Section 80IA Deduction in respect of profits and gains from industrial
Section 80IA – Deduction in respect of profits and gains from industrial undertakings or enterprise engaged in infrastructure development: Section 80IA is profit based deduction, which actually goes on to exempting the profits generated by a specific class of companies for a specific time period. The objective behind allowing such deduction is to encourage private sector participation within infrastructure sector. This article will try to provide gist of the provision of the section 80IA , its applicability , and recent case laws for better understanding.
What is section 80IA and its applicability
Section 80 IA provides for Deduction in respect of profits and gains from industrial undertakings or enterprise engaged in infrastructure development [Section 80-IA]. Section 80IA provides a deduction to an assessee in respect of profits and gains derived from any business of:
- Infrastructure facilities
- Telecommunication services
- Undertaking involved in development , operation or maintenance of any industrial park
- Power generation or involved in reconstruction of power generation plant
This deduction is subject to certain conditions which are as follows
- Undertaking availing 80IA deduction is not result of any split off or reconstruction of any existing unit
- Such undertaking is not formed by mere transfer of plant and machinery which is already used
- If the undertaking claims deduction under any assessment year , then no other deduction to be allowed as it will result in double deduction.
- Undertaking which avails the deduction shall be the person making investment and executing the infrastructure development work.
- Deduction is allowed under section 80IA is permitted only if the accounts are audited.
(1) Infrastructure facility:
The enterprise is carrying on the business of operating any infrastructure facility which fulfills the following conditions:
- (a) It is owned by an Indian company or consortium of companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act registered in India;
- (b) It enters into an agreement with the Central or State Government or a local authority or any other statutory body for (i) developing, (ii) operating and maintaining, (iii) developing, operating and maintaining, a new infrastructure facility.
- (c) It transfer such infrastructure facility after the period stipulated in the agreement to such Government or authority or body concerned;
- (d) It starts operating and maintaining the infrastructure facility on or after 1st April, 1995.
It has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing a special economic zone and maintaining a new infrastructure facility.
(2) Telecommunication services:
Any undertaking which has started or starts providing telecommunication services whether basic or cellular including radio-paging, domestic satellite service or network of trunking and electronic data interchange services at any time after 31.3.1995 but before 31.3.2005. Domestic Satellite Service means a satellite owned and operated by an Indian Company for providing telecommunication services.
(3) Industrial park: Any undertaking which develops a special economic zone and operates an industrial park (notified by the Central Government) after 31.3.1997 but before 1.4.2006 and in case of SEZ, it should begin on or after 1.4.2001 but before 1.4.2006.
Where an undertaking develops industrial park after 31.3.1999 and transfers the operations and maintenance of it to another undertaking, the transferee will get the benefit of deduction for the unexpired period. However, Investments made to develop industrial park has been extended from 31.3.2006 to 31.3.2011.
(4) Generation and distribution of power:
An undertaking which:
- (a) is set-up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March 2017.
- (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March 2017.
- (c) undertakes substantial renovation and modernization of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 2017.
Provided that the deduction under this section to an industrial undertaking under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution.
Quantum and period of deduction:
- (1) First five assessment years – 100% of such profits.
- (2) Next five assessment years – In case of companies 30% of such profits. In case of other assessees 25% of such profits.
The deduction under (4) above shall be allowed if the following conditions are satisfied:
- (a) It is not formed by the splitting up, or the reconstruction, of a business already in existence;
- (b) it is not formed by the transfer to a new business of machinery or plant (exceeding 20%) previously used for any purpose.
Option to claim deduction:
The assessee, at his option, can claim deduction in any ten consecutive assessment years out of fifteen years beginning from the year in which it begins operations.
If the assessee is engaged in infrastructure facility mentioned in (b) above he can claim deduction in any ten consecutive assessment years out of twenty years instead of out of fifteen years.
Recent Judgments or case laws
ITO vs Hirananadani Builders (ITAT Mumbai)
This judgement pertains to assessment year 2009-10, which gave a verdict that incomes such as interest on TDS refund, interest from lessee , interest on Fixed Deposit Receipts, as well as interest on tender fees are to be construed as derived form the eligible undertaking with respect to deduction under section 80IA.Hence such all the income are allowed as deduction .however if the such income are not eligible to be set off , then they are to be disallowed for the part which will remain after netting off the expenditure related to them.
Deepi Arora Vs. ITO (ITAT, Mumbai)
It is a Must that the profits of the eligible unit should be computed on a stand alone basis. This judgment adheres to the principle where the eligble unit has other non business income.It says that brought forward unabsorbed depreciation should be set off against eligible profits , after which deduction under section 80IA will be calculated.
CIT vs. Accel Trnsmatic Systems Ltd.
This judgment has outlined the fact that the deduction under section 80IA shall be reduced from total income only after deducting the loss from another unit.Deduction will be restricted to total income where total income is less than the eligible deduction.
Section 80IA is devised for encouraging the private players to enter into infrastructure industry.The section exempts the profits generated from eligible undertaking for almost 10 consecutive assessment years.Hence this section actually intends to provide relief to the person actually investing and executing the infrastructure development subject to certain conditions and recent case laws mentioned above in the article.
- Exemptions available under Sec. 80C for Stamp Duty Paid
- List of Various Deductions Under Section 80C
- Deduction in Respect of Various Loans
- Deduction for Rent Paid Under Section 80GG
- Deduction from taxable income in respect of certain payments
- Section 43B Deductions Based Actual Payments
- Section 80GGA