The incomes enumerated below are exempt from tax under sections 10 and 13A :


• Agricultural income [clause (1)].

• Payments received from family income by a member of a Hindu undivided family [clause (2)].

• Share of profit from a firm [clause (2A)].

• Interest received by a non-resident from prescribed securities [clause (4)].
  

• Interest received by a person who is resident outside India on amounts credited in the "Non-resident (External) Account".
  

• In the case of an Indian citizen or a person of Indian origin who is a non-resident, the interest from notified Central Government securities [i.e., National Savings Certificates, VI and VII Issues] if such certificates are subscribed in foreign currency or other foreign exchange remitted from outside through official channels [clause (4B)].
  

• Leave travel concession provided by an employer to his Indian citizen employee [clause (5)].
  

• Tax paid by employer of non-resident Indian technician [clause (5B)].
  

• Value of concessional passage money received by a foreign national employee from his employer [clause (6)(i].
  

• Remuneration received by foreign diplomats of all categories [clause (6)].
  

• Salary received by a foreign citizen in India as an employee of a foreign enterprise provided his stay in India does not exceed 90 days [clause (6)(vi)].
  

• Salary received by a non-resident foreign citizen as a member of ship's crew provided his total stay in India does not exceed 90 days [clause (6)(viii)].
  

• Remuneration received by an employee, being a foreign national, of a foreign Government deputed in India for training in a Government establishment or public sector undertaking [clause (6)(xi)].
  

• Tax paid on behalf of foreign companies [clause (6A)].
  

• Tax paid by Government or an Indian concern in the case of a non-resident/foreign company [clause (6B)].
  

• Income arising to notified foreign companies from services provided in or outside India in projects connected with the security of India [clause (6C)].
  

• Foreign allowance granted by the Government of India to its employees posted abroad [clause (7)].
  

• Remuneration received from a foreign Government by an individual who is in India in connection with any sponsored co-operative technical assistance programme with a foreign Government and the income of the family members of such employee [clauses (8) and (9)].
  

• Remuneration/fees received by non-resident consultants and their foreign employers [clauses (8A) and (8B)].
  

• Death-cum-retirement gratuity subject to the limits specified in para 12.2 [clause (10)].
  

• Commuted value of pension subject to the limits specified in para 12.3 and with effect from the assessment year 1997-98, any payment received by way of connotation of pension by an individual out of annuity plan of LIC from a fund set up by that corporation [clause (10A)].
  

• Leave salary [clause (10AA)].
  

• Retrenchment compensation [clause (10B)].
  

• Compensation received by victims of Bhopal gas leak disaster [clause (10BB)].
  

• Compensation received from a public sector company at the time of voluntary retirement [clause (10C)].
  

• Tax on perquisite paid by employer [clause (10CC)].
  

• Any sum (including bonus) on life insurance policy (not being a Keyman insurance policy) [clause (10D)].
  

• Any amount from provident fund paid to retiring employee [clause (11)].
  

• Amount from an approved superannuation fund to legal heirs of the employee [clause (13)].
  

• House rent allowance subject to certain limits [clause (13A)].
  

• Special allowance granted to an employee [clause (14)].
  

• Income received by a public financial institution as exchange risk premium in certain cases [clause (14A)].
  

• Interest from certain exempted securities [clause (15].
  

• Payment made by an Indian company, engaged in the business of operation of an aircraft, to acquire an aircraft on lease from a foreign Government or foreign enterprise [clause (15A)].
  

• Scholarship granted to meet the cost of education [clause (16)].
  

• Daily allowance of a Member of Parliament or State Legislature (entire amount is exempt), and any other allowance subject to certain conditions [clause (17)].
  

• Rewards given by the Central or State Government for literary, scientific or artistic work or attainment or for service for alleviating the distress of the poor, the weak and the ailing, or for proficiency in sports and games or gallantry awards approved by the Government [clauses (17A)].
  

• Pension and family pension of gallantry award winners [clause (18)].
  

• Ex gratia payments made by the Central Government consequent on the abolition of privy purse [clause (18A)].
  

• Notional property income of any one palace occupied by a former ruler [clause (19A)].
  

• Income of local authorities [clause (20)].
  

• Any income of housing boards constituted in India for planning, development or improvement of cities, towns or villages [clause (20A)].
  

• Any income of an approved scientific research association [clause (21)].
  

• Income of a notified news agency (i.e., PTI for the assessment years 1994-95 to 2002-03 and UNI for the assessment years 1994-95 to 2002-03) [clause (22B)].
  

• Income of an approved sports association [clause (23)].
  

• Any income (other than interest on securities, income from property, income received for rendering any specific services and income by way of interest or dividends) of approved professional bodies [clause (23A)].
  

• Any income received by any person on behalf of any Regimental Fund or non-public fund established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependants [clause (23AA)].
  

• Any income of the pension fund set up by LIC or any other insurer approved by the Controller of Insurance or Insurance Regulatory and Development Authority [clause (23AAB)].
  

• Income of funds established for the welfare of employees [clause (23AAA)].
  

• Any income (other than business income) of a trust or a society approved by Khadi and Village Industries Commission [clause (23B)].
  

• Income of an authority whether known as Khadi and Village Industries Board or by any other name for the development of khadi and village industries [clause (23BB)].
  

• Income of the European Economic Community derived in India by way of interest, dividends or capital gains in certain cases under the European Community International Institutional Partners Scheme, 1993 [clause (23BBB)].
  

• Income arising to any body or authority established, constituted or appointed under any enactment for the administration of public, religious or charitable trusts or endowments or societies for religious or charitable purposes [clause (23BBA)].
  

• Any income of SAARC Fund for Regional Projects [clause (23BBC)].
  

• Any income of Secretariat of Asian Organisation of Supreme Audit Institutions [clause (23BBD)].
  

• Income received by any person on behalf of specified national funds, approved public charitable institutions, educational institute and hospital [clause (23C)].
  

• Income of a Mutual Fund set up by a public sector bank or public financial institution [clause (23D)].
  

• Income of the notified Exchange Risk Administration Fund (i.e., Exchange Risk Administration Fund set up by IDBI, IFCI and ICICI or set up by the Power Finance Corporation Ltd. [clause (23E)].
  

• Income of investor protection fund [clause (23EA)].
  

• Income of Credit Guarantee Fund Trust [clause (23EB)].
  

• Income by way of dividends and long-term capital gains of venture capital funds and venture capital companies [clause (23F)].

• Income by way of dividend or long-term capital gain of venture capital fund/undertaking [clause (23FA)].
  

• Income of venture capital fund/venture capital company [clause (23FB)].
  

• Dividend, interest, etc. of an infrastructure capital fund [clause (23G)].
  

• Income by way of interest on securities, property income and income from other sources of a registered trade union or an association of registered trade unions [clause (24)].
  

• Any income received by a person on behalf of statutory provident fund, recognised provident fund, approved superannuation fund, approved gratuity fund and approved coal-mines provident fund [clause (25)].
  

• Income of Employees' State Insurance Fund [clause (25A)].
  

• Income of a member of a scheduled tribe, residing in Nagaland, Manipur, Tripura, Arunachal Pradesh, Mizoram and Ladakh from any source arising by reason of his employment therein and income by way of dividend and interest on securities [clause (26)].
  

• Any income accruing or arising to any resident of Ladakh from any source therein or out of India up to the assessment year 1988-89, provided that such person was resident in Ladakh in the previous year relevant to the assessment year 1962-63 [clause (26A)].
  

• Any income of a statutory corporation or of a body/institution, financed by the Government formed for promoting the interest of scheduled castes/tribes [clause (26B)].
  

• Income of National Minorities Development and Finance Corporation [clause (26BB)].
  

• Income of ex-serviceman corporations [clause (26BBB)].
  

• Income of a co-operative society formed for promoting interest of members of scheduled castes/tribes [clause (27)].
  

• Income of the marketing authority from letting of godowns and warehouses [clause (29)].
  

• Income of certain Commodity Boards/Authorities [clause (29A)].
  

• Subsidy from the Tea Board for replanting or replacement of tea bushes or for rejuvenation or consolidation of areas used for

• cultivation of tea in India [clause (30)].
  

• Subsidy received by planters [clause (31)].
  

• Income of a minor child up to Rs. 1,500 in respect of each minor child whose income is includible under section 64(1A) [clause (32)].
  

• Capital gains on transfer of US 64 [clause (33)].
  

• Dividand on or after April, 2003 from domestic companies [clause (34)].
  

• Interest on units of a Mutual Fund on or after April 1, 2003 [clause (35)].
  

• Capital gains on transfer of listed equity shares [clause (36)].
  

• Any income of a political party by way of interest on securities, property income, income from other sources or income by way of political contributions [sec. 13A].

Section 10A makes special provision in respect of newly established undertakings in free trade zone, etc. The provisions given below are applicable from the assessment year 2001-02.

Conditions to be satisfied -In order to get deduction, an undertaking must satisfy the following conditions :

MUST BEGIN MANUFACTURE OR PRODUCTION IN FREE TRADE ZONE - It has begun or begins to manufacture/produce articles or things or computer software during the following years-

Free trade zones - Free Trade Zones are : Kandla Free Trade Zone, Santacruz Electronics Export Processing Zone, Falta Export Processing Zone, Madras Export Processing Zone, Cochin Export Processing Zone and Noida Export Processing Zone.

Electronic/software/hardware technology park - "Electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce and Industry.

Software technology park - "Software technology park" means any park set up in accordance with the Software Technology Park (STP) Scheme notified by the Government of India in the Ministry of Commerce and Industry.

For the purpose of section 10A or 10B, as long as a unit in the EPZ/EOU/STP itself produces computer programmes and exports them, it should not matter whether the programme is actually written within the premises of the unit. Where a unit in the EPZ/EOU/STP develops software sur place, that is, at the client's site abroad, such unit should not be denied the tax holiday under section 10A or 10B on the ground that it was prepared on-site, as long as the software is a product of the unit, i.e., it is produced by the unit.

a. any computer programme recorded on any disc, tape, perforated media or other information storage device; or
b. any customized electronic data or any product or service of similar nature, as may be notified by the Board, which is transmitted or exported from India to any place outside India by any means.
The Central Board of Direct Taxes has specified the following Information Technology enabled products or services, as the case may be, for this purpose namely : (i) Back-office Operations; (ii) Call Centres; (iii) Content Development or Animation; (iv) Data Processing; (v) Engineering and Design; (vi) Geographic Information System Services; (vii) Human Resource Services; (viii) Insurance Claim Processing; (ix) Legal Databases; (x) Medical Transcription; (xi) Payroll; (xii) Remote Maintenance; (xiii) Revenue Accounting; (xiv) Support Centres; and (xv) Web-site Services.

Should not be formed by splitting/reconstruction of business -

The industrial undertaking should not have been formed by the splitting up or reconstruction of a business already in existence. However, where an industrial undertaking is formed as a result of re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section the same will qualify for the tax concession.

The industrial undertaking should not have been formed by the transfer of a new business of machinery or plant previously used for any purpose. For this purpose, any machinery or plant which was used outside India by any person other than the assessee is not regarded as machinery or plant previously used for any purpose if the following conditions are fulfilled, namely:
a.such machinery or plant was not previously used in India;
b. such machinery or plant is imported into India from a foreign country; and
c. no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable in computing the total income of any person for any period prior to the installation of the machinery or plant by the assessee. Further, this tax concession is not denied in a case where the total value of used machinery or plant transferred to the new business does not exceed 20 per cent of the total value of the machinery or plant used in that business.

There must be repatriation of sale proceeds into india

Sale proceeds of articles or things or computer software exported out of India must be received in, or brought into India by the assessee in convertible foreign exchange during the previous year or within a period of six months from the end of the relevant previous year. For instance, for the assessment year 2002-03, the repatriation of the sale proceeds into India must be completed on or before September 30, 2002. The sale proceeds shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.

Extension of time limit

The aforesaid limit of six months can be extended by the Reserve Bank of India or such other competent authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. AUDIT - Deduction under section 10A shall not be admissible with effect from April 1, 2001, unless the assessee furnishes in the prescribed form [Form No. 56F] along with the return of income, the report of an accountant certifying that the deduction has been correctly claimed in accordance with the provisions of section 10A.

Must not transfer ownership or beneficial interest in undertaking

If during any previous year, the ownership or the beneficial interest in the undertaking is transferred by any means, the deduction under section 10A shall not be allowed to the assessee for the assessment year relevant to such previous year and the subsequent years. For this purpose, in the case of a company, if 51 per cent of the voting right shareholders on the last day of the previous year in which the undertaking was set up do not continue to hold 51 per cent of the voting right shares on the last day of the relevant previous year, the company shall be deemed to have transferred its ownership.

EXCEPTIONS- The aforesaid rule is not applicable in the following cases-

1. Exception one - The above provisions are not applicable if there is any change in shareholding as a result of (a) its becoming company in which the public are substantially interested, or (b) disinvestment of the equity share by any venture capital company/fund. In other words, in these circumstances, such companies would not lose the benefit of the provisions of section 10A or 10B, even if there is a change in the shareholding pattern.
2. Exception two - It is applicable from the assessment year 2003-04. If a firm or a sole proprietary concern is succeeded by a company, the deduction under section 10A or 10B shall be allowed to the company. However, the benefit would be available only if-
• in the case of firm, the aggregate of the shareholding in the company of the partners of the firm is not less than 51 per cent of the total voting power in the company and their shareholding continues to be as such for a period for which the company is eligible for this deduction; or
• in the case of a sole proprietary concern, the shareholding of the sole proprietor in the company is not less than 51 per cent of the total voting power and his shareholding shall continue to remain as such for a period for which the company is eligible for this deduction
3. Exception three - From the assessment year 2004-05, these provisions are not applicable. In other words, even if there is a change of ownership, section 10A or 10B tax holiday will be available.

Amount of deduction - General provision

- If the aforesaid conditions are satisfied, the deduction under section 10A may, be computed as under :
90 per cent of [Profits of the business of the undertaking × Export turnover ÷ Total turnover of the business carried on by the undertaking]

• For this purpose, 'export turnover' means the consideration in respect of export of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange within the prescribed period but does not include the following :
  a. freight;
  b. telecommunication charges;
  c. insurance attributable to the delivery of the articles or things or computer software outside India;
  d. expenses, if any, incurred in foreign exchange in providing the technical services outside India.

• The profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.
  PERIOD OF DEDUCTION - If the aforesaid conditions are satisfied, the assessee can claim deduction under section 10A from his total income, for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software.

• For the undertakings which have claimed exemption up to assessment year 2000-01 under the old section 10A, the deduction shall be available for the unexpired period of the 10 consecutive assessment years under the new section 10A.

• For an undertaking which was initially located in free trade zone or export processing zone and is subsequently located in a special economic zone by reason of conversion of such zones in to a special economic zone, the deduction shall be available for 10 years from the previous year in which the undertaking was first setup in such free trade zone or export processing zone.
• 'Relevant assessment year' means any assessment year falling within a period of ten consecutive assessment years referred to in section 10A.
• No deduction under section 10A shall be allowed to any undertaking from the assessment year 2010-11.

Amount of deduction - Special provision

The deduction under section 10A in the case of an undertaking which begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year 2003-04 (or any subsequent year) in any special economic zone, shall be 100 per cent of profits and gains derived from the export of such articles or things or computer software for a period of 5 consecutive assessment year (beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be) and thereafter, 50 per cent of such profits and gains for further 2 assessment years.

Power of the income-tax department to recompute profits -

In the following circumstances, the Assessing Officer has power to ignore the declared profit and to make necessary adjustments so as to arrive at the profits for the purpose of deduction under section 10A.

• If any goods held for the purpose of the eligible business is transferred to any other business carried on by the assessee, and vice versa, and in either case, the consideration if any for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods as on the date of transfer, profits of the eligible business will be computed as if the transfer in either case had been made at the market value of the goods as on that date. If such a manner of computation is found, in the opinion of the Assessing Officer, to present exceptional difficulties, the Assessing Officer is authorised to compute the profits on such reasonable basis as he may deem fit. This power has been granted to the Assessing Officer with a view to curb any attempt to under-invoice or over-invoice goods by the assessee in order to inflate the profits of the eligible business. For this purpose, the expression "market value" is defined to mean the price that such goods would ordinarily fetch on sale in the open market.

• If it appears to the Assessing Officer that business between the assessee (engaged in eligible business) and any other person is so arranged that the business transacted between them produces to the assessee more than the ordinary profits that might be expected to arise in such eligible business, either due to the close connection between the assessee and that other person or due to any other reason, then the Assessing Officer shall take the amount of profit as may be reasonably deemed to have been derived therefrom.

Impact of claiming deduction under section 10A

One should note the following consequences :

• For the assessment year(s) succeeding the last assessment year for which the deduction is claimed under this section, deduction under section 32 and the expenditures under sections 35 and 36(1)(ix) would be considered as had been given full effect to for the period covered under the period of deduction. Thus, unabsorbed depreciation allowances or unabsorbed capital expenditure on scientific research or family planning are not allowed to be carried forward and set off against the income of assessment years following the period of deduction.

• The losses under section 72(1) or 74(1) or 74(3) are not allowed to be carried forward in assessment years succeeding the period of deduction. The deductions under section 80HH, 80HHA, 80-I, 80-IA or 80-IB shall also not be available to such undertakings after the expiry of tax holiday period.

• In the assessment year following period of deduction, the depreciation will be computed on the written down value of the asset as if the depreciation has actually been allowed in respect of each assessment year falling in the period of exemption.

Option available to new undertakings not to claim deduction under section 10A

The benefits under this section are optional. In case the assessee does not wish to claim the benefit under section 10A he has to file a declaration to this effect along with the return of income before the due date of filing the return for the first assessment year for which the deduction under this section is available to him.

Section 10B has been inserted with a view to providing incentive (similar to tax holiday available under section 10A) to hundred per cent export-oriented units. The provisions applicable from the assessment year 2001-02 are given below :

Conditions to be satisfied

An undertaking must satisfy the following conditions in order to avail the deduction under section 10B. IT MUST BE AN APPROVED HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING - The expression "hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951, and the rules made under that Act.

It must produce or manufacture articles or things Or computer software

It must manufacture or produce any article or thing or computer software. The expression computer software means-
a. any computer programme recorded on any disc, tape, perforated media or other information storage device; or
b. any customized electronic data or any product or service of similar nature as may be notified by the Board, which is transmitted or exported from India to any place outside India by any means.
The Central Board of Direct Taxes has specified the following Information Technology enabled products or services, as the case may be, for this purpose : (i) Back-office Operations; (ii) Call Centres; (iii) Content Development or Animation; (iv) Data Processing; (v) Engineering and Design; (vi) Geographic Information System Services; (vii) Human Resource Services; (viii) Insurance Claim Processing; (ix) Legal Databases; (x) Medical Transcription; (xi) Payroll; (xii) Remote Maintenance; (xiii) Revenue Accounting; (xiv) Support Centres; and (xv) Web-site Services.
IT SHOULD NOT BE FORMED BY SPLITTING/RECONSTRUCTION OF BUSINESS
IT SHOULD NOT BE FORMED BY TRANSFER OF OLD MACHINERY
THERE MUST BE REPATRIATION OF SALE PROCEEDS INTO INDIA
AUDIT REPORT SHOULD BE SUBMITTED IN FORM NO. 56G
MUST NOT TRANSFER OWNERSHIP OR BENEFICIAL INTEREST IN UNDERTAKING

Amount of deduction

If the aforesaid conditions are satisfied, the deduction under section 10B may be computed as under : 90 per cent [Profits of the business of the undertaking × Export turnover ÷ Total turnover of the business carried on by the undertaking]

• For this purpose, 'export turnover' means the consideration in respect of export of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange within the prescribed period, but does not include the following :
  a. freight ;
  b. telecommunication charges;
  c. insurance attributable to the delivery of the articles or things or computer software outside India;
  d. expenses, if any, incurred in foreign exchange in providing the technical services outside India.
• Profits and gains derived from on site development of computer software outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.

Period of deduction

If the aforesaid conditions are satisfied, the assessee can claim deduction under section 10B, from his total income for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software.

• For the undertakings which have claimed exemption upto assessment year 2000-01 under the old section 10B, the deduction shall be available for the unexpired period of the 10 consecutive assessment years under the new section 10B.
• 'Relevant assessment year' means any assessment year falling within a period of ten consecutive assessment years referred to in section 10B.
• No deduction under section 10B shall be allowed to any undertaking from the assessment year 2010-11.

Power of income-tax department to recompute profits
Impact of availing deduction under section 10B

In computing the total income of the assessee of the assessment year immediately succeeding the deduction period the following points should be noted--

• The losses under section 72(1) or 74(1) or 74(3) are not allowed to be carried forward in assessment years succeeding the period of deduction. The deductions under section 80HH, 80HHA, 80-I, 80-IA or 80-IB shall also not be available to such undertakings after the expiry of tax holiday period.

• For the assessment year(s) succeeding the last assessment year for which the deduction is claimed under this section, deduction under section 32 and the expenditures under sections 35 and 36(1)(ix) would be considered as had been given full effect to for the period covered under the period of deduction. Thus, unabsorbed depreciation allowances or unabsorbed capital expenditure on scientific research or family planning are not allowed to be carried forward and set off against the income of assessment years following the period of deduction.

• In the assessment year following period of deduction, the depreciation will be computed on the written down value of the asset as if the depreciation has actually been allowed in respect of each assessment year falling in the period of deduction.

Option available to new undertaking not to claim deduction under section 10B -

Section 10B will be applicable to all eligible undertakings unless the assessee opts out of scheme by making a declaration under sub-section (8) before the due date of furnishing return of income.

Section 10C provides special provisions in respect of certain industrial undertakings in North-Eastern Region for the assessment years 1999-2000 to 2002-03

Conditions -
In order to claim exemption under section 10C one has to satisfy the following conditions -

1. Should not be formed by splitting/reconstruction of business - The industrial undertaking should not have been formed by the splitting up or reconstruction of a business already in existence. However, where an industrial undertaking is formed as a result of re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section, the same will qualify for the tax concession.

2. Should not be formed by transfer of old machinery - The industrial undertaking should not have been formed by the transfer to a new business of machinery or plant previously used for any purpose. For this purpose, any machinery or plant which was used outside India by any person other than the assessee is not regarded as machinery or plant previously used for any purpose if the following conditions are fulfilled, namely :
a. such machinery or plant was not previously used in India;
b. such machinery or plant is imported into India from a foreign country; and
c. no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable in computing the total income of any person for any period prior to the installation of the machinery or plant by the assessee.
Further, this tax concession is not denied in a case where the total value of used machinery or plant transferred to the new business does not exceed 20 per cent of the total value of the machinery or plant used in that business.

3. Must begin production in North-Eastern Region - The assessee must begin manufacture or production of any article or thing after March 31, 1998 in any Integrated Infrastructure Development Centre or Industrial Growth Centre located in the North- Eastern Region.
"Integrated Infrastructure Development Centre" means such centres located in the States of the North- Eastern Region, which the Central Government may, by notification in the Official Gazette, specify for this purpose.
"Industrial Growth Centre" means such centres located in the States of the North-Eastern Region, which the Central Government may by notification in Official Gazette, specify for this purpose.

Amount and period of exemption -

If the aforesaid conditions are satisfied, then a complete tax exemption is available in respect of 10 consecutive assessment years beginning with assessment year relevant to the previous year in which the industrial undertaking begins to manufacture/produce articles or things. However, no deduction under section 10C will be available from the assessment year 2004-05.

Impact of claiming exemption under section 10C - Section 10C(4) provides the following-

1. In computing the total income of the assessee after the expiry of tax holiday period, the unabsorbed depreciation allowance under section 32(2), unabsorbed capital expenditure on scientific research under section 35 and unabsorbed capital expenditure under section 36(1)(ix) relating to the tax holiday period will not be taken into consideration
2. Unabsorbed business loss or loss under the head "Capital gains" relating to the tax holiday period will not be taken into account after the expiry of the tax holiday period.
3. After the expiry of tax holiday period, no deduction will be available under sections 80HH, 80HHA, 80-I, 80-IA, 80-IB and 80JJA.
4. Further, in computing the depreciation allowance on any asset in the assessment years following the tax holiday period, the written down value of the assets will be computed as if the assessee had claimed and been allowed the depreciation in accordance with the provisions of the Act during each one of the relevant assessment years.

Option available to new undertaking not to claim tax holiday under section 10C -

Section 10C will be applicable to all eligible undertakings unless the assessee opts out of scheme by making a declaration under sub-section (6) before the due date of furnishing return of income.

Deductions from total income [Secs. 80CCC to 80U]

The deductions specified in sections 80CCC to 80U are allowed from the gross total income in order to arrive at the net income. The aggregate amount of the deductions under these sections cannot, however, exceed the gross total income (after excluding long-term capital gain and incomes referred to in sections 115A, 115AB, 115AC, 115AD and 115D) of the assessee.

The salient features of the provisions of section 80D are given below :
Conditions - To get deduction under section 80D one should satisfy the following conditions-
1. The taxpayer is an individual (maybe resident/non-resident or Indian citizen/foreign citizen) or a Hindu undivided family (maybe resident or non-resident).
2. Insurance premium is paid in accordance with the scheme framed in this behalf by the General Insurance Corporation of India and approved by the Central Government or in accordance with a scheme framed in this behalf by any other insurer and approved by Insurance Regulatory and Development Authority.
3. The aforesaid premium is paid by cheque (maybe bearer, crossed or account payee cheque).
4. It is paid out of income chargeable to tax.
5. Mediclaim policy is taken on the health of the following persons-

• "Dependent parents" - Meaning of - Parents are "dependent" on son, if their own resources are not sufficient to support them even if they receive help from their other children, the test being whether the son's contribution is in whole or in part a means of maintaining the parents in the manner in which they have been living and whether they look forward to, and rely on, the continuance of the son's contribution to that end- Wende v. McManigal CCA NY 135 F 2d. 151,152. In other words parents' dependency on son need not be "dependency" to a great or considerable degree, though dependency must be actual ; question being whether the son's contribution was needed to provide parents with some of ordinary necessities of life suitable to persons in their class- Zedalis v. Jeddo Highland Coal Co. 172A, 169, 170,113 Pa Super 49.

• "Children" - Meaning of - The word "children" is commonly used to denote issue of the first generation only- New York Life Ins. Co. v. Beebe DC Md. 57F. Supp. 754, 757. AMOUNT OF DEDUCTION - If all the aforesaid conditions are satisfied, then the insurance premium paid or Rs. 10,000, whichever is lower, is deductible.

• The aforesaid limit has been increased to Rs. 15,000 with effect from the assessment year 2000-01 where the assessee or his wife or her husband, or dependant parents or any member of the family is a senior citizen (i.e., one who is resident in India and who is at least of 65 years of age at any time during the previous year) and the medical insurance premium is paid to effect or keep in force an insurance in relation to him or her. In order to get a deduction in excess of Rs. 10,000, one has to pay mediclaim insurance premium to effect or keep in force insurance in relation to a senior citizen as noted above.

The provisions of section 80DD as applicable from the assessment year 1999-2000 are given below-

Conditions - The following conditions should be satisfied-
1. The taxpayer is resident in India (maybe ordinarily resident or not ordinarily resident).
2. The resident taxpayer is an individual (maybe an Indian citizen or foreign citizen) or a Hindu undivided family.
3. The taxpayer has opted for any (or both) of the following options-

4. The above expenditure/deposit is made out of income chargeable to tax.
5. For the above purpose, a "handicapped dependent" is a person who satisfies the following points-

a. he is a relative of the individual or, as the case may be, is a member of the Hindu undivided family and is not dependent on any person other than such individual or Hindu undivided family for his support or maintenance [relative for this purpose is the husband, wife, brother or sister or any lineal ascendant or descendant of that individual];
b. he is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent physical disability or mental retardation specified in the rules made by the Board for the purposes of section 80DD;
c. the permanent physical disability is certified by a physician, a surgeon, an oculist or a psychiatrist, as the case may be, working in a Government hospital; and
d. the permanent physical disability has the effect of reducing considerably such person's capacity for normal work or engaging in a gainful employment or occupation.

For this purpose, "Government hospital" includes a departmental dispensary whether full-time or part-time established and run by a Department of the Government for the medical attendance and treatment of a class or classes of Government servants and members of their families, a hospital maintained by a local authority and any other hospital with which arrangements have been made by the Government for the treatment of Government servants.

6. Under Option 2, the scheme provides for payment of an annuity or a lump sum amount for the benefit of a handicapped dependent in the event of the death of the individual or the member of the Hindu undivided family in whose name subscription to the scheme has been made.
7. Under Option 2, the assessee nominates either the handicapped dependent or any other person or a trust to receive the payment on his behalf, for the benefit of the handicapped dependent.

Amount of deduction - The amount of deduction is as follows-
Assessment year 2004-05 onwards - The amount deductible is a fixed deduction of Rs. 50,000 whenever the conditions of section 80DD are satisfied, irrespective of the amount incurred or deposited under Opinion 1 and/or opinion 2. A higher deduction of Rs. 75,000 shall be allowed, where such dependent is a person with severe disability under the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 having any disability over 80 per cent.

Assessment years 2000-01 to 2003-04 - The amount deductible is a fixed deduction of Rs. 40,000 whenever the conditions specified above are satisfied, irrespective of the amount incurred or deposited under Option 1 and/or Option 2.

For the assessment year 1999-2000 - The amount of deduction is -
a. the amount paid/deposited under Option 1 and/or Option 2;
b. Rs. 40,000,
whichever is less.

If handicapped dependent predeceases the taxpayer - If the handicapped dependent predeceases the individual or the member of the Hindu undivided family referred to above, an amount equal to the amount paid or deposited under section 80DD(1) shall be deemed to be the income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as the income of that previous year.

The provisions of section 80DDB are given below-

Conditions - One has to satisfy the following conditions-

1. The taxpayer is resident in India.
2. The taxpayer is an individual (maybe an Indian citizen or a foreign citizen) or a Hindu undivided family.
3. The taxpayer has incurred some expenditure for the medical treatment of a specified disease or ailment as prescribed in rule 11DD.
4. The expenditure is incurred for medical treatment of the assessee himself or dependent relative (i.e., husband, wife, brother or sister or any lineal ascendent or descendent of the taxpayer). If the taxpayer is a Hindu undivided family, the expenditure is incurred for the medical treatment of any member of the family.
5. The assessee shall have to submit a certificate in the prescribed form (i.e., Form No. 10-I) from a prescribed authority (i.e., any doctor registered with the Indian Medical Association with a post-graduate qualification).

Amount of deduction - The amount of deduction is as follows-
• From the assessment year 2004-05 onwards - The amount of deduction is Rs. 40,000 or the expenditure actually incurred, whichever is lower.

» Where the expenditure incurred is in respect of the assessee or his dependant or any member of a Hindu undivided family of the assessee and who is a senior citizen (i.e., an individual who is resident in India and who is at least 65 years of age at any time during the previous year), then Rs. 60,000 or actual expenditure, whichever is lower will be the amount of deduction.
» Deduction under this section shall be reduced by the amount received, if any, under an insurance from an insurer, or reimbursed by an employer.

• Assessment years 2000-01 to 2003-04 - If all the aforesaid conditions are satisfied, the amount of deduction is Rs. 40,000. The deduction to be allowed is a sum of Rs. 40,000 even though the expenditure actually incurred by the assessee is less than Rs. 40,000 or exceeds it. Moreover, where the expenditure incurred is in respect of the assessee or his dependant relative or any member of a Hindu undivided family of the assessee and who is a senior citizen (i.e., one who is resident and who is at least 65 years of age at any time during the previous year), then a fixed deduction of Rs. 60,000 will be available. Further, if any amount is received from an insurer for the medical treatment for the person mentioned in (4) supra, then the amount so received shall be deducted from the deduction otherwise available (i.e., Rs. 40,000 or Rs. 60,000, as the case may be).
For the assessment years 1997-98 to 1999-2000 - For the assessment years 1997-98 to 1999-2000, the amount of deduction is Rs. 15,000.

Specified diseases - For the purposes of section 80DDB, the specified diseases and ailments shall be as follows : (1) neurological diseases : (a) dementia, (b) dystonia musculorum deformans; (c) motor neuron disease, (d) ataxia, (e) chroea, (f) hemiballismus, (g) aphasia, (h) parkinsons disease; (2) cancer; (3) full blown acquired immuno-deficiency syndrome (AIDS); (4) chronic renal failure; (5) hemophilia; and (6) thalassaemia. The diseases mentioned at (1) shall be treated as chronic and protracted, if the disability has been certified to be 40 per cent and above.

The Deduction under section 80G is available to any taxpayer (maybe individual, company, firm or any other person) and calculated under the following three steps :

STEP 1 - GROSS QUALIFYING AMOUNT - Gross qualifying amount is the aggregate of the donations made to any of the institutions/fund. Donation made in kind shall not be included.
STEP 2 - NET QUALIFYING AMOUNT - Net qualifying amount is limited to 10 per cent of gross total income of the assessee as reduced by the following :

a. amount deductible under sections 80CCC to 80U (but not section 80G);
b. such incomes on which income-tax is not payable;
c. long-term capital gains; and d. incomes referred to in section 115A, 115AB, 115AC or 115AD.

Amount deductible - Net qualifying amount is eligible for deduction on the basis given below in column (3) of table infra-

Maximum amount - Where the aggregate of the sums mentioned in (v), (w), (x), (y), (z) (za) or (zb) supra exceeds 10 per cent of the adjusted gross total income, then the amount in excess of 10 per cent of the adjusted gross total income will be ignored while computing the aggregate of the sums in respect of which deduction is to be allowed.

Proof of payment - Proper proof of payment must be submitted to claim deduction-Golecha Properties (P.) Ltd. v. CIT [1988] 171 ITR 47 (Raj.). However, simply because a receipt which is produced before the Assessing Officer is defective (not affixed with revenue stamps) it does not automatically invalidate the donation itself.
A receipt issued by the donee-institute should be submitted to get the benefit of deduction. If, however, donations are made to the National Defence Fund, the Army Central Welfare Fund, Indian Naval Benevolent Fund, Air Force Central Welfare Fund, National Relief Fund, the Chief Minister's Relief Fund or the Lieutenant Governor's Relief Fund, through the employer by a consolidated cheque, deduction will be available on the basis of certificate issued by DDO/employer in this behalf - Circular No. 777, dated July 1, 1999, Ciruclar No. 782, dated November 13, 1999 and Circular No. 7/2001, dated March 21, 2001.

In computing total income, an assessee is allowed a deduction in respect of expenditure towards payment of rent for any furnished or unfurnished accommodation occupied by him for the purpose of his own residence provided the following conditions are satisfied:

• He should be a self-employed person and/or a salaried employee who is not in receipt of house rent allowance at any time during the previous year.
• He or his spouse or minor child (including step child and adopted child) or the Hindu undivided family of which he is a member, should not own any residential accommodation in India or abroad. Under the modified condition applicable from the assessment year 1984-85, the deduction under section 80GG is denied only where the taxpayer, his spouse or minor child or the Hindu undivided family of which he is a member, owns any residential accommodation at the place where the taxpayer resides, performs the duties of his office, or employment or carries on his business or profession. Where, however, the taxpayer owns any residential accommodation at any other place and the concession in respect of self-occupied house property under section 23(2)(a) or 23(4)(a) is claimed by him in respect of such accommodation, no deduction is allowed in respect of the rent paid, even if he does not own any residential accommodation at the place where he ordinarily resides, performs the duties of his office or employment or carries on his business or profession.
• The assessee should file a declaration in Form No. 10BA regarding the expenditure incurred by him towards payment of rent.

Amount of deduction - The amount deductible under this section is the least of the following amounts:
a. Rs. 2,000 per month for the assessment year 1987-88 onwards;
b. 25 per cent of total income (excluding long-term capital gain and income referred to in section 115A or 115D but before making any deduction under this section) (this limit was 15 per cent up to the assessment year 1986-87); or
c. the excess of actual rent paid over 10 per cent of total income (after excluding long-term capital gain and income referred to in section 115A or 115D but before making any deduction under this section).

An assessee (other than an assessee whose gross total income includes income chargeable under the head "Profits and gains of business or profession") is entitled to deduction in the computation of his total income in respect of the following payments/donations :

• Sums paid to a scientific research association which has as its object the undertaking of scientific research, or to a university, college or other institution to be used for scientific research where such association, university, college or institution has been approved by the prescribed authority for the purpose of section 35(1)(ii).

• Sums paid to a university, college or other institution to be used for research in social science or statistical research provided such university, college or institution is approved for the purpose of section 35(1)(iii) [applicable from the assessment year 1992-93 onwards].
• Sums paid to an approved association or institution which has as its object the undertaking of any programme of rural development to be used for carrying out any such programme approved under section 35CCA.
• Sums paid to an approved association or institution which has as its object the training of persons for implementing programmes of rural development.
• Sums paid to a public sector company, local authority or an approved association or institution for carrying out any eligible project or scheme, referred to in section 35AC [applicable from the assessment year 1992-93 onwards].
• Sum paid (before April 1, 2002) to an approved association or institution, which has as its object the undertaking of any programme of conservation of natural resources (or of afforestation, with effect from the assessment year 1991-92), to be used for carrying out any programme approved under section 35CCB.
• With effect from the assessment year 1983-84, any sum paid towards notified rural development fund [i.e., National Fund for Rural Development notified vide Notification No. GSR 84(E), dated February 28, 1984].
• With effect from the assessment year 1991-92, sum paid (before April 1, 2002) to notified fund for afforestation.
• Sums paid to notified National Poverty Eradication Fund (applicable from the assessment year 1996-97).

Where deduction under this section is claimed and allowed, deduction will not be allowed in respect of the same payment under any other provision of the Act for the same or any other assessment year.

Deduction in respect of profits and gains from newly set up industrial undertakings or hotels under sections 80HH and 80HHA -

Deduction under these sections are not available now-a-days.

Where an Indian company or non-corporate taxpayer resident in India derives any profits and gains from the business of execution of a project under a contract entered into by him with the Government of a foreign State or any statutory or other public authority or agency in a foreign State or with a foreign enterprise, he is entitled to a deduction, with effect from the assessment year 1983-84, in the computation of his taxable income of 50 per cent of such profits and gains subject to certain conditions.
The benefit of this concession is available in respect of profits for the construction of any building, road, dam, bridge or other structure outside India, the assembly or installation of any machinery or plant outside India and the execution of such other work outside India of whatever nature as may be prescribed by the Board. (i.e., any project for execution of work of exploration, exploitation, development and production of hydrocarbons outside India). The taxpayer is not eligible for this concession unless the consideration for the execution of such project or work is payable in convertible foreign exchange.
The deduction under this provision is admissible subject to the fulfilment of the following conditions, namely :

• Separate books of account and audit - The assessee must maintain separate accounts in respect of the profits and gains derived from the business of the execution of the project or work forming part of the project. Where the taxpayer is a non-corporate taxpayer, other than a co-operative society, the accounts relating to such project or work should be audited by a chartered accountant and the audit report [Form No. 10CCA] should be submitted along with return of income.

• Foreign project reserve account - The assessee is required to debit to the profit and loss account of the accounting year in respect of which the deduction under this provision is to be allowed and credit to a "Foreign project reserve account" a sum equal to 20 per cent of the profits and gains from such project or work. The reserve can be utilised by the taxpayer during a period of 5 immediately succeeding assessment years for the purpose of his business and not for distribution by way of dividends or profits.
• Convertible foreign exchange - The taxpayer has to remit into India in convertible foreign exchange an amount equal to 20 per cent of profit and gain (not 20 per cent of consideration) referred to in section 80HHB (1) within 6 months from the end of the previous year. With effect from June 1, 1999, the approval for extension of the time-limit will be taken from the Reserve Bank of India or such other competent authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.
  For the purposes of section 80HHB, the receipt of consideration in non-convertible rupees from bilateral account countries (i.e., Russian roubles) will be treated at par with consideration received in any other convertible foreign exchange-Circular No. 563, dated May 23, 1990. It also includes receipts in Indian rupees under Government credit. However, it does not include remittances from Nepal and Bhutan-Circular No. 575, dated August 31, 1990.
  In the case of taxpayers who have executed projects in Iraq, the RBI/ECGC bonds have been issued in place of unrealised funds of project exporters in Iraq. The funds are realisable from Iraq and credited into EXIM Bank's account with Central Bank of Iraq. They will be repatriated into India only after lifting of the U.N. sanction, as per the terms of the Deferred Payment Agreement entered into by the Government of India and the Government of Iraq.
  The Central Board of Direct Taxes have examined the matter in consultation with the Department of Economic Affairs. Since the payments received in the shape of bonds are in lieu of foreign exchange realisation from the project exports and the foreign exchange will eventually be repatriated into India by the EXIM Bank after the lifting of the U.N. sanction, the RBI/ECGC bonds issued by way of settlement of claims of projects in Iraq will be treated as convertible foreign exchange brought into India for the purposes of section 80HHB.
  The request for extension of period of six months for bringing in convertible foreign exchange into India shall be liberally allowed by the Chief Commissioner/Commissioner of Income-tax-Circular No. 711, dated July 24, 1995.
• Certificate from a chartered accountant - With effect from June 1, 1999, deduction under section 80HHB shall be allowed only if the assessee furnishes a certificate in form No. 10CCAH from a chartered accountant that the deduction has been correctly claimed in accordance with the provisions of the section.

Amount of deduction - Amount of deduction for the assessment year 2003-04 is-

a. 20 per cent of profit derived from the project ;
b. amount credited by the assessee to the Foreign Projects Reserve Account ; or
c. amount brought into India in foreign exchange, within the time-limit or extended time-limit,
whichever is less.
Where any deduction has been denied only on the ground that the income otherwise qualifying the deduction had not been received in India in convertible foreign exchange and such income is so received in, or brought into, India at subsequent date, the Assessing Officer has been empowered with effect from June 1, 1999 to amend the order of assessment at any time within a period of four years from the end of previous year in which the qualifying amount is received in, or brought into, India in convertible foreign exchange with the approval of the Reserve Bank of India or in accordance with such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

Withdrawal of deduction - If, at any time, before the expiry of 5 years from the end of the relevant accounting year, the assessee utilises the amount credited to the "Foreign project reserve account" for the purpose of distribution by way of dividends or by way of profits or for any other non-business purpose, the deduction which has been originally allowed to him under this provision will be deemed to have been wrongly allowed. The assessment of that year will be rectified under section 154(7) within a period of 4 years from the end of the accounting year in which the foreign project reserve account is utilised by him for any non-business purpose.

- Section 80HHC grants a deduction in respect of profits derived by certain specified assessees from the export of specified goods and merchandise out of India, if certain conditions are satisfied.

Who can claim deduction - Deduction under section 80HHC can be claimed by an Indian company or a resident non-corporate taxpayer.

Different categories of eligible tax-payers - For the purpose of computation of deduction under section 80HHC, taxpayers may be divided into the following :

1. Direct exporter - An assessee who directly exports goods outside India may fall in any of the following categories:
a. an assessee who exports goods manufactured/processed by him (i.e., "manufactured goods" only).
b. an assessee who does not export goods manufactured by him but exports goods manufactured by others (i.e., trading goods).
c. an assessee who exports "manufactured goods" as well as "trading goods".
2. Supporting manufacturer - An assessee who does not directly export goods but supplies goods/merchandise to an Export House/Trading House for the purpose of export. Such assessee may be designated as a "Supporting manufacturer".

Assessee Who Exports Goods Manufactured Or Processed By Him - How To Compute Deduction -

This category covers an assessee who exports goods manufactured or processed by him.CONDITIONS - In order to get deduction under section 80HHC, one has to satisfy the following conditions-

• Export out of India - Generally, export is defined as sending goods/merchandise abroad. If goods are taken from India to outside India, it amounts to "export". In this context the following two provisions of section 80HHC, one should keep in mind :
  1. Under Explanation (aa) to section 80HHC the "export out of India" shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishments situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962-See also Circular No. 624, dated January 23, 1992.
  2. Under Explanation 2 to section 80HHC(2) (inserted with effect from April 1, 1992), it has been clarified that where any goods or merchandise are transferred by a taxpayer, to a branch, office, warehouse or any other establishment of the taxpayer, situate outside India, and such goods are sold from such branch, office, warehouse or establishment, such transfer effected by the assessee shall be deemed to be export out of India. The value of such goods or merchandise declared by the assessee in the shipping bill or bill of export shall be deemed to be the sale proceeds of the goods for the purpose of allowing the deduction.
• Export must be of eligible goods/merchandise - To get deduction under section 80HHC one has to export eligible "goods" or "merchandise". Section 80HHC does not apply to the export of: (a) mineral oil or (b) minerals and ores. Minerals and ores do not, however, include processed minerals and ores specified in the Twelfth Schedule.
• There must be repatriation of sale proceeds into India - Sale proceeds of the eligible goods or merchandise exported out of India must be received in, or brought into, India by the assessee in convertible foreign exchange during the previous year or within a period of six months from the end of the relevant previous year. For instance, for the assessment year 2003-04, the repatriation of the sale proceeds into India must be completed on or before September 30, 2003.

Extension of time as applicable from June 1, 1999 - With effect from June 1, 1999, the approval for extension of the time-limit will be taken from the Reserve Bank of India or such other competent authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.
Where any deduction has been denied only on the ground that the income otherwise qualifying the deduction had not been received in India in convertible foreign exchange and such income is so received in, or brought into, India at subsequent date, the Assessing Officer has been empowered with effect from June 1, 1999 to amend the order of assessment at any time within a period of four years from the end of previous year in which the qualifying amount is received in, or brought into, India in convertible foreign exchange with the approval of the Reserve Bank of India or in accordance with such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.
Where repatriation is not necessary - Where the sale proceeds of eligible goods are credited (within 6 months from the end of previous year) to a separate account maintained by the assessee with any bank outside India with the approval of the Reserve Bank of India, such sale proceeds will be deemed to have been received in India for purposes of allowing the deduction.
Clarification from Board - In the case of protocol exports, i.e., exports under Government to Government credits, the realisation of sale proceeds in the hands of the exporter is from the Government of India and the mode of payment is in Indian currency. Bills sent to the foreign parties are settled between the Government of India and the other Government in accordance with the bilateral agreement by adjustment against the credit allowed which is realised in foreign exchange later. In such cases, the Central Board of Direct Taxes have clarified that the assessee exporting goods or merchandise under Government to Government credits is also eligible for deduction under section 80HHC, irrespective of the fact that the sale proceeds of such exports are realised in his hands in Indian currency-Circular No. 562, dated May 23, 1990. The Board have also subsequently clarified that the expression "convertible foreign exchange" also includes the amounts received in non-convertible rupees from bilateral account countries and receipts in Indian rupees under Government to Government credits, but does not include remittances from Nepal and Bhutan - Circular No. 575, dated August 31, 1990.

Audit - Deduction under section 80HHC is not available unless the assessee furnishes auditor's report in Form No. 10CCAC along with the return of income. AMOUNT OF DEDUCTION - In this case deduction under section 80HHC for the assessment year 2003-04 may be computed as under: 50% of [Profit of the business1 × Export turnover ÷ Total turnover + (90 per cent of export incentive × Export turnover ÷ Total turnover)]

1. Profit of the business - To find out "profit of the business", the first step is to determine income under the head "Profits and gains of business or profession" [as per section 28(iiia), (iiib), (iiic) this includes three export incentives]. From the income so arrived at, deduct the following:
a. 90 per cent of export incentive.
b. 90 per cent of receipts by way of brokerage, commission, interest, rent, charges or other receipts of a similar nature; and
c. profits of any branch, office, warehouse or any similar establishment of the assessee situate outside India.
2. Export turnover - Sale proceeds received in, or brought into India, in convertible foreign exchange within the prescribed time (or within the extended time limit) minus freight and insurance attributable to the transportation of goods/merchandise beyond the customs station is export turnover for this purpose.
3. Total turnover - From the turnover (as per books of account) the following should be deducted if these are part of turnover :
a. freight/insurance attributable to the transport of goods or merchandise beyond customs station in India ; and b. export incentives. 4. Export incentives - Export incentives are :
a. profits on sale of a licence granted under the Imports (Control) Order, 1955 made under the Imports and Exports (Control) Act, 1947 [sec. 28(iiia)] ; b. cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India [sec. 28(iiib)] ; c. any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 [sec. 28(iiic)].

Tax-free income not to be included - Deduction under section 80HHC is available from gross total income and gross total income does not include any income which is not chargeable to tax.
Interest means net interest - Where the interest income is inextricably connected with the business of the assessee, the assessee is to be allowed deduction on the basis of net interest income-Honda Siel Power Products Ltd. v. Dy. CIT [2000] 69 TTJ (Delhi) 97 and Pink Star v. CIT [2000] 72 ITD 137 (Mum.).
Brokerage, commission, interest, rent, charges or any other receipt of similar nature [clause (baa) of Explanation to section 80HHC] - The word 'brokerage' used in the clause implies an intermediation between two principals by the assessee. The word 'commission' used in clause (baa) implies, to borrow the expression from Websters' New International Dictionary, "the percentage of allowance made to a factor or agent for transacting business for another". The other terms like 'interest', 'rent', etc., used in clause (baa) show the distance between such receipts mentioned in clause (baa) and turnover. "Any other receipt of a similar nature" contemplated under this clause should also be very remote from turnover-United Marine Exports v. Dy. CIT [2001] 115 Taxman 225 (Mag.).
Sales tax and excise duty do not form part of turnover - Sales tax and excise duty are not to be included in total turnover while working out deduction under section 80HHC-

CIT v. Sudarshan Chemicals Industries Ltd. [2000] 112 Taxman 511/245 ITR 769 (Bom.)
Interest on income-tax refund - Not to form part of turnover - Interest on income-tax refunds and interest on loans, assessable as income from other sources, cannot be included in 'total turnover' for purposes of computation of deduction-CIT v. Samir Diamonds Export Ltd. [2000] 245 ITR 548 (Bom.).

Assessee Who Exports Goods Manufactured/Processed By Others - How To Find Out Deduction - This category covers those assessees who export goods manufactured/processed by others :
CONDITIONS - In order to get deduction one has to satisfy conditions specified in paras 107.13-3a.

Amount of deduction - Deduction under section 80HHC for the assessment year 2003-04 will be determined as under : 50% of [(Export turnover1 minus direct cost minus indirect cost) + (90 per cent of export incentive × Export turnover ÷ total turnover)].
1. Export turnover - Sale proceeds received in, or brought into India in, convertible foreign exchange within the prescribed time (or within the extended time limit) minus freight and insurance attributable to the transportation of goods/merchandise beyond the customs station, is export turnover for this purpose.
2. Direct cost - Under Explanation (d) to section 80HHC(3), "direct costs" comprises the following :
a. the purchase price of the goods; and
b. costs directly attributable to the trading goods exported out of India.
Purchase price - Under the accepted principles of accounting, purchase price would mean invoice value, including taxes and duties, as reduced by (i) value of any purchase returns, (ii) trade discounts and rebates, if any, allowed, and (iii) value of any incentive which is passed on to the seller. Similarly, sales tax set-off available in respect of exports can also be reduced from purchase costs. However, cash discount obtained and any other rebate or set-off available after the end of the relevant previous year cannot be reduced from purchase cost. If, as per the terms of the contract, any export incentives are passed on to the seller, they would have an effect on purchase price and to that extent purchase cost would be lower.
Costs directly attributable to trading goods - These costs would generally embrace, apart from the purchase cost and related costs, such other costs which have been incurred either in relation to the purchase, or in relation to the transportation or storage of the goods prior to their export, or in relation to the movement of the goods from the exporter's godown, premises or warehouse to the customs station. The use of the word "directly" signifies that there should be a proximate connection between the costs and the purchase of the trading goods. In other words, they should not be "overhead costs".
3. Indirect cost - Under Explanation (e) to section 80HHC(3), the term "indirect costs" means costs (not being direct costs) allocated in the ratio of the export turnover in respect of the trading goods to the total turnover. In other words, indirect cost may be computed as under:
(Total cost minus direct cost) × Export turnover in respect of trading goods1 ÷ Total turnover4
4. Total turnover - From the turnover (as per books of account) the following should be deducted if these are part of turnover :
a. freight/insurance attributable to the transport of goods or merchandise beyond customs station in India; and
b. export incentives.
5. Export incentives - Export incentives are :
a) profits on sale of a licence granted under the Imports (Control) Order, 1955 made under the Imports and Exports (Control) Act, 1947 [sec. 28(iiia)] ;
b) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India [sec. 28(iiib)] ;
c) any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 [sec. 28(iiic)].

Amount of deduction when a disclaimer certificate is issued to supporting manufacturer-
An assessee (being an assessee holding Export House Certificate or Trading House Certificate, hereinafter referred to as an Export House/Trading House) who exports goods manufactured by others may issue a disclaimer certificate in Form No. 10CCAB to the supporting manufacturer. On the basis of certificate issued to the supporting manufacturer, deduction under section 80HHC can be claimed by the supporting manufacturer. If such certificate is issued to the supporting manufacturer, deduction available under section 80HHC to the Export House/Trading House (as computed in para 107.13-4b) will be reduced by the following amount: Export profit (trading goods) × Amount for which disclaimer certificate is issued in Form Nos. 10CCAB ÷ Export turnover (trading goods)

A taxpayer can claim deduction under section 80HHD from the assessment year1989-90 onwards.CONDITIONS - The following conditions should be satisfied to get the benefit of deduction under section 80HHD-

AVAILABLE TO A RESIDENT OR INDIAN COMPANY - Deduction under section 80HHD is available only if the taxpayer is an Indian company or a resident non-corporate assessee.
AVAILABLE ONLY TO HOTEL, TOUR OPERATOR OR TRAVEL AGENT - Deduction under section 80HHD is available if the taxpayer is engaged in- a. the business of hotel (approved by the prescribed authority) ; or b. the business of tour operator (approved by the prescribed authority) ; c. the business of travel agent.
Prescribed authority for this purpose is Director-General in the Directorate General of Tourism, Government of India.
"Travel agent", for this purpose, is a travel agent or any other person (not being an airline or a shipping company) who holds a valid licence granted by the Reserve Bank of India under section 32 of the Foreign Exchange Regulation Act, 1973.

Audit Report - The deduction under section 80HHD is not admissible unless the assessee furnishes in Form No. 10CCAD along with the return of income the report of an accountant certifying that the deduction has been correctly claimed on the basis of the amount of convertible foreign exchange received by the assessee in respect of services provided by him to foreign tourists.

Amount Of Deduction - Deduction for the assessment year 2003-04 is allowed of a sum equal to the aggregate of :

a. 25 per cent of the eligible profits derived by the aforesaid taxpayers from services provided to foreign tourists; and
b. so much of the amount 25 per cent of eligible profits derived by aforesaid taxpayers from services provided to foreign tourists, as is debited in the profit and loss account and credited to a reserve account to be utilised by the assessee for the purposes of his business.

• How to compute "eligible profit" - "Eligible profit" for the aforesaid purpose shall be determined as following-

• Double deduction is not permissible - Section 80HHD has been amended with the effect from the assessment year 1999-2000 to provide that where deduction under section 80HHD(1) is claimed and allowed in respect of profits derived from the business of hotel, such part of profit shall not qualify for deduction for any assessment year under any of the provisions of sections 80HH to 80RR, and in no case shall exceed the profits and gains of such hotel.
  UTILISATION OF RESERVE ACCOUNT - The amount credited by the assessee to the reserve a ccount shall be utilised before the expiry of a period of 5 years from the year in which the amount was credited, for the following purposes :
• Construction of new hotels approved by the prescribed authority or expansion of facilities in existing hotels already so approved.
• Purchase of new cars and new coaches by tour operators already so approved or by travel agents.
• Purchase of sports equipments for mountaineering, trekking, golf, river-rafting and other sports in and on water.
• Construction of conference or convention centres.
• Provision of such new facilities for the growth of Indian tourism as the Central Government may, by notification in the Official Gazette, specify for this purpose.
• Subscription to equity shares forming part of any "eligible issue of capital" made by a public company (applicable from the assessment year 2000-01).
  

"Eligible issue of capital" means an issue made by a public company formed and registered in India and the entire proceeds of the issue is utilised wholly and exclusively for the purpose of carrying on the business of -
a.setting up and running of new hotels approvals by the prescribed authority ; or
b. providing such new facility for the growth of tourism in India, as the Central
Government may by notification in the Official Gazette, specify.
Where any of the aforesaid activities would result in creation of any asset owned by the assessee outside India, such asset should be created only after obtaining prior approval of the prescribed authority.

Effect Of Non-Utilisation Or Mis-Utilisation Of Reserve Account - Where any amount credited to the reserve account has been utilised by the assessee for any purpose other than those referred to above, then the amount so utilised shall be deemed to be the profits of the assessee in the year of utilisation and shall be charged to tax accordingly. Likewise, where any amount credited to such reserve account has not been utilised in the manner specified within 5 years, the amount not so utilised shall be deemed to be the profits in the year immediately following the period of five years and shall be charged to tax accordingly. With effect from the assessment year 2000-01 the profits credited to the reserve may also be utilised for subscription of equity shares of an eligible issue of capital of a public company. However if either whole or any part of such equity shares are transferred or converted into money within a period of three years from the date of their acquisition (i.e., the date on which name is entered in the register of members of the public company), the amount earlier utilised for subscription of the transferred or converted equity shares will be regarded as income of the previous year in which such shares are transferred or converted into money and would be taxed accordingly.

A taxpayer can claim deduction under section 80HHE from the assessment year 1991-92 onwards.
WHO CAN CLAIM DEDUCTION - Deduction can be claimed by an Indian company or a resident non-corporate taxpayer.

Different categories of eligible taxpayers - For the purpose of computation of deduction under section 80HHE, taxpayers may be divided into the following-
1. Direct exporter - An assessee who directly exports computer software outside India.
2. Supporting software developer - Supporting software developer develops and sells computer software to an exporting company for the purpose of export.

Direct exporter - A direct exporter must satisfy the following conditions-

• Must be engaged in the business of export of computer software - The assessee must be engaged in the business of :
  a. export out of India of computer software or its transmission from India to a place outside India by any means ;
  b. providing technical services outside India in connection with the development or production of computer software.
  For this purpose, "computer software" means "any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme which is transmitted from India to any place outside India by any means". From the assessment year 2001-02, it includes any customised electronic data or any produce or service of similar nature (as may be notified by the Board) which is transmitted or exported out of India.
  The Central Board of Direct Taxes has specified the following Information Technology enabled products or services, as the case may be, for this purpose, namely-(i) Back-office Operations; (ii) Call Centres; (iii) Content Development or Animation; (iv) Data Processing; (v) Engineering and Design; (vi) Geographic Information System Services; (vii) Human Resource Services; (viii) Insurance Claim Processing; (ix) Legal Databases; (x) Medical Transcription; (xi) Payroll; (xii) Remote Maintenance; (xiii) Revenue Accounting; (xiv) Support Centres; and (xv) Website Services. On site development of software outside India - The profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.

• Receipt must be in convertible foreign exchange - The consideration in respect of such computer software is received in, or brought into, India in convertible foreign exchange within a period of 6 months from the end of the previous year. Provision regulating remittance after the expiry of time-limit as applicable from June 1, 1999 - With effect from June 1, 1999, the approval for extension of the time-limit will be taken from the Reserve Bank of India or such other competent authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.
  Where any deduction has been denied only on the ground that the income otherwise qualifying the deduction had not been received in India in convertible foreign exchange and such income is so received in, or brought into, India at subsequent date, the Assessing Officer has been empowered with effect from June 1, 1999 to amend the order of assessment at any time within a period of four years from the end of previous year in which the qualifying amount is received in, or brought into, India in convertible foreign exchange with the approval of the Reserve Bank of India or in accordance with such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.
  Deemed receipt in India - Where the consideration is credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of Reserve Bank of India, the said consideration shall be deemed to have been received in India for purposes of allowing the deduction, even though it was not actually repatriated into India. However, moneys credited to such foreign bank account within the prescribed period of six months, or within such extended period as may be allowed by the RBI, will alone qualify for the tax relief

• Audit report - The deduction under this section will be allowed only if the assessee furnishes a report of chartered accountant in the prescribed form [Form No. 10CCAF] certifying that the deduction has been correctly claimed. AMOUNT OF DEDUCTION - If the aforesaid conditions are satisfied, 70 per cent of "profit derived from such business" will be deductible. Where a deduction under section 80HHE is claimed and allowed for any assessment year, no deduction shall be allowed in relation to such profits under any other provisions of the Act for the same or any other assessment year.
  Deduction under section 80HHE for the assessment year 2003-04 may be computed as under :
  50% of [Profit of business1 × Export turnover2 ÷ Total turnover3].

  1. Profit of the business - To find out "profit of the business", the first step is to determine income under the head "Profits and gains of business or profession". From the amount so arrived at the following shall be deducted :
  a. 90 per cent of any receipts by way of brokerage, commission, interest, rent charges or any other receipt of a similar nature included in such profits; and
  b. the profits of any branch, office, warehouse or any other establishment of the assessee situated outside India.

  2. Export turnover - It is consideration received in convertible foreign exchange within the time-limit including deemed receipts. From the amount so arrived at, the following shall be deducted :
  a. freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India; and
  b. expenses, if any, incurred in foreign exchange in providing the technical services outside India.

  3. Total turnover - From the total turnover, as per books of account, the following shall be deducted (if otherwise included in such turnover):
  a. export incentives, i.e., cash compensatory support, duty drawback, and profits on sale of import entitlements;
  b. any freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India; and
  c. expenses, if any, incurred in foreign exchange in providing the technical services, outside India.

  Amount Of Deduction When A Disclaimer Certificate In Form 10ccag Is Issued To Support-Ing Software Developer - An assessee who exports computer software developed by others may issue a disclaimer certificate to the supporting software developer. On the basis of the certificate issued to the supporting software developer, deduction under section 80HHE can be claimed by the supporting software developer. If such certificate is issued to the supporting software developer, deduction available under section 80HHE to the exporter of the software [as computed in para 107.15-3a] will be reduced by the following amount:
  Export profit being amount of profit computed under para 107.15-3a × Amount for which disclaimer certificate is issued/Export turnover.
  How To Compute Deduction In Case Of A Supporting Software Developer - Explanation (ea) to section 80HHE defines a "supporting software developer" as a person who is either an Indian company or a non-corporate resident person who develops software and sells the same to an exporting company for the purposes of export.

  Conditions - The following conditions must be satisfied by the "supporting software developer"-
• The supporting software developer must be an Indian company or a non-corporate resident person.
• The supporting software developer has developed computer software which is sold to an exporting company for the purpose of export.
• The supporting software developer must obtain a disclaimer certificate in Form No. 10CCAG from the exporting company to the effect that in respect of the export turnover mentioned in the certificate, the exporting company has not claimed the deduction under section 80HHE. This certificate must be certified by the auditor auditing the accounts of the exporting company. The supporting software developer must furnish this certificate along with the return of income for the relevant assessment year.
• The supporting software developer must also furnish along with the return of income a report of a chartered accountant in Form 10CCAF certifying that the deduction has been correctly claimed on the basis of the profits of the supporting software developer in respect of his sale of computer software to the exporting company.
  AMOUNT OF DEDUCTION - Amount of deduction under section 80HHE for the assessment year 2003-04 may be computed as follows : 50% of [Profit of the business × Turnover from sales to exporting company as per disclaimer certificate/Total turnover of the supporting software developer from all businesses].

Section 80HHF has been inserted with effect from the assessment year 2000-01. To claim deduction one has to satisfy the following conditions-
1. Status of taxpayer - Deduction can be claimed by an Indian company or a resident non-corporate assessee.

2. Must be engaged in the business of export of film software - The taxpayer must be engaged in the business of export or transfer by any means out of India, of any film software, television software, music software, television news software, including telecast rights (hereinafter in this section referred to as the software or software rights).

• Film software - It means a copy of a cinematography film made by any process analogous to cinematography on acetate polyester or celluloid film positive, magnetic tape, digital media or other optical or magnetic devices and certified by the Board of film certification constituted by the Central Government under section 3 of the Cinematograph Act, 1952.
• Music software - It includes series of sounds or music recorded on magnetic tape, cassette, compact discs and digital media which can be played or reproduced on any appropriate apparatus.
• Telecast rights - It means a licence or contract to exhibit motion pictures or television programmes over a television network either through terrestrial transmission or through a satellite broadcast in a specified territory.
• Television news software - It means a collection of sounds and images, reportage, data and voice of actualities broadcast either through terrestrial transmission, wire or satellite, live or pre-recorded on video cassettes or digital media.
• Television software - It means any programme or series of sounds and images recorded on film or tape or digital media or broadcast through terrestrial transmitter, satellite or any other means of diffusion.

3. Receipt must be in convertible foreign exchange - The consideration in respect of software or software rights referred to in 2 supra is received in, or brought into India in convertible foreign exchange within a period of 6 months from the end of the previous year or such extended period as the Reserve Bank of India (or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange) may allow in this behalf.

4. Audit report - The deduction under this section will be allowed only if the assessee furnishes a report of chartered accountant in Form No. 10CCAI certifying that the deduction has been correctly claimed.

5. Business is not prohibited - No deduction will be available under section 80HHF in respect of the software or software rights referred to above, if such business is prohibited by any law for the time being in force.

Amount of deduction- If the aforesaid conditions are satisfied, 50 per cent of "profit derived from such business" will be deductible. Where a deduction under section 80HHF is claimed and allowed for any assessment year, no deduction shall be allowed in relation to such profits under any other provisions of the Act for the same or any other assessment year.

Deduction under section 80HHF for the assessment year 2003-04 may be computed as under :
50%† of [Profit of business1/Export turnover2/Total turnover3].

1. Profit of business - To find out "profit of the business", the first step is to determine income under the head "Profits and gains of business or profession". From the amount so arrived at the following shall be deducted :
a. 90 per cent of any receipts by way of brokerage, commission, interest, rent charges or any other receipt of a similar nature included in such profits ; and
b. the profits of any branch office, warehouse or any other establishment of the assessee situated outside India.

2. Export turnover - It is consideration received in convertible foreign exchange within the time-limit or extended time limit. From the amount so arrived at, the following shall be deducted :
a. freight, telecommunication charges or insurance attributable to the delivery of the software outside India ; and
b. expenses, if any, incurred in foreign exchange in providing the technical services outside India.

3. Total turnover - From the total turnover, as per books of account, the following shall be deducted (if otherwise included in such turnover)-
a. export incentives, i.e., cash compensatory support, duty drawback, and profits on sale of import entitlements ;
b. any freight, telecommunication charges or insurance attributable to the delivery of the software outside India; and
c. expenses, if any, incurred in foreign exchange in providing the technical services, outside India.

- Deduction under section 80-IA is available only to the following businesses carried on by an industrial undertaking :

a. provision of infrastructure facility;
b. telecommunication services:
c. industrial parks or special economic zone ; and
d. power generation, transmission and distribution .

Infrastructure facility - The provision of section 80-IA as applicable to an undertaking providing infrastructure facility are given below -
Conditions - An undertaking providing infrastructure facility must satisfy the following conditions -
It should provide infrastructure facility - The enterprise must carry on the business of (a) developing, or (b) maintaining and operating, or (c) developing, maintaining and operating any infrastructure facility.

• Meaning of "Infrastructure facility " - "Infrastructure facility" means -
  a. a road including toll road, a bridge or a rail system;
  b. a highway project including housing or other activities being an integral part of the highway project;
  c. a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; and d. a port, airport, inland waterway or inland port.

• Bolt scheme of Indian railways-If a taxpayer begins operating and maintaining an infrastructure facility on Build-Operate-Transfer (BOT) or on Build-Own-Operate-Transfer (BOOT) basis, then section 80-IA deduction is available if other conditions are satisfied. The Indian railways have formulated a Build-Own-Lease-Transfer (BOLT) Scheme, whereunder a private enterprise will provide the necessary and crucial components of a railway system, own them for a stipulated period but will not maintain or operate the same. Instead, the enterprise will lease the asset (only necessary and crucial components of a railway system) back to Indian railways for maintenance and operation, and shall ultimately transfer it to Indian railways.
  It has been clarified by the Board, vide Circular No. 733, dated January 3, 1996, that the said (BOLT) Scheme of the Indian railways shall be eligible for the benefit of section 80-IA since it is not legally possible for any enterprise other than the Indian railways to maintain and operate a railway system. However, this concession shall be applicable only to an infrastructure facility meant for development of rail system and not to any other infrastructure facility including rolling stocks.

• Structures at ports - Structures at ports for storage, loading and unloading, etc., will fall under the definition of "port" for the purposes of sections 10(23G) and 80-IA, if the following conditions were fulfilled: a. the concerned port authority has issued a certificate that the said structures form part of the port; and b. such structures have been built under BOT or BOLT schemes and there is an agreement that the same would be transferred to the said authority on the expiry of the time stipulated in the agreement-Circular No. 793, dated June 23, 2000.
  Owned by an Indian company - The enterprise is owned by a company registered in India or by a consortium of such companies.

Agreement - The enterprise has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement. From the assessment year 2002-03, the mandatory requirement that infrastructure facility shall be transferred to the Central Government, State Government, local authority or any other statutory authority, will not be applicable.

Commencement - The enterprise starts operating and maintaining the infrastructure facility on or after April 1, 1995.

Amount of deduction - If all the aforesaid conditions are satisfied, then 100 per cent of the profit is deductible for 10 years. The deduction commences from the initial assessment year [see also paras 107.17-1b1 and 107.17-1b2].

What is initial assessment year - Initial assessment year, for this purpose, means the assessment year specified by the assessee at his option to be the initial year, not falling beyond the fifteenth* assessment year starting from the previous year in which the enterprise begins operating and maintaining the infrastructure facility. However, the benefit of deduction is available only for 10 consecutive assessment years falling within a period of fifteenth* assessment years beginning with the assessment year in which an assessee begins operating and maintaining infrastructure facility.

Provision illustrated - X Ltd. has constructed a hotel on Delhi Agra highway. Profit from the hotel construction for the previous year 2002-03 is Rs. 80 lakh which is transferred to a special reserve account and, consequently, it is not chargeable to tax. The special reserve account shall be utilised up to March 31, 2006 for highway projects but excluding housing and other activities. If suppose only Rs. 70 lakh is utilised for highway projects up to March 31, 2006, then the unutilised amount of Rs. 10 lakh is taxable for the previous year 2002-03 (i.e., the assessment year 2003-04).

Other Points - One should also keep in view the following points -
Audit report - In the case of an assessee other than a company or a co-operative society, the deduction under section 80-IA will be admissible only if the accounts of the eligible industrial undertaking have been audited by a chartered accountant, and the audit report duly signed and verified by such accountant is furnished along with the return of income (Form No. 10CCB).

• A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction under section 80-IA or 80-IB and shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity.
• In the case of an enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining an infrastructure facility, the audit report in Form 10CCB shall be accompanied by a copy of the agreement of the enterprise with the Central Government or the State Government or the local authority for carrying on the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility.
• In any other case, the audit report in Form 10CCB shall be accompanied by a copy of the agreement, approval or permission, as the case may be, to carry on the activity signed or issued by the Central Government or the State Government or the local authority for carrying on the eligible business-Notification No. 240/2002 dated September 6, 2002.

Double deduction not possible - Section 80-IA provides that where an amount of profits and gains of an industrial undertaking, is claimed and allowed as deduction under section 80-IA, the profits to that extent shall not qualify for deduction for any assessment year under any other provision of Chapter VIA and in no case shall exceed the eligible profit of the industrial undertaking, as the case may be.
Adjustment of losses - Section 80-IA(5) provides that for the purpose of determining the quantum of deduction under section 80-IA for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, the profits and gains from the eligible business shall be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.Power of the Income-tax Department to recompute profits - In the following circumstances, the Assessing Officer has power to ignore the declared profit and to make necessary adjustments so as to arrive at the profits for the purpose of deduction under section 80-IA.

• If any goods held for the purpose of the eligible business is transferred to any other business carried on by the assessee, and vice versa, and in either case, the consideration if any for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods as on the date of transfer, profits of the eligible business will be computed as if the transfer in either case had been made at the market value of the goods as on that date. If such a manner of computation is found, in the opinion of the Assessing Officer, to present exceptional difficulties, the Assessing Officer is authorised to compute the profits on such reasonable basis as he may deem fit. This power has been granted to the Assessing Officer with a view to curbing any attempt to under-invoice or over-invoice of goods by the assessee in order to inflate the profits of the eligible business. For this purpose, the expression "market value" is defined to mean the price that such goods would ordinarily fetch on sale in the open market.

• If it appears to the Assessing Officer that business between the assessee (engaged in eligible business) and any other person is so arranged that the business transacted between them produces to the assessee more than the ordinary profits that might be expected to arise in such eligible business, either due to the close connection between the assessee and that other person or due to any other reason, then the Assessing Officer shall take the amount of profit as may be reasonably deemed to have been derived therefrom.Consequences of merger/amalgamation - Where any undertaking of an Indian company which is entitled to deduction under sections 80-IA and 80-IB is transferred, before the expiry of the period of tax holiday as specified in these sections, to another Indian company in a scheme of amalgamation or demerger, then the deduction will be available as follows -

• Before the previous year in which the amalgamation/demerger takes place, deduction under sections 80-IA and 80-IB will be available to the amalgamating or demerged company.

• No deduction shall be admissible under sections 80-IA and 80-IB to the amalgamating company/demerged company for the previous year in which amalgamation or demerger takes place.

• The amalgamated company or resulting company will be entitled to claim deduction under sections 80-IA and 80-IB for the unexpired period of tax holding (including for the previous year in which the amalgamation/demerger takes place). The provisions of sections 80-IA and 80-IB shall, as far as may be, apply to the amalgamated or resulting company as they would have applied to the amalgamating or demerged company as if the amalgamation or demerger had not taken place.

Consequences of transfer of undertaking - Where an infrastructure facility is transferred on or after April 1, 1999 by an enterprise which developed such infrastructure facility (i.e., transferor enterprise) to another enterprise (i.e., transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, section 80-IA shall apply to the transferee enterprise as if it were the enterprise to which such section applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.

Telecommunication Services - An undertaking engaged in providing telecommunication services starts providing telecommunication services whether basic or cellular including radio paging, domestic satellite service or network of turnking broadband network and internet services and electronic data inter-change service at any time after March 31, 1995 but before March 31, 2004. "Domestic satellite" for this purpose means a satellite owned and operated by an Indian company for providing telecommunication service.

Amount Of Deduction - If all the aforesaid conditions are satisfied, then deduction is available under section 80-IA as follows -

• Initial assessment year - Initial assessment year means the assessment year specified by the assessee at his option to be the initial year not falling beyond the fifteenth assessment year starting from the previous year in which the undertaking begins providing telecommunication services.
• OTHER POINTS - One should also keep in view the following points-
  1. Audit report
  2. Double deduction is not available
  3. Computation of profit
  4. Recomputation of profit by the Assessing Officer .
  5. Consequences of merger/amalgamation
  
  Industrial Parks Or Special Economic Zone - An undertaking which develops and operates industrial park or develops a special economic zone must satisfy the following conditions in order to avail the benefit of section 80-IA - 1. It develops and operates or maintains and operates an industrial park or from the assessment year 2002-03 a special economic zone notified for this purpose in accordance with any scheme framed and notified by the Central Government. 2. The industrial park must start operating during April 1, 1997 and March 31, 2006.
  
  Amount Of Deduction - If all the aforesaid conditions are satisfied, 100 per cent of profit is deductible for 10 years commencing from the initial assessment year.
• Initial assessment year - Initial assessment year means the assessment year specified by the assessee at his option to be the initial year not falling beyond the fifteenth assessment year starting from the previous year in which the undertaking begins operating developing industrial park.
  
  Other Points - One should also keep in view the following points -
  

  1. Audit report
  2. Double deduction is not available.
  3. Computation of profit.
  4. Recomputation of profit by the Assessing Officer].
  5. Consequences of merger/amalgamation.
  6. Where an undertaking develops an industrial park on or after April 1, 1999 or develops a special economic zone on or after April 1, 2001 and transfers the operation and maintenance of such industrial parks or special economic zone to another undertaking (i.e., transferee undertaking), the deduction shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years in a manner as if the operation and maintenance were not so transferred to the transferee undertaking.
  POWER GENERATION/DISTRIBUTION - The following conditions should be satisfied- 1. New undertaking - See para 107.18-1a1. 2. Not to be formed by old plant and machinery - See para 107.18-1a2. 3. Commencement - The undertaking must be set up in any part of India for the generation or generation and distribution of power and it begins the operation at any time during April 1, 1993 and March 31, 2006. Alternately, it starts transmission or distribution by laying a network of new transmission or distribution lines at any time between April 1, 1999 and March 31, 2006.
  AMOUNT OF DEDUCTION - If all the aforesaid conditions are satisfied, 100 per cent of the profit is deductible for 10 years commencing from the initial assessment year.

• Initial assessment year - Initial assessment year means the assessment year specified by the assessee at his option to be the initial year not falling beyond the fifteenth assessment year starting from the previous year in which the undertaking generates power or commences transmission or distribution of power.
  OTHER POINTS - One should also keep in view the following points -
  1. Audit report . 2. Double deduction is not available . 3. Computation of profit . 4. Recomputation of profit by the Assessing Officer . 5. Consequences of merger/amalgamation

a. business of an industrial undertaking ;
b. operation of ship ;
c. hotels ;
d. industrial research ;
e. production of mineral oil ;
f. developing and building housing projects ;
g. integrated handling, storage and transportation of food grains units ;
h. multiplex theatres; and
i. convention centre.

Industrial Undertaking - The provisions of a section 80-IB as applicable to an industrial undertaking are given below -

Conditions - To claim deduction under section 80-IB, an industrial undertaking (i.e., an undertaking which is mainly engaged in the business of the construction of ships or in the manufacture or processing of goods or in mining) must satisfy the following conditions :
It should be a new undertaking - The industrial undertaking is not formed by splitting up, or the reconstruction, of a business already in existence. However, if new industrial undertaking is set up in an old building, deduction shall be admissible as this section provides for new undertaking and does not provide for new building.

• Exception - The aforesaid condition of "new undertaking" is not applicable where the business is re-established, reconstructed or revived by the same assessee after the business of any industrial undertaking carried on by him in India is discontinued due to extensive damage to, or destruction of, any building, machinery, plant or furniture owned by the assessee (and used for the purpose of such business) as a direct result of (i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature, or (ii) riot or civil disturbance, or (iii) accidental fire or explosion, or (iv) action by any enemy or action taken in combating an enemy (whether with or without a declaration of war).
  It should not be formed by transfer of machinery or plant previously used for any purpose - It is not formed by a transfer to a new business of machinery and plant previously used for any purpose.

• Two exceptions - In the two cases given below, the aforesaid rule is not applicable-
  20 per cent old machinery is permitted - If the value of the transferred assets does not exceed 20 per cent of the total value of the machinery or plant used in the business, this condition is deemed to have been satisfied.
  Second-hand imported machinery is treated as new - Any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled :
  1. Such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India.
  2. Such machinery or plant is imported into India from any country outside India.
  3. No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.
  It should not manufacture or produce articles specified in the Eleventh Schedule - It manufactures or produces any article or thing (not being an article or thing specified in the list in the Eleventh Schedule) or operates cold storage plant, in any part of India.

• Exceptions - Small-scale undertakings or an undertaking in a backward State can manufacture any goods/article - Deduction is admissible to all small-scale industrial undertakings and those undertakings which are specified in para 107.18-1a3a infra even if they are engaged in the production of articles listed in the Eleventh Schedule. Small scale industrial undertaking - An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms or on lease, or by hire purchase does not exceed Rs. 1 crore* (on the last day of the previous year) is a small-scale industrial undertaking.
  No small-scale or ancillary industrial undertaking referred to above shall be subsidiary of, or owned or controlled by other industrial undertaking. " In calculating the value of plant and machinery the following shall be excluded namely : (i) the cost of equipment such as tools, jigs, dies, moulds and spare parts for maintenance and the cost of consumable stores ; (ii) the cost of installation of plant and machinery ; (iii) the cost of research and development equipment and pollution control equipment ; (iv) the cost of generation sets, extra transformer, etc., installed by the undertaking as per the regulations of the State Electricity Board ; (v) the bank charges and service paid to the National Small Industries Corporation or the State Small Industries Corporation ; (vi) the cost involved in procurement or installation of cables, wiring, bus bars, electrical control panels (not those mounted or individual machines), oil circuit breakers/miniature circuit breakers, etc., which are necessarily to be used for providing electrical power to the plant and machinery/safety measures ; (vii) the cost of gas producer plant ; (viii) transportation charges (excluding of taxes, i.e., sales tax, excise, etc.) for indigenous machinery from the place of manufacturing to the site of the factory ; (ix) charges paid for technical know-how for erection of plant and machinery; (x) cost of such storage tanks which store raw materials finished products only and are linked with the manufacturing process ; and (xi) cost of fire fighting equipments. In the case of imported machinery, the following shall be included in calculating the value, namely : (i) import duty (excluding miscellaneous expenses as transportation from the port to the site of the factory, demurrage paid at the port ; (ii) the shipping charges ; (iii) customs clearance charges ; and (iv) sales tax.

  It must start manufacturing between April 1, 1991 and March 31, 1995 - It begins to manufacture or produce articles or things or to operate cold storage plant or plants at any time during April 1, 1991 and March 31, 1995 (March 31, 2002 in the case of a small-scale industrial undertaking) or such further period as may be extended by the Central Government. In the following three cases, however, the time-limit is different.
  Industrial undertaking (including cold storage plant) set up in Industrially backward State - In the case of an industrial undertaking located in an industrially backward State specified in the Eighth Schedule, it begins to manufacture/produce articles/things or operates its cold storage plant during April 1, 1993 and March 31, 2004. For this purpose, States and Union territories1 which are industrially backward are Arunachal Pradesh, Assam, Goa, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura and the Union Territories of the Andaman and Nicobar Islands, Dadra & Nagar Haveli, Daman & Diu, Lakshadweep and Pondicherry.
  Industrial undertaking (Including cold storage plant) set up in Backward district - In the case of industrial undertaking set-up in a notified backward district of Category "A" or Category "B", it begins to manufacture/produce articles/things or operates its cold storage plant during October 1, 1994 and March 31, 2004. Vide Notification No. 714(E), dated October 7, 1997, the Government has notified 53 districts under Category "A" and 70 districts under Category "B" for this purpose.
  Cold chain facility for agricultural produce - In the case of an industrial undertaking deriving profit from the business of setting up and operating cold chain facility for agricultural produce, such facility must begin during April 1, 1999 and March 31, 2004.
  It should employ 10/20 workers - In a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs 10 or more workers in a manufacturing process carried on with the aid of power, or employs 20 or more workers in a manufacturing process without the aid of power. This condition is applicable only for "industrial undertaking" and not for cold storage plant, ship or hotel.
  
  Amount Of Deduction - An industrial undertaking can claim deduction at the rates given in the table infra. The table also highlights conditions already mentioned in paras 107.18-1a3 and 107.18-1a4. However, no deduction under these provisions will be applicable in cases covered by section 80-IC from the assessment year 2004-05.

Note - In the case of an industrial undertaking operating in the North-Eastern Region (i.e., the region comprising of the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura), the amount of deduction is 100 per cent of the profit and deduction is available for the first 10 years commencing from the initial assessment year. This deduction is, however, available only in the case of such industries in the North-Eastern Region as are notified by the Central Government up to the assessment year 2003-04.

• What is initial assessment year - "Initial assessment year" means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants. The "article" in this context is the final or end-product for which the undertaking is set up to manufacture.
  For instance, if a small-scale industrial undertaking starts manufacture/production on December 19, 2001, the initial assessment year will be 2002-03, and it will be eligible for deduction (subject to the satisfaction of the prescribed conditions in every year) for the assessment years 2002-03 to 2011-12 (in the case of co-operative society for the assessment years 2002-03 to 2013-14).
  Other Points - One should keep in view the following points -
  1. Audit report.
  2. Double deduction is not available.
  3. Computation of profit.
  4. Recomputation of profit by the Assessing Officer.
  5. Consequences of merger/amalgamation.
  
  Operation Of Ship - Profits and gains derived from the business of operation of ship is eligible for deduction under section 80-IB. The direct source of income should be the business of operation. Deduction is not available if ship is used only as an instrument for carrying on business activity-New India Fisheries Ltd. v. P.M. Mehra, ITO [1971] 82 ITR 765 (Bom.). For an assessee who uses ship for catching fish in deep sea and selling the fish is not entitled to tax incentive under section 80-IB. In order to qualify for deduction a ship must satisfy to the following conditions :

• It should be owned by an Indian company and be wholly used for the purpose of the business carried on by the assessee.
• It should not have, prior to its acquisition by an Indian company, been owned and used in Indian territorial waters by a person resident in India. The Government of India is not a "person resident in India" for this purpose-CIT v. Dredging Corpn. of India [1988] 174 ITR 682 (AP) and, consequently, a ship acquired from Government of India fulfils this condition.

• should be brought into use after March 31, 1991 but before April 1, 1995.
  
  Amount Of Deduction - 30 per cent of the profit is deductible for the first 10 years. The period of deduction commences from the initial assessment year [i.e., the year in which the ship is first brought into use].
  
  Other Points - One should also keep in view the following points -
  1. Double deduction is not available.
  2. Computation of profit .
  3. Recomputation of profit by the Assessing Officer .
  4. Consequences of merger/amalgamation
  
  Hotel Industry - Provisions of section 80-IB as applicable to hotel industry are given below-
  
  Conditions To Be Fulfilled In The Case Of Specified Hotels In Specified Area - The following conditions one has to satisfy-
  1. The business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose.
  2. The business of the hotel is owned and carried on by an Indian company with a paid-up capital of Rs. 5,00,000 or more.
  3. The business of the hotel is located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may (having regard to the need for development of infrastructure for tourism in any place and other relevant considerations) specify for the purpose.
  4. It starts functioning at any time during the period April 1, 1990 and March 31, 1994. Alternatively, it starts functioning (at a place other than Calcutta, Chennai, Delhi and Mumbai) at any time during April 1, 1997 and March 31, 2001.
  5. The hotel is for the time being approved by the prescribed authority.

• Approval by the prescribed authority - For the aforesaid purpose a hotel shall be approved by the prescribed authority if the following conditions are fulfilled, namely : a. such hotel is located in an area or place specified above ; b. there are not more than 300 hotel rooms of 3-star category and above in the aggregate, in areas or places specified above within the jurisdiction of the revenue sub-division in which the hotel is located ; c. in case the hotel is located in a place where there is need for development of infrastructure for tourism such place has been specified by the Central Government under section 80-IB on the recommendations of the Department of Tourism.
• Hilly area - The term "hilly area" means any area located at a height of 1000 metres or more above the sea level.
• Place of pilgrimage - A "place of pilgrimage" means a place where any temple, mosque, gurudwara, church or other place of public worship of renown throughout any State or States is situated. "A place of pilgrimage" is not required to be specified by the Central Government. Consequently, any place satisfying the aforesaid test, comes within the term "place of pilgrimage".
• Rural area - It means : a. an area outside the limits of a municipality, cantonment board, etc., and which has a population of less than 10,000 ; or b. an area which is not within such distance* from the local limits of such municipality, etc., as the Central Government may notify.
  
  Conditions To Be Fulfilled In The Case Of Non-Specified Hotels - One has to satisfy the following conditions : 1. The business of the hotel is not formed by the splitting up or the reconstruction of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose. 2. The business of the hotel is owned and carried on by a company registered in India with the paid-up capital of not less than Rs. 5,00,000. 3. The hotel is located in any place or located in a place other than a place referred to in para 107.18-3a. 4. The hotel starts functioning between April 1, 1991 and March 31, 1995. Alternatively, it starts functioning (at a place other than Calcutta, Chennai, Delhi and Mumbai) at any time during April 1, 1997 and March 31, 2001. 5. It is approved by the prescribed authority.
  
  Amount Of Deduction - Deduction is admissible at the rates given below-

Other Points - One should keep in view the following points -
1. Double deduction is not available
2. Computation of profit
3. Recomputation of profit by the Assessing Officer.
4. Consequences of merger/amalgamation .

Companies Engaged In Industrial Research - Section 80-IB is applicable if the following conditions are satisfied-
1. The taxpayer is a company registered in India.
2. Such company has its main object the scientific and industrial research and development.
3. It is for the time being approved by the prescribed authority (i.e., Secretary, Department of Scientific and Industrial Research).

Amount Of Deduction- If all the aforesaid conditions are satisfied, the following is deductible-

Other Points - One should also keep in view the following points-
1. Double deduction is not available
2. Computation of profit
3. Recomputation of profit by the Assessing Officer.
4. Consequences of merger/amalgamation

Mineral Oils- One should satisfy the following conditions -
1. It should be a new undertaking
2. It should not be formed by transfer of machinery or plant previously used for any purpose.
3. It should commence commercial production as follows - .

*North-Eastern Region comprises of the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.
4. It should employ 10/20 workers.

Amount Of Deduction - 100 per cent of the profit is deductible for the first 7 years commencing with the year in which the undertaking commences commercial production of mineral oil or refining of mineral oil.

Other Points - One should also keep in view the following points -
1. Audit report.
2. Double deduction is not available.
3. Computation of profit.
4. Recomputation of profit by the Assessing Officer.
5. Consequences of merger/amalgamation.

Developing And Building Housing Projects -
An undertaking engaged in developing and building housing projects shall be eligible to claim deduction under section 80-IB subject to the following-
a. the project should be approved by a local authority before March 31, 2005;
b. the size of the plot of land is a minimum of one acre ;
c. the undertaking commences development and construction of the housing project after September 30, 1998;
d. the built-up area of each residential unit should be subject to the following maximum limit -

Amount Of Deduction - If all the aforesaid conditions are satisfied 100 per cent of the profit derived in any previous year relevant to any assessment year from such housing project is deductible.

Other Points - One should also keep in view the following points-
1. Audit report.
2. Double deduction is not available.
3. Computation of profit.
4. Recomputation of profit by the Assessing Officer.
5. Consequences of merger/amalgamation

- Sub-section (11A) has been inserted in section 80-IB, with effect from the assessment year 2002-03. An undertaking deriving profit from the integrated business of handling, storage and transportation of food grains is eligible for tax holiday.

Amount Of Deduction - The amount of deduction available under section 80-IB is as follows -

Other Points - One should also keep in view the following points-
1. Audit report.
2. Double deduction is not available.
3. Computation of profit.
4. Recomputation of profit by the Assessing Officer.
5. Consequences of merger/amalgamation.

Multiplex Theatres - "Multiplex theatres" means a building of a prescribed area, comprising of two or more cinema theatres and commercial shops of such size and number and having such other facilities and amenities as may be prescribed.
The following conditions should be satisfied in the case of multiplex theatre-
1. Such multiplex theatre is constructed at any time during April 1, 2002 and March 31, 2005.
2. The business of the multiplex is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of any building or of any machinery or of plant previously used for any purpose.
3. The assessee furnishes alongwith the return of income, the report of an audit in prescribed form from a chartered accountant, certifying that the deduction has been correctly claimed.
4. Such multiplex theatre is not located at a place within the municipal jurisdiction of Kolkata, Chennai, Delhi or Mumbai.

Amount Of Deduction - If the aforesaid conditions are satisfied, 50 per cent of the profits and gains derived from the business of building, owning and operating a multiplex theatre is deductible from the assessment year 2003-04 for a period of 5 consecutive years beginning from the initial assessment year.
Initial assessment year, for this purpose, is the assessment year relevant to the previous year in which a cinema hall, being a part of the said multiplex theatre, starts operating on a commercial basis.

Other Points - One should also keep in view the following points -
1. Audit report.
2. Double deduction is not available.
3. Computation of profit.
4. Recomputation of profit by the Assessing Officer.
5. Consequences of merger/amalgamation

Convention Centre - "Convention centre" means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities, as may be prescribed.
The following conditions should be satisfied in order to avail deduction under section 80-IB-
1. Such convention centre is constructed at any time during the April 1, 2002 and March 31, 2005.
2. The business of the convention centre is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of any building or of any machinery or plant previously used for any purpose.
3. The assessee furnishes alongwith the return of income, the report of an audit in prescribed form from a chartered accountant, certifying that the deduction has been correctly claimed.

Amount Of Deduction - If the aforesaid conditions are satisfied, 50 per cent of the profits and gains derived by the assessee from the business of building, owning and operating a convention centre is deductible from the assessment year 2003-04 for a period of 5 consecutive years beginning from the initial assessment year. Initial assessment year means the assessment year relevant to the previous year in which the convention centre starts operating on a commercial basis.

Other Points- One should keep in view the following points -
1. Audit report.
2. Double deduction is not available.
3. Computation of profit.
4. Recomputation of profit by the Assessing Officer.
5. Consequences of merger/amalgamation.

Section 80JJA has been inserted with effect from the assessment year 1999-2000. Deduction under section 80JJA is available where the gross total income of an assessee includes any profits and gains derived from the business of collecting, 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 or making pellets or briquettes for fuel or organic manure.

• Amount of deduction - The amount of deduction for different assessment years is as follows-
  From the assessment year 2000-01 onwards - The whole of the profits and gains of the above activities shall be deductible for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which such business commences.
  For the assessment year 1999-2000 - The whole of the profits and gains from the above activities or Rs. 5 lakh, whichever is less, is deductible.

An Indian company or a resident non-corporate taxpayer can claim deduction under section 80-O.

Conditions to be satisfied - To get deduction under section 80-O one has to satisfy the following conditions :

1. Income is received by the assessee from the Government of a foreign State or foreign enterprise. In order to get deduction under section 80-O income must be received from foreign Government or enterprise. The identity of the assessee must be different from that of foreign enterprise. The assessee should not run the foreign enterprise-J.K. (Bombay) Ltd. v. CBDT [1979] 118 ITR 312 (Delhi). A branch, unit or establishment of an Indian company doing business in a foreign country cannot be said to be a "foreign enterprise" within the meaning of section 80-O. A "foreign enterprise" contemplated by section 80-O is an enterprise situated in a foreign country having been created or registered in accordance with the laws of that country-Petron Engg. Construction (P.) Ltd. v. CBDT [1989] 175 ITR 523 (SC).

2. Such payment is received for use outside India of any patent, invention, model, design or registered trade mark. Where drawing or designing or imparting technical information forms an integral part of the execution of a project and there is no separate or ascertainable royalty, commission or fee payable in respect of the designing, planning and technical information which may be provided, then the income from the total consideration which is received would be entitled to the benefit of section 80HHB and not section 80-O-Continental Construction Ltd. v. CIT [1992] 195 ITR 81 (SC).

3. Such payment is received in convertible foreign exchange in India during the previous year or within six months from the end of the previous year. With effect from June 1, 1999, the approval for extension of the time-limit will be taken from the Reserve Bank of India or such other competent authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. The expression "convertible foreign exchange" in section 80-O also includes the amount received in non-convertible rupees from bilateral account countries and receipts in Indian rupees under Government to Government credit. However, it does not include remittances from Nepal and Bhutan-Circular No. 575, dated August 31, 1990. 4. With effect from June 1, 1999, no deduction under section 80-O shall be allowed unless the assessee furnishes a certificate, in Form No. 10HA along with the return of income, certifying that the deduction has been correctly claimed in accordance with the provisions of the section.

Amount Of Deduction - Amount of deduction under section 80-O for the assessment year 2003-04 is 20 per cent* of the income received in, or brought into, India in convertible foreign exchange before the expiry of 6 months for the end of the previous year. The time-limit of 6 months may be extended by RBI. Where any deduction has been denied only on the ground that the income otherwise qualifying for the deduction had not been received in India in convertible foreign exchange and such income is so received in, or brought into, India at subsequent date, the Assessing Officer has been empowered (with effect from June 1, 1999) to amend the order of assessment at any time within a period of four years from the end of previous year in which the qualifying amount is received in, or brought into, India in convertible foreign exchange with the approval of the Reserve Bank of India or in accordance with such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

In computing the total income of an author, an amount equal to 25 per cent of the income from books is allowed as deduction for the assessment years 1980-81 to 1989-90 and 1992-93 to 1996-97(no deduction under section 80QQA is available from the assessment year 1997-98 onwards). The deduction is available in respect of any lump sum consideration for the assignment or grant of any of his interests in the copyright of books or royalties or copyright fees, whether receivable in lump sum or otherwise [even amount received as advance royalty is eligible for deduction].
The deduction is allowed only if the following conditions are fulfilled:

• The book has been prescribed or recommended as a text book by any university for a degree or post-graduate course, or is a dictionary, thesaurus or encyclopaedia.
• The book or the dictionary, thesaurus or encyclopaedia is in a language specified in the Eighth Schedule to the Constitution or in any other language as may be notified by the Central Government, having regard to the need for promotion of publication of such text books in that language.

The provisions of section 80R are given below-

Conditions - One has to satisfy the following conditions-
1. The taxpayer is an Indian citizen (i.e., he may be resident and ordinarily resident, resident but not ordinarily resident or non-resident).
2. His income includes remuneration received outside India (if remuneration is directly received in India, deduction under section 80R is not available).
3. The remuneration is received from any university or other educational institution established outside India or any other association or body established outside India.
4. For this purpose service is rendered outside India.
5. The service is rendered as a professor, teacher or research worker.
6. Assessee furnishes a certificate in Form No. 10H along with the return of income certifying that the deduction has been correctly claimed in accordance with the provisions of the section.

Amount Of Deduction - If all the above conditions are satisfied, then the amount deductible for the assessment year 2003-04 is equal to 30 per cent of such amount as is brought in India in convertible foreign exchange within a period of 6 months from the end of the previous year.

Remittance after the expiry of time-limit applicable from June 1, 1999 - With effect from June 1, 1999, the approval for extension of the time-limit will be taken from the Reserve Bank of India or such other competent authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Where any deduction has been denied only on the ground that the income otherwise qualifying the deduction had not been received in India in convertible foreign exchange and such income is so received in, or brought into, India at subsequent date, the Assessing Officer has been empowered (with effect from June 1, 1999) to amend the order of assessment at any time within a period of four years from the end of previous year in which the qualifying amount is received in, or brought into, India in convertible foreign exchange with the approval of the Reserve Bank of India or in accordance with such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

The provisions of section 80RR are given below-

Conditions - The following conditions should be satisfied-
1. The taxpayer is a resident individual (he may be an Indian citizen or a foreign citizen but he should not be a non-resident).
2. He is an author, playwright, artist, musician, actor or sportsman (including an athlete).
3. His income includes income from the exercise of the aforesaid profession from a foreign Government or from a person not resident in India.
4. Such income may be directly received in India or it may be received outside India.
5. The taxpayer furnishes a certificate in Form No. 10H along with the return of income certifying that the deduction has been correctly claimed in accordance with the provisions of the section.

Amount Of Deduction - For the assessment year 2003-04, it is equal to 30 per cent† of such amount as is brought in India in convertible foreign exchange within a period of 6 months from the end of the previous year or within such period as RBI may allow.

Remittance after the expiry of time-limit applicable from June 1, 1999 - With effect from June 1, 1999, the approval for extension of the time-limit shall be taken from the Reserve Bank of India or such other competent authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Where any deduction has been denied only on the ground that the income otherwise qualifying the deduction had not been received in India in convertible foreign exchange and such income is so received in, or brought into, India at subsequent date, the Assessing Officer has been empowered with effect from June 1, 1999 to amend the order of assessment at any time within a period of four years from the end of previous year in which the qualifying amount is received in, or brought into, India in convertible foreign exchange with the approval of the Reserve Bank of India or in accordance with such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

Conditions - The following conditions should be satisfied-
1. The assessee is a citizen of India.
2. He has received remuneration in foreign currency from any employer (being foreign employer or an Indian concern). Foreign employer may be the Government of a foreign State, or a foreign enterprise or any association or body established outside India.
3. He has received remuneration for service rendered outside India. The remuneration may be received in India or outside India.
4. In the case of an individual who is or was (immediately before undertaking such service) in the Government (Central or State) service, his foreign service should have been sponsored by the Central Government.
If he is not in Government service (before joining overseas service), then deduction is available only if he is a "technician" and the terms and conditions of his service outside India are approved in this behalf by the Central Government or the prescribed authority1. Technician - Meaning of - "Technician" as per Explanation (c) to section 80RRA, means a person having specialised knowledge and experience in constructional or manufacturing operations or mining or the generation or distribution of electricity or any other form of power, or agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, or public administration or industrial or business management, or accountancy or any field of natural, medical or applied science, or social science, or any of the other field which the Board may prescribe. In exercise of the power, the Board has prescribed the professions of actuaries, banking, insurance and journalism for the purposes of deduction under this section [rule 11C]. A person, employed in a capacity in which such specialised knowledge and experience are not actually utilised, is not, however, qualified to claim deduction.
5. The assessee furnishes a certificate in Form No. 10H along with the return of income certifying that the deduction has been correctly claimed in accordance with the provisions of the section.

Amount Of Deduction - The amount deductible under section 80RRA for the assessment year 2003-04 is equal to 30 per cent of such amount as is brought in India in convertible foreign exchange within a period of 6 months from the end of the previous year or within such period as RBI may allow.

• Remittance after the expiry of time-limit applicable from June 1, 1999 - With effect from June 1, 1999, the approval for extension of the time-limit will be taken from the Reserve Bank of India or such other competent authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Where any deduction has been denied only on the ground that the income otherwise qualifying the deduction had not been received in India in convertible foreign exchange and such income is so received in, or brought into, India at subsequent date, the Assessing Officer has been empowered (with effect from June 1, 1999) to amend the order of assessment at any time within a period of four years from the end of previous year in which the qualifying amount is received in, or brought into, India in convertible foreign exchange with the approval of the Reserve Bank of India or in accordance with such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

Clarification From The Board - The following clarifications issued by the Board are also relevant -

• Vide Circular No. 356, dated March 17, 1983, the following clarifications are given-
  1. The approval of the Central Government to the terms and conditions of the service outside India is not enough for claiming deduction under section 80RRA, unless other conditions specified above are satisfied.
  2. It is necessary that the relationship of employer-employee must exist between payer and payee to be eligible for deduction under section 80RRA.
  However, the Supreme Court in CBDT v. Aditya V. Birla [1988] 36 Taxman 9 gave the contrary observations as follows:
  In the context of the present Act, the expression "employee" will include a consultant or a technician employed by the foreign company because he will be working for other on hire. Moreover, "employ" means use of services of person. It follows, therefore, that it comprehends whole time servant or part time engagee. It is significant that section 80RRA uses the expression "remuneration" and not "salary" to be entitled to deduction. In the aforesaid view of the matter, there is no warrant to restrict the meaning of the expression "remuneration" to only salary received by an employee abroad. Accordingly, the fee received by consultant or technician would also come within the purview of section 80RRA.
  3. Seamen working as marine engineers, radio officers, masters, mates, pursers or captains are regarded as "technicians" for the purpose of section 80RRA. Helpers to masons who assist in concrete mixing, RCC works, etc., and other persons similarly placed are also regarded as "technicians".
  4. "Advances" paid to seamen employed by Indian shipping companies in foreign currency, while in foreign ports, is considered as remuneration for the purpose of section 80RRA.

• In order to expedite processing of applications seeking approval under section 80RRA, the following guidelines are issued-
  1. The application should be signed by the applicant and filed in duplicate and should state the complete postal address of the applicant. Furnishing the address of any authorised representative is not sufficient.
  2. The applicant should indicate the income-tax authority in whose jurisdiction he is either assessed to tax or is assessable to tax, and his Permanent Account Number (PAN). If he is not assessed, he should apply for a PAN and indicate the authority before whom he has filed the application.
  3. In respect of applications from Indian seamen employed on ships of Indian companies, the signed certificate (in original) of the employer indicating the total remuneration as well as the remuneration received in foreign currency should invariably be furnished in the first year for which the application is made. In respect of other applications, the certificate should be for the years for which the application is made.
  4. If the application is filed through an authorised representative, a letter of authority should be filed along with it-Circular No. 705, dated June 20, 1995.

• If the remuneration is paid to the Indian technician, etc., partly in Indian currency and partly in foreign currency, the amount paid in Indian currency will not be taken into account for purposes of deduction under section 80RRA. Likewise, if a part of the remuneration, although paid in foreign currency relates to service rendered in India, then such part of the remuneration will also not qualify for deduction under section 80RRA-Circular No. 724, dated September 29, 1995.