Section 80-IA(4)

Section 80-IA(4) — the law in short

What the courts have decided on section 80-IA(4), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v ABG Heavy Industries Ltd High CourtHelps taxpayerValidity unconfirmed
  I supplied, installed and maintained cranes at a port under a lease contract and hand them over free at the end. Can I claim section 80-IA when I do not own or run the port?
  Yes. The Bombay High Court held that an enterprise which develops a part of an infrastructure facility qualifies under section 80-IA; it does not have to develop the whole port. The assessee supplied, installed, tested, commissioned, operated and maintained container handling cranes at Jawaharlal Nehru Port Trust for ten years on a build-own-lease-transfer basis, after which the cranes vested in the Port Trust free of cost. The port authority certified that the cranes formed an integral part of the port. The Court also held that developing, operating and maintaining were never cumulative conditions, the Board's circulars having consistently said so and the Finance Act 2001 amendment having put it beyond controversy.
• Statutory position — s.36(1)(viii): the special reserve, the twenty per cent limit, the twice-the-paid-up-capital ceiling, and the s.41(4A) charge when the reserve is drawn down CBDT Circulars & InstructionsCuts both ways
  My client is a housing finance company and has created a special reserve. How much is deductible under s.36(1)(viii), what caps it, and what happens if the reserve is later withdrawn?
  Section 36(1)(viii) allows a "specified entity" a deduction for a special reserve created and maintained by it, of an amount not exceeding twenty per cent of the profits derived from an "eligible business" computed under the head "Profits and gains of business or profession" (before any deduction under this clause) and actually carried to that reserve account. A proviso caps the cumulative benefit: where the aggregate of the amounts carried to the reserve account from time to time exceeds twice the amount of the paid up share capital and of the general reserves of the specified entity, no allowance is made in respect of the excess. And section 41(4A) supplies the sting — where the deduction has been allowed, any amount subsequently withdrawn from the special reserve is deemed to be profits and gains of business or profession and is charged to tax in the year of withdrawal, and by the Explanation to that sub-section it is charged even if the business is no longer in existence.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.