Rule 100 — Safe harbour for income attribution in case of income from business and profession.
Sub-rule (1) states the acceptance rule: the income-tax authorities shall accept the option for safe harbour exercised by an eligible assessee in a relevant tax year under rule 101, where the income declared from an eligible business accords with the circumstances specified in sub-rule (2), unless the safe harbour is declared invalid under rule 101(3).
Sub-rule (2) carries the Table of circumstances. It has two entries. For the business of selling of raw diamonds, the profits and gains of the eligible business chargeable under the head "Profits and gains of business or profession" shall be 4% or more of the gross receipts from that business. For the business activity of storage of components in a warehouse in a custom bonded area for sale to a contract manufacturer, that figure shall be 2% or more of the gross receipts from that business.
Sub-rule (3) sets out what the assessee gives up where the option has been exercised and not declared invalid. Any deduction allowable under sections 28 to 34, 44 to 49, 51, 52, Schedule IX and Schedule X is deemed to have been already given full effect to, and no further deduction under those sections or Schedules is allowed. The written down value of any asset of the business is deemed to have been calculated as if the assessee had claimed and been actually allowed depreciation for that tax year. No set off of unabsorbed depreciation under section 33(11) or of carried forward loss under section 112(1) is allowed. And no set off of loss from another business under section 108(1) or from another head under section 109 is allowed against income chargeable under the head "Profits and gains of business or profession" in respect of that business.
Sub-rule (4) preserves the transfer pricing provisions: sections 171 and 172 apply to an international transaction or specified domestic transaction the eligible assessee enters into while carrying on the eligible business. Sub-rule (5) takes the meanings of "international transaction" and "specified domestic transaction" from sections 163 and 164.
Attributing profit to a non-resident's Indian activity in these two narrow businesses is a fact-heavy exercise that produces long disputes over small sums. The safe harbour offers a declared percentage of gross receipts that the authorities must accept, and asks in return that the assessee stop claiming anything else against that income. Sub-rule (3) is the price of certainty: the percentage is a final figure, not a starting point from which deductions, depreciation, brought-forward losses and cross-head set-offs are then taken.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Declared profits and gains for the business of selling of raw diamonds | 4% or more of the gross receipts from such business | Profits and gains of the eligible business chargeable under the head "Profits and gains of business or profession"; a floor, so a higher declaration also satisfies the circumstance | Sub-rule (2), Table Sl. No. 1 |
| Declared profits and gains for storage of components in a warehouse in a custom bonded area for sale to a contract manufacturer | 2% or more of the gross receipts from such business | Profits and gains of the eligible business chargeable under the head "Profits and gains of business or profession"; a floor, so a higher declaration also satisfies the circumstance | Sub-rule (2), Table Sl. No. 2 |
The percentages are floors on what is declared, not rates of tax and not ceilings: declaring 4% or more of gross receipts for raw diamonds puts the assessee inside the circumstance, and declaring less puts it outside, in which case the income falls to be determined in the ordinary way. Gross receipts of that business are the base, so the figure is not reduced by costs before the percentage is applied. The four consequences in sub-rule (3) are severe and run together — no further deduction under the listed sections and Schedules, written down value reduced as though depreciation had been claimed and allowed, no set off of unabsorbed depreciation or carried forward loss, and no set off of a loss from another business or another head against this income. The write-down of the assets' written down value bites in later years too, after the safe harbour year has passed. What the option does not buy is relief from transfer pricing: sub-rule (4) keeps sections 171 and 172 alive for any international transaction or specified domestic transaction entered into while carrying on the eligible business. Acceptance is also conditional on the option surviving rule 101(3).
A foreign company selling raw diamonds in India has gross receipts of Rs 50 crore from that business and exercises the option under rule 101. It declares profits and gains of Rs 2 crore, which is 4% of gross receipts, so the circumstance in Table Sl. No. 1 is met and the authorities must accept the declared income unless the option is declared invalid under rule 101(3). It cannot then claim depreciation or any other deduction under the sections and Schedules listed in sub-rule (3)(a) against that income, and the written down value of its assets is reduced as if depreciation had been claimed and allowed for the year. A brought-forward loss of Rs 80 lakh from an earlier year stays unabsorbed, because sub-rule (3)(c) denies the set off.
An eligible assessee meets it through the Form No. 49 option under rule 101 and in the computation of income filed with the return, where the declared percentage of gross receipts appears without the deductions and set-offs sub-rule (3) removes.
The profits and gains of the eligible business chargeable to tax under the head "Profits and gains of business or profession" shall be 4% or more of the gross receipts from such business.
no set off of unabsorbed depreciation under section 33(11) or carried forward loss under section 112(1) shall be allowed to such assessee
