Additional and new employmen: Incentive deduction u.s. 80JJAA- liberal and practical approach is required to achieve purpose - should be allowed to professionals in practice as they enter into adventure in nature of commerce by taking risks and also to small businesses and professionals having low turnover and no TAR requirement.

				By: DEV KUMAR KOTHARI
				March 15, 2021
All Articles by: DEV KUMAR KOTHARI View Profile

Contents

S.80JJAA – incentive for additional employments:

Section 80JJAA is a provision for allowing deduction in respect of additional and new employments in a business. As usual the incentive is subject to many conditions and restrictions which goes against its purpose. The provision should be made simple and easy to avail by all assesses who create new and additional employment. It must be workable for small organizations also who provide large number of employment and also provide training to novice / new comers employees who later on become employable by large organizations and can also set up own business.

Professionals:

Professionals engaged in any profession is employment creator. First of all, instead of joining an employment, any professional who set up his practice creates employment.

First of all by starting practice any doctor, engineer, advocate, CA, CMA, private , trainer, coach or teacher, (broker, or any other professional create employment by self-employing himself and by employing other people.

Professionals also provide training and experience opportunities to new comers who are presently not employable and by undergoing training during employment as junior of professional, can become employable by large organizations and can also start their own business and profession.

It is well within public information and knowledge and grape wine that we find many qualified professionals in most of field who require more training and experience to get jobs in large corporates or to set up own business. Training as a junior under a senior professional in most of fields is common.

Profession and adventure:

Any professional person who starts practice take various risks besides loss of fixed earnings and security in jobs which they can avail in employment.

Once a practice is setup , some fixed expenses like rent, interest, salary , depreciation of professional equipment and vehicles , rates and taxes, insurance etc. are committed to borne by professional turned entrepreneur irrespective of earnings. With increase in level and status more fixed expenses are to be undertaken.

Professional risks are undertaken which are mostly avoidable in case of employment.

Risks and responsibilities towards employees are to be faced.

Therefore a decision to set up a practice instead of joining employment is an adventure in nature of commerce. Once a team is prepared, which is a must to survive in competition, the profession becomes an adventure.

Once we find that decision to set up practice involves an adventure in nature of commerce, it is in nature of business as a consequence. In this regard inclusive definitions of business and profession are relevant and the same are reproduced below with highlights added:

Definitions.

2. In this Act, unless the context otherwise requires,-

(13) "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture ;

(36) "profession" includes vocation.

Therefore we find that both expressions are defined in inclusive and expansive manner.

Therefore, benefit of S.80JJAA should be allowed to all business and profession who creates new and additional employments.

Accordingly benefit of S.80JJAA must be allowed to professional, who start practice and employ others irrespective of amount of gross receipts in profession.

Benefit of S.80JJAA must also be allowed to small assesses carrying any business or profession whose turnover is low and who are not required to get accounts audited us 44AB.

Complex provision:

Unfortunately provisions of S.80JJAA, are very complex and ambiguous, lot of conditions are to be complied with. This goes against the purpose and spirit of the intended purpose for which incentive is allowed. We find that many amendments have also been made in the provisions which make it more complex in its application from year to year.

80JJAA is reproduced below with highlights added to show complexity and conditions and also to make easy analysis:

¹⁰[Deduction in respect of employment of new employees.

‘80JJAA. (1) Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent. of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

(2) No deduction under sub-section (1) shall be allowed,-

(a) if the business is formed by splitting up, or the reconstruction, of an existing business:

Provided that nothing contained in this clause shall apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances and within the period specified in section 33B;

(b) if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation;

(c) unless the assessee furnishes ¹⁵[the report of the accountant, as defined in the Explanation below sub-section (2) of section 288, before the specified date referred to in section 44AB] giving such particulars in the report as may be prescribed.

Explanation.-For the purposes of this section,-

(i) “additional employee cost” means the total emoluments paid or payable to additional employees employed during the previous year:

Provided that in the case of an existing business, the additional employee cost shall be nil, if-

(a) there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year;

(b) emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a ¹⁴[bank account or through such other electronic mode as may be prescribed]:

Provided further that in the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost;

(ii) “additional employee” means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include-

(a) an employee whose total emoluments are more than twentyfive thousand rupees per month; or

(b) an employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; or

(d) an employee who does not participate in the recognised provident fund;

¹¹[ Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel ¹²[or footwear or leather products], the provisions of sub-clause (c) shall have effect as if for the words “two hundred and forty days”, the words “one hundred and fifty days” had been substituted ]

¹³[Provided further that where an employee is employed during the previous year for a period of less than two hundred and forty days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly;]

(iii) “emoluments” means any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include-

(a) any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law for the time being in force; and

(b) any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.

(3) The provisions of this section, as they stood immediately prior to their amendment by the Finance Act, 2016, shall apply to an assessee eligible to claim any deduction for any assessment year commencing on or before the 1st day of April, 2016.]

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Notes :-

1.	Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.
2.	Substituted vide Finance Act, 2013 w.e.f. 1st day of April, 2014, before it was read as, “(1) Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from any industrial undertaking engaged in the manufacture or production of article or thing, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided.”
3.	Substituted vide Finance Act, 2013 w.e.f. 1st day of April, 2014, before it was read as, “(a) if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking;”
4.	Substituted vide Finance Act, 2013 w.e.f. 1st day of April, 2014 before it was read as, “undertaking”
5.	Substituted vide Finance Act, 2013 w.e.f. 1st day of April, 2014 before it was read as, “undertaking”
6.	Inserted vide Finance Act, 2013 w.e.f. 1st day of April, 2014
7.	Omitted vide THE FINANCE ACT, 2015 w.e.f. 1st day of April, 2016, before it was read as, “being an Indian company,”"
8.	Substituted vide THE FINANCE ACT, 2015 w.e.f. 1st day of April, 2016, before it was read as, "³[(a) if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company]"
9.	Substituted vide THE FINANCE ACT, 2015 w.e.f. 1st day of April, 2016, before it was read as, "one hundred workmen"
10.	Substituted vide THE FINANCE ACT, 2016 w.e.f. 1st day of April, 2017 before it was read as, "¹[Deduction in respect of employment of new workmen. 80JJAA. ²[(1) Where the gross total income of an assessee, ⁷[*] includes any profits and gains derived from the manufacture of goods in a factory, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.] (2) No deduction under sub-section (1) shall be allowed- ⁸[(a) if the factory is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation;] (b) unless the assessee furnishes along with the return of income the report of the accountant, as defined in the Explanationbelow sub-section (2) of section 288 giving such particulars in the report as may be prescribed. Explanation.-For the purposes of this section, the expressions,- (i) "additional wages" means the wages paid to the new regular workmen in excess of ⁹[fifty workmen] employed during the previous year : Provided** that in the case of an existing ⁴[factory], the additional wages shall be nil if the increase in the number of regular workmen employed during the year is less than ten per cent of existing number of workmen employed in such ⁵[factory ] as on the last day of the preceding year; (ii) "regular workman", does not include- (a) a casual workman; or (b) a workman employed through contract labour; or (c) any other workman employed for a period of less than three hundred days during the previous year; (iii) "workman" shall have the meaning assigned to it in clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947).] ⁶[(iv) “factory” shall have the same meaning as assigned to it in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948).]"
11.	Inserted vide THE TAXATION LAWS (AMENDMENT) ACT, 2016 w.e.f. 1st day of April, 2017
12.	Inserted vide THE FINANCE ACT, 2018, w.e.f. 1st day of April, 2019
13.	Inserted vide THE FINANCE ACT, 2018, w.e.f. 1st day of April, 2019
14.	Substituted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-04-2020 before it was read as "bank account"