, can be availed by any assessee for any 10 consecutive years out of 15 years from the date of commencement of operation.

One issue in this relation arose before the Hon’ble Supreme Court was whether the said deduction u/s 80-IA is limited to the ‘eligible business income’ and not income any other heads of income?

The Supreme Court in the case of CIT-I vs Reliance Energy Ltd. held that the deduction u/s 80-IA is not limited to the business income only but also includes deduction of income from other heads also including ‘income from other sources of income’.

A brief about the deduction u/s 80-IA for eligible businesses with conditions therein, is as follows:

Sl. No

Eligible Business

Conditions

1.    

Developing/operating/ maintaining any infrastructure facility

All the following conditions has to be complied with:

1.   The owner of such undertaking should be any of the following:

a.    Company or group of companies registered in India or,

b.   An authority or a board or a corporation or any other body established or constituted under any Central or State Act.

2.   It has entered into agreement with Central Government or a State Government or a local authority or any other statutory body to carry out functions of developing, maintaining or operating of infrastructure facility.

 

3.   Operating and maintain of infrastructure facility is started on or after 01-04-1995 but not on or after 01-04-2017.

2.    

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

1.   Starts such business with the period of 01-04-1995 to 31-03-2005.

2.   Deduction % is different as follows:

a.      First 5 years- 100%

b.     Next 5 years- 30%

3.    

Developing, Operating, Maintaining industrial park/Special Economic Zone

1.  Starts such business within the period of 01-04-1997 to 31-03-2006.

 

4.    

Generation/Distribution of Power

1.   Starts such business within the period of 01-04-1993 to 31-03-2017.

 

5.    

Transmission/distribution by laying new lines

1.   Starts such business within the period of 01-04-1999 to 31-03-2017

2.   Deduction allowed specifically for profit from laying such new lines

 

6.    

Renovation/Modernisation of existing Transmission/distribution lines

1.   Starts such business within the period of 01-04-2004 to 31-03-2017

 

7.    

Set up for reconstruction or revival of a power generating plant

1.   The undertaking must be owned by an Indian Company formed before 30-11-2005 with majority equity participation and must be notified by CG before 21-12-2005

2.   Begins to generate/transmit/distribute power before 31-03-2011

 

Other related FAQs:

  1. Is Audit compulsory for undertaking claiming deduction u/s 80-IA?

Yes. Section 80-IA(7) requires compulsorily conduct of audit of books of accounts and report has to be furnished in Form 10CCB.

  1. Whether goods or services can be provided by eligible business to any other business of assessee and vice versa at other than the market value?

No. Section 80-IA(8) requires the calculation of transaction value in such cases, to be at market value or arm’s length price.

  1. Whether is income form eligible business is claimed ad deduction u/s 80-IA, it can again be claimed as deduction under any other provision?

No. section 80-IA(9) restricts the deduction claimed u/s 80-IA to again claim under Heading ‘C’ of chapter VIA.

  1. Whether unreasonable profit can be generated via business between the eligible business and any other person having close connection with assessee carrying such eligible business?

No. section 80-IA(10) empowers Assessing Officer to recalculate the profit that could reasonably  be generated from such transactions, in case it is noticed that the business transactions between them produces unreasonable profits to the assessee. Also, in respect for specified domestic transactions arm’s length price can be applied.

  1. Whether deduction u/s 80-IA can be claimed by assessee carrying the eligible business in works contract basis?

No. Explanation to section 80-IA(13) restricts the deduction for assessee who is doing the eligible business on works contract basis and not executing directly.

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