Section 80-IB

Section 80-IB — the law in short

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

• Shital Fibers Ltd v CIT Supreme CourtHelps taxpayer
  Where a deduction has been allowed under s.80-IA, does s.80-IA(9) require the other Chapter VI-A deduction, such as s.80-HHC, to be computed on a reduced profit?
  No. Section 80-IA(9) operates at the stage of allowance, not computation. The s.80-HHC deduction is still computed on the profits of the business without first reducing them by the s.80-IA deduction; what s.80-IA(9) prevents is the aggregate of the deductions under heading C exceeding the profits of the eligible business. A three-Judge Bench answered a reference to this effect, approving the Bombay High Court's view in Associated Capsules.
• CIT v Reliance Energy Ltd Supreme CourtHelps taxpayer
  My section 80-IA deduction is larger than my business income. Can I set it against my other income too, or only against business income?
  Against gross total income, subject to the Chapter VI-A ceiling. The Supreme Court held that section 80AB deals only with computing the deduction on net income and cannot be read as curtailing the width of section 80-IA. Section 80-IA(5) is confined to determining the quantum of the deduction by treating the eligible business as the only source of income; it cannot be pressed into service to read a limitation confining the deduction under sub-section (1) to business income. Section 80A(1) allows the Chapter VI-A deductions from gross total income and section 80A(2) caps the aggregate at gross total income. The Revenue's appeals were dismissed on this issue.
• Principal CIT v Aarham Softronics Supreme CourtHelps taxpayer
  My Himachal unit took the 100 per cent deduction under section 80-IC for five years and then I put in substantial expansion. Do I drop to 25 per cent, or can I go back to 100 per cent?
  You go back to 100 per cent. A three-judge bench of the Supreme Court held that the definition of initial assessment year in section 80-IC(8)(v) includes the year in which substantial expansion is completed, so there can be more than one initial assessment year within the ten year window. From the year of substantial expansion the unit is entitled to 100 per cent deduction again under section 80-IC(3)(ii). The ceiling in sub-section (6) is on the number of years, not on quantum. The Court held that its own earlier judgment in Classic Binding Industries, which had said otherwise, does not lay down the correct law.
• CIT v Meghalaya Steels Ltd Supreme CourtHelps taxpayer
  My unit gets transport, power and interest subsidies from the State — does that money count as profit derived from the undertaking for section 80-IB or 80-IC?
  Yes. The Supreme Court held on 9 March 2016 that subsidies reimbursing elements of the cost of manufacturing or selling the undertaking's products have a direct nexus with its profits and qualify for deduction under sections 80-IB and 80-IC. Profits and gains in those sections mean net profit, arrived at after deducting the costs of making and selling the goods; if the State refunds part of those costs, the resulting profit is derived from the business. That the immediate source of the money is the Government makes no difference. Liberty India, which concerned an export incentive available only after manufacture, was distinguished, and the contrary Himachal Pradesh view was held wrongly decided.
• CIT v Sarkar Builders Supreme CourtHelps taxpayer
  My housing project was sanctioned before April 2005 but finished afterwards, and the shops exceed the 5 per cent limit. Does the new clause (d) apply to me?
  No. The Supreme Court held that clause (d) of section 80-IB(10), which caps the built-up area of shops and commercial establishments and took effect on 1 April 2005, does not apply to a housing project approved before 31 March 2005, even if construction was completed and profits offered to tax afterwards. The condition is inextricably linked to the approval and construction of the project, and an assessee cannot be required to satisfy a condition that was not on the statute book when the local authority sanctioned the plans. The Revenue's appeals from several High Courts were all dismissed.
• Liberty India v CIT Supreme CourtHelps department
  Can I count DEPB credits and duty drawback in the profits for my 80-IB deduction?
  No. 'Derived from' is narrower than 'attributable to' and confines eligible profits to sources not beyond the first degree. DEPB and drawback flow from Government schemes rather than from the manufacturing activity, so they are ancillary profits outside the deduction.
• Textile Machinery Corporation Ltd v CIT Supreme CourtHelps taxpayer
  I set up a new foundry inside my existing engineering works and it mostly supplies my own divisions. The officer says it is only a reconstruction of my old business. Is he right?
  No. The Supreme Court held that the Steel Foundry Division and the Jute Mill Division were new industrial undertakings and not formed by reconstruction of the existing business. New plant, separate buildings, separate licences, separate books and substantial fresh capital made each a physically separate and identifiable unit that could exist on its own. That the bulk of what they produced was consumed by the assessee's own Boiler Division was not decisive. Reconstruction requires a transfer of the assets of the old business to the new undertaking; there was none here. The Calcutta High Court's contrary view was set aside.
• CIT-25 v Vandana Properties High CourtHelps taxpayerValidity unconfirmed
  We built one new building on land where we had already built others years ago. The officer says it is not a separate 'housing project', that our share of the plot is under one acre, and that two flats were merged. Is the s.80-IB(10) deduction gone?
  Not on those grounds. The Bombay High Court held that the construction of even one building containing several residential units of not more than 1000 square feet is a 'housing project' for s.80-IB(10); that s.80-IB(10)(b) requires only that the project be on a plot of land with a minimum area of one acre and does not require the land to be vacant or to be apportioned building by building; and that the Explanation to s.80-IB(10)(a) applies only where approval for the same project is granted more than once, not to a genuinely new project on the same site. The alleged merger of two flats was rejected as a finding of fact.
• CIT v Brahma Associates High CourtHelps taxpayer
  My housing project was sanctioned by the municipal corporation as residential plus commercial. For years before April 2005, does that label alone cost me the section 80-IB(10) deduction?
  No. The Bombay High Court held that up to 31 March 2005 the deduction under section 80-IB(10) is available to a project approved by the local authority with commercial user to the extent the Development Control Rules permit, whether the approval is labelled housing project or residential plus commercial. It also held the Special Bench was wrong to invent a 10% ceiling on commercial area for that period, since the Act imposed none, and wrong to split the deduction between residential and commercial parts, because the deduction attaches to the whole approved project. Clause (d), inserted from 1 April 2005, is prospective only.
• CIT v Classic Binding Industries Supreme CourtHelps departmentOverruled
  My Himachal unit has had five years of 100 per cent deduction under section 80-IC. I have now carried out substantial expansion. Can I go back to 100 per cent for the next five years instead of 25 per cent?
  No. The Supreme Court held that once an assessee's initial assessment year has commenced under section 80-IC and it has taken the 100 per cent deduction for five years, there cannot be another initial assessment year within the ten-year period merely because substantial expansion has been carried out. For the remaining five years the deduction is 25 per cent, or 30 per cent for a company. Allowing 100 per cent for the whole ten years would do violence to sub-section (3) read with sub-section (6). The Revenue's appeals were allowed and the Himachal Pradesh High Court's judgment reversed.

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.