Section 32 - Insertion of New section 80IA - Finance (No. 2) Act, 1991

32. Insertion of New section 80-IA. After section 80-I of the Income-tax Act, the following section shall be inserted, namely:- 80-IA. Deduction in respect of profits and gains from industrial undertakings, etc., in certain cases. (1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship (such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6). (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the 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; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India: Provided that the condition in this clause shall, in relation to a small-scale industrial undertaking, apply as if the words not being any article or thing specified in the list in the Eleventh Schedule had been omitted; (iv) it begins to manufacture or produce articles or things or to operate such plant or plants, at any time during the period beginning on the 1st day of April, 1991 and ending on the 31 st day of March, 1995, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking; (v) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. Explanation 1.- For the purposes of clause (ii) of this sub-section, 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, namely:- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this 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. Explanation 2.- Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. (3) This section applies to any ship, where all the following conditions are fulfilled, namely:- (i) it is owned by an Indian company and is wholly used for the purposes of the business carried on by it; (ii) it was not, previous to the date of its acquisition by the Indian company, owned or used in Indian territorial waters by a person resident in India; and (iii) it is brought into use by the Indian company at any time during the period beginning on the 1st day of April, 1991 and ending on the 31st day of March, 1995. (4) This section applies to the business of any hotel, where conditions (i), (ii), (v), and either of the conditions (ii) or (iv), are fulfilled, namely:- (i) 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: (ii) the business of the hotel is owned and carried on by a company registered in India with a paid-up capital of not less than five hundred thousand rupees; (iii) the business of the hotel, 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 of this clause, starts functioning at any time during the period beginning on the 1 st day of April, 1990 and ending on the 31st day of March, 1994; (iv) the business of the hotel- (1) located in any place, or (2) located in a place other than a place referred to in clause (i) of this sub-section, starts functioning at any time during the period beginning on the 1st day of April, 1991 and ending on the 31 day of March, 1995; (v) the hotel is for the time being approved by the prescribed authority. (5) The amount referred to in sub-section (1) shall be- (i) in the case of an industrial undertaking, twenty-five per cent of the profits and gains derived from such industrial undertaking: Provided that where the assessee is a company, the provisions of this clause shall have effect as if for the words twenty-five per cent. , the words thirty per cent. had been substituted; (ii) in the case of a hotel referred to in clause (iii) of sub-section (4), fifty per cent. of the profits and gains derived from the business of such hotel: Provided that the said hotel is approved by the prescribed authority for the purpose of this clause in accordance with the rules made under this Act: Provided further that the said hotel approved by the prescribed authority before the 31st day of March, 1992, shall be deemed to have been approved by the prescribed authority for the purposes of this section in relation to the assessment year commencing on the 1st day of April, 1991; (iii) in the case of a hotel referred to in clause (iv) of sub-section (4), thirty per cent. of the profits and gains derived from the business of such hotel; (iv) in the case of a ship, thirty per cent. of the profits and gains derived from such ship. (6) The number of assessment years referred to in sub-section (1) shall, including the initial assessment year, be- (i) twelve in the case of an assessee. being a co-operative society, deriving profits and gains from an industrial undertaking; (ii) ten in the case of any other assessee deriving profits and gains from an industrial undertaking; (iii) ten in the case of any other assessee deriving profits and gains, from a ship or the business of a hotel. (7) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (5) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, 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. (8) Where the assessee is a person other than a company or a co-operative society the deduction under sub-section (1) from profits and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant. as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. (9) Where any goods held for the purposes of the eligible business are transferred to any other business carried on by the assessee. or where any goods held for the purposes of any other business carried on by the assessee are transferred to the eligible business 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 the transfer, then, for the purposes of the deduction under this section. the profits and gains of such eligible business shall be computed as if the transfer in either case, had been made at the market value of such goods as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation. In this sub-section. market value in relation to any goods, means the price that such goods would ordinarily fetch on sale in the open market. (10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business the Assessing Officer shall. in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. (11) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertakings with effect from such date as it may specify in the notification. (12) For the purposes of this section,- (a) hilly area means any area located at a height of one thousand metres or more above the sea level; (b) Industrial undertaking shall have the meaning assigned to it in the Explanation to section 33B; (c) 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 or the ship is first brought into use or the business of the hotel starts functioning; (d) 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; (e) rural area means any area other than- (i) an area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the preceding census of which relevant figures have been published before the first day of the previous year; or (ii) an area within such distance not being more than fifteen kilometres from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the stage of development of such area (Including the extent of, and scope for, urbanisation of such area) and other relevant considerations specify in this behalf by notification in the Official Gazette; (f) small-scale industrial undertaking means an industrial undertaking where the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of business of the undertaking does not exceed sixty lakh rupees and for this purpose the value of any machinery or plant shall be,- (i) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and (ii) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant. .