Kanga & Palkhivala IT Act 10th Ed Vol I CH 6A-8

Date and Time: 27 November 2020 21:28:00 IST
Job Number: 130972674
Documents (83)
1. S. 80A. Deductions to be made in computing total income

Client/Matter: -None-
2. S. 80AA
3. S. 80AB. Deductions to be made with reference to the income included in the gross total income
4. S. 80AC. Deduction not to be allowed unless return furnished
5. S. 80B. Definitions
6. S. 80C. Deduction in respect of life insurance premia, deferred annuity, contri-butions to provident fund,
subscription to certain equity shares or deben-tures, etc.
7. S. 80CC.
8. [S. 80CCA. Deduction in respect of deposits under National Savings Scheme or payment to an annuity plan
9. S. 80CCB. Deduction in respect of investment made under Equity Linked Savings Scheme
10. [S. 80CCC. Deduction in respect of contribution to certain pension funds
11. S. 80CCD. Deduction in respect of contribution to pension scheme of Central Government
12. S. 80CCE. Limit on deductions under sections 80C, 80CCC and 80CCD
13. [S. 80CCF. Deduction in respect of subscription to long-term infrastructure bonds
14. S. 80CCG. Deduction in respect of investment made under an equity savings scheme
15. S. 80D. Deduction in respect of health insurance premia
16. S. 80DD. Deduction in respect of maintenance including medical treatment of a dependant who is a person
with disability
17. S. 80DDB. Deduction in respect of medical treatment, etc.
18. S. 80E. Deduction in respect of interest on loan taken for higher education
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19. S. 80EE. Deduction in respect of interest on loan taken for residential house property
20. S. 80F.
21. S. 80FF.
22. S. 80G. Deduction in respect of donations to certain funds, charitable insti-tutions, etc.
23. S. 80GG. Deductions in respect of rents paid
24. S. 80GGA. Deduction in respect of certain donations for scientific research or rural development
25. S. 80GGB. Deduction in respect of contributions given by companies to political parties
26. S. 80GGC. Deduction in respect of contributions given by any person to political parties
27. S. 80H.
28. S. 80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel
business in backward areas
29. S. 80HHA. Deduction in respect of profits and gains from newly established small-scale industrial under-
takings in certain areas
30. S. 80HHB. Deduction in respect of profits and gains from projects outside India
31. S. 80HHBA. Deduction in respect of profits and gains from housing projects in certain cases
32. S. 80HHC. Deduction in respect of profits retained for export business
33. S. 80HHD. Deduction in respect of earnings in convertible foreign exchange
34. S. 80HHE. Deduction in respect of profits from export of computer software, etc.
35. S. 80HHF. Deduction in respect of profits and gains from export or transfer of film software, etc.
36. S. 80-I. Deduction in respect of profits and gains from industrial undertakings after a certain date, etc.
37. S. 80-IA. Deductions in respect of profits and gains from industrial undertakings or
enterprises engaged in infrastructure develop-ment, etc.
38. S. 80-IAB. Deductions in respect of profits and gains by an undertaking or enterprise engaged in
development of Special Economic Zone
39. S. 80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than
infrastructure development undertakings
40. S. 80-IC. Special provisions in respect of certain undertakings or enterprises in certain special category
States
41. S. 80-ID. Deduction in respect of profits and gains from business of hotels and
convention centres in specified area
42. S. 80-IE. Special provisions in respect of certain undertakings in North-Eastern States
43. S. 80J.
44. S. 80JJ.
45. S. 80JJA. Deduction in respect of profits and gains from business of collecting and processing of bio-
degradable waste
46. S. 80JJAA. Deduction in respect of employment of new workmen
47. S. 80K.
48. S. 80L.
49. S. 80LA. Deductions in respect of certain incomes of Offshore Banking Units and International Financial
Services Centre
50. S. 80M.
51. S. 80MM.
52. S. 80N.
53. S 80-O. Deduction in respect of royalties, etc., from certain foreign enterprises
54. S. 80P. Deduction in respect of income of co-operative societies
55. S. 80Q. Deduction in respect of profits and gains from the business of publication of books
56. S. 80QQ.
57. S. 80QQA. Deduction in respect of professional income of authors of text books in Indian languages
58. S. 80QQB. Deduction in respect of royalty income, etc., of authors of certain books other than text books
59. S. 80R. Deduction in respect of remuneration from certain foreign sources in the case of professors,
teachers, etc.
60. S. 80RR. Deduction in respect of professional income from foreign sources in certain cases
61. S. 80RRA. Deduction in respect of remuneration received for services rendered outside India
62. S. 80RRB. Deduction in respect of royalty on patents
63. S. 80-S.
64. S. 80T.
65. S. 80TT.
66. S. 80TTA. Deduction in respect of interest on deposits in savings account
67. S. 80U. Deduction in case of a person with disability
68. S. 80V.
69. S. 80VV.
70. S. 80VVA.
71. S. 81 to 85C.
72. S. 86. Share of member of an association of persons or body of individuals in the income of the association
or body
73. S. 86A.
74. S. 87. Rebate to be allowed in computing income-tax
75. S. 87A. Rebate of income-tax in case of certain individuals
76. S. 88. Rebate on life insurance premia, contribution to provident fund, etc.
77. S. 88A.
78. S. 88B.
79. S. 88C.
80. S. 88D.
81. S. 88E. Rebate in respect of securities transaction tax
82. S. 89. Relief when salary, etc., is paid in arrears or in advance
83. S. 89A.
S. 80A. Deductions to be made in computing total income
Kanga & Palkhivala's: The Law and Practice of Income Tax, 10th Edition
Kanga & Palkhivala's: The Law and Practice of Income Tax, 10th Edition > Kanga & Palkhiwala -
Income Tax, 10e, 2 Vols, HB > Volume 1 > CHAPTER VI-A Deductions to be Made in Computing
Total Income > A —General
THE INCOME-TAX ACT, 1961 (ACT NO. XLIII OF 1961)
CHAPTER VI-A Deductions to be Made in Computing Total Income
A —General
(1) *In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance
with and subject to the provisions of this Chapter, the deductions specified in sections 80C to1[80U].
(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income
of the assessee.
(3) 2[Where, in computing the total income of an association of persons or a body of individuals, any deduction is
admissible under section 80G or3[section 80GGA or section 80GGC ] or section 80HH or section 80HHA or
section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA 4[or section 80-IB ]5[or section
80-IC ]6[or section 80-ID or section 80-IE ] or section 80J 7 or section 80JJ, no deduction under the same section
shall be made in computing the total income of a member of the association of persons or body of individuals in
relation to the share of such member in the income of the association of persons or body of individuals.]
(4) 8[Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section
10BA or in any provisions of this Chapter under the heading “C.—Deductions in respect of certain incomes”,
where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or
eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year,
deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other
provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such
undertaking or unit or enterprise or eligible business, as the case may be.
(5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section
10AA or section 10B or section 10BA or under any provision of this Chapter under the heading “C.—Deductions in
respect of certain incomes”, no deduction shall be allowed to him thereunder.]
(6) 9[Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section
10BA or in any provisions of this Chapter under the heading “C.—Deductions in respect of certain incomes”,
where any goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are
transferred to any other business carried on by the assessee or where any goods or services held for the
purposes of any other business carried on by the assessee are transferred to the undertaking or unit or enterprise
or eligible business and, the consideration, if any, for such transfer as recorded in the accounts of the undertaking
or unit or enterprise or eligible business does not correspond to the market value of such goods or services as on
the date of the transfer, then, for the purposes of any deduction under this Chapter, the profits and gains of such
undertaking or unit or enterprise or eligible business shall be computed as if the transfer, in either case, had been
made at the market value of such goods or services as on that date.
Page 2 of 5
Explanation.—For the purposes of this sub-section, the expression “market value”,—
(i) in relation to any goods or services sold or supplied, means the price that such goods or services would fetch
if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to
statutory or regulatory restrictions, if any;
(ii) in relation to any goods or services acquired, means the price that such goods or services would cost if these
were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to
statutory or regulatory restrictions, if any.]
(iii) 10[inrelation to any goods or services sold, supplied or acquired means the arm’s length price as defined in
clause (ii) of section 92F of such goods or services, if it is a specified domestic transaction referred to in
section 92BA .]
(7) 11[Where a deduction under any provision of this Chapter under the heading “C.—Deductions in respect of certain
incomes” is claimed and allowed in respect of profits of any of the specified business referred to in clause (c) of
sub-section (8) of section 35AD for any assessment year, no deduction shall be allowed under the provisions of
section 35AD in relation to such specified business for the same or any other assessment year.]
Section 80A : Deductible Incomes and other Deductions in Computing Total Income—Not the same as
‘Incomes not Included in Total Income’.—In ITO v Stumpp ,12 the Supreme Court, while approving the
preponderance of judicial opinion, held that the deductions allowable under this chapter cannot be equated with
‘incomes not included in total income’. [Cf the heading of Ch III.]
The expression “gross total income” has been defined in s 80B(5) . However, ss 80A(2) and 80B(5) are declaratory in
nature and apply to all sections falling under Chapter VI-A. They impose a ceiling on the total amount of deduction
and, therefore, the non-obstante clause in s 80-I(6) cannot restrict the operation of ss 80A(2) and 80B(5) which
operate in different spheres. Therefore, the losses of one unit will have to be adjusted against the profits of the other
units and if the “gross total income” is then found to be ‘nil’, the assessee will not be entitled to deduction under
Chapter VI-A, which includes ss 80-I13, 80 HH, 80HHD and 80-I14 or 80HHC.15
In view of sub-s (2), deductions under this clause are not to be allowed in the year in which the gross total income is a
loss,16 even if the assessee has commercial profits.17 Further, deduction under this chapter is allowable only from the
gross total income as computed under the Act and not from the income before taking into account business loss18 and
unabsorbed depreciation.19 The deduction under this chapter is to be computed on the income included in such gross
total income, subject to the overall limit imposed by sub-s (2).20
Sub-sections (4), (5) and (6) were inserted by the Finance (No. 2) Act 2009 with retrospective effect from April 1, 2009.
These sub-ss were introduced to prevent abuse of profit linked tax incentives. The purpose of the amendment has
been explained by the CBDT Circular No. 5, dated June 3, 2010.21
Page 3 of 5
Sub-section (7) was inserted by the Finance Act, 2010, with effect from April 1, 2011. The said sub-s was inserted so
as to restrict similar deductions already claimed under sub-s (3) of section 35AD . The purpose of the amendment has
been explained by the CBDT Circular No. 1, dated April 6, 2011.22
* Chapter VI-A was substituted by the Finance (No. 2) Act 1967 (20 of 1967), s 33 and 3rd Sch. (w.e.f. 1-4-1968). See
Circular No. 5P, October 9, 1967.
1 Subs., for “80VV”, by the Finance Act, 1985 (32 of 1985), s 36(a)(i) (w.e.f. 1-4-1986). See Circular No. 421, June 12,
1985, 156 ITR (St.) 130. Earlier, “80VV” was substituted for “80U” by the Taxation Laws (Amendment) Act, 1975 (41 of
1975), s 16(i) (w.e.f. 1-4-1976). See Circular No. 179, September 30, 1975, 102 ITR (St.) 9 (in force from 1/10/1975);
Circular No. 204, July 24, 1976, 110 ITR (St.) 21 (in force from 1/4/1976).Still earlier, “80U” was substituted for “80T” by
the Finance Act, 1968 (19 of 1968), s 30 & Sch. III (w.e.f. 1-4-1969). See Circular No. 6P, July 6, 1968.
2 Subs. by the Finance Act, 1992 (18 of 1992), s 41 (w.e.f. 1-4-1993), Circular No. 636, August 31, 1992, 198 ITR (St.)
1, for the following:—
‘(3) Where, in computing the total income of a firm, association of persons or body of individuals, any deduction is admissible
under section 80G 1[or section 80GGA ] 2[* * * or section 80HH ] 3[or section 80HHA ] 4[or section 80HHB ] 5[or section 80HHC ]
6[or section 80HHD ] 7[or section 80-I ] or section 80J 8[or section 80JJ ] 9[* *] 10[* *] 11[* *] 12[* *] 13[* *] 14[* *] 15[* *], no deduction
under the same section shall be made in computing the total income of a partner of the firm or, as the case may be, of a member
of the association of persons or body of individuals in relation to the share of such partner in the income of the firm or the share
of such member in the income of the association of persons or body of individuals.’.
1. Ins. by the Finance Act, 1979 (21 of 1979) s 22(2)(b)(i) (w.e.f. 1-4-1980).
2. The words, etc. “ section 80H or section 80HH ” were substituted for “ section 80H ” by the Direct Taxes (Amendment) Act,
1974 (26 of 1974), s 8 (w.e.f. 1-4-1974).
Thereafter the words, etc. “or section 80H ” were omitted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 16(ii)
(w.e.f. 1-4-1976).
3. Ins. by the Finance (No. 2) Act 1977 (29 of 1977), s 29(2)(b) (w.e.f. 1-4-1978).
4. Ins. by the Finance Act, 1982 (14 of 1982), s 32(ii) (w.e.f. 1-4-1983).
5. Ins. by the Finance Act, 1983 (11 of 1983), s 39(b)(i) (w.e.f. 1-4-1983).
6. Ins. by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 57(1)(a) (w.e.f. 1-4-1989).
7. Ins. by the Finance (No. 2) Act 1980 (44 of 1980), s 35(iii) (w.e.f. 1-4-1981).
8. Ins. by the Finance Act, 1989 (13 of 1989), s 25(a) (w.e.f. 1-4-1990).
Earlier, “or section 80JJ ” were omitted by the Finance Act, 1985 (32 of 1985), s 36(a)(ii) (w.e.f. 1-4-1986), which were, originally,
inserted by the Finance Act, 1975 (25 of 1975), s 24(2)(b) (w.e.f. 1-4-1976).
9. The words, etc. “or section 80JJA ” have been omitted by the Finance Act, 1983 (11 of 1983), s 39(b)(ii) (w.e.f. 1-4-1984),
which were, earlier, inserted by the Finance Act, 1979 (21 of 1979), s 22(2)(b)(ii) (w.e.f. 1-4-1980).
10. The words, etc. “or section 80K ” have been omitted by the Finance Act, 1986 (23 of 1986), s 39(a)(i) (w.e.f. 1-4-1987).
11. The words, etc. “or section 80MM or section 80N or section 80-O ” have been omitted by the Finance Act, 1974 (20 of 1974),
s 13(2)(iv) (w.e.f. 1-4-1975). Earlier, the words, etc. “ section 80MM or section 80N or section 80-O ” were substituted for “
section 80L ” by the Finance (No. 2) Act 1971 (32 of 1971), s 14 (w.e.f. 1-4-1972).
12. The words, etc. “or section 80QQ ” have been omitted by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 57(1)(b)
(w.e.f. 1-4-1989). These words, etc., in effect, were inserted by the Taxation Laws (Amendment) Act, 1970 (42 of 1970), s 17
(w.e.f. 1-4-1971).
13. The words, etc. “or section 80-S ” have been omitted by the Finance Act, 1986 (23 of 1986), s 39(a)(ii) (w.e.f. 1-4-1987).
14. The words, etc. “or section 80-T ” have been omitted by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 57(1)(b)
(w.e.f. 1-4-1989).
15. The words, etc. “or section 80-TT ” have been omitted by the Finance Act, 1986 (23 of 1986), s 39(a)(iii) (w.e.f. 1-4-1987).
These words, etc., in effect, were inserted by the Finance Act, 1972 (16 of 1972), s 14 (w.e.f. 1-4-1972).
Page 4 of 5
3 Subs., for “ section 80GGA ”, by the Election & Other Related Laws (Amendment) Act, 2003 (46 of 2003), s 9 (w.e.f.
11-9-2003).
4 Ins. by the Finance Act, 1999 (27 of 1999), s 90(c) (w.e.f. 1-4-2000). See Circular No. 779, September 14, 1999, 240
ITR (St.) 3.
5 Ins. by the Finance Act, 2007 (22 of 2007), s 22(i) (w.r.e.f. 1-4-2004). See Circular No. 3 of 2008, March 12, 2008, 299
ITR (St.) 8.
6 Ins. by the Finance Act, 2007 (22 of 2007), s 22(ii) (w.e.f. 1-4-2008).
7 Section 80J has been omitted by the Finance (No. 2) Act 1996 (w.r.e.f. 1-4-1989). See Circular No. 762, February 18,
1998, 230 ITR (St.) 12.
8 Sub-sections (4) and (5) have been inserted by the Finance (No. 2) Act 2009 (33 of 2009), s 29(a) (w.r.e.f. 1-4-2003).
See Circular No. 5 of 2010, June 3, 2010, 324 ITR (St.) 293. Earlier, sub-section (4) which was inserted by the Finance
Act, 1976 (66 of 1976), s 15 (w.e.f. 1-4-1977), see Circular No. 202, July 5, 1976, 105 ITR (St.) 17, was omitted by the
Finance Act, 1978 (19 of 1978), s 15 (w.e.f. 1-4-1979). See Circular No. 240, May 17, 1978, 117 ITR (St.) 17. Prior to
its omission, sub-section (4) stood as under:—
“(4) Notwithstanding anything contained in sub-section (1), no deduction under section 80G or section 80GG or section 80HH or
section 80J or section 80L or section 80QQ shall be allowed in computing the total income of an assessee, being a Hindu
undivided family which at any time during the previous year has at least one member whose total income of the previous year
exceeds the maximum amount not chargeable to tax.”.
9 Ins. by the Finance (No. 2) Act 2009 (33 of 2009), s 29(b) (w.r.e.f 1-4-2009).
10 Ins. by the Finance Act, 2012 (23 of 2012), s 23 (w.e.f. 1-4-2013). See Circular No. 3 of 2012, June 12, 2012, 345 ITR
(St.) 103-Supplementary Memorandum. Also see Memorandum explaining the provisions in Finance Bill, 2012, 342 ITR
(St.) 234.
11 Ins. by the Finance Act, 2010 (14 of 2010), s 23 (w.e.f. 1-4-2011). See Circular No. 1 of 2011, April 6, 2011, 333 ITR
(St.) 7.
12 187 ITR 108 (SC) affirming 106 ITR 399, and approving the following cases: CIT v Bimetal 110 ITR 131 ; CST v
Ballarpur Inds 116 ITR 528 ; CIT v Dalmia 126 ITR 736 ; CIT v Premier 128 ITR 694 ; CIT v Schrader 132 ITR 822 ;
CIT v Alembic 133 ITR 578 ; Siemens v Subramanian 143 ITR 120, 145 --46, affirmed in Subramanian v Siemens
173 ITR 136 ; CIT v JK Synthetics 143 ITR 396 ; CIT v Indian Detonators 143 ITR 547 ; CIT v Avery 178 ITR 173 ;
CIT v Oswal 178 ITR 635 . See also CIT v Century Spg 111 ITR 6 .
13 Synco Industries v AO 299 ITR 444 (SC); Bajaj Motors P. Ltd. v CIT 347 ITR 472 .
14 CIT v Arif Industries Ltd. 339 ITR 6 ; CIT v Chhata Sugar Co. Ltd. 277 ITR 256 .
15 CIT v Williamson Financial Services 297 ITR 17 (SC); CIT v Exportos Apparel Group Ltd. 299 ITR 176 .
Page 5 of 5
16 National Engg v CIT 113 ITR 252 ; Atherton v CIT 165 ITR 527 ; CIT v Mercantile Bank 169 ITR 44 ; Murugappa v
CIT 178 ITR 410 ; CIT v Zoraster 179 ITR 613 .
17 Jaiprakash v CIT 215 ITR 302 .
18 Warner Lambert v CIT 205 ITR 395 ; Rama Varma v CIT 205 ITR 433 (SC) (capital loss); CIT v Exportos Apparel
Group Ltd. 299 ITR 176 .
19 CIT v Bhoruka 198 ITR 734 .
20 Ibid.
21 Explanatory Notes to the provisions of Finance (No. 2) Act 2009, 324 ITR (St.) 293.
22 Explanatory Notes to the provisions of the Finance Act, 2010, 333 ITR (St.) 7.
End of Document
S. 80AA
A —General
S. 80AA
23[* * * *]
1. Deleted Section 80AA : Computation of Deductions under Section 80M .—This section was introduced by the
Finance (No 2) Act 1980 with a view to supersede the construction placed on s 80M by the Supreme Court in Cloth
Traders v CIT ,24 and provides that the deduction under s 80M is to be calculated with reference to the dividend
income as computed in accordance with the provisions of Act (before making any deduction under Ch VIA) and not
with reference to the gross amount of such dividends. The section was inserted with retrospective effect from April 1,
1968, i.e. from the date of insertion of Ch VIA in the Act, and is to apply in relation to the assessment year 1968-69
and subsequent years.25
2. Deduction in Respect of Dividend: on Gross or Net Amount.—The phrase ‘(before making any deduction under
this Chapter)’ contained in this section only clarifies what is meant by ‘the income by way of such dividends as
computed in accordance with the provisions of this Act’; and therefore, ‘for working out the deduction under s 80M(1)
of the Act, the net dividend income after reducing the quantum of dividend income further on account of relief
admissible under s 80K of the Act is to be taken into consideration’26—for the legislature never intended to grant
double relief, both under s 80K (now deleted) and again under s 80M(1) (now deleted).
However, where a dealer in shares borrows money for the purpose of his business of dealing in shares, the entire
interest on money borrowed is allowable under s 36(1)(iii) in computing the business income, and therefore, despite s
80AA, the dividend is not to be reduced by any part of the interest in calculating the deduction under s 80M (now
deleted).27 [See also under s 80M .]
Page 2 of 2
S. 80AA
23 Section 80AA has been omitted by the Finance Act, 1997 (26 of 1997), s 21 (w.e.f. 1-4-1998). See Circular No. 763,
February 18, 1998, 230 ITR (St.) 54. Prior to its omission, section 80AA stood as under:—
‘S. 80AA. Computation of deduction under section 80M .—Where any deduction is required to be allowed under section
80M in respect of any income by way of dividends from a domestic company which is included in the gross total income of the
assessee, then, notwithstanding anything contained in that section, the deduction under that section shall be computed with
reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any
deduction under this Chapter) and not with reference to the gross amount of such dividends.’.
Above section 80AA was, originally, inserted by the Finance (No. 2) Act 1980 (44 of 1980),
s 12(a) (w.r.e.f. 1-4-1968). See Circular No. 281, September 22, 1980, 131 ITR (St.) 4. It may be noted that section 44 of that
Finance Act makes certain saving provisions in this regard.
24 118 ITR 243 (SC), subsequently overruled by Distributor’s (Baroda) v UOI 155 ITR 120 (SC); Motilal Pesticides v CIT
243 ITR 26 (SC); and under s 80M .
25 CIT v Atam Ballabh 258 ITR 485 .
26 CIT v Sarabhai 211 ITR 20, 29 .
27 CIT v Cotton Fabrics 131 ITR 99 ; CIT v Laxmi Agents 125 ITR 227 . See further under s 80AB, p 1425, nn 53 and
54; and 1642, n 69.
End of Document
S. 80AB. Deductions to be made with reference to the income included in
the gross total income
A —General
S. 80AB. Deductions to be made with reference to the income included in the gross total income
28[Where any deduction is required to be made or allowed under any section29[* * *] included in this Chapter under the
heading “C.—Deductions in respect of certain incomes” in respect of any income of the nature specified in that section
which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the
purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance
with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of
income of that nature which is derived or received by the assessee and which is included in his gross total income.]
Section 80AB : Computation of Deduction under Part C of Chapter VIA.—This section, just as s 80AA (now
omitted), owes its origin to the decision of the Supreme Court in Cloth Traders v CIT ,30 wherein the court specifically
referred to the provisions of some of the sections contained in Ch VIA of the Act and held that the deduction
admissible was in respect of the gross amount of income and not in respect of the net income. The scope and effect of
insertion of this section has been explained in the Board Circular.31 In order to supersede this decision, the Finance
(No 2) Act 1980 introduced this section, with effect from the assessment year 1981-82, which provides that deductions
included in this chapter under the heading ‘C—Deductions in respect of certain incomes’ are to be calculated with
reference to the net income as computed in accordance with the provisions of the Act, and not with reference to the
gross amount of such income. This section is declaratory in nature and applies even to years prior to the assessment
year 1981-82.32 It has also been held that the board’s circular stating that the section is prospective in nature cannot
pre-empt a judicial interpretation of the scope and ambit of the provision.33
The restriction imposed by this section is aimed at ensuring that the deductions do not exceed the net income under a
particular source.34 For the purpose of computing deductions, such profits but not the commercial profits as are
computed in the manner laid down under the Act in pursuance of this section, as if each undertaking is a separate
assessee, are to be considered.35 Thus, while computing the income eligible for deduction under this section, the loss
of one eligible unit is to be set off against the profits of another such unit.36 While allowing deduction under s 80HHA,
the loss from the non-industrial unit needs to be adjusted in terms of ss 80AB and 71.37 Unabsorbed business losses
will also have to be set off against the profits from exports.38 Similarly, the deductions are to be computed with
Page 2 of 4
reference to profits of a particular undertaking and not with reference to the total profits of the assessee.39 Further, in
computing the net income as per the provisions of the Act, eligible deductions such as development rebate,40
investment allowance and depreciation41 have to be deducted. The total income so computed is to be further reduced
by deducting unabsorbed losses and unabsorbed depreciation.42
The non obstante clause in this section makes it clear that the mode of computation as indicated in this section has full
application in computing the deduction to which it applies.43 Thus, deduction under s 80K (now omitted) is allowable
only on the net amount after deduction of the interest paid on moneys borrowed specifically for investment in shares,
and not on the gross amount.44 Likewise, for the purpose of computing the relief under s 80HH, the profits are to be
computed in the manner laid down under the Act in pursuance of this section, and the deduction is allowable on the
net income and not the gross income.45 Similarly, while computing the deduction under s 80-O, the provisions of this
section would apply, and only the net income computed in accordance with the provisions of the Act shall be the
amount of income for the purpose of deduction.46
Prior to the amendment of s 80HHC, the deduction thereunder was in relation to export turnover and not in relation to
income, and consequently, the Gujarat,47 Bombay48 and Kerala49 High Courts took a view that s 80HHC, as it earlier
stood, was not governed by this section. Now, the Supreme Court50 has held that s 80HHC does not prevail over s
80AB or over any other provision of the Act. It also held that the Circular51 did not provide for negative profits. If the
profit from export of manufactured goods is less than the loss incurred in export from trading activity, no deduction
under s 80HHC is permissible.
In view of the under-noted Supreme Court decision52, the view that s 80HHC is not subject to s 80AB is incorrect.
In computing the deduction under s 80L, the interest paid under a loan transaction for the purpose of business is not to
be deducted, since this section would have no application.53 Likewise, with regard to interest income, a similar
deduction is not required in respect of interest paid for earning dividend income, as the total income already stands
computed under s 56 and the provisions of this section do not apply at that stage.54
28 Ins. by the Finance (No. 2) Act 1980 (44 of 1980), s 12(b) (w.e.f. 1-4-1981). See Circular No. 281, September 22,
1980, 131 ITR (St.) 4.
29 The brackets, words, figures and letter “(except section 80M )” have been omitted by the Finance Act, 1997 (26 of
1997), s 22 (w.e.f. 1-4-1998). See Circular No.763, February 18, 1998, 230 ITR (St.) 54.
30 118 ITR 243 (SC); Motilal Pesticides v CIT 243 ITR 26 (SC).
31 Circular No. 281, dated September 22, 1980, 131 ITR (St.) 4.
Page 3 of 4
32 Rama Varma v CIT 205 ITR 433 (SC).
33 Bhagwati v CIT 247 ITR 206 (SC); Grasim Industries v ACIT 245 ITR 677 ; Circular No. 281, dated September 22,
1980, 131 ITR (St.) 4.
34 CIT v Agency Marketing 201 ITR 881 ; CIT v R.P.G. Telecom Ltd. 292 ITR 355 (deduction under s 80-I ); CIT v
Duggh Utpadak Sahkari Sangh Ltd. 277 ITR 35 (deduction under s 80P ); CIT v Baroda Peoples Co-operative Bank
Ltd. 280 ITR 282 (deduction under s 80-P ); Mahaveer Kumar Jain v CIT 277 ITR 166 (deduction under s 80-TT ); CIT
v Durga Prasad Gupta 277 ITR 495 (deduction under s 80-T ).
35 CIT v HMT 203 ITR 811 (ss 80J and 80HH).
36 CIT v Sundaravel Match 245 ITR 605 .
37 CIT v Mentha and Allied Products 326 ITR 297 .
38 CIT v Shirke Construction Co. Ltd. 291 ITR 380 (SC).
39 CIT v Visakha Industries 251 ITR 471 ; Bajaj Motors P. Ltd. v CIT 347 ITR 472 -distinguishing CIT v Canara
Workshops P. Ltd. 161 ITR 320 (SC).
40 Grasim Industries v ACIT 245 ITR 677 .
41 CIT v Loonkar Tools 213 ITR 721 .
42 CIT v Vishnu Oil 218 ITR 71 ; CIT v Sun Stone 220 ITR 182 ; CIT v Rajasthan Co-op 225 ITR 574 ; Asvini Cold
Storage P. Ltd. v CIT 290 ITR 183 ; CIT v Sharon Vaneers P. Ltd. 294 ITR 18 ; CIT v Salzer Electronics Ltd. 304 ITR
118 ; CIT v Viswas Footwear Co. Ltd. 304 ITR 127 .
43 CIT Chemical & Mettalurgical 247 ITR 749 .
44 CIT v Jhaveri 181 ITR 79 (SC); CIT v Swaran Singh 232 ITR 350 (SC).
45 Motilal Pesticides v CIT 243 ITR 26 (SC); CIT v HMT 203 ITR 811 ; CIT v Sun Stone 220 ITR 812 .
46 CIT v MK Raju 239 ITR 232 ; CIT v MN Dastur 243 ITR 10 ; CIT v Chemical & Mettalurgical Design 247 ITR 749 ;
CIT v Asian Cable Corporation Ltd . (No. 2) 262 ITR 537 ; ACIT v Abcon Engineering and Systems P. Ltd. 287 ITR 201
; CIT v Wipro Infotech Ltd. 323 ITR 151 .
47 CIT v Arvind Mills 254 ITR 529 .

Page 4 of 4
48 CIT v Shirke Construction 246 ITR 429 -overruled in CIT v Shirke Construction Equipment Ltd. 291 ITR 380 (SC).
49 CIT v AV Thomas 225 ITR 29 . Contra CIT v VT Joseph 225 ITR 731 ; CIT v Harisons Malayalam Ltd. 266 ITR 516 ;
CIT v T C Usha 266 ITR 497 - overruled in Moosa A M v CIT 294 ITR 1 (SC).
50 IPCA Laboratory Ltd. v DCIT 266 ITR 521 (SC), (2004) 12 SCC 742 ; Moosa AM v CIT 294 ITR 1 (SC), (2007) 7
SCC 647 ; CIT v Hinduja Exports 312 ITR 61 .
51 Circular No. 636, August 31, 1992: 198 ITR (St.) 1.
52 CIT v Shirke Construction Equipment Ltd. 291 ITR 380, AIR 2007 SC 2089, (2007) 14 SCC 787 ; Moosa A.M. v CIT
294 ITR 1, (2007) 7 SCC 647 .
53 Nandakumar v ITO 204 ITR 856 . See also pp 1642-1643, nn 69, 72, 74, 75.
54 CIT v Apoorva Shantilal 255 ITR 390 .
End of Document
S. 80AC. Deduction not to be allowed unless return furnished
A —General
S. 80AC. Deduction not to be allowed unless return furnished
55[Where in computing the total income of an assessee of the previous year relevant to the assessment year commencing
on the 1st day of April, 2006, or any subsequent assessment year, any deduction is admissible under section 80-IA or
section 80-IAB or section 80-IB or section 80-IC 56[or section 80-ID or section 80-IE ], no such deduction shall be allowed to
him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-
section (1) of section 139 .]
Section 80AC .—This new section 80AC was introduced by the Finance Act, 2006 with effect from April 1, 2006. The
said section mandates filing of return on or before the due date to claim deductions under ss 80-IA, 80-IAB, 80-IB, 80-
IC, 80-ID- or 80-IE.
55 Ins. by the Finance Act, 2006 (21 of 2006), s 15 (w.e.f. 1-4-2006). See Circular No. 14 of 2006, December 28, 2006,
288 ITR (St.) 9.
56 Ins. by the Finance Act, 2007 (22 of 2007), s 23 (w.e.f. 1-4-2008). See Circular No. 3 of 2008, March 12, 2008, 299
ITR (St.) 8.
End of Document
S. 80B. Definitions
A —General
S. 80B. Definitions
In this Chapter—
(1) 57[* * * *]
(2) 58[* * * *]
(3) 59[* * * *]
(4) 60[* * * *]
(5) “gross total income” means the total income computed in accordance with the provisions of this Act, before
making any deduction under this Chapter61[* *]62[* *].
(6) 63[* * * *]
(7) 64[* * * *]
(8) 65[* * * *]
(9) 66[* * * *]
1. Legislative History.—This section, as it stood at the time of its insertion, defined the terms ‘displaced person’,
‘domestic company’, ‘earned income’, ‘foreign company’, ‘gross total income’, ‘income’, ‘priority industry’, ‘relative’ and
‘repatriate’. However, by a series of amendments, except the definition of ‘gross total income’, all other definitions
have been omitted from this section. Clause (5) of this section was amended by Taxation Laws (Amendment) Act,
1970, with retrospective effect so as to include in the gross total income, the income of not only the individual but also
income arising to the spouse or minor child of the individual. The scope of said amendment is explained in Board
Circular.67
Page 2 of 4
S. 80B. Definitions
From the assessment year 1989-90 the definitions of those expressions are shifted to ss 2(22A) and (23A).
2. Clause (5): ‘Gross Total Income’.—The definition of ‘gross total income’ and its impact has been discussed in
under noted cases.68 It was held by the Hon’ble Supreme Court69 that the effect of clause (5) of s 80B is that “gross
total income” will be arrived at after making the computation as follows:
(i) making deductions under the appropriate computation provisions ;
(ii) including the incomes, if any, under sections 60 to 64 in the total income of the individual ;
(iii) adjusting intra-head and/or inter-head losses ; and
(iv) setting off brought forward unabsorbed losses and unabsorbed depreciation, etc.
While s 80B(5) defines “gross total income”, the nature of the income that is to be included is laid down in s 80AB . On
a conjoint reading of ss 80B(5) and 80AB, it is apparent that for seeking deduction in respect of incomes falling in any
of the sections specified under
heading “C” of Chapter VI-A such income has to be computed in accordance with the provisions of the Act and then
included in the gross total income. The gross total income means the total income, computed in accordance with the
provisions of the Act, and at both the stages while computing the total income, deductions under this Chapter are not
to be taken into consideration. Thus, the net income under any particular head or item has to go in as a component of
gross total income before any deduction under Chapter VI-A is to be allowed.70
In view of this clause, in calculating the gross total income the unabsorbed depreciation and carried forward losses of
past years are to be deducted.71 In the context of s 115JB, it was held that the restriction contained in s 80AB or s
80B(5) cannot be applied inasmuch as carried forward business loss or depreciation should not be first set off leaving
the gross total income at nil, which would disentitle the assessee for deduction under other provisions of Chapter VIA-
C which includes s 80HHC as well.72
3. Deleted Clause (8): ‘Relative’.—Compare the definition of relative in s 2(41) and in Explanation 1 at the end of s
13 .
57 Clause (1) has been omitted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 17 (w.e.f. 1-4-1976). See
Circular No. 179, September 30, 1975, 102 ITR (St.) 9 (in force from 1/10/1975); Circular No. 204, July 24, 1976, 110
ITR (St.) 21 (in force from 1/4/1976). Prior to its omission, clause (1) stood as follows:—
‘(1) “displaced person” means a person who, on account of the setting up of the Dominions of India and Pakistan, or on account
of civil disturbances or the fear of such disturbances in any area now forming part of East Pakistan, has—
Page 3 of 4
S. 80B. Definitions
(a) in the case of a person having a place of residence in the district of Noakhali or of Comilla, on or after the 1st day of October,
1946, and
(b) in the case of a person having a place of residence in any other area now forming part of East Pakistan, on or after the 1st
day of June, 1947, left, or been displaced from, his place of residence in such area and who has been subsequently residing in
India;’.
58 Clause (2) has been omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 22 (w.e.f. 1-4-1989). See
Circular No. 545, September 21, 1989, 181 ITR (St.) 198; Circular No. 549, October 31, 1989, 182 ITR (St.) 1; Circular
No. 551, January 23, 1990, 183 ITR (St.) 7. Prior to its omission, clause (2) stood as under:—
‘(2) “domestic company” means an Indian company, or any other company which, in respect of its income liable to tax under this
Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends
on preference shares) payable out of such income;’.
59 Clause (3) has been omitted by the Finance Act, 1968 (19 of 1968), s 30 and 3rd Sch. (w.e.f. 1-4- 1969). See Circular
No. 6P, July 6, 1968. Prior to its omission, clause (3) stood as under:—
“(3) ‘earned income’ and ‘unearned income’ shall have the meanings respectively assigned to them in the Finance Act of the
relevant year;”.
60 Clause (4) has been omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 22 (w.e.f. 1-4-1989). Prior
to its omission, clause (4) stood as under:—
‘(4) “foreign company” means a company which is not a domestic company as defined in clause (2);’.
61 The words, figures and letter “or under section 280-O ” have been omitted by the Finance Act, 1988 (26 of 1988), s
54(vi) (w.e.f. 1-4-1988). See Circular No. 528, December 16, 1988, 176 ITR (St.) 154.
62 The words, etc. “and without applying the provisions of section 64 ” have been omitted by the Taxation Laws
(Amendment) Act, 1970 (42 of 1970), s 18 (with retrospective effect from 1-4-1968). See Circular No. 56, March 19,
1971.
‘(6) “income”, in relation to a handicapped dependant, means the aggregate income of such person from all sources;’.
64 Clause (7) has been omitted by the Finance Act, 1972 (16 of 1972), s 15 (w.e.f. 1-4-1973). See Circular No. 108,
March 20, 1973. Prior to its omission, clause (7) stood as under:—
‘(7) “priority industry” means the business of generation or distribution of electricity or any other form of power or of construction,
manufacture or production of any one or more of the articles or things specified in the list in the Sixth Schedule or the business
of any hotel where such business is carried on by an Indian company and the hotel is for the time being approved in this behalf
by the Central Government;’.
In the above clause (7), the words “the Sixth Schedule” (printed in italics) were substituted for “the Fifth Schedule” by the
Finance Act, 1968 (19 of 1968), s 30 and 3rd Sch. (w.e.f. 1-4-1969).
‘(8) “relative”, in relation to an individual, means—
(a) the mother, father, husband or wife of the individual, or
(b) a son, daughter, brother, sister, nephew or niece of the individual, or
(c) a grand-son or grand-daughter of the individual, or
Page 4 of 4
S. 80B. Definitions
(d) the spouse of any person referred to in sub-clause (b);’.
66 Clause (9) has been omitted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 17 (w.e.f. 1-4-1976). Prior
‘(9) “repatriate” means a person of Indian origin who was ordinarily residing in a foreign country and who, on leaving, or being
forced to leave, such country, has—
(a) in the case of a person leaving Mozambique, on or after the 25th day of June, 1962, or
(b) in the case of a person leaving Burma, on or after the 1st day of June, 1963, or
(c) in the case of a person leaving Ceylon, on or after the 1st day of November, 1964, or
(d) in the case of a person leaving any other country, on or after such date or dates as may be notified in this behalf by the
Central Government in the Official Gazette, returned to India with the intention of permanently residing therein.
Explanation.—A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was
born in undivided India.’.
67 Circular No. 56, March 19, 1971.
68 Distributors (Baroda) P. Ltd. v UOI 155 ITR 120 (SC), AIR 1985 SC 1585 ; CIT v Asian Cable Corporation Ltd. (No.
2) 262 ITR 537, (2003) 180 CTR 293 (Bom); Mahaveer Kumar Jain v CIT 277 ITR 166, (2004) 191 CTR 303 (Raj);
CIT v Williamson Financial Services 297 ITR 17 (SC), (2008) 2 SCC 202 .
69 Synco Industries Ltd. v ACIT 299 ITR 444 (SC), (2008) 4 SCC 22 .
70 CIT v Baroda Peoples Co-operative Bank Ltd. 280 ITR 282, (2005) 198 CTR 1 (Guj).
71 CIT v Kotagiri Industrial 224 ITR 604 (SC); CIT v Madras Motors 150 ITR 150 ; CIT v Bengal Assam Steamship 155
ITR 26 ; CIT v Empire Jute 161 ITR 556 ; Warner Lambert v CIT 205 ITR 395 ; CIT v Rockweld Electrodes 215 ITR
358 ; CIT v Veeraraghava Textiles 234 ITR 529 . Losses under capital gains to be first set off before deductions: Rama
Varma v CIT 205 ITR 433 (SC); CIT v Rangalal Bagaria 181 ITR 200 ; CIT v Vimla Kapadia 181 ITR 394 ; CIT v
Exportos Apparel Group Ltd. 299 ITR 176, (2008) 214 CTR 233 (Del); CIT v Arif Industries Ltd. 339 ITR 6, (2010)
231 CTR 271 (All).
72 CIT v Packworth Udyog Ltd. 331 ITR 416, (2011) 239 CTR 24 (Ker) (FB).
End of Document
S. 80C. Deduction in respect of life insurance premia, deferred annuity,
contri-butions to provident fund, subscription to certain equity shares or
deben-tures, etc.
Total Income > B —Deductions in respect of certain payments
B —Deductions in respect of certain payments
S. 80C. Deduction in respect of life insurance premia, deferred annuity, contri-butions to provident fund,
subscription to certain equity shares or deben-tures, etc.
(1) 73[Incomputing the total income of an assessee, being an individual or a Hindu undivided family, there shall be
deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or
deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed
one lakh rupees.
(2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the
assessee—
(i) to effect or to keep in force an insurance on the life of persons specified in sub-section (4);
(ii) to effect or to keep in force a contract for a deferred annuity, not being an annuity plan referred to in clause
(xii), on the life of persons specified in sub-section (4):
Provided that such contract does not contain a provision for the exercise by the insured of an option to
receive a cash payment in lieu of the payment of the annuity;
(iii) by way of deduction from the salary payable by or on behalf of the Government to any individual being a sum
deducted in accordance with the conditions of his service, for the purpose of securing to him a deferred
annuity or making provision for his spouse or children, in so far as the sum so deducted does not exceed
one-fifth of the salary;
(iv) as a contribution by an individual to any provident fund to which the Provident Funds Act, 1925 (19 of 1925),
applies;
(v) as a contribution to any provident fund set up by the Central Government and notified by it in this behalf in the
Official Gazette, where such contribution is to an account standing in the name of any person specified in
sub-section (4);
(vi) as a contribution by an employee to a recognised provident fund;

Page 2 of 21
subscription to certain equity shares or deben-tures,....
(vii) as a contribution by an employee to an approved superannuation fund;
(viii) as subscription to any such security of the Central Government or any such deposit scheme as that
Government may, by notification in the Official Gazette, specify in this behalf;
(ix) as subscription to any such savings certificate as defined in clause (c) of section 2 74 of the Government
Savings Certificates Act, 1959 (46 of 1959), as the Central Government may, by notification in the Official
Gazette, specify in this behalf;
(x) as a contribution, in the name of any person specified in sub-section (4), for participation in the Unit-linked
Insurance Plan, 1971 (hereafter in this section referred to as the Unit-linked Insurance Plan) specified in
Schedule II75 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);
(xi) as a contribution in the name of any person specified in sub-section (4) for participation in any such unit-linked
insurance plan of the LIC Mutual Fund76[referred to in clause (23D)] of section 10, as the Central Government
may, by notification in the Official Gazette, specify in this behalf;
(xii) to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation or any other
insurer as the Central Government may, by notification in the Official Gazette, specify;
(xiii) as subscription to any units of any Mutual Fund77[referred to in clause (23D)] of section 10 or from the
Administrator or the specified company under any plan formulated in accordance with such scheme as the
Central Government may, by notification in the Official Gazette, specify in this behalf;
(xiv) as a contribution by an individual to any pension fund set up by any Mutual Fund78[referred to in clause
(23D)] of section 10 or by the Administrator or the specified company, as the Central Government may, by
notification in the Official Gazette, specify in this behalf;
(xv) as subscription to any such deposit scheme of, or as a contribution to any such pension fund set up by, the
National Housing Bank established under section 3 79 of the National Housing Bank Act, 1987 (53 of 1987)
(hereafter in this section referred to as the National Housing Bank), as the Central Government may, by
notification in the Official Gazette, specify in this behalf;
(xvi) as subscription to any such deposit scheme of—
(a) a public sector company which is engaged in providing long-term finance for construction or purchase of
houses in India for residential purposes; or
(b) any authority constituted in India by or under any law enacted either for the purpose of dealing with and
satisfying the need for housing accommodation or for the purpose of planning, development or
improvement of cities, towns and villages, or for both, as the Central Government may, by notification in
the Official Gazette, specify in this behalf;
(xvii) as tuition fees (excluding any payment towards any development fees or donation or payment of similar
nature), whether at the time of admission or thereafter,—
(a) to any university, college, school or other educational institution situated within India;
(b) for the purpose of full-time education of any of the persons specified in sub-section (4);
(xviii) for the purposes of purchase or construction of a residential house property the income from which is
chargeable to tax under the head “Income from house property” (or which would, if it had not been used for
Page 3 of 21
the assessee’s own residence, have been chargeable to tax under that head), where such payments are
made towards or by way of—
(a) any instalment or part payment of the amount due under any self-financing or other scheme of any
development authority, housing board or other authority engaged in the construction and sale of house
property on ownership basis; or
(b) any instalment or part payment of the amount due to any company or co-operative society of which the
assessee is a shareholder or member towards the cost of the house property allotted to him; or
(c) repayment of the amount borrowed by the assessee from—
(1) the Central Government or any State Government, or
(2) any bank, including a co-operative bank, or
(3) the Life Insurance Corporation, or
(4) the National Housing Bank, or
(5) any public company formed and registered in India with the main object of carrying on the business of
providing long-term finance for construction or purchase of houses in India for residential purposes
which is eligible for deduction under clause (viii) of sub-section (1) of section 36, or
(6) any company in which the public are substantially interested or any co-operative society, where such
company or co-operative society is engaged in the business of financing the construction of houses,
or
(7) the assessee’s employer where such employer is an authority or a board or a corporation or any
other body established or constituted under a Central or State Act, or
(8) the assessee’s employer where such employer is a public company or a public sector company or a
university established by law or a college affiliated to such university or a local authority or a co-
operative society; or
(d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the
assessee, but shall not include any payment towards or by way of—
(A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of
a co-operative society has to pay for becoming such shareholder or member; or
(B) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried
out after the issue of the completion certificate in respect of the house property by the authority
competent to issue such certificate or after the house property or any part thereof has either been
occupied by the assessee or any other person on his behalf or been let out; or
(C) any expenditure in respect of which deduction is allowable under the provisions of section 24 ;
Page 4 of 21
(xix) as subscription to equity shares or debentures forming part of any eligible issue of capital approved by the
Board on an application made by a public company or as subscription to any eligible issue of capital by any
public financial institution in the prescribed form.
Explanation.—For the purposes of this clause,—
(i) “eligible issue of capital” means an issue made by a public company formed and registered in India or a
public financial institution and the entire proceeds of the issue are utilised wholly and exclusively for the
purposes of any business referred to in sub-section (4) of section 80-IA ;
(ii) “public company” shall have the meaning assigned to it in section 3 80 of the Companies Act, 1956 (1 of
1956);
(iii) “public financial institution” shall have the meaning assigned to it in section 4A 81 of the Companies Act,
1956 (1 to 1956);
(xx) as subscription to any units of any mutual fund referred to in clause (23D) of section 10 and approved by the
Board on an application made by such mutual fund in the prescribed form:
Provided that this clause shall apply if the amount of subscription to such units is subscribed only in the
eligible issue of capital of any company.
Explanation.—For the purposes of this clause “eligible issue of capital” means an issue referred to in
clause (i) of the Explanation to clause (xix) of sub-section (2);
(xxi) 82[as term deposit—
(a) for a fixed period of not less than five years with a scheduled bank; and
(b) which is in accordance with a scheme framed and notified, by the Central Government, in the Official
Gazette for the purposes of this clause.]
Explanation.—For the purposes of this clause, “scheduled bank” means the State Bank of India
constituted under the State Bank of India Act, 1955 (23 of 1955), or a subsidiary bank as defined in
the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or a corresponding new bank
constituted under section 3 83 of the Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970 (5 of 1970), or under section 3 84 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980), or any other bank, being a bank included in the Second
Schedule85 to the Reserve Bank of India Act, 1934 (2 of 1934);]
(xxii) 86[as subscription to such bonds issued by the National Bank for Agriculture and Rural Development, as the
Central Government may, by notification in the Official Gazette, specify in this behalf;]
(xxiii) 87[in an account under the Senior Citizens Savings Scheme Rules, 2004;
Page 5 of 21
(xxiv) as five year time deposit in an account under the Post Office Time Deposit Rules, 1981.]
(3) The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on
an88[insurance policy, other than a contract for a deferred annuity, issued on or before the 31st day of March,
2012], as is not in excess of twenty per cent. of the actual capital sum assured.
Explanation.—In calculating any such actual capital sum assured, no account shall be taken—
(i) of the value of any premiums agreed to be returned, or
(ii) of any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may
be received under the policy by any person.
(3A) 89[The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on an
insurance policy, other than a contract for a deferred annuity, issued on or after the 1st day of April, 2012, as is
not in excess of ten per cent. of the actual capital sum assured.
90[Provided that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any
person, who is—
(a) a person with disability or a person with severe disability as referred to in section 80U, or
(b) suffering from disease or ailment as specified in the rules made under section 80DDB, the provisions of this
sub-section shall have effect as if for the words “ten per cent.”, the words “fifteen per cent.” had been
substituted.]
Explanation.—For the purposes of this sub-section, “actual capital sum assured” in relation to a life
insurance policy shall mean the minimum amount assured under the policy on happening of the insured
event at any time during the term of the policy, not taking into account—
(i) the value of any premium agreed to be returned; or
(ii) any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or
may be received under the policy by any person.]
(4) The persons referred to in sub-section (2) shall be the following, namely:—
(a) for the purposes of clauses (i), (v), (x) and (xi) of that sub-section,—
(i) in the case of an individual, the individual, the wife or husband and any child of such individual, and
Page 6 of 21
(ii) in the case of a Hindu undivided family, any member thereof;
(b) for the purposes of clause (ii) of that sub-section, in the case of an individual, the individual, the wife or
husband and any child of such individual;
(c) for the purposes of clause (xvii) of that sub-section, in the case of an individual, any two children of such
individual.
(5) Where, in any previous year, an assessee—
(i) terminates his contract of insurance referred to in clause (i) of sub-section (2), by notice to that effect or where
the contract ceases to be in force by reason of failure to pay any premium, by not reviving contract of
insurance,—
(a) in case of any single premium policy, within two years after the date of commencement of insurance; or
(b) in any other case, before premiums have been paid for two years; or
(ii) terminates his participation in any unit-linked insurance plan referred to in clause (x) or clause (xi) of sub-
section (2), by notice to that effect or where he ceases to participate by reason of failure to pay any
contribution, by not reviving his participation, before contributions in respect of such participation have been
paid for five years; or
(iii) transfers the house property referred to in clause (xviii) of sub-section (2) before the expiry of five years from
the end of the financial year in which possession of such property is obtained by him, or receives back,
whether by way of refund or otherwise, any sum specified in that cluase, then,—
(a) no deduction shall be allowed to the assessee under sub-section (1) with reference to any of the sums,
referred to in clauses (i), (x), (xi) and (xviii) of sub-section (2), paid in such previous year; and
(b) the aggregate amount of the deductions of income so allowed in respect of the previous year or years
preceding such previous year, shall be deemed to be the income of the assessee of such previous year
and shall be liable to tax in the assessment year relevant to such previous year.
(6) If any equity shares or debentures, with reference to the cost of which a deduction is allowed under sub-section
(1), are sold or otherwise transferred by the assessee to any person at any time within a period of three years
from the date of their acquisition, the aggregate amount of the deductions of income so allowed in respect of such
equity shares or debentures in the previous year or years preceding the previous year in which such sale or
transfer has taken place shall be deemed to be the income of the assessee of such previous year and shall be
liable to tax in the assessment year relevant to such previous year.
Explanation.—A person shall be treated as having acquired any shares or debentures on the date on which
his name is entered in relation to those shares or debentures in the register of members or of debenture-
holders, as the case may be, of the public company.
Page 7 of 21
(6A) 91[If
any amount, including interest accrued thereon, is withdrawn by the assessee from his account referred to in
clause (xxiii) or clause (xxiv) of sub-section (2), before the expiry of the period of five years from the date of its
deposit, the amount so withdrawn shall be deemed to be the income of the assessee of the previous year in which
the amount is withdrawn and shall be liable to tax in the assessment year relevant to such previous year:
Provided that the amount liable to tax shall not include the following amounts, namely:—
(i) any amount of interest, relating to deposits referred to in clause (xxiii) or clause (xxiv) of sub-section (2), which
has been included in the total income of the assessee of the previous year or years preceding such previous
year; and
(ii) any amount received by the nominee or legal heir of the assessee, on the death of such assessee, other than
interest, if any, accrued thereon, which was not included in the total income of the assessee for the previous
year or years preceding such previous year.]
(7) For the purposes of this section,—
(a) the insurance, deferred annuity, provident fund and superannuation fund referred to in clauses (i) to (vii);
(b) unit-linked insurance plan and annuity plan referred to in clauses (xii) to (xiiia);
(c) pension fund and subscription to deposit scheme referred to in clauses (xiiic) to (xiva);
(d) amount borrowed for purchase or construction of a residential house referred to in clause (xv), of sub-section
(2) of section 88 shall be eligible for deduction under the corresponding provisions of this section and the
deduction shall be allowed in accordance with the provisions of this section.
(8) In this section,—
(i) “Administrator” means the Administrator as referred to in clause (a) of section 2 92 of the Unit Trust of India
(Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);
(ii) “contribution” to any fund shall not include any sums in repayment of loan;
(iii) “insurance” shall include—
(a) a policy of insurance on the life of an individual or the spouse or the child of such individual or a member
of a Hindu undivided family securing the payment of specified sum on the stipulated date of maturity, if
such person is alive on such date notwithstanding that the policy of insurance provides only for the return
of premiums paid (with or without any interest thereon) in the event of such person dying before the said
stipulated date;
(b) a policy of insurance effected by an individual or a member of a Hindu undivided family for the benefit of
a minor with the object of enabling the minor, after he has attained majority to secure insurance on his
own life by adopting the policy and on his being alive on a date (after such adoption) specified in the
policy in this behalf;
Page 8 of 21
(iv) “Life Insurance Corporation” means the Life Insurance Corporation of India established under the Life
Insurance Corporation Act, 1956 (31 of 1956);
(v) “public company” shall have the same meaning as in section 3 93 of the Companies Act, 1956 (1 of 1956);
(vi) “security” means a Government security as defined in clause (2) of section 2 94 of the Public Debt Act, 1944
(18 of 1944);
(vii) “specified company” means a company as referred to in clause (h) of section 2 95 of the Unit Trust of India
(viii) “transfer” shall be deemed to include also the transactions referred to in clause (f) of section 269UA .]
1. Legislative History—Deductions for Different Types of Savings.—This section grants deductions for payments
of life insurance premium, contributions to provident fund and various other schemes that are added and deleted from
time to time. This section was first inserted by the Finance Act, 1965 with effect from April 1, 1965. Initially, it granted
deduction of payments made for obtaining retirement annuity and its scope was widened from time to time. The
retirement annuities were shifted to s 80E in 1967 and various types of investments came within the purview of s 80C .
The quantum of deduction and the conditions applicable were constantly tinkered with and has been amended over
twenty times. For some unknown reason, this section was omitted with effect from April 1, 1991 by the Finance Act,
1990 and deductions under this section were then allowed under s 88 .
Section 80C was re-inserted by Finance Act, 2005 with effect from April 1, 2006.
The Board has shifted these deductions to the EET (Exempt Exempt Tax) method of taxation from the earlier EEE
(Exempt Exempt Exempt) method to remove alleged distortions that resulted in economic inefficiency or inequity.1 Till
today, it is not clear as to what these distortions are and how alleged inefficiency and inequities stand removed or
reduced.
It should be noted that due to shift towards EET method, s 88 has been amended from April 1, 2006 and no deduction
will be allowed under that section from assessment year 2006-07 [see 88(9)] and consequently amendments have
been carried out in ss 8, 10, 54EC, 54ED, 80CCC, 80CCD and 295. Sections 80C and 88 were amended no less than
twenty five times.
Impact of s 80CCE : This new section now prescribes an aggregate ceiling limit of Rs. 1,00,000 for deductions that
can be availed under ss 80C, 80CCC and 80CCD.
This section offers much needed relief to a majority of the tax payers but there are very few cases which has given rise
to very little litigation.
Page 9 of 21
2. Deleted Section 80C : Deduction in Respect of Life Insurance Premia, Contributions to Provident Fund
etc.—This section has been replaced by a new provision, i.e., s 88. The commentary for the deleted section is
retained here.
3. Sub-section (2), Clauses (a), (b) and (g) [ Sections 15(1) and (2) of 1922 Act]: Premiums Paid for Life
Insurance or Deferred Annuity.—The object of this section is the encouragement of thrift,2 and the section should be
so construed as to effectuate that object.3 Sub-section (2)(a) grants a deduction in respect of five categories of
payments by an individual:
(i) premiums to effect or to keep in force an insurance on the life of the assessee or on the life of the spouse or
child of the assessee;
(ii) payments in respect of a contract for a non-commutable deferred annuity other than the annuity plan referred
to in s 80CCA(1)(ii) on the life of the assessees4 or on the life of the spouse or child of the assessee;
(iii) contributions to any provident fund to which the Provident Funds Act, 1925 applies;
(iv) contributions to any provident fund set up by the Central Government and notified by it in this behalf; and
(v) contributions for participation in the unit-linked insurance plan, subject to the provisions of sub-s (5).
Sub-section (2)(b) grants a deduction in respect of three categories of payments made by a Hindu undivided family:
(i) any sums paid to effect or to keep in force an insurance on the life of any member of the family;
(ii) contributions to any notified provident fund where the account stands in the name of a member of the family;
and
(iii) deposits in a 10 year account or a 15 year account under the Post Office Savings Bank (Cumulative Time
Deposits) Rules, 1959 standing in the name of a member of the family.
Unlike cl (a), cl (b) does not cover contracts for a deferred annuity but covers only life insurance policies. Therefore, in
the case of a Hindu undivided family, the benefit of deduction is not available in respect of premiums paid for a
deferred annuity on the life of any member of the family.
4. ‘Insurance on the Life’ and ‘Deferred Annuity’.—‘Insurance on life’ may be defined as that in which one party
agrees to pay a given sum upon the happening of a particular event contingent upon the duration of human life.5 It
covers both a simple life insurance policy under which the principal sum assured is payable on death, as well as an
endowment policy under which the sum is payable on the insured person’s reaching a certain age or on his death.6 It
Page 10 of 21
also covers the two types of insurance policies specified in the explanation to cll (a) and (b).7 It is not a necessary
ingredient of life insurance that the contract should be advantageous to the assessee. Thus, where the terms of a life
policy were such that on the whole the insured, in any eventuality, had to pay out more than he could possibly receive
under the policy, the contract was nevertheless held to be one of ‘insurance on life’ within the meaning of this section.8
A deferred annuity includes an annual payment (as distinct from a lump sum payment) made to the insured during his
life or made to his dependents after his death for a certain term of years.9
5. Insurance on Joint Lives.—In Wilson v Simpson 10 two directors of a company effected an insurance on their
joint lives under which the policy moneys were to become payable on the death of either of them. Each of the insured
paid one-half of the amount of the premium. One of the directors claimed relief in respect of the moiety of the premium
paid by him. The claim was negatived. Rowlatt J said:
It is not an insurance on his life, because the cesser of the joint lives may consist in the dropping of the other life
just as it may consist in the dropping of his own. The point is that the money becomes payable on the cesser of
the two lives co-existing. It is not an insurance on his life, accurately speaking, at all; nor has he paid the premium
for any such insurance.
Under this Act the same principle would apply and relief under this section would not be available where an outsider’s
life is jointly insured with that of the assessee. But where an insurance is effected on the joint lives of the assessee
and the spouse or child of the assessee, or in the case of a Hindu undivided family, on the joint lives of two or more
members of the family, the benefit of this section can be claimed, since insurance on those lives is expressly covered
by the section.
6. ‘Paid…by the Assessee out of his Income Chargeable to Tax’.—The rebate is allowed only in respect of any
premium paid by the assessee. Where under the terms of the policy only half the premium is actually paid by the
assessee in cash, and the other half which is not paid is to bear interest and is to be later adjusted against or deducted
from the capital sum assured when it falls due, the benefit of this section can be claimed only in respect of the moiety
of the premium which is actually paid in cash.11
In Babulal Kanji v CIT 12 it was a term of a life insurance policy that a compulsory loan of 95 per cent. of the premium,
carrying interest at 6.25 per cent. per annum, should be taken by the insured within a week of the payment of each
premium and failure to raise such loans or to pay interest thereon would make the policy null and void. The Bombay
High Court held that the 95 per cent. of the premium, which was the subject-matter of the compulsory loan, was not
paid by the assessee to effect insurance on his life within the meaning of this section, but the 5 per cent. of the
premium which remained in the hands of the insurance company and also the interest actually paid by the assessee
on the compulsory loan to keep the policy alive were payments made by the assessee to effect or maintain the
insurance on his life and were exempted under this section.
In Watkins v High Jones ,13 the assessee was insured under a policy which entitled him to participate in the insurance
Page 11 of 21
company’s surplus funds and gave him the option of paying a reduced premium or of claiming an equivalent
reversionary bonus. The assessee chose to pay the reduced premium. It was held that the amount actually paid by the
assessee by way of reduced premium was alone entitled to relief from tax and not the full premium payable under the
policy. Rowlatt J said:
He has not paid the money…It is the policy that has provided the money; he has not provided it out of his
resources…The intention of the Act is to relieve people who are paying out of their resources the amount of the
premium, and when the policy itself earns its own premium so as to reduce the premium in part or in whole, what
he is getting is the benefit of his previous premiums working out to protect him from this premium.14
The next condition for the allowance under this section is that the payment should be made by the assessee.15
The further condition for the allowance under this section is that the payment should be made by the assessee out of
his income chargeable to tax. These words should be construed liberally and not literally,16 and thus, contribution
made from common funds, which includes income of prior years, is eligible for deduction.17 Dissenting from the narrow
view taken in the under-noted cases,18 the Allahabad High Court rightly held that the savings certificate purchased out
of proceeds of sale of asset and out of a secured loan is eligible for deduction. It is not necessary that the investment
must be from the assessee’s income; the only requirement is that investment should be confined to the limits
specified.19 Contribution by a minor from his share of income from a trust is also eligible for deduction.20
7. Sum Paid in Reduction of Future Premiums.—A sum paid by an assessee to an insurance company, in
reduction of future premiums payable on his life insurance policy, is entitled to the benefit of this section as being a
sum paid to effect or to keep in force an insurance on the life of the assessee. The decision to the contrary in Turton v
O’Brien ,21 which turned upon the different wording of the English statutes, does not apply under this Act.
8. Sub-section (2), Clauses (a)(iii) and (iv), and (c) to (f) [First Proviso to Section 7(1) and Sections 15(1), 58F
and 58R of 1922 Act]: Contributions to Provident and Superannuation Funds, etc.—In the case of assessees
who are employees, a deduction is granted under this section, subject to specified ceilings, in respect of the following
sums:
(i) a contribution to any provident fund to which the Provident Funds Act, 1925 applies, i.e. government provident
funds, railway provident funds and provident funds established by such local authorities and institutions as
are notified by the government;
(ii) any sum deducted from the salary payable by or on behalf of the Government to any individual, for the
purpose of securing, to him a deferred annuity or making provision for his wife or children;
(iii) the assessee’s contribution to his individual account in a recognised provident fund; and
(iv) the assessee’s contribution to an approved superannuation fund.22

Page 12 of 21
No deduction can be claimed by an employee in respect of his contributions, compulsory or voluntary, to any other
fund.23
Clause (f) permits a deduction in respect of sums deposited out of an individual’s taxable income in a 10 year account
or a 15 year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959. Clause (a)(iv) of
sub-s (2) provides for a deduction in respect of a contribution made to any provident fund set up by the Central
Government and notified in this behalf. In pursuance of this clause, the Central Government has notified the public
provident fund established under the Public Provident Fund Scheme, 1968. This provision is beneficial to
professionals, businessmen and other ‘self-employed’ persons.
9. Sub-sections (2) to (4) [ Sections 15(2A) and (3) of 1922 Act]: Limits on Deduction.—There are three types of
limits on the benefit of this section:
(i) Sub-section (2) itself imposes limits in respect of some of the items, eg deductions from a government
employee’s salary to secure a deferred annuity [cl (c)], and any employee’s contribution to a recognised
provident fund [cl (d)].
(ii) So much of the premium on a life policy as is in excess of 10 per cent. of the actual capital sum assured is not
entitled to any tax relief [sub-s (3)].
(iii) The aggregate of the sums which qualify for the purposes of computing the deduction under sub-s (1) should
not exceed the ceiling laid down in sub-s (4).
The aforesaid aggregate, subject to the limits set out above, qualifies for deduction under sub-s (1), and the deduction
under sub-s (1) is of the specified percentage of such aggregate.
10. Sub-sections (6) and (7): Denial and Withdrawal of Deduction.—These sub-sections provide for denial of
deduction and withdrawal of deduction granted in the past where the assessee:
(i) terminates the contract of insurance or allows it to end prematurely before premiums have been paid for two
years;
(ii) receives back the sums paid for acquiring the residential house;
(iii) transfers the house within five years from the end of the financial year in which he had obtained possession of
it.
Page 13 of 21
11. Appeal and Reference.—In the context of s 80C the undernoted cases held that referable question of law did not
arise24 under s 256 .
73 Ins. by the Finance Act, 2005, (18 of 2005), s 21 (w.e.f. 1-4-2006). See Circular No. 3 of 2005, June 3, 2005, 275 ITR
(St.) 138; Circular No. 6 of 2005, July 25, 2005, 276 ITR (St.) 150; Circular No. 3 of 2006, February 27, 2006, 281 ITR
(St.) 222. Earlier, section 80C as it stood upto 31-3-1991, Circular No. 572, August 3, 1990, 186 ITR (St.) 81, read as
under:—
Section 80C as it stood upto 31-3-1991.— Section 80C prior to its omission (w.e.f. 1-4-1991) by the Finance Act, 1990, stood
as under:—
‘ S. 80C . Deduction in respect of life insurance premia, contributions to provident fund, etc.—1((1) In computing the total
income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section, an amount
calculated, with reference to the aggregate of the sums specified in sub-section (2), at the following rates, namely:—
(a) where such aggregate does not exceed Rs. 6,000
the whole of such aggregate;
(b) where such aggregate exceeds Rs. 6,000 but does not exceed Rs. 12,000
Rs. 6,000 plus 50 per cent. of the amount by which such aggregate exceeds Rs. 6,000;
(c) where such aggregate exceeds Rs. 12,000
Rs. 9,000 plus 40 per cent. of the amount by which such aggregate exceeds Rs. 12,000.)
(2) The sums referred to in sub-section (1) shall be the following, namely:—
(a) where the assessee is an individual, any sums paid in the previous year by the assessee out of his income chargeable to
tax—
(i) to effect or to keep in force an insurance on the life of the assessee or 2(on the life of the wife or husband or any child of the
assessee); or
3((ii) to effect or to keep in force a contract for a deferred annuity 4(, not being an annuity plan referred to in clause (ii) of sub-
section (1) of section 80CCA,) on the life of the assessee or on the life of the wife or husband or any child of the assessee:
Provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment
in lieu of the payment of the annuity; or)
(iii) as a contribution to any provident fund to which the Provident Funds Act, 1925 (XIX of 1925), applies; 5(or)
6((iv) as a contribution to any provident fund set up by the Central Government and notified by it in this behalf in the Official
Gazette;) 5(or)
7((v) as a contribution for participation in the Unit-linked Insurance Plan, 1971, 8(* * * *) made under section 19(1)(cc) of the Unit
Trust of India Act, 1963 (52 of 1963);) 9(or)

10((vi) as a contribution for participation in any such unit-linked insurance plan of the LIC Mutual Fund notified under clause
(23D) of section 10, as the Central Government may, by notification in the Official Gazette, specify in this behalf;)
11((b) where the assessee is a Hindu undivided family,—
(i) any sums paid in the previous year by the assessee out of its income chargeable to tax—
(1) to effect or to keep in force an insurance on the life of any member of the family; or
(2) as a contribution to any provident fund referred to in sub-clause (iv) of clause (a), where such contribution is to an account
standing in the name of any member of the family; or
(ii) any sums deposited in the previous year by the assessee out of its income chargeable to tax in a ten-year account or a
fifteen-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, as amended from time to
time, where such sums are deposited in an account standing in the name of any member of the family.)
Explanation.—For the purposes of sub-clause (i) of clause (a) and 12(sub-clause (i) of clause (b)) of this sub-section, an
insurance on the life of any person referred to therein shall include—
(i) a policy of insurance on the life of such person securing the payment of a specified sum on the stipulated date of maturity of
the policy, if such person is alive on such date, notwithstanding that the policy of insurance provides only for the return of
premiums paid (with or without any interest thereon) in the event of such person dying before the said stipulated date;
Page 14 of 21
(ii) a policy of insurance effected by a person for the benefit of a minor 13(* * *) with the object of enabling the minor, after he has
attained majority, to secure an insurance on his own life by adopting the policy and on his being alive on a date (after such
adoption) specified in the policy in this behalf;
(c) any sum deducted in the previous year from the salary payable by or on behalf of the Government to any individual being a
sum deducted in accordance with the conditions of his service, for the purpose of securing to him a deferred annuity or making
provision for his wife or children, in so far as the sum so deducted does not exceed one-fifth of the salary;
(d) if the assessee is an employee participating in a recognised provident fund, his own contributions to his individual account in
the fund in the previous year, in so far as the aggregate of such contributions does not exceed one-fifth of his salary in that
previous year 14(* * * *).
Explanation.—In clause (d) of this sub-section, “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of
the Fourth Schedule;
(e) if the assessee is an employee participating in an approved superannuation fund, any sum paid in the previous year by him
by way of contribution towards the superannuation fund;
(f) where the assessee is an individual, any sums deposited, in the previous year by the assessee out of his income chargeable
to tax, in a ten-year account or a fifteen-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules,
1959, as amended from time to time;
15((g) where the assessee is an association of persons or a body of individuals 16(consisting, in either case, only of) husband
and wife governed by the system of community of property in force in the 17(State of Goa and the Union territories of Dadra and
Nagar Haveli and Daman and Diu)—
(i) any sums paid in the previous year by the assessee out of its income chargeable to tax—
(1) to effect or to keep in force an insurance on the life of any member of such association or body or on the life of any child of
any of the members of such association or body; or 18((2) to effect or to keep in force a contract for a deferred annuity on the life
of any member of such association or body or any child of any of the members of such association or body:
Provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment
in lieu of the payment of the annuity; or)
(3) as a contribution to any provident fund referred to in sub-clause (iv) of clause (a); 19(or)
19((4) as a contribution for participation by any one member of such association or body in the Unit-linked Insurance Plan;)
(ii) any sums deposited in the previous year by such association or body out of its income chargeable to tax in a 10-year account
or a 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, as amended from time to
time;)
20((h) where the assessee is an individual or a Hindu undivided family or where the assessee is an association of persons or a
body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force
in the 21(State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu), any sums paid in the previous
year by such assessee out of his or its income chargeable to tax,—
(i) as subscription to any such security of the Central Government as that Government may, by notification in the Official
Gazette, specify in this behalf; or 22((ia) as subscription to any such deposit scheme of the National Housing Bank established
under section 3 of the National Housing Bank Act, 1987 (53 of 1987), as the Central Government may, by notification in the
Official Gazette, specify in this behalf;)
23((ib) as subscription to any such savings certificate as defined in clause (c) of section 2 of the Government Savings
Certificates Act, 1959 (46 of 1959), as the Central Government may, by notification in the Official Gazette, specify in this behalf;)
(ii) for the purposes of purchase or construction of a residential house property the construction of which is completed after the
31st day of March, 1987, and the income from which is chargeable to tax under the head “Income from house property” (or
which would, if it had not been used for the assessee’s own residence, have been chargeable to tax under that head), where
such payments are made towards or by way of—
(a) any instalment or part payment of the amount due under any self-financing or other scheme of any development authority,
housing board or other authority engaged in the construction and sale of house property on ownership basis; or
(b) any instalment or part payment of the amount due to any company or cooperative society of which the assessee is a
shareholder or member towards the cost of the house property allotted to him; or
(c) repayment of the amount borrowed by the assessee from—
(3) the Life Insurance Corporation, or 24((3A) the National Housing Bank, or
Page 15 of 21
(4) any public company formed and registered in India with the main object of carrying on the business of providing long-term
finance for construction or purchase of houses in India for residential purposes which is approved for the purposes of clause (viii)
of sub-section (1) of section 36, or
(5) any company in which the public are substantially interested or any co-operative society, where such company or co-
operative society is engaged in the business of financing the construction of houses, or
(6) the assessee’s employer where such employer is a public company 25(or a public sector company or a University established
by law or a college affiliated to such University or a local authority);
(d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee, but shall
not include any payment towards or by way of—
(A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society
has to pay for becoming such shareholder or member; or
(B) the cost of the land, except where the consideration for the purchase of the house property is a composite amount and the
cost of the land alone cannot be separately ascertained; or
(C) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of
the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house
property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or
(D) any expenditure in respect of which deduction is allowable under the provisions of section 24 ;)
26((i) where the assessee is an individual or a Hindu undivided family or where the assessee is an association of persons or a
body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force
in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu, and sums paid in the previous year
by such assessee out of his or its income chargeable to tax as subscription to the National Savings Certificates (VI Issue) and
National Savings Certificates (VII Issue) issued under the Government Savings Certificates Act, 1959 (46 of 1959).)
(3) The provisions of 27(clauses (a), (b) and (g)) of sub-section (2) shall apply only to so much of any premium or other payment
made on a policy other than a contract for a deferred annuity as is not in excess of ten per cent. of the actual capital sum
assured.
Explanation.—In calculating any such capital sum, no account shall be taken—
(ii) of any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received
under the policy by any person.
(4) The aggregate of the sums referred to in sub-section (2), which qualifies for the purposes of computing the deduction under
sub-section (1), shall not exceed— 28((i) in the case of an individual, being an author, playwright, artist, musician, actor or
sportsman (including an athlete), sixty thousand rupees;
(ii) in the case of any other individual or a Hindu undivided family or any such association of persons or a body of individuals as
is 29(referred to in clause (g) or clause (h) of sub-section (2)), forty thousand rupees.)
30((5) If the assessee participating in 31(any unit-linked insurance plan referred to in sub-clause (v) or sub-clause (vi) of clause
(a) of sub-section (2)), or in the case of an assessee being an association of persons or a body of individuals referred to in
clause (g) of sub-section (2), the member thereof 32(participating in any such plan, terminates his participation in that plan) (by
notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his
participation) before contributions in respect of such participation have been paid for five years, then—
(a) no deduction shall be allowed to the assessee under this section in respect of the contribution, if any, paid in the previous
year in which the participation is so terminated; and
(b) the deductions allowed in respect of the contributions paid in the previous years preceding the previous year referred to in
clause (a) shall be deemed to be the income of the assessee of that previous year and shall be chargeable to tax accordingly.
Explanation.—For the purposes of this sub-section, the deduction allowed under this section in respect of the contribution paid
in any previous year shall be the amount by which the deduction allowed under this section for that year exceeds the deduction
which would have been allowed for that year if no such contribution had been paid during that year.)
33((6) If the assessee, being—
(a) an individual, has effected or kept in force an insurance on the life of the assessee or on the life of the wife or husband or any
child of the assessee; or
(b) a Hindu undivided family, has effected or kept in force an insurance on the life of any member of the family; or
(c) an association of persons or a body of individuals referred to in clause (g) of sub-section (2), has effected or kept in force an
insurance on the life of any member of such association or body or on the life of any child of any of the members of such
association or body, terminates the contract of insurance (by notice to that effect or where the contract ceases to be in force by
reason of failure to pay any premiums, by not reviving the contract of insurance) before premiums have been paid for two years,
then—
Page 16 of 21
(i) no deduction shall be allowed to the assessee under this section in respect of the premiums, if any, paid in the previous year
in which the policy is so terminated; and
(ii) the deduction allowed in respect of the premiums paid in the previous year or years preceding the previous year referred to in
clause (i) shall be deemed to be the income of the assessee of such previous year or years and shall be chargeable to tax
accordingly.
Explanation 1.—For the purposes of this sub-section, the deduction allowed under this section in respect of the premiums paid
in any previous year shall be the amount by which the deduction allowed under this section for that year exceeds the deduction
which would have been allowed for that year if no such premiums had been paid during that year.
Explanation 2.—In a case where an assessee terminates his participation in 34(any unit-linked insurance plan referred to in sub-
clause (v) or sub-clause (vi) of clause (a) of sub-section (2)) in any previous year and also terminates a contract of insurance in
that year, the deduction allowed under this section in respect of the contribution or premiums paid in any previous year shall, for
the purposes of the Explanation to sub-section (5) and Explanation 1, be the amount by which the deduction allowed under this
section for that year exceeds the deduction which would have been allowed for that year if no such contribution or premiums had
been paid during that year.)
35((7) In the case of an assessee referred to in clause (h) of sub-section (2),—
(a) where any sums specified in sub-clause (ii) of that clause, with reference to which the deduction under sub-section (1) has
been allowed are refunded to or received back by the assessee in any previous year (hereinafter referred to as the relevant
previous year), then,—
(i) no deduction shall be allowed to the assessee under sub-section (1) with reference to any of the sums, specified in that sub-
clause, paid in the relevant previous year; and
(ii) the aggregate amount of the deductions so allowed in respect of the previous year or previous years preceding the relevant
previous year shall be deemed to be the income of the assessee of the relevant previous year and shall be chargeable to tax
under the head “Income from other sources”;
(b) where the house property referred to in sub-clause (ii) of that clause is transferred by the assessee before the expiry of five
years from the end of the financial year in which possession of such property is obtained by him, then,—
(i) no deduction shall be allowed to the assessee under sub-section (1) with reference to any of the sums, specified in that sub-
clause, paid in the previous year in which the transfer is so made; and
(ii) the aggregate amount of the deductions allowed under sub-section (1) with reference to the sums specified in that sub-clause
in respect of the previous year or previous years preceding the previous year referred to in sub-clause (i) of this clause shall be
deemed to be the income of the assessee of the previous year in which the transfer is made and shall be chargeable to tax
under the head “Income from other sources”;
(c) where the aggregate of any sums specified in sub-clause (ii) of that clause exceeds an amount of ten thousand rupees, a
deduction under sub-section (1) shall be allowed with reference to so much of the aggregate as does not exceed an amount of
ten thousand rupees.
(a) “Life Insurance Corporation” means the Life Insurance Corporation of India established under the Life Insurance Corporation
Act, 1956 (31 of 1956);
(b) “public company” shall have the same meaning as in section 3 of the Companies Act, 1956 (1 of 1956);
(c) “transfer” shall be deemed to include also the transactions referred to in clause (f) of section 269UA ;
36((d) “contribution” to any fund shall not include any sums in repayment of loan.))’.
1. Subs. by the Finance Act, 1982 (14 of 1982), s 13(a) (w.e.f. 1-4-1983).
2. Subs., for “on the life of the wife or husband of the assessee”, by the Finance Act, 1969 (14 of 1969), s 6 (w.e.f. 1-4-1970).
3. Subs. by the Finance Act, 1973 (21 of 1973), s 8 (w.e.f. 1-4-1974), for the following:—
“(ii) to effect or to keep in force a contract for a deferred annuity on the life of the assessee or on the life of the wife or husband
or any child of the assessee, notwithstanding that such contract contains a provision for the exercise by the insured of an option
to receive a cash payment in lieu of the payment of the annuity; or”. In the aforesaid sub-clause (ii), the words in italics were
substituted for “on the life of the wife or husband of the assessee” by the Finance Act, 1969 (14 of 1969), s 6 (w.e.f. 1-4-1970).
4. Ins. by the Direct Tax Laws (Second Amendment) Act, 1989 (36 of 1989), s 7(a)(i)(A) (w.e.f. 1-4-1990).
5. Ins. by the Finance Act, 1972 (16 of 1972), s 16(a)(i) (w.e.f. 1-4-1973).
6. Ins. by the Finance Act, 1968 (19 of 1968), s 30 and Sch. III (w.e.f. 1-4-1969).
7. Ins. by the Finance Act, 1972, (16 of 1972), s 16(a)(i) (w.e.f. 1-4-1973).
8. The brackets and words “(hereafter in this section referred to as the Unit-linked Insurance Plan)” were omitted by the Direct
Tax Laws, (Second Amendment) Act, 1989 (36 of 1989), s 7(a)(i)(B)(1) (w.e.f. 1-4-1990).
9. Ins. by the Direct Tax Laws, (Second Amendment) Act, 1989 (36 of 1989), s 7(a)(i)(B)(2) (w.e.f. 1-4-1990).
Page 17 of 21
10. Ins. by the Direct Tax Laws, (Second Amendment) Act, 1989 (36 of 1989), s 7(a)(i)(C) (w.e.f. 1-4-1990).
11. Subs. by the the Finance Act, 1983 (11 of 1983), s 21(a)(i) (w.e.f. 1-4-1984), for the following:—
(b) where the assessee is a Hindu undivided family, any sums paid in the previous year by the assessee out of its income
chargeable to tax, to effect or to keep in force an insurance †(on the life of any member of the family).’
In the above clause (b), the words, put within the parentheses marked†, were substituted, for “on the life of any male member of
the family or of the wife of any such member”, by the Finance Act, 1969 (14 of 1969), s 6 (w.e.f. 1-4-1970).
12. Subs., for “clause (b)”, by the Finance Act, 1983 (11 of 1983), s 21(a)(ii) (w.e.f. 1-4-1984).
13. The brackets and words “(being the assessee, or a male member of a Hindu undivided family where such family is the
assessee)” were omitted by the Finance Act, 1969 (14 of 1969), s 6 (w.e.f. 1-4-1970).
14. The words “or ten thousand rupees, whichever is less” were omitted by the Direct Tax Laws (Amendment) Act, 1989 (3 of
1989), s 13(a)(i) (w.e.f. 1-4-1989). In the above, the words “ten thousand rupees” (printed in italics) were, earlier, substituted for
“eight thousand rupees” by the Finance Act, 1976 (66 of 1976), s 16 (w.e.f. 1-4-1977).
15. Clause (g) was inserted by the Finance Act, 1970 (19 of 1970), s 12 (w.e.f. 1-4-1971).
16. Subs., for “consisting only of”, by the Taxation Laws (Amendment) Act, 1984 (67 of 1984), s 19(i) (with retrospective effect
from 1-4-1971).
17. Subs., for “Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu”, by the Direct Tax Laws (Second
Amendment) Act, 1989 (36 of 1989), s 7(a)(iii) (w.e.f. 1-4-1990).
“(2) to effect or to keep in force a contract for a deferred annuity on the life of any member of such association or body or any
child of any of the members of such association or body, notwithstanding that such contract contains a provision for the exercise
by the insured of an option to receive a cash payment in lieu of the payment of the annuity; or”.
19. Ins. by the Finance Act, 1972 (16 of 1972), s 16(a)(ii) (w.e.f. 1-4-1973).
20. Clause (h) was substituted by the Finance Act, 1987 (11 of 1987), s 32(a) (w.e.f. 1-4-1988), for the following:—
‘(h) where the assessee is an individual or a Hindu undivided family ‡(or, where the assessee is an association of persons or a
body of individuals consisting, in either case, only of) husband and wife governed by the system of community of property in
force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, any sums paid in the previous year by the
assessee out of his or its income chargeable to tax, as subscription to any such security of the Central Government as that
Government may, by notification in the Official Gazette, specify in this behalf.’.
In the above clause (h), the portion (put within the parentheses marked‡) was, earlier, substituted, for “or an association of
persons or a body of individuals consisting only of”, by the Taxation Laws (Amendment) Act, 1984 (67 of 1984), s 19(ii) (with
retrospective effect from 1-4-1983).
The above clause (h) (minus subsequent amendment) was, originally, inserted by the Finance Act, 1982 (14 of 1982), s 13(b)
(w.e.f. 1-4-1983).
21. Subs. for “Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu”, by the Direct Tax Laws (Second
Amendment) Act, 1989 (36 of 1989), s 7(a)(iii) (w.e.f. 1-4-1990).
23. Ins. by the Direct Tax Laws (Second Amendment) Act, 1989 (36 of 1989), s 7(a)(ii) (w.e.f. 1-4-1990).
24. Ins. by the Finance Act, 1989 (13 of 1989), s 14(b) (w.e.f. 1-4-1990).
25. Ins. by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 13(a)(ii) (w.e.f. 1-4-1989).
26. Clause (i) was inserted by the Direct Tax Laws (Second Amendment) Act, 1989 (36 of 1989), s 7(a)(iv) (with retrospective
effect from 1-4-1984).
27. Subs., for “clauses (a) and (b)”, by the Finance Act, 1970 (19 of 1970), s 12 (w.e.f. 1-4-1971).
28. Clauses (i) and (ii) were substituted by the Finance Act, 1983 (11 of 1983), s 21(b) (w.e.f. 1-4-1984), for the following:—
‘(i) in the case of an individual being an author, playwright, artist, †(musician, actor or sportsman (including an athlete)), such
percentage of his gross total income, or such amount, as may be prescribed:
‡(* * *)
(ii) in the case of any other individual £(* * *), thirty per cent. of his gross total income, or §(forty thousand rupees), whichever is
less;
(iii) in the case of a Hindu undivided family, thirty per cent. of its gross total income, or §(forty thousand rupees), whichever is
less;
‡‡((iv) in the case of an association of persons or a body of individuals referred to in clause (g) of sub-section (2), thirty per cent.
of the gross total income of such association or body, or ‘§(forty thousand rupees), whichever is less.)’.
In the above clause (i), the portion (put within the parentheses marked†) was, earlier, substituted, for “musician or actor”, by the
Finance (No. 2) Act 1980 (44 of 1980), s 13(b) (w.e.f. 1-4-1981).
Page 18 of 21
The proviso to the above clause (i) (from the place put within the parentheses marked‡) was, earlier,
omitted by the Finance Act, 1969 (14 of 1969), s 6 (w.e.f. 1-4-1969). Prior to its omission, the proviso stood as under:—
“Provided that such individual has effected an insurance referred to in sub-clause (i) of clause (a) of sub- section (2) prior to the
1st day of March, 1964, and has paid any sum in the previous year to keep in force such insurance;”.
The brackets, words, etc. (from the place put within the parentheses marked £ in clause (ii)) “(including an author, playwright,
artist, musician or actor, to whom the provisions of clause (i) do not apply)” were omitted by the Finance Act, 1969 (14 of 1969),
s 6 (w.e.f. 1-4-1969).
The words (put within the parentheses marked §) in clauses (ii), (iii) and (iv) were, earlier, substituted for “thirty thousand rupees”
by the Finance Act, 1982 (14 of 1982), s 13(c) (w.e.f. 1-4-1983).
The above clause (iv) (put within the parentheses marked‡‡) was, originally, inserted by the Finance Act, 1970 (19 of 1970), s
12 (w.e.f. 1-4-1971).
29. Subs., for “referred to in clause (g) of sub-section (2)”, by the Finance Act, 1987 (11 of 1987), s 32(b) (w.e.f. 1-4-1988).
30. Original sub-section (5) was omitted by the Finance Act, 1968 (19 of 1968), s 30 and 3rd Sch. (w.e.f. 1-4-1969), which stood
as under:—
“(5) If the gross total income of the assessee includes earned income chargeable under any head, the deduction under sub-
section (1) shall, to the extent possible, be made in computing such earned income and, as to the balance, if any, in computing
any other income; and if there is no earned income, the deduction shall be made in computing any other income under any
head.”.
The present sub-section (5) (minus subsequent amendments) has been inserted by the Finance Act, 1972 (16 of 1972), s 16(b)
(w.e.f. 1-4-1973).
31. Subs., for “the Unit-linked Insurance Plan”, by the Direct Tax Laws (Second Amendment) Act, 1989 (36 of 1989), s 7(b)(i)
(w.e.f. 1-4-1990).
32. Subs., for “participating in the Plan, terminates his participation in the Plan”, by the Direct Tax Laws (Second Amendment)
Act, 1989,(36 of 1989), s 7(b)(ii) (w.e.f. 1-4-1990).
33. Ins. by the Finance Act, 1982 (14 of 1982), s 13(d) (w.e.f. 1-4-1983).
34. Subs., for “the Unit-linked Insurance Plan”, by the Direct Tax Laws (Second Amendment) Act, 1989,(36 of 1989, s 7(c)
(w.e.f. 1-4-1990).
35. Sub-sections (7) and (8) were inserted by the Finance Act, 1987 (11 of 1987), s 32(c) (w.e.f. 1-4-1988).
36. Clause (d) was inserted by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 13(b) (w.e.f. 1-4-1989).
74 For text, see Appendix 77.
76 Subs., for “notified under clause (23D)”, by the Finance Act, 2006 (21 of 2006), s 16(a) (w.e.f. 1-4-2007). See Circular
No. 14 of 2006, December 28, 2006, 288 ITR (St.) 9.
77 Subs., for “notified under clause (23D)”, by the Finance Act, 2006 (21 of 2006), s 16(b) (w.e.f. 1-4-2007).
78 Subs., for “notified under clause (23D)”, by the Finance Act, 2006 (21 of 2006), s 16(c) (w.e.f. 1-4-2007).

Page 19 of 21
82 Ins. by the Finance Act, 2006 (21 of 2006), s 16(d) (w.e.f. 1-4-2007).
84 For text, see Appendix 48A.
ITR (St.) 8.
87 Ins. by the Finance Act, 2008 (18 of 2008), s 16(a) (w.e.f. 1-4-2008). See Circular No. 1 of 2009, March 27, 2009, 310
ITR (St.) 42.
88 Subs., for “insurance policy other than a contract for a deferred annuity”, by the Finance Act, 2012 (23 of 2012), s 24(i)
(w.e.f. 1-4-2013). See Circular No. 3 of 2012, June 12, 2012, 345 ITR (St.) 103-Supplementary Memorandum. Also see
Memorandum explaining the provisions in Finance Bill, 2012, 342 ITR (St.) 234.
89 Ins. by the Finance Act, 2012 (23 of 2012), s 24(ii) (w.e.f. 1-4-2013).
90 Ins. by the Finance Act, 2013 (23 of 2012), s 12 (w.e.f. 1-4-2014). See Memorandum explaining the provisions in
Finance Bill, 2013, 351 ITR (St.) 102.
91 Ins. by the Finance Act, 2008 (18 of 2008), s 16(b) (w.e.f. 1-4-2008). See Circular No. 1 of 2009,
March 27, 2009, 310 ITR (St.) 42.
1 Circular No. 3 of 2006, February 27, 2006 281 ITR (St.) 222.
2 Gould v Curtis 6 TC 293, 310 (CA); Chandulal v CIT 63 ITR 627 (SC), AIR 1967 SC 816, (1967) 1 SCR 921 ; Ravi
Kumar Mehra v CIT 172 ITR 108, (1988) 67 CTR (P&H) 162 ; CIT v Ramesh Chandra Khandelwal 273 ITR 363,
(2005) 195 CTR 276 (All).
Page 20 of 21
3 See p 21, n 69.
4 CIT v Shepherd 74 ITR 79 (contract with employer for pension.)
5 Chandulal v CIT 63 ITR 627, 631 (SC); Gould v Curitis 6 TC 293, 306, 311-12 (CA); Babulal v CIT 14 ITR 662, 666,
671.
6 Gould v Curtis 6 TC 293 (CA).
7 Jaswantrai v CIT 80 ITR 701 (deleted s 87 ).
8 Babulal v CIT 14 ITR 662 .
9 Gould v Curits 6 TC 293, 308 (CA); CIT v Shepherd 74 ITR 79 (pension).
10 10 TC 753.
11 Hunter v Att-Gen 5TC 13 (HL); Rex v Special Comrs 17 TC 362 .
12 14 ITR 662.
13 14 TC 94.
14 14 TC 94, 110.
15 CIT v Chelliah 147 ITR 590, dissenting from Yeshodamma v CIT 87 ITR 54 .
16 Ravi Kumar Mehra v CIT 172 ITR 108 . Cf Inder Singh v CIT 47 ITR 284 .
17 CIT v Benugopal 187 ITR 614 ; CIT v Jobie John 245 ITR 258 .
18 CIT v Usharani 212 ITR 119, (1995) 129 CTR 388 (Ori); CIT v Abraham George 242 ITR 171, (2000) 158 CTR 526
(Ker); CIT v Ram Mohan 255 ITR 555, (2002) 175 CTR 307 (Raj).
19 CIT v Ramesh Chandra Khandelwal 273 ITR 363, (2005) 195 CTR 276 (All); See also Raj Kumar Dewan and Sons v
CIT 277 ITR 561, (2005) 146 Taxman 616 (All).
20 CIT v Saurin Zaveri 257 ITR 160 .

Page 21 of 21
21 7 TC 170.
22 Cf Kneen v Ashoton 31 TC 343 .
23 See under s 16, ‘Deductions from salary’.
24 Afsar Ali v CIT 211 ITR 190 ; CIT v Benugopal Choudhury (N) 187 ITR 614 .
End of Document
S. 80CC.
S. 80CC.
25[* * * *]
25 Omitted by the Finance (No. 2) Act 1996 (33 of 1996), s 22 (w.r.e.f. 1-4-1993). See Circular No. 762, February 18,
1998, 230 ITR (St.) 12.
Section 80CC as it stood upto 31-3-1993.— Section 80CC, prior to its omission (w.r.e.f. 1-4-1993) by the Finance (No. 2) Act
1996, stood as under:—
‘1[ S. 80CC . Deduction in respect of investment in certain new shares.—(1) Where an assessee, being—
(a) an individual, or
(b) a Hindu undivided family, 2[*]
2[(c) * * * *] has acquired in the previous year (being a previous year relevant to the assessment year commencing on the 1st
day of April, 1979, or any subsequent assessment year), out of his income chargeable to tax, equity shares forming part of any
eligible issue of capital, 3[or units of any Mutual Fund specified under clause (23D) of 4[ section 10 or units issued under any
scheme of the Unit Trust of India established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963), if the amount of
subscription to any units, issued by the Mutual Fund or, as the case may be, the Unit Trust of India under such scheme, is
subscribed] only to eligible issue of capital,] he shall, in accordance with and subject to the provisions of this section, be allowed
a deduction in the computation of his total income of an amount equal to fifty per cent. of the cost of such shares to him.
Explanation.—Where in any previous year the assessee has acquired any shares referred to in this sub-section and has, within
a period of six months from the end of that previous year, paid the whole or a part of the amount, if any, remaining unpaid on
such shares, the amount so paid shall be deemed to have been paid by the assessee towards the cost of such shares in that
previous year.
(2) Where the aggregate cost to the assessee of the shares referred to in sub-section (1) which are acquired by him in the
previous year exceeds 5[twenty thousand rupees], the deduction under that sub-section shall be allowed only with reference to
such of those shares (being shares the aggregate cost whereof to the assessee does not exceed 5[twenty thousand rupees]) as
are specified by him in this behalf.
(3) For the purposes of this section, “eligible issue of capital” means an issue of equity shares which satisfies the following
conditions, namely:—
(a) the issue is made by a public company formed and registered in India 6[and the issue is wholly and exclusively for the
purposes of carrying on the business of—]
(i) construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh
Schedule; or
Page 2 of 3
S. 80CC.
(ii) providing long-term finance for construction or purchase of houses in India for residential purposes:
Provided that in the case of a public company 7[* * * *] carrying on the business referred to in sub-clause (ii), such company is
approved by the Central Government for the purposes of this section; 8[or]
8[(iia) a hospital; or]
9[(iii) a hotel approved by the prescribed authority;] 10[or]
10[(iv) operation of ships;]
(b) the issue is an issue of capital made by the company for the first time
11[Provided that this clause shall not apply in the case of an issue of equity shares made by a public company formed and
registered in India with the main object of carrying on the business of operation of ships;]
12[(c) the shares forming part of the issue are offered for subscription to the public and such offer for subscription is made by the
company before the 13[1st day of April, 1990];]

(d) such other conditions as may be prescribed:
Provided that in the case of a company which had originally been incorporated as a private company but has become a public
company under the provisions of the Companies Act, 1956 (1 of 1956), an issue of equity shares made by it for the first time
after it has become a public company shall not be regarded as an eligible issue of capital, if—
(i) such company had declared, distributed or paid any dividend when it was a private company; or
(ii) any of the shares forming part of such issue is offered for subscription at a premium.
Explanation 1.—If any question arises as to whether any issue of equity shares would constitute an eligible issue of capital for
the purposes of this section, the question shall be referred to the Central Government whose decision thereon shall be final.
Explanation 2.—In this sub-section and sub-section (4), “public company” shall have the meaning assigned to it in section 3 of
the Companies Act, 1956 (1 of 1956).
(4) The deduction under sub-section (1) shall not be allowed unless the assessee has—
(i) subscribed to the shares in pursuance of an offer for subscription to the public made by the public company or in pursuance of
a reservation or an option in his favour by reason of his being a promoter of the company; or
(ii) purchased the shares from a person who is specified as an underwriter in respect of the issue of such shares in pursuance of
clause 11 of Part I of Schedule II to the Companies Act, 1956 (1 of 1956), and who has acquired such shares by virtue of his
obligation as such underwriter.
(5) If any equity shares, with reference to the cost of which a deduction is allowed under
sub-section (1), are sold or otherwise transferred by the assessee to any person at any time within a period of 14[three years]
from the date of their acquisition, an amount equal to fifty per cent. of the cost to the assessee of the shares so sold or otherwise
transferred shall be deemed to be the income of the assessee of the previous year in which the shares are so sold or transferred
and shall be chargeable to tax accordingly.
Explanation.—A person shall be treated as having acquired any shares on the date on which his name is entered in relation to
those shares in the register of members of the company.
(6) Where a deduction is claimed and allowed under sub-section (1) with reference to the cost of any equity shares, the cost of
such shares shall not be taken into account for the purposes of section 54E .]’.
1. Ins. by the Finance Act, 1978 (19 of 1978), s 17 (w.e.f. 1-4-1978).
2. The word “or” and clause (c) were omitted by the Finance Act, 1994 (32 of 1994), s 50(b) (w.r.e.f. 1-4-1978). Prior to its
omission, clause (c) stood as under:—
‘(c) an association of persons or a body of individuals ‡[consisting, in either case, only of] husband and wife governed by the
system of community of property in force in the Union territories, of Dadra and Nagar Haveli and Goa, Daman and Diu,’.
In the above clause (c), the portion put within the parentheses marked with ‡ was substituted for “consisting only of”, by the
Taxation Laws (Amendment) Act, 1984 (67 of 1984), s 20 (with retrospective effect from 1-4-1978).
4. Subs., for “ section 10 if such fund subscribes”, by the Finance Act, 1989 (13 of 1989), s 15(i) (w.e.f. 1-4-1990).
5. Subs., for “ten thousand rupees”, by the Finance Act, 1982 (14 of 1982), s 14 (w.e.f. 1-4-1983).
6. Subs., for “with the main object of carrying on the business of—”, by the Finance Act, 1985 (32 of 1985), s 16(a) (w.e.f. 1-4-
1985).
7. The words “formed and registered in India with the main object of” have been omitted by the Finance Act, 1985 (32 of 1985), s
16(b) (w.e.f. 1-4-1985).
8. Ins. by the Finance Act, 1989 (13 of 1989), s 15(ii) (w.e.f. 1-4-1990).
9. Ins. by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 14 (w.e.f. 1-4-1989).
10. Ins. by the Direct Tax Laws (Second Amendment) Act, 1989 (36 of 1989), s 8(i) (w.e.f. 1- 4-1990).
11. Ins. by the Direct Tax Laws (Second Amendment) Act, 1989 (36 of 1989), s 8(ii) (w.e.f. 1-4-1990).
Page 3 of 3
S. 80CC.
12. Clause (c) has been substituted by the Finance Act, 1984 (21 of 1984), s 12 (w.e.f. 1-4-1984), for the following:—
‘(c) the shares forming part of the issue are offered for subscription to the public;’.
13. Subs., for “1st day of April, 1987”, by the Finance Act, 1987 (11 of 1987), s 33(a) (w.e.f. 1-4-1987).
14. Subs., for “five years”, by the Finance Act, 1987 (11 of 1987), s 33(b) (w.e.f. 1-4-1987).
End of Document
[S. 80CCA. Deduction in respect of deposits under National Savings
Scheme or payment to an annuity plan
[S. 80CCA. Deduction in respect of deposits under National Savings Scheme or payment to an annuity plan
(1) Where an assessee, being—
(a) an individual, or26
(b) a Hindu undivided family,27[* * * *]
28[(c) * * * *]
has in the previous year—
(i) deposited any amount in accordance with such scheme as the Central Government may, by notification
in the Official Gazette, specify in this behalf29[* * *]; or
(ii) paid any amount to effect or to keep in force a contract for such annuity plan of the Life Insurance
Corporation as the Central Government may, by notification in the Official Gazette, specify, out of his
income chargeable to tax, he shall, in accordance with, and subject to, the provisions of this section, be
allowed a deduction in the computation of his total income of the whole of the amount deposited or paid
(excluding interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed
the amount of twenty thousand rupees in the previous year:
30[Provided that in relation to—
(a) the assessment years commencing on the 1st day of April, 1989, and the 1st day of April, 1990, this
sub-section shall have effect as if for the words “twenty thousand rupees”, the words “thirty thousand
rupees” had been substituted;
(b) the assessment year commencing on the 1st day of April, 1991, and subsequent assessment years,
this sub-section shall have effect as if for the words “twenty thousand rupees”, the words “forty
thousand rupees” had been substituted:]
Page 2 of 4
31[Provided
further that no deduction under this sub-section shall be allowed in relation to any
amount deposited, or paid under clauses (i) and (ii) on or after the 1st day of April, 1992.]
(2) Where any amount—
(a) standing to the credit of the assessee32[under the scheme referred to in clause (i) of sub-section (1)] in respect
of which a deduction has been allowed under sub-section (1) together with the interest accrued on such
amount is withdrawn in whole or in part in any previous year, or
(b) is received on account of the surrender of the policy or as annuity or bonus in accordance with the annuity
plan of the Life Insurance Corporation in any previous year, an amount equal to the whole of the amount
referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee of that previous year
in which such withdrawal is made or, as the case may be, amount is received, and shall, accordingly, be
chargeable to tax as the income of that previous year:
33[Provided that nothing contained in this sub-section shall apply to any amount received by the
assessee on account of the surrender of the policy in accordance with the terms of the annuity plan of
the Life Insurance Corporation where the assessee elects to surrender before the 1st day of October,
1992, the said annuity plan in respect of which he had paid any amount under clause (ii) of sub-section
(1) before the 1st day of April, 1992.].
(3) 34[Notwithstanding anything contained in any other provision of this Act, where a partition has taken place among
the members of a Hindu undivided family or where an association of persons has been dissolved after a
deduction has been allowed under sub-section (1), the provisions of sub-section (2) shall apply as if the person in
receipt of income referred to therein is the assessee.]
Explanation I.—For the removal of doubts, it is hereby declared that interest on the deposits made35[under
the scheme referred to in clause (i) of sub-section (1)] shall not be chargeable to tax except in the manner
and to the extent specified in sub-section (2).
Explanation II.—For the purposes of this section, “Life Insurance Corporation” shall have the same meaning
as in clause (a) of sub-section (8) of section 80C .]
Section 80CCA : Deposits under National Savings Scheme and Payments under Deferred Annuity Plan.—The
assessee who has enjoyed deduction under this section in respect of the deposit made under the notified National
Savings Scheme or the payment made under the notified deferred annuity plan is assessable when he withdraws the
deposit or receives any amount under the annuity plan. But in the event of his death, the refund of the deposit or the
Page 3 of 4
amount of the ‘gross insurance value element’ received by his legal heirs is not taxable in their hands.36
No deduction under this section is allowable in relation to any amount deposited or paid after April 1, 1992 [proviso to
sub-s(1)].
26 Subs., by the Finance Act, 1988 (26 of 1988), s 23 (w.e.f. 1-4-1988), for the following:—
“ S. 80CCA . Deduction in respect of deposits under National Savings Scheme.—(1) Where an assessee, being—
(b) a Hindu undivided family, or
(c) an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the
system of community of property in force in the Union Territories of Dadra and Nagar Haveli and Goa, Daman and Diu,
has in the previous year deposited out of his income chargeable to tax any amount in accordance with such scheme as the
Central Government may, by notification in the Official Gazette, specify in this behalf (hereafter in this section referred to as the
National Savings Scheme), he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in
the computation of his total income of an amount equal to fifty per cent. of so much of the deposits (excluding interest accrued
and credited to the assessee’s account) as do not exceed the amount of twenty thousand rupees in the previous year.
(2) Where any amount standing to the credit of the assessee under the National Savings Scheme in respect of which a
deduction has been allowed under sub-section (1) together with the interest accrued on such amount is withdrawn in whole or in
part in any previous year, an amount equal to fifty per cent. of the amount so withdrawn shall be deemed to be the income of the
assessee of that previous year in which such withdrawal is made and shall, accordingly, be chargeable to tax as the income of
that previous year.
Explanation.—For the removal of doubts, it is hereby declared that interest on the deposits made under the National Savings
Scheme shall not be chargeable to tax except in the manner and to the extent specified in sub-section (2).”.
The above section 80CCA was, originally, inserted by the Finance Act, 1987 (11 of 1987), s 34 (w.e.f. 1-4-1988). See Circular
No. 495, September 22, 1987, 168 ITR (St.) 87.
27 The word “or” has been omitted by the Finance Act, 1994 (32 of 1994), s 50(c)(i) (w.r.e.f. 1-4-1988). See Circular No.
684, June 10, 1994, 208 ITR (St.) 8.
28 Clause (c) has been omitted by the Finance Act, 1994 (32 of 1994), s 50(c)(ii) (w.r.e.f. 1-4-1988). Prior to its omission,
clause (c) stood as under:—
‘(c) an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the
system of community of property in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman
and Diu,’.
29 The brackets and words “(hereafter in this section referred to as the National Savings Scheme)” have been omitted by
the Finance (No. 2) Act 1991 (49 of 1991), s 25(a) (w.e.f. 1-10-1991). See Circular No. 621, December 19, 1991, 195
ITR (St.) 154.
30 Subs. by the Finance Act, 1990 (12 of 1990), s 16(a) (w.e.f. 1-4-1991), Circular No. 572, August 3, 1990, 186 ITR (St.)
‘Provided that in relation to the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years,
this sub-section shall have effect as if for the words “twenty thousand rupees”, the words “thirty thousand rupees” had been
substituted.’.
Page 4 of 4
31 Ins. by the Finance Act, 1992 (18 of 1992), s 42(a) (w.e.f. 1-4-1993). See Circular No. 636, August 31, 1992, 198 ITR
(St.) 1.
32 Subs., for “under the National Savings Scheme”, by the Finance (No. 2) Act 1991 (49 of 1991), s 25(b) (w.e.f. 1-10-
1991).
33 Ins. by the Finance Act, 1992 (18 of 1992), s 42(b) (w.e.f. 1-4-1993).
35 Subs., for “under the National Savings Scheme”, by the Finance (No. 2) Act 1991 (49 of 1991), s 25(c) (w.e.f. 1-10-
1991).
36 Board’s circular no 532, dated 17 March 1989; 176 ITR St 327.
End of Document
S. 80CCB. Deduction in respect of investment made under Equity Linked
Savings Scheme
S. 80CCB. Deduction in respect of investment made under Equity Linked Savings Scheme
(1) 37[Where an assessee, being—
(b) a Hindu undivided family,38[*]
(c) 39[* * *]
has acquired in the previous year, out of his income chargeable to tax, units of any Mutual Fund
specified under clause (23D) of section 10 or of the Unit Trust of India established under the Unit Trust of
India Act, 1963 (52 of 1963), under any plan formulated in accordance with such scheme as the Central
Government may, by notification in the Official Gazette, specify in this behalf (hereafter in this section
referred to as the Equity Linked Savings Scheme), he shall, in accordance with, and subject to, the
provisions of this section, be allowed a deduction in the computation of his total income of so much of the
amount invested as does not exceed the amount of ten thousand rupees in the previous year:
40[Provided that no deduction shall be allowed in relation to any amount invested under this sub-section
on or after the 1st day of April, 1992.]
(2) Where any amount invested by the assessee in the units issued under a plan formulated under the Equity Linked
Savings Scheme in respect of which a deduction has been allowed under sub-section (1) is returned to him in
whole or in part either by way of repurchase of such units or on the termination of the plan, by the Fund or the
Trust, as the case may be, in any previous year, it shall be deemed to be the income of the assessee of that
previous year and chargeable to tax accordingly.
(3) Notwithstanding anything contained in any other provision of this Act, where a partition has taken place among
the members of a Hindu undivided family or where an association of persons has been dissolved after a
deduction has been allowed under sub-section (1), the provisions of sub-section (2) shall apply as if the person in
receipt of income referred to therein is the assessee.]
Page 2 of 2
S. 80CCB. Deduction in respect of investment made under Equity Linked Savings Scheme
Section 80CCB : Deduction in Respect of Investment Made under Equity Linked Savings Scheme.—This
section was inserted by the Finance Act, 1990 with effect from April 1, 1991 to provide for a deduction in respect of
investments made in accordance with the equity linked savings scheme notified by the Central Government. No
deduction is to be allowed in relation to any investment made after April 1, 1992 in view of the proviso to sub-s (1),
inserted by the Finance Act, 1992.
Under this section, the deduction was to be allowed in the case of an individual, a Hindu undivided family and certain
categories of associations of persons or bodies of individuals. The investment was to be in the units of mutual funds
specified under cl (23D) of s 10, or Unit Trust of India. The deduction was to be allowed on such investment up to a
maximum of Rs 10,000.
37 Section 80CCB has been inserted by the Finance Act, 1990 (12 of 1990), s 17 (w.e.f. 1-4-1991). See Circular No. 572,
August 3, 1990, 186 ITR (St.) 81.
38 The word “or” has been omitted by the Finance Act, 1994 (32 of 1994), s 50(d)(i) (w.r.e.f. 1-4-1991). See Circular No.
684, June 10, 1994, 208 ITR (St.) 8.
39 Omitted by the Finance Act, 1994 (32 of 1994), s 50(d)(ii) (w.r.e.f. 1-4-1991). Prior to its omission, clause (c) stood as
under:—
system of commuity of property in force in the State of Goa and the Union Territories of Dadra and Nagar Haveli and Daman and
Diu,’.
40 Ins. by the Finance Act, 1992 (18 of 1992), s 43 (w.e.f. 1-4-1993). See Circular No. 636, August 31, 1992, 198 ITR
(St.) 1.
End of Document
[S. 80CCC. Deduction in respect of contribution to certain pension funds
41[S. 80CCC. Deduction in respect of contribution to certain pension funds
(1) Where an assessee being an individual has in the previous year paid or deposited any amount out of his income
chargeable to tax to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of
India42[or any other insurer] for receiving pension from the fund referred to in clause (23AAB) of section 10, he
shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation
of his total income, of the whole of the amount paid or deposited (excluding interest or bonus accrued or credited
to the assessee’s account, if any) as does not exceed the amount of43[one lakh rupees] in the previous year.
(2) Where any amount standing to the credit of the assessee in a fund, referred to in sub-section (1) in respect of
which a deduction has been allowed under sub-section (1), together with the interest or bonus accrued or credited
to the assessee’s account, if any, is received by the assessee or his nominee—
(a) on account of the surrender of the annuity plan whether in whole or in part, in any previous year, or
(b) as pension received from the annuity plan, an amount equal to the whole of the amount referred to in clause
(a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in
that previous year in which such withdrawal is made or, as the case may be, pension is received, and shall
accordingly be chargeable to tax as income of that previous year.
(3) 44[Where any amount paid or deposited by the assessee has been taken into account for the purposes of this
section,—
(a) a rebate with reference to such amount shall not be allowed under section 88 for any assessment year ending
before the 1st day of April, 2006;
(b) a deduction with reference to such amount shall not be allowed under section 80C for any assessment year
beginning on or after the 1st day of April, 2006.]]
Page 2 of 2
[S. 80CCC. Deduction in respect of contribution to certain pension funds
1. Legislative History.—This section was inserted by the Finance (No. 2) Act 1996 with effect from 1 April 1997 to
provide for a deduction in respect of an amount paid to effect or to keep in force a contract for a specified annuity plan
for receiving pension.
By the Finance Act, 2006, annuity plans are entitled to deduction upto Rs. 1,00,000 with effect from April 1, 2007
under s 80CCC . However, under s 80CCE, the aggregate of deductions under ss 80C, 80CCC and 80CCD shall not
exceed Rs. 1,00,000.
2. Section 80CCC : Deduction in Respect of Contribution to Certain Pension Funds.—The deduction is to be

allowed to an individual on contributions made to pension funds as referred to in s 10(23AAB), upto a maximum
amount of Rs. 1,00,000 [prior to April 1, 2007 Rs. 10,000]. When the amount standing to the credit in such fund is
received by the individual or his nominee on account of surrender of the annuity plan, or as pension, such amount is
chargeable to tax in the year of receipt. This is to bring the provisions in line with EET. With effect from April 1, 2006,
the amount so deposited with the insurere which has been claimed as a deduction under this section is not to be
considered for the purpose of computing rebate under s 88 or deduction under s 80C .
41 Ins. by the Finance (No. 2) Act 1996 (33 of 1996), s 23 (w.e.f. 1-4-1997). See Circular No. 762, February 18, 1998, 230
ITR (St.) 12.
42 Ins. by the Finance Act, 2001 (14 of 2001), s 36 (w.e.f. 1-4-2002). Circular No. 14 of 2001, 254 ITR (St.) 651.
43 Subs., for “ten thousand rupees”, by the Finance Act, 2006 (21 of 2006), s 17 (w.e.f. 1-4-2007). See Circular No. 14 of
2006, December 28, 2006, 288 ITR (St.) 9.
44 Subs. by the Finance Act, 2005 (18 of 2005), s 22 (w.e.f. 1-4-2006), See Circular No. 3 of 2005, June 3, 2005, 275 ITR
(St.) 222, for the following:—
‘(3) Where any amount paid or deposited by the assessee has been taken into account for the purposes of this section, a rebate
with reference to such amount shall not be allowed under section 88 .’.
End of Document
S. 80CCD. Deduction in respect of contribution to pension scheme of
Central Government
S. 80CCD. Deduction in respect of contribution to pension scheme of Central Government
(1) 45[Where an assessee, being an individual46[employed by the Central Government or any other employer] on or
after the 1st day of January, 2004,47[or any other assessee, being an individual] has in the previous year paid or
deposited any amount in his account under a pension scheme notified or as may be notified by the Central
Government, he shall, in accordance with, and subject to the provisions of this section, be allowed a deduction in
the computation of his total income, of the whole of the amount so paid or deposited48[as does not exceed,—
(a) in the case of an employee, ten per cent. of his salary in the previous year; and
(b) in any other case, ten per cent. of his gross total income in the previous year.]
(2) Where, in the case of an assessee referred to in sub-section (1), the49[Central Government or any other employer]
makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in
the computation of his total income, of the whole of the amount contributed by the50[Central Government or any
other employer] as does not exceed ten per cent. of his salary in the previous year.
(3) Where any amount standing to the credit of the assessee in his account referred to in sub-section (1), in respect
of which a deduction has been allowed under that sub-section or sub-section (2), together with the amount
accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,—
(a) on account of closure or his opting out of the pension scheme referred to in sub-section (1); or
(b) as pension received from the annuity plan purchased or taken on such closure or opting out, the whole of the
amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his
nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly
be charged to tax as income of that previous year.
(4) 51[Where any amount paid or deposited by the assessee has been allowed as a deduction under sub-section
(1),—
Page 2 of 3
(a) no rebate with reference to such amount shall be allowed under section 88 for any assessment year ending
before the 1st day of April, 2006;
(b) no deduction with reference to such amount shall be allowed under section 80C for any assessment year
beginning on or after the 1st day of April, 2006.]]
(5) 52[For the purposes of this section, the assessee shall be deemed not to have received any amount in the
previous year if such amount is used for purchasing an annuity plan in the same previous year.]
Legislative History.— Section 80CCD, inserted by the Finance (No. 2) Act 2004 with effect from April 1, 2004,
granted deduction to Central Government employees who deposited any amount in a notified pension scheme after
January 1, 2004. The deduction was then extended to other employees by the Finance Act, 2007 (retrospectively from
April 1, 2004) and by the Finance Act, 2009 to any other individuals from April 1, 2009. However, the whole of the
amount deposited should not exceed ten per cent. of salary or gross total income in the previous year as the case may
be. Under s 80CCE, the aggregate amount of deduction under ss 80C, 80CCC and 80CCD shall not exceed Rs.
1,00,000.
45 Ins. by the Finance (No. 2) Act 2004 (23 of 2004), s 15 (w.e.f. 1-4-2004). See Circular No. 5 of 2005, July 15, 2005,
276 ITR (St.) 151.
46 Subs., for “employed by the Central Government”, by the Finance Act, 2007 (22 of 2007), s 25(a) (w.r.e.f. 1-4-2004).
See Circular No. 3 of 2008, March 12, 2008, 299 ITR (St.) 8.
47 Ins. by the Finance (No. 2) Act 2009 (33 of 2009), s 30(a)(i) (w.r.e.f. 1-4-2009). See Circular No. 5 of 2010, June 3,
2010, 324 ITR (St.) 293.
48 Subs., for “as does not exceed ten per cent. of his salary in the previous year”, by the Finance (No. 2) Act 2009 (33 of
2009), s 30(a)(ii) (w.r.e.f. 1-4-2009).
49 Subs., for “Central Government”, by the Finance Act, 2007 (22 of 2007), s 25(b) (w.r.e.f. 1-4-2004).
50 Subs., for “Central Government”, by the Finance Act, 2007 (22 of 2007), s 25(b) (w.r.e.f. 1-4-2004).
51 Subs. by the Finance Act, 2005 (18 of 2005), s 23 (w.e.f. 1-4-2006), Circular No. 3 of 2005, June 3, 2005, 275 ITR (St.)
138; Circular No. 6 of 2005, July 25, 2005, 276 ITR (St.) 50; Circular No. 3 of 2006, February 27, 2006, 281 ITR (St.)
‘(4) Where any amount paid or deposited by the assessee has been allowed as a deduction under sub-section (1), no rebate
with reference to such amount shall be allowed under section 88 .
Explanation.—For the purposes of this section, “salary” includes dearness allowance, if the terms of employment so provide, but
excludes all other allowances and perquisites.’.
Page 3 of 3
52 Ins. by the Finance (No. 2) Act 2009 (33 of 2009), s 30(b) (w.r.e.f. 1-4-2009).
End of Document
S. 80CCE. Limit on deductions under sections 80C, 80CCC and 80CCD
S. 80CCE. Limit on deductions under sections 80C, 80CCC and 80CCD
53[The aggregate amount of deductions under section 80C, section 80CCC and54[sub-section (1) of section 80CCD ] shall
not, in any case exceed one lakh rupees.]
Legislative History.— Section 80CCE, inserted by the Finance Act, 2005 with effect from April 1, 2006 imposes a
ceiling of Rs. 1,00,000 on the aggregate deductions that can be availed under ss 80C, 80CCC and 80CCD. The scope
of this section has been explained in Board Circular.55
53 Ins. by the Finance Act, 2005 (18 of 2005), s 24 (w.e.f. 1-4-2006). See Circular No. 3 of 2005, 275 ITR (St.) 138;
Circular No. 6 of 2005, July 25, 2005, 276 ITR (St.) 50; Circular No. 3 of 2006, February 27, 2006, 281 ITR (St.) 222.
54 Subs., for “ section 80CCD ”, by the Finance Act, 2011 (8 of 2011), s 9 (w.e.f. 1-4-2012). See Circular No. 2 of 2012,
May 22, 2012, 343 ITR (St.) 157. Also see Memorandum explaining the provisions in Finance Bill, 2011, 331 ITR (St.)
131.
55 Circular No. 3 of 2006, February 27, 2006, 281 ITR (St.) 222.
End of Document
[S. 80CCF. Deduction in respect of subscription to long-term infrastructure
bonds
56[S. 80CCF. Deduction in respect of subscription to long-term infrastructure bonds
In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, the
whole of the amount, to the extent such amount does not exceed twenty thousand rupees, paid or deposited, during the
previous year relevant to the assessment year beginning on the 1st day of April, 2011,57[or to the assessment year
beginning on the 1st day of April, 2012], as subscription to long-term infrastructure bonds as may, for the purposes of this
section, be notified by the Central Government.]
Legislative History.— Section 80CCF, inserted by the Finance Act, 2010 with effect from April 1, 2011 promotes
investment in infrastructure bonds. This section allows a further deduction of Rs. 20,000 to individuals and HUFs who
subscribe to long-term infrastructure bonds to be notified by the Central Government. The scope of this section has
been explained in the under-noted Board Circular.58
(St.) 7.
57 Ins. by the Finance Act, 2011 (8 of 2011), s 10 (w.e.f. 1-4-2012).
58 Circular No. 1 of 2011, dt. 6-4-2011: 333 ITR (St.) 7.
End of Document
S. 80CCG. Deduction in respect of investment made under an equity
savings scheme
S. 80CCG. Deduction in respect of investment made under an equity savings scheme
(1) 59[Where an assessee, being a resident individual, has, in a previous year, acquired listed equity shares60[or listed
units of an equity oriented fund] in accordance with a scheme, as may be notified by the Central Government in
this behalf, he shall, subject to the provisions of sub-section (3), be allowed a deduction, in the computation of his
total income of the assessment year relevant to such previous year, of fifty per cent. of the amount invested in
such equity shares61[or units] to the extent such deduction does not exceed twenty-five thousand rupees.
(2) 62[The deduction under sub-section (1) shall be allowed in accordance with, and subject to, the provisions of this
section for three consecutive assessment years, beginning with the assessment year relevant to the previous year
in which the listed equity shares or listed units of equity oriented fund were first acquired.]
(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—
(i) the gross total income of the assessee for the relevant assessment year shall not exceed63[twelve lakh
rupees];
(ii) the assessee is a new retail investor as may be specified under the scheme referred to in sub-section (1);
(iii) the investment is made in such listed equity shares64[or listed units of equity oriented fund] as may be
specified under the scheme referred to in sub-section (1);
(iv) the investment is locked-in for a period of three years from the date of acquisition in accordance with the
scheme referred to in sub-section (1); and
(v) such other condition as may be prescribed.
(4) If the assessee, in any previous year, fails to comply with any condition specified in sub-section (3), the deduction
originally allowed shall be deemed to be the income of the assessee of such previous year and shall be liable to
tax for the assessment year relevant to such previous year.]
65[Explanation.—For the purposes of this section, “equity oriented fund” shall have the meaning assigned to
it in the Explanation to clause (38) of section 10 .]

Page 2 of 2
S. 80CCG. Deduction in respect of investment made under an equity savings scheme
Section 80 CCG.—A new s 80CCG was inserted by the Finance Act, 2012 with effect from April 1, 2013 to promote
investment in equity saving schemes. This section allows a further deduction to the extent of fifty per cent. of amount
invested in equity shares as specified, to the extent such deduction does not exceed Rs. 25,000. This deduction is
available to new retail investors being resident individuals and having gross total income not exceeding Rs. 10,00,000.
However, the investments made under this section are subject to lock-in period of three years from the date of
acquisition of equity shares.
60 Ins. by the Finance Act, 2013 (17 of 2013), s 13(a)(i) (w.e.f. 1-4-2014). See Memorandum explaining the provisions in
61 Ins. by the Finance Act, 2013 (17 of 2013), s 13(a)(ii) (w.e.f. 1-4-2014).
62 Subs. by the Finance Act, 2013 (17 of 2013), s 13(b) (w.e.f. 1-4-2014), for the following:—
‘(2) Where an assessee has claimed and allowed a deduction under this section for any assessment year in respect of any
amount, he shall not be allowed any deduction under this section for any subsequent assessment year.’.
63 Subs., for “ten lakh rupees”, by the Finance Act, 2013 (17 of 2013), s 13(c)(A) (w.e.f. 1-4-2014).
64 Ins. by the Finance Act, 2013 (17 of 2013), s 13(c)(B) (w.e.f. 1-4-2014).
65 Ins. by the Finance Act, 2013 (17 of 2013), s 13(d) (w.e.f. 1-4-2014). Circular No. 1 of 2009, March 27, 2009, 310 ITR
(St.) 42.
End of Document
S. 80D. Deduction in respect of health insurance premia
(1) 66[In
computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be
deducted such sum, as specified in sub-section (2) or sub-section (3), payment of which is made by any
mode67[as specified in sub-section (2B)] in the previous year out of his income chargeable to tax.
(2) Where the assessee is an individual, the sum referred to in sub-section (1) shall be the aggregate of the following,
namely:—
(a) the whole of the amount paid to effect or to keep in force an insurance on the health of the assessee or his
family68[or any contribution made to the Central Government Health Scheme]69[or such other scheme as may
be notified by the Central Government in this behalf]70[or any payment made on account of preventive health
check-up of the assessee or his family] as does not exceed in the aggregate fifteen thousand rupees; and
(b) the whole of the amount paid to effect or to keep in force an insurance on the health of the parent or parents of
the assessee71[or any payment made on account of preventive health check-up of the parent or parents of
the assessee] as does not exceed in the aggregate fifteen thousand rupees.
Explanation.—For the purposes of clause (a), “family” means the spouse and dependant children of the
assessee.
(2A) 72[Where the amounts referred to in clauses (a) and (b) of sub-section (2) are paid on account of preventive health
check-up, the deduction for such amounts shall be allowed to the extent it does not exceed in the aggregate five
thousand rupees.
(2B) For the purposes of deduction under sub-section (1), payment shall be made by—
(i) any mode, including cash, in respect of any sum paid on account of preventive health check-up;
(ii) any mode other than cash in all other cases not falling under clause (i).]
Page 2 of 4
(3) Where the assessee is a Hindu undivided family, the sum referred to in sub-section (1) shall be the whole of the
amount paid to effect or to keep in force an insurance on the health of any member of that Hindu undivided family
as does not exceed in the aggregate fifteen thousand rupees.
(4) Where the sum specified in clause (a) or clause (b) of sub-section (2) or in sub-section (3) is paid to effect or keep
in force an insurance on the health of any person specified therein, and who is a senior citizen, the provisions of
this section shall have effect as if for the words “fifteen thousand rupees”, the words “twenty thousand rupees”
had been substituted.
Explanation.—For the purposes of this sub-section, “senior citizen” means an individual resident in India who
is of the age of73[sixty years] or more at any time during the relevant previous year.
(5) The insurance referred to in this section shall be in accordance with a scheme made in this behalf by—
(a) the General Insurance Corporation of India formed under section 9 74 of the General Insurance Business
(Nationalisation) Act, 1972 (57 of 1972), and approved by the Central Government in this behalf; or
(b) any other insurer and approved by the Insurance Regulatory and Development Authority established under
sub-section (1) of section 3 75 of the Insurance Regulatory and Development Authority Act, 1999 (41 of
1999).]
Section 80D : Deduction in Respect of Medical Insurance Premia.—The s 80D, which was introduced with effect
from April 1, 1987, grants a deduction in respect of the premium paid for medical insurance of the assessee and of his
specified relatives. [Cf old s 80D .] From assessment year 1997-98, the limit of deduction under this section was raised
from Rs. 6,000 to Rs. 10,000.76 From assessment year 2000-01, the limit of deduction stands enhanced to Rs. 15,000
in case the premium is paid to effect or keep in force such insurance on the health of an eligible family member who is
a senior citizen [proviso to sub-s (1)].
The scope of this section was expanded by the substituted s 80D which was introduced by the Finance Act, 2008 with
effect from April 1, 2009. It now provides deduction for payments made by an individual or a HUF towards health
insurance for himself, his family, his parent or parents, or any member of the HUF. An individual is also eligible for
deduction on payments made towards preventive health check-up of himself, his family, his parent or parents. The
total deduction under this section shall not exceed Rs. 15,000, in case of an individual assessee, his family or a HUF
and Rs. 30,000 for an individual assessee, his family, his parent or parents. If the assessee is a senior citizen above
the age of sixty five years, that deduction shall not exceed Rs. 20,000. The term “senior citizen” has been defined in s
80DDB . Within the above limits, the payment made towards preventive health check up shall not exceed Rs. 5,000
vide s 80D(2B) inserted by Finance Act, 2012.
Under the new section, deduction shall not be allowed if payments are made in cash for the insurance policy. Cash
payment, is however, permitted for preventive health check-up.
Page 3 of 4
66 Subs. by the Finance Act, 2008 (18 of 2008), s. 17 (w.e.f. 1-4-2009), for the following:—
‘1[ S. 80D . Deduction in respect of medical insurance premia.—(1) In computing the total income of an assessee, there shall
be deducted, at the following rates, such sum as is specified in sub-section (2) and 2[paid by him by any mode of payment other
than cash] in the previous year out of his income chargeable to tax, namely:—
(i) in a case where such sum does not exceed in the aggregate 3[4[fifteen] thousand rupees], the whole of such sum; and
(ii) in any other case, 3[5[fifteen] thousand rupees]:
6[Provided that where the sum specified in sub-section (2) is paid to effect or to keep in force an insurance on the health of the
assessee, or his wife or her husband or dependent parents or any member of the family in case the assessee is a Hindu
undivided family, and who is a senior citizen, the provisions of this section shall have effect as if for the words7’[fifteen] thousand
rupees’, the words8’[twenty thousand rupees’ had been substituted.]
(2) The sum referred to in sub-section (1) shall be the following, namely:—
(a) where the assessee is an individual, any sum paid to effect or to keep in force an insurance on the health of the assessee or
on the health of the wife or husband, dependent parents or dependent children of the assessee;
(b) where the assessee is a Hindu undivided family, any sum paid to effect or to keep in force an insurance on the health of any
member of the family;
9[(c) * * * *]:
10[Provided that such insurance shall be in accordance with a scheme framed in this behalf by—
(a) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act,
1972 (57 of 1972), and approved by the Central Government in this behalf; or
(b) any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of
section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999).]
11[Explanation.—For the purpose of this section, “senior citizen” shall have the meaning assigned to it in the Explanation to
section 80DDB .]’.

1. Section 80D has been inserted by the Income-tax (Amendment) Act, 1986 (26 of 1986), s. 3 (w.e.f. 1-4-1987). It may be noted
that, earlier, section 80D was omitted by the Finance Act, 1984 (21 of 1984), s. 13 (w.e.f. 1-4-1985).
2. Subs., for “paid by him by cheque”, by the Finance Act, 2007 (22 of 2007), s. 26(a) (w.e.f. 1-4-2008).
3. Subs., for “six thousand rupees”, by the Finance (No. 2) Act 1996 (33 of 1996), s. 24 (w.e.f. 1-4-1997).
Earlier, the words “six thousand rupees” were substituted for “three thousand rupees” by the Finance Act, 1992 (18 of 1992), s.
44 (w.e.f. 1-4-1993).
4. Subs., for “ten”, by Act 22 of 2007, s. 26(b) (w.e.f. 1-4-2008).
5. Subs., for “ten”, by Act 22 of 2007, s. 26(c) (w.e.f. 1-4-2008).
6. Ins. by the Finance Act, 1999 (27 of 1999), s. 40(a) (w.e.f 1-4-2000).
7. Subs., for “ten”, by Act 22 of 2007, s. 26(d)(i) (w.e.f. 1-4-2008).
8. Subs., for “fifteen”, by Act 22 of 2007, s. 26(d)(ii) (w.e.f. 1-4-2008).
9. Clause (c) has been omitted by the Finance Act, 1994 (32 of 1994), s. 50(c) (w.r.e.f. 1-4-1987). Prior to its omission, clause
(c) stood as under:—
‘(c) where the assessee is an association of persons or a body of individuals consisting, in either case, only of husband and wife
governed by the system of community of property in force in the Union Territories of Dadra and Nagar Haveli and Goa, Daman
and Diu, any sum paid to effect or to keep in force an insurance on the health of any member of such association or body or on
the health of the dependent children of the members of such an association or body:’.
10. Subs. by the Finance Act, 2001 (14 of 2001), s. 37 (w.e.f. 1-4-2002), for the following:—
‘Provided that such insurance shall be in accordance with a scheme framed in this behalf by the General Insurance Corporation
of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), and approved by the
Central Government.’.
11. Ins. by Act 27 of 1999, s. 40(b) (w.e.f. 1-4-2000).
67 Subs., for “, other than cash,”, by the Finance Act, 2012 (23 of 2012), s 26(a) (w.e.f. 1-4-2013). See Circular No. 3 of
2012, June 12, 2012, 345 ITR (St.) 103-Supplementary Memorandum. Also see Memorandum explaining the
provisions in Finance Bill, 2012, 342 ITR (St.) 234.
(St.) 7.
Page 4 of 4
70 Ins. by the Finance Act, 2012 (23 of 2012), s 26(b)(A) (w.e.f. 1-4-2013).
71 Ins. by the Finance Act, 2012 (23 of 2012), s 26(b)(B) (w.e.f. 1-4-2013).
72 Sub-sections (2A) and (2B) have been inserted by the Finance Act, 2012 (23 of 2012), s 26(c) (w.e.f. 1-4-2013).
73 Subs., for “sixty-five years”, by the Finance Act, 2012 (23 of 2012), s 26(d) (w.e.f. 1-4-2013).
76 Up to assessment year 1992-93 the limit was Rs 3,000.
End of Document
S. 80DD. Deduction in respect of maintenance including medical treatment
of a dependant who is a person with disability
S. 80DD. Deduction in respect of maintenance including medical treatment of a dependant who is a person with
disability
(1) 77[Where an assessee, being an individual or a Hindu undivided family, who is a resident in India, has, during the
previous year,—
(a) incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a
dependant, being a person with disability; or77
(b) paid or deposited any amount under a scheme framed in this behalf by the Life Insurance Corporation or any
other insurer or the Administrator or the specified company subject to the conditions specified in sub-section
(2) and approved by the Board in this behalf for the maintenance of a dependant, being a person with
disability, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a
deduction of a sum of fifty thousand rupees from his gross total income in respect of the previous year:
Provided that where such dependant is a person with severe disability, the provisions of this sub-section
shall have effect as if for the words “fifty thousand rupees”, the words78[“one hundred thousand rupees”]
had been substituted.
(2) The deduction under clause (b) of sub-section (1) shall be allowed only if the following conditions are fulfilled,
namely:—
(a) the scheme referred to in clause (b) of sub-section (1) provides for payment of annuity or lump sum amount for
the benefit of a dependant, being a person with disability, in the event of the death of the individual or the
member of the Hindu undivided family in whose name subscription to the scheme has been made;
(b) the assessee nominates either the dependant, being a person with disability, or any other person or a trust to
receive the payment on his behalf, for the benefit of the dependant, being a person with disability.
Page 2 of 8
disability
(3) If the dependant, being a person with disability, predeceases the individual or the member of the Hindu undivided
family referred to in sub-section (2), an amount equal to the amount paid or deposited under clause (b) of sub-
section (1) shall be deemed to be the income of the assessee of the previous year in which such amount is
received by the assessee and shall accordingly be chargeable to tax as the income of that previous year.
(4) The assessee, claiming a deduction under this section, shall furnish a copy of the certificate issued by the medical
authority in the prescribed form and manner, along with the return of income under section 139, in respect of the
assessment year for which the deduction is claimed:
Provided that where the condition of disability requires reassessment of its extent after a period stipulated in
the aforesaid certificate, no deduction under this section shall be allowed for any assessment year relating to
any previous year beginning after the expiry of the previous year during which the aforesaid certificate of
disability had expired, unless a new certificate is obtained from the medical authority in the form and manner,
as may be prescribed, and a copy thereof is furnished along with the return of income.
Explanation.—For the purposes of this section,—
(a) “Administrator” means the Administrator as referred to in clause (a) of section 2 79 of the Unit Trust of India
(b) “dependant” means—
(i) in the case of an individual, the spouse, children, parents, brothers and sisters of the individual or any of
them;
(ii) in the case of a Hindu undivided family, a member of the Hindu undivided family, dependant wholly or
mainly on such individual or Hindu undivided family for his support and maintenance, and who has not
claimed any deduction under section 80U in computing his total income for the assessment year relating
to the previous year;
(c) “disability” shall have the meaning assigned to it in clause (i) of section 2 80 of the Persons with Disabilities
(Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996),81[and includes
“autism”, “cerebral palsy” and “multiple disability” referred to in clauses (a), (c) and (h) of section 2 82 of the
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act, 1999 (44 of 1999)];
(d) “Life Insurance Corporation” shall have the same meaning as in clause (iii) of sub-section (8) of section 88 ;
(e) “medical authority” means the medical authority as referred to in clause (p) of section 2 83 of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996),84[or such
other medical authority as may, by notification, be specified by the Central Government for certifying “autism”,
“cerebral palsy”, “multiple disabilities”, “person with disability” and “severe disability” referred to in clauses (a),
(c), (h), (j) and (o) of section 2 85 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy,
Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999)];
(f) “person with disability” means a person as referred to in clause (t) of section 2 86 of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996),87[or clause
(j) of section 2 88 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation
and Multiple Disabilities Act, 1999 (44 of 1999)];
(g) 89[“person with severe disability” means—
Page 3 of 8
disability
(i) a person with eighty per cent. or more of one or more disabilities, as referred to in sub-section (4) of
section 56 90 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 (1 of 1996); or
(ii) a person with severe disability referred to in clause (o) of section 2 91 of the National Trust for Welfare of
Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of
1999);]
(h) “specified company” means a company as referred to in clause (h) of section 2 92 of the Unit Trust of India
(Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002).]
Section 80DD : Deduction in Respect of Maintenance Including Medical Treatment of a Dependant who is a
Person with Disability.—This section was originally introduced by the Finance Act, 1990 from the assessment year
1991-92 to grant a deduction up to Rs 15,000 to resident individuals and Hindu undivided families who incur
expenditure on medical treatment (including nursing), training and rehabilitation of specified handicapped persons.
The section was substituted by the Finance (No 2) Act 1998 with effect from the assessment year 1999-2000 to merge
the deduction available under s 80DDA in respect of payments to LIC or UTI for the maintenance of a handicapped
dependant and to grant deduction up to Rs 40,000. The merged section was further amended from the assessment
year 2002-03 to include deduction of such payment to other insurers.
Thereafter, the section has once again been substituted by the Finance Act, 2003 with effect from April 1, 2004. This
section seeks to provide that where an assessee, being an individual or a Hindu undivided family, who is a resident in
India, has during the previous year, incurred any expenditure for the medical treatment (including nursing), training
and rehabilitation of a dependant, being a person with disability, or paid or deposited any amount under a scheme
framed in this behalf by the LIC or any other insurer or the administrator referred to in cl (a) or the specified company,
subject to the conditions specified in sub-s (2) and approved by the board in this behalf for the maintenance of a
dependant, being a person with disability, the assessee shall be allowed a deduction of a sum of Rs 50,000 from his
gross total income in respect of the previous year. However, in cases where such dependant is a person with a severe
disability, the deduction shall be Rs 1,00,000 (instead of Rs 75,000 w.e.f. 1-4-2010).
77 Subs. by the Finance Act, 2003 (32 of 2003), s 34 (w.e.f. 1-4-2004), See Circular No. 7 of 2003, September 5, 2003,
263 ITR (St.) 62, for the following.—
‘‘1( S. 80DD . Deduction in respect of maintenance including medical treatment of handicapped dependant.— 2((1)Where
an assessee, who is a resident in India, being an individual or a Hindu undivided family has, during the previous year,—
(a) incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a handicapped
dependant; or
(b) paid or deposited any amount under a scheme framed in this half by the Life Insurance Corporation or 3(any other insurer or
Unit Trust of India) subject to the conditions specified in sub-section (2) and approved by the Board in this behalf for the
maintenance of handicapped dependant,
Page 4 of 8
disability
the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of a sum of forty
thousand rupees in respect of the previous year.)
(2) The deduction under clause (b) of sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:—
(a) the scheme referred to in clause (b) of sub-section (1) provides for payment of annuity or
lump sum amount for the benefit of a handicapped dependant in the event of the death of
the individual or the member of the Hindu undivided family in whose name subscription to the scheme has been made;
(b) the assessee nominates either the handicapped dependant or any other person or a trust to receive the payment on his
behalf, for the benefit of the handicapped dependant.
(3) If the handicapped dependant predeceases the individual or the member of the Hindu undivided family referred to in sub-
section (2), an amount equal to the amount paid or deposited under clause (b) of sub-section (1) shall be deemed to be the
income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be
chargeable to tax as the income of that previous year.
(a) “Government hospital” includes a departmental dispensary whether full-time or part-time established and run by a
Department of the Government for the medical attendance and treatment of a class or classes of Government servants and
members of their families, a hospital maintained by a local authority and any other hospital maintained by a local authority and
any other hospital with which arrangements have been made by the Government for the treatment of Government servants;
(b) “handicapped dependant” means a person who—
(i) is a relative of the individual or, as the case may be, is a member of the Hindu undivided family and is not dependant on any
person other than such individual or Hindu undivided family for his support or maintenance; and
(ii) is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent
physical disability or mental retardation specified in the rules made by the Board for the purposes of this section, which is
certified by a physician, a surgeon, an oculist or a psychiatrist, as the case may be, working in a Government hospital, and which
has the effect of reducing considerably such person’s capacity for normal work or engaging in a gainful employment or
occupation;
(c) “Life Insurance Corporation” shall have the same meaning as in clause (iii) of
sub-section (8) of section 88 ;
(d) “Unit Trust of India” means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963)).’.
1. Subs. by the Finance (No. 2) Act 1998 (21 of 1998), s 28 (w.e.f. 1-4-1999), for sections 80DD and 80DDA, which are as
under:—
‘‡1( S. 80DD . Deduction in respect of medical treatment, etc., of handicapped dependents.—2(*) Where an assessee who
is resident in India, being an individual or a Hindu undivided family has, during the previous year, incurred any expenditure for
the medical treatment (including nursing), training and rehabilitation of a person who—
(a) is a relative of the individual or, as the case may be, is a member of the Hindu undivided family and is not dependent on any
person other than such individual or Hindu undivided family for his support or maintenance, and
(b) is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent
physical disability or mental retardation specified in the rules made in this behalf by the Board, which is certified by a physician, a
surgeon, an oculist or a psychiatrist, as the case may be, working in a Government hospital, and which has the effect of reducing
considerably such person’s capacity for normal work or engaging in a gainful employment or occupation,
the assessee shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction of a sum of 3(fifteen
thousand rupees) in respect of the previous year.
4((2) * * * * )
Explanation.—For the purposes of this section, the expression “Government hospital” includes a departmental dispensary
whether full-time or part-time established and run by a Department of the Government for the medical attendance and treatment
of a class or classes of Government servants and members of their families, a hospital maintained by a local authority and any
other hospital with which arrangements have been made by the Government for the treatment of Government servants.)’.
‡ It is pertinent to note that, for sections 80DD and 80DDA, a new section 80DD shall stand substituted (w.e.f. 1-4-1999) by the
Finance (No. 2) Act 1998 (21 of 1998), s 28, i.e., for and from assessment year 1999-2000.
1. Section 80DD has been inserted by the Finance Act, 1990 (12 of 1990), s 18 (w.e.f. 1-4-1991).
2.The brackets and figure “(1)” have been omitted by the Finance Act, 1992 (18 of 1992), s 45(a)(i) (w.e.f. 1-4-1993).
3.Subs., for “twelve thousand rupees”, by the Finance Act, 1993 (38 of 1993), s 12 (w.e.f. 1-4-1994). Earlier, the words “twelve
thousand rupees” were substituted for “six thousand rupees” by the Finance Act, 1992 (18 of 1992), s 45(a)(ii) (w.e.f. 1-4-1993).
4. Sub-section (2) has been omitted by the Finance Act, 1992 (18 of 1992), s 45(b) (w.e.f. 1-4-1993). Prior to its omission,
section 80DD(2) stood as under:—
Page 5 of 8
disability
‘(2) Nothing contained in this section shall apply in a case, where the assessee’s total income in respect of the previous year as
computed before making any deduction under this section exceeds one lakh rupees.’.
‘‡1( S. 80DDA . Deduction in respect of deposit made for maintenance of handicapped dependant.—(1) In computing the
total income of an assessee who is resident in India, being an individual or a Hindu undivided family, there shall be deducted, in
accordance with and subject to the provisions of this section, an amount not exceeding twenty thousand rupees paid or
deposited by him in the previous year, out of his income chargeable to tax, under any scheme framed in this behalf by the Life
Insurance Corporation or the Unit Trust of India subject to the conditions specified in sub-section (2) and approved by the Board
in this behalf.
(2) The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:—
(a) the scheme referred to in sub-section (1) provides for payment of annuity or lump sum amount for the benefit of a
handicapped dependant in the event of the death of the individual or the member of the Hindu undivided family in whose name
subscription to the scheme has been made;
section (2), an amount equal to the amount paid or deposited under sub-section (1) shall be deemed to be the income of the
assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as
the income of that previous year.
(4) In this section,—(a) “Government hospital” shall have the meaning assigned to it in the Explanation to section 80DD ;
(b) “handicapped dependant” shall mean a person who—
(ii) is suffereing from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent
physical disability or mental retardation specified in the rules made by the Board for the purposes of section 80DD, which is
occupation;
(c) “Life Insurance Corporation” shall have the same meaning as in clause (iii) of sub-section (8) of section 88 ;
(d) “Unit Trust of India” means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963)).’.
2. Subs. by the Finance Act, 1999 (27 of 1999), s 41 (w.e.f. 1-4-2000), for the following:¬—
‘(1) In computing the total income of an assessee who is a resident of India, being an individual or a Hindu undivided family,
there shall be deducted, in accordance with and subject to the provisions of this section, the amount—
(a) of expenditure incurred by way of medical treatment (including nursing), training and rehabilitation of a handicapped
dependant; or
(b) paid or deposited under any scheme framed in this behalf by the Life Insurance Corporation or Unit Trust of India subject to
the conditions specified in sub-section (2) and approved by the Board in this behalf for the maintenance of handicapped
dependant, out of his income chargeable to tax:
Provided that no such amount shall exceed forty thousand rupees in the aggregate under clause (a) or clause (b) or both.’.
3. Subs., for “Unit Trust of India”, by the Finance Act, 2001 (14 of 2001), s 38 (w.e.f. 1-4-2002).
77 Subs. by the Finance Act, 2003 (32 of 2003), s 34 (w.e.f. 1-4-2004), See Circular No. 7 of 2003, September 5, 2003,
263 ITR (St.) 62, for the following.—
‘1[ S. 80DD . Deduction in respect of maintenance including medical treatment of handicapped dependant.—2[(1)Where
an assessee, who is a resident in India, being an individual or a Hindu undivided family has, during the previous year,—
(a) incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a handicapped
dependant; or
(b) paid or deposited any amount under a scheme framed in this half by the Life Insurance Corporation or 3[any other insurer or
Unit Trust of India] subject to the conditions specified in sub-section (2) and approved by the Board in this behalf for the
maintenance of handicapped dependant,
Page 6 of 8
disability
the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of a sum of forty
thousand rupees in respect of the previous year.]
(2) The deduction under clause (b) of sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:—
(a) the scheme referred to in clause (b) of sub-section (1) provides for payment of annuity or
lump sum amount for the benefit of a handicapped dependant in the event of the death of
the individual or the member of the Hindu undivided family in whose name subscription to the scheme has been made;
section (2), an amount equal to the amount paid or deposited under clause (b) of sub-section (1) shall be deemed to be the
income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be
chargeable to tax as the income of that previous year.
(a) “Government hospital” includes a departmental dispensary whether full-time or part-time established and run by a
Department of the Government for the medical attendance and treatment of a class or classes of Government servants and
members of their families, a hospital maintained by a local authority and any other hospital maintained by a local authority and
any other hospital with which arrangements have been made by the Government for the treatment of Government servants;
(b) “handicapped dependant” means a person who—
(ii) is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent
physical disability or mental retardation specified in the rules made by the Board for the purposes of this section, which is
occupation;
(c) “Life Insurance Corporation” shall have the same meaning as in clause (iii) of
sub-section (8) of section 88 ;
(d) “Unit Trust of India” means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963)].’.
1. Subs. by the Finance (No. 2) Act 1998 (21 of 1998), s 28 (w.e.f. 1-4-1999), for sections 80DD and 80DDA, which are as
under:—
‘‡1[ S. 80DD . Deduction in respect of medical treatment, etc., of handicapped dependents.—2[*] Where an assessee who
is resident in India, being an individual or a Hindu undivided family has, during the previous year, incurred any expenditure for
the medical treatment (including nursing), training and rehabilitation of a person who—
(a) is a relative of the individual or, as the case may be, is a member of the Hindu undivided family and is not dependent on any
person other than such individual or Hindu undivided family for his support or maintenance, and
(b) is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent
physical disability or mental retardation specified in the rules made in this behalf by the Board, which is certified by a physician, a
surgeon, an oculist or a psychiatrist, as the case may be, working in a Government hospital, and which has the effect of reducing
considerably such person’s capacity for normal work or engaging in a gainful employment or occupation,
the assessee shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction of a sum of 3[fifteen
thousand rupees] in respect of the previous year.
4[(2) * * * *]
Explanation.—For the purposes of this section, the expression “Government hospital” includes a departmental dispensary
whether full-time or part-time established and run by a Department of the Government for the medical attendance and treatment
of a class or classes of Government servants and members of their families, a hospital maintained by a local authority and any
other hospital with which arrangements have been made by the Government for the treatment of Government servants.]’.
1. Section 80DD has been inserted by the Finance Act, 1990 (12 of 1990), s 18 (w.e.f. 1-4-1991).
2. The brackets and figure “(1)” have been omitted by the Finance Act, 1992 (18 of 1992), s 45(a)(i) (w.e.f. 1-4-1993).
3. Subs., for “twelve thousand rupees”, by the Finance Act, 1993 (38 of 1993), s 12 (w.e.f. 1-4-1994). Earlier, the words “twelve
thousand rupees” were substituted for “six thousand rupees” by the Finance Act, 1992 (18 of 1992), s 45(a)(ii) (w.e.f. 1-4-1993).
4. Sub-section (2) has been omitted by the Finance Act, 1992 (18 of 1992), s 45(b) (w.e.f. 1-4-1993). Prior to its omission,
section 80DD(2) stood as under:—
Page 7 of 8
disability
‘(2) Nothing contained in this section shall apply in a case, where the assessee’s total income in respect of the previous year as
computed before making any deduction under this section exceeds one lakh rupees.’.
‘‡1[ S. 80DDA . Deduction in respect of deposit made for maintenance of handicapped dependant.—(1) In computing the
total income of an assessee who is resident in India, being an individual or a Hindu undivided family, there shall be deducted, in
accordance with and subject to the provisions of this section, an amount not exceeding twenty thousand rupees paid or
deposited by him in the previous year, out of his income chargeable to tax, under any scheme framed in this behalf by the Life
Insurance Corporation or the Unit Trust of India subject to the conditions specified in sub-section (2) and approved by the Board
in this behalf.
(2) The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:—
(a) the scheme referred to in sub-section (1) provides for payment of annuity or lump sum amount for the benefit of a
handicapped dependant in the event of the death of the individual or the member of the Hindu undivided family in whose name
subscription to the scheme has been made;
section (2), an amount equal to the amount paid or deposited under sub-section (1) shall be deemed to be the income of the
assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as
the income of that previous year.
(a) “Government hospital” shall have the meaning assigned to it in the Explanation to section 80DD ;
(b) “handicapped dependant” shall mean a person who—
(ii) is suffereing from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent
physical disability or mental retardation specified in the rules made by the Board for the purposes of section 80DD, which is
occupation;
(c) “Life Insurance Corporation” shall have the same meaning as in clause (iii) of sub-section (8) of section 88 ;
(d) “Unit Trust of India” means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963)].’.
‘(1) In computing the total income of an assessee who is a resident of India, being an individual or a Hindu undivided family,
there shall be deducted, in accordance with and subject to the provisions of this section, the amount—
(a) of expenditure incurred by way of medical treatment (including nursing), training and rehabilitation of a handicapped
dependant; or
(b) paid or deposited under any scheme framed in this behalf by the Life Insurance Corporation or Unit Trust of India subject to
the conditions specified in sub-section (2) and approved by the Board in this behalf for the maintenance of handicapped
dependant, out of his income chargeable to tax:
Provided that no such amount shall exceed forty thousand rupees in the aggregate under clause (a) or clause (b) or both.’.
3. Subs., for “Unit Trust of India”, by the Finance Act, 2001 (14 of 2001), s 38 (w.e.f. 1-4-2002).
78 Subs., for “seventy-five thousand rupees”, by the Finance (No. 2) Act 2009 (33 of 2009), s 31 (w.e.f. 1-4-2010). See
Circular No. 5 of 2010, June 3, 2010, 324 ITR (St.) 293.

Page 8 of 8
disability
81 Ins. by the Finance (No. 2) Act 2004 (23 of 2004), s 16(a) (w.e.f. 1-4-2005). See Circular No. 5 of 2005, July 15, 2005,
276 ITR (St.) 151.
84 Ins. by the Finance (No. 2) Act 2004 (23 of 2004), s 16(b) (w.e.f. 1-4-2005).
87 Ins. by the Finance (No. 2) Act 2004 (23 of 2004), s 16(c) (w.e.f. 1-4-2005).
89 Sub. by the Finance (No. 2) Act 2004 (23 of 2004), s 16(d) (w.e.f. 1-4-2005), for the then existing clause (g), namely:—
‘(g) “person with severe disability” means a person with eighty per cent. or more of one or more disabilities, as referred to in sub-
section (4) of section 56 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act,
1995 (1 of 1996);’.
End of Document
S. 80DDB. Deduction in respect of medical treatment, etc.
1[Where an assessee who is resident in India has, during the previous year, actually paid any amount for the medical
treatment of such disease or ailment as may be specified in the rules made in this behalf by the Board—
(a) for himself or a dependant, in case the assessee is an individual; or
(b) for any member of a Hindu undivided family, in case the assessee is a Hindu undivided family, the assessee shall
be allowed a deduction of the amount actually paid or a sum of forty thousand rupees, whichever is less, in
respect of that previous year in which such amount was actually paid:
Provided that no such deduction shall be allowed unless the assessee furnishes with the return of income, a certificate in
such form, as may be prescribed, from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such
other specialist, as may be prescribed, working in a Government hospital:
Provided further that the deduction under this section shall be reduced by the amount received, if any, under an insurance
from an insurer, or reimbursed by an employer, for the medical treatment of the person referred to in clause (a) or clause
(b):
Provided also that where the amount actually paid is in respect of the assessee or his dependant or any member of a
Hindu undivided family of the assessee and who is a senior citizen, the provisions of this section shall have effect as if for
the words “forty thousand rupees”, the words “sixty thousand rupees” had been substituted.
(i) “dependant” means—

Page 2 of 3
(a) in the case of an individual, the spouse, children, parents, brothers and sisters of the individual or any of them,
(b) in the case of a Hindu undivided family, a member of the Hindu undivided family, dependant wholly or mainly
on such individual or Hindu undivided family for his support and maintenance;
(ii) “Government hospital” includes a departmental dispensary whether full-time or part-time established and run by a
Department of the Government for the medical attendance and treatment of a class or classes of Government
servants and members of their families, a hospital maintained by a local authority and any other hospital with
which arrangements have been made by the Government for the treatment of Government servants;
(iii) “insurer” shall have the meaning assigned to it in clause (9) of section 2 2 of the Insurance Act, 1938 (4 of 1938);
(iv) “senior citizen” means an individual resident in India who is of the age of3[sixty years] or more at any time during
the relevant previous year.]
Section 80DDB : Deduction in Respect of Medical Treatment, etc.—This section was originally introduced by the
Finance (No 2) Act 1996 to allow a deduction up to Rs 40,000 to an individual who has incurred any expenditure for
the medical treatment of himself or of his dependant, or a Hindu undivided family that has incurred such expenditure
for any member thereof, in respect of any disease or ailment specified in the rules.
This section has been substituted by the Finance Act, 2003 so as to provide that where an assessee who is resident in
India has, during the previous year, actually incurred any expenditure for the medical treatment of such disease or
ailment, as may be specified by the rules made in this behalf, for himself or a dependant, in case the assessee is an
individual, or for any member of a Hindu undivided family, in case the assessee is a Hindu undivided family, he shall
be allowed a deduction of the expenditure actually incurred or a sum of Rs 40,000, whichever is less, in respect of the
previous year in which such expenditure was incurred. Where the expenditure incurred is in respect of the assessee or
his dependent or any member of a Hindu undivided family who is a senior citizen, he shall be allowed the said
deduction up to Rs 60,000. The said deduction shall be reduced by the amount, if any, received from insurance
scheme or medical reimbursement from the employer. The assessee also has to furnish Form 10-I to claim deduction
under this section. [see Rule 11DD ]
1 Subs. by the Finance Act, 2003 (32 of 2003), s 35 (w.e.f. 1-4-2004), Circular No. 7 of 2003, September 5, 2003, 263
ITR (St.) 62, for the following:—
‘1[ S. 80DDB . Deduction in respect of medical treatment, etc.—Where an assessee who is resident in India has, during the
previous year, 2[actually incurred] any expenditure for the medical treatment of such disease or ailment as may be specified in
the rules made in this behalf by the Board—
(a) for himself or a dependant relative, in case the assessee is an individual; or
(b) for any member of a Hindu undivided family, in case the assessee is a Hindu
undivided family;’
the assessee shall be allowed a deduction of a sum of 3[forty thousand rupees] in respect of that previous year in which such
expenditure was incurred:
Provided that no such deduction shall be allowed unless the assessee furnishes a certificate in such form and from such
authority as may be prescribed:
Page 3 of 3
4[Provided further that the deduction under this section shall be reduced by the amount received, if any, under an insurance
from an insurer, or reimbursed by an employer, for the medical treatment of the person referred to in clause (a) or clause (b):
Provided also that where the expenditure incurred is in respect of the assessee or his dependant relative or any member of a
Hindu undivided family of the assessee and who is a senior citizen, the provisions of this section shall have effect as if for the
words “forty thousand rupees”, the words “sixty thousand rupees” had been substituted.]
5[Explanation.—For the purposes of this section,—
(i) “dependant” means a person who is not dependant for his support or maintenance on any person other than the assessee;
(ii) “insurer” shall have the meaning assigned to it in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938);
(iii) “senior citizen” means an individual resident in India who is of the age of sixty-five years or more at any time during the
relevant previous year.]]’.
1. Ins. by the Finance (No. 2) Act 1996 (33 of 1996), s 25 (w.e.f. 1-4-1997).
2. Subs., for “incurred”, by the Finance Act, 1999 (27 of 1999), s 42(a) (w.e.f. 1-4-2000).
3. Subs., for “fifteen thousand rupees”, by the Finance Act, 1999 (27 of 1999), s 42(b) (w.e.f. 1-4-2000).
4. 2nd & 3rd provisos have been inserted by the Finance Act, 1999 (27 of 1999), s 42(c) (w.e.f. 1-4-2000).
5. Subs. by the Finance Act, 1999 (27 of 1999), s 42(d) (w.e.f. 1-4-2000), for the following:—
‘Explanation.—For the purposes of this section, “dependant” means a person who is not dependent for his support or
maintenance on any person other than the assessee’.
3 Subs., for “sixty-five years”, by the Finance Act, 2012 (23 of 2012), s 27 (w.e.f. 1-4-2013). See Circular No. 3 of 2012,
June 12, 2012, 345 ITR (St.) 103-Supplementary Memorandum. Also see Memorandum explaining the provisions in
End of Document
S. 80E. Deduction in respect of interest on loan taken for higher education
(1) 4[In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with
and subject to the provisions of this section, any amount paid by him in the previous year, out of his income
chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable
institution for the purpose of pursuing his higher education5[or for the purpose of higher education of his relative.]
(2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the initial
assessment year and seven assessment years immediately succeeding the initial assessment year or until the
interest referred to in sub-section (1) is paid by the assessee in full, whichever is earlier.
(a) “approved charitable institution” means an institution specified in, or, as the case may be, an institution
established for charitable purposes and6[approved by the prescribed authority] under clause (23C) of section
10 or an institution referred to in clause (a) of sub-section (2) of section 80G ;
(b) “financial institution” means a banking company to which the Banking Regulation Act, 1949 (10 of 1949),
applies (including any bank or banking institution referred to in section 51 7 of that Act); or any other financial
institution which the Central Government may, by notification in the Official Gazette, specify in this behalf;
(c) 8[“higher education” means any course of study pursued after passing the Senior Secondary Examination or
its equivalent from any school, board or university recognised by the Central Government or State
Government or local authority or by any other authority authorised by the Central Government or State
Government or local authority to do so;]
(d) “initial assessment year” means the assessment year relevant to the previous year, in which the assessee
starts paying the interest on the loan;]
(e) 9[“relative”, in relation to an individual, means the spouse and children of that individual or the student for
whom the individual is the legal guardian.]
Section 80E : Deduction in Respect of Repayment of Loan taken for Higher Education.—The Finance Act,
Page 2 of 3
1994 has inserted this section with effect from the assessment year 1995-96 to provide to individuals pursuing higher
education, a deduction with regard to repayment of a loan taken from any financial institution or approved charitable
institution. From the assessment year 2001-02, the quantum of maximum deduction under this section is increased
from Rs 25,000 to Rs 40,000.
The deduction is available from the initial assessment year from which such individual starts repaying the loan and
interest, and is available for seven years thereafter, or till such time that the loan and interest thereon is fully paid,
whichever is earlier.
This section has been substituted by the Finance Act, 2005 with effect from April 1, 2006 i.e. assessment year 2006-
07. The scope and effect of the newly substituted section has been explained by the Board Circular.10
Under the old section, deduction was restricted to Rs. 40,000, but the new provision has no such restriction. The entire
amount of interest paid by an individual on a loan taken for pursuing higher education is allowed as deduction. Under
the new section, deduction is also allowed for interest on loans taken by an individual for the higher education of his
relative. However, in sub-s (1), the words used is ‘or’; therefore, the deduction can be availed for interest paid for the
education of the individual himself and for his relative. It is submitted that the department cannot restrict the benefit
only to the individual and deny it to the relative if interest is paid on loans by both these persons during the financial
year.
4 Subs. by the Finance Act, 2005 (18 of 2005), s 25 (w.e.f. 1-4-2006), See Circular No. 3 of 2005, June 3, 2005, 275 ITR
‘1[ S. 80E . Deduction in respect of repayment of loan taken for higher education.—(1) In computing the total income of an
assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any
amount paid by him in the previous year, out of his income chargeable to tax, by way of repayment of loan, taken by him from
any financial institution or any approved charitable institution for the purpose of pursuing his higher education, or interest on
such loan:
Provided that the amount which may be so deducted shall not exceed 2[forty thousand rupees].
(2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the initial assessment
year and seven assessment years immediately succeeding the initial assessment year or until the loan referred to in sub-section
(1) together with interest thereon is paid by the assessee in full, whichever is earlier.
(a) “approved charitable institution” means an institution specified in, or, as the case may be, an institution established for
charitable purposes and notified by the Central Government under clause (23C) of section 10 or an institution referred to in
clause (a) of sub-section (2) of section 80G ;
(b) “financial institution” means a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including
any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central
(c) “higher education” means full-time studies for any graduate or post-graduate course in engineering, medicine, management
or for post-graduate course in applied sciences or pure sciences including mathematics and statistics;
(d) “initial assessment year” means the assessment year relevant to the previous year, in which the assessee starts repaying the
loan or interest thereon.]’.
2. Subs., for “twenty-five thousand rupees”, by the Finance Act, 2000 (10 of 2000), s 30 (w.e.f. 1-4-2001).
Page 3 of 3
5 Ins. by the Finance Act, 2007 (22 of 2007), s 27(i) (w.e.f. 1-4-2008). See Circular No. 3 of 2008, March 12, 2008, 299
ITR (St.) 8.
6 Subs., for “notified by the Central Government”, by the Finance Act, 2007 (22 of 2007), s 27(ii)(A) (w.e.f. 1-4-2008).
8 Subs. by the Finance (No. 2) Act 2009 (33 of 2009), s 32(i) (w.e.f. 1-4-2010), Circular No. 5 of 2010, June 3, 2010, 324
‘(c) “higher education” means full-time studies for any graduate or post-graduate course in engineering, medicine, management
or for post-graduate course in applied sciences or pure sciences including mathematics and statistics;’.
9 Subs. by the Finance (No. 2) Act 2009 (33 of 2009), s 32(ii) (w.e.f. 1-4-2010), for the following:—
‘1[(e)“relative”, in relation to an individual, means the spouse and children of that individual.]’.
1. Ins. by the Finance Act, 2007 (22 of 2007), s 27(ii)(B) (w.e.f. 1-4-2008).
10 Circular No. 3 of 2006, February 27, 2006, 281 ITR (St.) 222.
End of Document
S. 80EE. Deduction in respect of interest on loan taken for residential house
property
S. 80EE. Deduction in respect of interest on loan taken for residential house property
(1) 11[Incomputing the total income of an assessee, being an individual, there shall be deducted, in accordance with
and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for
the purpose of acquisition of a residential house property.
(2) The deduction under sub-section (1) shall not exceed one lakh rupees and shall be allowed in computing the total
income of the individual for the assessment year beginning on the 1st day of April, 2014, and in a case where the
interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the
balance amount shall be allowed in the assessment year beginning on the 1st day of April, 2015.
(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—
(i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April,
2013, and ending on the 31st day of March, 2014;
(ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five
lakh rupees;
(iii) the value of the residential house property does not exceed forty lakh rupees;
(iv) the assessee does not own any residential house property on the date of sanction of the loan.
(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not
be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment
year.
(a) “financial institution” means a banking company to which the Banking Regulation Act, 1949 (10 of 1949),
applies including any bank or banking institution referred to in section 51 of that Act or a housing finance
company;
Page 2 of 2
S. 80EE. Deduction in respect of interest on loan taken for residential house property
(b) “housing finance company” means a public company formed or registered in India with the main object of
carrying on the business of providing long-term finance for construction or purchase of houses in India for
residential purposes.]
End of Document
S. 80F.
S. 80F.
12[* * * *]
12 Section 80F has been omitted by the Finance Act, 1985 (32 of 1985), s 17 (w.e.f. 1-4-1986). See Circular No. 421,
June 12, 1985, 156 ITR (St.) 130. It is pertinent to note that the effect of the insertion of a new section 80F by section
24 of the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988) (w.e.f. 1-4-1989), Circular No. 545, September 21, 1989,
181 ITR (St.) 198; Circular No. 549, October 31, 1989, 182 ITR (St.) 1; Circular No. 551, January 23, 1990, 183 ITR
(St.) 7, has been set at naught as a result of the omission of that section 24 by the Direct Tax Laws (Amendment) Act,
1989 (3 of 1989), s 95(g) (w.e.f. 1-4-1989). See Circular No. 559, May 4, 1980, 184 ITR (St.) 91.The deduction is
available from the initial assessment year from which such individual starts repaying the loanOmitted section 80F .—
Section 80F, prior to its omission by the Finance Act, 1985, with effect from 1-4-1986, stood as under:—The deduction
is available from the initial assessment year from which such individual starts repaying the loan‘S. 80F. Deduction in
respect of educational expenses in certain cases.—(1) Where an individual, being a resident, who is not a citizen of
India, has expended any sum in the previous year out of his income chargeable to tax for the full time education of his
child wholly or mainly dependent on him and who is not more than twenty-one years of age, at any University, college,
school or other educational institution situate in a country outside India, he shall, in accordance with and subject to the
provisions of this section, be allowed a deduction of the amount specified in sub-section (2) in the computation of his
total income.
(2) The amount referred to in sub-section (1) shall be—
(i) in the case of an individual who has one such child, one thousand five hundred rupees; and
(ii) in the case of an individual who has more than one such child, three thousand rupees.
1[(3) * * * *]’.
1. Sub-section (3) was omitted by the Finance Act, 1968 (19 of 1968), s 30 & 3rd Sch. (w.e.f. 1-4-1969). Before such omission,_
it stood as under:—
“(3) If the gross total income of the assessee includes earned income chargeable under any head, the deduction under sub-
head.”.
End of Document
S. 80FF.
S. 80FF.
13[* * * *]
13 Section 80FF, which was inserted by the Finance Act, 1975 (25 of 1975), s 11 (w.e.f. 1-4-1976), was omitted by the
Finance (No. 2) Act 1980 (44 of 1980), s 14 (w.e.f. 1-4-1981). Circular No. 281, September 22, 1980, 131 ITR (St.) 4.
Omitted section 80FF .—The Finance Act, 1975, inserted section 80FF in the following terms:—
“ S. 80FF . Deduction in respect of expenses on higher education in certain cases.—(1) Where an individual, who is a
citizen of India and whose gross total income does not exceed twelve thousand rupees, has expended any sum during the
previous year out of his income chargeable to tax for the full time education of a dependent,1 he shall, in accordance with and
subject to the provisions of this section, be allowed a deduction of the amount specified in sub-section (2) in the computation of
his total income.
(i) in a case where the individual has a dependent1 undergoing a degree or post-graduate course in medicine (including surgery
and obstetrics) or architecture or engineering or technology or business management, one thousand rupees in respect of each
such dependent;1 and
(ii) in a case where the individual has a dependent1 undergoing a diploma course in medicine (including surgery and obstetrics)
or architecture or engineering or technology or business management, or undergoing any degree or post-graduate course, other
than a degree or post-graduate course referred to in clause (i), five hundred rupees in respect of each such dependent:1
Provided that where the individual has, during the previous year, incurred expenditure on the education of more than two
dependents2 as aforesaid, the deduction under sub-section (1) shall be allowed only with reference to two such dependents2 as
may be chosen by him.
Explanation.—For the purposes of this sub-section,—
(a) “dependent”,1 in relation to an individual, means a child, brother or sister of the individual, wholly or mainly dependent on the
individual;
(b) “degree course”, “post-graduate course” and “diploma course” include respectively any course of study for obtaining a
qualification, which, though not described as a degree or post-graduate qualification or diploma, is recognised for purposes of
employment under the Central Government as equivalent to a degree, post-graduate qualification of diploma.”.
The above section 80FF was omitted by the Finance (No. 2) Act 1980 (w.e.f. 1-4-1981).
1. Ought to be “dependant”.
2. Ought to be “dependants”.
Page 2 of 2
S. 80FF.
End of Document
S. 80G. Deduction in respect of donations to certain funds, charitable insti-
tutions, etc.
S. 80G. Deduction in respect of donations to certain funds, charitable insti-tutions, etc.
(1) 14[Incomputing the total income of an assessee, there shall be deducted, in accordance with and subject to the
provisions of this section,—
(i) 15[in a case where the aggregate of the sums specified in sub-section (2) includes any sum or sums of the
nature specified16[in sub-clause (i) or in sub-clause (iiia)]17[or in sub-clause (iiiaa)]18[or in sub-clause
(iiiab)]19[or in sub-clause (iiib)]20[or in sub-clause (iiie)]21[or in sub-clause (iiif)]22[or in sub-clause (iiig)]23[or in
sub-clause (iiiga)] or24[sub-clause (iiih) or]25[sub-clause (iiiha) or sub-clause (iiihb) or sub-clause (iiihc) or]26[or
sub-clause (iiihd)]27[or sub-clause (iiihe)]28[or sub-clause (iiihf)]29[or sub-clause (iiihg) or sub-clause
(iiihh)]30[or sub-clause (iiihi)]31[or sub-clause (iiihj)] or in sub-clause (vii) of clause (a)32[or in clause (c)]33[or in
clause (d)] thereof, an amount equal to the whole of the sum or, as the case may be, sums of such nature
plus fifty per cent. of the balance of such aggregate; and]
(ii) in any other case, an amount equal to fifty per cent. of the aggregate of the sums specified in sub-section (2).]
(a) any sums paid by the assessee in the previous year as donations to—
(i) the National Defence Fund set up by the Central Government; or
(ii) the Jawaharlal Nehru Memorial Fund referred to in the Deed of Declaration of Trust adopted by the
National Committee at its meeting held on the 17th day of August, 1964; or
(iii) the Prime Minister’s Drought Relief Fund; or
(iiia) 34[the Prime Minister’s National Relief Fund; or]
(iiiaa) 35[the Prime Minister’s Armenia Earthquake Relief Fund; or]
(iiiab) 36[the Africa (Public Contributions—India) Fund; or]

Page 2 of 16
(iiib) 37[the National Children’s Fund; or]
(iiic) 38[theIndira Gandhi Memorial Trust, the deed of declaration in respect whereof was registered at New
Delhi on the 21st day of February, 1985; or]
(iiid) 39[theRajiv Gandhi Foundation, the deed of declaration in respect whereof was registered at New Delhi
on the 21st day of June, 1991; or]
(iiie) 40[the National Foundation for Communal Harmony; or]
(iiif) 41[aUniversity or any educational institution of national eminence as may be approved by the prescribed
authority in this behalf; or]
(iiig) 42[theMaharashtra Chief Minister’s Relief Fund during the period beginning on the 1st day of October,
1993, and ending on the 6th day of October, 1993, or to the Chief Minister’s Earthquake Relief Fund,
Maharashtra; or]
(iiiga) 43[any fund set up by the State Government of Gujarat exclu-sively for providing relief to the victims of
earthquake in Gujarat; or]
(iiih) 44[any Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that
district for the purposes of improvement of primary education in villages and towns in such district and for
literacy and post-literacy activities.
Explanation.—For the purposes of this sub-clause, “town” means a town which has a population not
exceeding one lakh according to the last preceding census of which the relevant figures have been
published before the first day of the previous year; or]
(iiiha) 45[the National Blood Transfusion Council or to any State Blood Transfusion Council which has its
sole object the control, supervision, regulation or encouragement in India of the services related to
operation and requirements of blood banks.
Explanation.—For the purposes of this sub-clause,—
(a) “National Blood Transfusion Council” means a society registered under the Societies Registration
Act, 1860 (21 of 1860), and has an officer not below the rank of an Additional Secretary to the
Government of India dealing with the AIDS Control Project as its Chairman, by whatever name
called;
(b) “State Blood Transfusion Council” means a society registered, in consultation with the National Blood
Transfusion Council, under the Societies Registration Act, 1860 (21 of 1860), or under any law
corresponding to that Act in force in any part of India and has Secretary to the Government of that
State dealing with the Department of Health, as its Chairman, by whatever name called; or
(iiihb) any fund set up by a State Government to provide medical relief to the poor; or
(iiihc) the Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare
Fund established by the armed forces of the Union for the welfare of the past and present members of
such forces or their dependants; or]
(iiihd) 46[the Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996; or]
Page 3 of 16
(iiihe) 47[the National Illness Assistance Fund; or]
(iiihf) 48[the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any State or
Union Territory, as the case may be:
Provided that such Fund is—
(a) the only Fund of its kind established in the State or the Union Territory, as the case may be;
(b) under the overall control of the Chief Secretary or the Department of Finance of the State or the
Union Territory, as the case may be;
(c) administered in such manner as may be specified by the State Government or the Lieutenant
Governor, as the case may be; or]
(iiihg) 49[the National Sports Fund to be set up by the Central Government; or
(iiihh) the National Cultural Fund set up by the Central Government; or]
(iiihi) 50[the Fund for Technology Development and Application set up by the Central Government; or]
(iiihj) 51[the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities constituted under sub-section (1) of section 3 52 of the National Trust for Welfare of Persons
with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999); or]
(iv) any other fund or any institution to which this section applies; or
(v) the Government or any local authority, to be utilised53[for any charitable purpose other than the purpose
of promoting family planning; or]
(vi) 54[an authority constituted in India by or under any law enacted either for the purpose of dealing with and
improvement of cities, towns and villages, or for both;]
(via) 55[any corporation referred to in clause (26BB) of section 10 ; or]
(vii) the Government or to any such local authority, institution or association as may be approved in this
behalf by the Central Government, to be utilised for the purpose of promoting family planning;]
(b) any sums paid by the assessee in the previous year as donations for the renovation or repair of any such
temple, mosque, gurdwara, church or other place as is notified by the Central Government in the Official
Gazette to be of historic, archaeological or artistic importance, or to be a place of public worship of
renown throughout any State or States;
(b) 56[anysums paid by the assessee, being a company, in the previous year as donations to the Indian Olympic
Association or to any other association or institution57[established in India, as the Central Government may,
having regard to the prescribed guidelines, by notification in the Official Gazette, specify in this behalf] for—
(i) the development of infrastructure for sports and games; or
(ii) the sponsorship of sports ad games, in India;]

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(c) 58[any sums paid by the assessee, during the period beginning on the 26th day of January, 2001, and ending
on the 30th day of September, 2001, to any trust, institution or fund to which this section applies for providing
relief to the victims of earthquake in Gujarat.]
(3) 59[* * * *]
(4) 60[Where the aggregate of the sums referred to in sub-clauses (iv), (v),61[(vi), (via) and (vii)] of clause (a) and
in62[clauses (b) and (c)] of sub-section (2) exceeds ten per cent. of the gross total income (as reduced by any
portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect
of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in
excess of ten per cent. of the gross total income shall be ignored for the purpose of computing the aggregate of
the sums in respect of which deduction is to be allowed under sub-section (1).]
(5) This section applies to donations to any institution or fund referred to in sub-clause (iv) of clause (a) of sub-section
(2), only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely:—
(i) where the institution or fund derives any income, such income would not be liable to inclusion in its total
income under the provisions of sections 11 and 12 63[* * *]64[* * *]65[or clause (23AA) or clause (23C)] of
section 10 :
66[Provided that where an institution or fund derives any income, being profits and gains of business, the
condition that such income would not be liable to inclusion in its total income under the provisions of
section 11 shall not apply in relation to such income, if—
(a) the institution or fund maintains separate books of account in respect of such business;
(b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of
such business; and
(c) the institution or fund issues to the person making the donation a certificate to the effect that it maintains
separate books of account in respect of such business and that the donations received by it will not be
used, directly or indirectly, for the purposes of such business;]
(ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution
or fund do not, contain any provision for the transfer of application at any time of the whole or any part of the
income or assets of the institution or fund for any purpose other than a charitable purpose;
(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;
(iv) the institution or fund maintains regular accounts of its receipts and expenditure;67[*]
(v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies
Registration Act, 1860 (XXI of 1860), or under any law corresponding to that Act in force in any part of India
or under section 25 68 of the Companies Act, 1956 (1 of 1956), or is a University established by law, or is any
other educational institution recognised by the Government or by a University established by law, or affiliated
to any University established by law,69[* * *] or is an institution financed wholly or in part by the Government
or a local authority;70[*]
(vi) 71[in
relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being
approved by the Commissioner in accordance with the rules72[made in this behalf; and]73[* * *]
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(vii) 74[where any institution or fund had been approved under clause (vi) for the previous year beginning on the 1st
day of April, 2007, and ending on the 31st day of March, 2008, such institution or fund shall, for the purposes
of this section and notwithstanding anything contained in the proviso to clause (15) of section 2, be deemed
to have been,—
(a) established for charitable purposes for the previous year beginning on the 1st day of April, 2008, and
ending on the 31st day of March, 2009; and
(b) approved under the said clause (vi) for the previous year beginning on the 1st day of April, 2008, and
ending on the 31st day of March, 2009.]
(5A) 75[Where a deduction under this section is claimed and allowed for any assessment year in respect of any sum
specified in sub-section (2), the sum in respect of which deduction is so allowed shall not qualify for deduction
under any other provision of this Act for the same or any other assessment year.]
(5B) 76[Notwithstanding anything contained in clause (ii) of sub-section (5) and Explanation 3, an institution or fund
which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding
five per cent. of its total income in that previous year shall be deemed to be an institution or fund to which the
provisions of this section apply.]
(5C) 77[78[This section] applies in relation to amounts referred to in clause (d) of sub-section (2) only if the trust or
institution or fund is established in India for a charitable purpose and it fulfils the following conditions, namely:—
(i) it is approved in terms of clause (vi) of sub-section (5);
(ii) it maintains separate accounts of income and expenditure for providing relief to the victims of earthquake in
Gujarat;
(iii) the donations made to the trust or institution or fund are applied only for providing relief to the earthquake
victims of Gujarat79[on or before the 31st day of March,80[2004]];
(iv) 81[theamount of donation remaining unutilised on the 31st day of March,82[2004], is transferred to the Prime
Minister’s National Relief Fund on or before the 31st day of March,83[2004]];
(v) it renders accounts of income and expenditure to such authority and in such manner as may be
prescribed,84[on or before the 30th day of June,85[2004].]
(5D) 86[No deduction shall be allowed under this section in respect of donation of any sum exceeding ten thousand
rupees unless such sum is paid by any mode other than cash.]
Explanation 1.—An institution or fund established for the benefit of Scheduled Castes, backward classes,
Scheduled Tribes or of women and children shall not be deemed to be an institution or fund expressed to be
for the benefit of a religious community or caste within the meaning of clause (iii) of sub-section (5).
87[Explanation 2.—For the removal of doubts, it is hereby declared that a deduction to which the assessee is
entitled in respect of any donation made to an institution or fund to which sub-section (5) applies shall not be
denied merely on either or both of the following grounds, namely:—
Page 6 of 16
(i) that, subsequent to the donation, any part of the income of the institution or fund has become chargeable to
tax due to non-compliance with any of the provisions of88[ section 11, section 12 or section 12A ];
(ii) that, under clause (c) of sub-section (1) of section 13, the exemption under89[ section 11 or section 12 ] is
denied to the institution or fund in relation to any income arising to it from any investment referred to in clause
(h) of sub-section (2) of section 13 where the aggregate of the funds invested by it in a concern referred to in
the said clause (h) does not exceed five per cent. of the capital of that concern.]
Explanation 3.—In this section, “charitable purpose” does not include any purpose the whole or
substantially the whole of which is of a religious nature.
90[Explanation 4.—For the purposes of this section, an association or institution having as its object the
control, supervision, regulation or encouragement in India of such games or sports as the Central
Government may, by notification in the Official Gazette, specify in this behalf, shall be deemed to be an
institution established in India for a charitable purpose.]
1[Explanation 5.—For the removal of doubts, it is hereby declared that no deduction shall be allowed
under this section in respect of any donation unless such donation is of a sum of money.]
2[(6) * * * *]
1. Section 80G [ Section 15B of 1922 Act]: Donations to Certain Funds and Charitable Institutions.—Donations
for charitable purposes constitute mere application of income and are not deductible from the assessee’s total
income.3 This section grants a partial deduction in respect of such donations. Before s 15B of the 1922 Act, which
corresponded to this section, was amended by the Finance Act, 1953, that section exempted from tax donations to
any institution or fund which was established in India for a charitable purpose, provided it was approved by the Central
Government for the purposes of that section. From time to time the Central Government published lists of several
institutions and funds, established in various parts of India, which were approved by it for the purposes of that section.
After the amendment of the old s 15B in 1953 and under this section, the government’s approval of the institution or
fund is no longer required and relief is allowable in respect of donations to any non-communal charitable fund or
institution established in India, provided it fulfils the specified conditions. The section also grants deduction in respect
of donations for the renovation or repair of places of public worship or of historic, archaeological or artistic importance
notified by the Central Government. From assessment year 2001-02, donation by companies to the Indian Olympic
Association or to institutions in development and sponsorship of sports and games as notified by the Central
Government [sub-s (2)(c)]. Donation for providing relief to the victims of earthquake in Gujarat during the specified
period is also eligible for deduction [sub-s (2)(d)]. No deduction under this section will be available if donation of any
sum exceeding Rs. 10,000 is made in cash.
The definition of ‘charitable purpose’ is given in s 2(15) . [See s 11, under ‘Charitable purposes’.] A public religious
fund or institution is ‘ charitable ‘ on general principles, and a donation made before 1 April 19644 to such a fund or
institution qualified for tax relief, provided the fund or institution was non-communal in character.5 But such donations
made after the said date are no longer entitled to tax benefit since ‘charitable purpose’ has now been defined as not
including ‘any purpose the whole or substantially the whole of which is of a religious nature’6 (Explanation 3).
However, a single contribution by one trust to another to carry out repairs and renovation of Lord Vishnu’s temple did
Page 7 of 16
not disentitle the trust from renewal of its exemption certificate. The line of distinction between religious and charitable
purposes was established and no watertight compartment between the two activities can be established. Unless the
trust deed specifies that the income has to be spent on one religion, the exemption under s 80G cannot be denied.7
An initial gift which is made for the purpose of starting or constituting a fund or an institution8 is covered by this section.
This section does not cover donations in kind9 or of shares.10 Explanation 5, which has been inserted with effect from
the assessment year 1976-77 ‘for the removal of doubts’, does not alter the law. Under Explanation 5, no relief can be
claimed under this section unless the donation is ‘of a sum of money’. These words have to be distinguished from
‘cash’. The donation of a fixed deposit receipt would qualify for a deduction under this section, because it represents a
sum of money though it is not cash.
While deduction under this section was admissible in computing the total income of a firm,11 s 80A(3) prohibited the
partners from also claiming deduction in their individual assessments12 in respect of the share of profit from such firm,
assessable in their hands up to assessment year 1992-93.
Up to assessment year 1993-94, sub-s (3) provided that no deduction under this section would be allowed if the
aggregate thereof was less than Rs 250. The maximum limit up to which donations qualify for tax relief is laid down by
sub-s (4) read with s 80B(5) . But the maximum limit does not apply to the funds and trusts mentioned in sub-s (2)(a)(i)
to (iiihj), a(vii), (c) and (d). The maximum limit laid down in sub-s (4) applies to the aggregate of the sums referred to in
sub-s (2), and not to the quantum of deduction under sub-s (1). This position has been clarified by the new sub-s (4)
which was substituted in 1980.13 The computation of deduction under sub-s (1) is to be made in respect of the
aggregate sums specified in sub-s (2) read with sub-s (4).14
The assessee was held entitled to exemption, under s 15B of the 1922 Act, only in respect of sums which constituted
a part of his total income of the relevant accounting year, and consequently, no exemption could be claimed in respect
of a sum donated out of the income of an earlier year.15 But this ruling does not apply under this section which uses
different phraseology from that of the corresponding provision in the 1922 Act.16 In any event, even under the 1922 Act
it was held that if the donation was made out of the income of the relevant accounting year, and the assessee had
taxable as well as non-taxable (eg agricultural) income, and there was no evidence to show that the donation had
been made out of non-taxable income, the entire amount of the donation, subject to the limits in the section, was
entitled to exemption.17
The requirement of filing the audit report and accounts in Form 10AA as prescribed under rule 18AAA, is directory and
not mandatory.18
A trust or an institution covered under sub-s (2)(a)(iv) is required to fulfil the conditions specified in sub-s (5), which,
inter alia, include an approval by the commissioner. Rule 11AA specifies the requirements for such an approval.
In order to be entitled to the approval, the ‘charitable purpose’ is not confined only to the contents of the instrument
constituting the trust; the real purpose of the trust is to be found and not just the ostensible purpose.19 In order to be
Page 8 of 16
entitled to renewal of registration under this section, it is mandatory for the trust to invest the entire funds left over after
meeting the expenditure in any of the modes of investment provided in s 11(5), and if there is a violation, such renewal
can be denied.20 However, the scope of inquiry of an institution by the authority for the approval of an institution is to
be confined only to finding out whether the prescribed conditions are satisfied, and the authority cannot act as an
Assessing Officer and pronounce upon the pending assessments.21 Approval once granted under this section
continues in perpetuity and cannot be withdrawn without issuing notice.21a Further, an outstanding tax demand22 or a
contravention of s 11(5) 23 is not a material consideration for grant or refusal of the approval. Once registration is
granted under s 12A(a), the approval cannot be refused on the ground that it is not for the benefit of the public at
large.24 The order of the authority has to be a speaking order.25 An erroneous refusal by the authority to issue an
approval may be corrected by a writ.26
2. Writs.—As the AO under the Act has powers to issue notices and verify the correctness of the deductions under
Chapter VI-A, it will not be correct for assessee to approach the writ court against such notices.27
Where the Commissioner comes to a finding that the activities are non-charitable or that the donations have not been
used for charitable purposes, the renewal is rightly rejected.28 The fact that the trust was granted exemption for twenty
years by misconstruing the law does not ban the denial of renewal of exemption.29
If the assessee’s application for exemption under s 80G was rejected disregarding the fact that similar trusts carrying
similar and identical objects were given exemption, a writ will be issued.30 Where application of funds is in furtherance
of aims and objects of the trust, registration cannot be rejected.31
3. Miscellaneous.—An exemption under s 10(23C) would not be necessary to make the assessee eligible for
approval under s 80G . Similarly, when exemption has been granted for eight years even after the trust’s objects had
been amended, the benefit of s 80G cannot be denied on the ground that a fresh registration should have been
obtained under s 12A(a) or that the objects should have been amended by following the procedure under s 92 of the
Code of Civil Procedure, 1908.32
4. Appeal and Reference.—In the context of s 80G the undernoted cases held that referable question of law did not
arise33 under s 256 .
14 Subs. by the Finance Act, 1976 (66 of 1976), s 17(a) (w.e.f. 1-4-1977). See Circular No. 202, July 5, 1976, 105 ITR
(St.) 17.
15 Clause (i) has been substituted by the Finance Act, 1985 (32 of 1985), s 18(a) (w.e.f. 1-4-1986),
Circular No. 421, June 12, 1985, 156 ITR (St.) 130, for the following:—
‘(i) in a case where the aggregate of the sums specified in sub-section (2) includes any sum specified in sub-clause (vii) of
clause (a) thereof, an amount equal to the whole of such sum plusfifty per cent. of the balance of such aggregate; and’.
16 Subs., for “in sub-clause (iiia)”, by the Income-tax (Amendment) Act, 1999 (28 of 1999), s 2 (w.e.f. 1-4-2000).
Page 9 of 16
17 Ins. by the Income-tax (Amendment) Act, 1989 (11 of 1989), s 3(a) (w.e.f. 24-1-1989).
18 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 26(a) (w.r.e.f. 1-4-1991). See Circular No. 621, December 19,
1991, 195 ITR (St.) 154.
19 Ins. by the Finance Act, 2013, s 16 (w.e.f. 1-4-2014). See Memorandum explaining the provisions in Finance Bill, 2013,
351 ITR (St.) 102.
20 Ins. by the Finance Act, 1993 (38 of 1993), s 13(1)(a) (w.e.f. 1-4-1993). See Circular No. 657, August 30, 1993, 204
ITR (St.) 106.
21 Ins. by the Finance Act, 1993 (38 of 1993), s 13(1)(b) (w.e.f. 1-4-1994).
22 Ins. by the Finance Act, 1994 (32 of 1994), s 24(a) (w.e.f. 1-4-1994). See Circular No. 684, June 10, 1994, 208 ITR
(St.) 8.
23 Ins. by the Taxation Laws (Amendment) Act, 2001 (4 of 2001), s 6(a)(i) (w.r.e.f. 3-2-2001).
(St.) 70.
25 Ins. by the Finance (No. 2) Act 1996 (33 of 1996), s 26(a) (w.e.f. 1-4-1997). See Circular No. 762, February 18, 1998,
230 ITR (St.) 12.
26 Ins. by the Income-tax (Amendment) Act, 1996 (35 of 1996), s 2(a) (w.r.e.f. 14-11-1996).
27 Ins. by the Income-tax (Amendment) Act, 1997 (14 of 1997), s 3(a) (w.e.f. 1-4-1997).
28 Ins. by the Finance Act, 1997 (26 of 1997), s 23(a) (w.e.f. 1-4-1998). See Circular No. 763, February 18, 1998, 230 ITR
(St.) 54.
29 Ins. by the Finance (No. 2) Act 1998 (21 of 1998), s 29(a) (w.e.f. 1-4-1999). See Circular No. 772, December 23, 1998,
235 ITR (St.) 35.
30 Ins. by the Finance Act, 1999 (27 of 1999), s 43(a) (w.e.f. 1-4-2000). See Circular No. 779, September 14, 1999, 240
ITR (St.) 3.
31 Ins. by the Finance Act, 2001 (14 of 2001), s 39(a) (w.e.f. 1-4-2002). See Circular No. 14 of 2001, 254 ITR (St.) 65.
(St.) 21.
Page 10 of 16
33 Ins. by the Taxation Law & (Amendment) Act, 2001 (4 of 2001), s 6(a)(ii) (w.r.e.f. 3-2-2001).
34 Ins. by the Income-tax (Amendment) Ordinance, 1975 (8 of 1975), promulgated on 9th September, 1975, later enacted
in the Income-tax (Amendment) Act, 1976 (1 of 1976), s 2 (w.e.f. 9-9-1975).
35 Sub-clause (iiiaa) has been inserted by the Income-tax (Amendment) Act, 1989 (11 of 1989), s 3(b) (w.e.f. 24-1-1989).
36 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 26(b)(i) (w.r.e.f. 1-4-1991).
37 Ins. by the Finance Act, 1982 (14 of 1982), s 15 (w.e.f. 1-4-1983). See Circular No. 346, June 30, 1982, 138 ITR (St.)
10.
38 Sub-clause (iiic) has been inserted by Act, (32 of 1985), s 18(b) (w.e.f. 1-4-1985).
39 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 26(b)(ii) (w.e.f. 1-4-1992).
40 Ins. by the Finance Act, 1993 (38 of 1993), s 13(2)(a) (w.e.f. 1-4-1993).
41 Ins. by the Finance Act, 1993 (38 of 1993), s 13(2)(b) (w.e.f. 1-4-1994).
43 Ins. by the Taxation Laws (Amendment) Act, 2001 (4 of 2001), s 6(b)(i) (w.r.e.f. 3-2-2001).
44 Ins. by the Finance Act, 1995 (22 of 1995), s 16(b)(i) (w.e.f. 1-4-1996).
45 Ins. by the Finance (No. 2) Act 1996, (33 of 1996), s 26(b) (w.e.f. 1-4-1997).
46 Ins. by the Income-tax (Amendment) Act, 1996 (35 of 1996), s 2(b) (w.r.e.f. 14-11-1996).
47 Ins. by the Income-tax (Amendment) Act, 1997 (14 of 1997), s 3(b) (w.e.f. 1-4-1997).
49 Sub-clauses (iiihg) and (iiihh) have been inserted by the Finance (No. 2) Act 1998 (21 of 1998), s 29(b) (w.e.f. 1-4-
1999).
Page 11 of 16
53 Subs., for the words “for any charitable purpose;”, by the Finance Act, 1976 (66 of 1976), s 17(b)(i) (w.e.f. 1-4-1977).
54 Subs. by the Finance Act, 2002 (20 of 2002), s 30(a)(i) (w.e.f. 1-4-2003), for the following:— ‘1[(vi) any authority
referred to in clause (20A) of section 10 ; or]’.
1. Ins. by the Finance Act, 1976 (66 of 1976), s 17(b)(ii) (w.e.f. 1-4-1977).
55 Ins. by the Finance Act, 1995 (22 of 1995), s 16(b)(ii) (w.e.f. 1-4-1995).
57 Subs., for “as notified by the Central Government under clause (23) of section 10 ”, by the Finance Act, 2002 (20 of
2002), s 30(a)(ii) (w.e.f. 1-4-2003). See Circular No. 8 of 2002, August 27, 2002, 258 ITR (St.) 13.
58 Ins. by the Taxation Laws (Amendment) Act, 2001 (4 of 2001), s 6(b)(ii) (w.r.e.f. 3-2-2001).
59 Omitted by the Finance Act, 1994 (32 of 1994), s 24(c) (w.e.f. 1-4-1994). Prior to its omission, sub-section (3) stood as
under:—
‘(3) No deduction shall be allowed under sub-section (1) if the aggregate of the sums referred to in sub-section (2) is less than
two hundred and fifty rupees.’.
60 Subs. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 25(c) (w.e.f. 1-4-1989), for the following:—
‘(4) Where the aggregate of the sums referred to in sub-clauses (iv), (v), (vi) and (vii) of clause (a) and in clause (b) of sub-
section (2) exceeds the smaller of the following amounts, that is to say,—
(i) ten per cent. of the gross total income (as reduced by any portion thereof on which income-tax is not payable under any
provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of
this Chapter), and
(ii) five hundred thousand rupees,
then, the amount by which such aggregate exceeds such smaller amount shall be ignored for the purpose of computing the
aggregate of the sums in respect of which deduction is to be allowed under sub-section (1).’.
It is pertinent to note that the other amendments made in section 80G by clauses (a), (b), (d) and (e) of section 25 of the Direct
Tax Laws (Amendment) Act, 1987 (4 of 1988) (w.e.f. 1-4-1989) see Circular No. 545, September 21, 1989, 181 ITR (St.) 198;
Circular No. 549, October 31, 1989, 182 ITR (St.) 1; Circular No. 551, January 23, 1990, 183 ITR (St.) 7, have been set at
naught as a result of the omission of those clauses by section 95(h) of the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989)
(w.e.f. 1-4-1989). See Circular No. 559, May 4, 1990, 184 ITR (St.) 91.
The above sub-section (4) was, earlier, substituted by the Finance (No. 2) Act 1980 (44 of 1980), s 15 (w.e.f. 1-4-1981), Circular
No. 281, September 22, 1980, 131 ITR (St.) 4, for the following:—
“(4) The deduction under sub-section (1) shall not be allowed in respect of such part of the aggregate of the sums referred to in
sub-clauses (iv), (v), (vi) and (vii) of clause (a) and in clause (b) of sub-section (2) as exceeds ten per cent. of the gross total
income (as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any
amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), or five hundred
thousand rupees, whichever is less.”.
Page 12 of 16
In the above sub-section (4), the words, brackets and figures “sub-clauses (iv), (v), (vi) and (vii)” were, earlier, substituted for
“sub-clauses (iv) and (v)” by the Finance Act, 1976 (66 of 1976), s 17(c) (w.e.f. 1-4-1977).
Further, in the above sub-section (4), the words “five hundred thousand rupees” were, earlier, substituted for “two hundred
thousand rupees” by the Finance (No. 2) Act 1977 (29 of 1977), s 16(a) (w.e.f. 1-4-1978). Also, the proviso at the end of sub-
section (4) was omitted by the Finance (No. 2) Act 1977 (29 of 1977), s 16(b) (w.e.f. 1-4-1978). See Circular No. 229, August 9,
1977, 111 ITR (St.) 9. Prior to its omission, the proviso stood as under:—
“Provided that where such aggregate includes any donations referred to in clause (b) of sub-section (2) and such aggregate
exceeds the limit of two hundred thousand rupees specified in this sub-section, then such limit shall be raised to cover that
portion of the donations aforesaid which is equal to the difference between such aggregate and the said limit, so, however, that
the limit so raised shall not exceed ten per cent. of the assessee’s gross total income as reduced as aforesaid, or five hundred
thousand rupees, whichever is less.”.
Earlier, the proviso was substituted by the Taxation Laws (Amendment) Act, 1970 (42 of 1970),
s 19 (with retrospective effect from 1-4-1968). See Circular No. 56, March 19, 1971.
61 Subs., for “(vi) and (vii)”, by the Finact Act, 1995 (22 of 1995), s 16(c) (w.e.f. 1-4-1995).
62 Subs., for “clause (b)”, by the Finance Act, 2000 (10 of 2000), s 31(c) (w.e.f. 1-4-2001).
63 The words, etc., “or clause (22) or clause (22A)”, have been omitted by the Finance (No. 2) Act 1998 (21 of 1998), s
29(c) (w.e.f. 1-4-1999). In the above portion, the words, etc. “or clause (22A)”, were inserted by the Finance Act, 1970
(19 of 1970), s 13 (w.e.f. 1-4-1970). See Circular No. 45, September 2, 1970, 79 ITR (St.) 33.
64 The words, brackets and figures “or clause (23)” have been omitted by the Finance Act, 2002 (20 of 2002), s 30(b)(i)
(w.e.f. 1-4-2003), Earlier, the words, etc., have been inserted by the Finance Act, 1973 (21 of 1973), s 9 (w.e.f. 1-4-
1974).
65 Subs., for “or clause (23C)”, by the Finance Act, 1987 (11 of 1987), s 35 (w.e.f. 1-4-1988). Earlier, the words, etc. “or
clause (23C)” were, originally, inserted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 18(ii) (w.e.f. 1-4-
1976). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
66 Added by the Finance Act, 1983 (11 of 1983), s 39(c) (w.e.f. 1-4-1984). See Circular No. 372, December 8, 1983, 146
ITR (St.) 9.
67 The word “and” has been omitted by the Finance Act, 1994 (32 of 1994), s 24(d)(i) (w.e.f. 1-4-1994).
69 The words, brackets and figures “or is an institution approved by the Central Government for the purposes of clause
(23) of section 10,”, have been omitted by the Finance Act, 2002 (20 of 2002), s 30(b)(ii) (w.e.f. 1-4-2003), Earlier, the
above words, etc., were inserted by the Finance Act, 1973 (21 of 1973), s 9 (w.e.f. 1-4-1974). See Circular No. 126,
November 28, 1973, 93 ITR (St.) 36.
70 The word “and” has been omitted by the Finance (No. 2) Act 2009 (33 of 2009), s 33(a) (w.r.e.f. 1-4-2009). Circular No.
5 of 2010, June 3, 2010, 324 ITR (St.) 293. Earlier the word “and” was inserted by the Finance Act, 1994 (32 of 1994), s
24(d)(ii) (w.e.f. 1-4-1994).
Page 13 of 16
72 Subs., for “made in this behalf:”, by the Finance (No. 2) Act 2009 (33 of 2009), s 33(b) (w.r.e.f. 1-4-2009).
73 The proviso has been omitted by the Finance (No. 2) Act 2009 (33 of 2009), s 33(c) (w.e.f. 1-10-2009). Prior to its
omission, the proviso stood as under:—
‘Provided that any approval shall have effect for such assessment year or years, not exceeding 1[five assessment years], as may
be specified in the approval.]’.
1. Subs., for “three assessment years”, by the Finance Act, 1993 (38 of 1993), s 13(3) (w.e.f. 1-4-1993).
74 Ins. by the Finance (No. 2) Act 2009 (33 of 2009), s 33(d) (w.r.e.f. 1-4-2009).
75 Ins. by the Finance (No. 2) Act 1980 (44 of 1980), s 15 (w.r.e.f. 1-4-1968).
76 Ins. by the Finance Act, 1999 (27 of 1999), s 43(c) (w.e.f. 1-4-2000).
77 Ins. by the Taxation Law & (Amendment) Act, 2001 (4 of 2001), s 6(c) (w.r.e.f. 3-2-2001).
78 Subs., for “This sub-section”, by the Finance Act, 2002 (20 of 2002), s 30(c)(i) (w.r.e.f. 3-2-2001).
79 Subs., for “on or before the 31st day of March, 2002”, by the Finance Act, 2002 (20 of 2002), s 30(c)(ii) (w.r.e.f. 3-2-
2001).
80 Subs., for “2003”, by the Finance Act, 2003 (32 of 2003), s 36(a) (w.r.e.f. 3-2-2001). See Circular No. 7 of 2003,
September 5, 2003, 263 ITR (St.) 62.
81 Subs. by the Finance Act, 2002 (20 of 2002), s 30(c)(iii) (w.r.e.f. 3-2-2001), for the following:—
‘(iv) the amount of donation remaining unutilised on the 31st day of March, 2002, is transferred to the Prime Minister’s National
Relief Fund on or before the 31st day of March, 2002;’.
82 Subs., for “2003”, by the Finance Act, 2003 (32 of 2003), s 36(b) (w.r.e.f. 3-2-2001).
83 Subs., for “2003”, by the Finance Act, 2003 (32 of 2003), s 36(b) (w.r.e.f. 3-2-2001).
84 Subs., for “on or before the 30th day of June, 2002”, by the Finance Act, 2002 (20 of 2002), s 30(c)(iv) (w.r.e.f. 3-2-
2001).
85 Subs., for “2003”, by the Finance Act, 2003 (32 of 2003), s 36(c) (w.r.e.f. 3-2-2001).
(St.) 234.
Page 14 of 16
87 Explanation 2 was substituted by the Finance Act, 1970 (19 of 1970), s 13 (w.e.f. 1-4-1971), for the following:—
“Explanation 2.—For the removal of doubts, it is hereby declared that a deduction to which the assessee is entitled in respect of
any donation made to an institution or fund to which sub-section (5) applies shall not be affected merely by reason of the fact
that subsequent to the donation any part of the income of the institution or fund has become chargeable to tax due to non-
compliance with any of the provisions of section 11 .”.
88 Subs. by the Finance Act, 1972 (16 of 1972) s 17, for the word and figures “ section 11 ” (w.e.f. 1-4-1973). See Circular
No. 108 of 1973, March 20, 1973.
89 Subs. by the Finance Act, 1972 (16 of 1972), s 17, for “ section 11 ” (w.e.f. 1-4-1973).
90 Subs. by the Finance Act, 2002 (20 of 2002), s 30(d) (w.e.f. 1-4-2003), for the following:—
‘1[Explanation 4.—For the purposes of this section, an association approved by the Central Government for the purposes of
clause (23) of section 10 shall also be deemed to be an institution, and every association or institution approved by the Central
Government for the purposes of the said clause shall be deemed to be an institution established in India for a charitable
purpose.]’.
2 Omitted by the Finance Act, 1968 (19 of 1968), s 30 & 3rd Sch. (w.e.f. 1-4-1969). See Circular No. 6P, July 6, 1968.
Prior to its omission, sub-section (6) stood as under:—
‘(6) If the gross total income of the assessee includes earned income chargeable under any head, the deduction under sub-
head.’.
3 See s 4, under ‘Application of income and its diversion by overriding title’.
4 See the history of amendments to s 88 (now deleted) in Vol II.
5 Thangaswamy v CIT 57 ITR 546 .
6 Upper Ganges Mills v CIT 227 ITR 578 (SC), affirming CIT v Upper Ganges Mills 154 ITR 308 (one of various
charitable purposes was religious).
7 Umaid Charitable Trust v UOI 307 ITR 226 . (case law discussed). See also Shri Sardarmal Sancheti Charitable Trust
v UOI 322 ITR 167 ; DIT v Sri Ramakrishna Seva Ashrama 357 ITR 731 .
8 CIT v Ramniwas 112 ITR 433 ; CGT v Yogendra 58 ITR 40 ; CGT v Yateshwari 153 ITR 477 ; CGT v Purushottam
166 ITR 525 .
9 Rama Varma v CIT 187 ITR 308 (SC), approving CIT v Amonbolu 102 ITR 403, CIT v Gopal 121 ITR 260 (affirmed
in Vijaipat v CIT 193 ITR 274 ), and CIT v Dhirajben 141 ITR 875, and disapproving the following cases: CIT v ACC
Page 15 of 16
68 ITR 478 ; CIT v Bangalore Woollen 91 ITR 166 ; CIT v Abhai 113 ITR 737 ; CIT v Traub 118 ITR 525 ; CIT v
Khandelwal 118 ITR 531 ; Saurashtra Cement v CIT 123 ITR 669 ; CIT v Umaid Mills 148 ITR 72 ; CIT v Saraswati
178 ITR 171 .
10 CIT v Sohan Lal 235 ITR 616 .
11 CIT v Bharat Bhandar 94 ITR 315 .
12 CIT v General Textiles 111 ITR 727 (old s 88 ).
13 Superseding erroneous decision of the Andhra Pradesh High Court in Hyderabad Race Club v CIT 120 ITR 185,
which was dissented from by Karnataka High Court in CIT v Canara Bank 162 ITR 478 and by the Bombay High Court
in CIT v Mafatlal Fine Spinning and Manufacturing Co. Ltd. 263 ITR 140, (2004) 187 CTR 64 (Bom).
14 CIT v New Shorrock 212 ITR 355 ; CIT v Mafatlal Fine Spinning and Manufacturing Co. Ltd 263 ITR 140, (2004) 187
CTR 64 (Bom); CIT v Bajaj Auto Ltd. 322 ITR 29, (2009) 182 Taxman 163 (Bom).
15 CIT v Samnugger 24 ITR 265 ; Basant v CIT 70 ITR 657 ; Stanes v CIT 100 ITR 341 (old s 88 of this Act).
16 View accepted by board in letter F no 45/ 313/66 ITJ(61), dated 2 December 1966.
17 Sailendra v CIT 36 ITR 94 . Cf Goodricke v CIT 201 ITR 261 .
18 DIT v Divyajyot Foundation 321 ITR 53 ; Church's Auxiliary for Social Action v DGIT (Exemptions) 325 ITR 362,
(2010) 235 CTR 350 (Del).
19 Kirti Chand v DIT 232 ITR 11 .
20 Mundakapadam v CIT 258 ITR 395 . Also see Vishal Khanna Public Charitable Trust v UOI 356 ITR 442 .
21 Desai v CIT 246 ITR 452 .
21a CIT v Bhhola Bhandari Charitable Trust 351 ITR 469 ; CIT v Rajasthan Jain Charitable Trust 351 ITR 354 ; CIT v
Shri Vishav Namdhari Sangat 354 ITR 33 .
22 Parivar Seva v DIT 255 ITR 132 .
23 Orpat v CIT 256 ITR 690 .
24 Hiralal v CIT 246 ITR 188 .

Page 16 of 16
25 Ramakrishan v CIT 252 ITR 171 .
26 Ecumenical Central v CIT 139 ITR 226 ; Dasaradha v CIT 177 ITR 249 .
27 Alken Laboratories Ltd. v CIT 262 ITR 192, (2003) 2 PLJR 665 .
28 Madani Musafir Khana Welfare Society v CIT 264 ITR 481, (2004) 188 CTR 52 (Pat) (funds used for shopping
complex); Bangalore Education Trust v DIT 267 ITR 549, (2004) 188 CTR 191 (Kar) (diversion of funds); Ganjam
Nagappa and Son Trust v DIT 269 ITR 59, (2004) 187 CTR 311 (Kar) (trust misused to promote business interests);
Sri Marudhar Kesari Sthanakwasi Jain Yadgar Samiti Trust v UOI 273 ITR 475, (2003) 187 CTR 674 (Raj) (trust
wholly and substantially of religious nature); Vishwa Budha Parishad v CIT 264 ITR 357, (2004) 139 Taxman 385
(Pat).
29 Arsha Vijnana Trust v D.P. Sharma, DIT 295 ITR 437, (2008) 214 CTR 531 (AP) (trust exclusively publishing
religious books).
30 Tax Practitioners Benevolent Fund v CIT 266 ITR 561, (2004) 188 CTR 26 (Bom).
31 Vidya Bal Mandali v CIT 282 ITR 415, (2006) 202 CTR 164 (All).
32 Sonepat Hindu Educational and Charitable Society v CIT 278 ITR 262, (2005) 196 CTR (P&H) 623 .
33 CIT v Maghan Paper Mills (P) Ltd. 249 ITR 489 ; CIT v Emtici Engineering Ltd. 242 ITR 86 .
End of Document
S. 80GG. Deductions in respect of rents paid
34[In computing the total income of an assessee, not being an assessee having any income falling within clause (13A) of
section 10, there shall be deducted any expenditure incurred by him in excess of ten per cent. of his total income towards
payment of rent (by whatever name called) in respect of any furnished or unfurnished accommodation occupied by him for
the purposes of his own residence, to the extent to which such excess expenditure does not exceed two thousand rupees
per month or twenty-five per cent. of his total income for the year, whichever is less, and subject to such other conditions or
limitations as may be prescribed, having regard to the area or place in which such accommodation is situated and other
relevant considerations:
Provided that nothing in this section shall apply to an assessee in any case where any residential accommodation is,—
(i) owned by the assessee or by his spouse or minor child or, where such assessee is a member of a Hindu
undivided family by such family, at the place where he ordinarily resides or performs duties of his office or
employment or carries on his business or profession; or
(ii) owned by the assessee at any other place, being accommodation in the occupation of the assessee, the value of
which is to be determined35[under clause (a) of sub-section (2) or, as the case may be, clause (a) of sub-section
(4) of section 23 ].
Explanation.—In this section, the expressions “ten per cent. of his total income” and “twenty-five per cent. of his total
income” shall mean ten per cent. or twenty-five per cent, as the case may be, of the assessee’s total income before
allowing deduction for any expenditure under this section.]
Section 80GG : Deduction in Respect of Rents Paid.— Section 10(13A) exempts from tax any special allowance
specifically granted to an employee to meet actual expenditure on rent for residential accommodation. This section
grants deduction in respect of residential rent to other employees who do not receive special allowance covered by s
10(13A) and to assessees other than employees. Rule 11B specifies the places in which the benefit of this section can
be claimed.Originally, this section provided for a deduction to all assessees, except salaried persons who received
Page 2 of 2
house rent allowance covered under s 10(13A), in respect of expenditure incurred towards payment of rent for
residential accommodation, subject to certain limits. This relief was withdrawn by the Finance Act, 1997 by omitting the
section with effect from April 1, 1998.
This section has been reintroduced by the Finance (No 2) Act 1998, and seeks to continue the above deduction with
effect from April 1, 1998. Subject to certain conditions, the deduction is now allowable to an assessee who incurs any
expenditure in excess of 10 per cent. of his total income towards payment of rent in respect of any furnished or
unfurnished accommodation occupied by him for the purpose of his own residence. The section provides a deduction
of Rs 2,500 per month or 25 per cent. of total income, whichever is less.
The benefit of the above deduction is not available to an assessee in a case where he, his spouse or minor child, or
the Hindu undivided family of which he is a member, owns any residential accommodation at a place where the
assessee ordinarily resides, performs the duties of his office or employment or carries on his business or profession.
The deduction is also denied to an assessee who owns any residential accommodation at any other place and the
concession in respect of self-occupied property is claimed by him in respect of such accommodation.
34 Ins. by the Finance (No. 2) Act 1998 (21 of 1998), s 30 (w.r.e.f. 1-4-1998). See Circular No. 772, December 23, 1998,
235 ITR (St.) 35.
35 Subs., for “under sub-clause (i) of clause (a) or, as the case may be, clause (b) of sub-section (2) of section 23 ”, by
the Finance Act, 2001 (14 of 2001), s 40 (w.e.f. 1-4-2002). See Circular No. 14 of 2001, 254 ITR (St.) 65.
End of Document
S. 80GGA. Deduction in respect of certain donations for scientific research
or rural development
S. 80GGA. Deduction in respect of certain donations for scientific research or rural development
(1) 36[Incomputing the total income of an assessee, there shall be deducted, in accordance with and subject to the
provisions of this section, the sums specified in sub-section (2).
(a) any sum paid by the assessee in the previous year to a37[research association] which has as its object the
undertaking of scientific research or to a University, college or other institution to be used for scientific
research:
Provided that such association, University, college or institution is for the time being approved for the
purposes of clause (ii) of sub-section (1) of section 35 ;
(aa) 38[any sum paid by the assessee in the previous year39[to a research association which has as its object the
undertaking of research in social science or statistical research or to a University], college or other institution
to be used for research in social science or statistical research:
Provided that40[such association, University], college or institution is for the time being approved for the
purposes of clause (iii) of sub-section (1) of section 35 .]
41[Explanation.—The deduction, to which the assessee is entitled in respect of any sum paid to
a42[research association], University, college or other institution to which clause (a) or clause (aa)
applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the
assessee, the approval to such association, University, college or other institution referred to in clause
(a) or clause (aa), as the case may be, has been withdrawn;]
(b) any sum paid by the assessee in the previous year—

Page 2 of 5
(i) to an association or institution, which has as its object the undertaking of any programme of rural
development, to be used for carrying out any programme of rural development approved for the
purposes of section 35CCA ; or
(ii) to an association or institution which has as its object the training of persons for implementing
programmes of rural development:
43[Provided
that the assessee furnishes the certificate referred to in sub-section (2) or, as the case
may be, sub-section (2A) of section 35CCA from such association or institution.]
44[Explanation.—The deduction, to which the assessee is entitled in respect of any sum paid to an
association or institution for carrying out the programme of rural development to which this clause
applies, shall not be denied merely on the ground that subsequent to the payment of such sum by
the assessee, the approval granted to such programme, or as the case may be, to the association or
institution has been withdrawn.]
(bb) 45[anysum paid by the assessee in the previous year to a public sector company or a local authority or to an
association or institution approved by the National Committee, for carrying out any eligible project or scheme:
Provided that the assessee furnishes the certificate referred to in clause (a) of sub-section (2) of section
35AC from such public sector company or local authority or, as the case may be, association or
institution.
46[Explanation 1.—The deduction, to which the assessee is entitled in respect of any sum paid to a
public sector company, or to a local authority or to an association or institution for carrying out the eligible
project or scheme referred to in section 35AC, shall not be denied merely on the ground that subsequent
to the payment of such sum by the assessee,—
(a) the approval granted to such association or institution has been withdrawn; or
(b) the notification notifying the eligible project or scheme referred to in section 35AC carried out by the
public sector company, or local authority or association or institution has been withdrawn.]
47[Explanation 2].—For the purposes of this clause, the expressions “National Committee” and
“eligible project or scheme” shall have the meanings respectively assigned to them in the
Explanation to section 35AC ;]
(c) 48[49[anysum paid by the assessee in any previous year ending on or before the 31st day of March, 2002], to
an association or institution, which has as its object the undertaking of any programme of conservation of
natural resources50[or of afforestation], to be used for carrying out any programme of conservation of natural
resources50 [or of afforestation], approved for the purposes of section 35CCB :
Provided that the association or institution is for the time being approved for the purposes of sub-section
(2) of section 35CCB ;]
Page 3 of 5
(cc) 51[52[any sum paid by the assessee in any previous year ending on or before the 31st day of March, 2002], to
such fund for afforestation as is notified by the Central Government under clause (b) of sub-section (1) of
section 35CCB ;]
(d) 53[anysum paid by the assessee in the previous year to a rural development fund set up and notified by the
Central Government for the purposes of clause (c) of sub-section (1) of section 35CCA ;]
(e) 54[anysum paid by the assessee in the previous year to the National Urban Poverty Eradication Fund set up
and notified by the Central Government for the purposes of clause (d) of sub-section (1) of section 35CCA ].
(2A) 55[Nodeduction shall be allowed under this section in respect of any sum exceeding ten thousand rupees unless
such sum is paid by any mode other than cash.]
(3) Notwithstanding anything contained in sub-section (1), no deduction under this section shall be allowed in the
case of an assessee whose gross total income includes income which is chargeable under the head “Profit and
gains of business or profession”.
(4) Where a deduction under this section is claimed and allowed for any assessment year in respect of any payments
of the nature specified in sub-section (2), deduction shall not be allowed in respect of such payments under any
other provision of this Act for the same or any other assessment year.]
Section 80GGA : Donations for Scientific Research or Rural Development.—Assessees who have income
taxable under the head ‘Business or profession’ are entitled to a deduction under s 35 in respect of payments made to
a scientific research association, under s 35CCA for rural development and under s 35CCB for conservation of natural
resources. Other assessees are entitled to a deduction under this section in respect of such payments.
Up to assessment year 1992-93, while a deduction under this section was admissible in computing the total income of
a firm, s 80A(3) prohibited the partners from also claiming a deduction in their individual assessments. No deduction
under this section will be available if donation of any sum exceeding Rs. 10,000 is made in cash.
88.
37 Subs., for “scientific research association”, by the Finance Act, 2010 (14 of 2010), s 26(a) (w.e.f. 1-4-2011). Circular
No. 1 of 2011, April 6, 2011, 333 ITR (St.) 7.
38 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 27(i) (w.e.f. 1-4-1992). See Circular No. 621, December 19, 1991,
195 ITR (St.) 154.
39 Subs., for “to a University”, by the Finance Act, 2010 (14 of 2010), s 26(b)(A) (w.e.f. 1-4-2011).
Page 4 of 5
40 Subs., for “such University”, by the Finance Act, 2010 (14 of 2010), s 26(b)(B) (w.e.f. 1-4-2011).
41 Ins. by the Taxation Laws (Amendment) Act, 2006 (29 of 2006), s 11(a) (w.e.f. 1-4-2006).
42 Subs., for “scientific research association”, by the Finance Act, 2010 (14 of 2010), s 26(b)(C) (w.e.f. 1-4-2011). See
Circular No. 14 of 2006, December 28, 2006, 288 ITR (St.) 9.
43 Subs. by the Finance Act, 1983 (11 of 1983), s 23(a) (w.e.f. 1-4-1983), See Circular No. 372, December 8, 1983, 146
‘Provided that the association or institution is for the time being approved for the purposes of sub-section (2) of section 35CCA .’.
44 Ins. by the Taxation Laws (Amendment) Act, 2006 (29 of 2006), s 11(b) (w.e.f. 1-4-2006). See Circular No. 1 of 2007,
April 27, 2007, 290 ITR (St.) 73.
45 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 27(ii) (w.e.f. 1-4-1992).
46 Ins. by the Taxation Laws (Amendment) Act, 2006 (29 of 2006), s 11(c) (w.e.f. 1-4-2006).
47 Explanation has been numbered as Explanation 2 thereof by the Taxation Laws (Amendment) Act, 2006 (29 of 2006),
s 11(c) (w.e.f. 1-4-2006).
10.
49 Subs., for “any sum paid by the assessee in the previous years”, by the Finance Act, 2002 (20 of 2002), s 31(i) (w.e.f.
1-4-2003). See Circular No. 8 of 2002, August 27, 2002, 258 ITR (St.) 13.
50 Ins. by the Finance Act, 1990 (12 of 1990), s 19(i) (w.e.f. 1-4-1991). Circular No. 572, August 3, 1990, 186 ITR (St.) 81.
50 Ins. by the Finance Act, 1990 (12 of 1990), s 19(i) (w.e.f. 1-4-1991). Circular No. 572, August 3, 1990, 186 ITR (St.) 81.
51 Clause (cc) has been inserted by the Finance Act, 1990 (12 of 1990), s 19(ii) (w.e.f. 1-4-1991).
52 Subs., for “any sum paid by the assessee in the previous year”, by the Finance Act, 2002 (20 of 2002), s 31(ii) (w.e.f.
1-4-2003).
53 Clause (d) has been inserted by the Finance Act, 1983 (11 of 1983), s 23(b) (w.e.f. 1-4-1983).
54 Ins. by the Finance Act, 1995 (22 of 1995), s 17 (w.e.f. 1-4-1996). See Circular No. 717, August 14, 1995, 215 ITR
(St.) 70.
Page 5 of 5
(St.) 234.
End of Document
S. 80GGB. Deduction in respect of contributions given by companies to
political parties
S. 80GGB. Deduction in respect of contributions given by companies to political parties
56[In computing the total income of an assessee, being an Indian company, there shall be deducted any sum contributed by
it, in the previous year, to any political party57[or an electoral trust]:
58[Provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash.]
Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, the word “contribute”,
with its grammatical variation, has the meaning assigned to it under section 293A 59 of the Companies Act, 1956 (1 of
1956).]
56 Ins. by the Election & Other Related Laws (Amendment) Act, 2003 (46 of 2003), s 10 (w.e.f. 11-9-2003).
57 Ins. by the Finance (No. 2) Act 2009 (33 of 2009), s 34 (w.e.f. 1-4-2010). See Circular No. 5 of 2010, June 3, 2010,
324 ITR (St.) 293.
59 For text, see Appendix.
End of Document
S. 80GGC. Deduction in respect of contributions given by any person to
political parties
S. 80GGC. Deduction in respect of contributions given by any person to political parties
60[In computing the total income of an assessee, being any person, except local authority and every artificial juridical
person wholly or partly funded by the Government, there shall be deducted any amount of contribution made by him, in the
previous year,61[to a political party or an electoral trust]:
62[Provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash.]
Explanation.—For the purposes of sections 80GGB and 80GGC, “political party” means a political party registered under
section 29A 63 of the Representation of the People Act, 1951 (43 of 1951).]
Sections 80GGB and 80GGC .— Sections 80GGB and 80GGC allow deductions towards contributions made to
political parties by an Indian Company and any person, except local authority and every artificial juridical person
respectively. These sections were inserted by the Election and Other Related Laws (Amendment) Act, 2003. Section
13A provides that any voluntary contribution made to a political party shall not be included in the total income of such
political party.
60 Ins. by the Election & Other Related Laws (Amendment) Act, 2003 (46 of 2003), s 10 (w.e.f. 11-9-2003).
Page 2 of 2
S. 80GGC. Deduction in respect of contributions given by any person to political parties
61 Subs., for “to a political party”, by the Finance (No. 2) Act 2009 (33 of 2009), s 35 (w.e.f. 1-4-2010).
End of Document
S. 80H.
Total Income > C —Deductions in respect of certain incomes
C —Deductions in respect of certain incomes
S. 80H.
64[* * * *]
64 Section 80H, which was as under, has been omitted by s 20 of the Taxation Laws (Amendment) Act, 1975 (41 of
1975) (w.e.f. 1-4-1976):—
‘S. 80H. Deduction in case of new industrial undertakings employing displaced persons, etc.—(1) Where the gross total
income of any assessee includes any profits and gains derived from any industrial undertaking to which this section applies,
there shall be allowed, in accordance with and subject to the provisions of this section, a deduction from such profits and gains
of an amount equal to fifty per cent. thereof in computing the total income of the assessee, so, however, that the amount of the
deduction under this section shall not, in any case, exceed one hundred thousand rupees.
(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:—
(i) it is not formed by the splitting up, or reconstruction, of a business already in existence;
(ii) it is not formed by the transfer to a new business of a building, machinery or plant previously used for any purpose;
(iii) it has begun or begins to manufacture or produce articles in any part of India at any time within a period of three years next
following the 1st day of April, 1967;
(iv) it employs, on every working day throughout the previous year, forty or more workers in a manufacturing process (whether
carried on with or without the aid of power); and
(v) it employs displaced persons or repatriates or members of the families of displaced persons or repatriates (all such
employees being, hereinafter, referred to as rehabilitated employees) and the daily average number of rehabilitated employees,
as certified by the prescribed authority, is not less than sixty per cent. of the daily average number of all the persons employed in
the undertaking, throughout the previous year.
Explanation 1.—”Member of the family”, in relation to any person who is a displaced person or repatriate, means any member of
the family of such person if such member was, before his employment in the undertaking, dependent on such person
Explanation 2.—”Daily average number”, in relation to rehabilitated employees or, as the case may be, all the persons
employed in the undertaking, shall be taken to be the number arrived at by dividing the aggregate of the number of rehabilitated
employees or, as the case may be, the total number of persons employed in the undertaking on each working day of a month by
the total number of working days in that month.
(3) The provisions of this section shall, in relation to an industrial undertaking, apply to the assessment for the assessment year
relevant to the previous year in which the undertaking begins to manufacture or produce articles, and the nine assessment years
immediately succeeding.’.
Page 2 of 2
S. 80H.
Rule 18A of the Income-tax Rules, 1962, prescribed the authority to certify the daily average number of rehabilitated employees
for the purpose of section 80H(2)(v) .
End of Document
S. 80HH. Deduction in respect of profits and gains from newly established
industrial undertakings or hotel business in backward areas
S. 80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel
(1) 65[Where the gross total income of an assessee includes any profits and gains derived from an industrial
undertaking, or the business of a hotel, 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 twenty per cent. thereof.
(i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970,66[but before
the 1st day of April, 1990,] in any backward area;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence in any backward
area:
Provided that this condition shall not apply in respect of any 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;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any
backward area;
(iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty
more workers in a manufacturing process carried on without the aid of power.
Explanation.—Where any machinery or plant or any part thereof previously used for any purpose in any
backward area is transferred to a new business in that area or in any other backward area 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 (iii) of this sub-section,
the condition specified therein shall be deemed to have been fulfilled.
Page 2 of 8
(3) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely:—
(i) the business of the hotel has started or starts functioning after the 31st day of December, 1970,67[but before
the 1st day of April, 1990,] in any backward area;
(ii) the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in
existence;
(iii) the hotel is for the time being approved for the purposes of this sub-section by the Central Government.
(4) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of each of the
ten assessment years beginning with the assessment year relevant to the previous year in which the industrial
undertaking begins to manufacture or produce articles or the business of the hotel starts functioning:
Provided that,—
(i) in the case of an industrial undertaking which has begun to manufacture or produce articles, and
(ii) in the case of the business of a hotel which has started functioning, after the 31st day of December, 1970, but
before the 1st day of April, 1973, this sub-section shall have effect as if the reference to ten assessment
years were a reference to ten assessment years as reduced by the number of assessment years which
expired before the 1st day of April, 1974.
(5) Where the assessee is a person other than a company or a co-operative society, the deduction under sub-section
(1) shall not be admissible unless the accounts of the industrial undertaking or the business of the hotel 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.
(6) Where any goods held for the purposes of the business of the industrial undertaking or the hotel 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 business of the industrial undertaking or the hotel and, in either
case, the consideration, if any, for such transfer as recorded in the accounts of the business of the industrial
undertaking or the hotel 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 the industrial undertaking or the
business of the hotel 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 the68[Assessing Officer], the computation of the profits and gains of the
industrial undertaking or the business of the hotel in the manner hereinbefore specified presents exceptional
difficulties, the68[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
Page 3 of 8
would ordinarily fetch on sale in the open market.
(7) Where it appears to the68a[Assessing Officer] that, owing to the close connection between the assessee carrying
on the business of the industrial undertaking or the hotel 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 the business of
the industrial undertaking or the hotel, the68a[Assessing Officer] shall, in computing the profits and gains of the
industrial undertaking or the hotel for the purposes of the deduction under this section, take the amount of profits
as may be reasonably deemed to have been derived therefrom.
(8) 69[* * * *]
(9) In a case where the assessee is entitled also to the deduction70[under section 80-I or section 80J ] in relation to
the profits and gains of an industrial undertaking or the business of a hotel to which this section applies, effect
shall first be given to the provisions of this section.
(9A) 71[Where a deduction in relation to the profits and gains of a small-scale industrial undertaking to which section
80HHA applies is claimed and allowed under that section for any assessment year, deduction in relation to such
profits and gains shall not be allowed under this section for the same or any other assessment year.]
(10) Nothing contained in this section shall apply in relation to any undertaking engaged in mining.
(11) 72[For the purposes of this section, “backward area” means such area as the Central Government may, having
regard to the stage of development of that area, by notification in the Official Gazette, specify in this behalf:
Provided that any notification under this sub-section may be issued so as to have retrospective effect to a
date not earlier than the 1st day of April, 1983.]]
1. Section 80HH : Deduction for Newly Established Industrial Undertakings or Hotels in Backward Areas.—
This section was inserted by the Direct Taxes (Amendment) Act, 1974 with effect from the assessment year 1974-75
and granted deduction from profits and gains to an undertaking engaged in manufacture or to a hotel. The deduction
under this section was available to such units which began to manufacture or produce articles after 31 December 1970
but before 1 April 1990. The deduction available is 20 per cent. of the profits and gains of the undertaking for 10
assessment years.
The deduction under this section is allowable for ten consecutive assessment years. Even if there is no assessment in
a particular year due to a change in the financial year of the assessee, the deduction can be granted only for ten
naturally consecutive assessment years.73
In computing deduction under this section, depreciation, unabsorbed depreciation and investment allowance of the
undertaking must be taken into account. The argument that depreciation could be given up by the assessee was
rejected by the court.74 However, losses of other undertakings of the assessee cannot be set off against this
undertaking while granting a deduction. This view is incorrect and contrary to s 80B(5) of the Act.75
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The term “manufacturing process” in sub-s (2)(iv) must be interpreted widely to mean the entire process from the
acquisition of raw material to the bringing of the goods to the market.76 It is not necessary that the undertaking should
be registered under the Factories Act.77
Under sub- s 2(ii), the relief under this section is to be denied only in the case of transfer of machinery previously used
in any backward area, and therefore, if the machinery or plant though previously used for any purpose was not used
for any business set up in a backward area, there is no infringement of the said condition and the deduction under this
section is available.78 Where the assessee was outsourcing a part of the process of production to its sister concerns, if
there is no material on record to show that the sister concerns were not located in backward areas, deduction under
this section is not allowable.79
For the interpretation of various expressions, words, phrases and concepts in this section which are the same as, or
similar to, those of s 80J (now omitted), reference may be made to the commentary under that section, specifically
under the headings ‘Industrial undertaking—Manufacture, production or processing of goods’, ‘Splitting up or
reconstruction’, ‘Formed…’, ‘Transfer…’ and ‘Submission of audit report’.
2. Profits “derived from” the undertaking.—Profit realised on sale of import entitlements earned on export of goods
has been held not ‘derived from an industrial undertaking’ within this section.80
The word “derived from” in s 80HH must be understood as something which has a direct and immediate nexus with
the assessee’s industrial undertaking.81 It is submitted that this view is incorrect and has unnecessarily restricted the
scope of s 80HH and other sections that have used the expression “derived from”. Neither grammar nor logic requires
that the nexus must be “immediate or direct”. The incorrectness of this expression has been explained in detail in the
commentary in s 10A .
Cash assistance, duty drawback and air subsidy granted by the Government,82 income from sale of scrap,83 interest
derived from a deposit made with IDBI and the Electricity Board are not profits “derived from” an undertaking.84 On the
other hand, the term “derived by” used in s 80-IB is much wider.85 The profits from the sale of spare parts in the course
of after-sales service or from the sale of imported articles are also not “derived from” the industrial undertaking. It is
submitted that this is an incorrect and narrow view.86
Where an assessee received a greater compensation than the loss of imported goods in transit from the insurer, this
additional amount was also held to be not “derived from” the undertaking.87 Compensation received by an assessee
for breach committed by its supplier was held to be not deductible.88 It is submitted that when compensation is paid to
make good the losses caused by a breach, it is attributable to the business of the undertaking and should be allowed.
Similarly, deduction cannot be denied because the compensation from the insurance company was greater.
Overdues from trade debtors89 and interest charged on delayed payment from customers is includible in the profits90
whereas interest from inter-corporate deposits and banks is not.91 Refund of excise duty, since it adds to the profits of
the undertaking, can be taken into account while computing deduction.92 Profits from the sale of empty containers in
Page 5 of 8
which raw materials were purchased are also entitled for deduction.93
3. Other sub-sections.—‘Workers’ referred to in sub-s (2)(iv) includes casual or temporary workers.94 A contract
labourer is not an “employee”.95
While deduction under this section is admissible in computing the total income of a firm, s 80A(3) prohibits the partners
from also claiming deduction in their individual assessments.
Rule 18B prescribes the form of audit report required by sub-s (5) of this section to be furnished by the assessee.
If the assessee does not produce any material to show that the transfer of machinery was done at the market value,
the AO may use any reasonable method to determine the market value under s 80HH(6) .96
[See also ss 10A, 10B, 80AB and 80HHA.]
4. Sub-section (9): Where Relief available under both Sections 80HH and 80-I / 80J .—This sub-section obviously
applies only where relief is available both under this section and under s 80-I / 80J in respect of the same industrial
undertaking. But if an assessee has two undertakings, one of which is entitled to relief under this section and the other
under s 80-I / 80J, for computing the relief under s 80-I / 80J, the profits of the latter undertaking cannot be reduced by
the relief available under this section. The deductions under this section, and ss 80-I and 80J are simultaneously
permissible and are not mutually exclusive and sub-s (9) only fixes the priority of order in which the deduction is to be
adjusted and does not refer to the quantum of deduction.1
5. Sub-section (11): Power to De-notify.—Under sub-s (11), the Government has the power to de-notify an area as
backward, and it can use such power as it deems fit,2 but it cannot exercise such power retrospectively.3
6. Appeal and Reference.—In the context of s 80HH, the undernoted cases held that referable questions of law
arose4 or did not arise5 under s 256 .
In the undernoted cases it was held that there were no substantial questions of law6 or substantial question of law did
arise7 in the context of s 80HH .
65 Ins. by the Direct Taxes (Amendment) Act, 1974 (26 of 1974), s 9 (w.e.f. 1-4-1974). See Circular No. 145 of 1974, dt.
9-9-1974.
Page 6 of 8
(St.) 81.
68 Subs., for “Income-tax Officer”, by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988). See
No. 551, January 23, 1990, 183 ITR (St.) 7.
68 Subs., for “Income-tax Officer”, by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988). See
No. 551, January 23, 1990, 183 ITR (St.) 7.
68a Subs., for “Income-tax Officer”, by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988).
68a Subs., for “Income-tax Officer”, by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988).
69 Sub-section (8), which was as under, was omitted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 21
(w.e.f. 1-4-1976):—
“(8) In a case where the assessee is entitled also to the deduction under section 80H in relation to the profits and gains of an
industrial undertaking to which this section applies, the deduction under sub-section (1) shall be allowed with reference to the
amount of such profits and gains as reduced by the deduction under section 80H in relation to such profits and gains.”.
See Circular No. 204 of 1976, dt. 24-7-1976, 110 ITR (St.) 21.
70 Subs., for “under section 80J ”, by the Finance (No. 2) Act 1980 (44 of 1980), s 35(iv) (w.e.f 1-4-1981). See Circular
71 Ins. by the Finance (No. 2) Act 1977 (29 of 1977), s 17 (w.e.f. 1-4-1978). See Circular No. 229, August 9, 1977, 111
ITR (St.) 9.
72 Subs. by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 (46 of 1986), s 10 (w.e.f. 10-9-
1986), Circular No. 469, September 23, 1986, 162 ITR (St.) 21, for the following:—
‘Explanation.—In this section, “backward area” means an area specified in the list in the Eighth Schedule.’.
73 CIT v FAL Industries Ltd. 314 ITR 47, (2010) 189 Taxman 400 (Mad).
74 Indian Rayon Corporation Ltd.v CIT 261 ITR 98, (2003) 182 CTR 247 (Bom); Vijay Industries v CIT 270 ITR 175,
(2004) 190 CTR 90 (Raj); CIT v Mahavir Spinning Mills Ltd. 293 ITR 492, (2007) 213 CTR (P&H) 457 ; Mahavir
Spinning Mills Ltd. v CIT 304 ITR 371 ; CIT v Sangrur Vanaspati Mills Ltd. 311 ITR 345, (2008) 214 CTR (P&H) 432 .
75 CIT v Kedia Leather and Liquor Ltd. 293 ITR 95 .

Page 7 of 8
76 CIT v Sultan and Sons Rice Mill 272 ITR 181, (2005) 193 CTR 444 (All); CIT v Hanuman Rice Mills 275 ITR 79 .
77 CIT v Hanuman Rice Mills Ltd. 275 ITR 79 .
78 CIT v Subramanian, 237 ITR 817 .
79 CIT v R. Pratap 310 ITR 405, (2009) 17 SCC 356 .
80 Sterling Foods v CIT 150 ITR 292, approved in CIT v Sterling Foods 237 ITR 579 (SC). Cf deleted s 80-I, under
‘Profits attributable to priority industry’.
81 Pandian Chemicals Ltd. v CIT 262 ITR 278, (2003) 5 SCC 590 .
82 CIT v Viswanathan and Co. 261 ITR 737, (2003) 181 CTR 335 (Mad).
83 Agrawal D.P. v CIT 272 ITR 118, 2004 (3) MPLJ 338 .
84 Pandian Chemicals Ltd. V CIT 262 ITR 278, (2003) 5 SCC 590 ; Vindhya Telelinks Ltd. v CIT 313 ITR 384 .
85 CIT v Eltek SGS P. Ltd. 300 ITR 6, (2008) 215 CTR 279 (Del).
86 Honda Siel Power Products v CIT 318 ITR 309, (2007) 213 CTR 301 (Del).
87 Pandian Chemicals Ltd. v CIT 270 ITR 448 .
88 CIT v Alpine Solvex Ltd. 276 ITR 92, (2005) 195 CTR 181 (MP).
89 CIT v Indo-Matsushita Carbon Co. Ltd. 286 ITR 201, (2006) 205 CTR 493 (Mad).
90 Tata Sponge Iron Ltd. v CIT 292 ITR 175, 2007 (1) OLR 865 (Supp); Phatela Cotgin Industries P. Ltd. v CIT 303 ITR
411, (2008) 166 Taxman 9 (P&H); CIT v Bhansali Engineering Polymars Ltd. 306 ITR 194 .
91 CIT v Navbharat Explosives Pvt Ltd. 337 ITR 515 ; Tata Sponge Iron Ltd. v CIT 292 ITR 175, 2007 Supp. (1) OLR
865.
92 CIT v Siddharth Tubes Ltd. 296 ITR 221 .
93 DCIT v Core Healthcare Ltd. 308 ITR 263, (2009) 221 CTR 580 (Guj).
Page 8 of 8
94 CIT v Yediyurappa 152 ITR 152 .
95 R and P Exports v CIT 279 ITR 536, (2005) 196 CTR 45 (All); Venus Auto Pvt. Ltd. v CIT 321 ITR 504 .
96 Alembic Chemical Works Ltd. v DCIT 266 ITR 47, (2003) 185 CTR 389 (Guj).
1 JCIT v Mandideep Eng. and Pkg. Ind. P. Ltd. 292 ITR 1 (SC); JP Tobacco v CIT 229 ITR 123, (1997) 140 CTR 329
(MP); CIT v Nima 248 ITR 29 ; CIT v Chokshi Contacts 251 ITR 587 ; CIT v Mittal Appliances (P) Ltd. 270 ITR 65,
(2004) 189 CTR 136 (MP); CIT v Amod Stamping 274 ITR 176, (2005) 194 CTR 158 (Guj); CIT v S.B. Oil Industries
Pvt. Ltd. 274 ITR 495, (2006) 203 CTR (P&H) 218 ; CIT v Lucky Laboratories Ltd. 284 ITR 435, (2006) 200 CTR 305
(All); CIT v S.K.G. Engineering P. Ltd. 285 ITR 423, 119 (2005) DLT 673 ; DCIT v Chola Textiles P. Ltd. 304 ITR 256
; CIT v Venus Electricals 304 ITR 347, (2010) 190 Taxman 89 (Guj).
2 Kajaria Ceramics Ltd. v Union of India 288 ITR 393, 128 (2006) DLT 385 .
3 ACIT v Norma Detergent Pvt. Ltd. 317 ITR 188, (2009) 226 CTR 171 (Guj). See CBDT Circular No. 484 dated 1-5-
1987: 166 ITR (St.) 120.
4 CIT v Asian Techs Ltd 226 ITR 672 ; CIT v Poyilakada Fisheries (P) Ltd (No 2) 221 ITR 692 ; CIT v Poyilakada
Fisheries (P) Ltd (No 1) 221 ITR 691 ; CIT v Rajasthan Co-operative Spinning Mills 202 ITR 1008 ; CIT v Cheekay
Associates 187 ITR 648 .
5 CIT v Maghan Paper Mills (P) Ltd 249 ITR 489 ; CIT v Steel Tubes of India Ltd (No 2) 228 ITR 418 ; Asian Techs Ltd
v CIT 227 ITR 496 ; CIT v Kanam Latex Industries P Ltd 221 ITR 1 ; CIT v Gargaons Exports P Ltd 211 ITR 170 .
6 CIT v Visakha Industries Ltd. 251 ITR 471 .
7 CIT v Alpine Solvex Ltd. 259 ITR 719 (SC).
End of Document
S. 80HHA. Deduction in respect of profits and gains from newly established
small-scale industrial under-takings in certain areas
S. 80HHA. Deduction in respect of profits and gains from newly established small-scale industrial under-takings
in certain areas
(1) 89[Where the gross total income of an assessee includes any profits and gains derived from a small-scale
industrial undertaking to which this section applies,8 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 twenty per cent. thereof.
(2) This section applies to any small-scale industrial undertaking which fulfils all the following conditions, namely:—
(i) it begins to manufacture or produce articles after the 30th day of September, 1977,9[but before the 1st day of
April, 1990,] in any rural area;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence:
Provided that this condition shall not apply in respect of any small-scale 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;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;
(iv) it 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.—Where in the case of a small-scale 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 (iii) of this sub-section, the
condition specified therein shall be deemed to have been fulfilled.
Page 2 of 5
in certain areas
(3) The deduction specified in sub-section (1) shall be allowed in computing the total income10[of each of the ten
previous years beginning with the previous year in which the industrial undertaking] begins to manufacture or
produce articles:
11[Provided that such deduction shall not be allowed in computing the total income of any of the ten previous
years aforesaid in respect of which the industrial undertaking is not a small-scale industrial undertaking within
the meaning of clause (b) of the Explanation below sub-section (8).]
(4) Where the assessee is a person, other than a company or a co-operative society, the deduction under sub-
section (1) shall not be admissible unless the accounts of the small-scale 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.
(5) The provisions of sub-sections (6) and (7) of section 80HH shall, so far as may be, apply in relation to the
computation of the profits and gains of a small-scale industrial undertaking for the purposes of the deduction
under this section as they apply in relation to the computation of the profits and gains of an industrial undertaking
for the purposes of the deduction under that section.
(6) In a case where the assessee is entitled also to the deduction12[under section 80-I or section 80-J ] in relation to
the profits and gains of a small-scale industrial undertaking to which this section applies, effect shall first be given
to the provisions of this section.
(7) Where a deduction in relation to the profits and gains of a small-scale industrial undertaking to which section
80HH applies is claimed and allowed under that section for any assessment year, deduction in relation to such
profits and gains shall not be allowed under this section for the same or any other assessment year.
(8) Nothing contained in this section shall apply in relation to any small-scale industrial undertaking engaged in
mining.
(a) 13[“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, town committee or by any other
name) or a cantonment board and which has a population of not less than ten thousand according to the
last preceding census of which the 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;]
Page 3 of 5
in certain areas
(b) 14[an industrial undertaking shall be deemed to be a small-scale industrial undertaking which is, on the last day
of the previous year, regarded as a small-scale industrial undertaking under section 11B 15 of the Industries
(Development and Regulation) Act, 1951 (65 of 1951).]]
1. Section 80HHA : Newly Established Small Scale Industrial Undertakings in Rural Areas.—This section has
been inserted in the Act by the Finance (No 2) Act 1977 with effect from assessment year 1978-79. The deduction
under this section is available to all categories of assessees in respect of profits derived from new small scale
industrial undertaking set up in rural area other than those engaged in mining. The deduction of 20 per cent. of the
profits and gains of the undertaking is to be allowed for ten years commencing from the year in which the undertaking
begins to manufacture or produce articles.
The relief under s 80HHA has to be computed only after adjusting the loss of the head office against the profits of the
branch. Cash compensatory support, profits on sale of import entitlements and duty drawback do not form part of
eligible profits.16
For the interpretation of various expressions, words, phrases and concepts in this section which are the same as, or
similar to, those of s 80J, reference may be made to the commentary under that section, specifically under the
headings ‘Industrial undertaking—‘Manufacture, production or processing of goods’, ‘Splitting up or reconstruction’,
‘Formed…’, ‘Transfer…’ and ‘Submission of audit report’.
In order to qualify for deduction under this section, the industrial undertaking must begin manufacture or production in
any rural area after 30 September, 1977 but before April 1, 1990. Further, in order to be eligible for deduction under
this section the undertaking is not to be formed by splitting up or reconstruction of a business already in existence or
by the transfer of machinery and plant used previously. If the new undertaking is formed by the transfer of secondhand
assets, the Explanation to sub-s (2) may be invoked and the condition may still be regarded as fulfilled if the total value
of the secondhand machinery or plant does not exceed 20 per cent. of the total value of the machinery or plant used in
the new business. The undertaking must employ the minimum number of workers as prescribed in sub-s (2)(iv).
Up to the assessment year 1992-93, while a deduction under this section was admissible in computing the total
income of a firm, s 80A(3) prohibited the partners from also claiming a deduction in their individual assessments. Rule
18BB prescribes the form of audit report to be furnished by the assessee as required by sub-s (4). [See also ss 10A,
10B, 80AB and 80HH.]
Section 80HHA(4) is not mandatory and the benefit of this section cannot be denied on the mere ground that the
report was not submitted along with the return.17
In cases of non-corporate assessees excluding a co-operative society, a certificate from a chartered accountant in the
prescribed form is required to be enclosed with the return of income [sub-s (5), r 18BB, Form 10CC.]
Page 4 of 5
in certain areas
This section was considered in the undermentioned cases.18
The deductions under ss 80HHA and 80-IA can be given simultaneously, without reducing the relief under s 80-I by
the deduction granted under s 80HHA .19
2. Sub-section (6): Where Relief available under both Sections 80HHA and 80-I / 80J (now omitted).—This sub-
section obviously applies only where relief is available both under this section and ss 80-I/80J in respect of the same
industrial undertaking. But if an assessee has two undertakings, one of which is entitled to relief under this section and
the other under ss 80-I/80J, for computing the relief under ss 80-I/80J, the profits of the latter undertaking cannot be
reduced by the relief available under this section. If the profits of such undertaking are claimed as deductible under s
80HH, a further deduction under this section for the same year or any other year is not allowed [sub-s (7)].
8 Ins. by the Finance (No. 2) Act 1977 (29 of 1977), s 18 (w.e.f. 1-4-1978). See Circular No. 229, August 9, 1977, 111
ITR (St.) 9.
9 Ins. by the Finance Act, 1990 (12 of 1990), s 21 (w.e.f. 1-4-1990). See Circular No. 572, August 3, 1990, 186 ITR (St.)
81.
10 Subs., for “in respect of each of the ten assessment years beginning with the assessment year relevant to the previous
year in which the small-scale industrial undertaking”, by the Finance Act, 1981 (16 of 1981), s 10(a)(i) (w.e.f. 1-4-1981).
See Circular No. 308, June 29, 1981, 131 ITR (St.) 119.
12 Subs., for “under section 80J ”, by the Finance (No. 2) Act 1980 (44 of 1980), s 35(v) (w.e.f. 1-4-1981). See Circular
13 Subs. by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 126(12) (w.e.f. 1-4-1989), Circular No. 495,
September 22, 1987, 168 ITR (St.) 87, for the following clause (a) of the Explanation:—Where the gross total income of
an assessee includes any profits and gains derived from a small-scale industrial undertaking‘(a) “rural area” shall have
the same meaning as in clause (b) of the Explanation to sub-section (1) of section 35CC ;’.
14 Subs. by the Finance Act, 1999 (27 of 1999), s 44 (w.r.e.f. 1-4-1978), Circular No. 779, September 14, 1999, 240 ITR
(St.) 3, for the following:—Where the gross total income of an assessee includes any profits and gains derived from a
small-scale industrial undertaking‘(b) an industrial undertaking shall be deemed to be a small-scale industrial
undertaking, if 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 1[the business of the undertaking does not exceed,—
2[(1) in a case where the previous year ends before the 1st day of August, 1980, ten lakh rupees;Where the gross total income
of an assessee includes any profits and gains derived from a small-scale industrial undertaking(2) in a case where the previous
year ends after the 31st day of July, 1980, but before the 18th day of March, 1985, twenty lakh rupees; andWhere the gross total
Page 5 of 5
in certain areas
income of an assessee includes any profits and gains derived from a small-scale industrial undertaking(3) in a case where the
previous year ends after the 17th day of March, 1985, thirty-five lakh rupees,]Where the gross total income of an assessee
includes any profits and gains derived from a small-scale industrial undertakingand for this purpose the value of any machinery
or plant shall be,—]Where the gross total income of an assessee includes any profits and gains derived from a small-scale
industrial undertaking(i) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee;
andWhere the gross total income of an assessee includes any profits and gains derived from a small-scale industrial
undertaking(ii) in the case of any machinery or plant hired by the assesse, the actual cost thereof as in the case of the owner of
such machinery or plant.’.Where the gross total income of an assessee includes any profits and gains derived from a small-scale
industrial undertaking1. Subs., for “the business of the undertaking does not exceed ten lakh rupees; and for this purpose the
value of any machinery or plant shall be,—”, by the Finance Act, 1981 (16 of 1981), s 10(b) (w.e.f. 1-4-1981).Where the gross
total income of an assessee includes any profits and gains derived from a small-scale industrial undertaking2. Subs. by the
Finance Act, 1986 (23 of 1986), s 18 (with retrospective effect from 1-4-1985), for the following:—Where the gross total income
of an assessee includes any profits and gains derived from a small-scale industrial undertaking‘(1) in a case where the previous
year ends before the 1st day of August, 1980, ten lakh rupees; andWhere the gross total income of an assessee includes any
profits and gains derived from a small-scale industrial undertaking(2) in a case where the previous year ends after the 31st day
of July, 1980, twenty lakh rupees,’.
16 Mentha and Allied Products P. Ltd. v CIT 302 ITR 144 .
17 CIT v Shiva Rice and Dal Mills 273 ITR 265, (2005) 196 CTR (P&H) 78 .
18 CIT v Venkateswara Hatcheries 237 ITR 174 (SC); CIT v Super Drillers 222 ITR 629 ; CIT v PD Agrawal 226 ITR
924 ; CIT v MSJ Construction 245 ITR 475 ; Ranganatha v CIT 232 ITR 568 ; CIT v Kunnath Paper 243 ITR 123 ; CIT
v George Marjo 250 ITR 446 ; Ship Scrap v CIT 251 ITR 806 .
19 DCIT v Blue Bell Polymers P. Ltd. 327 ITR 259, (2008) 217 CTR 324 (Guj).
End of Document
S. 80HHB. Deduction in respect of profits and gains from projects outside
India
S. 80HHB. Deduction in respect of profits and gains from projects outside India
(1) 20[Where the gross total income of an assessee being an Indian company or a person (other than a company)
who is resident in India includes any profits and gains derived from the business of—
(a) the execution of a foreign project undertaken by the assessee in pursuance of a contract entered into by him,
or
(b) the execution of any work undertaken by him and forming part of a foreign project undertaken by any other
person in pursuance of a contract entered into by such other person, with the Government of a foreign State
or any statutory or other public authority or agency in a foreign State, or a foreign enterprise, there shall, in
accordance with and subject to the provisions of this section, be allowed, in computing the total income of the
assessee,21[a deduction from such profits and gains of an amount equal to—
(i) forty per cent. thereof for an assessment year beginning on the 1st day of April, 2001;
(ii) thirty per cent. thereof for an assessment year beginning on the 1st day of April, 2002;
(iii) twenty per cent. thereof for an assessment year beginning on the 1st day of April, 2003;
(iv) ten per cent. thereof for an assessment year beginning on the 1st day of April, 2004, and no deduction
shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005, and any
subsequent assessment year]:
Provided that the consideration for the execution of such project or, as the case may be, of such
work is payable in convertible foreign exchange.

Page 2 of 6
(a) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve
Bank of India as convertible foreign exchange for the purposes of22[the Foreign Exchange Management Act,
1999 (42 of 1999)], and any rules made thereunder;
(b) “foreign project” means a project for—
(i) the construction of any building, road, dam, bridge or other structure outside India;
(ii) the assembly or installation of any machinery or plant outside India;
(iii) the execution of such other work (of whatever nature) as may be prescribed.
(3) The deduction under this section shall be allowed only if the following conditions are fulfilled, namely:—
(i) the assessee maintains separate accounts in respect of the profits and gains derived from the business of the
execution of the foreign project, or, as the case may be, of the work forming part of the foreign project
undertaken by him and, where the assessee is a person other than an Indian company or a co-operative
society, such accounts 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;
(ia) 23[the assessee furnishes, along with his return of income, a certificate in the prescribed form24 from an
accountant as defined in the Explanation below sub-section (2) of section 288, duly signed and verified by
such accountant, certifying that the deduction has been correctly claimed in accordance with the provisions of
this section;]
(ii) an amount equal to25[such percentage of the profits and gains as is referred to in sub-section (1) in relation to
the relevant assessment year] is debited to the profit and loss account of the previous year in respect of
which the deduction under this section is to be allowed and credited to a reserve account (to be called the
“Foreign Projects Reserve Account”) to be utilised by the assessee during a period of five years next
following for the purposes of his business other than for distribution by way of dividends or profits;
(iii) an amount equal to 14[such percentage of the profits and gains as is referred to in sub-section (1) in relation to
the relevant assessment year] is brought by the assessee in convertible foreign exchange into India, in
accordance with the provisions of26[the Foreign Exchange Management Act, 1999 (42 of 1999)], and any
rules made thereunder, within a period of six months from the end of the previous year referred to in clause
(ii) or,27[within such further period as the competent authority may allow in this behalf]:
Provided that where the amount credited by the assessee to the Foreign Projects Reserve Account in
pursuance of clause (ii) or the amount brought into India by the assessee in pursuance of clause (iii) or
each of the said amounts is less than 14[such percentage of the profits and gains as is referred to in sub-
section (1) in relation to the relevant assessment year], the deduction under that sub-section shall be
limited to the amount so credited in pursuance of clause (ii) or the amount so brought into India in
pursuance of clause (iii), whichever is less.
28[Explanation.—For the purposes of clause (iii), the expression “competent authority” means the
Reserve Bank of India or such other authority as is authorised under any law for the time being in force
for regulating payments and dealings in foreign exchange.]
Page 3 of 6
(4) If at any time before the expiry of five years from the end of the previous year in which the deduction under sub-
section (1) is allowed, the assessee utilises the amount credited to the Foreign Projects Reserve Account for
distribution by way of dividends or profits or for any other purpose which is not a purpose of the business of the
assessee, the deduction originally allowed under sub-section (1) shall be deemed to have been wrongly allowed,
and the29[Assessing Officer] may, notwithstanding anything contained in this Act, recompute the total income of
the assessee for the relevant previous year and make the necessary amendment; and the provisions of section
154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section
being reckoned from the end of the previous year in which the money was so utilised.
(5) Notwithstanding anything contained in any other provision of this Chapter under the heading “C.—Deductions in
respect of certain incomes”, no part of the consideration or of the income comprised in the consideration payable
to the assessee for the execution of a foreign project referred to in clause (a) of sub-section (1), or of any work
referred to in clause (b) of that sub-section shall qualify for deduction for any assessment year under any such
other provision.]
Section 80HHB : Projects Outside India.—This section grants a deduction of 50 per cent. of the profits derived by
an assessee from the business of (i) executing a foreign project [sub-s (2)(b)] undertaken by him or (ii) executing any
work undertaken by him which forms part of a foreign project undertaken by another. The requirements of the section
are that (i) the assessee should be an Indian company or any other non-corporate person resident in India, (ii) the
consideration for executing the project or the work should be payable in convertible foreign exchange [sub-s (2)(a)],
and (iii) the conditions under sub-s (3) read with r 18BBA should be fulfilled. The section has been amended by the
Finance Act, 2000, and the deduction under this section is now curtailed in a phased manner, and will not be available
from the assessment year 2005-06.
For the purpose of computing deductions under this section, each foreign project has to be considered separately and
the profit in one project is not to be reduced by the loss in another.30 The section does not require the profit or loss
position to be determined by clubbing together all foreign projects; it is to be applied foreign-project-wise, and not all-
foreign-projects-wise. The various sub-sections clearly point to the conclusion that each foreign project is a separate
and distinct subject-matter to be taken in isolation:
(i) Clauses (a) and (b) of sub-s (1) refer to ‘a foreign project undertaken...in pursuance of a contract’.
(ii) The proviso to sub-s (1) refers to ‘such project’, i.e. a separate project referred to in cll (a) and (b) of the sub-
section.
(iii) Sub-section (3)(i) requires separate accounts to be maintained in respect of the profits from ‘the foreign
project’, i.e. the foreign project separately considered for the purpose of deduction under sub-s (1).
(iv) Sub-section (3)(ii) requires 50 per cent. of the profits of the separate project to be credited to a reserve
account.
(v) Sub-section (3)(iii) requires 50 per cent. of the profits of the separate project to be brought into India in
convertible foreign exchange.
Secondly, just as the section has to be applied project-wise, it has to be applied year-wise. It does not contemplate
Page 4 of 6
consideration of the totality of the profit or loss of a project over a period of years. Therefore, any loss in a foreign
project, which is absorbed by other income in the same year, is not to be set off against the profit from it in a
subsequent year for the purpose of this section.31
The Supreme Court in Continental Construction v CIT, 32 has held that there is a complete identity of the matters
governed by this section and s 80-O, and that the legislature had clearly envisaged the possibility of the same receipts
qualifying under this section and under any other provision of the Act, and has specifically provided in sub-s (5) that in
such a case, this section will prevail over the provisions of such other sections, which will stand excluded. This
decision was explained later by the Supreme Court33 to mean that, depending on the form of the foreign contract, relief
clearly relatable to s 80HHB would be granted. Similarly, where relief is clearly referable to s 80-O, it would be granted
thereunder. The earlier decision also did not state that any part of the income which was not wholly relatable to s
80HHB would not be available for deduction under any other provision in respect of such unrelatable income. The
Supreme Court also upheld the constitutionality of s 80HHB(5) .
The word ‘project’ in sub-s (2)(b) includes the execution of a turnkey project where designing and planning of the work
is also contemplated.34 However, if the assessee is neither required to construct any structure or assemble any plant
or machinery outside India nor required to execute the said activity as a part of a foreign project undertaken by
somebody else, the nature of work does not come under the purview of this section. Thus, consideration received only
for supply of detailed designs, technical information, fees for deputation of engineers and technicians for rendering
technical obligations has been held not to be covered by this section.35
Since the term used in the section is “derived from”, the judgments under s 80HH interpreting this term will apply
mutatis mutandis to this section. It has been held that where payment for a foreign project was made, in terms of a
settlement, via RBI bonds, the interest from these bonds is “derived from” the foreign project.36 Even if a portion of the
foreign exchange is used to pay off foreign currency loans, the entire foreign currency earnings are eligible for
deduction.37 For the meaning of “derived from” and the reasons why the view of the Supreme Court is erroneous, see
commentary under s 10A .
The legislature has given the jurisdiction to administer this section to the AO and the jurisdiction to approve the
agreements to the board.38 The board has no jurisdiction to pronounce upon the availability or otherwise of the
exemption under this section and the board’s opinion in this regard, even if expressly stated by the board, cannot bind
the assessing officer.39 Further, the department ought not to stand on mere technicalities but give the assessee an
opportunity to fulfill the requirements of the section, and on such compliance within a reasonable time grant the benefit
of deduction under this section.40
Upto the assessment year 1992-93, while a deduction under this section was admissible in computing the total income
of a firm, s 80A(3) prohibited the partners from also claiming a deduction in their individual assessments.
10.
Page 5 of 6
21 Subs., for “a deduction from such profits and gains of an amount equal to fifty per cent. thereof”, by the Finance Act,
2000 (10 of 2000), s 32(a) (w.e.f. 1-4-2001). See Circular No. 794, August 9, 2000, 245 ITR (St.) 21. Earlier, the words
“fifty per cent.” were substituted for “twenty-five per cent.” by the Income-tax (Amendment) Act, 1986 (26 of 1986), s 4
(w.e.f. 1-4-1987).
22 Subs., for “the Foreign Exchange Regulation Act, 1973 (46 of 1973)”, by the Finance Act, 2013 (17 of 2013), s 4 (w.e.f.
1-4-2013). See Memorandum explaining the provisions in Finance Bill, 2013, 351 ITR (St.) 102.
23 Ins. by the Finance Act, 1999 (27 of 1999), s 45(a)(i) (w.e.f. 1-6-1999). See Circular No. 779, September 14, 1999, 240
ITR (St.) 3.
24 See, rule 18BBA(IB) of the Income-tax Rules, 1962, and Form No. 10CCAH appended to those Rules.
25 Subs., for “fifty per cent. of the profits and gains referred to in sub-section (1)”, by the Finance Act, 2000 (10 of 2000), s
32(b)(i) (w.e.f. 1-4-2001). See Circular No. 794, August 9, 2000, 245 ITR (St.) 21. Earlier, the words “fifty per cent.”
were substituted for “twenty-five per cent.” by the Income-tax (Amendment) Act, 1986 (26 of 1986), s 4 (w.e.f. 1-4-
1987).
1-4-2013).
27 Subs., for “where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the
assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further
period as the Chief Commissioner or Commissioner may allow in this behalf”, by the Finance Act, 1999 (27 of 1999), s
45(a)(ii) (w.e.f. 1-6-1999). In the above, the words “Chief Commissioner or Commissioner” were substituted for
“Commissioner” by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988). See Circular No.
545, September 21, 1989, 181 ITR (St.) 198; Circular No. 549, October 31, 1989, 182 ITR (St.) 1; Circular No. 551,
January 23, 1990, 183 ITR (St.) 7.
29 Subs., for “Income-tax Officer”, by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988).
30 Cf CIT v Canara Workshops 161 ITR 320 (SC).
31 Cf Rajapalayam v CIT 115 ITR 777 (SC).
32 195 ITR 81; Dharamsi Morarji v CBDT 206 ITR 608 .
33 Continental Construction Ltd. v UOI 264 ITR 470 (SC), (2003) 11 SCC 22 .
34 Continental Construction v CIT 185 ITR 178 .

Page 6 of 6
35 Davy Powergas v CBDT 207 ITR 158 .
36 CIT v Arvind Construction Co. Ltd. 317 ITR 276, (2008) 215 CTR 363 (Del).
37 CIT v Essar Oil Ltd. 345 ITR 443 .
38 Stup Consultants v CBDT 187 ITR 353 .
39 Indian Commerce v IAC 229 ITR 335 .
40 Continental Construction v UOI 185 ITR 230 .
End of Document
S. 80HHBA. Deduction in respect of profits and gains from housing projects
in certain cases
S. 80HHBA. Deduction in respect of profits and gains from housing projects in certain cases
(1) 41[Where the gross total income of an assessee being an Indian company or a person (other than a company)
who is a resident in India includes any profits and gains derived from the execution of a housing project awarded
to the assessee on the basis of global tender and such project is aided by the World Bank, there shall, in
accordance with and subject to the provisions of this section, be allowed, in computing the total income of the
assessee,42[a deduction from such profits and gains of an amount equal to—
(i) forty per cent. thereof for an assessment year beginning on the 1st day of April, 2001;
(ii) thirty per cent. thereof for an assessment year beginning on the 1st day of April, 2002;
(iii) twenty per cent. thereof for an assessment year beginning on the 1st day of April, 2003;
(iv) ten per cent. thereof for an assessment year beginning on the 1st day of April, 2004,
and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April,
2005, and any subsequent assessment year.]
(2) The deduction under this section shall be allowed only if the following conditions are fulfilled, namely:—
(i) the assessee maintains separate accounts in respect of the profits and gains derived from the business of the
execution of the housing project undertaken by him and, where the assessee is a person other than an Indian
company or a co-operative society, such accounts 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;
(ii) an amount equal to43[such percentage of the profits and gains as is referred to in sub-section (1) in relation to
the relevant assessment year] is debited to the profit and loss account of the previous year in respect of
which the deduction under this section is to be allowed and credited to a reserve account (to be called the
Page 2 of 3
Housing Projects Reserve Account) to be utilised by the assessee during a period of five years next following
for the purposes of his business other than for distribution by way of dividends or profit:
Provided that where the amount credited by the assessee to the Housing Projects Reserve Account in
pursuance of clause (ii) is less than44[such percentage of the profits and gains as is referred to in sub-
section (1) in relation to the relevant assessment year], the deduction under this section shall be limited
to the amount so credited in pursuance of clause (ii).
(3) If at any time before the expiry of five years from the end of the previous year in which the deduction under sub-
section (1) is allowed, the assessee utilises the amount credited to the Housing Projects Reserve Account for
distribution by way of dividends or profit or for any other purpose which is not a purpose of the business of the
assessee, the deduction originally allowed under sub-section (1) shall be deemed to have been wrongly allowed
and the Assessing Officer may, notwithstanding anything contained in this Act, recompute the total income of the
assessee for the relevant previous year and make necessary amendment and the provision of section 154 shall,
so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned
from the end of the previous year in which the money was so utilised.
(4) Notwithstanding anything contained in any other provision of this Chapter under heading “C.—Deduction in
respect of certain incomes”, no part of the income payable to the assessee for the execution of a housing project
under sub-section (1) shall qualify for deduction for any assessment year under any other provision.
(a) “housing project” means a project for—
(i) the construction of any building, road, bridge or other structure in any part of India;
(ii) the execution of such other work (of whatever nature) as may be prescribed;
(b) “World Bank” means the International Bank for Reconstruction and Development Bank referred to in the
International Monetary Fund and Bank Act, 1945.]
Section 80HHBA : Profits and Gains from Housing Projects in Certain Cases.—This section was inserted by the
Finance (No 2) Act 1998 with effect from assessment year 1999-2000. The section is applicable to an Indian company
or a non-corporate assessee who is a resident in India, and provides a deduction of 30 per cent. from profit from the
execution of housing projects awarded on the basis of global tender, which are aided by the World Bank [sub-s (1)].
The section has been amended by the Finance Act, 2000 and the deduction under this section is now curtailed in a
phased manner and will not be available from the assessment year 2005-06.
Page 3 of 3
The main requirements of the section are that:
(i) the assessee maintains separate accounts for the business of execution of housing projects, and in case of
assessees other than a company or a co-operative society, such accounts are audited by an accountant
[sub-s (2)(i)];
(ii) a certificate in the prescribed form from an accountant is furnished along with the return of income [sub-s
(2)(i)], see r 18BBA(1A) ;
(iii) the assessee creates a ‘housing projects reserve account’ to be utilised for the purpose of business other than
for distribution of dividend or profits within the next five years [sub-s (2)(ii)].
The deduction under this section would be withdrawn in the year it was granted if the housing projects reserve is
utilised for distribution of dividend or profits or any other non-business purpose any time within five years, as stipulated
in sub-s (2)(ii). Once an assessee is entitled to deduction under this section, the income from execution of such
projects cannot qualify for deduction for any assessment year under any other provision [sub-s (4)].
41 Ins. by the Finance (No. 2) Act 1998 (21 of 1998), s 31 (w.e.f. 1-4-1999). See Circular No. 772, December 23, 1998,
235 ITR (St.) 35.
42 Subs., for “a deduction from such profits and gains of an amount equal to fifty per cent. thereof”, by the Finance Act,
2000 (10 of 2000), s 33(a) (w.e.f. 1-4-2001). See Circular No. 794, August 9, 2000, 245 ITR (St.) 21.
33(b)(i) (w.e.f. 1-4-2001).
33(b)(ii) (w.e.f. 1-4-2001).
End of Document
S. 80HHC. Deduction in respect of profits retained for export business
(1) 45[46[Where an assessee, being an Indian company or a person (other than a company) resident in India, is
engaged in the business of export out of India of any goods or merchandise 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,47[a deduction to the extent of profits, referred to in sub-section (1B),] derived by the assessee from
the export of such goods or merchandise:
Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate,
(hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a
certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover
specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the
amount of deduction in the case of the assessee shall be reduced by such amount which bears to the48[total
profits derived by the assessee from the export of trading goods, the same proportion as the amount of
export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of
such trading goods].
(1A) Where the assessee, being a supporting manufacturer, has, during the previous year, sold goods or merchandise
to any Export House or Trading House in respect of which the Export House or Trading House has issued a
certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this
section, be allowed in computing the total income of the assessee,49[a deduction to the extent of profits, referred
to in sub-section (1B),] derived by the assessee from the sale of goods or merchandise to the Export House or
Trading House in respect of which the certificate has been issued by the Export House or Trading House.]
(1B) 50[For the purposes of sub-sections (1) and (1A), the extent of deduction of the profits shall be an amount equal
to—
(i) eighty per cent. thereof for an assessment year beginning on the 1st day of April, 2001;
(ii) 51[seventy per cent. thereof for an assessment year beginning on the 1st day of April, 2002;
(iii) fifty per cent. thereof for an assessment year beginning on the 1st day of April, 2003;
(iv) thirty per cent. thereof for an assessment year beginning on the 1st day of April, 2004,]
Page 2 of 25
(2)
(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds
of such goods or merchandise exported out of India are52[received in, or brought into, India] by the
assessee53[(other than the supporting manufacturer)] in convertible foreign exchange54[, within a period of six
months from the end of the previous year or,55[within such further period as the competent authority may
allow in this behalf].
56[Explanation.—For the purposes of this clause, the expression “competent authority” means the
Reserve Bank of India or such other authority as is authorised under any law for the time being in force
for regulating payments and dealings in foreign exchange.]
(b) This section does not apply to the following goods or merchandise, namely:—
(i) mineral oil; and
(ii) minerals and ores57[(other than processed minerals and ores specified in the Twelfth Schedule)].
58[Explanation 1.—The sale proceeds referred to in clause (a) shall be deemed to have been
received in India where such sale proceeds are credited to a separate account maintained for the
purpose by the assessee with any bank outside India with the approval of the Reserve Bank of
India.
Explanation 2.—For the removal of doubts, it is hereby declared that where any goods or
merchandise are transferred by an assessee to a branch, office, warehouse or any other
establishment of the assessee situate outside India and such goods or merchandise are sold from
such branch, office, warehouse or establishment, then, such transfer shall be deemed to be export
out of India of such goods and merchandise and the value of such goods or merchandise declared
in the shipping bill or bill of export as referred to in sub-section (1) of section 50 59 of the Customs
Act, 1962 (52 of 1962), shall, for the purposes of this section, be deemed to be the sale proceeds
thereof.]
(3) 60[For the purposes of sub-section (1),—
(a) where the export out of India is of goods or merchandise61[manufactured or processed by the assessee], the
profits derived from such export shall be the amount which bears to the profits of the business, the same
Page 3 of 25
proportion as the export turnover in respect of such goods bears to the total turnover of the business carried
on by the assessee;
(b) where the export out of India is of trading goods, the profits derived from such export shall be the export
turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to
such export;
(c) where the export out of India is of goods or merchandise 50[manufactured or processed by the assessee] and
of trading goods, the profits derived from such export shall,—
(i) in respect of the goods or merchandise 50[manufactured or processed by the assessee], be the amount
which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover
in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee;
and
(ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the
direct and indirect costs attributable to export of such trading goods:
Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section
shall be further increased by the amount which bears to ninety per cent. of any sum referred to in
clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib)
and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the
business carried on by the assessee:
62[Provided further that in the case of an assessee having export turnover not exceeding rupees ten
crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of
this sub-section or after giving effect to the first proviso, as the case may be, shall be further
increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiid) or
clause (iiie), as the case may be, of section 28, the same proportion as the export turnover bears to
the total turnover of the business carried on by the assessee:
Provided also that in the case of an assessee having export turnover exceeding rupees ten crores
during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this
sub-section or after giving effect to the first proviso, as the case may be, shall be further increased
by the amount which bears to ninety per cent. of any sum referred to in clause (iiid) of section 28,
the same proportion as the export turnover bears to the total turnover of the business carried on by
the assessee, if the assessee has necessary and sufficient evidence to prove that,—
(a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme,
being the Duty Remission Scheme; and
(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit
allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme:
Provided also that in the case or an assessee having export turnover exceeding rupees ten
crores during the previous year, the profits computed under clause (a) or clause (b) or clause
(c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be
further increased by the amount which bears to ninety per cent. of any sum referred to in clause
(iiie) of section 28, the same proportion as the export turnover bears to the total turnover of the
business carried on by the assessee, if the assessee has necessary and sufficient evidence to
prove that,—
Page 4 of 25
(c) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate,
being the Duty Remission Scheme; and
(d) the rate of drawback credit attributable to the customs duty was higher than the rate of credit
allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme.
Explanation.—For the purposes of this clause, “rate of credit allowable” means the rate of
credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission
Scheme calculated in the manner as may be notified by the Central Government:]
63[Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this
sub-section is a loss, such loss shall be set-off against the amount which bears to ninety per
cent. of—
(e) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or
(f) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, as applicable in
the case of an assessee referred to in the second or the third or the fourth proviso, as the case may
be,
the same proportion as the export turnover bears to the total turnover of the business carried on
by the assessee.]
(g) “adjusted export turnover” means the export turnover as reduced by the export turnover in respect of
trading goods;
(h) “adjusted profits of the business” means the profits of the business as reduced by the profits derived
from the business of export out of India of trading goods as computed in the manner provided in
clause (b) of sub-section (3);
(i) “adjusted total turnover” means the total turnover of the business as reduced by the export turnover
in respect of trading goods;
(j) “direct costs” means costs directly attributable to the trading goods exported out of India including the
purchase price of such goods;
(k) “indirect costs” means costs, not being direct costs, allocated in the ratio of the export turnover in
respect of trading goods to the total turnover;
(l) “trading goods” means goods which are not64[manufactured or processed by the assessee].]
(3A) 65[For
the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or
merchandise shall be,—
Page 5 of 25
(a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods
or merchandise to one or more Export Houses or Trading Houses, the profits of the business66[* * *];
(b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of
goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the
profits of the business67[* * *] the same proportion as the turnover in respect of sale to the respective Export
House or Trading House bears to the total turnover of the business carried on by the assessee.]
(4) 68[The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed
form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section
(2) of section 288, certifying that the deduction has been correctly claimed69[in accordance with the provisions of
this section]:]
70[Provided that in the case of an undertaking referred to in sub-section (4C), the assessee shall also furnish
along with the return of income, a certificate from the undertaking in the special economic zone containing
such particulars as may be prescribed, duly certified by the auditor auditing the accounts of the undertaking in
the special economic zone under the provisions of this Act or under any other law for the time being in force.]
(4A) 71[The deduction under sub-section (1A) shall not be admissible unless the supporting manufacturer furnishes in
the prescribed form along with his return of income,—
(a) the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that
the deduction has been correctly claimed on the basis of the72[profits] of the supporting manufacturer in
respect of his sale of goods or merchandise to the Export House or Trading House; and
(b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and
verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export
House or Trading House has not claimed the deduction under this section:
Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the
accounts of the Export House or Trading House under the provisions of this Act or under any other law.]
(4B) 73[Forthe purposes of computing the total income under sub-section (1) or sub-section (1A), any income not
charged to tax under this Act shall be excluded.]
(4C) 74[The provisions of this section shall apply to an assessee,—
(a) for an assessment year beginning after the 31st day of March, 2004, and ending before the 1st day of April,
2005;
(b) who owns any undertaking which manufactures or produces goods or merchandise anywhere in India (outside
any special economic zone) and sells the same to any undertaking situated in a special economic zone which
is eligible for deduction under section 10A and such sale shall be deemed to be export out of India for the
purposes of this section.]
Page 6 of 25
(a) “convertible foreign exchange” means foreign exchange which is for the time being treated by the
Reserve Bank of India as convertible foreign exchange for the purposes of75[the Foreign Exchange
Management Act, 1999 (42 of 1999)], and any rules made thereunder;
(aa) 76[“exportout of India” shall not include any transaction by way of sale or otherwise, in a shop, emporium
or any other establishment situate in India, not involving clearance at any customs station as defined in
the Customs Act, 1962 (52 of 1962);]
(b) “export turnover” means the sale proceeds77[, received in, or brought into, India] by the assessee in
convertible foreign exchange78[in accordance with clause (a) of sub-section (2)] of any goods or
merchandise to which this section applies and which are exported out of India, but does not include
freight or insurance attributable to the transport of the goods or merchandise beyond the customs station
as defined in the Customs Act, 1962 (52 of 1962);]
(ba) 79[“total
turnover” shall not include freight or insurance attributable to the transport of the goods or
merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962):
Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991,
the expression “total turnover” shall have effect as if it also excluded any sum referred to in clauses
(iiia), (iiib)80[, (iiic), (iiid) and (iiie)] of section 28 ;]
(baa) 81[“profits of the business” means the profits of the business as computed under the head “Profits and
gains of business or profession” as reduced by—
(1) ninety per cent. of any sum referred to in clauses (iiia), (iiib)82[, (iiic), (iiid) and (iiie)] of section 28 or of
any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a
similar nature included in such profits; and
(2) the profits of any branch, office, warehouse or any other establishment of the assessee situate
outside India;]
(bb) 83[* * * *]
(c) 84[* * * *]
(c)] 85[86[“Export
House Certificate” or “Trading House Certificate” means a valid Export House Certificate or
Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports,
Government of India;
(d)] 87[“supportingmanufacturer” means a person being an Indian company or a person (other than a
company) resident in India,88[manufacturing (including processing) goods] or merchandise and selling
such goods or merchandise to an Export House or a Trading House for the purposes of export;]
(e) 89[“special
economic zone” shall have the meaning assigned to it in clause (viii) of the Explanation 2 to
section 10A .]
Page 7 of 25
1. Section 80HHC : Profits from Exports.—The old s 89A which granted relief in respect of export turnover was
brought into force from 1 June, 1982. It was soon replaced, with substantial alterations, by the original s 80HHC which
came into force from April 1, 1983, and which granted a deduction based on a percentage of the export turnover. The
section was substituted by the Finance Act, 1985 with effect from April 1, 1986. That section, which granted a
deduction with reference to export profits, and later also with reference to foreign exchange realisations, required the
amount of deduction to be ‘utilised for the purposes of the business of the assessee’.90 Therefore, the heading of the
section ‘Deductions in respect of profits retained for export business’ was then appropriate. But this requirement was
dispensed with when the section was substantially altered by the Finance Act, 1988 with effect from April 1, 1989, and
therefore the heading of the section is now misleading.
It is also important to note that in 1983, the initial head-note (sic - marginal note) of s 80HHC was “Deduction in
respect of export turnover” and was changed to “Deduction in respect of profits retained for export business” in 1986.
Therefore, the very basis shifted from “export turnover” to “retention of profits for export business”.91
The expression “derived from” in s 80HHC(1) is narrower than the expression “attributable to”. It has been pointed out
in the commentary under s 10A that this distinction is incorrect.
This section applies to an Indian company or any other non-corporate person resident in India engaged in the
business of export. The Supreme Court, in Sea Pearl v CIT ,1 held that in order to be entitled to deduction under this
section, the question of title or property in the goods exported was not relevant and the section did not require the
exporter to be owner of the goods. In case of a shipment made on behalf of an exporter, it was only the exporter who
was entitled to claim deduction under this section and a sale made through an export house to a foreign buyer was not
entitled to benefit under this section. However, from the assessment year 1989-90, the section provides that the right
to claim deduction under this section can be waived by the exporter in favour of the supporting manufacturer. Further,
the benefit under this section is not available in respect of supply of goods on the basis of a global tender, recognised
as deemed export, where the goods are not exported out of India and the payment is received in Indian currency.2
Upto the assessment year 1985-86, the deduction under this section was not available, inter alia, to exports of
agricultural primary commodities, not being produce of plantations [deleted sub- section 2(b)(i) ]. However, export of
raw cotton,3 a produce of cotton plantation, was held to be entitled to deduction under this section. The deduction
under this section is allowed from the total income and not merely from the profits of the business. The Gujarat High
Court in CIT v Arvind Mills ,4 has held that since for computing the total income the legislature has provided for
inclusion of all incomes and the definition of ‘income’ in s 2(24) includes capital gains, it is from the total income
inclusive of capital gains that the deduction under this section is allowable. In order to compute the deduction, the
aggregate export turnover of all qualifying goods or merchandise is to be compared with the turnover of such goods in
the immediately preceding year; the section does not contemplate individual classification of goods or merchandise5
and therefore, an assessee need not export the same goods to get deduction on the incremental turnover.6 Further,
the words ‘immediately preceding years’ in sub- s 1(b) refer to the ‘business’ of export of qualifying goods, and
therefore, a firm which was reconstituted subsequent to the export was also entitled to deduction under this section.7
In case of an assessee engaged in the business of growing, manufacturing and selling tea, the deduction is to be
computed before applying r 8 .8
Page 8 of 25
2. Creation of Reserve.—For the assessment years 1986-87 to 1988-89, one of the requirements for the claim of
deduction under this section was the creation of a reserve by a debit to the profit and loss account, which was to be
utilised for the purpose of business. However, the law does not require the creation of a special reserve.9 An assessee
is entitled to deduction only to the extent of reserve created in the year, even if the business profit is assessed at a
higher amount later,10 but natural justice requires that an opportunity be given to an assessee to create extra reserve if
the assessed amount increases.11 The reserve is to be utilised for the purposes of business and is not required to be
maintained permanently.12 In the case of companies, the board has clarified that distribution of dividends out of
statutory reserves constitutes utilisation for the purpose of business, and upon the same analogy, it has been held that
in the case of firms, transfer to the capital account of the partners is akin to distribution of dividends, and therefore,
there is no violation of the provisions of the section.13
Upto the assessment year 1988-89, the deduction under this section was subject to restriction imposed by s 80VVA ;
however, in spite of the omission of that section, the unabsorbed deduction is to be allowed in the next following
assessment year.14
Law from the Assessment Year 1989-90
The scheme of this section was substantially amended by the Finance Act, 1988 which came into effect from
assessment year 1989-90 and the section for the first time (i) exempted the entire profits derived from export, and (ii)
made express provision for dividing the exemption between a recognised export house or trading house and the
supporting manufacturer [Explanation (d) to the section].15
A new sub-s (1B) has now been inserted by the Finance Act, 2000, and the deduction is now curtailed in phases and
will not be available from the assessment year 2005-06.
This section has thereafter been frequently amended (more than a dozen times) and any judgment must be read
keeping in mind the wording of the section in a given assessment year.16 By 2005, it had become a mangled mass of
numerous sub-sections, provisos and explanations spawning substantial litigation.
3. Twin Tests must be Satisfied for Deduction.—For granting a deduction under this section, twin tests must be
satisfied: (i) the goods, where they are tangible, must be physically exported outside India; and (ii) proceeds must be
received in convertible foreign exchange.
An assessee sold food to the UNICEF to be used in India and received payment in convertible foreign exchange. Even
though a sale to UNICEF was a “deemed export” under the EXIM Policy. There must be an actual movement of the
goods pursuant to the export to claim the benefit under s 80HHC .17 It is submitted that this view is incorrect and the
assessee should have been granted benefit on a purposive interpretation of the section, especially when it is treated
as “deemed export” under the Exim Policy.18 The sale of food to foreign airlines leaving India was held to be export.19
The Karnataka High Court held that exports need not be from India. Even an export from one foreign country to
another is eligible for deduction if the export is by an Indian exporter and the net proceeds are received in convertible
foreign exchange. While s 80HHE(1) uses the expression “from India to a place outside India”, s 80HHC does not.20
On similar facts, the benefit of s 80HHC was denied by the Gujarat High Court.21 It is submitted that the Karnataka
Page 9 of 25
view is better as it advances the object of s 80HHC and has also discussed various decisions. However, the Gujarat
decision was not brought to its notice.
4. Proceeds in Convertible Foreign Exchange.—In order to avail deduction under this section, the sale proceeds of
goods or merchandise exported should be receivable by the assessee in convertible foreign exchange [sub-s (2)(a)
and Explanation (a) to the section]. The said sub-section was amended from the assessment year 1991-92 and now
stipulates that such proceeds should be realised within six months from the end of the previous year or within such
further period as allowed. Prior to June 1, 1999, the authority for extending such period was vested in the Chief
Commissioner or Commissioner, who could do so, if satisfied, by recording his reasons in writing. A very wide
discretion was vested in the Commissioner to fix the period within which the exporter was to be permitted to bring the
proceeds into India.22 This power of the Commissioner was quasi-judicial in nature and could not be exercised in an
arbitrary manner.23 In the event that the assessee was able to show that he could not bring the sale proceeds in India
for reasons beyond his control, the Commissioner was bound to exercise his discretion for extending the period as
prayed.24 Rejection of an application on the ground that sufficient time was already allowed or that the assessment
could not be kept pending for an indefinite period was held not to be justified.25 The sub-section does not contemplate
the making of the application within a period of six months, and an application made after the expiry of such period is
also maintainable26 and such an application cannot be rejected on the grounds of delay.27 If an application is to be
rejected, the reasons, however short, must be recorded to show the application of mind.28 But the extension can be
denied on the ground that the assessee has not acted with due diligence.29 Further, if an application is rejected on the
grounds that further extension of time would be futile, and would cause loss to the revenue, such discretion exercised
by the Commissioner cannot be held to be arbitrary or unjust.30 With effect from June 1, 1999, this authority for
granting approval is now vested with the Reserve Bank of India. The Calcutta High Court, in Drastic Forging v DCIT ,31
has held that after June 1, 1999, the Commissioner has no jurisdiction to extend the period since such authority has
now been vested with the Reserve Bank of India.
From the assessment year 1992-93, the amount is deemed to have been received in India if the export sale proceeds
are credited to a separate account with any bank outside India with the approval of Reserve Bank of India. Similarly,
the transfer of goods or merchandise to a branch, office, warehouse or any other establishment, declared under the
Customs Act, 1962 would be deemed to be an export out of India.
5. Export of Goods, Merchandise and Minerals.—This section applies to exports of goods or merchandise other
than mineral oil, minerals or ores [sub-s (2)(b)].
The word “goods” is much wider than the word “merchandise”. The former denotes any movable property other than
actionable claims and money; the latter covers all articles of commerce. A beta-cam tape,32 telecasting rights33 and
music software34 are goods or merchandise for the purpose of s 80HHC .
This section has been amended from the assessment year 1991-92, and the reference to mineral ores now excludes
export of processed minerals and ores specified in the Twelfth Schedule. In order to be entitled to deduction under this
section, the mineral must be ‘processed’.35 Calcined petroleum coke derived from crude petroleum is not “mineral oil”
under s 80HHC(2)(b) as the clause only refers to what is extracted from the earth and not a mineral on which any
processing is done.36 Therefore, the export of cut and polished granite,37 finished items of granite like slabs,
monuments, tiles, etc38 is entitled to deduction. However, the Supreme Court has held that prior to the amendment,
granite was not entitled to deduction. In other words, the amendment is not clarificatory.39 The Karnataka High Court in
CIT v Hind Nippon ,40 has held that the deduction is also available in respect of export of rough and unpolished
granite.
Page 10 of 25
Does the giving of telecasting rights amount to export of “merchandise”? This question was considered by various
High Courts,41 and the matter came up before the Supreme Court in CIT v B. Suresh .42 The assessee recorded
content on beta-cam tapes and sent them to foreign telecasters with the right to telecast them for a limited period. It
was held that the term “merchandise” must be read in the present day context when the distinction between a sale and
a service is getting blurred. The court also relied on rr 9A and 9B to hold that the word “lease” is included in the
meaning of the word “sale”. Thus, the transfer of telecasting rights for five years by way of lease would amount to sale
of goods or merchandise.
The Kerala High Court incorrectly held that washing, cleaning, drying and grading of cardamom did not amount to
processing. It failed to understand the elementary distinction between manufacture and processing.43 However, the
blending of teas amounts to “processing”.44 Freezing and processing of marine products is also eligible for
deduction.45
Music software is goods and export thereof is entitled to a deduction under s 80HHC . This deduction cannot be
denied on the ground that “music software” became eligible for deduction under s 80HHF only from the assessment
year 2000-01 and no deduction could be granted under s 80HHC for the assessment year 1999-2000.46
6. Computation of Deduction: Sub-section (3).—The mechanism for computing deduction under this section is
provided in sub-s (3). This provision has been amended thrice since the time it was introduced, i.e., from the
assessment year 1989-90. Upto the assessment year 1990-91, sub-s (3)(a) provided that ‘profits derived from the
export of goods’ (which enjoyed exemption under this section) were the profits of the business as computed under the
business head, and in a case where the business carried on by the assessee consists exclusively of the export of such
goods, the entire such profits were exempted. The Finance Act, 1990 substituted a new sub-s (3), with effect from the
assessment year 1991-92, which specified that the profits derived from exports are to be worked out in the same
proportion that the sale proceeds received in, or brought into, India in convertible foreign exchange bear to the total
sale proceeds of such goods or merchandise. This sub-section was substituted once again by the Finance (No 2) Act
1991, with effect from the assessment year 1992-93 as it was felt that the existing formula often gave a distorted figure
of export profits when receipts like interest, commission etc, which were not a part of export turnover, were included in
the profit and loss account for computing the deduction. While the mechanism for computing profits from the export of
manufactured goods or merchandise under the newly substituted sub-s (3) remains the same, the profits from trading
goods are now required to be computed after deducting direct and indirect costs relatable to such exports from the
export proceeds. Further, in the case of mixed activity of manufacturing and trading, the deduction under this section is
required to be computed with reference to respective mechanism in respect of such goods. The profits so computed
are further required to be increased by 90 per cent. of export incentives (such as, profits on sale of exim scrips,
receipts by way of duty drawback or payments etc) in the ratio that the export turnover bears to the total turnover. The
explanation to sub-s (3) defines various terms which have an important bearing on the computation of profits under the
section. The term ‘trading goods’ defined in the explanation has been amended by the Finance Act, 1992 with effect
from the assessment year 1992-93 to exclude processed goods and bring the computation of profits from such goods
on par with manufactured goods.
7. Method of Accounting.—The Madras High Court in CIT v Rathore Brothers 47 held that where the assessee has
maintained separate accounts for its export and local sales, there is no warrant for disallowing any portion of the
export earnings pro rata by invoking sub-s (3)(b) (as it stood upto the assessment year 1990-91) and it observed that
the purpose of that clause was to ensure disallowance only when the entire deduction claimed cannot be regarded as
relatable to exports. However, the Kerala High Court in CIT v Parry Agro 48 has taken a contrary view. The Karnataka
High Court has held that the fact that the assessee has maintained separate accounts for different businesses makes
no difference in law.49 An inflated claim for deduction under s 80HH was made by valuing closing stock at market
Page 11 of 25
value and not at cost. This was contrary to the regular practice of valuing stock at market value only if it was lower
than cost. The AO can ignore this or any method if true income or profit cannot be arrived at.50
8. Sub-section (4): Report of an Accountant.—One more requirement of the section is that the assessee should
furnish the report of an accountant certifying the correctness of the claim for deduction and in the case of a supporting
manufacturer, an auditor’s certificate is also required from the export house or the trading house to ensure against
double deduction [sub-ss (4) and (4A), read with r 18BBA ].
The requirement of this sub-section regarding furnishing of the special audit certificate along with return is not a
mandatory provision, but only a directory one, and can be filed at any time before the completion of the assessment,51
and the deduction under this section cannot be denied on the ground that such certificate is not filed with the return.52
Further, the defect of filing the certificate in the old format can be rectified by filing the same in the revised format
before the completion of the assessment.53
Sub-section (4) has two parts: the first part requiring the filing of the report is mandatory; the second part relating to
the time of filing is only procedural. Since an appeal to the Tribunal is only a continuation of the assessment
proceedings, even if the audit report is submitted before the Tribunal, the deduction is allowable.54
9. Explanation Meaning of Expressions.—The Finance (No 2) Act 1991 introduced important definitions for terms
such as ‘export out of India’, and ‘profits of the business’ in the explanation to this section. The term ‘total turnover’
which was originally introduced from the assessment year 1991-92 was replaced by the said Act with retrospective
effect from the assessment year 1987-88.
The term ‘export out of India’ is defined in cl (aa) of the explanation, in which a sale is not considered an export sale if
both the conditions specified therein are fulfilled. These conditions are (i) it is a transaction by way of sale or
otherwise, in a shop, emporium or any other establishment situated in India, and (ii) it does not involve customs
clearance. Hence, if the transaction involves clearance at customs, it is an export within the meaning of this
explanation.55
10. Total Turnover—Meaning.—The expression “or otherwise” is one of extension and not of limitation. In clause
(aa) of the Explanation, this expression occurs in the company of “sale”. Therefore, it would cover transactions which
are akin to sale,56 like transfer of feature film rights by way of lease.57
The term “export turnover” has been defined in cl (b) of the Explanation and includes all the sale proceedings received
in or brought into India in convertible foreign exchange. If an assessee receives higher payment, in foreign exchange,
on a later date since the exchange rate is better, the additional income also forms a part of the ‘export turnover’.58
Fluctuations on EEFC account and interest on EEFC has no direct nexus with the export activity, and hence these are
not includible in the ‘total turnover’. The additional income on account of fluctuations and interest are not “derived
from” export. s 80HHC (1) does not use the wider expression “attributable to”.59
The Exchange Earners Foreign Currency Account [EFFC] is a special facility given by the Reserve Bank of India
Page 12 of 25
which enables exporters to retain a certain portion abroad and use it for specified purposes and repatriate the balance
later. It is submitted that it is incorrect to state that EEFC has no direct nexus with export activity when it is a facility
that only exporters who have earned foreign exchange can enjoy.
The term ‘total turnover’ is defined in cl (ba) of the Explanation, inserted by the Finance (No 2) Act 1991 with
retrospective effect from April 1, 1987. From the assessment year 1991-92, the incomes specified in ss 28(iiia), (iiib)
and (iiic) are to be excluded. The turnover is restricted to such receipts which have an element of profit in it; anything
charged by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit;
the general definition of the word ‘turnover’ or a case law dealing with the said definition under the Sales Tax Act
cannot be imported into this section.60
The question of what can and cannot be included in “total turnover” has been the subject mater of conflicting
decisions. The bigger the total turnover, the greater is the denominator and the lesser will be the deduction under
80HHC. The sale of scrap was held to be includible in total turnover.61 But other courts have held that goods sold
locally cannot be added to the turnover.62 It must be noted that s 80HHC(3) has been amended several times and the
correctness or the applicability of the section has to be decided accordingly.
The object of the legislature in enacting s 80HHC was to confer a benefit on profits accruing with reference to export
turnover. The section must be given a “schematic interpretation” and items like commission, rent, excise duty and
sales tax do not form part of the turnover. Excise duty and sales tax are collected by the assessee on behalf of the
Government; if they are included in the total turnover, the formula under s 80 HHC will become unworkable.63 The
premium received on import licenses constitutes export incentives and hence, stands excluded by virtue of the proviso
to cl (baa) of the Explanation.64
11. Profits of the Business: Claimed (baa) to Explanation.—The following items are to be included in total
turnover: interest on security deposit and fixed deposit receipts,65 interest earned on investment of surplus funds,66
amount received towards bad quality of cashew kernels.67
Clause (baa) of the explanation, which was inserted by the Finance (No 2) Act 1991 with effect from the assessment
year 1992-93, defines the term ‘profits of the business’. The said clause provides, inter alia, that the profits and gains
of business or profession are to be reduced by 90 per cent. of brokerage, commission, interest, rent charges or any
other receipt of a similar nature included in such profits. Therefore, prior to the insertion of the said explanation,
interest and rent earned during the course of business activity were entitled to the deduction under this section.68 The
amendment is prospective in nature and not clarificatory; clause (baa) applies only to assessment years 1992-93
onwards and not before.69 The contrary view of the Bombay High Court is no longer good law.70 In computing the
profits of the business, export profits derived from the sale of licenses earned on fulfilling export obligations are to be
increased by 90 per cent, whereas the premium received on surrender of licenses purchased from the open market is
not to be taken into account.71 Further, service charges,72 labour charges,73 or labour or indenting commission74 are
not includible in business profits. However, labour charges earned as forming part of composite export activity are to
be included in business profits.75
“Profits of the business” will include profits from a business other than the export business.76
Page 13 of 25
The deduction under s 80HHC is based on the following formula:
When the formula is read with clause (baa) to the Explanation, it shows the existence of four variables namely (i)
business profit; (ii) export turnover; (iii) total turnover; and (iv) 90 per cent. of the sums referred to in the said clause.
On a reading of the variables, it becomes clear that every receipt may not constitute sale proceeds from exports and
every income may not be attributable to exports.77
The items mentioned in cl (baa) indicate that receipts which constituted independent income but had no nexus with the
export had to be reduced from business profits under cl (baa). Therefore, although these receipts form part of the
gross total income, they are excluded because they had no nexus with the export turnover and would result in
distortion of export profits.78
The assessee not only exported cashew nuts but also processed them for other exporters on job-work basis for which
processing charges were received. While the Supreme Court correctly held that these charges had to be excluded, it
was wrongly held that the processing charges should have been added in the total turnover.79
While the face value of the DEPB credit will fall under clause (iiib) of s 28 of the Act, the difference between the sale
value and the face value of the DEPB credit will fall under cl (iiid) of s 28 of the Act. Hence, ninety per cent. of these
two amounts must be reduced from the profits of the business as per clause (baa) of the Explanation.80 Wages,
appraisals, repairs and renewal charges received by the assessee cannot be reduced by ninety per cent. under cl
(baa) since the clause only refers to receipts in the nature of brokerage, commission, rents and interest.81 But recovery
of freight, insurance, packaging receipts, sales tax refund and service income are to be reduced by ninety per cent. as
mentioned above.82 However, profits from developmental work which is intrinsically related to the export are not to be
reduced by ninety percent.83
Similarly, income from job work earned by using the entire profit making apparatus of the assessee is also not to be
excluded from business profits.84 Development charges or service charges that are not intrinsically relatable to the
manufacturing activity carried on by the assessee cannot be taken to be part of the business profits.85
12. Interest and other Income.—For the assessment years 1989-90 and 1990-91, sub-s (3) provided that profits of
an assessee engaged exclusively in exports as computed under the head ‘Profits and gains of business or profession’
were fully exempted and in such a case, it has been held that interest income earned during the course of such activity
would fall under ‘business income’.86 However, interest earned on bank deposits,87 or on car deposits or refund of
taxes,88 which are assessable as income from other sources are not entitled to the deduction under this section.
The Supreme Court has held that only net interest and net rent must be taken into account under cl (baa) and not the
gross interest or gross rent.1 All High Court cases that held that gross interest must be taken into account stand
Page 14 of 25
overruled.2
Interest from customers and sales tax set-off,3 interest from bank deposits and inter-corporate deposits assessed as
business income4 was includible. After the insertion of per cent cl (baa) in the Explanation, the interest will be included
after reduction of 90 per cent. thereof.5
Prior to the amendment of this section, the deduction thereunder was in relation to export turnover and not in relation
to income, and consequently, the Gujarat,6 Bombay7 and Kerala8 High Courts took a view that this section, as it earlier
stood, was not governed by s 80AB .
In CIT v Gogineni Tobacco 9 it has been held that since the section does not use the words ‘as computed in
accordance with the other provisions of this Act’, the deduction under this section is to be allowed before allowing
unabsorbed business loss and unabsorbed depreciation.
Affirming this view, the Supreme Court held that s 80AB makes it clear that computation of income has to be in
accordance with the provisions of the Act which means that not only the profits but even the losses have to be taken
into consideration.10
The word ‘profit’ in s 80HHC(1) could not include losses whereas the word ‘profit’ in s 80HHC(3) includes loses/minus
profit’. The court held that the two sub-sections operate in completely different spheres—sub-s (1) provides for
deduction from gross total income to arrive at the total income of the assessee and deals with the manner of effecting
the deduction arrived at under sub-s (3)(c). It observed that since the section is clear and unambiguous, the question
of liberal interpretation does not arise, and consequently, it held that the loss in respect of the export of trading goods
cannot be ignored while computing deduction under sub- s 3(c) .11
Upto the assessment year 1992-93, while a deduction under this section was admissible in computing the total income
of a firm, s 80A(3) prohibited the partners from also claiming a deduction in their individual assessments. [See also ss
10A and 10B.]
13. Retrospective Amendments to s 80HHC(3) Struck Down.—Writ petitions were filed challenging the
constitutional validity of insertion of conditions in the third and the fourth provisos to s 80HHC(3) of the Income-tax Act,
1961, by the Taxation Laws (Second Amendment) Act, 2005, with retrospective effect. These amendments
retrospectively held that exporters having turnover of more than Rs. 10 crores will get the benefit if they had proved
that they had an option to choose either duty drawback or DEPB and that they chose DEPB, even when he was
entitled to higher benefit under the duty drawback scheme. Now, no assessee would make a choice of a lower benefit,
and hence assessees who had chosen the duty drawback scheme because this gave them a higher duty benefit were
suddenly denied their s 80HHC deduction retrospectively. These provisos were inserted to overcome a decision of the
Tribunal.
The Gujarat High Court struck down the retrospective introduction of these provisos for five reasons: first, it held that
the conditions mentioned in the provisos were applicable only to assessees whose assessments were pending and
Page 15 of 25
not to assessees whose assessments had become final. This was held to violate Article 14 as it failed to meet the twin
test of classification and was palpably arbitrary. The Revenue had failed to discharge the burden to prove that the
restriction placed by the amending Act were arbitrary. Secondly, the High Court observed that when a benefit is being
withdrawn in a taxing statute, it must only be done prospectively. It held that the Revenue cannot impose a new
condition that the citizen was incapable of complying with. On this ground, the provisos were held to be applicable only
prospectively. Thirdly, the object of the amendment was to get rid of a decision of the Tribunal in favour of the
assessee. This was impermissible as the proper course to be adopted was to challenge this decision before the High
Court and the Supreme Court. Fourthly, there was no defect in the original legislation and the legislature cannot, just
to overcome an adverse decision of the Tribunal, delete a valid piece of legislation and incorporate a totally new one
with retrospective effect. Fifthly, while there is no dispute that the legislature can take away benefits of a taxing statute
prospectively, this cannot be done retrospectively for overcoming the effect of a decision without taking recourse to the
provision of an appeal on the ground that an appeal would result in delay. This was not a case where a benefit was
wrongly conferred by a notification which was then withdrawn retrospectively by a legislative amendment. The court,
however, rejected the plea of promissory estoppel against the legislature.12
14. Appeal and Reference.—In the context of s 80 HHC, the undernoted cases held that referable questions of law
In the undernoted cases it was held that substantial question of law did arise15 in the context of s 80HHC . It also held
that these cases involved only findings of fact or questions of fact.16
45 Section 80HHC has been substituted by the Finance Act, 1985 (32 of 1985), s 19 (w.e.f. 1-4-1986). See Circular No.
421, June 12, 1985, 156 ITR (St.) 130.
46 Subs. by the Finance Act, 1988 (26 of 1988), s 24(a) (w.e.f. 1-4-1989), See Circular No. 528, December 16, 1988, 176
‘(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the
business of export out of India of any goods or merchandise 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 equal to the
aggregate of—
(a) four per cent. of the net foreign exchange realisation; and
(b) fifty per cent. of so much of the profits derived by the assessee from the export of such goods or merchandise as exceeds
the amount referred to in clause (a):
Provided that the deduction under this sub-section shall not exceed the profits derived by the assessee from the export of such
goods or merchandise:
Provided further that] an amount equal to the amount of the deduction claimed under this
sub-section is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and
credited to a reserve account to be utilised for the purposes of the business of the assessee.’.
In the above sub-section (1), the portion put within the parentheses marked † was substituted for “deductions of an amount, not
exceeding fifty per cent. of the profits derived by the assesssee from the export of such goods or merchandise:
Provided that” by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 (46 of 1986), s 11(a) (w.e.f 1-4-
1987).
47 Subs., for “a deduction of the profits”, by the Finance Act, 2000 (10 of 2000), s 34(a) (w.e.f. 1-4-2001). Earlier, the word
“profits” was substituted for “whole of the income”, by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 15(a)
(w.e.f. 1-4-1989). See Circular No. 559, May 4, 1990, 184 ITR (St.) 91.
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48 Subs., for “total profits of the export business of the assessee the same proportion as the amount of export turnover
specified in the said certificate bears to the total export turnover of the assessee”, by the Finance Act, 1992 (18 of
1992), s 46(a) (w.e.f. 1-4-1992). See Circular No. 636, August 31, 1992, 198 ITR (St.) 1.
49 Subs., for “a deduction of the profits”, by the Finance Act, 2000 (10 of 2000), s 34(b) (w.e.f. 1-4-2001). Earlier, the word
“profits” was substituted for “whole of the income” by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 15(a)
(w.e.f. 1-4-1989). See Circular No. 794, August 9, 2000, 245 ITR (St.) 21.
51 Subs. by the Finance Act, 2001 (14 of 2001), s 41 (w.e.f. 1-4-2002), for the following:—
‘(ii) sixty per cent. thereof for an assessment year beginning on the 1st day of April, 2002;
(iii) forty per cent. thereof for an assessment year beginning on the 1st day of April, 2003;
(iv) twenty per cent. thereof for an assessment year beginning on the 1st day of April, 2004,’.
52 Subs., for “receivable”, by the Finance Act, 1990 (12 of 1990), s 22(a)(i) (w.e.f. 1-4-1991). See Circular No. 572,
August 3, 1990, 186 ITR (St.) 81.
53 Ins. by the Finance Act, 1990 (12 of 1990 ), s 22(a)(ii) (with retrospective effect from 1-4-1989).
54 Ins. by the Finance Act, 1990 (12 of 1990 ), s 22(a)(iii) (w.e.f. 1-4-1991).
46(a)(i) (w.e.f. 1-6-1999). See Circular No. 779, September 14, 1999, 240 ITR (St.) 3.
57 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 28(a)(i) (w.r.e.f. 1-4-1991). See Circular No. 621, December 19,
1991, 195 ITR (St.) 154.
58 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 28(a)(ii) (w.e.f. 1-4-1992).
60 Subs. by the Finance (No. 2) Act 1991 (49 of 1991), s 28(b) (w.e.f. 1-4-1992), for the following sub-section (3):—
‘(3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be the amount
which bears to the profits of the business (as computed under the head “Profits and gains of business or profession”), the same
proportion as the export turnover bears to the total turnover of the business carried on by the assessee.’.
Above section 80HHC(3) was substituted by the Finance Act, 1990 (12 of 1990), s 22(b) (w.e.f.1-4-1991), for the following
originally enacted section 80HHC(3) :—
‘(3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be,—
Page 17 of 25
(a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or
merchandise to which this section applies, the profits of the business as computed under the head “Profits and gains of business
or profession”;
(b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods
or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head
“Profits and gains of business or profession”) the same proportion as the export turnover bears to the total turnover of the
business carried on by the assessee.’.
61 Subs., for “manufactured by the assessee”, by the Finance Act, 1992 (18 of 1992), s 46(b) (w.e.f. 1-4-1992).
62 Ins. by the Taxation Laws (Amendment) Act, 2005 (55 of 2005), s 4(i)(A) (w.r.e.f. 1-4-1998).
63 Ins. by the Taxation Laws (Amendment) Act, 2005 (55 of 2005), s 4(i)(B) (w.r.e.f. 1-4-1992).
64 Subs., for “manufactured by the assessee”, by the Finance Act, 1992 (18 of 1992), s 46(b) (w.e.f. 1-4-1992).
66 The words ‘as computed under the head “Profits and gains of business or profession” ’, have been omitted by the
Finance (No. 2) Act 1991 (49 of 1991), s 28(c)(i) (w.e.f. 1-4-1992).
67 The brackets and words ‘(as computed under the head “Profits and gains of business or profession”)’ have been
omitted by the Finance (No. 2) Act 1991 (49 of 1991), s 28(c)(ii) (w.e.f. 1-4-1992).
68 Ins. by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 (46 of 1986), s 11(b) (w.e.f. 1-4-
1987). See Circular No. 469, September 23, 1986, 162 ITR (St.) 21.
69 Subs., for “on the basis of the amount of export turnover”, by the Finance (No. 2) Act 1991 (49 of 1991), s 28(d) (w.e.f.
1-4-1992). In the above, the words “export turnover” were substituted for “net foreign exchange realisation as
determined in accordance with the Import and Export Policy of the Government of India for the relevant period” by the
Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 15(b) (w.e.f. 1-4-1989).
70 Ins. by the Finance Act, 2003 (32 of 2003), s 37(a) (w.e.f. 1-4-2004). See Circular No. 7 of 2003, September 5, 2003,
263 ITR (St.) 62.
72 Subs., for “income”, by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 15(c) (w.e.f. 1-4-1989).
73 Ins. by the Finance Act, 1999 (27 of 1999), s 46(b) (w.r.e.f. 1-4-1992).
Page 18 of 25
76 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 28(e)(i) (w.r.e.f. 1-4-1986).
77 Subs., for “receivable”, by the Finance Act, 1990 (12 of 1990), s 22(c)(i)(1) (w.e.f. 1-4-1991).
78 Ins. by the Finance Act, 1990 (12 of 1990), s 22(c)(i)(2) (w.e.f. 1-4-1991).
79 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 28(e)(ii)(1) (w.r.e.f. 1-4-1987).
80 Subs., for “and (iiic)”, by the Taxation Laws (Amendment) Act, 2005 (55 of 2005), s 4(ii)(I) (w.r.e.f. 1-4-1998)
81 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 28(e)(ii)(2) (w.e.f. 1-4-1992).
82 Subs., for “and (iiic)”, by the Taxation Laws (Amendment) Act, 2005 (55 of 2005), s 4(ii)(II) (w.r.e.f. 1-4-1998).
83 Omitted by the Finance (No. 2) Act 1991 (49 of 1991), s 28(e)(iii) (w.r.e.f. 1-4-1991). Prior to its omission, clause (bb)
stood as under:—
‘(bb) “total turnover” shall not include any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 ;’.
The above clause (bb) was inserted by the Finance Act, 1990 (12 of 1990), s 22(c)(ii) (w.e.f. 1-4-1991).
84 Clause (c) [which was, originally, inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986
(46 of 1986), s 11(c) (w.e.f. 1-4-1987)] has been omitted by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s
15(d)(i) (w.e.f. 1-4-1989). See Circular No. 550, January 1, 1990, 182 ITR (St.) 114. Prior to its omission, clause (c)
stood as under:—
‘(c) “net foreign exchange realisation” means the total free on board value of exports out of India of goods and merchandise to
which this section applies as reduced by the aggregate of the cost, insurance and freight value of all categories of import
licences, to be issued by the Chief Controller of Imports and Exports, Government of India, to which the assessee is entitled
during the previous year, either against export obligation or against exports as replenishments.’.
85 Clauses (d) and (e) have been inserted by the Finance Act, 1988 (26 of 1988), s 24(d) (w.e.f. 1-4-1989).
86 Clauses (d) and (e) have, retrospectively been renumbered as clauses (c) and (d) by the Direct Tax Laws
(Amendment) Act, 1989 (3 of 1989), s 15(d)(ii) (w.e.f. 1-4-1989).
87 Clauses (d) and (e) have, retrospectively been renumbered as clauses (c) and (d) by the Direct Tax Laws
(Amendment) Act, 1989 (3 of 1989), s 15(d)(ii) (w.e.f. 1-4-1989).
88 Subs., for “manufacturing goods”, by the Finance Act, 1990 (12 of 1990), s 22(c)(iii) (w.e.f. 1-4-1991).
Page 19 of 25
90 Which included distribution of dividend: board’s circular no 463, dated 11 July 1986 (160 ITR St 60).
91 CIT v K.Ravindranathan Nair 295 ITR 228, 238, 2007 (13) SCALE 134 .
1 247 ITR 578 (SC), affirming CIT v Sea Pearl 238 ITR 542 ; CIT v Sea Pearl 238 ITR 551 .
2 Laxmi Industries v CIT 250 ITR 616 .
3 CIT v India Corpn 196 ITR 425 .
4 254 ITR 529.
5 CIT v Indian Products 207 ITR 647 .
6 CIT v Navbharat Enterprises 253 ITR 316 .
7 Balasubramaniam v CIT 239 ITR 285 .
8 Warren Tea v UOI 236 ITR 492 ; CIT v CWS (India) 246 ITR 278 .
9 CIT v Jayajothi 252 ITR 895 .
10 CIT v Parekh Brothers 253 ITR 43, (2002) 120 Taxman 362 (Ker); affirmed in Parekh Brothers v CIT 309 ITR 446
(SC).
11 Karimjee v DCIT 246 ITR 545 .
12 CIT v Pravin M Mehta 246 ITR 445 .
13 Ibid (board circular no 466 dated 14 August 1986 161 ITR St 68).
14 CIT v SSC Shoes 259 ITR 674 .
15 Under pre-1989 law such division was permitted by board’s circular No 466, dated 14 August 1986 (161 ITR St 68).
16 CIT v K.Ravindranathan Nair 295 ITR 228 (SC), (2007) 11 SCR 1097 .
17 Indian Del . P. Ltd. v CIT 349 ITR 330, (2012) 250 CTR 344 (Del).
Page 20 of 25
18 Anil Dang v ITO 344 ITR 143, ILR 2011 KAR 1847 .
19 EIH Ltd. v CIT 338 ITR 503, (2011) 244 (Cal) 353 .
20 Anil Kumar v ITO 343 ITR 30 .
21 Dhall Enterprises and Engineers P. Ltd. v CIT 295 ITR 481, (2007) 207 CTR 729 (Guj).
22 Sarathy Palayacat v CCIT 248 ITR 484 .
23 Leather Trends v CIT 215 ITR 690 .
24 Khaturia v UOI 250 ITR 596 .
25 Mayor & Co v CIT 248 ITR 162 .
26 Vikram Overseas v CIT 222 ITR 253 ; Azad Tobacco v CIT 225 ITR 1002 ; Geekay Exim v CIT 234 ITR 560 ;
Narinder Kumar v CIT 245 ITR 10 .
27 Kausales Exports v CIT 240 ITR 108 .
28 Leather Trends v CIT 215 ITR 690 .
29 Mountview Exports v CIT 258 ITR 46 .
30 DB Exports v CIT 231 ITR 836 .
31 257 ITR 323.
32 Abdulgafer A. Nadiawala v ACIT 267 ITR 488, (2004) 188 CTR 232 (Bom) - affirmed in 313 ITR 149, (2009) 11 SCC
643 .
33 CIT v Sun T.V. Ltd. 296 ITR 274, (2007) 211 CTR 108 (Mad).
34 CIT v Superstar Music 291 ITR 8, (2007) 210 CTR 128 (Mad); CIT v Giza Impex P. Ltd. 293 ITR 301, (2008) 166
Taxman 30 (Mad).
35 Stonecraft Enterprises v CIT 237 ITR 131 (SC).

Page 21 of 25
36 Goa Carbon Ltd. v CIT 332 ITR 209, (2011) 239 CTR 354 (Bom).
37 CIT v God Granites 240 ITR 343 ; CIT v Surinder Kumar 250 ITR 673, CIT v Raghavendra 250 ITR 595 . All these
cases were affirmed in CIT v God Granites 262 ITR 567, (2003) 183 CTR 20 (SC); CIT v Arihant Tiles and Marbles P.
Ltd. 352 ITR 20 .
38 CIT v Mysore Minerals 250 ITR 728 .
39 Gem Granites v CIT 271 ITR 322 (SC), (2005) 1 SCC 289 affirming CIT v Gem Granites 262 ITR 426, (2004) 192
CTR 490 (Mad); CIT v Tamil Nadu Minerals Ltd. 349 ITR 695, (2012) 254 CTR 105 (SC); CIT v Pooshya Exports P.
Ltd. 262 ITR 417, (2003) 127 Taxman 369 (Mad); CIT v Yak Granite Industries P. Ltd. 294 ITR 153, 2007 (214) ELT
508 (Mad); Magam Inc v CIT 288 ITR 566 .
40 CIT v Hind Nippon 251 ITR 60 - also affirmed in CIT v God Granites 262 ITR 567, (2003) 183 CTR 20 (SC).
41 Abdulgafar A. Nadiavala v ACIT 267 ITR 488, (2004) 188 CTR 232 (Bom) - affirmed in 313 ITR 149 (SC), (2009) 11
SCC 643 ; CIT v V. C. Kuganathan 293 ITR 15 ; CIT v Giza Impex P. Ltd. 293 ITR 301, (2008) 166 Taxman 30 (Mad);
CIT v A. VM Production 293 ITR 22 ; CIT v R Rajinikanth 295 ITR 523 ; CIT v D Raja alias Ilayaraja 313 ITR 124 ;
CIT v Prasad Productions P. Ltd. 313 ITR 120 ; CIT v Firoz Khan 313 ITR 123 ; CIT v Superstar Music 291 ITR 8,
(2007) 210 CTR 128 (Mad); CIT v RK Exports Ltd. 319 ITR 442 .
42 CIT v B Suresh 313 ITR 149 (SC), (2009) 11 SCC 643 - followed in CIT v Faquir Chand (HUF) 350 ITR 207, (2012)
254 CTR 107 (SC); CIT v Romesh Sharma 354 ITR 229 (SC).
43 CIT v Midland Rubber and Produce Co. Ltd. 339 ITR 436, (2012) 207 Taxman 71 (Ker).
44 Stewart Holl (India) Ltd. v CIT 338 ITR 194, (2011) 245 CTR 71 (Cal).
45 KRM Marine Exports Ltd. v CIT 288 ITR 151 .
46 CIT v Superstar Music 291 ITR 8, (2007) 210 CTR 128 (Mad); Abdulgafar A. Nadiadwala v ACIT 267 ITR 488,
(2004) 188 CTR 232 (Bom) - affirmed in 313 ITR 149 (SC), (2009) 11 SCC 643 ; CIT v Giza Impex P Ltd 293 ITR 301,
(2008) 166 Taxman 30 (Mad) - affirmed in CIT v B Suresh 313 ITR 149 (SC), (2009) 11 SCC 643 ; CIT v Sun TV Ltd
296 ITR 274, (2007) 211 CTR 108 (Mad).
47 254 ITR 656; Chamundi Textiles (Silk Mills) Ltd. v CIT 341 ITR 488 ; CIT v M Gani and Co. 301 ITR 381 ; CIT v
Macmillan India Ltd. 295 ITR 67 ; CIT v Suresh B Mehta 291 ITR 462 .
48 257 ITR 41.
49 Fernandez GJ v ACIT 344 ITR 222, ILR 2011 Kar 1195 .

Page 22 of 25
50 CIT v Sanjeev Woollen Mills 264 ITR 268 - affirmed in Sanjeev Woollen Mills v CIT 279 ITR 434 (SC), AIR 2006 SC
500 .
51 CIT v Berger Paints (No 2) 254 ITR 503 ; CIT v Krishnan Nair 259 ITR 727 ; CIT v Godha Chemicals P. Ltd. 353 ITR
679 .
52 Murali Export v CIT 238 ITR 257 ; CIT v Berger Paints (No 2) 254 ITR 503 .
53 ITO v Novelty Garments 256 ITR 688 ; ITO v VXL India Ltd. 312 ITR 187 .
54 CIT v Magnum Export P Ltd 262 ITR 10, (2003) 183 CTR 75 (Cal).
55 CIT v Silver & Arts Palace 259 ITR 684 (SC), affirming CIT v Silver & Arts Palace 248 ITR 69, Ram Babu v UOI 222
ITR 606 ; ITO v Vaibhav Textiles 258 ITR 346 .
56 Abdulgafar A. Nadialwala v ACIT 267 ITR 488, (2004) 188 CTR 232 (Bom) - affirmed on another point in 313 ITR
149 (SC), (2009) 11 SCC 643 .
57 CIT v B.Suresh 313 ITR 149 (SC), (2009) 11 SCC 643 .
58 CIT v Amba Impex 282 ITR 144, (2006) 201 CTR 409 (Guj); Raghunath Exports (P) Ltd. v CIT 330 ITR 57, (2011)
240 CTR 79 (Cal); CIT v Amber Exports (India) 326 ITR 455 .
59 CIT v Shah Originals 327 ITR 19, (2010) 232 CTR 228 (Bom).
60 CIT v Sudarshan Chemicals 245 ITR 769 ; CIT v Jose Thomas 253 ITR 553 (cost of construction of flats received by
assessee).
61 CIT v Bicycle Wheels (India) 335 ITR 384, (2012) 20 Taxman 442 (P&H); CIT v Motor Industries Co. Ltd. 326 ITR
358, 2010 (1) KCCR 327 and CIT v Kar Mobiles Ltd 333 ITR 478, (2010) 195 Taxman 425 (Ker); R.N. Gupta and Co.
Ltd. v CIT 351 ITR 369 .
62 CIT v Madras Motors Ltd. 257 ITR 60 ; CIT v Shiva Distilleries Ltd. 293 ITR 108 ; CIT v Punjab Stainless Steel Ltd
162 Taxman 9 .
63 CIT v Lakshmi Machine Works 290 ITR 667 (SC), AIR 2007 SC 2385 ; CIT v Catapharma (India) P. Ltd. 292 ITR
641 (SC), (2007) 11 SCC 145 ; CIT v Falcon Tyres Ltd. 336 ITR 200 ; CIT v Krone Communication Ltd. 333 ITR 497 ;
CIT v Sundaram Clayton Ltd. 281 ITR 425, (2008) 11 VST 193 (Mad); CIT v Coimbatore Twisters P. Ltd. 330 ITR 45 ;
CIT v Coimbatore Twisters P. Ltd. 328 ITR 609 ; CIT v Metal Powder Co. Ltd. 300 ITR 48, (2008) 174 Taxman 398
(Mad); CIT v Standard Fireworks P. Ltd. 326 ITR 498 ; CIT v Avon Cycles Ltd. 303 ITR 345 ; CIT v Chloride India Ltd.
256 ITR 625, (2002) 178 CTR 432 (Cal) (octroi also not to be included).
Page 23 of 25
64 CIT v Samir Diamonds 245 ITR 548 ; contra Baby Marine (Eastern) Exports v ACIT 262 ITR 88, (2003) 184 CTR
151 (Ker).
65 CIT v Shriram Piston & Rings Ltd. 325 ITR 46 - following Liberty India v CIT 317 ITR 218 (SC), (2009) 9 SCC 328 ;
CIT v Producin P. Ltd. 290 ITR 598, (2007) 211 CTR 393 (Kar); CIT v Bakelite Hylam Ltd. 287 ITR 75, (2007) 207
CTR 584 (AP).
66 CIT v J.J. Exporters Ltd. 324 ITR 329 .
67 CIT v T.C. Usha 264 ITR 368, (2004) 187 CTR 661 (Ker).
68 CIT v Isher Dass 253 ITR 284 ; CIT v NSC Shoes 258 ITR 749 .
69 Prabhakar P.R. v CIT 284 ITR 548 (SC), (2006) 6 SCC 86 ; KK Doshi v CIT 297 ITR 38, (2008) 215 CTR 114 (SC);
CIT v Anil Chanana 350 ITR 247 ; CIT v Tractor and Farm Equipment Ltd. 326 ITR 313 .
70 CIT v Kantilal Chhotalal 246 ITR 439, (2001) 117 Taxman 526 (Bom).
71 CIT v Pink Star 245 ITR 757 .
72 CIT v KK Doshi 245 ITR 849 .
73 CIT v SG Jhaveri 245 ITR 854 .
74 CIT v Pravin M Mehta 246 ITR 445 .
75 CIT v Bangalore Clothing 260 ITR 371 .
76 Fernandez GJ v ACIT 344 ITR 222, ILR 2011 Kar 1195 .
77 CIT v K Ravindranathan Nair 295 ITR 228 (SC), 241, 2007 (13) SCALE 134 ; Fernandez GJ v CIT 344 ITR 222, ILR
2011 Kar 1195 .
78 Ravindranathan Nair, ibid.
79 CIT v K.Ravindranathan Nair 295 ITR 228 (SC), 240, 2007 (13) SCALE 134 .
80 Topman Exports v CIT 342 ITR 49 (SC), (2012) 3 SCC 593 ; ACG Associated Capsules Pvt. Ltd. v CIT 343 ITR 89
(SC), (2012) 3 SCC 321 ; Vikas Kalra v CIT 345 ITR 557 (SC), (2012) 3 SCC 611 . The earlier decisions in CIT v King
Metal Works 329 ITR 426, (2010) 235 CTR 234 (Bom); CIT v Kalpataru Colours and Chemicals [2010] 328 ITR 451,
Page 24 of 25
(2010) 233 CTR 313 (Bom); CIT v F C Sondhi and Co P. Ltd. 334 ITR 141 ; CIT v Himalaya Cutlery Works 287 ITR
505, (2006) 201 CTR 167 (All) stand overruled; CIT v K.R.B.L. Ltd. 367 ITR 258 .
81 CIT v Davanam Jewellers 344 ITR 51, (2010) 195 Taxman 394 (Kar).
82 CIT v Dresser Rand India Ltd. 323 ITR 429, (2010) 232 CTR 52 (Bom).
83 CIT v Motor Industries Co. Ltd. 331 ITR 79, (2011) 239 CTR 541 (Kar).
84 United India Shoe Corporation P. Ltd. 302 ITR 326.
85 CIT v Deodhar Electro Design P. Ltd. 300 ITR 103, (2008) 218 CTR 149 (Bom).
86 CIT v Punit Commercial 245 ITR 550 ; CIT v Nagpur Engineering 245 ITR 806 (department’s SLP rejected 244 ITR
St 54).
87 Nanji Topanbhai v ACIT 243 ITR 192, CIT v Ravi Ratna 246 ITR 443, CIT v Jose Thomas 253 ITR 553 ; CIT v Abad
Fisheries 258 ITR 641 ; CIT v AS Nizar 259 ITR 244 ; ACIT v South India Produce Co. 262 ITR 20, 2003 (2) KLJ 303
; CIT v Delhi Brass and Metal Works Ltd. 313 ITR 352, (2009) 178 Taxman 215 (Del); K Ravindranathan Nair v DCIT
262 ITR 669, (2003) 181 CTR 310 (Ker); Urban Stanislaus Co. v CIT 263 ITR 10, (2003) 183 CTR 176 (Ker); Dollar
Apparels v ITO 294 ITR 484 ; CIT v Gem Plus Jewellery India P. Ltd. 330 ITR 175, (2010) 233 CTR 248 (Bom); CIT v
Swani Spice Mills P. Ltd. 332 ITR 288, (2011) 201 Taxman 81 (Bom). But where interest from bank deposits is
included in business income, it will be included in profits of business - see CIT v Sociedade de Fomento Industrial Ltd.
335 ITR 472, (2011) 237 CTR 141 (Bom).
88 Abad Enterprises v CIT 253 ITR 319 .
1 ACG Associated Capsules Pvt. Ltd. v CIT 343 ITR 89 (SC), (2012) 3 SCC 321 ; followed in Vikas Kalra v CIT 345
ITR 557 (SC), (2012) 3 SCC 611 ; CIT v Krone Communication Ltd. 333 ITR 497 ; CIT v Sri Ram Honda Power Equip
289 ITR 475, (2007) 207 CTR 689 (Del).
2 Ambattur Clothing Co. Ltd. v CIT 326 ITR 245, (2009) 221 CTR 196 (Mad); CIT v Asian Star Co. Ltd. 326 ITR 56 ;
CIT v Liberty Footwear Company 287 ITR 339, (2007) 207 CTR (P&H) 185 ; CIT v Chinnapandi 282 ITR 389, (2006)
201 CTR 13 (Mad); KS Subbiah Pillai and Co. (India) P. Ltd. v CIT 260 ITR 304, (2003) 179 CTR 522 (Mad); Ravi
Paliwal v CIT 268 ITR 220, (2003) 185 CTR (P&H) 333 .
3 Alfa Laval India Ltd. v CIT 266 ITR 318 - affirmed in CIT v Alfa Laval India Ltd. 295 ITR 451 (SC); CIT v Grindwell
Norton Ltd. 318 ITR 172 .
4 CIT v Sociedade de Fomento Industrial Ltd. 335 ITR 472, (2011) 237 CTR 141 (Bom).
5 CIT v Avery Cycles Industries Ltd. 296 ITR 393, (2006) 206 CTR (P&H) 347 ; CIT v Mahavir Spinning Mills Ltd. 308
ITR 445 ; CIT v Malwa Cotton Spinning Mills Ltd. 302 ITR 53, (2008) 166 Taxman 457 (P&H).
Page 25 of 25
6 CIT v Arvind Mills 254 ITR 529 .
7 CIT v Shirke Construction 246 ITR 429 .
8 CIT v A V Thomas 225 ITR 29 . Contra CIT v VT Joseph 225 ITR 731 .
9 238 ITR 970, on appeal 253 ITR 800 (SC).
10 IPCA Laboratories v CIT 266 ITR 521 (SC), (2004) 12 SCC 742 ; CIT v Induflex Products P. Ltd. 280 ITR 1, (2006)
1 SCC 458 ; Moosa A.M. v CIT 294 ITR 1 (SC), 2007 (11) SCALE 31 ; CIT v B. Mohanachandran Nair 285 ITR 226
(SC), (2005) 13 SCC 417 . Consequently, CIT v Shirka Construction Equipments Ltd. 246 ITR 529 and CIT v T.C.
Usha 266 ITR 497, (2003) 185 CTR 256 (Ker) stand overruled. The IPCA view has been followed in: Bhatsons
Aquatic Products v CIT 329 ITR 67 ; Universal Cold Storage Ltd. v DCIT 326 ITR 533 ; CIT v Hoysala Blow Moulders
(India) Ltd. 317 ITR 284 ; CIT v Hinduja Exports 312 ITR 61 ; AM Moosa v CIT 294 ITR 1 (SC), 2007 (11) SCALE 31
; CIT v B Mohanachandran Nair 285 ITR 226 (SC), (2005) 13 SCC 417 ; CIT v Induflex Products P. Ltd. 280 ITR 1
(SC), (2006) 1 SCC 458 ; J.K. Industries Ltd. v ACIT 351 ITR 434 .
11 IPCA Laboratories Ltd. v CIT 251 ITR 401, (2001) 170 CTR 568 (Bom); See also Jeyar Consultant v CIT 259 ITR
250 .
12 Avani Exports Ltd. v CIT 348 ITR 391, (2012) 252 CTR 473 (Guj) - followed in Vijaya Silk House (Bangalore) Ltd. v
UOI 349 ITR 566, (2013) 257 CTR 67 (Bom).
13 CIT v Gogineni Tobacco Ltd 253 ITR 800 ; Sea Pearl Industries v CIT 240 ITR 417 ; CIT v Farida Shoes Ltd 235 ITR
560 ; CIT v Nahar Spinning Mills Ltd 235 ITR 215 ; CIT v Impulse (I) Ltd 233 ITR 615 ; CIT v Sharma (BR) 232 ITR
614 ; CIT v Avon Cycles Ltd 221 ITR 416 ; CIT v Sea Pearl Industries 211 ITR 508 .
14 CIT v Silvar and Art Palace 246 ITR 798 ; CIT v Eveline International 243 ITR 493 ; CIT v India Corporation Pvt Ltd
196 ITR 425 .
15 Reena Sethi v ITO 261 ITR 288 .
16 Karimjee P. Ltd. v DCIT 246 ITR 545 .
End of Document
S. 80HHD. Deduction in respect of earnings in convertible foreign exchange
(1) 17[Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged
in the business of a hotel or of a tour operator, approved by the prescribed authority in this behalf or of a travel
agent, there shall, in accordance with and subject to the provisions of this section, be allowed,18[in computing the
total income of the assessee—
(a) for an assessment year beginning on the 1st day of April, 2001, a deduction of a sum equal to the aggregate
of—
(i) forty per cent. of the profits derived by him from services provided to foreign tourists; and
(ii) so much of the amount not exceeding forty per cent. of the profits referred to in sub-clause (i) as is
debited to the profit and loss account of the previous year in respect of which the deduction is to be
allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee
in the manner laid down in sub-section (4);
(b) for an assessment year beginning on the 1st day of April, 2002, a deduction of a sum equal to the aggregate
of—
(i) thirty per cent. of the profits derived by him from services provided to foreign tourists; and
(ii) so much of the amount not exceeding thirty per cent. of the profits referred to in sub-clause (i) as is
(c) for an assessment year beginning on the 1st day of April, 2003, a deduction of a sum equal to the aggregate
of—
Page 2 of 8
(i) 19[twenty-five per cent.] of the profits derived by him from services provided to foreign tourists; and
(ii) so much of the amount not exceeding19[twenty-five per cent.] of the profits referred to in sub-clause (i) as
is debited to the profit and loss account of the previous year in respect of which the deduction is to be
(d) for an assessment year beginning on the 1st day of April, 2004, a deduction of a sum equal to the aggregate
of—
(i) 20[fifteen per cent.] of the profits derived by him from services provided to foreign tourists; and
(ii) so much of the amount not exceeding20[fifteen per cent.] of the profits referred to in sub-clause (i) as is
in the manner laid down in sub-section (4),
and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of
April, 2005, and any subsequent assessment year]:
21[Provided that a hotel or, as the case may be, a tour operator approved by the prescribed
authority on or after the 30th day of November, 1989, and before the 1st day of October, 1991, 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, 1989, or the 1st day of April,
1990, or as the case may be, the 1st day of April, 1991, if the assessee was engaged in the
business of such hotel or as such tour operator during the previous year relevant to any of the said
assessment years.]
(2) This section applies only to services provided to foreign tourists the receipts in relation to which are received22[in,
or brought into, India by the assessee in convertible foreign exchange within a period of six months from the end
of the previous year or,23[within such further period as the competent authority may allow in this behalf].
24[25[Explanation 1].—For the purposes of this sub-section, any payment received by an assessee, engaged
in the business of a hotel or of a tour operator or of a travel agent, in Indian currency obtained by conversion
of foreign exchange brought into India through an authorised dealer,26[from another hotelier, tour operator or
travel agent, as the case may be,] on behalf of a foreign tourist or group of foreign tourists, shall be deemed
to have been received by the assessee in convertible foreign exchange if the person making the payment
furnishes to the assessee a certificate specified in sub-section (2A).]
27[Explanation2.—For the purposes of this sub-section, the expression “competent authority” means the
Reserve Bank of India or such other authority as is authorised under any law for the time being in force for
regulating payments and dealings in foreign exchange.]
(2A) 28[Everyperson making payment to an assessee referred to in the29[Explanation 1] to sub-section (2) out of Indian
currency obtained by conversion of foreign exchange received from or on behalf of a foreign tourist or a group of
Page 3 of 8
foreign tourists shall furnish to that assessee a certificate in the prescribed form indicating the amount received in
foreign exchange, its conversion into Indian currency and such other particulars as may be prescribed.]
(3) 30[For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be the
amount which bears to the profits of the business (as computed under the head “Profits and gains of business or
profession”) the same proportion as the receipts specified in sub-section (2)31[[as reduced by any payment,
referred to in sub-section (2A), made by the assessee]] bear to the total receipts of the business carried on by the
assessee.]
(4) The amount credited to the reserve account under clause (b) of sub-section (1), shall be utilised by the assessee
before the expiry of a period of five years next following the previous year in which the amount was credited for
the following purposes, namely:—
(a) construction of new hotels approved by the prescribed authority in this behalf or expansion of facilities in
existing hotels already so approved;
(b) purchase of new cars and new coaches by tour operators already so approved or by travel agents;
(c) purchase of sports equipment for mountaineering, trekking, golf, river-rafting and other sports in or on water;
(d) construction of conference or convention centres;
(e) provision of such new facilities for the growth of Indian tourism as the Central Government may, by notification
in the Official Gazette, specify in this behalf;
(f) 32[subscription to equity shares forming part of any eligible issue of capital made by a public company:]
Provided that where any of the activities referred to in33[clauses (a) to (f)] would result in creation of any
asset owned by the assessee outside India, such asset should be created only after obtaining prior
approval of the prescribed authority.
(5) Where any amount credited to the reserve account under clause (b) of sub-section (1),—
(a) has been utilised for any purpose other than those referred to in sub-section (4), the amount so utilised; or
(b) has not been utilised in the manner specified in sub-section (4), the amount not so utilised;
shall be deemed to be the profits,—
(i) in a case referred to in clause (a), in the year in which the amount was so utilised; or
(ii) in a case referred to in clause (b), in the year immediately following the period of five years specified in
sub-section (4),
and shall be charged to tax accordingly.

Page 4 of 8
(5A) 34[Where any amount credited to the reserve account under clause (b) of sub-section (1) has been utilized for
subscription to any equity shares referred to in clause (f) of sub-section (4) and either whole or any part of such
equity shares are transferred or converted into money by the assessee at any time within a period of three years
from the date of their acquisition, the aggregate amount so utilised in respect of such equity shares shall be
deemed to be the profits of the previous year in which the equity shares are transferred or converted into money.
Explanation.—A person shall be treated as having acquired any shares on the date on which his name is entered in
relation to those shares in the register of members of the public company.]
(6) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form,
along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2)
of section 288, certifying that the deduction has been correctly claimed on the basis of the35[36[* * *] amount of
convertible foreign exchange received by the assessee for services provided by him to foreign tourists37[,
payments made by him to any assessee referred to in sub-section (2A)] and the payments received by him in
Indian currency as referred to in the38[Explanation 1 to sub-section (2)]].
(7) 39[Where a deduction under sub-section (1) is claimed and allowed in respect of profits derived from the business
of a hotel, such part of profits shall not qualify to that extent for deduction for any assessment year under any
other provisions of this Chapter under the heading “C.—Deductions in respect of certain incomes”, and shall in no
case exceed the profits and gains of such hotel.]
(a) “travel agent” means a travel agent or other person (not being an airline or a shipping company) who holds a
valid licence granted by the Reserve Bank of India under section 32 40 of41[the Foreign Exchange
Management Act, 1999 (42 of 1999)];
(b) “convertible foreign exchange” shall have the meaning assigned to it in clause (a) of the Explanation to section
80HHC ;
(c) “services provided to foreign tourists” shall not include services by way of sale in any shop owned or managed
by the person who carries on the business of a hotel or of a tour operator or of a travel agent;]
(d) 42[“authorised dealer”, “foreign exchange” and “Indian currency” shall have the meanings respectively
assigned to them in clauses (c), (n) and (q) of section 2 43 of44[the Foreign Exchange Management Act, 1999
(42 of 1999)];]
(e) 45[“eligible
issue of capital” means an issue made by a public company formed and registered in India and the
entire proceeds of the issue is utilised wholly and exclusively for the purpose of carrying on the business of—
(i) setting up and running of new hotels approved by the prescribed authority; or
(ii) providing such new facility for the growth of tourism in India, as the Central Government may, by
notification in the Official Gazette, specify.]
Page 5 of 8
Section 80HHD : Earnings in Convertible Foreign Exchange.—While this section grants a deduction to a firm
resident in India, s 80A(3) debars the partners from also claiming deduction in their individual assessments. Rule
18BBA prescribes the form of report to be furnished under sub-s (6) of this section.This section was inserted by the
Direct Tax Laws (Amendment) Act, 1989 with effect from assessment year 1989-90 to give deduction in respect of the
earnings of a hotel or tour operator or travel agent in convertible foreign exchange. The section has been amended by
the Finance Act, 2000, and the deduction under this section is now curtailed in a phased manner and will not be
available from the assessment year 2005-06 [sub-s (1)].
The deduction under this section is available to an Indian company, or any other non-corporate person resident in
India, engaged in the business of a hotel or of a tour operator, which is approved, or of a travel agent [sub-s (1)]. The
section applies only to services provided to foreign tourists, the payments for which are received in convertible foreign
exchange and brought into India within six months from the end of the previous year or within such further period as
may be allowed [sub-s (2)]. Originally, the extension of such period could be granted by the Chief Commissioner or
Commissioner. However, from June 1, 1999, this power is now vested in the Reserve Bank of India [Explanation 2 to
sub-s (2).]
Under Explanation 1 to sub-s (2), inserted with effect from the assessment year 1992-93, any payment received in
Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer, from
another hotelier, tour operator or travel agent, as the case may be, on behalf of foreign tourists, shall be deemed to
have been received by the assessee in convertible foreign exchange provided that the person making the payment
issues a certificate to the assessee in the prescribed form [sub-ss (2) and (2A) read with r 18BBA(6), Form 10CCAE].
An assessee is entitled to deduction at the specified percentage of profit and a further deduction of equal amount,
provided such amount is debited to the profit and loss account and credited to a reserve account to be utilised for the
purpose of business [sub-s (1)]. The reserve so created is required to be utilised in accordance with the specified
purposes within a period of 5 years from the year in which the deduction is claimed [sub-s (4)]. In case the utilisation of
the reserve results in the creation of an asset outside India, a prior approval is required. Further, in the event that the
said reserve is not utilised for the specific purposes, or the manner as specified in sub-s (4), the amount so utilised will
become income of that year; and if the reserve is not utilised within the period of five years as specified, the unutilised
reserve shall become income of the year following the said period of five years [sub-s (5)]. The reserve can also be
utilised for subscription of shares of an eligible issue of capital by a public company, and if such shares are transferred
or sold within a period of three years from such acquisition, the said amount will be treated as the income of the year
in which they are so transferred or sold [sub-s (5A)].
In order to claim deduction under this section, a certificate in the prescribed form [sub-s (6) read with r 18BBA(4),
Form 10CCAD] is required to be furnished along with the return of income. From the assessment year 1999-2000,
when a deduction in respect of profits derived from the business of a hotel is claimed, such profits cannot qualify for
deduction under any other provision of Pt C of Ch VIA and the deduction cannot exceed the profits of such a hotel
[sub-s (7)]. However, furnishing of such report along with the return is not mandatory. It may be submitted before
assessment is complete.46 In a case under s 80HHC, it has been held that the report can be submitted even before the
Tribunal.47
Page 6 of 8
In the context of s 80 HHD, the undernoted case held that referable questions of law arose48 under s 256 .
17 Ins. by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 16 (w.e.f. 1-4-1989). See Circular No. 550, January
1, 1990, 182 ITR (St.) 114..
“in computing the total income of the assessee, a deduction of a sum equal to the aggregate of—
(a) fifty per cent. of the profits derived by him from services provided to foreign tourists; and
(b) so much of the amount out of the remaining profits referred to in clause (a) as is debited to the profit and loss account of the
previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes
of the business of the assessee in the manner laid down in sub-section (4):”.
19 Subs., for “twenty per cent.”, by the Finance Act, 2002 (20 of 2002), s 32(i) (w.e.f. 1-4-2003). See Circular No. Circular
No. 8 of 2002, August 27, 2002, 258 ITR (St.) 13.
19 Subs., for “twenty per cent.”, by the Finance Act, 2002 (20 of 2002), s 32(i) (w.e.f. 1-4-2003). See Circular No. Circular
No. 8 of 2002, August 27, 2002, 258 ITR (St.) 13.
20 Subs., for “ten per cent.”, by the Finance Act, 2002 (20 of 2002), s 32(ii) (w.e.f. 1-4-2003).
20 Subs., for “ten per cent.”, by the Finance Act, 2002 (20 of 2002), s 32(ii) (w.e.f. 1-4-2003).
21 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 29(a) (w.e.f. 1-10-1991). See Circular No. 621, December 19,
1991, 195 ITR (St.) 154.
22 Subs., for “by the assessee in convertible foreign exchange”, by the Finance Act, 1990 (12 of 1990), s 23(a) (w.e.f. 1-4-
1991).
47(a)(i) (w.e.f. 1-6-1999). See Circular No. 779, September 14, 1999, 240 ITR (St.) 3.
25 Explanation has been numbered as Explanation 1 thereof by the Finance Act, 1999 (27 of 1999), s 47(a)(ii) (w.e.f. 1-6-
1999).
26 Subs., for “from a tour operator or, as the case may be, a travel agent”, by the Finance Act, 1994 (32 of 1994), s 25(a)
(w.e.f. 1-4-1995). See Circular No. 684, June 10, 1994, 208 ITR (St.) 8.
Page 7 of 8
29 Subs., for “Explanation”, by the Finance Act, 1999 (27 of 1999), s 47(b) (w.e.f. 1-6-1999).
30 Sub-section (3) has been substituted by the Finance Act, 1990 (12 of 1990), s 23(b) (w.e.f. 1-4- 1991), for the
following:—
‘(3) For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be,—
(a) in a case where the business carried on by the assessee consists exclusively of services provided to foreign tourists resulting
in receipts in convertible foreign exchange, the profits of the business as computed under the head “Profits and gains of
business or profession”;
(b) in a case where the business carried on by the assessee does not consist exclusively of services provided to foreign tourists
resulting in receipts in convertible foreign exchange, the amount which bears to the profits of the business (as computed under
the head “Profits and gains of business or profession”) the same proportion as the receipts in convertible foreign exchange bear
to the total receipts of the business carried on by the assessee.’.
32 Ins. by the Finance Act, 1999 (27 of 1999), s 47(c)(i) (w.e.f. 1-4-2000).
33 Subs., for “clauses (a) to (e)”, by the Finance Act, 1999 (27 of 1999), s 47(c)(ii) (w.e.f. 1-4-2000).
35 Subs., for “amount of convertible foreign exchange received by the assessee for services provided by him to the
foreign tourists”, by the Finance (No. 2) Act 1991 (49 of 1991), s 29(d) (w.e.f. 1-4-1992).
36 The words “aggregate of the” have been omitted by the Finance Act, 1994 (32 of 1994), s 25(c)(i) (w.e.f. 1-4-1995).
37 Ins. by the Finance Act, 1994 (32 of 1994), s 25(c)(ii) (w.e.f. 1-4-1995).
38 Subs., for “Explanation to sub-section (2)”, by the Finance Act, 1999 (27 of 1999), s 47(e) (w.e.f. 1-6-1999).
39 Ins. by the Finance (No. 2) Act 1998 (21 of 1998), s 32 (w.e.f. 1-4-1999). See Circular No. 772, December 23, 1998,
235 ITR (St.) 35.
40 Section 32 (omitted w.r.e.f. 8-1-1993) of Act, 46 of 1973 has no equivalent provisions in new Act, 42 of 1999.
Page 8 of 8
42 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 29(e) (w.e.f. 1-4-1992).
44 Subs., for “the Foreign Exchange Regulation Act, 1973 (46 of 1973)”, by the Finance Act, 2013(17 of 2013), s 4 (w.e.f.
1-4-2013).
45 Ins. by the Finance Act, 1999 (27 of 1999), s 47(f) (w.e.f. 1-4-2000).
46 CIT v Pandian Hotels Ltd. 281 ITR 446 .
47 CIT v Magnum Export Ltd. 262 ITR 10, (2003) 183 CTR 75 (Cal).
48 CIT v UP Hotels Ltd. 245 ITR 212 .
End of Document
S. 80HHE. Deduction in respect of profits from export of computer software,
etc.
S. 80HHE. Deduction in respect of profits from export of computer software, etc.
(1) 49[Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged
in the business of,—
(i) export out of India of computer software or its transmission from India to a place outside India by any means;
(ii) providing technical services outside India in connection with the development or production of computer
software,
there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the
total income of the assessee,50[a deduction to the extent of the profits, referred to in sub-section (1B),]
derived by the assessee from such business:
51[Provided that if the assessee, being a company, engaged in the export out of India of computer
software, issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of
the export specified therein, the deduction under this sub-section is to be allowed to a supporting
software developer, then the amount of deduction in the case of an assessee shall be reduced by such
amount which bears to the total profits derived by the assessee from the export, the same proportion as
the amount of the export turnover specified in such certificate bears to the total export turnover of the
assessee.
52[Explanation.—For the removal of doubts, it is hereby declared that the profits and gains derived from
on site development of computer software (including services for development of software) outside India
shall be deemed to be the profits and gains derived from the export of computer software outside India.]
(1A) Where the assessee, being a supporting software developer, has during the previous year, developed and sold
computer software to an exporting company in respect of which the said company has issued a certificate under
the proviso to sub-section (1), 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 of the profits derived by the assessee from the
Page 2 of 6
developing and selling of computer software to the exporting company in respect of which the certificate has been
issued by the said company53[to such extent and for such years as specified in sub-section (1B)].]
(1B) 54[For the purposes of sub-sections (1) and (1A), the extent of deduction of the profits shall be an amount equal
to—
(i) eighty per cent. thereof for an assessment year beginning on the 1st day of April, 2001;
(iv) thirty per cent. thereof for an assessment year beginning on the 1st day of April, 2004,]
(2) The deduction specified in sub-section (1) shall be allowed only if the consideration in respect of the computer
software referred to in that sub-section is received in, or brought into India by the assessee in convertible foreign
exchange, within a period of six months from the end of the previous year or,56[within such further period as the
competent authority may allow in this behalf].
57[Explanation 1].—The said consideration shall be deemed to have been received in India where it is
credited to a separate account maintained for the purpose by the assessee with any bank outside India with
the approval of the Reserve Bank of India.
58[Explanation2.—For the purposes of this sub-section, the expression “competent authority” means the
Reserve Bank of India or such other authority as is authorised under any law for the time being in force for
regulating payments and dealings in foreign exchange.]
(3) For the purposes of sub-section (1), profits derived from the business referred to in that sub-section shall be the
amount which bears to the profits of the business, the same proportion as the export turnover bears to the total
turnover of the business carried on by the assessee.
(3A) 59[For the purposes of sub-section (1A), profits derived by a supporting software developer shall be,—
(i) in case where the business carried on by the supporting software developer consists exclusively of developing
and selling of computer software to one or more exporting companies solely engaged in exports, the profits of
such business;
(ii) in a case where the business carried on by a supporting software developer does not consist exclusively of
developing and selling of computer software to one or more exporting companies, the amount which bears to
the profits of the business, the same proportion as the turnover in respect of sale to the respective exporting
company bears to the total turnover of the business carried on by the assessee.
(4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form,
along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2)
Page 3 of 6
of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this
section.
(4A) 60[The deduction under sub-section (1A) shall not be admissible unless the supporting software developer
furnishes in the prescribed form along with his return of income,—
(a) the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that
the deduction has been correctly claimed on the basis of the profits of the supporting software developer in
respect of sale of computer software to the exporting company; and
(b) a certificate from the exporting company containing such particulars as may be prescribed and verified in the
manner prescribed that in respect of the export turnover mentioned in the certificate, the exporting company
has not claimed deduction under this section:
Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the
accounts of the exporting assessee under the provisions of this Act or under any other law.]
(5) Where a deduction under this section is claimed and allowed in respect of profits of the business referred to in
sub-section (1) for any assessment year, no deduction shall be allowed in relation to such profits under any other
provision of this Act for the same or any other assessment year.
(a) “convertible foreign exchange” shall have the meaning assigned to it in clause (a) of the Explanation to section
80HHC ;
(b) 61[“computer software” means,—
(i) any computer programme recorded on any disc, tape, perforated media or other information storage
device; or
(ii) any customised electronic data or any product or service of similar nature as may be notified by the
Board,
which is transmitted or exported from India to a place outside India by any means;]
(c) “export turnover” means the consideration in respect of computer software received in, or brought into, India
by the assessee in convertible foreign exchange in accordance with sub-section (2), but does not include
freight, telecommunication charges or insurance attributable to the delivery of the computer software outside
India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;
(ca) 62[“exporting company” means a company referred to in sub-section (1) making actual export of computer
software;]
Page 4 of 6
(d) “profits of the business” means the profits of the business as computed under the head “Profits and gains of
business or profession” as reduced by—
(1) ninety per cent. of any receipts by way of brokerage, commission, interest, rent, charges or any other
receipt of a similar nature included in such profits; and
(2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside
India;
(e) “total turnover” shall not include—
(i) any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 ;
(ii) any freight, telecommunication charges or insurance attributable to the delivery of the computer software
outside India; and
(iii) expenses, if any, incurred in foreign exchange in providing the technical services outside India;]
(ea) 63[“supporting software developer” means an Indian company or a person (other than a company)
resident in India, developing and selling computer software to an exporting company for the purposes of
export.]
Section 80HHE : Profits from Export of Computer Software etc.—This section was inserted by the Finance (No
2) Act 1991 with effect from the assessment year 1991-92 with a view to providing fiscal incentive for promoting
growth of computer software and for providing tax concessions similar to those available under s 80HHC in relation to
commodity exports. The section has been amended by the Finance Act, 2000, and the deduction under this section is
now curtailed in a phased manner and will not be available from the assessment year 2005-06. The scope of this
section is explained in undernoted cases.63a
The deduction under this section is available to an Indian company or non-corporate assessee who is a resident in
India with regard to profits from the export of software, not only through magnetic media or on paper, but also through
satellite data link and consultancy delivered at the location of foreign client outside India (sub-s (1)].
The deduction under this section is available only in cases where the consideration in respect of the computer
software is received in or brought into India in convertible foreign exchange within six months from the end of relevant
financial year or within such further period as the commissioner may allow [sub-s (2)]. With effect from June 1, 1999,
this authority is now vested in the Reserve Bank of India. Further, credit of such consideration to a separate bank
account outside India with the approval of the Reserve Bank of India is deemed to be received in India [Explanation 1
to sub-s (1)].
The deduction under this section is available with respect to the profits of the business in the same proportion as the
Page 5 of 6
export turnover bears to the total turnover [sub-s (3)]. In order to claim deduction under this section, a report from a
chartered accountant is required to be enclosed with the return of income [sub-s (4), see r 18BBA(7) ]. Further, no
deduction shall be allowed under any other provision for the same or any other assessment year in respect of the
profits of the business in relation to which a deduction is allowed under this section [sub-s (5)].
The deduction under this section is also allowable to a supporting software developer provided that a company
engaged in such exports issues a certificate [sub-s (4A), see r 18BBA(8) ] in favour of such a supporting software
developer. The supporting software developer is required to furnish a certificate from a chartered accountant in
connection with the correctness of the claim for deduction and the certificate from the exporting company, along with
the return of income [sub-s (4A)].
In the context of s 80 HHE, the undernoted cases held that referable questions of law arose64 under s 256 .
49 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 30 (w.r.e.f. 1-4-1991). See Circular No. 621, December 19, 1991,
195 ITR (St.) 154.
50 Subs., for “a deduction of the profits”, by the Finance Act, 2000 (10 of 2000), s 36(a) (w.e.f. 1-4-2001). See Circular
No. 794, August 9, 2000, 245 ITR (St.) 21.
51 The proviso and sub-section (1A) have been inserted by the Finance (No. 2) Act 1998 (21 of 1998), s 33(a) (w.e.f. 1-4-
1999). See Circular No.772, December 23, 1998, 235 ITR (St.) 35.
The original proviso to section 80HHE (1) was omitted by the Finance Act, 1995 (22 of 1995), s 18 (w.e.f. 1-4-1996). Prior to its
omission, the said proviso stood as under:—
‘Provided that no such duduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1996,
or any subsequent assessment year.’.
In the above proviso, the figures “1996” were substituted for “1995” by the Finance Act, 1994 (32 of 1994), s 26 (w.e.f. 13-5-
1994). Earlier, the figures “1995” were substituted for “1994” by the Finance Act, 1993 (38 of 1993), s 14 (w.e.f. 13-5-1993).
52 Ins. by the Finance Act, 2001 (14 of 2001), s 42(a) (w.e.f. 1-4-2001). See Circular No. 14 of 2001, 252 ITR (St.) 65.
“(ii) sixty per cent. of such profits for an assessment year beginning on the 1st day of April, 2002;
(iii) forty per cent. of such profits for an assessment year beginning on the 1st day of April, 2003;
(iv) twenty per cent. of such profits for an assessment year beginning on the 1st day of April, 2004,”.
56 Subs., for “where the Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons
beyond his control, unable to do so within the said period of six months, within such further period as the Commissioner
Page 6 of 6
may allow in this behalf”, by the Finance Act, 1999 (27 of 1999), s 48(a) (w.e.f. 1-6-1999). See Circular No. 779,
September 14, 1999, 240 ITR (St.) 3.
57 Explanation has been numbered as Explanation 1 thereof by the Finance Act, 1999 (27 of 1999), s 48(b) (w.e.f. 1-6-
1999).
‘(b) “computer software” means any computer programme recorded on any disc, tape, perforated media or other information
storage device and includes any such programme 1[or any customised electronic data] which is transmitted from India to a place
outside India by any means;’.
1. Ins. by the Finance (No. 2) Act 1998 (21 of 1998), s 33(d)(i) (w.e.f. 1-4-1999).
62 Ins. by the Finance (No. 2) Act 1998 (21 of 1998), s 33(d)(ii) (w.e.f. 1-4-1999).
63 Ins. by the Finance (No. 2) Act 1998 (21 of 1998), s 33(d)(iii) (w.e.f. 1-4-1999).
63a CIT v B.T. System and Services Ltd. 358 ITR 30 .
64 CIT v Mangalam Arts 258 ITR 582 ; CIT v Motilal R Minda 250 ITR 831 .
End of Document
S. 80HHF. Deduction in respect of profits and gains from export or transfer
of film software, etc.
S. 80HHF. Deduction in respect of profits and gains from export or transfer of film software, etc.
(1) 65[Where an assessee, being an Indian company66[or a person (other than a company) resident in India], is
engaged in the business of export or transfer by any means out of India, of any film software, television software,
music software, television news software, including telecast rights (hereafter in this section referred to as the
software or software rights), there shall, in accordance with and subject to the provisions of this section, be
allowed, in computing the total income of the assessee,67[a deduction to the extent of profits, referred to in sub-
section (1A)] derived by the assessee from such business.
(1A) 68[For the purposes of sub-section (1), the extent of deduction of profits shall be an amount equal to—
(i) eighty per cent. of such profits for an assessment year beginning on the 1st day of April, 2001;
(iv) thirty per cent. thereof for an assessment year beginning on the 1st day of April, 2004],
(2) The deduction specified in sub-section (1) shall be allowed only if the consideration in respect of the software or
software rights referred to in that sub-section is received in, or brought into India by the assessee in convertible
foreign exchange, within a period of six months from the end of the previous year or within such further period as
the competent authority may allow in this behalf.
(3) For the purposes of sub-section (1), profits derived from the business referred to in that sub-section shall be the
amount which bears to the profits of the business, the same proportion as the export turnover bears to the total
turnover of the business carried on by the assessee.
Page 2 of 4
(4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed
form70, along with the return of income, the report of an accountant, as defined in the Explanation below sub-
section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the
provisions of this section.
(5) Where a deduction under this section is claimed and allowed in respect of profits of the business referred to in
sub-section (1) for any assessment year, no deduction shall be allowed in relation to such profits under any other
provision of this Act for the same or any other assessment year.
(6) Notwithstanding anything contained in this section, no deduction shall be allowed in respect of the software or
software rights referred to in sub-section (1), if such business is prohibited by any law for the time being in force.
(a) “competent authority” means the Reserve Bank of India or such other authority as is authorised under any law
for the time being in force for regulating payments and dealings in foreign exchange;
(b) “convertible foreign exchange” shall have the meaning assigned to it in clause (a) of the Explanation to section
80HHC ;
(c) “export turnover” means the consideration in respect of the software or software rights specified in clauses (d),
(e), (g), (h) and (i), received in, or brought into India by the assessee in convertible foreign exchange in
accordance with sub-section (2), but does not include freight, telecommunication charges or insurance
attributable to the delivery of such software outside India or expenses, if any, incurred in foreign exchange in
providing the technical services outside India;
(d) “film software” means a copy of a cinematograph film made by any process analogous to cinematography on
acetate polyester or celluloid film positive, magnetic tape, digital media or other optical or magnetic devices
and certified by the Board of film certification constituted by the Central Government under section 3 71 of the
Cinematograph Act, 1952 (37 of 1952);
(e) “music software” includes series of sounds or music recorded on magnetic tape, cassette, compact discs and
digital media which can be played or reproduced on any appropriate apparatus;
(f) “profits of the business” means the profits of the business as computed under the head “Profits and gains of
business or profession” as reduced by—
(A) ninety per cent. of any receipts by way of brokerage, com-mission, interest, rent, charges or any other
receipt of a similar nature included in such profits; and
(B) the profits of any branch, office, warehouse or any other establishment of the assessee situated outside
India;
(g) “telecast rights” means a licence or contract to exhibit motion pictures or television programmes over a
television network either through terrestrial transmission or through a satellite broadcast in a specified
territory;
(h) “television news software” means a collection of sounds and images, reportage, data and voice of actualities
broadcast either through terrestrial transmission, wire or satellite, live or pre-recorded on video cassettes or
digital media;
(i) “television software” means any programme or series of sounds and images recorded on film or tape or digital
media or broadcast through terrestrial transmitter, satellite or any other means of diffusion;
Page 3 of 4
(j) “total turnover” shall not include—
(A) any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 ;
(B) any freight, telecommunication charges or insurance attributable to the delivery of the film software,
music software, telecast rights, television news software, or television software as defined in clauses (d),
(e), (g), (h) or (i), as the case may be, outside India;
(C) expenses, if any, incurred in foreign exchange in providing the technical services outside India.]
Section 80HHF : Profits and Gains from Export or Transfer of Film Software, etc.—This section was inserted by
the Finance Act, 1999 with effect from the assessment year 2000-01 with a view to provide fiscal incentive to an Indian
company or a non-corporate assessee who is a resident in India for promoting the growth of the export of film,
television, music and television news software (including telecast rights). The section has been amended by the
Finance Act, 2000, and the deduction under this section is now curtailed in a phased manner and will not be available
from the assessment year 2005-06.
The deduction under this section is available only in cases where the consideration in respect of such software or
software rights is received in or brought into India in convertible foreign exchange within six months from the end of
relevant financial year or within such further period as the commissioner may allow [sub-s (2).] In a case where an
assessee provided the raw material, leased the equipment and made arrangements for a foreign party to shoot a film
in India, it was held that there was no export of film software by the assessee since the assessee never owned the
film. The film always belonged to the foreign party.72 With effect from June 1, 1999, this authority is now vested in the
Reserve Bank of India. Further, credit of such consideration to a separate bank account outside India with the
approval of Reserve Bank of India is deemed to be received in India [Explanation 1 to sub-s (1)].
The deduction under this section is available with respect to profits of the business in the same proportion that the
export turnover bears to the total turnover [sub-s (3)]. In order to claim deduction under this section, a report from a
chartered accountant is required to be enclosed with the return of income [sub-s (4), see r 18BBA(9) ]. Further, no
deduction shall be allowed under any other provision for the same or any other assessment year in respect of the
profits of the business in relation to which a deduction is allowed under this section [sub-s (5)]. The deduction under
this section is also not allowable in respect of any business that is prohibited by law [sub-s (6)]. If an assessee was
eligible to a deduction under s 80HHC, merely because the assessee falls within the scope of this section, the
deduction cannot be disallowed for the years prior to assessment year 2000-01.73
66 Ins. by the Finance Act, 2000 (10 of 2000), s 37(a)(i) (w.e.f. 1-4-2000).
Page 4 of 4
67 Subs., for “a deduction of the profits”, by the Finance Act, 2000 (10 of 2000), s 37(a)(ii) (w.e.f. 1-4-2001).
69 Subs. by the Finance Act, 2001 (14 of 2001), s 43 (w.e.f. 1-4-2002), for the following:—
‘(ii) sixty per cent. of such profits for an assessment year beginning on the 1st day of April, 2002;
(iii) forty per cent. of such profits for an assessment year beginning on the 1st day of April, 2003;
(iv) twenty per cent. of such profits for an assessment year beginning on the 1st day of April, 2004,’.
70 See, rule 18BBA (9) of the Income-tax Rules, 1962, and Form No. 10CCAI appended to those Rules.
72 Kas Movie Makers P. Ltd. v CIT 323 ITR 373 .
73 CIT v Superstar Music 291 ITR 8, (2007) 210 CTR 128 (Mad); Abdulgafar A. Nadiadwala v ACIT 267 ITR 488,
(2004) 188 CTR 232 (Bom); CIT v Giza Impex P. Ltd. 293 ITR 301, (2008) 166 Taxman 30 (Mad) (affirmed in CIT v B
Suresh 313 ITR 149 (SC), (2009) 11 SCC 643 ; CIT v Sun TV Ltd 296 ITR 274, (2007) 211 CTR 108 (Mad).
End of Document
S. 80-I. Deduction in respect of profits and gains from industrial
undertakings after a certain date, etc.
S. 80-I. Deduction in respect of profits and gains from industrial undertakings after a certain date, etc.
(1) 74[Where the gross total income of an assessee includes any profits and gains derived from an industrial
undertaking or a ship or the business of a hotel75[or the business of repairs to ocean-going vessels or other
powered craft] 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 twenty per cent. thereof:
Provided that in the case of an assessee, being a company, the provisions of this sub-section76[shall have effect in relation
to profits and gains derived from an industrial undertaking or a ship or the business of a hotel] as if for the words “twenty
per cent.”, the words “twenty-five per cent.” had been substituted.
(1A) 77[Notwithstanding anything contained in sub-section (1), in relation to any profits and gains derived by an
assessee from—
(i) an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold
storage plant or plants; or
(ii) a ship which is first brought into use; or
(iii) the business of a hotel which starts functioning,
on or after the 1st day of April, 1990,78[but before the 1st day of April, 1991,] 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 twenty-five per cent. thereof:
Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have
effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a
hotel as if for the words “twenty-five per cent.”, the words “thirty per cent.” had been substituted.]
Page 2 of 16
(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence;
(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, and begins to
manufacture or produce articles or things or to operate such plant or plants, at any time within the period
of79[ten years] next following the 31st day of March, 1981, or such further period as the Central Government
may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;
(iv) 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:
Provided that the condition in clause (i) shall not apply in respect of any 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:
Provided further that the condition in clause (iii) 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.
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 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.
Explanation 3.—For the purposes of this sub-section, “small-scale industrial undertaking” shall have
the same meaning as in clause (b) of the Explanation below sub-section (8) of section 80HHA .
Page 3 of 16
(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 within the period of80[ten years] next following the 1st
day of April, 1981.
(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 hotel is for the time being approved for the purposes of this sub-section by the Central Government;
(iv) the business of the hotel starts functioning after the 31st day of March, 1981, but81[before the 1st day of
April,82[1991]].
(4A) 83[This section applies to the business of repairs to ocean-going vessels or other powered craft which fulfils all the
following conditions, namely:—
(i) the business is not formed by the splitting up, or the re-construction, of a business already in existence;
(iii) it is carried on by an Indian company and the work by way of repairs to ocean-going vessels or other powered
craft has been commenced by such company after the 31st day of March, 1983, but before the 1st day of
April, 1988; and
(iv) it is for the time being approved for the purposes of this sub-section by the Central Government.]
(5) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of 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 functioning84[or the company commences work by way of repairs to ocean-going
vessels or other powered craft] (such assessment year being hereafter in this section referred to as the initial
assessment year) and each of the seven assessment years immediately succeeding the initial assessment year:
Provided that in the case of an assessee, being a co-operative society, the provisions of this sub-section
shall have effect as if for the words “seven assessment years” the words “nine assessment years” had been
substituted:
Page 4 of 16
85[Provided further that in the case of an assessee carrying on the business of repairs to ocean-going
vessels or other powered craft, the provisions of this sub-section shall have effect as if for the words “seven
assessment years”, the words “four assessment years” had been substituted:]
86[Provided also that in the case of—
(i) an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold
storage plant or plants; or
(ii) a ship which is first brought into use; or
(iii) the business of a hotel which starts functioning,
on or after the 1st day of April, 1990,87[but before the 1st day of April, 1991,] provisions of this sub-
section shall have effect as if for the words “seven assessment years”, the words “nine assessment
years” had been substituted:
Provided also that in the case of an assessee, being a co-operative society, deriving profits and gains
from an industrial undertaking or a ship or a hotel referred to in the third proviso, the provisions of that
proviso shall have effect as if for the words “nine assessment years”, the words “eleven assessment
years” had been substituted.]
(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial
undertaking or a ship or the business of a hotel88[or the business of repairs to ocean-going vessels or other
powered craft] to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum
of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or
any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the
hotel89[or the business of repairs to ocean-going vessels or other powered craft] were the only source of income
of the assessee during the previous years 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.
(7) 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.
(8) Where any goods held for the purposes of the business of the industrial undertaking or the hotel or the operation
of the ship89[or the business of repairs to ocean-going vessels or other powered craft] 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 business of the industrial undertaking or the hotel or the operation of the
ship90[or the business of repairs to ocean-going vessels or other powered craft] and, in either case, the
consideration, if any, for such transfer as recorded in the accounts of the business of the industrial undertaking or
the hotel or the operation of the ship90 [or the business of repairs to ocean-going vessels or other powered craft]
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 the industrial undertaking or the business of the hotel or
the operation of the ship90[or the business of repairs to ocean-going vessels or other powered craft] shall be
computed as if the transfer, in either case, had been made at the market value of such goods as on that date:
Page 5 of 16
Provided that where, in the opinion of the91[Assessing Officer], the computation of the profits and gains of the
industrial undertaking or the business of the hotel or the operation of the ship90[or the business of repairs to
ocean-going vessels or other powered craft] in the manner hereinbefore specified presents exceptional
difficulties, the91.[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.
(9) Where it appears to the91[Assessing Officer] that, owing to the close connection between the assessee carrying
on the business of the industrial undertaking or the hotel or the operation of the ship92[or the business of repairs to
ocean-going vessels or other powered craft] 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 the business of the
industrial undertaking or the hotel or the operation of the ship92[or the business of repairs to ocean-going vessels
or other powered craft] the93[Assessing Officer] shall, in computing the profits and gains of the industrial
undertaking or the hotel or the ship94[or the business of repairs to ocean-going vessels or other powered craft] for
the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to
have been derived therefrom.
(10) 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.]
1. Legislative History.— Section 80-I was inserted by the Finance (No. 2) Act, 1967 with effect from April 1, 1968. It
granted a deduction for priority industries and replaced s 80E . This section was omitted by the Finance Act, 1972 with
effect from April 1, 1973 and remained omitted till April 1, 1981 when it was re-inserted by the Finance (No. 2) Act,
1980. In its new avatar, this section granted profit based deduction to new industrial undertakings as against deduction
on the capital employed under s 80J (now omitted). The deduction, subject to certain changes, was between 20 to 25
per cent. of the profits for a period of 8 to 10 years. Industrial undertakings which were formed upto March 31, 1981
received the benefit of s 80J and undertakings which were set up after this date could avail the deduction under s 80-I
. The scope of the section was expanded later and, like all other provisions under Chapter VI-A, was frequently
amended. The section granted benefits to industrial undertakings which commenced operations prior to March 31,
1997. Consequently, industries that commenced operations after this date would not be entitled for the benefit of s 80-I
but could avail benefit of s 80-IA . The legislative history of s 80-IA is dealt with in that section.
This is one of a group of sections which deals with the eligibility of certain types of industrial and other undertakings to
claim deductions on profits derived from that activity. Unfortunately, as discussed below, a string of erroneous
decisions at the High Court and even Supreme Court level have substantially reduced the scope of this provision.
2. Deleted Section 80-I : Profits ‘Attributable to’.—In computing the profits “attributable to” a priority industry1 and
the quantum of deduction under this section, the unabsorbed depreciation and development rebate carried forward
from earlier years relating to that industry2 and the carried forward loss in that industry3 had to be taken into account,
but not the carried forward deficiencies under s 80J 4 (now omitted) nor the current year’s loss in another business,
whether or not it was a priority industry.5
Page 6 of 16
The section referred to the profits ‘attributable to’ (which expression is wider than the expression ‘derived from’) a
priority industry.6 Therefore, the amount subjected to balancing charge under s 41(2) relating to the assets used in the
priority industry,7 profits on the sale of scrap8 or spare parts9 by the manufacturer in the priority industry, charges for
service10 or repairs11 in respect of the supplies made by such manufacturer, interest charged on unpaid sale price,12
interest received on security deposits made for the purpose of the priority business,13 fees received for imparting
technical knowledge relating to the priority industry,14 rent (in an appropriate case) derived from letting out machinery15
or profits from the manufacture of products integrated with,16 the priority industry, and export incentives,17 import
entitlements,18 and cash subsidies19—had to be treated as profits attributable to that industry. Further, to qualify for
deduction under this section it was not necessary that the industry should have actually functioned during the relevant
accounting year.20 The benefit of the section was available irrespective of whether the scheduled items manufactured
by the assessee were for sale or for captive consumption.21
3. Sub-section (1): Meaning of “Derived From”.—It is vital to understand the distinction between profits derived
from an undertaking and the income of the assessee to whom the undertaking belongs. The quantum of the deduction
is calculated as a percentage of the former, but is reduced from the latter. As the Supreme Court has rightly pointed
out, s 80-I, is therefore, a profit-linked and not an investment-linked deduction.22 What constitutes profits and gains
“derived from” the industrial undertaking is, therefore, a question of fundamental importance.
A large number of cases have arisen because of the restricted meaning given to the word “derived from” as opposed
to the expression “attributable to”. This expression first came up for consideration before the Supreme Court23 which
had to interpret these expressions in the context of the erstwhile sections 80E . The expression “attributable to”, it was
held, is wider than the expression “derived from”. “Attributable to” showed that the legislature wanted to give larger
benefit and the expression “derived from” was used when the words had to be given a restricted meaning. The
expression “attributable to” requires a casual connection and the earning of the income must be directly connected to
the manufacture and processing of goods. This decision was rendered in the context of s 104 (now omitted). It is
submitted that the test of “casual connection” is much wider than test of direct connection. As long as the income has
some nexus with the activity, the benefit should not be denied.24 The question of direct and indirect connection is not
relevant.
4. Sub-section (1): The Erroneous “First degree source”/ “direct nexus” Test.—Unfortunately, without analysis
of the wealth of authority on the meaning of this expression in India and elsewhere in the common law world, the
Supreme Court, in Liberty India v CIT 25 held that “derived from” is narrower than “attributable to” and that “Parliament
intended to cover sources not beyond the first degree”. It is respectfully submitted that this conclusion is clearly wrong.
Although there are many decisions in which the need for a “direct nexus” has been emphasized, “direct nexus” does
not mean “immediate source” or “first-degree source”. In the classic decision on the meaning of “derived”, the Privy
Council emphasized that the court must enquire “into the genealogy of the product” and that the search is for the
effective (and, by implication, not necessarily immediate) source.26 The English courts have also held that the meaning
of the expression “derived from” is “to trace, or show the origin” and that it is not confined to first-degree sources: the
focus is on the effective cause or source, not the sequentially proximate or immediate.27 The anomalous
consequences of Liberty India are best illustrated by the application of the principle to the facts of that case: Kapadia
J, as he then was, held that a duty drawback received by exporters on customs/excise duty paid on raw material
utilised for exports is not “derived from” the industrial undertaking because the “first degree source” is the Customs
Act/DEPB Scheme (which grants the exemption) and not the industrial activity that triggers the exemption.28 According
to the Supreme Court, the industrial activity is a “second degree” or indirect source and, therefore, not covered.29 It
takes a moment’s reflection to realise that this would artificially exclude all sorts of receipts that are, in truth, derived
from the industrial activity: for example, it may be said that a Minimum Support Price paid by the Government is not
profit derived from an eligible industrial undertaking because the first degree source is Government policy, or that
profits generated by the sale of scrap used in production are not covered because the first degree source is the scrap
and not the process of production in which it is produced, and so on. It is submitted that the “first degree source” test
Page 7 of 16
should be abandoned: the correct test, as Warner J. pointed out in his illuminating judgment in Zim Properties, is to
“look for the real (rather than immediate) source”.30 This may be the immediate source if that happens to be the
effective source, but not otherwise. To give a few examples: statutory compensation payable to a licensee of a
property on the withdrawal of permission to hold drag races was “derived” not from the statute (even though this was
the first degree or immediate source) but from the licence;31 compensation paid to an assessee in settlement of a tort
claim for negligent advice in relation to the sale of a property was “derived” not from the property but from the right
(which was also the immediate source).32 Thus, there is no rule of law that the immediate source is, or is not, the
effective source: it depends on the particular transaction, but it is a mistake to conclude, as the Supreme Court did,
that a source is not effective unless it is immediate or “first degree”. Kapadia J’s observation that “derived from” is
narrower than “attributable to” is neither here nor there this section uses the former expression and it must be
construed on its own terms, in the light of the abundant authorities on the point.
Amounts received by way of job work and from sale of empty soda ash bags, empty barrels and plastic waste are
eligible for deduction under s 80-I .33
The assumption that “direct nexus” means “first degree source” has led to a number of erroneous decisions and has
been consecrated in the law after Liberty India. For example, the Karnataka High Court has held that revenue earned
from activities connected with the manufacture or production of an article or a thing must be excluded because of s 80-
I(2)(iii) .34 The High Court overlooked the fact that sub-cl (iii) only required the assessee to carry on an industrial
undertaking which manufactured or produced an article or thing. Sub-clause (iii) did not deal with the question whether
ancillary activities (for example, installation or service charges) were covered: that question was governed by the
words “derived from” in the opening sentence of s 80-I . The Delhi High Court has held that a manufacturer of an
article or a thing cannot claim deductions based on profits earned by the sale of spare parts (even though it is
obviously incidental and essential for the main business) or the sale of imported and superior versions of its own
product (which is correct).35 The Madhya Pradesh High Court held that liquidated damages received by a seller from
the purchaser for breach of contract are not covered.36 The curious anomaly is that, after Saurashtra Cement,37 such
receipts are taxed as revenue receipts precisely because they are assumed to represent a substitute for the sale price.
Several courts have held that interest on loans, bank guarantees, deposits etc is excluded: this may be correct, but the
real reason is that the effective source is not the industrial activity from the proceeds of which the loan is made, but the
loan itself.38 One High Court has held that articles or things manufactured on a job work basis are excluded inter alia
because of the narrow meaning of “derived from”,39 but other courts have taken the contrary view on the ground that
job workers are covered provided they work under the direction and control of the assessee.40
A comparison of this line of cases with those in which the High Courts have allowed the benefit of this section for
incidental activities reveals the tension introduced into the law by the Liberty India “first degree source” test. For
example, the Gujarat High Court has held that income generated by the sale of containers in which the assessee had
purchased raw material was derived from the industrial undertaking, pointing out that the economic effect of the
transaction was to reduce the cost of purchase.41 Similarly, the High Courts have allowed interest on credit given to
trade debtors on the ground that it is intrinsically connected with the industrial activity,42 refund of excise duty on the
ground that it inflates profit by reducing cost,43 and interest on delayed payments by customers on the ground that it
would not have been earned but for the manufacturing and sale activity.44 It is submitted that these decisions are, in
principle, correct. However, a faithful application of the “first degree source” test would have led to the opposite
conclusion in all four cases, since the immediate source of the income was the sale of containers, the grant of credit,
the Central Excise Act and the contract stipulating payment of interest, respectively, and not the sale of articles
manufactured with the raw material stored in the containers/sale of articles on credit/sale of excisable articles/sale of
articles the payment for which was delayed. Cases like this underscore the need to overrule Liberty India.
(c) Manufacture or Production.—With respect to industrial undertakings, the section provides that it is eligible only if
it engages in the activity of ‘manufacture’ or ‘production’ of the items specified. The courts have rightly held that the
Page 8 of 16
word “production” is wider than “manufacture”, and the fact that both expressions have been used shows that they do
not bear the same meaning.45
5. Sub-section (1A).—This sub-section makes it clear that no deduction will be permissible under section 80I after
April 1, 1991.
6. Sub-sections (2) to (4): Standard Conditions.—These sub-sections deal with various conditions for grant of
deduction and are similar to those contained in other provisions of Chapter VIA. In a nutshell, these sub-sections seek
to ensure that only new or substantially new ventures get the benefit of the deduction and place a limit on the
percentage.
The assessee cannot claim the deduction merely by modernising existing plant and machinery or by adding labour
force.46 However, the fact that the assessee has acquired an otherwise newly established industrial undertaking by
virtue of an amalgamation under the Companies Act, 1956, does not mean that this condition is not fulfilled.47
The Allahabad High Court has held that word “employs” in sub-cl (iv) of sub-s (ii) contemplates an employer-employee
relationship between the assessee and the worker, and ‘employees’ of independent contractors engaged by the
assessee are not covered.48 The Gujarat High Court has taken the contrary view on the ground that the dictionary
meaning of the word ‘employ’ is to “avail the services of” another person.49 It is submitted that the Gujarat High Court’s
reasoning is incorrect because the word “employ” is a legal term of art and as such contemplates an employer-
employee relationship. In an excellent judgment, the Delhi High Court has correctly held that the distinction between a
contract of service and a contract for services, firmly established in Indian law, cannot be ignored in applying s 80-I .50
It also pointed out that the distinction between manufacture with and without the aid of the power presupposes that the
work is not done on a job work basis. The provisions relating to employment are an incentive to create employment
and not contract the work out to an external employer. The only anomaly, which, in any case, the Gujarat High Court
did not cite in support of its view, is that this is inconsistent with the extension of some labour legislation to job
workers.
The meaning of the expressions ‘industrial undertaking’, ‘formed’, ‘reconstruction’, ‘manufacturing’, ‘production’, and so
on, occurring in sub-section (2) has been set out in detail in the commentary under s 80J . The reader may also refer
to other sections in Chapter VIA that contain these words.
7. Sub-section (5): Initial Assessment Year.—It is submitted that the deduction will commence when the
undertaking begins to manufacture or produce articles or things which are final products. The year in which trial
production or prototypes are made will not be relevant to calculate the “initial assessment year”.51
8. Sub-section (6): Deduction and the General Computation Mechanism in the Act.— Since this section grants a
deduction of profits derived from an undertaking, assessees have frequently argued that losses incurred by other
undertakings belonging to the same assessee or carried forward losses should not be set-off before applying the
provisions of this section. This controversy led to substantial litigation in the High Courts in the country. The answer to
this question depends on a correct analysis of the relationship between the computation mechanism in this section
and the computation mechanism that operates for the rest of the Act. In Synco Industries,52 the Supreme Court
rejected the contention of the assessee that a deduction can be claimed even if the gross total income [as defined in s
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80B(5) ] computed in accordance with the provisions of the Act is zero (thereby creating a loss, which can be carried
forward). It is submitted that this decision is correct, for two reasons. First, as the Supreme Court rightly pointed out, s
80-I(1) grants a deduction ‘of’ profits and gains derived from an undertaking ‘from’ the gross total income of the
assessee. Where the gross total income is zero, there is nothing from which the profits can be deducted. Secondly, s
80A(2) provides that the deduction granted under this section shall not exceed the gross total income of the assessee.
This obviously means that the gross total income (whether positive, zero or negative) must be more than the deduction
granted, and it follows that the assessee is not entitled to any deduction if the gross total income is itself zero or
negative. Thirdly, the Supreme Court correctly pointed out that the non-obstante clause in sub-section (6) cannot
override sub-section (1), because sub-section (6) deals only with the quantum of the deduction. In addition, it would
also introduce an unjustifiable distinction between industrial undertakings, on one hand, and other entities to which this
section applies, on the other. This judgment has settled the controversy and has been uniformly followed by the High
Courts.53
A claim under this section can be made simultaneously with a claim under s 80HHA .54
9. Sub-section(6): Other Implications of Synco Industries.—The High Courts55 have held that the AO cannot, in
view of sub-s (6), set off the losses of one industrial undertaking against another for the purpose of computing the
deduction, even though he is required to do so (in view of Synco Industries) for the purpose of computing the gross
total income. Nor does Synco Industries render sub-s (6) otiose: that provision still applies in calculating the quantum
of the deduction. By applying it, for example, the courts have held that a loss incurred by the industrial undertaking in
one assessment year has to be ‘notionally’ carried forward and set off against the profits of the subsequent
assessment year before applying sub-section (1).56
10. Sub-section (7): Audit Report.—This is again a standard requirement of an audit report in the prescribed form
that has to accompany the return of income.
11. Sub-sections (8) and (9): Shifting Profits.—Sub-section (8) cannot be invoked unless the AO returns a finding
that the transaction value was below market price.57 Sub-section (9) applies only to a transaction between the
assessee and an outsider and not to transactions between different undertakings belonging to the same assessee.58 It
cannot be invoked merely because there is a “close connection” between the assessee and the third party: the AO
must return a finding that there was an “arrangement” owing to that connection which resulted in the inflation of
profits.59 When an assessee has more than one industrial undertaking to which this section applies, disputes often
arise as to the correct apportionment of turnover and profit between the undertakings. The Supreme Court has held
(obiter) that there is no statutory obligation on the assessee to maintain unit-wise accounts to be able to claim the
benefit of this section.60 Although sub-section (7) requires the assessee to file Form 10CCB (audit report) along with
the return, the benefit of s 80I cannot be denied if he files it before the assessment is completed, provided there are
good reasons for the delay.61
12. Questions of Fact.—The High Court will not interfere with a finding by the Tribunal on a point of fact relating to
the conditions set out in this section.62 For example, whether the assessee’s industrial undertaking is a new
undertaking or when it was established is a question of fact.63
13. Appeal and Reference.—In the context of s 80-I, the undernoted cases held that referable questions of law
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In the context of s. 80-I, the undernoted cases held that substantial question of law did not arise.66
74 Ins. by the Finance (No. 2) Act 1980 (44 of 1980), s 16 (w.e.f. 1-4-1981). See Circular No. 281, September 22, 1980,
131 ITR (St.) 4. It may be noted that the originally enacted section 80-I was omitted by the Finance Act, 1972 (16 of
1972), s 18 (w.e.f. 1-4-1973). See Circular No. 108, March 20, 1973, 131 ITR (St.) 4.
75 Ins. by the Finance Act, 1983 (11 of 1983), s 25(a)(i) (w.e.f. 1-4-1984). See Circular No. 372, December 8, 1983, 146
ITR (St.) 9.
76 Subs., for “shall have effect”, by the Finance Act, 1983 (11 of 1983), s 25(a)(ii) (w.e.f. 1-4-1984).
77 Sub-section (1A) has been inserted by the Finance Act, 1990 (12 of 1990), s 24(a) (w.e.f. 1-4-1990). See Circular No.
572, August 3, 1990, 186 ITR (St.) 81.
78 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 31(a) (w.r.e.f. 1-4-1991). See Circular No. 621, December 19,
1991, 195 ITR (St.) 154.
79 Subs., for “fourteen years”, by the Finance (No. 2) Act 1991 (49 of 1991), s 31(b) (w.r.e.f. 1-4-1991). Earlier, the words
“fourteen years” were substituted for “nine years” by the Finance Act, 1990 (12 of 1990), s 24(b) (w.e.f. 1-4-1990). Still
earlier, the words “nine years” were substituted for “four years” by the Finance Act, 1985 (32 of 1985), s 20(a) (w.e.f. 1-
4-1985). See Circular No. 421, June 12, 1985, 156 ITR (St.) 130.
80 Subs., for “fourteen years”, by the Finance (No. 2) Act 1991 (49 of 1991), s 31(c) (w.r.e.f. 1-4-1991). Earlier, the words
“fourteen years” were substituted for “nine years” by the Finance Act, 1990 (12 of 1990), s 24(c) (w.e.f. 1-4-1990). Still
earlier, the words “nine years” were substituted for “four years” by the Finance Act, 1985 (32 of 1985), s 20(b) (w.e.f. 1-
4-1985).
81 Subs., for “before the 1st day of April, 1990”, by the Finance Act, 1990 (12 of 1990), s 24(d) (w.e.f. 1-4-1990). Earlier,
the words “before the 1st day of April, 1990” were substituted for “before the 1st day of April, 1985” by the Finance Act,
1985 (32 of 1985), s 20(c) (w.e.f. 1-4-1985).
82 Subs., for “1995”, by the Finance (No. 2) Act 1991 (49 of 1991), s 31(d) (w.r.e.f. 1-4-1991).
83 Sub-section (4A) has been inserted by the Finance Act, 1983 (11 of 1983), s 25(b) (w.e.f. 1-4-1984). See Circular No.
372, December 8, 1983, 146 ITR (St.) 9.
84 Ins. by the Finance Act, 1983 (11 of 1983), s 25(c)(i) (w.e.f. 1-4-1984).
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86 Ins. by the Finance Act, 1990 (12 of 1990), s 24(e) (w.e.f. 1-4-1990).
87 Ins. by the Finance (No. 2) Act 1991 (49 of 1991), s 31(e) (w.r.e.f. 1-4-1991).
91 Subs., for “Income-tax Officer”, by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988)
91 Subs., for “Income-tax Officer”, by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988)
92 Ins. by the Finance Act, 1983 (11 of 1983), s 25(f) (w.e.f. 1-4-1984). See Circular No. 545, September 21, 1989, 181
ITR (St.) 198; Circular No. 549, October 31, 1989, 182 ITR (St.) 1; Circular No. 551, January 23, 1990, 183 ITR (St.) 7.
92 Ins. by the Finance Act, 1983 (11 of 1983), s 25(f) (w.e.f. 1-4-1984). See Circular No. 545, September 21, 1989, 181
ITR (St.) 198; Circular No. 549, October 31, 1989, 182 ITR (St.) 1; Circular No. 551, January 23, 1990, 183 ITR (St.) 7.
94 Ins. by the Finance Act, 1983 (11 of 1983), s 25(f) (w.e.f. 1-4-1984).
1 CIT v Nirlon Synthetic Fibres and Chemicals Ltd. 130 ITR 14 (SC): AIR 1981 SC 1524 ; JK Synthetics v CIT 130 ITR
23 (SC), AIR 1981 SC 1547 ; CIT v Bharat Ram Charat Ram P. Ltd. 157 ITR 199, (1985) 47 CTR 5 (Del) (assessee a
partner in firm engaged in priority industry).
2 Cambay Electric Supply Industrial Co. Ltd. v CIT 113 ITR 84 (SC), AIR 1978 SC 1099 ; CIT v Amul Transmission
Line Hardware P. Ltd. 104 ITR 771 ; CIT v Madras Rubber Factory Ltd 146 ITR 604 ; CIT v North Koshalpur Colliery
Page 12 of 16
Co. P. Ltd. 161 ITR 756, (1986) 55 CTR 409 (Cal); CIT v Bisra Stone Lime Co. Ltd. 164 ITR 693, (1986) 53 CTR 235
(Cal). Contrary decision in CIT v Orient Paper Mills Ltd. 139 ITR 763, (1981) 23 CTR 180 (Cal) is, it is submitted,
incorrect. Cf CIT v Madras Motors P. Ltd. 150 ITR 150 .
3 CIT v Amul Transmission Line Hardware P. Ltd. 104 ITR 771 . Contrary view in Indian Transformers Ltd v CIT 86 ITR
192 and CIT v Van Moppes Diamond Tools (India) Ltd. 107 ITR 386 was disapproved in Cambay Electric Supply
Industrial Co. Ltd v CIT 113 ITR 84 (SC), AIR 1978 SC 1099 .
4 CIT v Rane Brake Linings Ltd. 120 ITR 82 .
5 CIT v Canara Workshops P. Ltd. 161 ITR 320 (SC), AIR 1986 SC 1727 ; English Electirc Co. Ltd v CIT 249 ITR 793
(SC), (2002) 9 SCC 681 ; CIT v Balanoor Tea and Rubber Co. Ltd. 93 ITR 115 ; CIT v Coromandal Prodorite P. Ltd.
111 ITR 132 ; CIT v Belliss and Morcom (I) Ltd. 136 ITR 481, (1982) 26 CTR 76 (Cal).
6 Cambay Electric Supply Industrial Co. Ltd. v CIT 113 ITR 84, 93 (SC), AIR 1978 SC 1099 ; Mysore Electrical
Industries Ltd.v CIT114 ITR 865, ILR 1979 Kar 180 ; CIT v Kar Valves Ltd. 117 ITR 599, ILR 1979 (1) Ker 339 ; CIT v
Hindusthan Motors Ltd. 127 ITR 210 ; ACIT v Abbas Wazir P. Ltd. 116 ITR 811, (1979) 9 CTR 169 (All); CIT v Co-
operative Cane Development Union Ltd. 118 ITR 770, (1979) 13 CTR 137 (All); National Planning and Construction
Ltd. v CIT 122 ITR 197, 201 ; Nava Bharat Enterprises P. Ltd. v CIT 143 ITR 804, (1983) 34 CTR 92 (AP). Cf CIT v
Cochin Refineries Ltd. 135 ITR 278, ILR 1982 (1) Ker 597 (s 80J ); CIT v Sterling Foods 237 ITR 579 (SC), AIR 1999
SC 2036 (s 80HH ).
7 Cambay Electric Supply Industrial Co. Ltd. v CIT 113 ITR 84 (SC), AIR 1978 SC 1099 ; English Electirc Co. Ltd v CIT
168 ITR 513, (1987) 63 CTR 135 (Mad).
8 CIT v Sundaram Clayton Ltd. 133 ITR 34, (1982) 30 CTR 170 (Mad); CIT v Wheels India Ltd. 141 ITR 745 .
9 Ashok Leyland Ltd. v CIT 224 ITR 122 (SC), (1997) 1 SCC 729 .
10 CIT v Wheels India Ltd. 141 ITR 745 .
11 CIT v Buckau Wolf New India Engineering Works Ltd. 150 ITR 180, (1983) 36 CTR 412 (Bom).
12 CIT v Buckau Wolf New India Engineering Works Ltd. 150 ITR 180, (1983) 36 CTR 412 (Bom); CIT v Flender
Macneill Gears Ltd. 150 ITR 83, (1984) 41 CTR 60 (Cal).
13 English Electric Co. Ltd. v CIT 168 ITR 513, (1987) 63 CTR 135 (Mad). Contrast ACIT v Vellore Electric Supply
Industrial Co. Ltd. 119 ITR 523, (1979) 9 CTR 206 (Mad), on appeal Vellore Electric Supply Corporation Ltd. v CIT
227 ITR 557 (SC), (1997) 6 SCC 705 ; CIT v Universal Radiators P. Ltd. 128 ITR 531, 537 -40; CIT v Cochin
Refineries Ltd. 154 ITR 345, (1984) 43 CTR 103 (Ker).
14 Mysore Electrical Industries Ltd v CIT 114 ITR 865, ILR 1979 Kar 180 ; CIT v West Coast Paper Mills Ltd. 169 ITR
288, (1987) 63 CTR 27 (Bom).
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15 CIT v Universal Radiators P.Ltd. 128 ITR 531 ; CIT v Cochin Refineries Ltd. 154 ITR 345, (1984) 43 CTR 103 (Ker);
CIT v West Coast Paper Mills Ltd. 169 ITR 288, (1987) 63 CTR 27 (Bom).
16 CIT v Sutna and Lime Co. Ltd. 138 ITR 37, (1982) 26 CTR 343 (Cal); CIT v Mansinghka Oil Mills P. Ltd. 169 ITR
158, (1987) 62 CTR 188 (Bom).
17 CIT v Universal Radiators P. Ltd. 128 ITR 531 .
18 Shardlow India Ltd. v CIT 128 ITR 571, (1980) 19 CTR 232 (Mad); CIT v Davidson of India P.Ltd. 161 ITR 407,
(1986) 55 CTR 238 (Cal); Khandelwal Ferro Alloys Ltd. v Chakravorthi, ITO 152 ITR 20, (1984) 39 CTR 130 (Bom) (s
280ZB ). CIT v Kirloskar Oil Engines Ltd. 157 ITR 762, (1985) 44 CTR 98 (Bom) (profit from sale of goods imported by
utilising import entitlements is not covered).
19 CIT v Van Moppes Diamond Tools Ltd. 145 ITR 195, (1985) 22 Taxman 229 (Mad); CIT v India Pistons Repco Ltd.
167 ITR 917 (also refund of drawback duty). Cf CIT v Madurai District Central Co-operative Bank Ltd. 148 ITR 196,
(1984) 42 CTR 27 (Mad) (s 80P ).
20 CIT v Kar Valves Ltd. 117 ITR 599, ILR (1979) (1) Kerala 339 .
21 CIT v Standard Motor Products of India Ltd. 131 ITR 300, (1980) 17 CTR 317 (Mad); CIT v Ahmedabad Mfg. and
Calico Printing Co. Ltd. 162 ITR 760, (1986) 57 CTR 132 (Guj). Cfunder s 80J, ‘Newly established industrial
undertakings…’
22 Liberty India v CIT 317 ITR 218 (SC), (2009) 9 SCC 328 .
23 Cambay Electric Supply Industrial Company Ltd. v CIT 113 ITR 84 (SC), AIR 1978 SC 1099 .
24 India Leather Corporation P. Ltd. v CIT 227 ITR 552 (SC), (1997) 10 SCC 115 .
25 317 ITR 218 (SC); see also CIT v Ritesh Industries Ltd. 274 ITR 324, 114 (2004) DLT 198 ; CIT v J.B. Exports Ltd.
286 ITR 603, (2006) 201 CTR 30 (Del); Mentha and Allied Products P. Ltd. v CIT 302 ITR 144 .
26 CIT v Raja Bahadur Kamakhaya Narayan Singh 16 ITR 325 (PC).
27 IRC v Montgomery [1975] 2 WLR 326 ; O’Brien v Benson’s Hosiery (Holdings) Ltd [1979] 3 WLR 572 ; Zim
Properties v Proctor 58 TC 371 ; Pennine Raceway v Kirklees Metropolitan [1989] STC 122 .
28 In a previous case, Krishak Bharati Co-operative Ltd. v JCIT 310 ITR 400 (SC); (2008) 220 CTR (SC), the Supreme
Court (obiter) described the test as whether the service charges in that case were “directly linked” to the manufacturing
activity, partly reversing 300 ITR 92, [2007] 164 Taxman 406 (Del).
29 CIT v Sterling Foods 237 ITR 579 (SC), AIR 1999 SC 2036 . See also Nahar Exports Ltd. v CIT 288 ITR 494, (2006)
204 CTR (P&H) 464 .
Page 14 of 16
30 Zim Properties v Proctor 58 TC 371, at 391.
31 Pennine Raceway v Kirklees Metropolitan [1989] STC 122 .
32 Zim Properties v Proctor 58 TC 371 .
33 DCIT v Harijandas Juthabhai Zaveri 258 ITR 785, (2000) 160 CTR 277 (Guj).
34 CIT v Nitco Constructions P. Ltd. 347 ITR 170 .
35 Honda Siel Power Products v CIT 318 ITR 309, (2007) 213 CTR 301 (Del); see also D.P. Agrawal v CIT 272 ITR
118, (2005) 193 CTR 297 (MP) (sale of scrap ‘incidental’ and not covered).
36 CIT v Alpine Solvex Ltd. 276 ITR 92, (2005) 195 CTR 181 (MP). See also CIT v Khemka Container P. Ltd. 275 ITR
559, (2005) 193 CTR (P&H) 427 (insurance compensation for loss of raw material in a fire excluded, less cost).
37 CIT v Saurashtra Cement Ltd. 325 ITR 422 (SC), (2010) 11 SCC 84 .
38 CIT v Shri Ram Honda Power Equip 289 ITR 475, (2007) 207 CTR 689 (Del) followed in Jay Bharat Maruti Ltd v CIT
322 ITR 599, [2010] 191 Taxman 149 (Del); CIT v Kothari Products Ltd. 295 ITR 223, [2008] 168 Taxman 236 (All);
CIT v Eastern Tar P. Ltd. 301 ITR 427 ; Vindhya Telelinks Ltd. v CIT 313 ITR 384 ; Sakthi Footwear v ACIT 317 ITR
194 ; CIT v Tribalogy India Ltd. 335 ITR 12, (2011) 238 CTR 193 (Mad) following Liberty India (supra) and CIT v
Pandian Chemicals Ltd. 233 ITR 497, (1998) 147 CTR 5 (Mad), affirmed in 262 ITR 278 (2003) 183 CTR 99 (SC);
CIT v Navbharat Explosives Co. P. Ltd. 337 ITR 515 . The contrary view in CIT v Sharp Industries 282 ITR 336 is no
longer good law, for it does not distinguish between interest per se and interest on late payments by trade debtors.
39 Liberty Group Marketing Division v CIT 344 ITR 312 . See also the cases cited (infra) in relation to the meaning of
“employ” with which this question is closely related.
40 CIT v Prabhudas Kishordas Tobacco Products 37P. Ltd. 282 ITR 568, (2006) 201 CTR 312 (Guj); CIT v TN Heat
Treatment and Fetting Services 238 ITR 540, (2001) 169 CTR 381 (Mad).
41 DCIT v Core Healthcare Ltd. 308 ITR 263, (2009) 221 CTR 580 (Guj).
42 Nirma Industries Ltd. v DCIT 283 ITR 402, (2006) 202 CTR 198 (Guj); Phatela Cotgin Industries P. Ltd. v CIT 303
ITR 411, [2008] 166 Taxman 9 (P&H). Also see K.Kachardas Patel Specific Family Trust v CIT 282 ITR 317 (excess
of advertisement expenses recovered). CIT v. Pratham Developers 355 ITR 507 .
43 CIT v Siddharth Tubes Ltd. 296 ITR 221 .
44 CIT v Indo Matsushita Carbon Co. Ltd. 286 ITR 201, (2006) 205 CTR 493 (Mad).
Page 15 of 16
45 Vijay Ship Breaking Corporation v CIT 314 ITR 309 (SC), (2008) 10 SCC 39 following CIT v N.C. Budharaja (N.C)
and Co. 204 ITR 412 (SC), AIR 1993 SC 2529 and CIT v Sesa Goa Ltd. 271 ITR 331, (2004) 192 CTR 577 (SC),
and affirming Ship Scrap Traders v CIT 251 ITR 806, (2001) (3) MLLJ 322 . See also India Cine Agencies v CIT 308
ITR 98, (2008) 220 CTR 223 (SC) reversing 285 ITR 84 (2006) 205 CTR 403 (Mad) (conversion of jumbo rolls of
photographic films into films of a smaller size); CIT v Sri Meenakshi Asphalts 266 ITR 626, (2004) 189 CTR 138 (Mad)
(heating raw bitumen not manufacture); CIT v Vijay Granites P. Ltd. 267 ITR 606, [2004] 140 Taxman 371 (cutting and
polishing granite slabs not manufacture); CIT v Munak Engineers P. Ltd. 271 ITR 361, (2004) 190 CTR (P&H) 403
(construction of buildings not manufacture); CIT v Shivalik Poultries 274 ITR 529 (2006) 201 CTR (P&H) 218 ; Ameena
Enterprises v CIT 275 ITR 8, 2005 (3) KLT 465, ILR 2005 (2) Kerala 733 (fish processing not manufacture), following
CIT v Venkateswara Hatcheries P. Ltd. 237 ITR 174 (SC), AIR 1999 SC 1225 ; CIT v Shiv Oil and Dal Mill(I)P.Ltd.
281 ITR 221, [2006] 153 Taxman 27 (All) (Processing Oil); CIT v Jamal Photo Industries (I) P. Ltd. 285 ITR 209,
(2006) 205 CTR 427 (Mad) (Printing Photographs from negatives); CIT v Business Information Processing Services
345 ITR 548 (Industrial Consultancy and Computer Processing); CIT v. Delhi Press Patra Prakashan Ltd. 355 ITR 14 .
46 CIT v Wipro Ltd. 334 ITR 6, (2011) 244 CTR 314 (Kar).
47 CIT v Silical Metallurgic Ltd. 324 ITR 29 .
48 Venus Auto P. Ltd. v CIT 321 ITR 504 ; see also CIT v Rajasthan Steel Rolling Mills P. Ltd. 270 ITR 72, (2003) 183
CTR 622 (Raj).
49 CIT v Prithviraj Bhoorchand 280 ITR 94, (2006) 200 CTR 82 (Guj), followed in ACIT v Prithivraj Bhoorchand 310 ITR
88, [2009] 176 Taxman 156 (Guj).
50 R&P Exports v CIT 279 ITR 536, (2005) 196 CTR 45 (All). Also see Mahendar Kumar Aggarwal v CIT 277 ITR 71,
(2005) 196 CTR 39 (All).
51 CIT v Nestor Pharmaceuticals Ltd. 322 ITR 631, (2010) 231 CTR 337 (Del).
52 Synco Industries Ltd v AO 299 ITR 444 (SC), (2008) 4 SCC 22 .
53 Modi Nagar Paper Mills Ltd. v DCIT 330 ITR 405 . Before Synco was decided, a majority of the High Courts in the
country had taken the view that the benefit is not available: see for example Synco Industries Ltd. v AO 254 ITR 608,
(2002) 173 CTR 1 (Bom); CIT v R.P.G. Telecoms Ltd. 292 ITR 355, (2007) 208 CTR 152 (Kar) and CIT v Kedia
Leather and Liquor Ltd. 293 ITR 95 .
54 JCIT v Mandideep Engineering and Packaging Industries P. Ltd. 292 ITR 1 (SC), (2007) 210 CTR 614 (SC), followed
in DCIT v Chola Textiles P. Ltd. 304 ITR 256 ; CIT v M.P. State Electronics Development Corporation Ltd. 267 ITR
405 ; CIT v Mittal Appliances P. Ltd. 270 ITR 65, (2004) 189 CTR 136 (MP); CIT v Rochiram and Sons 271 ITR 444,
(2004) 191 CTR 472 (Raj); CIT v Amod Stamping 274 ITR 176, (2005) 194 CTR 158 (Guj), followed in CIT v Venus
Electricals 304 ITR 347 [2010] 190 Taxman 89 (Guj); CIT v S.B. Oil Industries P. Ltd. 274 ITR 495, (2006) 203 CTR
(P&H) 218 ; CIT v Prakash Chandra Basant Kumar 276 ITR 664 ; CIT v Lucky Laboratories Ltd. 284 ITR 435, (2006)
200 CTR 305 (All); CIT v S.K.G Engineering P. Ltd. 285 ITR 423, 119 (2005) DLT 673 ; CIT v Malborough Polychem
P.Ltd. 309 ITR 43, [2009] 177 Taxman 44 (Raj); DCIT v Blue Bell Polymers P. Ltd. 327 ITR 259, (2008) 217 CTR
324 (Guj).
Page 16 of 16
55 CIT v Sona Koyo Steering Systems Ltd. 321 ITR 463, (2010) 230 CTR 251 (Del); CIT v Arif Industries Ltd. 339 ITR
6, (2010) 231 CTR 271 (All); CIT v Modi Xerox Ltd. 344 ITR 411 [2011] 10 Taxman 73 (All).
56 Daya Engineering Works Ltd. v CIT 322 ITR 55, (2010) 233 CTR 389 (Pat). Obviously, if that loss has already been
set off in the previous year, it need not be notionally carried forward for the s 80-I claim in the next year: see CIT v
Mewar Oil and General Mills Ltd. 271 ITR 311, (2004) 186 CTR 141 (Raj).
57 CIT v Punjab Concast Steels Ltd. 336 ITR 248 .
58 CIT v Punjab Wool Combers Ltd. 344 ITR 466 .
59 CIT v H.P. Global Soft Ltd. 342 ITR 263, (2012) 247 CTR 562 (Kar).
60 CIT v Bongaigaon Refinery and Petrochemical Ltd. 349 ITR 352 (SC), (2012) (9) SCALE 1, modifying 274 ITR 379,
[2006] 156 Taxman 255 (Gau). See also 287 ITR 120 .
61 CIT v Panama Chemicals Works 292 ITR 147, (2007) 207 CTR 249 (MP).
62 CIT v Caplin Point Laboratories Ltd. 293 ITR 524, (2007) 212 CTR 58 (Mad); CIT v Nu-Cork Products P. Ltd. 294
ITR 229, [2007] 160 Taxman 220 (Del); Ropar District Co-operative Milk Producers Union Ltd. v CIT 311 ITR 42,
[2007] 165 Taxman 477 (P&H); CIT v H.P. Cotton Textile Mills Ltd. 311 ITR 436, [2007] 165 Taxman 512 (P&H); CIT v
Liberty Group Marketing Division 315 ITR 125, (2008) 220 CTR (P&H) 194 (SLP dismissed 319 ITR (St) 5).
63 CIT v Harshwardhan Chemicals 270 ITR 309, (2003) 185 CTR 179 (Raj); CIT v Mahesh Chand Gupta 279 ITR 396,
(2006) 202 CTR 433 (All); CIT v Avery Cycle Industries Ltd. 298 ITR 239 ; Himson Fadis Machinery P. Ltd. v CIT 327
ITR 61 .
64 CIT v Abhijit Iron Processors Pvt Ltd (No3) 248 ITR 109 ; CIT v Abhijit Iron Processors (P) Ltd (No 2) 248 ITR 108 ;
CIT v Jaiswal Chemicals P Ltd 248 ITR 106 ; CIT v Bry Air (India) Pvt Ltd 232 ITR 314 ; CIT v Mount Shivalik
Brewaries Ltd 228 ITR 414 ; CIT v Upper India Steel Manufacturing and Engineering Co P Ltd 227 ITR 255 ; CIT v
Asian Techs Ltd 226 ITR 672 ; CIT v Poyilakada Fisheries (P) Ltd (No 2) 221 ITR 692 ; CIT v Poyilakada Fisheries (P)
Ltd (No 1 ) 221 ITR 691 ; CIT v Punjab Concast Steels Ltd 217 ITR 206 . s 80I(7) CIT v Panama Chemicals Works
250 ITR 661 .
65 CIT v Gargaons Exports Pvt Ltd 211 ITR 170 .
66 CIT v Visakha Industries Ltd. 251 ITR 471 .
End of Document
S. 80-IA. Deductions in respect of profits and gains from industrial
undertakings or enterprises engaged in infrastructure develop-ment,
etc.
THE INCOME-TAX ACT,

1961 (ACT NO. XLIII OF 1961)
CHAPTER VI-A Deductions to be Made in

Computing Total Income
C —Deductions in respect of
certain incomes
S. 80-IA.
Deductions in respect of profits and gains from industrial undertakings or enterprises
engaged in infrastructure develop-ment, etc.
(1) [67
68
Where the gross total income of an
assessee includes any profits and gains derived by an undertaking or an
enterprise from any business referred to in sub-section (4) (such
business being hereinafter referred to as the eligible business), there shall, in
accordanceand subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction of an amount equal
to hundred per cent. of the profits and gains derived
from such business for ten consecutive assessment years.]
(2) The deduction specified in sub-section (1) may, at the option of the
assessee, be claimed by him for any ten consecutive assessment years out of
fifteen years beginning from the year in which the undertaking
or the enterprise develops and begins to operate any infrastructure facility or starts
providing telecommunication service or develops an
industrial park69[70[or develops a special economic zone] referred to in clause (iii) of
sub-section (4)] or generates power or commences
transmission or distribution of power71[or undertakes substantial
renovation and modernisation of the existing transmission or distribution lines72[* *
*]:
73[Provided that where the assessee develops or operates

and maintains or develops, operates and maintains any infrastructure facility referred
Page 2 of 44
S. 80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged
in infrastructure develop-ment, e....
to in clause (a) or clause (b) or clause (c) of the Explanation

to clause (i) of sub-section (4), the provisions of this
sub-section shall have effect as if for the words “fifteen years”, the words
“twenty years” had been substituted.]
74[(2A)Notwithstanding anything contained in

sub-section (1) or sub-section (2), the deduction in computing the
total income of an undertaking providing telecommunication services, specified in
clause (ii) of sub-section (4), shall be hundred
per cent. of the profits and gains of the eligible business for the first five
assessment years commencing at any time during the periods as
specified in sub-section (2) and thereafter, thirty per cent. of such profits and
gains for further five assessment years.]
(3)This section applies to75[an undertaking referred to in76[clause (ii) or]77[clause
(iv)78[**]] of sub-section (4)] which fulfils all the
(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 an79[undertaking] which is formed as a result of re-
establishment, reconstruction or revival by the assessee of the
business of any such79[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:
80[Provided that nothing contained in this

sub-section shall apply in the case of transfer, either in whole or in part, of
machinery or plant previously used by a State Electricity Board
referred to in clause (7) of section 2 81 of
the
Electricity Act , 2003 (36 of 2003), whether
or not such transfer is in pursuance of the splitting up or reconstruction or
reorganisation of the Board under Part XIII of that Act.]
Explanation 1.—For the purposes of

clause (ii), 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:—
Page 3 of 44
(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 machinery or plant by the
assessee.
Explanation 2.—Where in the case of

an82[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.
(4)This section applies to—
(i) any enterprise carrying on the business83[of (i) developing or (ii) operating and
maintaining or (iii) developing, operating and maintaining] any infrastructure
facility which fulfils all the following conditions,
namely:—
(a) it is owned by a company registered in India or by a consortium of such

companies84[or by an authority or a board or a corporation or any other
body established or constituted under any Central or State
Act];
(b) 85[it has entered into an agreement with the Central Government or a
State Government or a local authority or any other statutory body
for (i) developing or (ii) operating and maintaining or
(iii) developing, operating and maintaining, a new
infrastructure facility;]
(c) it has started or starts operating and maintaining the infrastructure facility
on or after the 1st day of April, 1995:
Provided that where an infrastructure

facility is transferred on or after the 1st day of April, 1999, by an
enterprise which developed such infrastructure facility
(hereafter referred to in this section as the transferor enterprise) to
another enterprise (hereafter in this section
referred to as the transferee enterprise) for the purpose of operating
Page 4 of 44
and maintaining the infrastructure facility on its behalf in

accordance with the agreement with the Central Government, State
Government, local authority or statutory body, the provisions of this
section shall apply to the transferee enterprise as if it
were the enterprise to which this clause applies and the deduction
from profits and gains would be available to such transferee
enterprise for the unexpired period during which the transferor
enterprise would have been entitled to the deduction, if the transfer
had not taken place.
86[Explanation.—For the purposes of

this clause, “infrastructure facility” means—
(a) a road including toll road, a bridge or a rail system;
(b) a highway project including housing or other activities being an

integral part of the highway project;
(c) a water supply project, water treatment system, irrigation project,

sanitation and sewerage system or solid waste management
system;
(d) a port, airport, inland waterway87[, inland port or navigational channel
in the sea];]
(ii) 88[any undertaking which has started or starts providing telecommunication

services, whether basic or cellular, including radiopaging,
domestic satellite service, network of trunking, broad-band network and
internet services on or after the 1st day of April, 1995, but on or before
the89[31st day of March, 2005].]
Explanation.—For the purposes of this

clause, “domestic satellite” means a satellite owned and operated by an
Indian company for providing telecommunication
service;
(iii) any undertaking which develops, develops and operates or maintains and
operates an industrial park90[or special economic zone]
notified by the Central Government in accordance with the scheme framed
and notified by that Government for the period beginning on the 1st day
of April, 1997, and ending on91[the 31st day of March, 2006]:
92[Provided that in a case where an

undertaking develops an industrial park on or after the 1st day of April,
1999, or a special economic zone on or after the 1st day of April,
2001, and transfers the operation and maintenance of such industrial park
or such special economic zone, as the case may be, to another
undertaking (hereafter in this section referred to as
Page 5 of 44
the transferee undertaking), the deduction under sub-section (1) shall be

allowed to such transferee undertaking for the remaining period in the ten
consecutive assessment years as if the operation and maintenance were
not so transferred to the transferee
undertaking:]
1[Provided further that in the case of any

undertaking which develops, develops and operates or maintains
and operates an industrial park, the provisions of this clause shall have
effect as if for the figures, letters and words “31st day of
March, 2006”, the figures, letters and words2[“31st day of March,
2011”], had been substituted;]
(iv) an3[undertaking] which,—
(a) is set up in any part of India for the generation or generation and
distribution of power, if it begins to generate power at any time
during the period beginning on the 1st day of April, 1993, and4[ending
on5[the 31st day of March, 2014]];
(b) starts transmission or distribution by laying a network of new transmission
or distribution lines at any time during the period
beginning on the 1st day of April, 1999, and6[ending on7[the 31st day of March,
2014]]:
Provided that the deduction under this

section to an8[undertaking] under sub-clause (b) shall be allowed only
in relation to the profits derived from laying of
such network of new lines for transmission or distribution;
(c) 9[undertakes substantial renovation and modernisation of the existing

network of transmission or distribution lines at any time
during the period beginning on the 1st day of April, 2004, and ending
on7[the 31st day of March, 2014].
Explanation.—For the purposes of

this sub-clause, “substantial renovation and modernisation” means an
increase in the plant and machinery in the network of transmission
or distribution lines by at least fifty per cent. of the book value of such
plant and machinery as on the 1st day of April, 2004;]
(d) 10[anundertaking owned by an Indian company and set up for

reconstruction or revival of a power generating plant, if—
Page 6 of 44
(a) such Indian company is formed before the 30th day of November,
2005, with majority equity participation by public sector companies for
the purposes of enforcing the security interest of the
lenders to the company owning the power generating plant and such
Indian company is notified before the 31st day of December, 2005, by
the Central Government for the purposes of this clause;
(b) such undertaking begins to generate or transmit or distribute power
before the11[31st day March, 2011]];
(vi) 12[* ** *]
(5)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 that sub-section 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.
(6)Notwithstanding anything contained in sub-section

(4), where housing or other activities are an integral part of the
highway project and the profits of which are computed on such basis and manner
as may be prescribed13, such profit shall not be
liable to tax where the profit has been transferred to a special reserve account
and the same is actually utilised for the highway project excluding housing and
other activities before the expiry of three years following the
year in which such amount was transferred to the reserve account; and the amount
remaining unutilised shall be chargeable to tax as income of
the year in which such transfer to reserve account took place.
(7)14[The deduction] under sub-section (1) from profits

and gains derived from an15[undertaking] shall not be
admissible unless the accounts of the15[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 form16 duly
signed and verified by such accountant.
(8)Where any17[goods or services] held for the
purposes of the eligible business are transferred to any other business carried on
by the assessee, or where any17[goods or services] 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 such17[goods or services] 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
Page 7 of 44
computed as if the transfer, in either case, had been made at the market value of
such17[goods or services] 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.
18[Explanation.—For the purposes of this sub-

section, “market value”, in relation to any goods or services,
means—
(i) the price that such goods or services would ordinarily fetch in the open market;
or
(ii) the arm’s length price as defined in clause (ii) of
section 92F, where the transfer of such goods
or services is a specified domestic transaction referred to in
section 92BA .]
(9)Where any amount of profits and gains of

an19[undertaking] or of an enterprise in the case of an assessee is claimed
and allowed under this section for any assessment year, deduction to the extent of
such profits and gains shall not be allowed under any other
provisions of this Chapter under the heading “C.—Deductions
in respect of certain incomes”, and shall in no case exceed the profits and gains of
such eligible business of20[undertaking] or enterprise, as the case may be.
(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:
21[Provided
that in case the aforesaid arrangement involves a
specified domestic transaction referred to in section
92BA, the amount of profits from such transcation shall be determined
having regard to arm’s length price as defined in clause (ii) of
section 92F .]
Page 8 of 44
(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
undertaking or enterprise with effect from such date as it may
specify in the notification.
(12)Where any undertaking of an Indian company
which is entitled to the deduction under this section is transferred, before the expiry
of the period specified in this section, to another
Indian company in a scheme of amalgamation or demerger—
(a) no deduction shall be admissible under this section to the amalgamating or the
demerged company for the previous year in which the
amalgamation or the demerger takes place; and
(b) the provisions of this section shall, as far as may be, apply to the amalgamated
or the resulting company as they would have applied to
the amalgamating or the demerged company if the amalgamation or demerger
had not taken place.]
22[(12A)Nothing contained in sub-section

(12) shall apply to any enterprise or undertaking which is transferred in a scheme
of amalgamation or demerger on or after the 1st day
of April, 2007.]
23[(13)Nothing contained in this section shall
apply to any Special Economic Zones notified on or after the 1st day of April, 2005,
in accordance with the scheme referred to in sub-clause
(iii) of clause (c) of sub-section (4).]
24[Explanation.—For the removal of doubts, it

is hereby declared that nothing contained in this section shall apply in relation
to a business referred to in sub-section (4) which is in the nature of a
works contract awarded by any person (including the Central or State
Government) and executed by the undertaking or enterprise referred to in sub-
section (1).]
1. Legislative History.—This section was inserted

by the Finance (No. 2) Act, 1991 with effect from April 1, 1991 to expand the scope
of deduction available under 80-I. This section has been amended frequently and these
changes have required several explanatory circulars. The
concessions given in s 80-I were extended and
expanded from time to time and were included in the newly enacted s
80-IA . From 1991, the scope of the section was further expanded each
year to include fresh categories. For ease of reference, the important changes brought
out by these amendments and the relevant circulars have
been tabulated hereinbelow:
Page 9 of 44
Sl. No. Statute Statutory changes Circular
1 Finance (No. 2) New Circular No. 621 dated

Act, 1991 Section 19-12-91: 195 ITR (St.) 183
80-IA inserted
2 Definition of small-scale Circular No. 636 dated

Finance Act industrial undertaking 31-08-1992: 198 ITR (St.) 1
, 1992 rationalized
3 i) Tax holiday for new Circular No. 657 dated

Finance Act industrial undertakings set up 30-08-93: 204 ITR (St.) 106
, 1993 in backward states
specified in newly inserted
Eighth Schedule;
ii) Tax holiday for industrial
undertaking
set up for generation and
distribution of power or
cold storage plants
4 Further relaxation - new Circular No. 684 dated 6-6-

Finance Act industrial undertakings in 94:
, 1994 backward states will 208 ITR (St.) 8
get deduction even if they
manufacture
low-priority articles mentioned
in the Eleventh
Schedule. Such undertakings
get the benefit
whether they are small-scale
or not.
5 Deduction extended to Circular No. 717 dated

Finance Act “infrastructure facility” as 14-08-95: 215 ITR (St.) 70
, 1995 defined
6 Finance (No. 2) Deduction extended to Circular No. 762 dated

Act, 1996 scientific or industrial 19-06-98: 230 ITR (St.) 12
research and development
7 Deduction extended to Circular No. 763 dated

Finance Act telecom 18-02-98: 230 ITR (St.) 54
, 1997 services; and industrial parks,
hotels, and
commercial production of
mineral oil in the North
Eastern region.
8 Income-tax Deduction extended to Circular No. 772 dated

(Amendment) Act, 1998 developing and building 23-12-98: 235 ITR (St.) 35.
housing projects
(subject to certain conditions)
Page 10 of 44
2. Bifurcation in 1999.—By the

Finance Act , 1999, the deductions granted in s
80-IA were split into two sections: ss 80-IA and 80-IB. The restructured
s 80-IA covered:
(i) infrastructural facilities;
(ii) telecommunication services;
(iii) industrial parks;
(iv) generation and distribution of power;
(v) reconstruction or revival of a power generating plant;
(vi) cross-country natural gas distribution network [this was omitted by Finance
(No. 2) Act, 2009].
Other deductions were covered in s 80-IB .
3. Reference to s 80-I
.—Readers may also find it helpful to refer to the commentary under
s 80I since many issues are common and have been
dealt with therein.
I. Old Section 80-IA -

1991-1999:
4. Sub-section (1): Profits “derived

from” Eligible Business.—At the time of bifurcation, sub-s (1)
set out the activities that constituted “eligible business” sub-s
(5) specified the amount of deduction and sub- section
6 provided the number of assessment years for which the deduction was
available. The profits and gains should be “derived from” eligible business.
The judgment of the Supreme Court in Liberty India 25 has
been extensively criticised in the commentary to s 80-I

which may be referred to for a complete account of this case
and its effect on the interpretation of the expression “derived from”. Cases
decided under this section have followed Liberty India,26 with similarly anomalous
results. For example, the courts have held that interest charged by the
seller on delayed payment is “derived from” the industrial undertaking but that
advance payments forfeited by the seller are not.27 At the
same time, interest earned from RBI bonds is “derived from” the industrial undertaking28
but freight subsidies are ‘derived from’ Government
Page 11 of 44
policy and not the industrial undertaking.29 Insurance

proceeds for the destruction of premises are derived from the industrial undertaking and
not the insurance policy.30 It is, with respect, unfortunate that the High Courts
have decided these cases based on their perception of the particular facts of the case
without any analysis of the underlying legal principles or
even the statutory language. Indeed, the result is that many of the High Court cases are
plainly inconsistent with each other. The Supreme Court
has also implicitly held that the assessee is not entitled to any deduction on profits
derived from closely connected activities, such as the sale of
raw material, and that it must maintain separate accounts.31
Another controversy arising out of the words “derived from” is whether receipts
from the manufacture of articles on a job work basis is entitled to deduction. This
question can arise in two ways: either in the hands of the
principal, in which case the question is whether articles manufactured through a job
worker are covered; or in the hands of the job worker, in which case the
question is whether articles manufactured by a job worker are covered. Obviously, the
courts must take a consistent view: it is impossible to hold that the same article is
manufactured by both the job worker and the principal. Unfortunately, the courts have
treated this as a separate question, overlooking that the
underlying legal principle is exactly the same.32 The
result is that the deduction has, is in some cases been allowed to both the job worker
and the principal but denied to both in others.
5. Section 80IA :
Relationship with General Computation Mechanism.—Like
s 80-I, this section grants deduction of profits from an
undertaking, from the gross total income of the assessee. As
the Supreme Court rightly held in Synco Industries,33 losses incurred by a non-eligible
undertaking cannot be ignored and only the profits that remain after
setting-off such losses will be eligible for deduction. Cases decided under this section34
have uniformly followed Synco Industries, and readers
may refer to the commentary to s 80-I for a complete
account of the law.
6. Sub-section (1): Manufacture or

Production.—Before this section was bifurcated into ss 80-IA and 80-IB, it provided
that an industrial undertaking was entitled to a deduction if it was engaged in the
manufacture or production of the items enumerated in the section.
Following the cases decided under s 80-I, the courts
have held that the word “production” is wider than
“manufacture”, and that the fact that both expressions have been used
shows that they do not bear the same meaning.35 The Supreme Court has rightly
emphasised that it is unsafe to decide this question by resorting to a
dictionary or by comparing the process used by the assessee with the process used by
assessees in other cases: the department must carefully
ascertain the nature of the process used by the assessee and apply to it the settled
tests set out above.36 Nor is it permissible for the
department to allow or deny the deduction based solely on the treatment of the
assessee’s activity under the law of central excise.37 The
Page 12 of 44
reader may also see cases under the heading “manufacture or produce” in
s 10A . The word “manufacture” has now been defined
in s 2(29BA) .
7. Sub-sections (2) to (4F),

(7A) and (9A): Conditions Applicable.—These sub-
sections prescribe the standard conditions of the undertaking not being formed by the
splitting up or reconstruction of an existing business and
so on. There was also a restriction that the undertaking could not manufacture low
priority articles or things mentioned in the Eleventh
Schedule unless it was a small-scale undertaking. As the section has been deleted
more than 14 years ago, it is not necessary to deal with the
individual facets of various sub-sections. As and when a new activity was added, a new
sub-section was added prescribing specific conditions
pertaining to that activity. In this context, a reference should be made to a sub-s
(7A), which imposes a further condition of transferring certain sums to special
reserve account for composite highway projects. Sub-section (9A) made it clear that
no double deduction would be permissible.
Sub-section (4D) refers to industrial park and the commentary under the new
s 80-IA(4)(iii) may be usefully referred to.
8. Sub-section (4): Exercise of

Discretion.—Where sub-section (4) prescribes that the approval of
the competent authority is necessary for a hotel, the competent authority has no
discretion to refuse approval once the conditions set out in the
sub-section or the relevant rules are satisfied by the assessee.38
9. Sub-section (4B): Prescribed

Authority.—The Secretary, Department of Scientific and Industrial Research, Ministry
of Science & Technology, Government of India, was the
prescribed authority for grant of approval as to whether an undertaking is carrying on
scientific and industrial research and development. The relevant rules are rr 18AAB and
18BBD. Strangely, both rules have the same content.
10. Sub-sections (6) and (12): Initial

Assessment Year.—Sub-section (6) gives the number of the years
that the benefit is available for different categories. Clause (c) of sub-s
(12) defines how the expression “initial assessment year” has to be
reckoned for the different categories of deduction. This expression has been used in
several other sections in the Act, particularly Chapter VI-A.
This deduction was available, under sub-s (12) (as it then

stood) for a certain period commencing from the ‘initial assessment year’ which
Page 13 of 44
was defined as the year in which “the industrial undertaking begins to manufacture or
produce articles or things.” The Delhi High Court held
that the year in which the undertaking begins to manufacture is the year of commercial
production and not trial production.39
11. Sub-sections (5) and (7): Quantum

of Deduction.—Sub-section (5) prescribed the quantum of
deduction for the different activities which were eligible for benefits under
s 80-IA . Sub-section (7) also related to the quantum of
deduction and was similar to s 80-I(6) .
The latter sub-section was interpreted by the Supreme Court40 and
that decision will apply to this sub-section as well.
12. Sub-section (8): Audit

Report.—This is another standard clause which requires filing of an audit report
and it has been repeatedly held that this is a procedural requirement and the audit
report can be filed at the appellate stage. In this connection,
see commentary under ss 80HHA and 80HHC and new s
80-IA may be referred.
13. Sub-section (9) and (10): Check on

Inflated Claims.—These two sub-sections ensure that an assessee does not
resort to any device to inflate the quantum of profits which are available for deduction.
These two sub-sections have been retained in the new s
80-IA as well and has an impact on domestic transfer pricing. Similar
provisions were contained in other sections of s 80-IA as
well.
14. Sub-section (9A): Controversial

Provision.—This sub-section inserted by Finance (No. 2) Act, 1999 with
the object of preventing double deduction and restricting the total deductions to the
profits and gains of the undertaking. After the bifurcation
of s 80-IA, it is now sub-section (9) in
s 80-IA and also applicable to s
80-IB by virtue of sub-s (13).
15. Sub-section (11).—Till its

substitution, no notification has been issued to exclude any class of undertaking or
enterprise.
16. Sub-section (12):

Definitions.—Sub-section (12) provided for definition of
various terms used in this section. It categorically provides meaning for the terms:
domestic satellite, hilly area, industrial undertaking, initial assessment year,
Page 14 of 44
infrastructure facility, place of pilgrimage, rural area, small scale industrial undertaking
and North-Eastern Region.
Deduction under old s 80-IA was available for

a certain period commencing from the ‘initial assessment year’ which was
defined as the year in which “the industrial undertaking begins to manufacture or
produce articles or things”. The Delhi High Court has held that the year in which the
undertaking begins commercial production will be the year in which the undertaking
begins to manufacture or produce the articles or things and
not the year of trial production.41
II. New Section 80-IA -

After 1999
17. Sub-sections (1) and (4): Eligible

Business.—The
Finance Act , 1999 substituted s
80-IA by creating ss 80-IA and 80-IB. The former s
80IA had become unwieldy even by income tax standards.
Section 80-IA, as substituted, also contained twelve sub-
sections initially and more have been added. The new sub-ss
(1) and (4), when read together, now cover the following infrastructure
facilities: telecommunication services, industrial parks, generation and distribution of
power, reconstruction or revival of power generating
plant and cross-country natural gas distribution network [omitted by Finance (No.
2) Act, 2009]. For highway projects that are combined with housing or other
activities, the provisions of sub-section (6) are also relevant and require
the creation of a “reserve account”.
The condition in s 80-IA(4)(i)(b)

is automatically fulfilled by a partnership that is converted into a company under Part IX
of the
Companies Act , 1956 because the company steps into
the shoes of the partnership.42
(a) Industrial Park Scheme, 2002.—This scheme43

was notified by the Central Government in exercise of
powers conferred by s 80-IA(4)(iii) and has been
carefully considered by the Bombay High Court.44 Setting
aside the decisions of the Empowered Committee, the Court held that s
80-IA(4)(iii) applied to an undertaking which develops, develops
and operates, or maintains and operates an industrial park notified under the Scheme.
It is not necessary that the park must commence
operation before March 31, 2006. The court also noted that fifty other projects had been
granted permission even though they commenced production
beyond that date (as revealed by an application under the
Page 15 of 44
Right to Information Act , 2005).
The Delhi High Court held that the 2002 scheme did not continue to operate till the
2008 scheme was formulated and notified.45 It is
submitted that the Delhi High Court, was, however, incorrect in holding that there was
no scheme in effect till 2008. Rule 18C of the Income Tax
Rules, 1962 applied to undertakings that developed, maintained etc. an industrial park
at any time between “April 1, 2006 and March 31, 2009”.
Therefore, an undertaking, which otherwise satisfies the requirements of the 2008
Scheme would get the benefit of s 80-IA even if it was
developed after April 1, 2006 but before March 31, 2009.
(b) Inland port - Meaning.—In an excellent judgment,

the Delhi High Court, after a careful analysis of the practice of CBDT and CBEC and
the international commercial organisations in this field,
has held that the words “inland port” in Explanation (d) to
s 80-IA(4)(i) includes an inland container terminal. It
noted that the CBEC had also treated an inland container
depot as an inland port.46
18. Sub-sections (2) and

(2A).—These two sub-sections prescribe the time dimension for
deduction. Deduction is granted at the option of the assessee for any ten consecutive
assessment years out of a total period of fifteen years. The
starting point will depend on the nature of the assessment year in which the
undertaking starts its operations as mentioned in sub-section
(2). Sub-section (2A), inserted from April 1, 2001, modifies the
deduction for telecom services and grants a 100 per cent. deduction for the first five
assessment years and at 30 per cent. thereafter for a further
period of five assessment years The word “consecutive” is absent in sub-s
(2A) but has been used in sub-ss (1) and (2). It is
submitted that the assessee need not claim deduction from the year in which it began
to provide telecom services but can postpone deduction
to a later assessment year. However, the first five assessment years need not be
consecutive in view of the non-obstante clause in sub-section (2A). It is further
submitted that the second period of five years need not
necessarily immediately follow the first five years and the second set of five years need
not also be consecutive.
It should be noted that infrastructure facilities have been referred to in cls

(a), (b) and (c) of Explanation to cl (i) of sub-s (4), the
period has been extended to twenty years. The deduction will have to be for ten
“consecutive assessment years” as this proviso is part of sub-s
(1).
19. Sub-section (3): Standard

Page 16 of 44
Conditions.—This sub-section contains standard conditions that were prescribed

for various deductions in Chapter VI-A. This is to ensure that the undertaking is
substantially a new business and not formed either by splitting up or
reconstruction.
20. Sub-section (5): Quantum of

Deduction.—This is similar to the old sub-section (7) and the Supreme
Court decision in Synco Indusries,47 as discussed in
s 80-I(6), must be noted.
21. Sub-section (6): Special Reserve

Account.—For highway projects that are combined with housing and / or other
activities, this sub-section requires creation of a “special reserve account”. Profits
of highway projects are to be computed in the manner prescribed in Rule 18BBE and
Form No. 10CCC. Such profits should be transferred to a
“special reserve account” and actually utilized for highway projects. It cannot
be used for housing activities and any remaining unutilized amount is chargeable to tax
in the year in which transfer to a special reserve account
takes place.
This sub-section is confined to cases where the highway project is combined with
housing or other activities. It will not have any application
to highway projects which are not so combined.
22. Sub-section (7): Audit

Report.—This is again a standard requirement of an audit report in the prescribed
form that has to accompany the return of income. The Kerala High Court has held that
the assessee is not entitled to any deduction under this
section unless the Form 10CCB is furnished along
with the return of income. The claim cannot be made for first time in the computation of
undisclosed income under s 158BC .48 The
Kerala High Court did not notice that the Madhya Pradesh High Court had taken a
contrary view on an identical issue under s
80-I .49 There is also no justification for the Kerala High
Court’s view that this cannot be claimed in an assessment under s
158BC when that section itself does not create any bar.
23. Sub-sections (8) and

(10).—These are similar to sub-ss (9) and (10) of the old
s 80IA and are found in several other sections in
Chapter VI-A. These two sub-sections are designed to prevent an assessee
resorting to seeking certain transactions that would enable him to claim a higher
deduction.
Page 17 of 44
24. Sub-section (9): No Double

Deduction.—This is similar to sub-s (9A) of the former s
80IA and is designed to prevent double deduction.
The present sub-s (9) was formerly sub-s (9A). The Board
circular indicated that it was inserted to prevent double deduction. This sub-section,
unfortunately has created more controversy with High Courts
taking different views. There is no dispute that the total amount of deduction cannot
exceed the profits and gains of the undertaking or
enterprise. The question that is controversial is whether this sub-section means that the
deduction under s 80-IA would stand
excluded while computing deduction under s 80HHC or
under any other section in Chapter VI-A? To illustrate, if the
profit and gains of the undertaking amounts to Rs. 100/- and the deduction under
s 80-IA is Rs. 30/-, will the deduction be computed only
on Rs. 70/-? Alternatively, will the computation under s
80HHC be on Rs. 100/- [as per s 80HHC(3)
] but the allowance of s 80-IA and 80HHC be
restricted only to Rs. 100/-?
The Delhi High Court held that the deduction allowed under s
80-IA has to be reduced while computing the deduction under
s 80HHC .50 The Kerala High Court also held that the
deduction granted under s 80-IB has to be excluded
while computing deduction under s 80HHC but wrongly
held that the assessee is not entitled to simultaneous
deductions under both ss 80-IB and 80HHC. This part of the judgment is clearly
incorrect as the assessee can get deduction under more than one
section in Chapter VI-A. The only restriction is that the total deduction cannot exceed
the profits and gains of the undertaking or enterprise.51
The Bombay High Court has carefully considered the provisions of ss 80-IA and 80HHC
and pointed out that sub-s (9) was not applicable at the stage of computation but only at
the time of allowability of the deduction. It dissented from
the Delhi High Court’s decision and held that the
department itself had taken the plea that sub-s (9) applied at the stage of allowing
the deduction and not at the stage of computing the deduction. Section
80HHD(7), for example, provides that the deduction allowed
under s 80HHD(1) shall not qualify to
that extent for deduction under any other provisions of Chapter VI-A. The words
“shall not be allowed” in s 80-IA(9)
are different from “shall not qualify” in s 80HHD(7) .
Consequently, the Bombay High Court held that the deduction under s
80HHC has to be independently computed under that section without
reducing the amount that may be eligible under s 80-
IA(9) . The deduction under s 80HHC has to be in
accordance with the formula set out in s 80HHC(3)
read with Explanation (baa). However, the deductions under ss 80HHC and 80-IA
Page 18 of 44
put together cannot exceed the total amount of profits.52
The Bombay High Court’s view is also in line with the Board circular53 which
pointed out that the intention was to restrict the total deductions to the gross total
amount and not to curtail the computation of benefits under one
section. It is submitted that deductions should be computed as per the provisions in
each sub-section and the total deductions should be restricted to
the profits and gains of the undertaking or enterprise.
The Madras High Court has taken a view similar to that of the Bombay High Court but it
unfortunately relied on sections coming under s 80-I
which had nothing to do with sub-s (9).54 In the latter
case, the Madras High Court held that the deduction under s
80-IA could not be reduced from s 80HHC for the
assessment year 1998-99. By implication, it held that after
the substitution of new s 80-IA(9),
the benefit of the Special Bench decision would not be available. The High Court failed
to note that sub-s (9A) in the old s
80-IA was replaced by an identical sub-s (9) in the new s
80-IA .55
The Rajasthan High Court has held that the insertion of old sub-s (9A), - now
sub-s (9) was made in the old section from April 1, 1999. Prior to that date, it
was not permissible to restrict the deduction under s 80-
IA only to the amount remaining after granting deduction under
s 80HHC .56
25. Sub-section (11).—There is also no

notification under the new sub-section (11).
26. Sub-sections (12) and (13):

Amalgamation.—These deal with consequences of amalgamation and are self
explanatory.
27. Sub-section (13).—This relates to

industrial undertaking or enterprises engaged in development of Special Economic
Zones which are governed by the
Special Economic Zones Act , 2005 which came into
force from April 1, 2005. For these undertakings or enterprises,
provisions of s 80-IAB will be applicable from February
10, 2006 and provisions of this section will not be applicable to any SEZ
notified on or after April 1, 2005.
Page 19 of 44
28. Explanation: Retrospective Amendment.—In

2007, an explanation was inserted with retrospective effect
from April 1, 2000, which read as follows:-
“Explanation.—For the removal of doubts, it is

hereby declared that nothing contained in this section shall apply to a
person who executes a works contract entered into with the undertaking or
enterprise, as the case may be.”
In 2007, the intention was not to give the benefit to works contractors but only to the
main undertaking or enterprise. Generally, a consortium
of companies enter into an agreement with Central or State Governments for the
provision of various infrastructure facilities which have been
mentioned in sub-section (4). The effect of the Explanation inserted in 2007 was
that only those enterprises or undertakings which had contracts with State or Central
Government or any other authority could get the benefit of
s 80-IA but the persons who executed works contracts
for such enterprises or undertakings would not get the benefit of the
deduction. In other words, the main contractors would get the benefit but not the sub-
contractors who were executing the works contract for the main
contractor.
To get over certain tribunal decisions, the new Explanation has been inserted with
retrospective effect from April 1, 2000 by the
Finance Act , 2009 and reads as follows:
“Explanation.—For the removal of doubts, it is

hereby declared that nothing contained in this section shall apply in
relation to a business referred to in sub-section (4) which is in the nature of a
works contract awarded by any person (including the Central or State
Government) and executed by the undertaking or enterprise referred to in sub-
section (1).”
Therefore, the department can now treat major contracts awarded by the Central or
State Governments for infrastructure projects relevant to
water supply, sewerage etc. as works contracts and even the main undertaking or
enterprise is denied the benefit. The retrospective amendment
has seriously affected the viability of many of such projects, undertakings or
enterprises. The retrospective amendment was challenged in
different High Courts and all cases have now been transferred to the Bombay High
Page 20 of 44
Court.
It is submitted that the new Explanation will not apply unless the contract given by the
Central or State Governments or Municipal parties is in the nature of a works contract.
If it is given to construct a water treatment plant or
sewerage plant, it will not be a works contract as defined in various sales tax or VAT
legislations. Unfortunately, many contracts on the “build-
own-operate-transfer” model or similar model have been treated as works
contracts for grant of the benefit for VAT. This explanation is truly retrograde and it is
difficult to fathom the sense behind it. If the object is to encourage a large infrastructure
projects, it should not matter whether these are done by way of the main contract or a
works’ contract.
29. Questions of Fact.—The High Court will not

interfere with a finding by the Tribunal on a point of fact relating to the conditions
enumerated in this section,57 for example whether the assessee’s industrial
undertaking is a new undertaking or when it was established.58
30. Appeal and Reference.—In the context of

Section 80-IA, the undernoted cases held that
substantial question of law did arise.59
67 Subs. by the
Finance Act , 1999 (27 of 1999), s
50 (w.e.f. 1-4-2000), See Circular No. 779, September
14, 1999, 240 ITR (St.) 3, for the following:—
‘ 1[ S. 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
2[operation of a ship or developing, maintaining and operating any
infrastructure facility 3[or scientific and industrial research and
development] 4[or providing telecommunication services whether basic
or cellular] 5[including radiopaging, domestic satellite service or network
of trunking and electronic data interchange services or construction and development of
housing projects] 6[or operating an industrial park or commercial
production 7[or refining] of mineral oil in the North Eastern Region]
8[or in any part of India on or after the 1st day of April, 1997] (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
Page 21 of 44
(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 9[or an industrial undertaking
referred to in sub-clause (b) of clause (iv) which begins to

manufacture or produce an article or thing during the period beginning on the 1st
day of April, 1993, and 10[ending on the 31st day of March, 2000],
apply as if the words “not being any article or thing specified in the
list in the Eleventh Schedule” had been omitted;
11[(iv) (a) in the case of an industrial undertaking not specified in
sub-clause (b) 12[or sub-clause (c)], 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 31st 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;
(b) in the case of an industrial undertaking located in an industrially backward
State specified in the Eighth Schedule or set-up in any part of India for the generation, or
generation and distribution of power, it begins to manufacture or produce articles or things or to
operate its cold storage plant or plants or to generate power at any time during the period
beginning on the 1st day of April, 1993, and 13[ending on the 31st day of
March, 2000]:]
14[Provided that in the case of an industrial undertaking set up in
any part of India for the generation, or generation and distribution of
power, the period ending shall have effect as if for the figures “1998”, the figures
15[“2003”] had been substituted.]
16[(c) in the case of an industrial undertaking located in such
industrially backward district as the Central Government may, having
regard to the prescribed guidelines, by notification in the Official Gazette, specify in
this behalf 17[as an industrially backward district of Category ‘A’ or
an industrially backward district of Category ‘B’ and], it begins to
manufacture or produce articles or things or to operate its cold storage
plant or plants at any time during the period beginning on the 1st day of October, 1994, and
18[ending on the 31st day of March, 2000];]
19[(d) in the case of an industrial undertaking being a small-scale
industrial undertaking, not specified in sub-clause (b) or
in sub-clause (c), it begins to manufacture or produce articles or things or to operate its cold
storage plant at any time during the period beginning on the 1st day of April, 1995, and
ending on the 31st day of March, 2000;]
(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
Page 22 of 44
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) 20[This section applies to the business of any hotel—
(a) where conditions (i), (ii) and (v); and
(b) either of the conditions (iii) or (iv);
or
(c) either of the conditions (iiia) or (iva),
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 1st
day of April, 1990, and ending on the 31st day of March, 1994;
21((iiia) 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 1st day of April, 1997, and ending on the 31st day of March, 2001:
Provided that nothing contained in this clause shall apply to any
hotel located at a place within the municipal jurisdiction (whether
known as a municipality, municipal corporation, notified area
committee, town area committee or a cantonment board or by any other name) of Calcutta,
Chennai, Delhi and Mumbai;)
(iv) the business of the hotel—
(1) located in any place, or
Page 23 of 44
(2) located in a place other than a place referred to in clause (iii) of this
sub-section,
starts functioning at any time during the period beginning on the 1st day of April, 1991,
and ending on the 31st day of March, 1995;
22((iva) the business of the hotel, located in a place other than a
place referred to in clause (iiia) of this sub-section and not being
located at a place within the municipal jurisdiction (whether known as a
municipality, municipal corporation, notified area committee, town area committee or a
cantonment board or by any other name) of Calcutta, Chennai,
Delhi and
Mumbai, starts functioning at any time during the period beginning on the 1st day of
April,
1997, and ending on the 31st day of March, 2001;)
(v) the hotel is for the time being approved by the prescribed
authority23.
24((4A) This section applies to any enterprise carrying on the
business of developing, maintaining and operating any infrastructure facility which fulfils all the
(i) the enterprise is owned by a company registered in India or by a consortium of
such companies;
(ii) the enterprise has entered into an agreement with the Central Government or a
State Government or a local authority or any other statutory body for developing, maintaining and
operating a new infrastructure facility subject to the condition that such infrastructure facility
shall be transferred to the Central Government, State Government, local authority or such other
statutory body, as the case may be, within the period stipulated in the agreement;
(iii) the enterprise starts operating and maintaining the infrastructure
facility on or after the 1st day of April, 1995.)
25((4B) This section applies to any company registered in India
carrying on scientific and industrial research and development which fulfils all the following
(i) the company has the main object of scientific and industrial research and
development;
(ii) the company is for the time being approved by the prescribed authority at any
time before the 1st day of April, 26(1999).)
27((4C) This section applies to any undertaking which starts

providing telecommunication services whether basic or cellular 28(including
radiopaging, domestic satellite service or network of trunking and electronic data interchange
services) at any time on or after the 1st day of April, 1995, but before the 31st day of
March, 2000.)
29((4D) This section applies to any undertaking which begins to
operate an industrial park notified by the Central Government in accordance with the scheme
framed and notified by that Government for the period beginning
on the 1st day of April, 1997, and ending on the 31st day of March, 2002.
(4E) This section applies to any undertaking which begins commercial production
30(or refining) of mineral oil in the North Eastern Region 31(or in any
part of India on or after the 1st day of April, 1997):)

32(Provided that the provisions of this section shall apply in case of
refining of mineral oil where the undertaking begins refining on or
after the 1st day of October, 1998.)
33((4F) This section applies to an undertaking, engaged in
developing and building housing projects approved by a local authority subject to the condition
that the size of the plot of land has a minimum of one acre, and the
residential unit has a built up area not exceeding one thousand square feet:
Page 24 of 44
Provided that the undertaking commences development and

construction of the housing project on or after the 1st day of
October, 1998, and completes the same before the 31st day of March, 2001.)
34((i) (a) in the case of an industrial undertaking referred to in sub-
clause (a) 35(or sub-clause (d)) of clause
(iv) of sub-section (2), twenty-five per cent. of the profits and gains
derived from such industrial undertakings;
(b) in the case of an industrial undertaking referred to in sub-clause
(b) 36(or sub-clause (c)) of clause (iv) of
sub-section (2), hundred per cent. of the profits and gains derived from such
industrial undertaking for the initial five assessment years and thereafter 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:)
37(Provided further that in case of an industrial
undertaking located in an industrially backward district of Category B, the provisions of this
clause shall have effect as if for the words “five assessment years”, the words
“three assessment years” had been substituted;)
38((ia) in the case of an enterprise referred to in sub-section (4A),
hundred per cent. of the profits and gains derived from such business for the initial five
assessment years and thereafter, thirty per cent. of such profits
and gains;)
39((ib) in the case of a company referred to in sub-section (4B),
hundred per cent. of the profits and gains derived from such business;)
40((ic) in the case of an undertaking referred to in sub-section
(4C), hundred per cent. of the profits and gains derived from such
business for the initial five assessment years and thereafter, twenty-five per cent. of the
profits and gains derived from such business:
cent.”, the words “thirty per cent.” had been substituted;)
41((id) in the case of an industrial park referred to in sub-section
(4D), hundred per cent. of the profits and gains derived from such business for
the initial five assessment years and thereafter, twenty-five per cent. of the profits and gains
derived from such business:
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;
42((iia) in the case of a hotel referred to in clause (iiia) of sub-
section (4), fifty per cent. of the profits and gains derived from the
business of such hotel:
Page 25 of 44
Provided that the said hotel is approved by the prescribed

authority for the purposes of this clause in accordance with the
rules made under this Act;)
(iii) in the case of a hotel referred to in clause (iv) 43(or clause (iva))
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;
44((v) in the case of undertaking referred to in sub-section (4E),
hundred per cent. of profits and gains derived from such business for the initial seven
assessment years;)
45((vi) in the case of a housing project referred to in sub-section
(4F), hundred per cent. of profits and gains derived from such
business.)
(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;
46((ii) ten in the case of an assessee, not being a co-operative
society, deriving profits and gains from an industrial undertaking specified
in sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (iv)
of sub-section (2) or located in an industrially backward districts of
Category A specified in sub-clause (c) of clause (iv) of that sub-
section;
(iia) eight in the case of an assessee deriving profits and gains from an
industrial undertaking located in an industrially backward district of Category B specified in
sub-clause (c) of clause (iv) of sub-section (2) and such an undertaking is not
covered under clauses (i) and (ii) of this sub-section;)
(iii) ten in the case of any other assessee deriving profits and gains, from a ship
or the business of a hotel;
47((iv) any ten consecutive assessment years falling within a
period of twelve assessment years beginning with the assessment year in which
an assessee begins operating and maintaining infrastructure facility:)
48(Provided that where the assessee begins operating and
maintaining any infrastructure facility referred to in sub-clause (ii) of clause
(ca) of sub-section (12), the provisions of this clause shall have
effect as if for the word “twelve”, the word “twenty” had been
substituted;)
49((v) five in the case of an assessee, being a company referred to
in sub-section (4B), deriving profits and gains from scientific and
industrial research and development;)
50((vi) ten in the case of an assessee, being an undertaking
referred to in sub-section (4C), deriving profits and gains from
telecommunication services whether basic or cellular 51(including
radiopaging and domestic satellite service);
52((vii) ten in the case of an assessee, being an undertaking
referred to in sub-section (4D), deriving profits and gains from
operating an industrial park;
(viii) seven in the case of an assessee being an undertaking referred to in
sub-section (4E) deriving profits and gains from commercial production
53(or refining) of mineral oil in the North Eastern Region 54(and
other parts of the country on or after the 1st day of April, 1997).)
(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
Page 26 of 44
(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.
55((7A) Notwithstanding anything contained in sub-section
(4A), where housing or other activities are an integral part of the highway
project and the profits of which are computed on such basis and manner as may be prescribed,
such profit shall not be liable to tax where the profit has been
transferred to a special reserve account and the same is actually utilised for the highway
project excluding housing and other activities before the expiry of three years following the
year in which such amount was transferred to the reserve account; and the amount remaining
unutilised shall be chargeable to tax as income of the year in which transfer to reserve account
took place.)
(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 form56 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.
57((9A) Where any amount of profits and gains of an industrial
undertaking or of a hotel in the case of an assessee is claimed and allowed under this section
for any assessment year, deduction to the extent of such profits and gains shall not be allowed
under any other provisions of this Chapter under the heading “C.—Deductions in respect of
certain incomes”, and shall in no case exceed the profits and gains
of the undertaking or hotel, as the case may be.)
(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.
Page 27 of 44

58((a)“domestic satellite” means a satellite owned and
operated by an Indian company for providing telecommunication service;)
59((aa)) “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 ;
60((c) “initial assessment year”—
(1) in the case of an industrial undertaking or cold storage plant or
ship or hotel, 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;
(2) in the case of an enterprise, carrying on the business of
developing, operating and
maintaining any infrastructure facility, means the assessment year specified by the
assessee at his option to be the initial year, not falling beyond the twelfth assessment year
starting from the previous year in which the enterprise begins operating and maintaining the
infrastructure facility;
61((3) in the case of a company carrying on scientific and industrial
research and development, means the assessment year relevant to the previous year in which
the company is approved by the prescribed authority for the
purposes of sub-section (4B);)
62((4) in the case of an undertaking referred to in sub-section
(4C) means the assessment year relevant to the previous year in which the
undertaking starts to provide the telecommunication services whether basic or
cellular 63(including radiopaging and domestic satellite service);)
64((5) in the case of an undertaking operating an industrial park
referred to in sub-section (4D) means the assessment year relevant to the previous
year in which the undertaking starts operating such industrial park notified for the purposes of
the said sub-section;
(6) in the case of an undertaking engaged in the business of commercial
production of mineral oil referred to in sub-section (4E) means the
assessment year relevant to the previous year in which the undertaking commences the
commercial production 65(or refining) of mineral oil;)
66((ca) “infrastructure facility” means—
(i) a road, bridge, airport, port, 67(inland waterways and inland
ports,) rail system or any other public facility of a similar nature as may be notified by
the Board in this behalf in the Official Gazette;
(ii) a highway project including housing or other activities being an integral part
of the highway project; and
(iii) a water supply project, irrigation project, sanitation and sewerage
system;))
(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
Page 28 of 44
extent of, and scope for, urbanisation of such area) and other relevant considerations
specify in this behalf by notification in the Official Gazette;
68((f) “small-scale industrial undertaking” means an industrial
undertaking which is, as on the last day of the previous year, regarded as a small-scale
industrial undertaking under
section 11B of the
Industries (Development and Regulation) Act , 1951 (65 of
1951).))
69((g) “North Eastern Region” means the region comprising of the
States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and
Tripura.)’.
1. Ins. by the Finance (No. 2) Act, 1991 (49 of
1991), s 32 (w.r.e.f. 1-4-1991).
2. Subs., for “operation of a ship (such business
being hereinafter referred to as the eligible business)”, by the
Finance Act , 1995 (22 of 1995), s
19(a) (w.e.f. 1-4-1996).
1996), s 28(a) (w.e.f. 1-4-1997).
4. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(a)(i) (w.r.e.f. 1-4-1996).
1998), s 34(a)(i) (w.e.f. 1-4-1999).
6. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(a)(ii) (w.e.f. 1-4-1998).
1998), s 34(a)(ii) (w.e.f. 1-4-1999).
8. Ins. by the Income-tax (Amendment) Act, 1998
(7 of 1998), s 3(a) (w.e.f. 1-4-1998).
9. Ins. by the
Finance Act , 1994 (32 of 1994), s
27(a)(i) (w.e.f. 1-4-1994).
10. Subs., for “ending on the 31st day of March,
1998”, by the Finance (No. 2) Act, 1998 (21 of 1998), s
34(b)(i) (w.r.e.f. 1-4-1998).
11. Subs. by the
Finance Act , 1993 (38 of 1993), s
15(1) (w.e.f. 1-4-1994), for the following :—
‘(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 31st 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;’.
12. Ins. by the
Finance Act , 1994 (32 of 1994), s
27(a)(ii)(1) (w.e.f. 1-4-1995).
34(b)(ii)(a) (w.r.e.f. 1-4-1998).
14. Ins. by the Income Tax (Amendment) Act, 1998 (7
of 1998), s 3(b)(i) (w.e.f. 1-4-1998).
Page 29 of 44
15. Subs., for “2000”, by the Finance (No.

2) Act, 1998 (21 of 1998), s 34(b)(ii)(b)
(w.e.f. 1-4-1999).
16. Ins. by the
Finance Act , 1994 (32 of 1994), s
27(a)(ii)(2) (w.e.f. 1-4-1995).
17. Ins. by the Income Tax (Amendment) Act, 1998, (7
of 1998), s 3(b)(ii) (w.r.e.f. 1-4-1995).
34(b)(iii) (w.r.e.f. 1-4-1998).
19. Ins. by the
Finance Act , 1995 (22 of 1995), s
19(b) (w.e.f. 1-4-1996).
20. Subs. by the
Finance Act , 1997 (26 of 1997), s
25(b)(i), (w.e.f. 1-4-1998), for the following:—
“This section applies to the business of any hotel, where conditions (i), (ii), (v), and either of the
conditions (iii) or (iv), are fulfilled namely:—”.
21. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(b)(ii) (w.e.f. 1-4-1998).
22. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(b)(iii) (w.e.f. 1-4-1998).
23. See, rule 18BBC of the Income-tax Rules, 1962.
24. Ins. by the
Finance Act , 1995 (22 of 1995), s
19(c) (w.e.f. 1-4-1996).
25. Ins. by the Finance (No. 2) Act, 1996,
(33 of 1996), s 28(b) (w.e.f. 1-4-
1997).
26. Subs., for “1998”, by the Finance (No.
2) Act, 1998 (21 of 1998), s 34(c)
(w.r.e.f. 1-4-1998).
27. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(c) (w.r.e.f. 1-4-1996).
28. Ins. by the Finance (No. 2) Act, 1998 (21
of 1998), s 34(d) (w.e.f. 1-4-1999). |
29. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(d) (w.e.f. 1-4-1998).
of 1998), s 34(e)(i) (w.e.f. 1-4-1999).
of 1998), s 3(c) (w.e.f. 1-4-1998).
of 1998), s 34(e)(ii) (w.e.f. 1-4-1999).
of 1998), s 34(f) (w.e.f. 1-4-1999).
34. Subs. by the
Finance Act , 1993 (38 of 1993), s
15(2) (w.e.f. 1-4-1994), for the following:—
Page 30 of 44
‘(i) in the case of an industrial undertaking, twenty-five per cent. of the profits
and gains derived from such industrial undertaking:
cent.”, the words “thirty per cent.” had been substituted;’.
35. Ins. by the
Finance Act , 1995 (22 of 1995), s
19(d)(i) (w.e.f. 1-4-1996).
36. Ins. by the
Finance Act , 1994 (32 of 1994), s
27(b) (w.e.f. 1-4-1995).
37. Ins. by the Income Tax (Amendment) Act, 1998 (7
of 1998), s 3(d) (w.r.e.f. 1-4-1995).
38. Ins. by the
Finance Act , 1995 (22 of 1995), s
19(d)(ii) (w.e.f. 1-4-1996).
39. Ins. by the Finance (No. 2) Act, 1996,
(33 of 1996), s 28(c) (w.e.f. 1-4-
1997).
40. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(e)(i) (w.r.e.f. 1-4-1996).
41. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(e)(ii) (w.e.f. 1-4-1998).
42. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(e)(iii) (w.e.f. 1-4-1998).
43. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(e)(iv) (w.e.f. 1-4-1998).
44. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(e)(v) (w.e.f. 1-4-1998).
of 1998), s 34(g) (w.e.f. 1-4-1999).
46. Clauses (ii) and (iia)
have been substituted by the Income Tax (Amendment) Act, 1998 (7 of
1998), s 3(e)(A) (w.r.e.f. 1-4-1995), for the
following clause (ii):—
‘(ii) ten in the case of any other assessee deriving profits and gains from an
industrial undertaking;’.
47. Ins. by the
Finance Act , 1995 (22 of 1995), s
19(e) (w.e.f. 1-4-1996).
of 1998), s 3(e)(B) (w.e.f. 1-4-1998).
49. Ins. by Act, 33 of 1996, s 28(d)
(w.e.f. 1-4-1997).
50. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(f)(i) (w.r.e.f. 1-4-1996).
of 1998), s 34(h)(i) (w.e.f. 1-4-1999).
Page 31 of 44
52. Ins. by the

Finance Act , 1997 (26 of 1997), s
25(f)(ii) (w.e.f. 1-4-1998).
of 1998), s 34(h)(ii) (w.e.f. 1-4-1999).
of 1998), s 3(e)(C) (w.e.f. 1-4-1998).
of 1998), s 3(f) (w.e.f. 1-4-1998).
56. Rule 18BBB prescribes Form No. 10CCB for the purposes of
Section 80-IA(8) .
of 1998), s 34(i) (w.e.f. 1-4-1999).
of 1998), s 34(j)(i) (w.e.f. 1-4-1999).
59. Clause (a) relettered as clause
(aa) by the Finance (No. 2) Act, 1998 (21 of 1998), s
34(j)(i) (w.e.f. 1-4-1999).
60. Clauses (c) and (ca)
have been substituted by the
Finance Act , 1995 (22 of 1995), s
19(f) (w.e.f. 1-4-1996) for the then existing clause (c) which stood
as under:—
‘(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;’.
61. Ins. by the Finance (No. 2) Act, 1996
(Act, 33 of 1996), s 28(e)(i) (w.e.f.
1-4-1997).
62. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(g)(i) (w.r.e.f. 1-4-1996).
of 1998), s 34(j)(ii)(a) (w.e.f. 1-4-1999).
64. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(g)(ii) (w.e.f. 1-4-1998).
of 1998), s 34(j)(ii)(b) (w.e.f. 1-4-1999).
66. Subs. by the Income Tax (Amendment) Act, 1998
(7 of 1998), s 3(g) (w.e.f. 1-4-1998),
for the following clause (ca):—
‘(ca) “infrastructure facility” means—
(i) a road, highway, bridge, airport, port, rail system or any other public
facility of a similar nature as may be notified by the Board in this behalf in the Official
Gazette;
(ii) a water supply project, irrigation project, sanitation and sewerage
system;’.
Above clause (ca) was substituted by Act, 33 of 1996, s 28(e)(ii)
(w.e.f. 1-4-1997), for the following:—
‘(ca) “infrastructure facility” means a road, highway, bridge, airport,
port or rail system or any other public facility of a similar nature as may be notified by
the Board in this behalf in the Official Gazette;’.
Page 32 of 44
Above clause (ca) was originally introduced along with clause (c) by the
Finance Act , 1995 (22 of 1995), s
19(f) (w.e.f. 1-4-1996).
of 1998), s 34(iii) (w.e.f. 1-4-1999).
68. Subs. by the
Finance Act , 1992 (18 of 1992), s
47 (w.e.f. 1-4-1993), for the following:—
‘(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.’.
69. Ins. by the
Finance Act , 1997 (26 of 1997), s
25(g)(iii) (w.e.f. 1-4-1998).
68 Subs. by the
Finance Act , 2001 (14 of 2001), s
44(a) (w.e.f. 1-4-2002), Circular No. 14 of 2001, 252 ITR
‘(1) Where the gross total income of an assessee includes any profits
and gains derived from any business of an industrial undertaking or an enterprise referred
to in sub-section (4) (such business being hereinafter referred to as the
eligible business), 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 hundred per cent. of profits and gains derived from such
business for the first five assessment years commencing at any time during the periods as
specified in sub-section (2) and thereafter, twenty-five per cent. of the profits
and gains for further five assessment years:
this sub-section shall have effect as if for the words “twenty-five
per cent.”, the words “thirty per cent.” had been substituted.’.
69 The words, etc., “or develops or develops and operates

or maintains and operates a special economic zone referred to in clause
(iii) of sub-section (4)”, have originally been inserted by
the
Finance Act , 2002 (20 of 2002), s
33(a) (w.e.f. 1-4-2003). See Circular No. 8 of 2002,
August 27, 2002, 258 ITR (St.) 13.
70 Subs., for “or develops or develops and operates or

maintains and operates a special economic zone”, by the
Finance Act , 2003 (32 of 2003), s
38(i) (w.r.e.f. 1-4-2002). See Circular No. 7 of 2003,
September 5, 2003, 263 ITR (St.) 62.
Page 33 of 44
71 Ins. by the Finance (No. 2) Act, 2004 (23 of 2004),

s 17(a) (w.e.f. 1-4-2005). See Circular No.
5 of 2005, July 15, 2005, 276 ITR (St.) 151.
72 The words “or lays and begins to operate a cross-country

natural gas distribution network” have been omitted by the Finance
(No. 2) Act, 2009 (33 of 2009), s 36(a)
(w.e.f. 1-4-2010). Earlier, the above words were inserted by the
Finance Act , 2007 (22 of 2007), s
28(i) (w.e.f. 1-4-2008). See Circular No. 5 of 2008, June
3, 2010, 324 ITR (St.) 293.
73 Subs. by the
Finance Act , 2001 (14 of 2001), s
44(b) (w.e.f. 1-4-2002), for the following:—
‘Provided that where the assessee begins operating and
maintaining any infrastructure facility referred to in clause (b) of Explanation to clause (i) of sub-
section (4), the provisions of this sub-section shall have effect as if
for the words “fifteen years”, the words ‘twenty years” had been
substituted.’.
74 Ins. by the
Finance Act , 2001 (14 of 2001), s
44(c) (w.e.f. 1-4-2001).
75 The words, brackets and figures ‘an industrial

undertaking referred to in clause (iv) of sub-section (4)’
have been substituted for ‘any industrial undertaking’, by
the
Finance Act , 2000 (10 of 2000), s
38(a) (w.e.f. 1-4-2000).
The words ‘industrial undertaking’, in the above portion, have been
substituted by the word ‘undertaking’ by the
Finance Act , 2001 (14 of 2001), s
44(d) (w.e.f. 1-4-2002). See Circular No. 794 of 2000, dt. 9-8-2000,
245 ITR (St.) 21.
76 In effect, inserted by the Finance (No. 2) Act, 2004 (23 of

2004), s 17(b)(A) (w.e.f. 1-4-2005).
77 Subs., for “clause (iv)”, by the

Finance Act , 2007 (22 of 2007), s
28(ii) (w.e.f. 1-4-2008).
78 The words, brackets and letters “or clause (vi)” which

were introduced (w.e.f. 1-4-2008) by the
Finance Act , 2007 (22 of 2007), have been omitted by
the Finance (No. 2) Act, 2009 (33 of 2009), s
36(b) (w.e.f. 1-4-2010).
Page 34 of 44
79 Subs., for “industrial undertaking”, by the

Finance Act , 2001, (14 of 2001), s
44(d) (w.e.f. 1-4-2002).

Finance Act , 2001, (14 of 2001), s
44(d) (w.e.f. 1-4-2002).

s 17(b)(B) (w.e.f. 1-4-2005).

Finance Act , 2001 (14 of 2001), s
44(d) (w.e.f. 1-4-2002).
83 Subs., for “of (i) developing, (ii)

maintaining and operating or (iii) developing, maintaining and operating”, by the
Finance Act , 2001, (14 of 2001), s
44(e)(i)(A) (w.e.f. 1-4-2002).
84 Ins. by the
Finance Act , 2005 (18 of 2005), s
26 (w.e.f. 1-4-2006).
85 Subs. by the
Finance Act , 2001, (14 of 2001), s
44(e)(i)(B) (w.e.f. 1-4-2002), for the following:—
“(b) it has entered into an agreement with the Central Government or a State Government
or a local authority or any other statutory body for (i) developing,
(ii) maintaining and operating or (iii) developing, maintaining and
operating a new infrastructure facility subject to the condition that
such infrastructure facility shall be transferred to the Central Government, State
Government, local authority or such other statutory body, as the case may be, within the
period stipulated in the agreement;”.
86 Subs. by the
Finance Act , 2001, (14 of 2001), s
44(e)(ii) (w.e.f. 1-4-2002), for the following:—
“Explanation.—For the purposes of this clause, “infrastructure
facility” means,—
(a) a road, bridge, airport, port, inland waterways and inland ports, rail system or
any other public facility of a similar nature as may be notified1 by the Board in this behalf in
the Official Gazette;
(b) a highway project including housing or other activities being an integral part
of the highway project; and
Page 35 of 44
2[(c) a water supply project, water treatment system, irrigation
project, sanitation and sewerage system or solid waste management
system;]”.
1. Reference may be made to Notification No. SO 254(E), dated 14-3-2000
[(2000) 242 ITR (St.) 209].
2. Subs. by the
Finance Act , 2000 (10 of 2000), s
38(b) (w.e.f. 1-4-2001), for the following:— ‘(c) a water supply
project, irrigation project, sanitation and sewerage system;’.
87 Subs., for “or inland port”, by the

Finance Act , 2007 (22 of 2007), s
28(iii)(A) (w.e.f. 1-4-2008).
88 Subs. by the
Finance Act , 2001, (14 of 2001), s
44(e)(iii) (w.e.f. 1-4-2001), for the following:—
“(ii) any undertaking which has started or starts providing telecommunication
services whether basic or cellular, including radiopaging, domestic satellite service or network
of trunking and electronic data interchange services at any time on or after the 1st day of
April, 1995, but before the 31st day of March, 2000.”.
89 Subs., for “31st day of March, 2004”, by the Finance (No.

2) Act, 2004 (23 of 2004), s
17(c)(A) (w.e.f. 1-4-2005). Earlier, the figures, letters and
words “31st day of March, 2004” were substituted for
“31st day of March, 2003”, by the
Finance Act , 2003 (32 of 2003), s
38(ii)(a) (w.e.f. 1-4-2004).
90 Ins. by the
Finance Act , 2001 (14 of 2001), s
44(e)(iv)(A) (w.e.f. 1-4-2002).
91 Subs., for “the 31st day of March, 2002”, by the

Finance Act , 2001, (14 of 2001), s
44(e)(iv)(B) (w.e.f. 1-4-2001).
92 Subs. by the
Finance Act , 2003 (32 of 2003), s
38(ii)(b) (w.r.e.f. 1-4-2002), for the following proviso:—
‘Provided that in a case where an undertaking develops an
industrial park on or after the 1st day of April, 1999, and transfers the operation and maintenance
of such industrial park to another undertaking (hereafter in this section referred to as
the transferee undertaking) the deduction under sub-section (1), shall be
allowed to such transferee undertaking for the remaining period in the ten consecutive
assessment years in a manner as if the operation and
maintenance were not so transferred to the transferee undertaking;’.
Page 36 of 44
1 Ins. by the
Finance Act , 2006 (21 of 2006), s
18(a) (w.e.f. 1-4-2007). See Circular No. 14 of 2006,
December 28, 2006, 288 ITR (St.) 9.
2 Subs. for “31st day of March, 2009”, by the Finance (No.

2) Act, 2009 (33 of 2009), s
36(c)(A) (w.r.e.f. 1-4-2009). See Circular No. 5 of 2010,
June 3, 2010, 324 ITR (St.) 293.

Finance Act , 2001 (14 of 2001), s
44(e)(v)(A) (w.e.f. 1-4-2002).
4 Subs., for “ending on the 31st day of March, 2003”, by

the
Finance Act , 2001 (14 of 2001), s
44(e)(v)(B) (w.e.f. 1-4-2002).

Finance Act , 2013, s 19 (w.e.f.
1-4-2014). See Memorandum explaining the provisions in Finance Bill, 2013, 351 ITR
(St.) 102. The above were substituted, for “the 31st day of March,
2012”, by the
Finance Act , 2012 (23 of 2012), s
30(a) (w.e.f. 1-4-2013). See Circular No. 2 of 2012, May
22, 2012, 343 ITR (St.) 157. Also see, Memorandum
explaining the provisions in Finance Bill, 2011, 331 ITR (St.) 131. The above were
substituted, for “the 31st day of March, 2011” by the
Finance Act , 2011 (8 of 2011), s
11 (w.e.f. 1-4-2012). Earlier, the words “the 31st day of
March, 2011” were substituted for “the 31st day of March, 2010” by
36 (c)(B) (w.r.e.f. 1-4-2009). Still earlier, the words “the
31st day of March, 2010” were substituted for “the 31st day of March
2006” by the
Finance Act , 2006 (21 of 2006), s
18(b)(i) (w.e.f. 1-4-2007).
6 Subs., for “ending on the 31st day of March, 2003”, by

the
Finance Act , 2001 (14 of 2001), s
44(e)(v)(B) (w.e.f. 1-4-2002).

1-4-2014). The above were substituted, for “the 31st day of March, 2012”, by
the
Finance Act , 2012 (23 of 2012), s
30(a) (w.e.f. 1-4-2013). The above were substituted, for
Page 37 of 44
“the 31st day of March, 2011”, by the

Finance Act , 2011 (8 of 2011), s
36(c)(B) (w.r.e.f. 1-4-2009). Still earlier, the words “the
31st day of March, 2010” were substituted for “the 31st
day of March, 2006” by the
Finance Act , 2006 (21 of 2006), s
18(b)(ii) (w.e.f. 1-4-2007).

Finance Act , 2001 (14 of 2001), s
44(e)(v)(A) (w.e.f. 1-4-2002).

s 17(c)(B) (w.e.f. 1-4-2005). See Circular No.
5 of 2005, July 15, 2005, 276 ITR (St.) 151.

1-4-2014). The above were substituted, for “the 31st day of March, 2012”, by
the
Finance Act , 2012 (23 of 2012), s
30(a) (w.e.f. 1-4-2013). The above were substituted, for
“the 31st day of March, 2011”, by the
Finance Act , 2011 (8 of 2011), s
36(c)(B) (w.r.e.f. 1-4-2009). Still earlier, the words “the
31st day of March, 2010” were substituted for “the 31st
day of March, 2006” by the
Finance Act , 2006 (21 of 2006), s
18(b)(ii) (w.e.f. 1-4-2007).
10 Ins. by the Taxation Laws (Amendment) Act, 2005 (55 of

2005), s 5 (w.e.f. 1-4-2006). See Circular No. 3 of 2005,
June 3, 2005, 275 ITR (St.) 138; Circular No. 6 of 2005,
July 25, 2005, 276 ITR (St.) 150; Circular No. 3 of 2006,
February 27, 2006, 281 ITR (St.) 222.
11 Subs., for “31st day of March, 2008”, by the Finance (No.

2) Act, 2009 (33 of 2009), s
36(c)(C) (w.r.e.f. 1-4-2008). Earlier, the words “31st day
of March, 2008” were substituted for “31st day of March,
2007” by the
Finance Act , 2007 (22 of 2007), s
28(iii)(B) (w.e.f. 1-4-2008). See Circular No. 3 of 2008,
March 12, 2008, 299 ITR (St.) 8.
Page 38 of 44
12 Clause (vi) has been omitted by the Finance (No. 2) Act,

2009 (33 of 2009), s 36(c)(D)
(w.e.f. 1-4-2010). Prior to its omission, clause (vi) stood as under:—
‘1[(vi) any undertaking carrying on the business of laying and operating a
cross-country natural gas distribution network, including pipelines and storage facilities being
an integral part of such network, which fulfils the following conditions, namely:—
(a) it is owned by a company registered in India or by a consortium of such
companies or by an authority or a board or a corporation established or constituted under any
Central or State Act;
(b) it has been approved by the Petroleum and Natural Gas Regulatory Board
established under sub-section (1) of section 3 of the
Petroleum and Natural Gas Regulatory Board Act , 2006 (19 of
2006), and notified by the Central Government in the Official
Gazette;
(c) one-third of its total pipeline capacity is available for use on common carrier
basis by any person other than the assessee or an associated person;
(d) it has started or starts operating on or after the 1st day of April, 2007;
and
(e) any other condition which may be prescribed.
Explanation.—For the purposes of this clause, an “associated
person” in relation to the assessee means a person—
(i) who participates directly or indirectly or through one or more intermediaries
in the management or control or capital of the assessee;
(ii) who holds, directly or indirectly, shares carrying not less than
twenty-six per cent. of the voting power in the assessee;
(iii) who appoints more than half of the Board of directors or members of the governing
board, or one or more executive directors or executive members of the governing board of the
assessee; or
(iv) who guarantees not less than ten per cent. of the total borrowings of the
assessee.]’.
1. Ins. by the
Finance Act , 2007 (22 of 2007), s
28(iii)(C) (w.e.f. 1-4-2008).
13 See, rule 18BBE of the Income-tax Rules, 1962, and

Form No. 10CCC appended to those Rules.
14 Subs., for “Where the assessee is a person other than a

company or a co-operative society, the deduction”, by the
Finance Act , 2002 (20 of 2002), s
33(b) (w.e.f. 1-4-2003). See Circular No. 8 of 2002,
August 27, 2002, 258 ITR (St.) 13.

Finance Act , 2001 (14 of 2001), s
44(f) (w.e.f. 1-4-2002). See Circular No. 14 of 2001, 252
ITR (St.) 65.

Finance Act , 2001 (14 of 2001), s
Page 39 of 44
44(f) (w.e.f. 1-4-2002). See Circular No. 14 of 2001, 252

ITR (St.) 65.
16 See, rule 18BBB of the Income-tax Rules, 1962, and

Form No. 10CCB appended to those Rules.
17 Subs., for “goods”, by the

Finance Act , 2001 (14 of 2001), s
44(g)(i) (w.e.f. 1-4-2002).

Finance Act , 2001 (14 of 2001), s
44(g)(i) (w.e.f. 1-4-2002).

Finance Act , 2001 (14 of 2001), s
44(g)(i) (w.e.f. 1-4-2002).

Finance Act , 2001 (14 of 2001), s
44(g)(i) (w.e.f. 1-4-2002).
18 Subs. by the
Finance Act , 2012 (23 of 2012), s
30(b) (w.e.f. 1-4-2013), Circular No. 3 of 2012, June, 12,
2012, 345 ITR (St.) 103 - Supplementary Memorandum. Also see,
Memorandum explaining the provisions in Finance Bill, 2012, 342 ITR (St.) 234. for
the following:—
‘1[Explanation.—For the purposes of this sub-section, “market
value”, in relation to any goods or services, means the price that such goods or
services would ordinarily fetch in the open market.]’.
1. Earlier, the above Explanation was substituted by the
Finance Act , 2001 (14 of 2001), s
44(g)(ii) (w.e.f. 1-4-2002), for the following.
‘Explanation.—For the purposes of 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.’.
19 Subs., for ‘industrial undertaking’, by the

Finance Act , 2001 (14 of 2001), s
44(h) (w.e.f. 1-4-2002).

Finance Act , 2001 (14 of 2001) s
44(h) (w.e.f. 1-4-2002).
Page 40 of 44
21 Ins. by the
Finance Act , 2012 (23 of 2012), s
30(c) (w.e.f. 1-4-2013).
22 Ins. by the
Finance Act , 2007 (22 of 2007), s
28(iv) (w.e.f. 1-4-2008).
23 Ins. by the
Special Economic Zones Act , 2005 (28 of 2005),
Second Sch. (w.e.f. 10-2-2006).
24 Subs. by the Finance (No. 2) Act, 2009 (33 of (2009),

s 36(d) (w.r.e.f. 1-4-2000) for the Explanation to
Section 80-IA(13) [which was inserted vide
section 28(v) of the
Finance Act , 2007 (22 of 2007) (w.r.e.f. 1-4-2000)], which
reads as under:—
“Explanation.—For the removal of doubts, it is hereby declared that nothing
contained in this section shall apply to a person who executes a works contract entered into with
the undertaking or enterprise, as the case may be.”
25 Liberty India v CIT 317

ITR 218 (SC),
(2009) 9 SCC 328 .
26 Nahar Exports Ltd v CIT

288 ITR 494, (2006) 204 CTR (P&H) 464 ; Liberty Shoes Ltd v CIT 293
ITR 478, (2007) 207 CTR (P&H) 181 ; CIT v TTK Prestige Ltd 322
ITR 390,
(2009) 227 CTR 565 (Kar) (not a
mistake apparent to allow the benefit) (SLP dismissed in 322 ITR
(St) 14); CIT v Ranbaxy Laboratories Ltd. 334 ITR 341,
(2011) 243 CTR 242 (Del); Sharavathy Steel Products
Pvt Ltd v ITO 347 ITR 371,
[2011] 203 Taxman 232 (Kar) (incidental
services) and M.M. Forgings Ltd v ACIT 349 ITR 673,
[2011] 200 Taxman 36 (Mad). In TN Petro Products Ltd v
ACIT 338 ITR 643, the Madras High Court came to the
contrary conclusion, but this may not be good law since Liberty was
not considered by the Court; CIT v. Orchev Pharma P. Ltd. 354 ITR 227 .
27 CIT v Jackson Engineers Ltd

341 ITR 518,
(2010) 231 CTR 348 (Del), following Nirma Industries
Ltd. v DCIT 283 ITR 402,
(2006) 202 CTR 198 (Guj); CIT v Indo Matsushita
Carbon Co Ltd 286 ITR 201,
(2006) 205 CTR 493 (Mad); Tata Sponge Iron Ltd v CIT
292 ITR 175, 2007 (Supp. 1) OLR 865; Phatela Cotgin Industries Pvt
Page 41 of 44
Ltd v CIT 303 ITR 411,

[2008] 166 Taxman 9 (P&H); CIT v Advance Detergents
Ltd 339 ITR 81,
(2010) 228 CTR 356 (Del).
28 CIT v Arvind Construction Co.

Ltd. 317 ITR 276, (2008) 215 CTR 363 (Del) (S.
80HHB).
29 CIT v Kiran Enterprises

327 ITR 520,
(2010) 228 CTR 101 (HP).
30 CIT v Sportking India Ltd

324 ITR 283,
[2009] 183 Taxman 312 (Del).
31 Arisudana Spinning Mills Ltd

v CIT 348 ITR 385 (SC),
(2012) 12 SCC 503 .
32 See CIT v Ambuja Ginning Pressing & Oil Co Pvt Ltd

332 ITR 434,
[2011] 203 Taxman 34 (Guj). Ironically, the
same court (in fact, the same learned judge—Harsha Devani J.) held that
articles manufactured through a job worker should be taken to be manufactured by the
principal, for the purposes of section 80I : see CIT v
Prithviraj Bhoorchand 280 ITR 94,
(2006) 200 CTR 82 (Guj) followed in ACIT v Prithivraj
Bhoorchand 310 ITR 88,
[2009] 176 Taxman 156 (Guj). See also CIT v Tips
Industries P. Ltd. 321 ITR 154,
(2010) 229 CTR 228 (Bom).
33 Synco Industries Ltd v AO

299 ITR 444 (SC),
(2008) 4 SCC 22 .
34 CIT v Tridoss Laboratories

Ltd. 328 ITR 448,
[2011] 198 Taxman 31 (Bom); CIT v Parle Plastic Ltd.
332 ITR 63,
(2010) 236 CTR 382 (Bom) following Plastiblends India
Ltd. v ACIT 318 ITR 352,
(2010) (1) MHLJ 526 (FB);
CIT v Arif Industries Ltd. 339 ITR 6,
(2010) 231 CTR 271 (All); Velayuadhaswamy Spinning
Mills P. Ltd. v CIT 340 ITR 477 (notional set-off in
Page 42 of 44
subsequent year); CIT v Swarnagiri Wire Insulations P. Ltd. 349 ITR 245 (unabsorbed
depreciation).
35 ITO v Arihant Tiles and

Marbles Pvt Ltd 320 ITR 79 (SC),
AIR 2011 SC 149 affirming 295 ITR 148,
(2007) 211 CTR 169 (Raj) followed in CIT v Mallikarjun
Georesources Associates 341 ITR 581,
2011 (2) UD 11 (converting boulders into
grits); CIT v Balaji Hotels and Enterprises Ltd 311 ITR 389
(printing); Bhatsons Acquatic Products v CIT 329 ITR 67 (fish processing not
manufacture); CIT v Janak Raj Bansal 329 ITR 417,
(2010) 228 CTR 167 (HP) (conversion
of limestone into limestone powder); CIT v HLS India Ltd 335 ITR 292,
(2011) 242 CTR 1 (Del) (wire line
logging); CIT v Aicam Engineering Pvt Ltd 336 ITR 294
(job work); CIT v Haryana State Electronics Development
Corporation Ltd 339 ITR 615, (2012) 250 CTR (P&H) 316
(preparing photo ID cards); CIT v Jackson Engineers Ltd
341 ITR 518,
(2010) 231 CTR 348 (Del) (assembling
gensets); Titanor Components Ltd v. CIT 358 ITR 55
(coating of Titanium Substrates).
36 CIT v Oracle Software India

Ltd 320 ITR 546,
(2010) 2 SCC 677 affirming 293 ITR 353,
(2007) 211 CTR 60 (Del) (loading
software into a blank CD); CIT v Emptee Poly-Yarn Pvt. Ltd. 320 ITR 665 (SC),
(2010) 2 SCC 720 (twisting and texturizing
yarn) affirming 305 ITR 309,
(2008) 218 CTR 657 (Bom); CIT v Gemini
Communications Ltd 357 ITR 759 (s
80IC ).
37 CIT v P. Damodaran 282

ITR 466,
(2006) 202 CTR 454 (Mad).
38 Gujarat JHM Hotels Ltd v DGIT

305 ITR 386,
(2009) 222 CTR 132 (Guj).
39 CIT v Nestor Pharmaceuticals

Ltd. 322 ITR 631,
(2010) 231 CTR 337 (Del) - following CIT v Hindustan
Antibiotics Ltd. 93 ITR 548 and distinguishing CIT v Sesa Goa Ltd. 271 ITR
331,
(2004) 192 CTR 577 (SC).
Page 43 of 44
40 Synco Industries Ltd. v AO

299 ITR 444 (SC),
(2008) 4 SCC 22 .
41 CIT v Nestor Pharmaceuticals

Ltd. 322 ITR 631,
(2010) 231 CTR 337 (Del).
42 CIT v Chetak Enterprises P.

Ltd. 325 ITR 405,
(2008) 220 CTR 55 (Raj).
43 For text, see 255 ITR (St.) 125. The 2002 Scheme was
valid till March 31, 2006. The Industrial Park Scheme, 2008 was
notified for the Parks that came up on and after April 1, 2006. See 297 ITR (St.)
66.
44 Silver Land Developers Pvt.

Ltd. v Empowered Committee 343 ITR 439,
(2012) 249 CTR 255 (Bom).
45 Regency Soraj Infrastructures

v UOI 345 ITR 105,
(2012) 249 CTR 280 (Del).
46 Container Corporation of
India Ltd. v ACIT 346 ITR 140,
[2012] 208 Taxman 62 (Del).
47 Synco Industries Ltd. v AO

299 ITR 444 (SC),
(2008) 4 SCC 22 .
48 CIT v P.D. Abraham 349

ITR 442
(2012) 252 CTR 407 (Ker).
49 CIT v Panama ChemicalWorks

292 ITR 147,
(2007) 207 CTR 249 (MP); see also CIT v Ace Multitaxes
Systems P. Ltd. 317 ITR 207 ; CIT v Contimeters Electricals P. Ltd. 317
ITR 249,
(2009) 224 CTR 366 (Del) - followed in CIT v Web
Commerce (India) P. Ltd. 318 ITR 135,
[2009] 178 Taxman 310 (Del) SLP dismissed - 320
ITR (St) 20.
Page 44 of 44
50 Great Eastern Exports v CIT

332 ITR 14, 39, 176
(2011) DLT 228 .
51 Olam Exports (India) Pvt.

Ltd. v CIT 332 ITR 40,
(2010) 229 CTR 206 (Ker); Friends Casting Pvt. Ltd. v
CIT 340 ITR 305, (2011) 238 CTR (P&H) 377 .
52 Associated Capsules Pvt. Ltd.

v DCIT 332 ITR 42,
(2011) 237 CTR 408 (Bom).
53 Circular No. 772, December 23, 1998: 235 ITR (St.) 35.
54 SCM Creations v ACIT

304 ITR 319,
(2008) 218 CTR 126 (Mad).
55 General Optics (Asia)

Ltd. v DCIT 315 ITR 400 .
56 CIT v Rochiram and Sons

271 ITR 444,
(2004) 191 CTR 472 (Raj).
57 CIT v Mepco Industries Ltd

294 ITR 121 ; Regal Industries Ltd v CIT 328 ITR 175
(P&H).
58 CIT v Medicaps Ltd 323

ITR 554 ; CIT v Hindustan Pencils Ltd 343 ITR 379
(Bom).
59 CIT v Alpine Solvex Ltd.

259 ITR 719 (SC).
End of Document
S. 80-IAB. Deductions in respect of profits and gains by an undertaking or
enterprise engaged in development of Special Economic Zone
S. 80-IAB. Deductions in respect of profits and gains by an undertaking or enterprise engaged in development of
Special Economic Zone
(1) 60[Where the gross total income of an assessee, being a Developer, includes any profits and gains derived by an
undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after the
1st day of April, 2005, under the Special Economic Zones Act, 2005, 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 of an
amount equal to one hundred per cent. of the profits and gains derived from such business for ten consecutive
assessment years.
(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten
consecutive assessment years out of fifteen years beginning from the year in which a Special Economic Zone has
been notified by the Central Government:
Provided that where in computing the total income of any undertaking, being a Developer for any assessment year, its
profits and gains had not been included by application of the provisions of sub-section (13) of Section 80-IA, the
undertaking being the Developer shall be entitled to deduction referred to in this section only for the unexpired period of ten
consecutive assessment years and thereafter it shall be eligible for deduction from income as provided in sub-section (1) or
sub-section (2) as the case may be:
Provided further that in a case where an undertaking, being a Developer who develops a Special Economic Zone on or
after the 1st day of April, 2005, and transfers the operation and maintenance of such Special Economic Zone to another
Developer (hereafter in this section referred to as the transferee Developer), the deduction under sub-section (1) shall be
allowed to such transferee Developer for the remaining period in the ten consecutive assessment years as if the operation
and maintenance were not so transferred to the transferee Developer.
(3) The provisions of sub-sections (5) and sub-sections (7) to (12) of Section 80-IA shall apply to the Special
Economic Zones for the purpose of allowing deductions under sub-section (1).
Page 2 of 2
S. 80-IAB. Deductions in respect of profits and gains by an undertaking or enterprise engaged in development
of Special Economic Zone
Explanation.—For the purposes of this section, “Developer” and “Special Economic Zone” shall have the same
meanings respectively as assigned to them in clauses (g) and (za) of section 2 of the Special Economic Zones Act,
2005.]
1. Legislative History.—This section is a special provision introduced in consequence of enactment of the Special
Economic Zones Act, 2005, with effect from February 10, 2006. Unlike all other insertions or amendments made to the
Income-tax Act, 1961 by the respective Finance Acts, this section is inserted by the Special Economic Zones Act,
2005.
2. Sub-section (1).—As in s 80IA, s 80IAB uses the term ‘derived by an undertaking or an enterprise’. This section is
applicable to any person being a “developer” of SEZ. The meaning of the expression ‘developer’ has been defined
under s 2(g) of the Special Economic Zones Act, 2005.61 Sub-section (1) provides for 100 per cent. deduction of profits
and gains derived by an undertaking or an enterprise which is engaged in the development of SEZs, which are notified
on or after April 1, 2005 under the Special Economic Zones Act, 2005 can be claimed
3. Sub-section (2): Optional Deduction.—Under sub-section (2) the eligible assessee has an option of claiming
deduction for any ten consecutive years out of fifteen years beginning from the year in which the SEZ has been
notified. However, existing developers who are in the business of development and had claimed deduction under s 80-
IA(13) shall be eligible for deduction only to the extent of unexpired period of ten consecutive assessment years.
4. Transfer.—If a developer transfers the operation and maintenance of SEZ to any other developer, the transferee
developer shall be entitled to the deduction for the remaining period of ten consecutive assessment years.
5. Sub-section (3).—All provisions of sub-section (5) and sub-sections (7) to (12) of s 80IA shall be applicable to
persons claiming deduction under this section.
60 Ins. by the Special Economic Zones Act, 2005 (28 of 2005), Second Sch. (w.e.f. 10-2-2006).
End of Document
S. 80-IB. Deduction in respect of profits and gains from certain industrial
undertakings other than infrastructure development undertakings
S. 80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure
development undertakings
(1) 62[Where the gross total income of an assessee includes any profits and gains derived from any business referred
to in sub-sections63[(3) to (11), (11A) and (11B)] (such business being hereinafter referred to as the eligible
business), 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 such percentage
and for such number of assessment years as specified in this section.
(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;
(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 or an
industrial undertaking referred to in sub-section (4) shall apply as if the words “not being any article or
thing specified in the list in the Eleventh Schedule” had been omitted.
Explanation 1.—For the purposes of clause (ii), 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:—
Page 2 of 25
(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee,
used in India;
(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 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;
(iv) 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.
(3) The amount of deduction in the case of an industrial undertaking shall be twenty-five per cent. (or thirty per cent.
where the assessee is a company), of the profits and gains derived from such industrial undertaking for a period
of ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-
operative society) beginning with the initial assessment year subject to the fulfilment of the following conditions,
namely:—
(i) it begins to manufacture or produce, articles or things or to operate such plant or plants at any time during the
period beginning from the 1st day of April, 1991, and ending on the 31st 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 undertaking;
(ii) where it is an industrial undertaking being a small-scale industrial undertaking, it begins to manufacture or
produce articles or things or to operate its cold storage plant [not specified in sub-section (4) or sub-section
(5)] at any time during the period beginning on the 1st day of April, 1995, and ending on the64[31st day of
March, 2002].
(4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the
Eighth Schedule shall be hundred per cent. of the profits and gains derived from such industrial undertaking for
five assessment years beginning with the initial assessment year and thereafter twenty-five per cent. (or thirty per
cent. where the assessee is a company) of the profits and gains derived from such industrial undertaking:
Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve
consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the
condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or
plants during the period beginning on the 1st day of April, 1993, and ending on the65[31st day of March,
2004]:
Page 3 of 25
Provided further that in the case of such industries in the North-Eastern Region, as may be notified by the
Central Government, the amount of deduction shall be hundred per cent. of profits and gains for a period of
ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment
years:
66[Provided also that no deduction under this sub-section shall be allowed for the assessment year beginning
on the 1st day of April, 2004, or any subsequent year to any undertaking or enterprise referred to in sub-
section (2) of Section 80-IC :]
67[Provided also that in the case of an industrial undertaking in the State of Jammu and Kashmir, the
provisions of the first proviso shall have effect as if for the figures, letters and words “31st day of March,
2004”, the figures, letters and words68[“31st day of March, 2012”] had been substituted:
Provided also that no deduction under this sub-section shall be allowed to an industrial undertaking in the
State of Jammu and Kashmir which is engaged in the manufacture or production of any article or thing
specified in Part C of the Thirteenth Schedule.]
(5) The amount of deduction in the case of an industrial undertaking located in such industrially backward districts as
the Central Government may, having regard to the prescribed guidelines,69 by notification in the Official Gazette,
specify in this behalf as industrially backward district of category ‘A’ or an industrially backward district of category
‘B’ shall be,—
(i) hundred per cent. of the profits and gains derived from an industrial undertaking located in a backward district
of category ‘A’ for five assessment years beginning with the initial assessment year and thereafter, twenty-
five per cent. (or thirty per cent. where the assessee is a company) of the profits and gains of an industrial
undertaking:
Provided that the total period of deduction shall not exceed ten consecutive assessment years or where
the assessee is a co-operative society, twelve consecutive assessment years:
Provided further that the industrial undertaking begins to manufacture or produce articles or things or to
operate its cold storage plant or plants at any time during the period beginning on the 1st day of October,
1994, and ending on the70[31st day of March, 2004];
(ii) hundred per cent. of the profits and gains derived from an industrial undertaking located in a backward district
of category ‘B’ for three assessment years beginning with the initial assessment year and thereafter, twenty-
five per cent. (or thirty per cent. where the assessee is a company) of the profits and gains of an industrial
undertaking:
Provided that the total period of deduction does not exceed eight consecutive assessment years (or
where the assessee is a co-operative society, twelve consecutive assessment years):
Provided further that the industrial undertaking begins to manufacture or produce articles or things or to
operate its cold storage plant or plants at any time during the period beginning on the 1st day of October,
1994, and ending on the71[31st day of March, 2004].
Page 4 of 25
(6) The amount of deduction in the case of the business of a ship shall be thirty per cent. of the profits and gains
derived from such ship for a period of ten consecutive assessment years including the initial assessment year
provided that the ship—
(i) is owned by an Indian company and is wholly used for the purposes of the business carried on by it;
(ii) 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) 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.
(7) The amount of deduction in the case of any hotel shall be—
(a) fifty per cent. of the profits and gains derived from the business of such hotel for a period of ten consecutive
years beginning from the initial assessment year as is 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 by notification in the Official
Gazette and such hotel starts functioning at any time during the period beginning on the 1st day of April,
1990, and ending on the 31st day of March, 1994, or beginning on the 1st day of April, 1997, and ending on
the 31st day of March, 2001:
Provided that nothing contained in this clause shall apply to a hotel located at a place within the
municipal jurisdiction (whether known as a municipality, municipal corporation, notified area committee or
a cantonment board or by any other name) of Calcutta, Chennai, Delhi or Mumbai, which has started or
starts functioning on or after the 1st day of April, 1997, and before the 31st day of March, 2001:
Provided further that the said hotel is approved by the prescribed authority for the purpose of this clause
in accordance with the rules72 made under this Act and where the said hotel is 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 purpose of this section in relation to the assessment year commencing on the
1st day of April, 1991;
(b) thirty per cent. of the profits and gains derived from the business of such hotel as is located in any place other
than those mentioned in sub-clause (a) for a period of ten consecutive assessment years beginning from the
initial assessment year, if such hotel has started or starts functioning at any time during the period beginning
on the 1st day of April, 1991, and ending on the 31st day of March, 1995, or beginning on the 1st day of April,
1997, and ending on the 31st day of March, 2001:
Provided that nothing contained in this clause shall apply to a hotel located at a place within the
municipal jurisdiction (whether known as a municipality, municipal corporation, notified area committee,
town area committee or a cantonment board or by any other name) of Calcutta, Chennai, Delhi or
Mumbai, which has started or starts functioning on or after the 1st day of April, 1997, and before the 31st
day of March, 2001;
Page 5 of 25
(c) the deduction under clause (a) or clause (b) shall be available only if—
(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 hotel is for the time being approved by the prescribed authority73:
Provided that any hotel approved by the prescribed authority before the 1st day of April, 1999, shall
be deemed to have been approved under this sub-section.
(7A) 74[The amount of deduction in the case of any multiplex theatre shall be—
(a) fifty per cent. of the profits and gains derived, from the business of building, owning and operating a multiplex
theatre, for a period of five consecutive years beginning from the initial assessment year in any place:
Provided that nothing contained in this clause shall apply to a multiplex theatre located at a place within
the municipal jurisdiction (whether known as a municipality, municipal corporation, notified area
committee or a cantonment board or by any other name) of Chennai, Delhi, Mumbai or Kolkata;
(b) the deduction under clause (a) shall be allowable only if—
(i) such multiplex theatre is constructed at any time during the period beginning on the 1st day of April,
(ii) the business of the multiplex theatre 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 any building or of any machinery or of plant
previously used for any purpose;
(iii) the assessee furnishes alongwith the return of income, the report of an audit in such form and containing
such particulars as may be prescribed and duly signed and verified by an accountant, as defined in the
Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly
claimed.
(7B) The amount of deduction in the case of any convention centre shall be—
Page 6 of 25
(a) fifty per cent. of the profits and gains derived by the assessee from the business of building, owning and
operating a convention centre, for a period of five consecutive years beginning from the initial assessment
year;
(b) the deduction under clause (a) shall be allowable only if—
(i) such convention centre is constructed at any time during the period beginning on the 1st day of April,
(ii) the business of the convention centre 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 any building or of any machinery or
plant previously used for any purpose;
(iii) the assessee furnishes alongwith the return of income, the report of an audit in such form and containing
such particulars as may be prescribed, and duly signed and verified by an accountant, as defined in the
Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly
claimed.]
(8) The amount of deduction in the case of any company carrying on scientific research and development shall be
hundred per cent. of the profits and gains of such business for a period of five assessment years beginning from
the initial assessment year if such company—
(a) is registered in India;
(b) has the main object of scientific and industrial research and development;
(c) is for the time being approved by the prescribed authority at any time before the 1st day of April, 1999.
(8A) 75[Theamount of deduction in the case of any company carrying on scientific research and development shall be
hundred per cent. of the profits and gains of such business for a period of ten consecutive assessment years,
beginning from the initial assessment year, if such company—
(i) is registered in India;
(ii) has its main object the scientific and industrial research and development;
(iii) is for the time being approved by the prescribed authority at any time after the 31st day of March, 2000, but
before the76[1st day of April, 2007];
(iv) fulfils such other conditions as may be prescribed77;]
(9) 78[The amount of deduction to an undertaking shall be hundred per cent. of the profits for a period of seven
consecutive assessment years, including the initial assessment year, if such undertaking fulfils any of the
following, namely:—
(i) is located in North-Eastern Region and has begun or begins commercial production of mineral oil before the
1st day of April, 1997;
Page 7 of 25
(ii) is located in any part of India and has begun or begins commercial production of mineral oil on or after the 1st
day of April, 1997:
79[Provided that the provisions of this clause shall not apply to blocks licensed under a contract awarded
after the 31st day of March, 2011, under the New Exploration Licencing Policy announced by the
Government of India vide Resolution No. O-19018//22/95-ONG.DO.VL, dated the 10th February, 1999,
or in pursuance of any law for the time being in force or by the Central or a State Government in any
other manner;]
(iii) is engaged in refining of mineral oil and begins such refining on or after the 1st day of October, 1998,80[but not
later than the 31st day of March, 2012].
(iv) 81[isengaged in commercial production of natural gas in blocks licensed under the VIII Round of bidding for
award of exploration contracts (hereafter referred to as “NELP-VIII”) under the New Exploration Licencing
Policy announced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated 10th
February, 1999, and begins commercial production of natural gas on or after the 1st day of April, 2009;
(v) is engaged in commercial production of natural gas in blocks licensed under the IV Round of bidding for award
of exploration contracts for Coal Bed Methane blocks and begins commercial production of natural gas on or
after the 1st day of April, 2009.]
Explanation.—For the purposes of claiming deduction under this sub-section, all blocks licensed under a
single contract, which has been awarded under the New Exploration Licencing Policy announced by the
Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated 10th February, 1999, or
has been awarded in pursuance of any law for the time being in force or has been awarded by the
Central or a State Government in any other manner, shall be treated as a single “undertaking”.]
(10) 82[The amount of deduction in the case of an undertaking developing
and building housing projects approved before the83[31st day of March, 2008], by a local authority shall be
hundred per cent. of the profits derived in the previous year relevant to any assessment year from such
housing project if,—
(a) such undertaking has commenced or commences development and construction of the housing project on or
after the 1st day of October, 1998, and completes such construction,—
(i) in a case where a housing project has been approved by the local authority before the 1st day of April,
2004, on or before the 31st day of March, 2008;
(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day
of April, 2004,84[but not later than the 31st day of March, 2005], within four years from the end of the
financial year in which the housing project is approved by the local authority.
(iii) 85[ina case where a housing project has been approved by the local authority on or after the 1st day of
April, 2005, within five years from the end of the financial year in which the housing project is approved
by the local authority.]
Page 8 of 25
(i) in a case where the approval in respect of the housing project is obtained more than once, such
housing project shall be deemed to have been approved on the date on which the building plan of
such housing project is first approved by the local authority;
(ii) the date of completion of construction of the housing project shall be taken to be the date on which
the completion certificate in respect of such housing project is issued by the local authority;
(b) the project is on the size of a plot of land which has a minimum area of one acre:
Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in
accordance with a scheme framed by the Central Government or a State Government for reconstruction
or redevelopment of existing buildings in areas declared to be slum areas under any law for the time
being in force and such scheme is notified by the Board in this behalf;
(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is
situated within the city of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these
cities and one thousand and five hundred square feet at86[any other place;]
(d) the built-up area of the shops and other commercial establishments included in the housing project does not
exceed87[three per cent.] of the aggregate built-up area of the housing project or88[five thousand square feet,
whichever is higher];
(e) 89[not more than one residential unit in the housing project is allotted to any person not being an individual;
and
(f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other
residential unit in such housing project is allotted to any of the following persons, namely:—
(i) the individual or the spouse or the minor children of such individual,
(ii) the Hindu undivided family in which such individual is the karta,
(iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu
undivided family in which such individual is the karta.]
90[Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this sub-
section shall apply to any undertaking which executes the housing project as a works contract
awarded by any person (including the Central or State Government).]
Page 9 of 25
(11) Notwithstanding anything contained in clause (iii) of sub-section (2) and sub-sections (3), (4) and (5), the amount
of deduction in a case of industrial undertaking deriving profit from the business of setting up and operating a cold
chain facility for agricultural produce, shall be hundred per cent. of the profits and gains derived from such
industrial undertaking for five assessment years beginning with the initial assessment year and thereafter, twenty-
five per cent. (or thirty per cent. where the assessee is a company) of the profits and gains derived from the
operation of such facility in a manner that the total period of deduction does not exceed ten consecutive
assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) and
subject to fulfilment of the condition that it begins to operate such facility on or after the 1st day of April, 1999, but
before the91[1st day of April, 2004].
(11A) 92[The amount of deduction in a case of93[an undertaking deriving profit from the business of processing,
preservation and packaging of fruits or vegetables or94[meat and meat products or poultry or marine or dairy
products or] from] the integrated business of handling, storage and transportation of foodgrains, shall be hundred
per cent. of the profits and gains derived from such undertaking for five assessment years beginning with the
initial assessment year and thereafter, twenty-five per cent. (or thirty per cent. where the assessee is a company)
of the profits and gains derived from the operation of such business in a manner that the total period of deduction
does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to
operate such business on or after the 1st day of April, 2001:]
95[Provided that the provisions of this section shall not apply to an undertaking engaged in the business of
processing, preservation and packaging of meat or meat products or poultry or marine or dairy products if it
begins to operate such business before the 1st day of April, 2009.]
(11B) 96[The amount of deduction in the case of an undertaking deriving profits from the business of operating and
maintaining a hospital in a rural area shall be hundred per cent. of the profits and gains of such business for a
period of five consecutive assessment years, beginning with the initial assessment year, if—
(i) such hospital is constructed at any time during the period beginning on the 1st day of October, 2004, and
ending on the 31st day of March, 2008;
(ii) the hospital has at least one hundred beds for patients;
(iii) the construction of the hospital is in accordance with the regulations, for the time being in force, of the local
authority; and
(iv) the assessee furnishes along with the return of income, the report of audit in such form and containing such
particulars as may be prescribed, and duly signed and verified by an accountant, as defined in the
Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed.
Explanation.—For the purposes of this sub-section, a hospital shall be deemed to have been
constructed on the date on which a completion certificate in respect of such construction is issued by the
concerned local authority.]
(11C) 97[The amount of deduction in the case of an undertaking deriving profits from the business of operating and
maintaining a hospital located anywhere in India, other than the excluded area, shall be hundred per cent. of the
profits and gains derived from such business for a period of five consecutive assessment year, beginning with the
initial assessment year, if—
Page 10 of 25
(i) the hospital is constructed and has started or starts functioning at any time during the period beginning on the
1st day of April, 2008, and ending on the 31st day of March, 2013;
(ii) the hospital has at least one hundred beds for patients;
(iii) the construction of the hospital is in accordance with the regulations or bye-laws of the local authority; and
(iv) the assessee furnishes along with the return of income, a report of audit in such form and containing such
particulars, as may be prescribed, and duly signed and verified by an accountant, as defined in the
Explanation to sub-section (2) of section 288, certifying that the deduction has been correctly claimed.
Explanation.—For the purposes of this sub-section—
(a) a hospital shall be deemed to have been constructed on the date on which a completion certificate in
respect of such construction is issued by the local authority concerned;
(b) “initial assessment year” means the assessment year relevant to the previous year in which the business
of the hospital starts functioning;
(c) “excluded area” shall mean an area comprising—
(i) Greater Mumbai urban agglomeration;
(ii) Delhi urban agglomeration;
(iii) Kolkata urban agglomeration;
(iv) Chennai urban agglomeration;
(v) Hyderabad urban agglomeration;
(vi) Bangalore urban agglomeration;
(vii) Ahmedabad urban agglomeration;
(viii) District of Faridabad;
(ix) District of Gurgaon;
(x) District of Gautam Budh Nagar;
(xi) District of Ghaziabad;
(xii) District of Gandhinagar; and
(xiii) City of Secunderabad;
(d) the area comprising an urban agglomeration shall be the area included in such urban agglomeration on
the basis of the 2001 census.]
Page 11 of 25
(12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred,
before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation
or demerger—
(a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the
previous year in which the amalgamation or the demerger takes place; and
(b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as
they would have applied to the amalgamating or the demerged company if the amalgamation or demerger
had not taken place.
(13) The provisions contained in sub-section (5) and sub-sections (7) to (12) of Section 80-IA shall, so far as may be,
apply to the eligible business under this section.
(a) 1[“built-up area” means the inner measurements of the residential unit at the floor level, including the
projections and balconies, as increased by the thickness of the walls but does not include the common areas
shared with other residential units;]
(aa)] 2[“cold chain facility” means a chain of facilities for storage or transportation of agricultural produce under
scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of
such produce;
(ab) 3[4[“convention centre” means a building of a prescribed area comprising of convention halls to be used for
the purpose of holding conferences and seminars, being of such size and number and having such other
facilities and amenities, as may be prescribed;]
(b) “hilly area” means any area located at a height of one thousand metres or more above the sea level;
(c) “initial assessment year”—
(i) in the case of an industrial undertaking or cold storage plant or ship or hotel, 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 cold chain facility or the ship is first
brought into use or the business of the hotel starts functioning;
(ii) in the case of a company carrying on scientific and industrial research and development, means the
assessment year relevant to the previous year in which the company is approved by the prescribed
authority for the purposes of sub-section (8);
(iii) in the case of an undertaking engaged in the business of commercial production or refining of mineral oil
referred to in sub-section (9), means the assessment year relevant to the previous year in which the
undertaking commences the commercial production of refining of mineral oil;
(iv) 5[in the case of an undertaking engaged6[in the business of processing, preservation and packaging of
fruits or vegetables or] in the integrated business of handling, storage and transportation of foodgrains,
means the assessment year relevant to the previous year in which the undertaking begins such
business;]
(v) 7[inthe case of a multiplex theatre, means the assessment year relevant to the previous year in which a
cinema hall, being a part of the said multiplex theatre, starts operating on a commercial basis;
Page 12 of 25
(vi) in the case of a convention centre, means the assessment year relevant to the previous year in which
the convention centre starts operating on a commercial basis;]
(vii) 8[in the case of an undertaking engaged in operating and maintaining a hospital in a rural area, means
the assessment year relevant to the previous year in which the undertaking begins to provide medical
services;]
(d) “North-Eastern Region” means the region comprising the States of Arunachal Pradesh, Assam, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim and Tripura;
(da) 9[“multiplex theatre” means a building of a prescribed area, comprising of two or more cinema theatres and
commercial shops of such size and number and having such other facilities and amenities as may be
prescribed;]
(e) “place of pilgrimage” means a place where any temple, mosque, gurdwara, church or other place of public
worship of renown throughout any State or States is situated;
(f) “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;
(g) “small-scale industrial undertaking” means an industrial undertaking which is, as on the last day of the
previous year, regarded as a small-scale industrial undertaking under section 11B 10 of the Industries
(Development and Regulation) Act, 1951 (65 of 1951).]
1. Legislative History.—By Finance Act, 1999, s 80-IA was split and the deductions therein were allocated in two
sections - ss 80-IA and 80-IB. One unwieldy section was replaced by two unwieldy sections. The new s 801B section
has also been repeatedly amended and the respective circulars explaining the scope of each amendment have been
mentioned in the footnotes in the statutory portion. While s 80-IA broadly dealt with deductions for industrial
undertakings or enterprises engaged in infrastructural development, s 80-IB covers activities that have been set out
hereinbelow. The section has 14 sub-sections with numerous provisos and explanations. Each typeof deduction is
itself subject to several terms and conditions.
The effect of bifurcation of s 80-IA into ss 80-IA and 80-IB has been discussed by the Delhi High Court. In the initial
assessment year, when s 80IA was applicable, no deduction was availed because the assessee had not earned any
profit and the assessee will be entitled to deduction under s 80IB for the remaining assessment years.11
Page 13 of 25
2. Sub-section (1): Eligible Business.— Section 80-IB provides for deduction from gross total income of any profits
and gains derived from any business referred to in sub-sections (3) to (11B). The following industrial undertakings are
eligible for deduction under this section:
(a) small scale industries into manufacturing and production
(b) undertaking in industrially backward State and North-Eastern Region
(c) ship
(d) hotels
(e) cold storage plants and cold chains
(f) mineral oil and natural gas
(g) housing projects
(h) scientific research and development
(i) processing, preservation and packing of food items
(j) multiplex theatre
(k) convention centre
(l) hospitals in rural and specified areas.
3. “Derived from” - Restricted Meaning.—Readers may refer to the commentary to ss 80I and 80IA for an
extensive criticism of the Supreme Court’s conclusion in Liberty India 12 that the words “derived from” are confined to
“first degree sources”. Although the Delhi High Court suggested13 that the language used in s 80IB is different, it is
clear, especially after Liberty India, that it is not. It has been pointed out that the case law on the meaning of this
expression is in a state of disarray for primarily two reasons: (i) there is, with respect, no basis for the conclusion that
“derived from” excludes any source that is not immediate and, indeed, much of the common law authority considered
in the commentary to s 80I is to the contrary; and (ii) some High Court decisions faithfully apply Liberty India and, as a
consequence, exclude receipts which are, in a commercial sense, clearly derived from the business, while other
decisions, either by not citing Liberty India or by purporting to distinguish it, treat a closely connected (but not first
degree) source as “derived from” the business. Cases decided under this section14 can also be classified under these
two categories. For example, the Delhi High Court,15 without citing Liberty India, held that the proceeds of the sale of
scrap are a “part and parcel of the industrial activity”, whereas the Madhya Pradesh High Court16 came to exactly the
opposite conclusion under s 80-I, while the Bombay High Court has held that interest on delayed payment of sale price
is derived from the business.17 Similarly, two High Courts,18 after citing Liberty India, have held that excise duty refund
(and interest and transport subsidy) is not “derived from” the business, but two other High Courts have held that it is.19
4. Articles Made on Job Work Basis: Eligibility.—Apart from this controversy of ‘derived from’, the question
whether articles manufactured on a job work basis are covered has arisen under this section, as it has under ss 80-I
and 80-IA. As pointed out in the commentary to that section, the courts must take a consistent view whether this
question arises in relation to a claim made by the job worker or by the principal. The Punjab and Haryana High Court
has held that a job worker is entitled to the deduction because “the assessee is at liberty to do manufacture for itself or
Page 14 of 25
for others”.20 With respect, this observation overlooks the fact that there can only be one manufacturer of an article or
a thing: either the job worker or the principal. Indeed, there is a long line of cases21 on the tests to identify who the
manufacturer is and these usual turn on the question whether the job worker works as a ‘hired labourer’ or as an
independent contractor.
5. Sub-section (2).—
(a) Standard Conditions.—For the purpose of availing benefits of this section, certain standard conditions needs to
be followed. The industrial undertaking should not be formed by splitting up or reconstruction of an already existing
business; and it should not be formed by transfer of machinery or plant previously used. It should not manufacture or
produce any article or thing mentioned in the Eleventh Schedule.
The proviso to sub-clause (iii) of sub-s (2) provides that the condition with reference to the list in the Eleventh
Schedule does not apply to an industry which is a small-scale undertaking or an undertaking referred to in sub-s (4). A
small-scale industry processing rectified spirits / extra neutral alcohol is entitled to deduction; it cannot be denied by
referring to the Eleventh Schedule.22
(b) Clause (iv): Employs - Meaning.—Clause (iv) of this sub-section provides that the industrial undertaking in
question must ‘employ’ ten or twenty persons, depending on whether the manufacturing process is carried on with the
aid of power. The commentary to ss 80-I and 80-IA has dealt with the controversy over whether the word ‘employ’
(also used in those sections) contemplates a contract of service or also extends to contracts for services. It was
pointed out that the Allahabad High Court has rightly held that the word ‘employ’, being a legal term of art,
contemplates a contract of service.23 In a case arising under this section, the Bombay High Court rejected that view.24
Unfortunately, the Bombay High Court has, with respect, mixed up two entirely distinct questions: one, does the
expression ‘worker’ include casual workers; and two, does the word ‘employ’ contemplate a contract for services. The
Court’s conclusion that “the fact that the employer-employee relationship between the workers employed by the
assessee differs cannot be a ground to deny deduction…so long as the workers employed by the assessee exceed
ten in number”, with respect, begs the question, because it does not explain why a well-known legal term of art should
not be construed as such.
(a) Manufacture or Production.—In deciding whether a particular activity constitutes ‘manufacture’ or ‘production’,
the courts have followed the cases decided under ss 80I and 80IA,25 to the commentary to which readers may wish to
refer for a complete picture of the law. The Gujarat High Court has held that deference must be given to the opinion of
experts, which cannot be dislodged unless contrary evidence is adduced.26
(b) Initial Assessment Year.—The deduction is available for a specified number of years, which varies according to
whether the assessee is a small-scale industry or not. The first year in which the deduction is available is called the
‘initial assessment year’, that is, the year of commercial (not trial) production.27 The Delhi High Court has correctly held
that a failure to claim the deduction in the initial year does not mean that the deduction is unavailable for the remainder
of the period starting with that year; it only means that the assessee cannot claim the deduction for the years for which
Page 15 of 25
no claim was made.28
(a) Quantum of Deduction.—Under sub-section (4), the assessee cannot avail the deduction unless manufacture or
production or operating cold storage plant has commenced by March 31, 2004.29 The deduction is available for ten or
twelve consecutive assessment years, as the case may be. From a deduction of 100 per cent. for five assessment
years, it is then reduced to 25 per cent. or 30 per cent. as the case may be. However, industries set-up in the notified
North-Eastern Regions are eligible for 100 per cent. deduction for ten assessment years. After April 1, 2004 no
deduction under this section will be allowed to those States to which s 80-IC applied.
The reader must also note the five provisos to the sub-section which alters the period for which the deduction was
available. The fifth proviso disallows the deduction for industrial undertakings in Jammu and Kashmir if they
manufacture or produce articles or things specified in Part-C of the Thirteenth Schedule.
(b) Manufacturing without a Factory License.—The Gujarat High Court has held that an assessee who does
commence, manufacture or production before this date, but fails to obtain a licence to do so under section 6 of the
Factories Act, is not entitled to the deduction.30 The Court gave two reasons for this startling conclusion: first, the court
“cannot be oblivious” to a violation of law and secondly, while a breach of a “technical provision or a requirement”
would not disqualify the assessee from claiming the deduction, the licence under the Factories Act is a substantial
requirement. It is submitted that the decision is incorrect as the Court has read words into the statute and its decision
is vitiated by the irrelevant consideration that the assessee may have contravened the provisions of other statutes.
Section 80IB simply provides that the assessee is entitled to a deduction if he manufactures or produces an article or a
thing as specified in the section. The Gujarat High Court has virtually added the words “provided that the activity of
manufacture or production is not in violation of any law for the time being in force, unless such law is a technical
provision…” to this section. The court also did not explain how its conclusion is consistent with the well-known cases
on illegal income and expenses.
8. Sub-section (5): Industrially Backward Districts.—Deduction is available to undertakings located in industrially

backward districts categorised into category ‘A’ and ‘B’ by the Central Government which begin to operate before April
1, 2004. For category ‘A’ districts, deduction is available for ten consecutive assessment years, for the first five
assessment years beginning with the initial assessment year, deduction is 100 per cent. and, thereafter, 25 per cent.
or 30 per cent. as the case may be. For category ‘B’ districts, deduction is available for eight consecutive assessment
years: for the first three years beginning with initial assessment year deduction, it is 100 per cent. and, thereafter, 25
per cent. or 30 per cent. as the case may be.
Rule 11EA has prescribed guidelines to determine industrially backward districts and notification 440(E) dated June
15, 199931 has divided industrially backward districts into category-A comprising of 53 districts and category-B
comprising of 17 districts. Sub-section (4) benefits the North-Eastern region. The second proviso to sub-section (4)
specifies notified industries which are entitled to deduction of 100 per cent. of profits and gains for a period of ten
years. These industries have been notified by Notification No.S.O. 627(E) dated August 4, 1999.32
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9. Sub-section (6): Shipping.—Deduction is available to an assessee who is into the business of shipping for ten
consecutive assessment years including the initial assessment year; the deduction is 30 per cent. of the profits and
gains derived from such ship. Under this sub-section: (i) the ship must be owned by an Indian company and wholly
used for its business; (ii) the ship, if acquired, should not have been owned or used by a resident in Indian territorial
waters; and (iii) the ship should not have been put to use by the Indian company prior to April 1, 1995.
A significant departure in the sub-section is that a second-hand ship will be eligible for deduction. However, cl (2) of
this sub-section requires such a second-hand ship “not to have been used” in Indian territorial waters by a resident
Indian. This mean that if a foreign ship is chartered and used in Indian territorial waters by a person resident in India,
the deduction will not be available. It is submitted that the expression “used in territorial waterd” will not refer to ships
that have been chartered and have entered and left Indian territorial water as a foreign-going vessel.
10. Sub-section (7): Hotel.—Deduction is available to hotels as specified in this sub-section. The said sub-section is
divided into two categories: (i) hotels located in a hilly area, rural area, place of pilgrimage or any other place as the
Central Government may notify and (ii) hotels located in areas other than those mentioned earlier. Hotels located in
category (i) enjoy deduction of 50 per cent. of profits derived from such business for a period of ten consecutive
assessment years, provided they start functioning at any time during the period of April 1, 1990 to March 31, 1994 or
April 1, 1997 to March 31, 2001. Hotels located in category (ii) enjoy deduction of 30 per cent. of profits and gains
derived from the business of such hotel for a period of ten consecutive assessment years, provided they start
functioning at any time during the period of April 1, 1990 to March 31, 1994 or April 1, 1997 to March 31, 2001. The
term ‘hilly area’, ‘rural place’, and ‘place of pilgrimage’ have been defined in clauses (b), (f) and (e) of sub-section (14)
respectively.
This said deduction is not applicable to any hotel located at a place within the municipal jurisdiction of four
metropolitan cities of Calcutta, Chennai, Delhi or Mumbai. Deduction will be available if: (i) the business of hotel is not
formed by splitting up or reconstruction of a business already existing, or transfer of building previously used as hotel,
or transfer any other plant and machinery used for any other purpose; (ii) the business of the hotel is owned and
carried on by a company incorporated in India; and (iii) the hotel is approved by the prescribed authority. Approval has
to be obtained in accordance with r 18BBC .
11. Sub-section (7A): Multiplex Theatres.—Deduction is available to business of building, owning and operating of
multiplex theatres, where such multiplex is constructed between April 1, 2002 and March 31, 2005. The term multiplex
theatre is defined in cl (da) to sub-s (14) read with r 18DB . Deduction shall be 50 per cent. of profits and gains derived
from such business for five consecutive assessment years from the initial assessment year. Other standard conditions
of splitting up or reconstruction and furnishing of audit report are also applicable.
12. Sub-section (7B): Convention Centres.—Deduction is available to the business of building, owning and
operating convention centres that have been constructed between April 1, 2002 and March 31, 2005. The term
convention centre is defined in cl (ab) to sub-s (14) read with r 18DC . The deduction is 50 per cent. of profits and
gains derived from such business for five consecutive assessment years from the initial assessment year. Other
standard conditions of splitting up or reconstruction and furnishing of audit report are also applicable.
13. Sub-sections (8) and (8A): Scientific Research and Development.—Deduction is available for any company
Page 17 of 25
registered in India carrying on scientific research and development as its main object and approved by the prescribed
authority. Such deduction is available to the extent of 100 per cent. for five assessment years if the approval is granted
prior to April 1, 1999 and 100 per cent. for ten consecutive assessment years if the approval is granted between April
1, 2000 and March 31, 2007 and upon fulfillment of conditions prescribed under Rule 18DA .
14. Sub-section (9): Mineral Oil and Gas.—This sub-section provides for deduction to undertakings either in the
commercial production or refining of mineral oil or commercial production of natural gas in licensed blocks. Deduction
of 100 per cent. is available for seven consecutive assessment years provided following conditions are fulfilled:
(i) the undertaking is located in the North-Eastern Region and has begun or begins commercial production of
mineral oil before April 1, 1997;
(ii) the undertaking is located in any part of India and has begun or begins commercial production of mineral oil on
or after April 1, 1997;
(iii) it is engaged in refining of mineral oil and begins refining between October 1, 1998 and March 31, 2012;
(iv) it is engaged in commercial production of natural gas in blocks licensed under the VIII Round of bidding as per
the Government policy and begins production on or after April 1, 2009;
(v) it is engaged in commercial production of natural gas in blocks licensed under IV Round of bidding for Coal
Bed Methane Blocks and begins production on or after April 1, 2009.
15. Sub-section (10): Housing Projects.—
(a) General Observations.—This sub-section allows a deduction of 100 per cent. of profits derived from a housing
project if certain conditions are satisfied. These conditions have been the subject matter of repeated amendments.
These amendments cannot be treated as retrospective unless there is an express provision or a necessary implication
to that effect.33
Since the conditions subject to which this deduction is granted are expressly set out in the section, it is neither
necessary nor appropriate to read in any more conditions—for example, a developer may claim this deduction even
though (as is commonly the case) it is not the owner of the land it proposes to develop.34
(b) ‘Housing project’ - Meaning.—Prior to April 1, 2005, there was no express provision in this section dealing with
the consequence of having a commercial establishment within a housing project. The Bombay High Court35 has held
that since the expression ‘housing project’ is not defined in the Act, the intention of Parliament was that whatever is
approved by the local authority under the extant rules as a housing project is a housing project for the purposes of this
section, especially since such an approval is a necessary condition for claiming this deduction. Consequently, once a
project is approved as a housing project (whether ‘residential’ or ‘residential plus commercial’), the assessee is entitled
to a deduction on the entire profit (including the commercial establishments). The position is now governed by sub-
section (d), which provides that such establishments cannot exceed three percent of the built up area or five thousand
Page 18 of 25
square feet, whichever is higher.
16. Sub-section (11): Cold Chain Facility.—This sub-section provides for deduction to the business of setting up
and operating of a cold chain facility for agricultural produce which begins to operate between April 1, 1999 and March
31, 2004. The meaning of the term ‘cold chain facility’ has been defined in clause (aa) to sub-s (14). Deduction is
available for ten or twelve consecutive assessment years as the case may be. It is 100 per cent. of profits and gains
derived from such undertaking for five assessment year and, thereafter, reduced 25 per cent. or 30 per cent. as the
case may be.
17. Sub-section (11A): Food.—This sub-section provides for deduction to profits and gains derived from the
business of processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or
marine or dairy products from the integrated business of handling, storage and transportation of foodgrains which
begins to operate on or after April 1, 2001. However, for meat and meat products or poultry or marine or dairy
products, deduction will be available only after April 1, 2009. Deduction is available for ten or twelve consecutive
assessment years as the case may be, and 100 per cent. of profits and gains derived from such undertaking for five
assessment years and, thereafter, reduced 25 per cent. or 30 per cent. as the case may be.
The extraction of juice and oil from fruits or further converting the homogenized juice into fruit powder and adding the
substance meant for preservation would legitimately fall within the sweep of the expression “processing”.36
18. Sub-sections (11B) and (11C): Hospitals.—Deduction is available for profits derived from operating and
maintaining of a hospital in a rural area. The term ‘rural area’ has been defined in cl (f) to sub-s (14). Deduction of 100
per cent. is provided for five consecutive assessment years. However, such deduction is subject to following
conditions:
(i) the hospital should be constructed between October 1, 2004 and March 31, 2008;
(ii) the hospital should have at least a hundred beds for patients;
(iii) the construction of hospital is in accordance with regulations of the local authority;
(iv) audit report to furnished with the return of income.
It is not known why this condition of 100 beds is imposed. This is virtually impossible to fulfill and defeats the purpose
of promoting renal health care.
19. Shifting Profits and Other Restrictions.—By virtue of sub-s (13), sub-sections (5) and (7) to (12) of s 80-IA
have been incorporated into this section. In the commentary to the new s 80-IA(9), it was pointed out that the Delhi
High Court’s view37 is incorrect while that of the Bombay High Court is correct.38 The Karnataka High Court39 has
accepted the Bombay High Court’s view in a case decided under this section, but the Kerala High Court has taken a
Page 19 of 25
view similar to that of the Delhi High Court.40
20. Definitions.—
(a) Small Scale Industry.—A small-scale industry is entitled to a more generous deduction, in accordance with sub-s
(3). The expression “small-scale industry” is defined in cl (g) of sub- s 14 as an industrial undertaking which is
“regarded as a small-scale industrial undertaking” under s 11B of the IDR Act, 1951. This does not impose any
requirement on the assessee to register as a small-scale industrial undertaking under the 1951 Act; all it means is that
the conditions relating to size, ownership of plant and machinery must be satisfied.41
(b) Rural Area.—Clause (f) defines the rural area to exclude sub-cls (1) and (2) thereof. The relevant notification
specify the distance and the respective municipalities or cantonment boards.42
21. Questions of Fact.—Questions of fact that commonly arise under this section, such as the date on which
production commenced, the nature of the activity, or whether the assessee established a new industrial undertaking,
cannot be reviewed by the High Court.43
62 A new Section 80-IB has been introduced by the Finance Act, 1999 (27 of 1999), s 50 (w.e.f. 1-4-2000).
63 The brackets, figures, words and letter “(3) to (11) and (11A)” have been substituted for “(3) to (11)” by the Finance
Act, 2001 (14 of 2001), s 45(a) (w.e.f. 1-4-2002).
In the above portion, the brackets, figures, word and letter “(11) and (11A)” have been substituted by the brackets, figures,
letters and word “(11), (11A) and (11B)” by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(a) (w.e.f. 1-4-2005). See Circular
No. 5 of 2005, July 15, 2005, 276 ITR (St.) 157.
64 Subs., for “31st day of March, 2000”, by the Finance Act, 2000 (10 of 2000), s 39(a) (w.e.f. 1-4-2001). See Circular No.
794 of 2000, August 9, 2000, 245 ITR (St.) 21.
65 Subs., for “31st day of March, 2002”, by the Finance Act, 2002 (20 of 2002), s 34(a) (w.e.f. 1-4-2003). See Circular No.
8 of 2002, August 27, 2002, 258 ITR (St.) 13. Earlier, the figures, letters and words “31st day of March, 2002” were
substituted for “31st day of March, 2000” by the Finance Act, 2000 (10 of 2000), s 39(b) (w.e.f. 1-4-2001). See Circular
No. 794, August 9, 2000, 245 ITR (St.) 21.
66 Ins. by the Finance Act, 2003 (32 of 2003), s 39(a) (w.e.f. 1-4-2004). See Circular No. 7 of 2003, September 5, 2003,
263 ITR (St.) 62.
67 Ins. by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(b) (w.e.f. 1-4-2005). See Circular No. 5 of 2005, July 15, 2005,
276 ITR (St.) 151.
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68 Subs., for “31st day of March, 2007”, by the Finance Act, 2007 (22 of 2007), s 29 (w.e.f. 1-4-2008). See Circular No. 3
of 2008, March 12, 2008, 299 ITR (St.) 8. Earlier, the above were substituted for “31st day of March, 2005” by the
Finance Act, 2005 (18 of 2005), s 27(a) (w.e.f. 1-4-2006). See Circular No. 3 of 2005, June 3, 2005, 275 ITR (St.) 138;
Circular No. 6 of 2005, July 25, 2005, 276 ITR (St.) 150; Circular No. 3 of 2006, February 27, 2006; 281 ITR (St.) 222.
69 See, rule 11EA of the Income-tax Rules, 1962, and Appendix III to those Rules.
70 Subs., for “31st day of March, 2002”, by the Finance Act, 2002 (20 of 2002), s 34(a) (w.e.f. 1-4-2003). Earlier, the
figures, letters and words “31st day of March, 2002” were substituted, for “31st day of March, 2000”, by the Finance
Act, 2000 (10 of 2000), s 39(c) (w.e.f. 1-4-2001).
71 Subs., for “31st day of March, 2002”, by the Finance Act, 2002 (20 of 2002), s 34(a) (w.e.f. 1-4-2003). Earlier, the
figures, letters and words “31st day of March, 2002” were substituted, for “31st day of March, 2000”, by the Finance
Act, 2000 (10 of 2000), s 39(c) (w.e.f. 1-4-2001).
72 See, rule 18BBC (2) of the Income-tax Rules, 1962.
73 See, rule 18BBC (1) of the Income-tax Rules, 1962.
74 Sub-sections (7A) and (7B) have been inserted by the Finance Act, 2002 (20 of 2002), s 34(b) (w.e.f. 1-4-2003).
76 Subs., for “1st day of April, 2005”, by the Finance Act, 2005 (18 of 2005), s 27(b) (w.e.f. 1-4-2006). Earlier, the above
was substituted for “1st day of April, 2004” by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(c) (w.e.f. 1-4-2005). Still
earlier, the figures, letters and words “1st day of April, 2004” were substituted for “1st day of April, 2003”, by the
Finance Act, 2003 (32 of 2003), s 39(b) (w.e.f. 1-4-2004).
77 See, rules 18D and 18DA of the Income-tax Rules, 1962.
78 Subs. by the Finance (No. 2) Act, 2009 (33 of 2009), s 37(a) (w.r.e.f. 1-4-2000), for the following:—
‘(9) The amount of deduction to an undertaking which begins commercial production or refining of mineral oil shall be hundred
per cent. of the profits for a period of seven consecutive assessment years including the initial assessment year:
Provided that where the undertaking is located in North-Eastern Region, it has begun or begins commercial production of
mineral oil before the 1st day of April, 1997, and where it is located in any part of India, it begins commercial production of
mineral oil on or after the 1st day of April, 1997:
Provided further that where the undertaking is engaged in refining of mineral oil, it begins refining on or after the 1st day of
October, 1998:
1[Provided also that where such undertaking begins refining of mineral oil on or after the 1st day of April, 2009, no deduction
under this section shall be allowed in respect of such undertaking unless such undertaking fulfils all the following conditions,
namely:—
(i) it is wholly owned by a public sector company or any other company in which a public sector company or companies hold at
least forty-nine per cent. of the voting rights;
(ii) it is notified by the Central Government in this behalf on or before the 31st day of May, 2008; and
(iii) it begins refining not later than the 31st day of March, 2012.]’
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80 Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 37(b)(A) (w.r.e.f. 1-4-2009). See Circular No. 5 of 2010, June 3,
2010, 324 ITR (St.) 293.
81 Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 37(b)(B) (w.e.f. 1-4-2010).
82 Subs. by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(d) (w.e.f. 1-4-2005), for the following sub-section (10):—
‘(10) The amount of profits in case of an undertaking developing and building housing projects 1[approved before the 2[31st day
of March, 2005], by a local authority], shall be hundred per cent. of the profits derived in any previous year relevant to any
assessment year from such housing project if,—
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st
day of October, 1998 3[* * *];
(b) the project is on the size of a plot of land which has a minimum area of one acre; and
(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the
cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five
hundred square feet at any other place.’
1. Subs., for “approved by a local authority”, by the Finance Act, 2000 (10 of 2000), s 39(e)(i) (w.e.f. 1-4-2001).
2. Subs., for “31st day of March, 2001”, by the Finance Act, 2003 (32 of 2003), s 39(c)(i) (w.e.f. 1-4-2002).
3. The words, figures and letters “and completes the same before the 31st day of March, 2003” have been omitted by the
Finance Act, 2003 (32 of 2003), s 39(c)(ii) (w.r.e.f. 1-4-2002). Earlier, the figures, letters and words “31st day of March, 2003”
were substituted for “31st day of March, 2001”, by the Finance Act, 2000 (10 of 2000), s 39(e)(ii) (w.e.f. 1-4-2001).
83 Subs., for “31st day of March, 2007”, by the Finance (No. 2) Act, 2009 (33 of 2009), s 37(c)(i) (w.r.e.f. 1-4-2009).
84 Ins. by the Finance Act, 2010 (14 of 2010), s 27(i)(a) (w.e.f. 1-4-2010). See Circular No. 1 of 2011, April 6, 2011, 333
ITR (St.) 7.
85 Ins. by the Finance Act, 2010 (14 of 2010), s 27(i)(b) (w.e.f. 1-4-2010).
86 Subs., for “any other place; and”, by the Finance (No. 2) Act, 2009 (33 of 2009), s 37(c)(ii) (w.e.f. 1-4-2010).
87 Subs., for “five per cent.”, by the Finance Act, 2010 (14 of 2010), s 27(ii)(a) (w.e.f. 1-4-2010).
88 Subs., for “two thousand square feet, whichever is less”, by the Finance Act, 2010 (14 of 2010), s 27(ii)(b) (w.e.f. 1-4-
2010).
89 Clauses (e) and (f) have been inserted by the Finance (No. 2) Act, 2009 (33 of 2009), s 37(c)(iii) (w.e.f. 1-4-2010).
90 Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 37(c)(iv) (w.r.e.f. 1-4-2001).
91 Subs., for “31st day of March, 2003”, by the Finance Act, 2003 (32 of 2003), s 39(d) (w.e.f. 1-4-2004).
Page 22 of 25
92 Ins. by the Finance Act, 2001 (10 of 2001), s 45(b) (w.e.f. 1-4-2002). See Circular No. 14 of 2001, 252 ITR (St.) 65.
93 Subs., for “an undertaking deriving profit from”, by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(e) (w.e.f. 1-4-2005).
94 Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 37(d)(i) (w.r.e.f. 1-4-2009).
95 Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 37(d)(ii) (w.r.e.f. 1-4-2009).
96 Ins. by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(f) (w.e.f. 1-4-2005).
97 Ins. by the Finance Act (18 of 2008), s 18(b) (w.e.f. 1-4-2009). See Circular No. 1 of 2009, March 27, 2009, 310 ITR
(St.) 42.
1 Ins. by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(g)(A) (w.e.f. 1-4-2005).
2 Clause (a) has been relettered as clause (aa) by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(g)(A) (w.e.f. 1-4-
2005).
3 Ins., as clause (aa), by the Finance Act, 2002 (20 of 2002), s 34(c)(i) (w.e.f. 1-4-2003).
4 Clause (aa) has been relettered as clause (ab) by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(g)(A) (w.e.f. 1-4-
2005).
6 Ins. by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(g)(B)(i) (w.e.f. 1-4-2005).
8 Ins. by the Finance (No. 2) Act, 2004 (23 of 2004), s 18(g)(B)(ii) (w.e.f. 1-4-2005).
9 Ins. by the Finance Act, 2002 (20 of 2002), s 34(c)(iii) (w.e.f. 1-4-2003).
11 CIT v Natraj Stationery Products P. Ltd. 312 ITR 22, (2009) 222 CTR 430 (Del).
12 Liberty India v CIT 317 ITR 218 (SC), (2009) 9 SCC 328, (2009) 241 ELT 326 .
Page 23 of 25
13 CIT v Eltek SGS Pvt Ltd 300 ITR 6, (2008) 215 (Del) 279 following CIT v India Gelatine and Chemicals Ltd. 275 ITR
284, (2005) 194 CTR 492 (Guj) and distinguishing CIT v Ritesh Industries Ltd. 274 ITR 324, (2004) 114 DLT 198 .
14 CIT v Five Star Rugs 293 ITR 553, (2007) 207 CTR (P&H) 246 (duty drawback); Sakthi Footwear v ACIT 317 ITR
199, (2008) 219 CTR 612 (Mad) (duty drawback); CIT v Lakhwinder Singh 317 ITR 209, (2008) 219 CTR (P&H) 69
(duty drawback) affirmed in 317 ITR 218 (SC), (2009) 9 SCC 328, (2009) 241 ELT 326 ; Raj Overseas v CIT 317 ITR
215, (2008) 174 Taxman 566 (P&H) (duty drawback); Jai Bharat Gum & Chemicals Ltd. v ACIT 326 ITR 36, (P&H)
(duty drawback); CIT v Jaswand Sons 328 ITR 442 (DEPB scheme); CIT v Dresser Rand India Pvt Ltd 330 ITR 453,
(2011) 200 Taxman 84 (Bom) (interest on deposits); Eastman Exports Global Clothing Pvt Ltd. v ACIT 331 ITR 232
(Mad) (duty drawback). The contrary view expressed in Saraf Seasoning Udyog v ITO 317 ITR 202, (2008) 219 CTR
461 (Raj) in the context of the DEPB scheme is, naturally, no longer good law.
15 CIT v Sadhu Forging Ltd. 336 ITR 444, (2011) 242 CTR 158 (Del).
16 Agrawal D.P. v CIT 272 ITR 118, (2005) 193 CTR 297 (MP).
17 CIT v Vidyut Corporation 324 ITR 221 (but interest on unsecured loans are not).
18 CIT v Gheria Oil Gramudyog Workers Welfare Association 330 ITR 117, (2010) 228 CTR 94 (HP); CIT v Meghalaya
Steels Ltd 332 ITR 91, (2011) 241 CTR 384 (Gau).
19 CIT v Dhavam Pal Prem Chand Ltd. 317 ITR 353, (2009) 221 CTR 133 (Del); CIT v Siddharth Tubes Ltd 296 ITR
221 (MP) (under section 80I ).
20 CIT v Impel Forge and Allied Industries Ltd. 326 ITR 27, (2009) 183 Taxman 38 (P&H).
21 See for example Pawan Biscuits v CCE 120 ELT 24, AIR 2000 SC 2565, (2000) 6 SCC 489 ; TELCO v Union of India
35 ELT 617 and Asha Pavro Electronics Pvt Ltd v Union of India 31 ELT 661 .
22 CIT v Vinbros and Co. 349 ITR 697 (SC), (2012) 254 CTR 110 (SC).
23 Venus Auto P. Ltd v CIT 321 ITR 504 .
24 CIT v Jyoti Plastic Works P. Ltd. 339 ITR 491, (2011) 245 CTR 378 (Bom), followed in CIT v Nanda Mint and Pine
Chemicals Ltd. 345 ITR 60, (2013) 260 CTR 290 (Del).
25 ITO v Arihant Tiles and Marbles Pvt Ltd 320 ITR 79 (SC), AIR 2011 SC 149, (2010) 2 SCC 699 affirming Arishant
Tiles and Marbles (P.) Ltd. v. ITO 295 ITR 148, (2007) 211 CTR 169 (Raj); CIT v Shri Swasan Chemicals (M) P. Ltd.
300 ITR 115, (2008) 217 CTR 542 (Mad) (converting polymer granules into powder); India Cine Agencies v CIT 308
ITR 98, (2008) 12 JT 666 ; CIT v. computer Graphics Ltd. reversing 285 ITR 84, (2006) 205 CTR 403 (Mad) and
impliedly overruling Computer Graphics v ACIT 308 ITR 96 (Mad) (converting jumbo rolls of photographic films into
films of a smaller size); CIT v Supreme Graphics Creations P. Ltd. 276 ITR 668, (2005) 197 CTR 657 (Bom) (making
laminated cartons); D.D. Shah and Bros. v Union of India 283 ITR 486, (2005) 197 CTR 1 (Raj) (blending tea is not
Page 24 of 25
manufacture); CIT v Shri Mahesh Chandra Sharma 308 ITR 222 (assembling a tyre); Midas Polymer Compounds P.
Ltd. v ACIT 331 ITR 68, (2011) 1 KLJ 589 (making compound rubber); CIT v Gitwako Farma (I) P Ltd 332 ITR 471,
(2011) 241 CTR 449 (Del) (converting raw fish into tinned fish not manufacture); CIT v Zainab Trading P. Ltd. 333 ITR
144, (2011) 200 Taxman 91 (Mad) (making boxes from kraft sheets); CIT v Chiranjjeevi Wind Energy Ltd 333 ITR 192,
(2011) 243 CTR 195 (Mad) (assembling a windmill); CIT v HLS India Ltd 335 ITR 292, (2001)242 CTR (Del) 1 (wire
line logging); CIT v I. Tech Electronics 341 ITR 533, (2012) 248 CTR 108 (Gau) (assembling TV sets); CIT v Esquire
Translam Industries 344 ITR 308 (Mad) (converting raw steel into laminations).
26 CIT v Alfa Lamination 329 ITR 348, (2009) 225 CTR 212 (Guj).
27 CIT v Nestor Pharmaceuticals Ltd. 322 ITR 631, (2010) 231 CTR 337 (Del) following CIT v Hindustan Antibiotics 93
ITR 548 and distinguishing CIT v Sesa Goa Ltd 271 ITR 331, (2004) 192 CTR 577 (SC).
28 Praveen Soni v CIT 333 ITR 324, (2011) 182 DLT 357 .
29 For an industrial undertaking in the State of Jammu and Kashmir, the date has been extended to March 31, 2012.
30 CIT v Jolly Polymers 342 ITR 87, (2012) 249 CTR 421 (Guj).
31 238 ITR (St.) 14.
32 239 ITR (St.) 47.
33 Kalpataru Sthapatya P. Ltd. v CIT 346 ITR 371 ; Manan Corporation v ACIT 356 ITR 44 .
34 CIT v Radhe Developers 341 ITR 403, (2012) 249 CTR 393 (Guj).
35 CIT v Brahma Associates 333 ITR 289, (2011) 113 Bom LR 955 .
36 Delna Rustom Boyce, In re 318 ITR 455.
37 Great Eastern Exports v CIT 332 ITR 14, (2011) 237 CTR 264 (Del).
38 Associated Capsules Pvt Ltd v DCIT 332 ITR 42, (2011) 237 CTR 408 (Bom).
39 CIT v Millipore India P. Ltd. 341 ITR 219, (2012) 207 Taxman 81 .
40 Olam Exports (India) Ltd. v CIT 332 ITR 40, (2010) 229 CTR 206 (Ker); Friends Casting P. Ltd. v CIT 340 ITR 305,
(2011) 238 CTR (P&H) 377 .
Page 25 of 25
41 Praveen Soni v CIT 333 ITR 324, (2011) 241 CTR 542 (Del).
42 Notification No.S.O. 1013(E) dated October 6, 1999: 240 ITR (St.) 128.
43 Geo Enpro Petroleum Ltd. v DCIT 315 ITR 153, (2009) 224 CTR 244 (Del); CIT v Alfa Lamination 329 ITR 348,
(2009) 225 CTR 212 (Guj); CIT v Ramco International 332 ITR 306, (2009) 221 CTR (P&H) 491 ; CIT v Zainab Trading
P. Ltd. 333 ITR 144, (2011) 200 Taxman 91 (Mad); CIT v Vallabh Yarns P. Ltd. 335 ITR 518 ; CIT v Metalman Auto
P. Ltd. 336 ITR 434, (2011) 199 Taxman 149 (P&H); Friends Casting Pvt Ltd v CIT 340 ITR 305, (2011) 238 CTR
(P&H) 377 .
End of Document
S. 80-IC. Special provisions in respect of certain undertakings or
enterprises in certain special category States
S. 80-IC. Special provisions in respect of certain undertakings or enterprises in certain special category States
(1) 44[Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an
enterprise from any business referred to in sub-section (2), 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, as specified in sub-section (3).
(2) This section applies to any undertaking or enterprise,—
(a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing
specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any
article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period
beginning—
(i) on the 23rd day of December, 2002, and ending before the45[1st day of April, 2007], in any Export
Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or
Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as
notified by the Board in accordance with the scheme framed and notified by the Central Government in
this regard, in the State of Sikkim; or
(ii) on the 7th day of January, 2003, and ending before the 1st day of April, 2012, in any Export Processing
Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or
Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board
in accordance with the scheme framed and notified by the Central Government in this regard, in the
State of Himachal Pradesh or the State of Uttaranchal; or
(iii) on the 24th day of December, 1997, and ending before the 1st day of April, 2007, in any Export
Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or
Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as
notified by the Board in accordance with the scheme framed and notified by the Central Government in
this regard, in any of the North-Eastern States;
(b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth
Schedule or commences any operation specified in that Schedule, or which manufactures or produces any
Page 2 of 4
article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule
and undertakes substantial expansion during the period beginning—
(i) on the 23rd day of December, 2002, and ending before the46[1st day of April, 2007], in the State of
Sikkim; or
(ii) on the 7th day of January, 2003, and ending before the 1st day of April, 2012, in the State of Himachal
Pradesh or the State of Uttaranchal; or
(iii) on the 24th day of December, 1997, and ending before the 1st day of April, 2007, in any of the North-
Eastern States.
(3) The deduction referred to in sub-section (1) shall be—
(i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses
(i) and (iii) of clause (b), of sub-section (2), one hundred per cent. of such profits and gains for ten
assessment years commencing with the initial assessment year;
(ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of
clause (b), of sub-section (2), one hundred per cent. of such profits and gains for five assessment years
commencing with the initial assessment year and thereafter, twenty-five per cent. (or thirty per cent. where
the assessee is a company) of the profits and gains.
(4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely:—
Provided that this condition shall not apply in respect of an undertaking which is formed as a result of
the re-establishment, reconstruction or revival by the assessee of the business of any such 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.
Explanation.—The provisions of Explanations 1 and 2 to sub-section (3) of Section 80-IA shall apply for
the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-
section.
(5) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the
assessee, no deduction shall be allowed under any other section contained in Chapter VI-A or in section 10A or
section 10B, in relation to the profits and gains of the undertaking or enterprise.
Page 3 of 4
(6) Notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking or enterprise
under this section, where the total period of deduction inclusive of the period of deduction under this section, or
under the second proviso to sub-section (4) of Section 80-IB or under section 10C, as the case may be, exceeds
ten assessment years.
apply to the eligible undertaking or enterprise under this section.
(i) “Industrial Area” means such areas, which the Board, may, by notification in the Official Gazette, specify in
accordance with the scheme framed and notified by the Central Government;
(ii) “Industrial Estate” means such estates, which the Board, may, by notification in the Official Gazette, specify in
(iii) “Industrial Growth Centre” means such centres, which the Board, may, by notification in the Official Gazette,
specify in accordance with the scheme framed and notified by the Central Government;
(iv) “Industrial Park” means such parks, which the Board, may, by notification in the Official Gazette, specify in
(v) “initial assessment year” means the assessment year relevant to the previous year in which the undertaking or
the enterprise begins to manufacture or produce articles or things, or commences operation or completes
substantial expansion;
(vi) “Integrated Infrastructure Development Centre” means such centres, which the Board, may, by notification in
the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government;
(vii) “North-Eastern States” means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland and Tripura;
(viii) “Software Technology Park” means any park set up in accordance with the Software Technology Park
scheme notified by the Government of India in the Ministry of Commerce and Industry;
(ix) “substantial expansion” means increase in the investment in the plant and machinery by at least fifty per cent.
of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the
previous year in which the substantial expansion is undertaken;
(x) “Theme Park” means such parks, which the Board, may, by notification in the Official Gazette, specify in
accordance with the scheme framed and notified by the Central Government.]
1. Legislative History.—This section was inserted by the Finance Act, 2003 with effect from April 1, 2004. The
purpose of enacting was to provide deduction to industrial undertakings set up in notified industrial estates / areas in
special category States [Himachal Pradesh, Uttaranchal and North-Eastern States]. Unlike other sections under this
Chapter, this section has been amended only once.
2. Sub-section (2): Eligible Business.—Sub-section (2) is divided into two parts: one, an undertaking which begins
(or is already existing but expanding), to manufacture or produce any article or thing not mentioned in the Thirteenth
Schedule; and two, undertakings which begin (or are already existing but expanding), to manufacture or produce any
article or thing mentioned in the Fourteenth Schedule. These undertakings should be in the special category States in
Page 4 of 4
any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial
Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park as notified by the CBDT in
accordance with the scheme framed by the Central Government.
Assembly of television set by spare parts procured by assessee amounts to manufacture and is eligible for deduction
under this section.47
3. Sub-section (3): Quantum of Deduction.—Undertakings located in the State of Sikkim and in North-Eastern
States shall be eligible for 100 per cent. deduction for ten assessment years. However, undertakings located in
Himachal Pradesh and Uttaranchal for 100 per cent. deduction for five assessment years and, thereafter, at the
reduced rate of 25 per cent. or 30 per cent. as the case may be.
4. Sub-sections (4) and (7)—Standard Conditions.—For the purpose of availing benefits of this section, certain
standard conditions needs to be followed. The industrial undertaking should not be formed by
(i) the splitting up or reconstruction of an already existing business; and
(ii) it should not be formed by transfer of machinery or plant previously used.
All provisions of sub-s (5) and sub-ss (7) to (12) of s 80IA are applicable to persons claiming deduction under this
section.
44 Ins. by the Finance Act, 2003 (32 of 2003), s 40 (w.e.f. 1-4-2004). See Circular No. 7 of 2003, September 5, 2003, 263
ITR (St.) 62.
45 Subs., for “1st day of April, 2012”, by the Finance Act, 2007 (22 of 2007), s 30(i) (w.e.f. 1-4-2008). See Circular No. 3
of 2008, March 12, 2008, 299 ITR (St.) 8.
46 Subs., for “1st day of April, 2012”, by the Finance Act, 2007 (22 of 2007), s 30(ii) (w.e.f. 1-4-2008).
47 CIT v I. Tech Electronics 341 ITR 533, (2012) 248 CTR 108 (Gau).
End of Document
S. 80-ID. Deduction in respect of profits and gains from business of
hotels and convention centres in specified area
THE INCOME-TAX ACT,

1961 (ACT NO. XLIII OF 1961)
CHAPTER VI-A Deductions to be Made in

Computing Total Income
C —Deductions in respect of
certain incomes
S. 80-ID.
Deduction in respect of profits and gains from business of hotels and convention
centres in specified area
(1) 48[Where the gross total income of an assessee includes any profits and gains
derived by an undertaking from any business referred to in
sub-section (2) (such business being hereinafter referred to as the
eligible business), 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 of an amount equal to hundred per cent. of the profits and
gains derived from such business for five consecutive assessment years beginning
from the initial assessment year.
(2) This section applies to any undertaking,—
(i) engaged in the business of hotel located in the specified area, if such hotel is
constructed and has started or starts functioning at any time
during the period beginning on the 1st day of April, 2007, and ending on49[the
31st day of July, 2010]; or
(ii) engaged in the business of building, owning and operating a convention centre,
located in the specified area, if such convention centre is
constructed at any time during the period beginning on the 1st day of April,
2007, and ending on50[the 31st day of July,
2010];
(iii) 51[engaged in the business of hotel located in the specified district having a
World Heritage Site, if such hotel is constructed and
has started or starts functioning at any time during the period beginning on the
1st day of April, 2008, and ending on the 31st day of March,
2013.]
Page 2 of 5
S. 80-ID. Deduction in respect of profits and gains from business of hotels and convention centres in
specified area
(3) The deduction under sub-section (1) shall be available only

if—
(i) the eligible business is not formed by the splitting up, or the reconstruction, of a
business already in existence;
(ii) the eligible business is not formed by the transfer to a new business of a
building previously used as a hotel or a convention centre,
as the case may be;
(iii) the eligible business is not formed by the transfer to a new business of
machinery or plant previously used for any purpose.
Explanation.—The provisions of
Explanations 1 and 2 to sub-section (3) of
Section 80-IA shall apply for the purposes
of clause (iii) of this sub-section as they apply for the purposes of
clause (ii) of that sub-section;
(iv) the assessee furnishes along with the return of income, the report of an audit in
such form and containing such particulars as may be prescribed,
and duly signed and verified by an accountant, as defined in the Explanation
below sub-section (2) of section
288, certifying that the deduction has been correctly claimed.
(4) Notwithstanding anything contained in any other provision of this Act, in computing
the total income of the assessee, no deduction shall
be allowed under any other section contained in Chapter VI-A or
section 10AA, in relation to the profits and gains of
the undertaking.
(5) The provisions contained in sub-section (5) and sub-sections

(8) to (11) of Section 80-IA shall, so far as
may be, apply to the eligible business under this section.
(a) “convention centre” means a building of a prescribed area comprising of

convention halls to be used for the purpose of holding conferences and
seminars, being of such size and number and having such other facilities
and amenities, as may be prescribed;
(b) “hotel” means a hotel of two-star, three-star or four-star category as

classified by the Central Government;
(c) “initial assessment year”—
(i) in the case of a hotel, means the assessment year relevant to the
previous year in which the business of the hotel starts functioning;
Page 3 of 5
specified area
(ii) in the case of a convention centre, means the assessment year relevant
to the previous year in which the convention centre starts operating on
a commercial basis;
(d) “specified area” means the National Capital Territory of Delhi and the
districts of Faridabad, Gurgaon, Gautam Budh Nagar and Ghaziabad;]
(e) 52[“specified district having a World Heritage Site” means districts,
specified in column (2) of the Table below, of the States, specified in the
corresponding entry in column (3) of the said Table:
Table
S. No. Name of District Name of State
(1) (2) (3)
1. Agra Uttar Pradesh
2. Jalgaon Maharashtra
3. Aurangabad Maharashtra
4. Kancheepuram Tamil Nadu
5. Puri Orissa
6. Bharatpur Rajasthan
7. Chhatarpur Madhya Pradesh
8. Thanjavur Tamil Nadu
9. Bellary Karnataka
10. South 24 Parganas West Bengal

(excluding areas falling within the
Kolkata
urban agglomeration on the basis of the
2001
census)
11. Chamoli Uttarakhand
12. Raisen Madhya Pradesh
13. Gaya Bihar
14. Bhopal Madhya Pradesh
15. Panchmahal Gujarat
16. Kamrup Assam
17. Goalpara Assam
18. Nagaon Assam
19. North Goa Goa

Page 4 of 5
specified area
20. South Goa Goa
21. Darjeeling West Bengal
22. Nilgiri Tamil Nadu.]
Legislative History.—This section was inserted

by the
Finance Act , 2007 with effect from April 1, 2008. The
purpose of enacting this section was to make available adequate number of hotels for
the Commonwealth Games. Thus, a tax holiday was given
to hotels and convention centres set up in specified areas which included the National
Capital Territory of Delhi and the districts of Faridabad, Gurgaon, Gautam Budh Nagar
and Ghazibad. The section was amended by the
Finance Act , 2008 with effect from April 1, 2009 to
extend the deduction to hotels and convention centres located in districts having a
World Heritage Site and these have been mentioned in cl
(e) of sub-s (6).
Most of the standard conditions applicable in other sections under this Chapter have
also been made applicable to this section.
48 Ins. by the
Finance Act , 2007 (22 of 2007), s
31 (w.e.f. 1-4-2008). See Circular No. 3 of 2008, March
12, 2008, 299 ITR (St.) 8.

Finance Act , 2010 (14 of 2010), s
28(a) (w.e.f. 1-4-2011). See Circular No. 1 of 2011, April
16, 2011, 333 ITR (St.) 7.

Finance Act , 2010 (14 of 2010), s
28(b) (w.e.f. 1-4-2011).
51 Ins. by the
Finance Act , 2008 (18 of 2008), s
19(a) (w.e.f. 1-4-2009). See Circular No. 1 of 2009, March
27, 2009, 310 ITR (St.) 42.
Page 5 of 5
specified area
52 Ins. by the
Finance Act , 2008, (18 of 2008), s
19(b) (w.e.f. 1-4-2009).
End of Document
S. 80-IE. Special provisions in respect of certain undertakings in North-
Eastern States
S. 80-IE. Special provisions in respect of certain undertakings in North-Eastern States
(1) 53[Where the gross total income of an assessee includes any profits and gains derived by an undertaking, to
which this section applies, from any business referred to in sub-section (2), there shall be allowed, in computing
the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains
derived from such business for ten consecutive assessment years commencing with the initial assessment year.
(2) This section applies to any undertaking which has, during the period beginning on the 1st day of April, 2007, and
ending before the 1st day of April, 2017, begun or begins, in any of the North-Eastern States,—
(i) to manufacture or produce any eligible article or thing;
(ii) to undertake substantial expansion to manufacture or produce any eligible article or thing;
(iii) to carry on any eligible business.
(3) This section applies to any undertaking which fulfils all the following conditions, namely:—
Provided that this condition shall not apply in respect of an undertaking which is formed as a result of
the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking
as referred to in section 33B, in the circumstances and within the period specified in the said section;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation.—The provisions of Explanations 1 and 2 to sub-section (3) of Section 80-IA shall apply for
the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-
section.
Page 2 of 3
(4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the
assessee, no deduction shall be allowed under any other section contained in Chapter VI-A or in section 10A or
section 10AA or section 10B or section 10BA, in relation to the profits and gains of the undertaking.
(5) Notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking under this
section, where the total period of deduction inclusive of the period of deduction under this section, or under
Section 80-IC or under the second proviso to sub-section (4) of Section 80-IB or under section 10C, as the case
may be, exceeds ten assessment years.
apply to the eligible undertaking under this section.
(i) “initial assessment year” means the assessment year relevant to the previous year in which the undertaking
begins to manufacture or produce articles or things, or completes substantial expansion;
(ii) “North-Eastern States” means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim and Tripura;
(iii) “substantial expansion” means increase in the investment in the plant and machinery by at least twenty-five
per cent. of the book value of plant and machinery (before taking depreciation in any year), as on the first day
of the previous year in which the substantial expansion is undertaken;
(iv) “eligible article or thing” means the article or thing other than the following:—
(a) goods falling under Chapter 2454 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986),
which pertains to tobacco and manufactured tobacco substitutes;
(b) pan masala as covered under Chapter 2155 of the First Schedule to the Central Excise Tariff Act, 1985 (5
of 1986);
(c) plastic carry bags of less than 20 microns as specified by the Ministry of Environment and Forests vide
Notification Number S.O. 705(E), dated the 2nd September, 1999, and S.O. 698(E), dated the 17th June,
2003; and
(d) goods falling under Chapter 2756 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986),
produced by petroleum oil or gas refineries;
(v) “eligible business” means the business of,—
(a) hotel (not below two star category);
(b) adventure and leisure sports including ropeways;
(c) providing medical and health services in the nature of nursing home with a minimum capacity of twenty-
five beds;
(d) running an old-age home;

Page 3 of 3
(e) operating vocational training institute for hotel management, catering and food craft, entrepreneurship
development, nursing and paramedical, civil aviation related training, fashion designing and industrial
training;
(f) running information technology related training centre;
(g) manufacturing of information technology hardware; and
(h) bio-technology.]
Legislative history.—This section was inserted by the Finance Act, 2007 with effect from April 1, 2008. The purpose
of enacting this section was to extend benefit to undertakings located in he North-Eastern States. The deduction is
available for the following businesses: hotels (not below two star); adventure and leisure sports including ropeways;
hospitals (minimum 25 beds); old-age home; vocational training institute; information technology related training
centre; manufacturing information technology hardware; and bio-technology.
Most of the standard conditions applicable in other sections under this Chapter have been made applicable to this
section.
ITR (St.) 8.
End of Document
S. 80J.
S. 80J.
57[* * * *]
1. Deleted Section 80J, [ Section 15C of 1922 Act]: Newly Established Industrial Undertakings, Ships and
Hotels.—Although this section is no more on the statute book, the relevance of the following commentary is not
diminished. Important case law has developed under this section on several expressions, concepts, phrases and
words which also appear in several similar sections in this chapter eg ss 80HH, 80HHA, 80-I, 80-IA, 80-IB, 80-IC etc.
and also in ss 10A and 10B. The commentary under this section and specifically under the headings ‘Industrial
undertaking—Manufacture, production or processing of goods’, ‘Splitting up or reconstruction’, ‘Formed…’,
‘Transfer…’ and ‘Submission of Audit Report’ will be applicable for these sections also. Such common subjects and
the case laws thereon are, for the sake of convenience, dealt with here.
The profits of new industrial undertakings,58 ships59 and hotels which fulfilled the conditions prescribed by this section,
were entitled to a deduction to the extent of six per cent. per annum on the capital employed. In the case of a
company, the original scheme of the Act was to grant a deduction to the company under this section, and a separate
deduction under s 80K (now omitted) to the shareholders in respect of that portion of the dividend which was
attributable to the profits exempt under this section. Later, this scheme has been altered as regards companies whose
productive activities commenced on or after April 1, 1976. In their case the deduction under this section was seven
and a half per cent. (instead of six per cent) per annum on the capital employed [proviso to s 80J(1) ] and the separate
relief to the shareholders was abolished (proviso to s 80K ). Section 80K itself was ultimately deleted with effect from
April 1, 1987.
This section has ceased to apply to cases where the new industrial undertaking begins to manufacture articles after
March 31, 1981 and has been deleted with retrospective effect from April 1, 1989 by the Finance (No 2) Act, 1996.
The provisions of ss 80HH, 80HHA, 80-I, 80-IA 80-IB and 80-IC which are on similar lines as this section, also grant
Page 2 of 29
S. 80J.
deduction in respect of profits of such undertakings, although as a percentage of profits.
The section, which is intended to encourage the setting up of new industrial enterprises, must be construed liberally,60
in a broad commercial sense from a common sense point of view,61 and in a manner that will promote the object of the
legislature.62
Even if a new undertaking has functioned for only a part of an accounting year, the deduction should be allowed to the
full extent of six per cent. or seven and a half per cent, as the case may be, and the percentage is not to be reduced in
proportion to the part of the year during which the undertaking, ship or hotel was in productive operation.63 In other
words, the relief is available in respect of the assessment year and not the accounting year and is to be computed on
the basis of twelve months, even if the accounting year consists of more or less than 12 months.64
‘Profits and gains derived from an industrial undertaking or a ship’ implies that the undertaking or the ship should be
the direct source of profits. The meaning of word ‘derive from’ is ‘to trace from a source’. The Supreme Court held in
CIT v Sterling Foods 65 that for the application of these words, a direct nexus between the profits and gains and the
industrial undertaking is necessary and the deduction is not allowable if the particular income is merely attributable or
relatable to such undertaking.66 Thus, income such as the profit on the sale of license67 or import entitlements68 or
cash assistance69 or duty drawback70 or export house premium71 is not eligible for relief. Similarly, profits from the
business of fishing carried on with the aid of the ship72 or rent received from letting out of the undertaking73 or
consideration received for user of factory building although termed as labour charges74 or commission receipts which
do not arise in the course of the business of the undertaking75 or subsidy received to compensate for expenditure76
cannot be held as ‘profits’ eligible for deduction. Further, income under the head ‘capital gains’,77 or interest on bank
deposits made from surplus cash78 or from an amount deposited in guarantee fund,79 or profit on the sale of assets,80
is not entitled to deduction. However, interest derived from an activity which has a nexus with the business is entitled
to the deduction under this section.81 Similarly, technical collaboration fees82 or rent83 or hire charges received for
equipment forming part of the manufacturing activity84 or profit in foreign exchange85 or job work in the course of
business86 or income from sale of scrap generated during the course of manufacture87 are considered to be part of the
profits eligible to deduction. The deduction under this section is also available in respect of business done by
promoters prior to the incorporation of the company, which is later accepted by the company.88
One of the conditions is that the industrial undertaking (unless it is a cold storage plant89) should manufacture or
produce articles.90 The production must not be on a trial or prototype basis. There is a difference between trial
production and production of goods or articles.91 Another condition is that the minimum number of workers employed
by the industrial undertaking which manufactures or produces articles should not be less than that prescribed in sub-s
(4)(iv).92 It is enough if this requirement is substantially complied with during (though not necessarily throughout) the
relevant period.93 For the purpose of this condition, the number of workers is to be considered under a normal period
and not during strike or closure.94 It is also not necessary that the required number of workers should be involved in
operating the machinery which is used for the purpose of manufacture. Workers and labourers employed in processes
starting from purchase of raw material and till the sale of finished goods forming an integral part of the manufacturing
process are workers employed in the manufacturing process.1 However, persons working independently, who are not
employees, are not to be considered.2
Deduction under s 80J (now omitted) is available for the assessment year relevant to the previous year in which the
industrial undertaking begins to manufacture articles,3 and for the next four assessment years (six years in the case of
a co-operative society). In determining the initial assessment year from which relief is admissible, what is important is
Page 3 of 29
S. 80J.
the beginning of manufacture or production of articles by the industrial undertaking and not a particular assessee; in
other words, the period for which deduction would be available is to be reckoned from the date of commencement of
manufacture or production by the undertaking.4 The period has to be considered from the initial assessment year
when the assessee had become entitled to deduction.5 The board has clarified that the successor in business is
entitled to deduction for the unexpired portion of statutory period; however, such benefit cannot be extended to the
lessee of the business.6 Further, once the initial assessment year is fixed, it is neither permissible nor open to change
such year,7 and the section does not contemplate partial relief which seeks to extend the period of exemption as and
when fresh investment is made in the unit.8 In computing the years for which the deduction is admissible, the
assessment years are to be taken in natural sequence9 without any reference to a particular assessee or a situation10
and the absence of a previous year for a particular assessment year as a result of change in the accounting year
cannot extend the period of exemption.11 In the case of an amalgamation, the amalgamated company is entitled to
deduction for the balance period of years of exemption provided that it fulfils all the conditions laid down in the
section.12 Not making a claim of deduction in the initial assessment year or a succeeding year does not disentitle a
claim in the remaining years and the relief is permissible independently for each of the years during the exemption
period.13
The term ‘article’ in this section is the final product which the undertaking is set up to manufacture and the sale of
which yields the profit entitled to exemption.14 However, the Supreme Court in CIT v Cellulose Products 15 has later
on held that the initial year for the purpose of this section begins in the year in which even an intermediate product
which is marketable is produced notwithstanding the fact that the final product is not manufactured. The deduction is
available so long as sales are effected of the material already produced earlier from such activity and it is immaterial
whether any manufacturing was actually carried out during the accounting period.16
Once deduction is given in respect of a new industrial undertaking in the initial year and that relief remains
undisturbed, the AO cannot on the same set of facts deny deduction for the subsequent years, eg on the ground that
the undertaking is not new.17 There is no provision for withdrawal of the deduction once granted and such deduction
cannot be denied in subsequent years unless the deduction allowed on the same ground in the earlier year is
withdrawn.18
The benefit is confined only to the profits from the new industrial undertaking and does not extend to the profits of any
other business activity even though closely connected with that undertaking.19 A spinning mill and a weaving mill may
constitute different industrial undertakings though owned by a company which was formed with the object of setting up
both these lines of business.20 Where the raw materials used in the new industrial undertaking are produced by the
assessee himself in an old undertaking, they should be valued at the market price and not at their cost of production,
for computing the profits of the new undertaking.21 This principle is now given statutory effect by sub-s (6B).
In computing the deduction under this section, the profits and gains of the undertaking are to be reduced by current
depreciation22 (including initial depreciation23) and investment allowance.24 The resultant income is to be further
reduced by setting off the unabsorbed depreciation,25 development rebate,26 and carried forward losses of past
years.27 The unabsorbed depreciation of a past year relating to the new industrial undertaking has to be set off against
the profits of that undertaking and the question of deduction has to be considered only in respect of the balance; the
section does not contemplate a set off of such depreciation against the combined profits of all business activities and
deduction of the balance.28 Further, if the depreciation and development rebate pertaining to the new undertaking have
already been absorbed by the profits of another business in the past years, and hence there is no unabsorbed
depreciation or development rebate to be carried forward, no part of such depreciation or development rebate should
be set off against the profits of the new undertaking of the subsequent year in which the claim for relief under this
section is made.29 Past losses which are already set off against other income of that year are not be set off against the
Page 4 of 29
S. 80J.
income of the unit in subsequent years.30 In the case of partnership firms, the profit, after disallowance of interest and
salary to partners under s 40(b) is to be considered.31
The deduction is to be computed with reference only to the profits of the undertaking and not with reference to total
profits of the assessee.32 In other words, the profit of a new industrial undertaking entitled to deduction under this
section is to be computed without it being reduced by the loss in another industrial undertaking, old or new.33 subject
to the provisions of s 80AB .34 Similarly, a loss making undertaking is not entitled to deduction, even if the total income
is positive.35
In the case of inadequacy of profits, the ‘deficiency’ can be carried forward up to seven years from the initial
assessment year.36 If in the initial years there are no profits, it is not necessary for the assessee to make a claim or for
the AO to compute the quantum of deduction under this section for those years; the claim and the computation for a
past year may be made for the first time in the year in which there are profits against which the deduction of that past
year could be adjusted.37 However, the quantum of deficiency determined in the assessment of an earlier year cannot
be challenged in the course of assessment or appeal in a subsequent year.38 The deduction under this section is
independent of the deduction available under s 80HH ; relief under this section cannot be denied even if the profits of
the year are not sufficient to take advantage of the deduction under s 80HH and this section, and the deficiency arising
out of such inadequacy of profits can be carried forward.39
2. Duty of Assessing Officer.—It is the duty of the AO to draw the attention of the assessee that on the facts of the
case he seems entitled to deduction under this section, if the assessee has omitted to make the claim.40
3. Where Assessee is a Person other than Company or Co-operative Society.—Where the assessee is a person
other than a company or a co-operative society, deduction under this section is admissible only if the accounts of the
industrial undertaking of the relevant year have been audited and the assessee furnishes the audit report along with
the return of income [sub-s (6A)]. Rule 18C prescribes the form of audit report.
While deduction under this section is admissible in computing the total income of a firm, s 80A(3) prohibits the partners
from also claiming deduction in their individual assessments41 which is taxable in their hands up to assessment year
1992-93.
4. Industrial Undertaking: Manufacture, Production or Processing of Goods.—The basic concept—with

significant variations—of industrial undertaking occurs in different sections, eg ss 32A, 33, 54D, 80HH, 80-I, 80-IA, 80-
IB, 80-IC, 80J, 109(i-a), (some of them now deleted), and in various Finance Acts. The case law on that basic concept
is dealt with here.
The term ‘industrial undertaking’ is not defined under the Act. However, the explanation to s 5(1)(xxxi) (which is
omitted from assessment year 1993-94) of the Wealth Tax Act defined this term as an undertaking engaged in the
business of generation or distribution of electricity or any other form of power or in the construction of ships or in the
manufacture and processing of goods or in mining. There is nothing in the language of this section which suggests a
Page 5 of 29
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different meaning.42 The same legislative intent can be attributed to identical expressions used in s 32A and in this
chapter, such as, ‘industrial undertaking’, ‘manufacture’ and ‘produce’.43
Industrial activity is the genus; manufacture (used here to include production) or processing of goods is the species.
All manufacturing activities are industrial; but all industrial activities do not necessarily involve manufacture.44 Usually,
an industrial activity involvesthe manufacture or processing of goods. However, in some cases it does not; and such
cases would not be covered by the statute if manufacture or processing of goods is a requirement of the section. The
Supreme Court in CIT v NC Budhiraja 45 has held that the word ‘production’ has a wider connotation than the word
‘manufacture’; while every manufacture can be characterised as production, every production need not amount to
manufacture. It has held that the test for determining whether manufacture can be said to have taken place is whether
the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity
but is recognised in the trade as a new and distinct commodity. It observed that the expressions ‘manufacture’ and
‘produce’ are normally associated with movables—articles and goods, big and small. Thus, these terms are never
employed to denote construction activity of the nature involved in the construction of a dam or a building, which
involves an industrial activity, and it cannot be said to be a manufacturing business46 merely because the production of
windows or concrete slabs is undertaken as an ancillary activity.47 The expression ‘process’ is wider than
‘manufacture’ or ‘production’; it is an action which brings forth some change or alteration of the goods or material
subjected to the act of processing;48 while manufacture may be characterised as a process, every process need not
amount to manufacture.
In the case of lease of machinery, if the lessor has no control on the use of the assets, it cannot be said to be engaged
in manufacturing or production of article.49 On the other hand, the Supreme Court, in Ashok Leyland v CIT ,50 has held
that profit on the import and sale of spare parts is entitled to deduction as it is difficult to disassociate the said activity
from the main activity, viz manufacture and sale of trucks.
However, the nuances of different sections are materially divergent. In those cases where the context of the section,
eg s 32A or s 33, merely refers to plant or machinery used for a business activity of manufacturing or processing
goods, even the contractor and the hotel-keeper would be entitled to the benefit in respect of assets used for their
ancillary manufacturing or processing activities, eg a hotel-keeper’s activity of preparing food. A company engaged in
the construction of dams and barrages may itself manufacture the products which are required to be utilised in the
construction work.51 What is relevant is the actual use of the expression, whether ‘manufacture’ or ‘production’ or
‘process’ in the section.
Based on the use of the expression in the relevant section, industrial undertakings carrying on the following activities
have been held to be engaged in the manufacture or production or processing of goods or articles—processing
seeds52 or; supplying cool and filtered air through airconditioning apparatus;53 machining and polishing rough
castings;54 refining crude oil;55 extracting oil from groundnut kernel;56 pulverizing raw lumps of mineral;57 converting
boulders into chips of stone;58 tailoring garments from cloth supplied by customers;59 dyeing and printing grey cloth;60
ginning or pressing cotton;61 converting raw wool into blended wool;62 publishing books;63 folding and stitching printed
sheets to convert them into booklets;64 printing balance sheets, dividend warrants, pamphlets, labels, cards etc;65 data
processing with the help of a computer;66 assembling of component parts of a tractor;67 manufacture of centrifuged
latex;68 converting cut trees to logs and planks;69 conversion of raw cashew nuts into cashew kernels;70 de-embarking
and seasoning tree trunks and converting them into logs;71 conversion of timber into rafters;72 deep sea fishing73 and
processing of fish;74 manufacture of garments for exports;75 manufacture of monochloracetic acid and denatured
spirit;76 production of cinematograph films;77 heat treatment of crankshafts and forgings;78 crushing barytes into
powder;79 humidifiers;80 re-rolling mill;81 making rubber sheets from rubber compound;82 converting plain glass into
decorative glassware;83 ash handling and oil distribution system for thermal and steel plant;84 and crushing tobacco
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leaves and cutting and sieving.85
Undertakings carrying on the following activities have, based on the actual use of the expression in the relevant
section, been held not to be engaged in the manufacture or production or processing of goods or articles—processing
of prawns, shrimps and lobsters;86 flight kitchen producing food packets;1 running cold storage plants;2 construction
activity;3 converting chicory roots into chicory powder;4 drilling of bore wells;5 extraction of granite;6 grinding of soaps-
stones and minerals;7 producing chicken in hatcheries8 and poultry farming;9 mixing and blending of tea;10 belt
reconditioning;11 sizing and washing of iron ore;12 tyre retreading;13 fishing with use of trawlers;14 cutting and polishing
diamonds;15 running of a hospital or nursing home;16 decortification of groundnuts;17 mining of limestone and marble;18
calendaring process of grey cloth to give temporary finish;19 galvanising metal on behalf of customers;20 and activity of
exhibiting films.21
A processor of goods need not himself carry out all the processes resulting in the end product; he may get some of
them done by a third party.22 A publisher may get books printed and bound through contractors.23 Similarly a
manufacturer need not himself own the manufacturing plant; he may take it on hire or may get the goods
manufactured under his supervision, direction and control by an outsider.24
5. Computation of Capital Employed: Validity of Rule 19A .—‘Capital employed’ includes (i) work-in-progress, (ii)
goods in transit, (iii) machinery, land or other assets acquired for the business, though they may not be actually used
in the accounting year, and (iv) advance payments made for acquiring such assets.25
Rule 19A requires the assessee to be given the benefit of certain types of borrowed capital for the purposes of this
section.26 Rule 19A prescribed the mode of computing ‘the capital employed’ for the purposes of this section.27
Various High Courts had held that the rule was invalid as being ultra vires the Act to the extent that (i) it prescribes the
mode of computing ‘the capital employed’ in terms that exclude all borrowed capital,28 and (ii) it takes the capital
employed only as on the first day of the accounting year and ignores all additional capital employed during the rest of
the year.29 Rule 19A was held ultra vires the Act on the aforesaid two points since it affects or derogates from the full
operative effect of the provisions of s 80J .30 The board has the power to frame rules to give effect to the legislative
intent but not to defeat it by an artificial mode of capital computation where the resultant sum is wholly unrelated to the
real capital employed during the relevant year. In the absence of a statutory definition, the expression ‘capital
employed’ may be taken in its legal sense, or its dictionary meaning, or its popular or commercial sense.31 But in none
of these senses can the true capital employed exclude all borrowed moneys or ignore the reality of the funds used
during the entire year except its first day. Parliament could not have possibly intended to favour the affluent assessees
who are able to employ their own capital and to discriminate against the indigent who have to borrow funds to finance
their undertaking. The board is empowered to prescribe, not the ‘capital employed’ (which in the context of the section
clearly means all capital, borrowed or otherwise, employed during the year and contributing towards the earning of
profits), but only the manner of computing it. The contrary view (i) attributes to the legislature ignorance of the well
known fact that most of the new industrial undertakings to which the section is meant to apply are established mainly
with borrowed capital, and (ii) thus defeats the very object of the section, which is to promote rapid industrialisation of
the country. Compare the concept of ‘capital employed’ in explanations (b) and (c) to s 35D(3) . However, in Lohia
Machines Ltd v UOI 32 the Supreme Court, by a majority, overruled these decisions and held the rule valid. It is
submitted that the majority judgment is clearly incorrect, and the dissenting view of AN Sen J is correct both in its
approach to the question and in its conclusion.
6. Sub-section (1A) Capital Employed.—The provisions of r 19A were substantially embodied in sub-s (1A) with
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S. 80J.
retrospective effect from the assessment year 1972-73, raising a question—Does Parliament have a real role or
merely a formal role in making most of the laws?—which has profound significance for the future of our democracy.
The expression ‘capital employed as on the first day of the computation period’ refers only to the opening balance on
the first day of the computation period33 and therefore, capital introduced or augmented during the year34 is not to be
taken into account. Deduction can also not be granted on the average capital employed during the year.35 Similarly,
capital invested in the existing unit cannot be transferred and included in the capital employed of the new unit.36
‘Capital employed’ includes (i) work-in-progress,37 (ii) goods in transit,38 (iii) machinery, land or other assets acquired
for the business, though they may not be actually used in the accounting year,39 and (iv) advance payments made for
acquiring such assets.40
Leasehold rights will not be treated as assets to compute capital employed.41 This view is incorrect as leasehold rights
are assets. In another case, it was held that the word “transfer” need not result in transfer of ownership. Leasehold
assets would also be eligible. However, on facts, the benefit was denied because the value of the leasehold assets
were in excess of 20 per cent. of the total value of plant and machinery.42
In case of depreciable assets, the written down value, and not the actual or the original cost, is to be considered.43 In
working out the written down value, unabsorbed depreciation is to be deducted and it is not to be restricted only to
depreciation actually allowed.44 The Bombay High Court in CIT v Zenith Steel 45 has held that for the purpose of
computation of capital employed, the initial depreciation is also to be deducted in determining the written down value
of the assets. On the other hand, the Calcutta High Court in ITC Ltd v CIT 46 has taken a contrary view.
In computing the value of assets on the first day of the computation period, technical know-how treated as an asset,47
addition to cost of asset acquired in foreign currency on account of fluctuation,48 expenditure incurred on acquiring a
permanent right in immovable property,49 tax refundable as on the first day of the computation period,50 residential
accommodation provided in the course of business,51 and amounts which is not immediately required in business and
kept in short term deposits,52 are to be included. In the case of shipping activity, dredgers are considered as ships53
and hence, includible in computation of capital employed. However,in computing the cost of such assets, the
deduction granted under s 35 for assets used for scientific research,54 or subsidy551 or grant56 received from the
Government is not to be considered, as the definition of actual cost in s 43(1) is not relevant for the purpose of this
section. But preliminary57 and pre-production58 expenses fall into the category of assets acquired otherwise than by
purchase, not entitled to depreciation as per cl (ii) of sub-s (1A) and are to be included in computing such value.
In computing the capital employed, the aggregate of borrowed moneys and debts owed as specified in cl (iii) of sub-s
(1A) is to be reduced. Share application money is not borrowed money and will not be reduced.59 The deduction of
such amount is to be made only in respect of the liabilities of the industrial undertaking60 without considering the
overall liability of the assessee.61 In computing such liabilities or loans, whether secured or unsecured,62 provision for
taxation63 and current liabilities64 are to be included. Similarly, debts borrowed which have a nexus to the activity of the
undertaking65 are to be included in the liability. Likewise, amounts received by an industrial undertaking from the head
office as a part of a loan are to be considered,66 but not if such loans are not utilised by the unit.67 A provision for
proposed dividend crystallises into a ‘debt owed’ only when the general body meeting approves the declaration of
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dividend.68 Similarly, monies received for future issue of shares69 cannot be deducted in computing capital employed.
7. Computation of Capital Employed under Section 84 and Rule 19 (Both now Deleted).—Rule 19, which
prescribed the mode of computing ‘the capital employed’ for the purposes of s 84 which corresponded to the present s
80J, was construed in the undermentioned cases.70
8. Splitting up or Reconstruction.—The section does not apply to an industrial undertaking which is formed by ‘the
splitting up,71 or the reconstruction, of a business already in existence’. The term ‘reconstruction’ implies that the
identity of the business should not be lost, and substantially the same business should be carried on by substantially
the same persons.72 If the business is sold or if its very nature is changed, it is not a case of reconstruction.73
If there is a new industrial undertaking which is entitled to exemption under this section, the subsequent splitting up or
reconstruction of that undertaking will not deprive it of the exemption.74 A reconstituted firm will continue to get relief.75
A substantial expansion or extension of an existing undertaking, or a new unit in the vicinity or at a different place to
manufacture the same product which is produced in an existing business, may qualify for relief under this section as a
new industrial undertaking and may not be regarded as reconstruction of a business already in existence,76 even if
some of the assets of the old undertaking are transferred to the new.77 Similarly, a separate unit set up to produce a
raw material or a component, or to undertake a process, required for an existing business, may be regarded as a new
industrial undertaking not involving reconstruction of the existing business.78 As Goswami J, delivering the judgment of
the Supreme Court in Textile Machinery Corpn Ltd v CIT ,79 observed, ‘The true test is not whether the new industrial
undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and
identifiable undertaking separate and distinct from the existing business’. The fact that there is common management
or the fact that separate accounts are not maintained does not lead to the conclusion that they are not separate
undertakings.80 The benefit cannot be denied because the product manufactured in the new unit was the same as that
manufactured in the existing unit.81 Further, the rebuilding of a plant after the partial demolition of an old plant of an
existing unit does not disentitle the assessee from relief under this section.82 The partial use of premises of the old
undertaking or the fact that some members of staff are common83 or the takeover of certain movable and immovable
property and stocks84 or a common source of power85 would not make a material difference in determining whether the
deduction under this section would be available.
An amalgamated company which is already an industrial undertaking on the date of amalgamation is not considered
as formed by splitting or reconstruction, and is, hence, entitled to relief.86 On the other hand, increase in production
capacity as a result of additional investment without the creation of a new identity amounts to only a reconstruction of
an existing business.87 In a case where common infrastructure is being used by both the units, in order to determine
whether a new unit has come into existence or not, the test to be applied is whether the new unit can exist on its own
as a viable unit.88
9. ‘Formed’: Effect of Explanation 2 to Sub-section (4).—One of the conditions of deduction under this section is
that the new industrial undertaking should not be ‘formed by the transfer to a new business of machinery or plant
previously used for any purpose’ [sub-s (4)(ii)]; and a similar condition applies to hotels [sub-s (6)(a)]. The word
‘formed’ should be given its due significance.89 Unless the secondhand machinery or plant is sufficiently important and
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essential to justify the inference that the new undertaking is formed by its acquisition, the condition in sub-s (4)(ii)
should be regarded as fulfilled.90
If the new undertaking is formed by the transfer of secondhand assets, explanation 2 to sub-s (4) may be invoked and
the condition may still be regarded as fulfilled if the total value of the secondhand machinery or plant does not exceed
20 per cent. of the total value of the machinery or plant used in the new business. But if the secondhand assets are
such that the new undertaking cannot be regarded as having been formed by their acquisition, the condition of
deduction must be regarded as fulfilled, even if the value of the secondhand assets exceeds 20 per cent. of the total
value of the machinery or plant used in the new business. In other words, the explanation deems the condition to be
fulfilled when in reality it is not; but if in reality the condition is fulfilled, the explanation does not operate to deem it to
be unfulfilled. The explanation to sub-s (6) makes a similar provision in the case of hotels. The fulfilment of this
condition is to be examined in each year, beginning from the year in which the undertaking begins to manufacture, and
even if the condition was not satisfied in earlier years, deduction is to be allowed in such remaining years in the
statutory period in which the condition is fulfilled.91
Transfer of a previously used building is immaterial in the case of a new industrial undertaking from the assessment
year 1976-77,92 but it is still material in the case of a hotel [sub-s (6)(a)]. For the purpose of sub-s (6) ‘building’
includes the land on which the superstructure stands.93
10. ‘Transfer to a New Business of Machinery or Plant Previously Used’.—The word ‘transfer’ is not to be given a
narrow meaning and it is to be interpreted in a broad sense.94 ‘Transfer’ includes lease1 but does not include hire.2
Thus, a unit set up in a rented premises with machinery taken on hire cannot be construed as a new undertaking.3 The
words ‘previously used’ do not imply that the previous use must have been by the assessee himself, but are wide
enough to cover previous use by another person.4 For the purpose of computing the ceiling of 20 per cent, the value of
the building inclusive of the machinery therein is to be taken into account.5 Under the pre-1976 law, it was held that
secondhand but reconditioned machinery purchased from abroad should be treated as new for the purposes of this
section.6 Explanation 1 to sub-s (4), which came into force from April 1, 1976, sets out the circumstances in which
secondhand imported machinery or plant would be treated as new even if it has not been reconditioned. [Cf
explanation (2) to s 32(1)(vi) (now deleted), s 33(1A)(b), and Explanation 1 to s 80-1(2) .]
11. Sub-section (5): Ship Acquired from Government.—The Government of India is not a ‘person resident in India’
within cl (ii) of sub-s (5), and therefore, a ship acquired from it fulfils the condition of this clause.7 But fishing in the
deep sea with the aid of ships and trawlers cannot be regarded as profits and gains derived from ship.8
12. Sub-section (6A): Submission of Audit Report.—The requirement of filing of the audit report ‘along with the
return’ is not mandatory in the strict sense of the term, but only directory,9 and the word ‘shall’ employed in this sub-
section is to be read as ‘may’ so as to make the beneficial provision fully operational and not frustrate the legislative
object.10 The claim of relief cannot be denied even though the return itself is filed beyond the prescribed time.11 Such
report can be filed at the time while the claim under the section is being considered by the concerned authority,12
which includes an appellate authority.13 But the relief was denied when the audit report was filed after the assessment
was completed.14 However, the section does not cast any duty on the AO to ask for such report on the failure to file the
report before rejecting the claim.15
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S. 80J.
13. Sub-section (6B): Market Value of Consideration.—The Bombay High Court, in Atul Drug v CIT ,16 has held
that an item produced by an old unit used as a raw material by the new unit is to be taken at cost price for the purpose
of computing profits. However, in CIT v Win Laboratories ,17 the same court has held that transfer of material from the
new unit to another unit is to be valued at market value.
14. Appeal and Reference.—In the context of s 80J, the undernoted cases held that referable questions of law
57 Omitted by the Finance (No. 2) Act, 1996 (33 of 1996), s 29 (w.r.e.f. 1-4-1989). See Circular No. 762, February 18,
1998, 230 ITR (St.) 12. Section 80J as it stood prior to its omission retrospectively from 1-4-1989.— Section 80J,
prior to its omission (w.r.e.f. 1-4-1989) by the Finance (No. 2) Act, 1996, stood as under:—
‘S. 80J. Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel
business in certain cases.—(1)Where the gross total income of an assessee includes any profits and gains derived from an
industrial undertaking or a ship or the business of a hotel, 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 1[(reduced by the deduction, if any, admissible to the assessee under section 80HH 2[or section 80HHA ])] of so much
of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed
in the industrial undertaking or ship or business of the hotel, as the case may be, 3[computed in the manner specified in sub-
section (1A)] in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being
hereafter, in this section, referred to as the relevant amount of capital employed during the previous year):
4[Provided that in relation to the profits and gains derived by an assessee, being a company, from an industrial undertaking
which begins to manufacture or produce articles or to operate its cold storage plant or plants after the 31st day of March, 1976,
or from a ship which is first brought into use after that date, or from the business of a hotel which starts functioning after that
date, the provisions of this sub-section shall have effect as if for the words “six per cent.”, the words “seven and a half per cent.”
had been substituted.]
5[(1A)(I) For the purposes of this section, the capital employed in an industrial undertaking or the business of a hotel shall,
except as otherwise expressly provided in this section, be computed in accordance with clauses (II) to (IV) and the capital
employed in a ship shall be computed in accordance with clause (V).
(II) The aggregate of the amounts representing the values of the assets as on the first day of the computation period of the
undertaking or of the business of the hotel to which this section applies shall first be ascertained in the following manner:—
(i) in the case of assets entitled to depreciation, their written down value;
(ii) in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee;
(iii) in the case of assets acquired otherwise than by purchase and not entitled to depreciation, the value of the assets when they
became assets of the business;
(iv) in the case of assets, being debts due to the person carrying on the business, the nominal amount of those debts;
(v) in the case of assets, being cash in hand or bank, the amount thereof.
Explanation 1.—In this clause, “actual cost” has the same meaning as in clause (1) of section 43 .
Explanation 2.—In this clause and in clause (III), “computation period” means the period for which profits and gains of the
industrial undertaking or business of the hotel are computed under sections 28 to 43A .
Explanation 3.—In this clause and in clause (V), “written down value” has the same meaning as in clause (6) of section 43 .
Explanation 4.—Where the cost of any asset has been satisfied otherwise than in cash, the then value of the consideration
actually given for the asset shall be treated as the actual cost of the asset.
(III) From the aggregate of the amounts as ascertained under clause (II) shall be deducted the aggregate of the amounts, as on
the first day of the computation period, of borrowed moneys and debts owed by the assessee (including amounts due towards
any liability in respect of tax).
(i) “tax” means—
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S. 80J.
(a) income-tax or super-tax (including advance tax) due under any provision of this Act;
(b) wealth-tax due under any provision of the Wealth-tax Act, 1957 (27 of 1957);
(c) gift-tax due under any provision of the Gift-tax Act, 1958 (18 of 1958);
(d) super profits tax due under any provision of the Super Profits Tax Act, 1963 (14 of 1963);
(e) surtax due under any provision of the Companies (Profits) Surtax Act, 1964 (7 of 1964);
(ii) any liability in respect of tax shall be deemed to have become due—
(a) in the case of advance tax due under any provision of this Act, on the date on which such advance tax is payable; and
(b) in the case of any other tax, on the first day of the period within which it is required to be paid.
(IV) The resultant sum as determined under clause (III) shall be diminished by the value, as ascertained under clause (II), of any
investments the income from which is not taken into account in computing the profits of the business and any moneys not
required for the purpose of the business, in so far as the aggregate of such investments or moneys exceed the amount of the
borrowed moneys which under clause (III) are required to be deducted in computing the capital.
(V) The capital employed in a ship shall be taken to be the written down value of the ship as reduced by the aggregate of the
amounts owed by the assessee as on the computation date on account of moneys borrowed or debts incurred in acquiring that
ship.
Explanation.—In this clause, “computation date” in relation to a ship, means—
(a) in respect of the previous year in which the ship is first brought into use, the date on which it is so brought into use;
(b) in respect of any subsequent previous year, the first day of such previous year.]
(2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year
relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles 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 (such assessment year
being hereafter, in this section, referred to as the initial assessment year) and each of the four assessment years immediately
succeeding the initial assessment year:
Provided that in the case of an assessee, being a co-operative society, the provisions of this sub-section shall have effect as if
for the words “four assessment years”, the words “six assessment years” had been substituted.
(3) Where the amount of the profits and gains derived from the industrial undertaking or ship or business of the hotel, as the
case may be, included in the total income (as computed without applying the provisions of section 64 and before making any
deduction under Chapter VI-A 6[* *]) in respect of the previous year relevant to an assessment year commencing on or after the
1st day of April, 1967, (not being an assessment year prior to the initial assessment year or subsequent to the fourth
assessment year as reckoned from the end of the initial assessment year) falls short of the relevant amount of capital employed
during the previous year, the amount of such shortfall, or, where there are no such profits and gains, an amount equal to the
relevant amount of capital employed during the previous year (such amount, in either case, being hereafter, in this section,
referred to as deficiency) shall be carried forward and set off against the profits and gains referred to in sub-section (1) (as
computed after allowing the deductions, if any, admissible under 7[8[* *] section 80HH 9[or section 80HHA ]] 10[* *] and the said
sub-section (1)) in respect of the previous year relevant to the next following assessment year and, if there are no such profits
and gains for that assessment year, or where the deficiency exceeds such profits and gains, the whole or balance of the
deficiency, as the case may be, shall be set off against such profits and gains for the next following assessment year and if and
so far as such deficiency cannot be wholly so set off, it shall be set off against such profits and gains assessable for the next
following assessment year and so on:
Provided that—
(i) in no case shall the deficiency or any part thereof be carried forward beyond the seventh assessment year as reckoned from
the end of the initial assessment year;
(ii) where there is more than one deficiency and each such deficiency relates to a different assessment year, the deficiency
which relates to an earlier assessment year shall be set off under this sub-section before setting off the deficiency in relation to a
later assessment year:
Provided further that in the case of an assessee being a co-operative society, the provisions of this sub-section shall have effect
as if for the words “fourth assessment year”, the words “sixth assessment year” had been substituted.
(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence;
(ii) it is not formed by the transfer to a new business of 11[* *] machinery or plant previously used for any purpose;
(iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has
begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of 12[thirty-
three years] next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the
Official Gazette, specify with reference to any particular industrial undertaking;
Page 12 of 29
S. 80J.
(iv) in a case where the industrial undertaking manufactures or produces articles, 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:
Provided that the condition in clause (i) shall not apply in respect of any 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:
13[Provided further that, where any building or any part thereof previously used for any purpose is transferred to the business of
the industrial undertaking, the value of the building or part so transferred shall not be taken into account in computing the capital
employed in the industrial undertaking:
14[Provided also that in the case of an industrial undertaking which manufactures or produces any article specified in the list in
the Eleventh Schedule, the provisions of clause (iii) shall have effect as if for the words “thirty-three years”, the words “thirty-one
years” had been substituted.]
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;
(c)no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the
provisions of the Indian Income-tax Act, 1922 (11 of 1922), or 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 and the total value of the machinery or plant
or part so transferred shall not be taken into account in computing the capital employed in the industrial undertaking.]
(5) This section applies to any ship, where all the following conditions are fulfilled, namely:—
(i)
(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 and 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 within a period of 15(thirty-three years) next following the 1st day of
April, 1948.
16((a)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;)
((b)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;
17((c)* * * *)
(d)the hotel is for the time being approved for the purposes of this sub-section by the Central Government;
18((e)the business of the hotel starts functioning on or after the 1st day of April, 1961, but before the 1st day of April, 1981.)
19(Explanation.—Where in the case of the business of a hotel, any building, or any part thereof, previously used as a hotel, or
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 building, machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the building,
machinery or plant used in the business, then, for the purposes of clause (a) of this sub-section, the condition specified therein
shall be deemed to have been complied with and the total value of the building, machinery or plant or part so transferred shall
not be taken into account in computing the capital employed in the business of the hotel.)
20((6A) 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.
(6B) Where any goods held for the purposes of the business of the industrial undertaking or the hotel or the operation of the ship
are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other
Page 13 of 29
S. 80J.
business carried on by the assessee are transferred to the business of the industrial undertaking or the hotel or the operation of
the ship and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the business of the
industrial undertaking or the hotel or the operation of the ship 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 the industrial undertaking
or the business of the hotel or the operation of the ship 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 21(Assessing Officer), the computation of the profits and gains of the industrial
undertaking or the business of the hotel or the operation of the ship in the manner hereinbefore specified presents exceptional
difficulties, the 21(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.
(6C) Where it appears to the 21(Assessing Officer) that, owing to the close connection between the assessee carrying on the
business of the industrial undertaking or the hotel or the operation of the ship 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 the business of the industrial
undertaking or the hotel or the operation of the ship, the 21(Assessing Officer) shall, in computing the profits and gains of the
industrial undertaking or the hotel or the ship for the purposes of the deduction under this section, take the amount of profits as
may be reasonably deemed to have been derived therefrom.)
(7) 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.’.
1.Subs. by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 22(i), w.e.f. 1-4-1976, for “(reduced by the aggregate of
the deductions, if any, admissible to the assessee under section 80H and section 80HH )”. Prior to this, amendments were also
made by the Finance Act, 1972, and the Direct Taxes (Amendment) Act, 1974.
2.Ins. by the Finance (No. 2) Act, 1977 (29 of 1977), s 29(2)(c) (w.e.f. 1-4-1978).
3.Subs., for “computed in the prescribed manner”, by the Finance (No. 2) Act, 1980 (44 of 1980), s 17(a) (w.r.e.f. 1-4-1972).
4.Ins. by the Finance Act, 1975 (25 of 1975), s 12(a) (w.e.f. 1-4-1976).
5.Ins. by the Finance (No. 2) Act, 1980 (44 of 1980), s 17(b) (w.r.e.f. 1-4-1972).
6.The words, figures and letter “or Section 280-O ” have been omitted by the Finance Act, 1988 (26 of 1988), s 54(vii) (w.e.f. 1-
4-1988).
7.The words, etc. “ section 80H, section 80HH ” were subs. for “ section 80H ” by the Direct Taxes (Amendment) Act, 1974 (26
of 1974), s 10(b) (w.e.f. 1-4-1974).
8.The word, figures and letter “ section 80H ” were omitted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 22(ii)
(w.e.f. 1-4-1976).
9.Ins. by the Finance (No. 2) Act, 1977 (29 of 1977), s 29(2)(c) (w.e.f. 1-4-1978).
10.The word, figures and letter “ Section 80-I ” were omitted by the Finance Act, 1972 (16 of 1972), s 19 (w.e.f. 1-4-1973).
11.Words, etc. “a building (not being a building taken on rent or lease),” were omitted by the Finance Act, 1975 (25 of 1975), s
12(b)(i) (w.e.f. 1-4- 1976).
12.Subs., for “twenty-eight years” by the Finance Act, 1975 (25 of 1975), s 12(b)(ii) (w.e.f. 1-4-1975). Earlier, the words “twenty-
eight years” were substituted for “twenty-three years” by the Finance Act, 1969 (14 of 1969), s 7 (w.e.f. 1-4-1969).
13.Ins. by the Finance Act, 1975 (25 of 1975), s 12(b)(iii) (w.e.f. 1-4-1976).
14.Ins. by the Finance Act, 1979 (21 of 1979), s 12 (w.e.f. 1-4-1979)
15.Subs., for “twenty-eight years”, by the Finance Act, 1975 (25 of 1975), s 12(c) (w.e.f. 1-4-1975). Earlier, the words “twenty-
eight years” were substituted for “twenty-three years” by the Finance Act, 1969 (14 of 1969), s 7 (w.e.f. 1-4-1969).
16.Subs. by the Finance Act, 1975 (25 of 1975), s 12(d)(i) (w.e.f. 1-4-1975), for the following:—
“(a) the business of the hotel starts functioning on or after the 1st day of April, 1961, and is not formed by the splitting up, or the
re-construction, 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;”.
17.Cl. (c) was omitted by the Finance Act, 1973 (21 of 1973), s 10 (w.e.f. 1-4-1974), which stood as under:—
“(c) the hotel has such number and types of guest rooms and provides such amenities as may be prescribed, having regard to
the population and the tourist importance of the place in which the hotel is located; and”.
Such prescriptions were made in rule 18 of the Income-tax Rules, 1962, which was omitted by the Income-tax (Third
Amendment) Rules, 1973 (w.e.f. 1-4-1974).
18.Ins. by the Finance Act, 1975 (25 of 1975), s 12(d)(ii) (w.e.f. 1-4-1975).
19.Subs. by the Finance Act, 1975 (25 of 1975), s 12(d)(iii) (w.e.f. 1-4-1976), for the following:—
Page 14 of 29
S. 80J.
“Explanation.—Where—
(a)in the case of an industrial undertaking, any building, machinery or plant, or any part thereof previously used for any purpose,
or
(b)in the case of the business of a hotel, any building, or any part thereof, previously used as a hotel, or any machinery or plant,
or any part thereof, previously used for any purpose,
is, in either case, transferred to a new business, and the total value of the building, machinery or plant or part so transferred
does not exceed twenty per cent. of the total value of the building, machinery or plant used in the business, then, for the
purposes of clause (ii) of sub-section (4) and clause (a) of sub-section (6), the condition specified therein shall be deemed to
have been complied with and the total value of the building, machinery or plant or part so transferred shall not be taken into
account in computing the capital employed in the industrial undertaking or the business of the hotel.”.
20.Ins. by the Finance Act, 1975 (25 of 1975), s 12(e) (w.e.f. 1-4-1976).
21.Subs., for “Income-tax Officer”, by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988).
58 Assessee must have established, purchased, a new undertaking: Khoday v CIT ,163 ITR 646. Cf s 33, under
‘Development rebate’, p 797, nn 31 and 32.
59 See Chola Fish v CIT 166 ITR 600 ; Chola Fish v CIT 217 ITR 609 (trawlers); CIT v Digvijay Cement 159 ITR 253,
affirmed in 232 ITR 709 (SC) (pontoons).
60 CIT v Simpson 122 ITR 283, 286 -67 (SLP rejected 141 ITR St 50); Webbing v CIT 43 ITR 234, 238, remanded on
another ground in CIT v Webbing 68 ITR 186 (SC).
61 CIT v Orient 94 ITR 73, 83, affirmed in 176 ITR 110 (SC); CIT v Sheetalaya 117 ITR 658 .
62 See p 26, n 24.
63 CIT v English Indian Clays 149 ITR 112, 118 -19; CIT v Simpson 122 ITR 283 (SLP rejected: 141 ITR St 50 ); CIT v
Sanghi 134 ITR 623 ; CIT v Mysore Petro-Chemical 145 ITR 416 ; CIT v Oyster Packagers 152 ITR 471 ; CIT v
Warner Hindustan 160 ITR 217, 227 -78; Indian Oxygen v CIT 164 ITR 466, 474 ; CIT v Godrej 169 ITR 537 ; CIT v
Plastic Footwear 174 ITR 357 ; CIT v Bhushan 177 ITR 11 ; CIT v Rubro Fibre 184 ITR 596 ; CIT v Aurofood 187
ITR 715 ; CIT v Instrumentation 201 ITR 117 ; CIT v Premier Breweries 201 ITR 146 ; CIT v Kimatrai Printers 206 ITR
748 ; Madras Fertilisers v CIT 209 ITR 174 ; CIT v Atlas Auto 235 ITR 722 ; CIT v Delhi Cloth 240 ITR 9 ; CIT v MP
Sugar 246 ITR 60 ; CIT v Mettur Beardsell 250 ITR 48 ; CIT v Dalmia Bharat 254 ITR 669 (s 80-I ); board’s circular
dated 3 March 1984, 149 ITR St 1.
64 CIT v Baroda Rayon 208 ITR 454 .
65 237 ITR 570 (SC).
66 CIT v Cement Distributors 208 ITR 355 ; CIT v Buildwell Assam 220 ITR 577 (s 80HH ). Cf Ashok Leyland v CIT 224
ITR 122 (SC).
67 CIT v Sterling Foods 237 ITR 579 (SC) (s 80HH ); CIT v Eastern Seafoods 215 ITR 64 ; AM Moosa v CIT 224 ITR
735 ; CIT v AM Moosa 237 ITR 867 .
Page 15 of 29
S. 80J.
68 AM Moosa v CIT 224 ITR 735 .
69 Fenner v CIT 239 ITR 480 (s 80HH ); Fenner v CIT 241 ITR 797 (s 80HH ); CIT v Jameel Leathers 246 ITR 97 ; CIT
v India Gelatine and Chemicals Ltd. 275 ITR 284, (2005) 194 CTR 492 (Guj).
70 CIT v Jameel Leathers 246 ITR 97 ; CIT v Viswanathan and Co. 261 ITR 737, (2003) 181 CTR 335 (Mad); CIT v
Ritesh Industries Ltd. 274 ITR 324, (2004) 114 DLT 198 ; CIT v J. B. Exports Ltd. 286 ITR 603, (2006) 201 CTR 30
(Del). A dissenting view was taken in CIT v India Gelatine and Chemicals Ltd. 275 ITR 284, (2005) 194 CTR 492
(Guj).
71 AM Moosa v CIT 224 ITR 735 ; CIT v AM Moosa 237 ITR 867 .
72 New India Fisheries v Mehra 82 ITR 765 .
73 CIT v Cement Distributors 208 ITR 355 .
74 CIT v Phoenix Scrap 211 ITR 341 .
75 CIT v Dunlop 197 ITR 34 ; Taylor Instrument v CIT 198 ITR 1 (s 80-I ); Taylor Instrument v CIT 254 ITR 125 .
76 CIT v Andaman Timber 242 ITR 204 (s 80HH ).
77 Great Eastern v CIT 206 ITR 505 .
78 CIT v Cochin Refineries 135 ITR 278 ; North East Gases v CIT 220 ITR 372 (s 80HH ); CIT v Paras Oil 230 ITR 266
(ss 80HH and 80-I); CIT v Madras Motors 257 ITR 60 (ss 80HH and 80-I). Cf deleted s 80-I, under ‘Profits “attributable
to” priority industry’.
79 CIT v NSC Shoes 258 ITR 749 .
80 North East Gases v CIT 220 ITR 372 .
81 CIT v South India 216 ITR 651 ; CIT v Dunlop 197 ITR 34 ; CIT v Buckau Wolf 187 ITR 464 (s 80-I ); CIT v United
Carbon 190 ITR 622 ; CIT v West Coast 193 ITR 349 (s 80-I ); CIT v Ahmedabad Electricity 203 ITR 521 (s 80-I );
CIT v Seshasayee 207 ITR 80 (s 80-I ); Vellore Electric v CIT 227 ITR 557 ; CIT v Rane (Madras) 238 ITR 377 (ss
80E and 80-I); CIT v Seshasayee 243 ITR 421 (s 80-I ); CIT v Nagpur Engineering 245 ITR 806 (ss 80HHC and 80-I).
82 CIT v West Coast 193 ITR 349 (s 80-I ).
83 Ibid.
Page 16 of 29
S. 80J.
84 CIT v Ahmedabad Electricity 203 ITR 521 (s 80-I ).
85 Ibid.
86 CIT v Rane (Madras) 238 ITR 377 (s 80E and 80-I ).
87 Fenner v CIT 241 ITR 803 .
88 Addl CIT v Syntex Fabrics 191 ITR 52 .
89 CIT v Durga Bansal 235 ITR 479 .
90 See under ‘Industrial undertaking: Manufacture, production or processing of goods’.
91 CIT v Himalaya Magnsite Ltd. 276 ITR 56, (2005) 197 CTR 153 (All) - following CIT v Hindustan Antibiotics Ltd. 93
ITR 548, (Bom); ACIT v Southern Structurals Ltd. 110 ITR 164 ; Metropolitan Springs Ltd. v CIT 132 ITR 893, (1981)
22 CTR 260 (bom). See also Kanodia and Sons v CIT 281 ITR 255, (2006) 201 CTR 442 (All).
92 CIT v Alagappan 173 ITR 82 .
93 CIT v Sawyer 122 ITR 259 ; CIT v Harit 162 ITR 640 ; CIT v Ormerods 176 ITR 470 ; CIT v Taluja Enterprises 250
ITR 675 .
94 CIT v Abhirami Cotton 220 ITR 84 .
1 CIT v Sultan and Sons Rice Mill 272 ITR 181, (2005) 193 CTR 444 (All); CIT v Hanuman Rice Mills 275 ITR 79 .
2 CIT v Apparel Express 251 ITR 733 .
3 Madras Machine Tools v CIT 98 ITR 119 ; Mettur v CIT 107 ITR 352, affirmed in 217 ITR 768 (SC); CIT v Ennore
151 ITR 464 ; CIT v Food Specialities 156 ITR 790 .
4 Kerala State v CIT 205 ITR 19 .
5 Madurantakam Co-operative Sugar Mills Ltd. v DCIT 274 ITR 452 .
6 AGS Tiber v CIT 233 ITR 207 (board’s circular dated 13 December 1963).
Page 17 of 29
S. 80J.
7 CIT v India Forge 240 ITR 208 .
8 Mettur Chemical v CIT 217 ITR 768 (SC).
9 Rockweld Electronics v CIT 185 ITR 62 ; Rockweld Eletrodes v CIT 215 ITR 358 .
10 Premier Cable v CIT 237 ITR 202 (SC).
11 Premier Cable v CIT 237 ITR 202 (SC); Kar Mobiles v CIT 229 ITR 701 ; CIT v Nuforam 252 ITR 697 .
12 CIT v Tyresoles 213 ITR 660 .
13 CIT v Laxmi Metal 236 ITR 130 .
14 CIT v Hindustan Antibiotics 93 ITR 548 ; CIT v Southern Structurals 110 ITR 164 . Cf Metropolitan Springs v CIT
132 ITR 893 .
15 192 ITR 155.
16 CIT v Nayyars Minerals 231 ITR 868 .
17 Saurashtra Cement v CIT 123 ITR 669 .
18 CIT v Paul Brothers 216 ITR 548 ; CIT v Modi Industries Ltd. 327 ITR 570 .
19 Ashok v CIT 41 ITR 397 ; CIT v Standard Motor Products 46 ITR 814 ; Industrial Gases v CIT 58 ITR 317 .
20 Rajeswari v CIT 50 ITR 29 .
21 Anil v CIT 59 ITR 514 ; CIT v Hantapara 89 ITR 258 (SC). Cf deleted s 80-I .
22 CIT v Loonkar Tools 213 ITR 721 (s 80HH ); CIT v Gannon 216 ITR 708 (s 80-I ); CIT v Rajendra Textiles 225 ITR
516 (s 80HH ); CIT v Rajasthan Co-op 225 ITR 574 (s 80HH ); CIT v Premier Vegetables 225 ITR 990 . Contra CIT v
Hindustan Machine 229 ITR 191 ; CIT v HMT 199 ITR 235 (relief to be computed before allowing current
depreciation).
23 CIT v Cadila Chemicals 259 ITR 692 .

Page 18 of 29
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24 CIT v Rajasthan Udyog 225 ITR 468 ; CIT v P V Narayanan 233 ITR 330 (s 80HH ); CIT v Albright 236 ITR 914 (s
80HH ); CIT v Aggarwal Gum 250 ITR 843 (s 80HH ). Contra CIT v Tarun Udyog 191 ITR 688 ; CIT v Vardhman
Spinning and General Mills Ltd. 310 ITR 201 .
25 CIT v Veeraraghava Textiles 234 ITR 529 .
26 Mettur Chemical v CIT 217 ITR 768 (SC); Gedore Tools v CIT 199 ITR 83 (s 80-I ); Grasim Industries v ACIT 245
ITR 677 (s 80HH ); CIT v SSM Processing 227 ITR 596 ; CIT v South India 243 ITR 458 .
27 CIT v National Elec 37 ITR 131 ; CIT v North Arcot Spg 151 ITR 238 ; CIT v Rockweld Electrodes 215 ITR 358 (set
off of deficiency to be made after setting of carried forward business losses); Paushak v CIT 210 ITR 535 (s 80HH );
CIT v Vishnu Oil 218 ITR 71 (s 80HH ); CIT v Sun Stone 220 ITR 182 (s 80HH ); CIT v E I Forge 247 ITR 488 (s
80HH ). Contra CIT v Premier Vegetables 225 ITR 990 (profits not to be reduced by carried forward losses,
depreciation or investment allowance); CIT v KN Oil 226 ITR 547 (ss 80HH, 80-I).
28 Ashok v CIT 41 ITR 397 ; Mettur v CIT 107 ITR 352 affirmed in 217 ITR 768 (SC).
29 CIT v Patiala Flour 115 ITR 640 (SC); Rajapalayam v CIT 115 ITR 777 (SC); Modi Spinning v CIT 200 ITR 544 .
30 CIT v Balmer Lawrie 215 ITR 249 (ss 80HH and 80-I).
31 CIT v Kedraj Agricultural 253 ITR 346 (s 80HH ).
32 CIT v Visakha Industries 251 ITR 471 .
33 Cf CIT v Canara Workshops 161 ITR 320 (SC) (old s 80E ). Position was different under deleted s 84 : Bharat
Electronics v CIT 91 ITR 481 .
34 CIT v Sundaravel 245 ITR 605 .
35 CIT v Siddaganga 201 ITR 968 .
36 There was no such provision in old s 84, or in s 15C of 1922 Act: Orissa Cement v CIT 80 ITR 101 ; CIT v Alembic
Glass 194 ITR 438 ; Indian Rayon v CIT 231 ITR 26 .
37 CIT v Sheetalaya 117 ITR 658 ; Indian Aluminium v CIT 122 ITR 660 ; CIT v Bluemount 123 ITR 385 ; CIT v Mattoo
139 ITR 1020 ; CIT v Veljan 151 ITR 734 ; CIT v MA Paper 160 ITR 877 ; CIT v Caps 179 ITR 235 ; CIT v Amrit Lal
180 ITR 251 ; CIT v T Maneklal 192 ITR 268 ; CIT v Nuforam 252 ITR 697 . Contrary view in CIT v Valliappa 166 ITR
548, followed in CIT v Pandora 246 ITR 624 is incorrect.
Page 19 of 29
S. 80J.
38 CIT v Myul Chemicals 206 ITR 399 .
39 CIT v Sidhpur Isabgul 252 ITR 777 .
40 See s 1, under ‘Duty of assessing officer’.
41 Both registered firm and partners could claim deduction under corresponding s 15C of 1922 Act and s 84 (now
deleted) of 1961 Act: CIT v Arun 61 ITR 241 ; CIT v Ramlal 123 ITR 1 ; CIT v Bharat Auto Works 151 ITR 461 . Cf
CIT v Indo-Marine Agencies 87 ITR 41 ; CIT v Globe Engineers 90 ITR 188 ; CIT v Bharat Bhandar 94 ITR 315 ; CIT
v Saraswathi 127 ITR 404 (deleted s 80K ).
42 CIT v Indian Resin 235 ITR 5 .
43 CIT v Chanda Diesel 216 ITR 639 (s 80HH ).
44 For example, s 54D : Alikunju v CIT 166 ITR 904 (running a lodge).
45 204 ITR 412.
46 CIT v Budharaja 204 ITR 412 (SC).
47 CIT v NUC 126 ITR 377 ; CIT v Shah 142 ITR 696 ; CIT v Minocha 160 ITR 134 ; CIT v Oricon 176 ITR 407 .
Contrast CIT v Oricon 151 ITR 296 .
48 Delhi Cold Storage v CIT 191 ITR 656 (SC).
49 CIT v Northern India 226 ITR 342 ; CIT v Titanium Equipment 259 ITR 487 .
50 224 ITR 122 (expression ‘attributed to’ not ‘derived from’).
51 National Projects v CWT 74 ITR 465 ; National Planning v CIT 122 ITR 197 . But see CIT v Budharaja 204 ITR 412
(SC).
52 Tarai v CIT 120 ITR 342 ; CIT v EID Parry 218 ITR 713 ; CIT v EID Parry 227 ITR 373 ; CIT v Jalna Seeds 246 ITR
156 (s 80HH ).
53 CIT v Tiecicon 168 ITR 744 (SC).
54 CIT v Perfect Liners 142 ITR 654

Page 20 of 29
S. 80J.
55 See Burmah-Shell v Chand 61 ITR 493 ; CIT v Oswal Woollen 257 ITR 737 .
56 Moka v WTO 9 ITR 105 .
57 CIT v Kutch Oil 163 ITR 237 .
58 CIT v Gopal 58 ITR 598 ; CWT v Jagdis ITR 558.
59 Nu-look v CIT 157 ITR 253 ; CWT v Radhey 135 ITR 372 and CWT v Chintamani 159 ITR 128 (bedspreads,
scarves and garments).
60 CIT v Kharwar 163 ITR 394 ; CIT v JKK Textile 249 ITR 487 ; CIT v Kashiram 252 ITR 162 . Contrast Niemla v ITO
152 ITR 429 (FB) (s 280ZB : processing unfinished textiles manufactured by third party).
61 CIT v Lakhtar 142 ITR 503 ; CIT v Narayanaswami 149 ITR 283 ; CIT v Yavatmal 203 ITR 874 (s 80HH ); Poonam
Chand v CIT 207 ITR 895 .
62 Mulchand v CIT 162 ITR 764 .
63 CIT v Mukherjee 113 ITR 718 (accepted by board: 137 ITR St 14 ); Orient Longman v CIT 130 ITR 477 .
64 CIT v Commercial Laws of India 107 ITR 822 (accepted by board: 137 ITR St 14 ).
65 CIT v Ajay 58 ITR 811 ; Kadarkarai v CWT 176 ITR 121 .
66 CIT v Datacons 155 ITR 66 ; CIT v Oswal 223 ITR 735 ; CIT v Computerised Accounting 235 ITR 502 ; CIT v
Technotive Eastern 255 ITR 253 (ss 80HH and 80-I).
67 CIT v UP State 188 ITR 370 .
68 CIT v Kanam Latex 221 ITR 1 .
69 CIT v Abdul Ahad 248 ITR 744 .
70 CIT v Indian Resins 235 ITR 5 ; CIT v Bhararth Sea 237 ITR 46 .
Page 21 of 29
S. 80J.
71 Andaman and Nicobar Islands Forest and Plantation Development Corporation Ltd. v CIT 280 ITR 118, (2005) 198
CTR 76 (Cal).
72 BS Bajaj & Sons v CIT 222 ITR 418 .
73 CIT v Union Carbide 203 ITR 301 .
74 CIT v Poyilakada 196 ITR 722 ; CIT v Poyilakkada 197 ITR 85 ; CIT v Bharath Sea 237 ITR 46 (FB).
75 CIT v East West 250 ITR 83 .
76 CIT v Sardar Brothers 186 ITR 186 .
77 CIT v Kondke 192 ITR 128 .
78 CIT v Tamil Nadu Heat 238 ITR 540 (s 80HH ).
79 CIT v Sree Krishna 241 ITR 262 (ss 80HH and 80-I).
80 Industrial Machinery v CIT 203 ITR 442 (s 80-I ).
81 CIT v Strong Steel 206 ITR 628 (s 80-I ).
82 CIT v Kerala Rubber 228 ITR 683 (s 80-I ).
83 CIT v Darshak 247 ITR 489 (s 80-I ).
84 CIT v Bakhtawar 228 ITR 614 (ss 80HH and 80-I).
85 CIT v Gordhanbhai Jethabhai 258 ITR 727 .
86 CIT v Relish Foods 237 ITR 59 (SC) (not production— s 80HH ); CIT v Ravi Ratna 212 ITR 588 ; CIT v Sterling
Foods 213 ITR 851 (s 80HH ); CIT v Poyilakada 240 ITR 445 (ss 80HH, 80-I); CIT v Polyilakada 241 ITR 195 (ss
80HH and 80-I); CIT v George Maijo 250 ITR 440 ; CIT v George Maijo 250 ITR 445 . Contra CIT v Union Carbide
165 ITR 550 ; CIT v Marwell 166 ITR 624 ; CIT v Continental 208 ITR 346 ; CIT v Orient Marine 214 ITR 44 ; CIT v
Srinivasa Sea Foods Ltd. 284 ITR 348, (2006) 204 CTR 582 (AP).
1 Indian Hotels v ITO 245 ITR 538 (SC); CIT v Casino 91 ITR 289 ; CIT v Buhari 144 ITR 12 ; Koshy v CIT 154 ITR
53 .
Page 22 of 29
S. 80J.
2 Delhi Cold Storage v CIT 191 ITR 656 (SC). Cf Mittal Ice v CIT 159 ITR 18 ; SB Cold Storage v CIT 166 ITR 646 ;
G.T. Cold Storage and Ice Factory v CIT 275 ITR 340 (2004) 191 CTR 264 (All); contra CIT v Adarsh Cold Storage
280 ITR 58, (2005) 199 CTR 374 (All) (cold storage unit functioning independently); CIT v Durga Bansal Cold Storage
and Ice Factory 287 ITR 491 .
3 CIT v NC Budhiraja 204 ITR 412 (SC) (construction of dam, laying of pressure piling oundation— s 80HH ); CIT v
Madgul Udyog 208 ITR 541 ; CIT v Highway Construction 223 ITR 32 ; CIT v Sunidhi Properties 230 ITR 157 ; CIT v
MSJ Construction 245 ITR 475 ; CIT v Megaska 254 ITR 283 ; CIT v NC Budhiraja 215 ITR 445 (construction of
spillway); CIT v Agarwal Brothers 228 ITR 144 (construction of overhead tanks—ss 80HH and 80-I); CIT v Bakhtawar
Singh 228 ITR 144 (construction of industrial foundations, public buildings and housing complexes for steel plants and
thermal power plants); Badshah Construction v CIT 223 ITR 512 (construction of roads and buildings—ss 80HH and
80-I); CIT v Sunidhi Properties 230 ITR 157 (multi-storeyed buildings); CIT v Ceo Tech 241 ITR 90 (s 80-I ); CIT v
Asian Techs 244 ITR 356 (civil engineering); CIT v Punjab Chemi. Plants Ltd. 235 CTR 204 .
4 Sacs Eagles v CIT 255 ITR 178 (SC).
5 CIT v Super Drillers 222 ITR 629 .
6 CIT v Gomatesh 246 ITR 737 .
7 CIT v Premier General 242 ITR 654 .
8 CIT v Sudesh Kumari 227 ITR 113 .
9 CIT v Venkateshwara 237 ITR 174 (SC); Indian Poultry v CIT 250 ITR 664 (SC) (ss 80HH and 80-I); CIT v Deejay
Hatcheries 211 ITR 652 ; India Poultry v CIT 230 ITR 909 .
10 Appeejay v CIT, 206 ITR 367 .
11 CIT v Nevyeli Lignite 248 ITR 611 .
12 Salgaocar v CIT 217 ITR 849 .
13 Tamil Nadu STC v CIT 252 ITR 883 (SC); CIT v Madurai Pandian 239 ITR 375 (s 80HH ); CIT v Sundaram 253 ITR
396 .
14 Chola Fish v CIT 217 ITR 609 ; CIT v Fazalbhoy 214 ITR 239 .
15 CIT v Gem India 249 ITR 307 (s 80-I ).

Page 23 of 29
S. 80J.
16 CIT v Down Town 251 ITR 683 (ss 80HH and 80-I).
17 CIT v Hemsons 251 ITR 693 (s 80HH ).
18 Lucky Minmat v CIT 245 ITR 830 (SC) (s 80HH ); CIT v Lucky Mineral 226 ITR 245 (s 80HH ); CIT v Dalmia Bharat
253 ITR 725 .
19 CIT v Natraj Processing 203 ITR 833 .
20 CIT v Hindusthan Metal 128 ITR 472 .
21 Golcha v CIT 166 ITR 259 .
22 CIT v Oricon 151 ITR 296 ; CWT v Lakshmi 142 ITR 656 ; CIT v Penwalt 196 ITR 813 (s 80-I ).
23 CIT v Mukherjee 113 ITR 718 (accepted by board: 137 ITR St 14 ); Orient Longman v CIT 130 ITR 477 . Contrast
CIT v Chillies Export House 115 ITR 73 .
24 Griffon v CIT 119 ITR 145 ; CIT v Neo Pharma 137 ITR 879 ; CWT v Mubarakali 123 ITR 101 (assessee got bidis
manufactured through contractors); CWT v Premlatabai ,137 ITR 329 (raw cotton ginned and pressed through
outsiders); CIT v Bharatram 157 ITR 199 (assessee a partner in a manufacturing firm). Contrast CWT v Lakshmi 142
ITR 656 .
25 CIT v Alcock Ashdown 224 ITR 353 (SC), approving the following cases: CIT v Indian Oxygen 113 ITR 109 ; Ravi v
CIT 114 ITR 459 ; CIT v Cibatul 115 ITR 879 ; CIT v Alcock Ashdown 119 ITR 164 ; CIT v Mohan Meakin 122 ITR
203 ; CIT v Boehringer 148 ITR 70 ; CIT v Advani Oerlikon 161 ITR 449 (unallocated expenditure pertaining to plant
and machinery); Periyar v CIT 162 ITR 163, 168 ; CIT v Indian Smelting 169 ITR 562 ; CIT v Southern Agrifurane Inds
174 ITR 697 .
26 J.K. Synthetics Ltd. v CIT 166 Taxman 215 .
27 IOC v Rajagopalan 92 ITR 241 and CIT v Shahney 165 ITR 399 (liabilities of only the concerned undertaking should
be deducted—accepted by Board: 149 ITR St 1 -2); CIT v National Organic 115 ITR 56, CIT v Warner Hindustan 117
ITR 68 and CIT v Boehringer 148 ITR 70 (‘debts due’ and ‘debts owed’); Kirloskar v CIT 118 ITR 703 , CIT v UP Hotel
123 ITR 626 (overruled on another point in Lohia v UOI 152 ITR 308 (SC), and CIT v United Carbon 178 ITR 444
(deficiency of assessment year 1967-68); CIT v Bangalore Soft Drinks 126 ITR 38, CIT v Lucas 153 ITR 239, affirmed
in 249 ITR 302 (SC), and CIT v Krishna Karkhana 156 ITR 13 (moneys received for future issue of shares); CIT v
Gujarat Mineral Dev Corpn 132 ITR 377 ; CIT v South India Viscose 140 ITR 58 and CIT v Karnataka Cement 151
ITR 247 (amounts received from head office) (Cf Malwa v CIT 140 ITR 379 : s 80P ); CIT v Cochin Refineries 142 ITR
441 ; CIT v Metal Powder 145 ITR 510 ; CIT v Hoechst 149 ITR 94 ; CIT v General Inds 155 ITR 430 ; CIT v Warner
Hindustan 239 ITR 566 (SC). See also n 70 below.
Page 24 of 29
S. 80J.
28 Century Enka v ITO 107 ITR 909 (Cal); Madras Ind Linings v ITO 110 ITR 256 (Mad); CIT v UP Hotel 123 ITR 626,
633-34, and Kota v ITO 123 ITR 638 (All); Ganesh v ITO 126 ITR 258, 262 -63 (P&H): Warner Hindustan v ITO 134
ITR 158 (AP). Cf CIT v Satellite Engg 113 ITR 208, 223 -24 (Guj); CIT v Warner Hindustan 117 ITR 68 (AP); CIT v
Karam Chand Goel 262 ITR 391, (2003) 130 Taxman 597 (All); CIT v Punjab Tractors (No. 1) 289 ITR 125, (2007)
164 Taxman 545 (P&H) (exclude liabilities on pro rata basis).
29 Century Enka v ITO 107 ITR 123 (Cal); Warner Hindustan v ITO 134 ITR 158 (AP).
30 See under s 295, ‘…Ultra virus rules’.
31 See under s 1, ‘Definition clause and undefined words’.
32 152 ITR 308, approving CIT v Anand Steel 133 ITR 365 (MP).
33 CIT v Adoni Vanaspathi 207 ITR 246 ; HMM v CIT 181 ITR 473 ; CIT v Continental 198 ITR 680 ; Madras Fertilizers
v CIT 209 ITR 174 .
34 Kesoram v CIT 191 ITR 518 ; CIT v Essar Bulk 235 ITR 600 (s 80HH ).
35 CIT v Simmonds 106 ITR 374 ; CIT v Gedore 134 ITR 592 ; Delhi Cloth v CIT 208 ITR 785 ; CIT v Indian Oil 218
ITR 511 .
36 CIT v Shree Raghunath Cotton Ginning and Oil Factory 279 ITR 353, (2006) 202 CTR (P&H) 347 .
37 CIT v Asian Cables Corporation Ltd. (No. 1) 262 ITR 535, (2003) 180 CTR 139 (Bom)-overruled in CIT v Asian Cable
Corporation Ltd. (No. 2) 262 ITR 537, (2003) 180 CTR 293 (Bom) on another point. See also CIT v HMT 199 ITR
235, (1992) 108 CTR 215 (Kar).
38 CIT v HMT 199 ITR 235 .
39 CIT v Mohan Meakin 122 ITR 203 ; CIT v Madras Wire Products 123 ITR 722 ; CIT v Century Spg 181 ITR 214 ; CIT
v Partap Steel 208 ITR 704 ; CIT v Gujarat State 219 ITR 550 ; Delhi Cloth v CIT 208 ITR 785 ; CIT v Indian Oil 218
ITR 511 ; CIT v Alcock Ashdown 224 ITR 353 (SC); CIT v Karnataka Power 247 ITR 268 (SC); CIT v Cibatul 252 ITR
336 (SC).
40 CIT v Indian Oxygen 113 ITR 109 ; Ravi v CIT 114 ITR 459 ; CIT v Cibatul 115 ITR 879 ; CIT v Alcock Ashdown
119 ITR 164 ; CIT v Mohan Meakin 122 ITR 203 ; CIT v Boehringer 148 ITR 70 ; CIT v Advani Oerlikon 161 ITR 449
(unallocated expenditure pertaining to plant and machinery); Periyar v CIT 162 ITR 163, 168 ; CIT v Indian Smelting
169 ITR 562 ; CIT v Southern Agrifurane Inds 174 ITR 697 ; CIT v Gopichand 179 ITR 371 ; Mahindra Ugine v CIT
203 ITR 383 .
41 CIT v Sarvshri Meghdoot Hotels (P.) Ltd 174 Taxman 23 .

Page 25 of 29
S. 80J.
42 CIT v Bakeman’s Home Products 166 Taxman 150, (P&H).
43 CIT v Continental Devices 198 ITR 680 ; DCM v CIT 208 ITR 785 ; J J Foams v CIT 229 ITR 590 .
44 CIT v Continental Devices 198 ITR 680 ; DCM v CIT 208 ITR 785 ; CIT v Hindustan Electrographites 229 ITR 585 ;
J J Foams v CIT 229 ITR 590 .
45 137 ITR 34.
46 205 ITR 126. See also CIT v Texmaco 141 ITR 341 .
47 CIT v United Carbon 190 ITR 622 .
48 CIT v Baker Mercer 196 ITR 667 .
49 CIT v Indian Explosives 204 ITR 476 .
50 CIT v Warner Hindustan 239 ITR 566 (SC).
51 CIT v Gujarat State Fertilisers 247 ITR 690 .
52 CIT v Gujarat Mineral 249 ITR 787 (SC); Phillips v CIT 136 ITR 205 ; CIT v Hindustan Antibiotics 137 ITR 42 ; CIT v
UP Poorvanchal 218 ITR 697 ; CIT v Century Enka 239 ITR 802 .
53 CIT v Essar Bulk 256 ITR 251 .
54 CIT v Pyrene Rai 203 ITR 752 ; CIT v HMT 203 ITR 811 (s 80HH ); CIT v ALA Chemicals 203 ITR 891 ; CIT v
Sarabhai 204 ITR 728 .
55 CIT v Grace Paper 183 ITR 591 ; Agarwal Industries v CIT 211 ITR 30 ; CIT v Assam Caffeine 216 ITR 15 ; Agarwal
Industries v CIT 225 ITR 901 ; CIT v Sundaravel 245 ITR 605 ; CIT v Madras Rubber 248 ITR 814 ; CIT v Cadila 259
ITR 692 .
56 CIT v Kaira 116 ITR 319 ; Banaskantha v CIT 210 ITR 962 ; Mahesana Dist v CIT 258 ITR 780 .
57 Modella v CIT 120 ITR 726 ; CIT v Vora Exclusive 186 ITR 533 .
Page 26 of 29
S. 80J.
58 CIT v Assam Caffeine 216 ITR 15 ; CIT v Mahavir Spinning Mills Ltd. 293 ITR 492, (2007) 213 CTR (P&H) 457 .
59 Shivalik Fuels P. Ltd. v CIT 276 ITR 638, (2005) 196 CTR (P&H) 72 .
60 Kamani Engineering v CIT 191 ITR 107 ; Delhi Cloth v CIT 208 ITR 785 ; Modi Spinning v CIT 200 ITR 544 ; CIT v
Cadila Chemicals P. Ltd. 278 ITR 633, (2005) 199 CTR 507 (Guj).
61 CIT v Kamani Metals 183 ITR 327 .
62 Kamani Engineering v CIT 191 ITR 107 ; CIT v Chowgule 214 ITR 523 ; CIT v Southern Sea 215 ITR 176 .
63 CIT v Southern Sea 215 ITR 176 . Contra CIT v Herdillia 216 ITR 742 (provision for taxation not a debt).
64 Kamani Engineering v CIT 191 ITR 107 ; CIT v Kaira Dist 192 ITR 608 .
65 CIT v Kerala Lines 201 ITR 106 .
66 Mohan Lal v CIT 200 ITR 88 .
67 Metal Powder v CIT 258 ITR 123 .
68 CIT Transformers 213 ITR 397 ; CIT v Enfield 233 ITR 320 .
69 CIT v Lucas 249 ITR 302 (SC).
70 CIT v Elecon 167 ITR 639 (SC), CIT v Hind Lamps 106 ITR 360 and Teksons v CIT 120 ITR 738 (part of the profits
of the year should be added); Burmah-Shell v Chand 67 ITR 653, CIT v Lucas-TVS 110 ITR 338, 344 -45, CIT v
Zenith 137 ITR 34 and CIT v Texmaco 141 ITR 531 (whether initial depreciation deductible in computing written down
value); CIT v Simmonds 106 ITR 374 and CIT v Gedore 134 ITR 592 (no ‘averaging’ to be done in respect of debts);
CIT v Kaira 116 ITR 319 (grant-in-aid from Government); Modella v CIT 120 ITR 726 (preliminary expenses and
expenses for issuing share capital); CIT v Mohan Meakin 122 ITR 203 and CIT v Madras Wire Products 123 ITR 722
(capital ‘employed’ need not be capital ‘used’); CIT v Gujarat Mineral Dev Corpn 132 ITR 377, Phillips v CIT 136 ITR
205 and CIT v Hindustan Antibiotics 137 ITR 42 (business funds put in bank deposits). See also p 1624, n 27.
71 Chembra v CIT 85 ITR 401 ; CIT v Hindustan General Inds 137 ITR 851, 860-61 (‘splitting up’ means integrity of
business broken up). Cf CIT v Ridhkeran 121 ITR 668 (on dissolution of firm, allotment to partner of the undertaking
which was under installation is not ‘splitting up’).
72 Textile Machinery v CIT 107 ITR 195, 205 -06 (SC). Cf CIT v Kharwar 163 ITR 394 .
Page 27 of 29
S. 80J.
73 CIT v Gaekwar 35 ITR 662 ; CIT v Devson 98 ITR 311 ; Hindustan Malleables v ITO 112 ITR 389 ; CIT v U Foam
167 ITR 586 (new factory erected on destruction of old, and new product manufactured).
74 CIT v Dalmia 117 ITR 390, on appeal 236 ITR 46 (SC).
75 CIT v Haji Mohd. Ali Mohd. Ishaq 295 ITR 109 .
76 CIT v Indian Aluminium 108 ITR 367 (SC); CIT v Ganga 92 ITR 173 ; CIT v Electric Construction 104 ITR 101 ; CIT
v ACC 118 ITR 406 ; Satish v CIT 119 ITR 877 (partner starting his individual business in the same line as the
partnership); CIT v Rohtas 120 ITR 110 ; CIT v Batala 120 ITR 683 ; CIT v Gedore 126 ITR 673 (capital for new
undertaking from assessee’s own resources); CIT v Hutti 128 ITR 476 ; Oswal v CIT 138 ITR 338 ; CIT v Digvijay 144
ITR 532 ; CIT v Chanda Diesel 216 ITR 639 ; CIT v Premier Cotton 240 ITR 434 .
77 CIT v Hindustan General Inds 137 ITR 851 ; CIT v Shankar 138 ITR 286 .
78 Textile Machinery v CIT 107 ITR 195 (SC), overruling CIT v Naya 84 ITR 567 ; CIT v Orient 94 ITR 73 : affirmed in
176 ITR 110 (SC); Nagardas v CIT 104 ITR 255 ; CIT v Hindusthan Motors 107 ITR 164 ; CIT v Rohtas 120 ITR 110 ;
International Instruments v CIT 123 ITR 11 ; CIT v Madras Rubber Factory 149 ITR 405 ; CIT v AK Silk 158 ITR 462 ;
CIT v Simmonds 161 ITR 817 ; Mahindra v CIT 177 ITR 111 .
79 107 ITR 195, 203; International Instruments v CIT 123 ITR 11, 19 .
80 International Instruments v CIT 123 ITR 11, 21 per Venkataramaiah J; CIT v Dunlop 107 ITR 182 ; CIT v Rohtas 120
ITR 110 ; CIT v Harinkhola 134 ITR 540 ; Mahindra v CIT 177 ITR 111 ; CIT v Hindustan 191 ITR 70 ; Textile
Machinery v CIT 107 ITR 195, 207 (SC); CIT v Hind Lamps 190 ITR 553 ; CIT v Hindustan Malleables 191 ITR 70 ;
CIT v Mazagaon Dock 191 ITR 460 ; CIT v Karnataka Power 205 ITR 511 ; CIT v Mazgaon Dock 206 ITR 260 ; CIT v
Abhirami 220 ITR 84 ; CIT v Madurai Pandian 239 ITR 641 ; CIT v Sree Krishna 241 ITR 262 ; CIT v Quality Steel
Tubes P. Ltd. 280 ITR 254, (2006) 200 CTR 400 (All); CIT v Metalways P. Ltd. 290 ITR 548, (2007) 209 CTR (P&H)
345 .
81 Super Spg. Mills Ltd v CIT 265 ITR 233 (2003) 179 CTR 511 (Mad).
82 CIT v Shanker 196 ITR 487 .
83 CIT v Metropolitan 191 ITR 288 .
84 CIT v Khemchand Motilal 228 ITR 338 (ss 80HH and 80-I).
85 CIT v Hindustan Malleables 191 ITR 70 .
86 CIT v Dandeli Ferro 212 ITR 1 .

Page 28 of 29
S. 80J.
87 Canara Wire v CIT 196 ITR 426 ; Kerala State v CIT 205 ITR 19 .
88 Periyar Chemicals v CIT 226 ITR 467 .
89 See CIT v Indian Aluminium 88 ITR 257, 268 : affirmed in 108 ITR 367 (SC); CIT v Asbestos 106 ITR 286, 291 ; Bajaj
Tempo v CIT 196 ITR 188 (SC). Cf Balakrishnan v CIT 151 ITR 270 .
90 CIT v Sainthia 82 ITR 778 ; CIT v Ganga 92 ITR 173 ; CIT v Electric Construction 104 ITR 101 ; CIT v Asbestos
106 ITR 286 ; CIT v Indian Card Clothing, 110 ITR 103, 107 -10; CIT v Kopran 112 ITR 893 ; CIT v Ambur 127 ITR
495 ; CIT v Industrial Perfumes 138 ITR 644 .
91 CIT v Seevan Plywoods 190 ITR 564 ; CIT v Gopal Plastics 215 ITR 136 . Contra CIT v Nippon Electronics 181 ITR
518 .
92 There was a conflict of judicial opinion under earlier law: Capsulation Services v CIT 91 ITR 566 ; CIT v Suessin 118
ITR 45, sequel in CIT v Suessin 163 ITR 582 ; CIT v Indian Expanded Metals 134 ITR 483 ; CIT v Suessin 135 ITR
443 . But even under earlier law, ‘transfer’ did not include licence: CIT v Bayer 134 ITR 240 .
93 CIT v Teritex 114 ITR 634 .
94 CIT v Super Tools 202 ITR 50 .
1 Balakrishnan v CIT 151 ITR 270 ; CIT v Super Tools 202 ITR 50 .
2 CIT v Nayyar Minerals 231 ITR 864 .
3 CIT v Super Tool 202 ITR 50 .
4 Bajaj Tempo v CIT 196 ITR 188 (SC); Phagoomal v CIT 74 ITR 734 ; Capsulation Services v CIT 91 ITR 566 ; CIT v
Suessin 118 ITR 45, sequel in CIT v Suessin 163 ITR 582 ; CIT v Indian Expanded Metals 134 ITR 483 ; Kanhiyalal v
CIT 156 ITR 463 ; CIT v Subramaniam 237 ITR 817 . Contra CIT v Sainthia 82 ITR 778 ; CIT v Sessin 135 ITR 443 ;
Electronic Corpn v CIT 151 ITR 381 ; Orissa Cement v CIT 200 ITR 636 ; CIT v Mayur Laminators 211 ITR 646 ; CIT
v Orissa Cement 254 ITR 24 .
5 Kerala State Cashew v CIT 205 ITR 19 .
6 CIT v Fenner 74 ITR 394 ; CIT v Hindustan Milk Food Mfrs 84 ITR 230 ; CIT v Indian Card Clothing 110 ITR 103 . Cf
s 33, under ‘Developing rebate’.
7 CIT v Dredging Corpn 174 ITR 682 .

Page 29 of 29
S. 80J.
8 Chola Fish v CIT 217 ITR 609 ; Pron Magnate v CIT 219 ITR 138 .
9 CIT v Shivanand 209 ITR 63 .
10 CIT v Gujarat Oil 201 ITR 325 .
11 CIT v Arunachalam 208 ITR 481 .
12 Zenith Processing v CIT 219 ITR 721 ; CIT v Panama Chemical 245 ITR 684 (s 80-I ).
13 CIT v Jayant Patel 248 ITR 199 ; CIT v Trehan Enterprises 248 ITR 333 .
14 CIT v Mahalaxmi Rice Factory 294 ITR 631, (2006) 203 CTR (P&H) 117 .
15 CIT v Shivanand 209 ITR 63 .
16 211 ITR 604 (s 80J ).
17 254 ITR 187 (s 80HH ).
18 CIT v Somany Pilkington Ltd 238 ITR 149 ; CIT v Atlas Cycle Industries Ltd 226 ITR 691 ; CIT v Asian Techs Ltd
226 ITR 672 ; CIT v Lubrizol (India) Ltd 189 ITR 703 ; CIT v Cheekay Associates 187 ITR 648 .
19 CIT v Himachal Pradesh Mineral and Industrial Development Corporation 234 ITR 509 ; Asian Techs Ltd v CIT 227
ITR 496 ; CIT v Kanam Latex Industries P Ltd 221 ITR 1 ; Ashok Leyland Ltd v CIT 220 ITR 314 ; CIT v Transformers
and Electricals Ltd 213 ITR 397 ; CIT v Universal Ferro and Allied Chemicals Ltd 207 ITR 849 ; CIT v Poyilakada
Fisheries Pvt Ltd 196 ITR 722 ; CIT v JK Synthetics Ltd (No 2) 193 ITR 524 ; CIT v Morris Electronics Ltd 190 ITR
653 .
End of Document
S. 80JJ.
S. 80JJ.
20[* * * *]
Deleted Section 80JJ : Deduction for Poultry Farming.—The old s 80JJ was inserted, in place of s 10(27) which
was deleted, by the Finance Act, 1975 with effect from April 1, 1976. The old s 80JJ gave partial exemption to profits
from the business of livestock breeding, poultry or dairy farming, which had enjoyed total exemption under s 10(27) for
the assessment years 1964-65 to 1975-76. Even this partial exemption was lost with the deletion of the old s 80JJ by
the Finance Act, 1985 with effect from April 1, 1986. The relief under the present section, introduced by the Finance
Act, 1989 with effect from April 1, 1990, is more liberal but is restricted to poultry farming. However the question would
still arise whether on the facts of a particular case the profits from the aforesaid activities should be treated as
agricultural income within s 2(1A) an therefore wholly exempt under s 10(1) . [See under s 2(1A) ]. This section has
been deleted by the Finance Act, 1997 with effect from April 1, 1998.
The High Courts had taken conflicting views on whether a poultry farm / hatchery or a prawn farm involved are
“production” activity. The controversy has been laid to rest by the Supreme Court21 which held that chicks that are
hatched are not “articles or things” even though processed seeds and fish are referred to in the Fifth Schedule of the
Act and animate or live objects are taxed under sales tax and other laws. The decision of the Supreme Court is
incorrect and has taken a narrow view divorced from commercial reality. Strangely, the Supreme Court later set aside
a decision of the Andhra Pradesh High Court that followed its decision and directed to once again answer the question
of law as to whether such activity is eligible for deduction under s 80JJ .22
In the context of s 80 JJ, the undernoted cases held that referable questions of law arose23 under s 256 .
Page 2 of 2
S. 80JJ.
20 Omitted by the Finance Act, 1997 (26 of 1997), s 26 (w.e.f. 1-4-1998). See Circular No. 763, February 18, 1998, 230
ITR (St.) 54.
Section 80JJ, operative for assessment years 1990-91 to 1997-98.— Section 80JJ, prior to its omission by the Finance Act,
1997, with effect from 1st April, 1998, stood as under:—
‘1[S. 80JJ. Deduction in respect of profits and gains from business of poultry farming.—Where the gross total income of
an assessee includes any profits and gains derived from business of poultry farming, there shall be allowed, in computing the
total income of the assessee, a deduction from such profits and gains of an amount equal to thirty-three and one-third per cent.
thereof.]’.
1. Ins. by the Finance Act, 1989 (13 of 1989), s 16 (w.e.f. 1-4-1990). It may be noted that, earlier, the 1975,
inserted section 80JJ was omitted by the Finance Act, 1985 (32 of 1985), s 21 (w.e.f. 1-4-1986).
21 CIT v Venkateswara Hatcheries P. Ltd. 237 ITR 174 (SC)—overruling CIT v Venkateswara Hatcheries P. Ltd. 174
ITR 231 .
22 CIT v Venkateswara Hatcheries P. Ltd. 247 ITR 273 (SC).
23 CIT v Venkateswara Hatcheries (P) Ltd 247 ITR 273 .
End of Document
S. 80JJA. Deduction in respect of profits and gains from business of
collecting and processing of bio-degradable waste
S. 80JJA. Deduction in respect of profits and gains from business of collecting and processing of bio-
degradable waste
24[Where the gross total income of an assessee includes any profits and gains derived from the business of collecting and
processing or treating of bio-degradable waste for generating power,25[or producing bio-fertilizers, bio-pesticides or other
biological agents or for producing bio-gas or], making pellets or briquettes for fuel or organic manure, there shall be
allowed, in computing the total income of the assessee,26[a deduction of an amount equal to the whole of such profits and
gains for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year
in which such business commences].]
Deleted Section 80JJA : Business of Growing Mushrooms.—For the assessment year 1980-81 to 1983-84 this
section granted partial deduction in respect of such income from the business of growing mushrooms as was not
agricultural income. If such income was agricultural income, it would be wholly exempt under s 10(1) .
24 Ins. by the Finance (No. 2) Act, 1998 (21 of 1998), s 35 (w.e.f. 1-4-1999). See Circular No. 772, December 23, 1998,
235 ITR (St.) 35.
25 Subs., for “, producing bio-gas,”, by the Finance Act, 1999 (27 of 1999), s 51(a) (w.e.f. 1-4-2000). See Circular No.
779, September 14, 1999, 240 ITR (St.) 3.
26 Subs., for “a deduction from such profits and gains of an amount equal to the whole of such income, or five lakh
rupees, whichever is less”, by the Finance Act, 1999 (27 of 1999), s 51(b) (w.e.f. 1-4-2000).
Page 2 of 2
S. 80JJA. Deduction in respect of profits and gains from business of collecting and processing of bio-
degradable waste
End of Document
S. 80JJAA. Deduction in respect of employment of new workmen
(1) 27[28[Where the gross total income of an assessee, being an Indian company, 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—
a) 29[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;]
(b) unless the assessee furnishes along with the return of income the report of the accountant, as defined in the
Explanation below 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 one hundred
workmen employed during the previous year:
Provided that in the case of an existing30[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 such30a[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

Page 2 of 3
(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 31 of the Industrial Disputes
Act, 1947 (14 of 1947);]
(iv) 32[“factory”
shall have the same meaning as assigned to it in clause (m) of section 2 of the Factories Act,
1948 (63 of 1948).]
Section 80JJAA : Deduction in Respect of Employment of New Workmen.—The Finance (No 2) Act, 1998 has
inserted this section with effect from the assessment year 1999-2000 to provide a deduction, in respect of payment of
additional wages, to an Indian company engaged in the manufacture or production of an article or thing. The objective
of this section is to encourage employers to create more employment opportunities. Under this section, an amount of
30 per cent. of additional wages paid to the new workmen is to be allowed as a deduction for a period of three years
beginning with the year in which the new workman is employed, provided that the other conditions laid down in the
section are met. The main conditions are:
(i) The new workman should be employed on a regular basis. In other words, he should not be a casual workman, and
he should not be employed under contract labour. The term ‘workman’ has the same meaning as in the Industrial
Disputes Act, 1947.
(ii) Such a workman must be in employment for at least three hundred days during the year.
(iii) In the case of an existing undertaking, the increase in the number of regular workmen should be at least 10 per
cent. of the existing number of workmen, and further, the number of workmen hitherto in employment must have been
at least one hundred. Percentage increase in number of regular workmen has to be determined with reference to
workmen employed in undertaking as on last day of preceding year.
(iv) In the case of a new undertaking, the number of such workmen must be at least one hundred. The deduction shall
be available only in respect of wages paid to workmen over and above that number both in the case of new as well as
existing undertakings.
(v) The assessee should furnish, along with the return of income, a certificate from a chartered accountant. [see r
19AB ].
Page 3 of 3
27 Ins. by the Finance (No. 2) Act, 1998, (21 of 1998) s 36 (w.e.f. 1-4-1999). See Circular No. 772, December 23, 1998,
235 ITR (St.) 35.
28 Subs. by the Finance Act, 2013 (17 of 2013) s 20(i) (w.e.f. 1-4-2014), See Memorandum explaining the provisions in
Finance Bill, 2013, 351 ITR (St.) 102, for the following:—
‘(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.’.
29 Subs. by the Finance Act, 2013 (17 of 2013) s 20(ii) (w.e.f. 1-4-2014), for the following:—
‘(a) if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with
another industrial undertaking;’.
30 Subs., for “undertaking”, by the Finance Act, 2013 (17 of 2013) s 20(iii) (w.e.f. 1-4-2014).
30a Subs., for “undertaking”, by the Finance Act, 2013 (17 of 2013) s 20(iii) (w.e.f. 1-4-2014).
32 Ins. by the Finance Act, 2013 (17 of 2013) s 20(iv) (w.e.f. 1-4-2014). See Circular No. 461, July 9, 1986, 161 ITR (St.)
17.
End of Document
S. 80K.
S. 80K.
33[* * * *]
Deleted Section 80K [ Section 15C(4) of 1922 Act]: Dividends Attributable to Profits from New Industrial
Undertakings or Ships or Hotel Business.— Section 80J granted a deduction in respect of the profits from newly
established industrial undertakings or ships or hotel business up to six per cent. per annum on the capital employed.
This section granted a deduction to the shareholder in respect of so much of the dividend paid or deemed under s
2(22) to be paid by a company as was attributable to the profits in respect of which the company was entitled to a
deduction under s 80J . The ceiling of six per cent. was raised by the proviso to s 80J(1) to seven and a half per cent.
in the case of companies whose productive activities covered by that section commenced on or after 1 April 1976; and
in such cases the shareholders would not get any relief under s 80K (proviso). Having lost its utility, the section was
deleted with effect from April 1, 1987. Rule 20 34 which prescribed the basis for determining the portion of the dividend
deductible under this section was also later deleted.
Under s 15C(4) of the 1922 Act and the old s 85 of this Act, the shareholder got exemption from tax in respect of so
much of the dividend as was attributable to that part of the company’s profits on which tax was not payable by the
company.35 The same phraseology was used by s 80K in respect of the company’s profits assessable for assessment
years prior to 1968-69. But this section later provided for shareholders’ right to a deduction by reference to the
company’s profits assessable for 1968-69, onwards, ‘in respect of which the company was entitled to a deduction
under s 80J . These words cover cases where the company was entitled to a deduction but the deduction was not
actually allowed on account of inadequacy of profits and the company carries forward the deficiency under s 80J(3) .36
In order to entitle the shareholder to the benefit of this section it was not necessary that the company should take the
initiative of claiming a deduction under s 80J or grant a certificate to the shareholder that it had obtained such
deduction.37
In computing the income eligible for relief, interest paid on moneys borrowed specifically for investment in shares38
Page 2 of 3
S. 80K.
and expenses relatable thereto39 were to be deducted. When the assessee was engaged in the business of shares,
the expenses incurred on brokerage, share transfer and interest in the course of business could not be deducted from
the dividend income.40 The deduction under this section was further restricted to income after setting off unabsorbed
depreciation41 and net business loss.42 In case the income from dividend was directly assessed in the hands of the
beneficiaries of a trust, the deduction was required to be computed in the same manner as would have been done,
had the trustees been assessed in respect of such amounts.43
If the principal officer of a company considered that the whole or any portion of the dividend is exempt under this
section, he right have applied to the AO under s 197(3) (now deleted) to determine the portion so exempt; and no tax
was to be deducted at source from the portion so determined to be exempt.44
In many cases shareholders’ assessments are completed, and even the period for a rectification application under s
154 expires, before the portion of profits exempted under s 80J is finally determined in the assessment of the
company. The board has issued instructions to the department to condone the delay when shareholders apply for
rectification in such cases.45
Both the registered firm and the partners could claim deduction under the corresponding s 85 (now deleted) .46
33 Section 80K has been omitted by the Finance Act, 1986 (23 of 1986), s 19 (w.e.f. 1-4-1987).
Omitted section 80K .— Section 80K, prior to its omission by the Finance Act, 1986, with effect from 1st April, 1987, stood as
follows:—
‘1[S. 80K. Deduction in respect of dividends attributable to profits and gains from new industrial undertakings or ships
or hotel business.—Where the gross total income of an assessee, being—
(a) the owner of any share or shares in a company, or
(b) a person who is chargeable to tax under this Act on the income by way of dividends on any share or shares in a company
owned by any other person,
includes any income by way of dividends paid or deemed to have been paid by the company in respect of such share or shares,
there shall, subject to any rules that may be made by the Board in this behalf, be allowed, in computing his total income, a
deduction from such income by way of dividends of an amount equal to such part thereof as is attributable to the profits and
gains derived by the company from an industrial undertaking or ship or the business of a hotel, on which no tax is payable by the
company under this Act for any assessment year commencing prior to the 1st day of April, 1968, or in respect of which the
company is entitled to a deduction under section 80J for the assessment year commencing on the 1st day of April, 1968, or for
any subsequent assessment year:]
2[Provided that no deduction under this section shall be allowed in respect of any income by way of dividends which is
attributable to the profits and gains derived by the company from an industrial undertaking which begins to manufacture or
produce articles or to operate its cold storage plant or plants after the 31st day of March, 1976, or from a ship which is first
brought into use after that date or from the business of a hotel which starts functioning after that date.]’.
1. Subs. by the Taxation Laws (Amendment) Act, 1970 (42 of 1970), s 20 (w.r.e.f. 1-4-1968), for:—
‘S. 80K. Deduction in respect of dividends attributable to profits and gains from new industrial undertakings or ships or
hotel business.—Where the gross total income of an assessee, being the owner of any share or shares in a company, includes
any income by way of dividends paid or deemed to have been paid by the company in respect of such share or shares, there
shall, subject to any rules that may be made by the board in this behalf, be allowed, in computing his total income, a deduction
from such income by way of dividends of an amount equal to such part thereof as is attributable to the profits and gains derived
by the company from an industrial undertaking or ship or the business of a hotel, on which no tax is payable by the company
Page 3 of 3
S. 80K.
under this Act for any assessment year commencing prior to the 1st day of April, 1968, or in respect of which the company is
entitled to a deduction under section 80J .”.
The above section was, earlier, amended by the Finance Act, 1968, with effect from 1-4-1968. 2. Ins. by the Finance Act, 1975
(25 of 1975), s 14 (w.e.f. 1-4-1975).
34 CIT v Modi 157 ITR 492 .
35 CIT v Sivan 77 ITR 354 (SC).
36 Ahmedabad Calico v Joshi in 219 ITR 572 (SC); UOI v Coromandel Fertilizers 102 ITR 533 (SC); South India
Shipping v ITO 103 ITR 1 . Cf Tube Investments v CIT 153 ITR 645 ; CIT v Apar 236 ITR 976 (SC).
37 Indo Comm Bank v CIT 44 ITR 22 ; CIT v JK Bankers 124 ITR 687 .
38 CIT v Jhaveri 181 ITR 79 (SC); CIT v Swaran Singh 232 ITR 350 (SC).
39 CIT v Industrial Finance 198 ITR 539 .
40 CIT v Mahendra Sobhagchand 203 ITR 178 . See further s 80M, pp 1642-1643, nn 69, 72, 74 and 75.
41 Kesoram v CIT 191 ITR 518 .
42 Warner Lambert v CIT 205 ITR 395 .
43 CIT v Anand Sarabhai 231 ITR 529 ; CIT v Bhartidevi 231 ITR 537 .
44 See CIT v Modi 157 ITR 492 .
45 Circular no 79, dated February 25, 1972.
46 CIT v Saraswathi 127 ITR 404 . Cf s 80J, under ‘Where assessee is a person other than company…’, p 1433, n 46,
CIT v Modi 157 ITR 492 .
End of Document
S. 80L.
S. 80L.
47[* * * *]
Section 80L : Exemption in Respect of Dividends, Interest etc.—In view of the move towards EET (Exempt
Exempt Tax) method of taxation of financial saving schemes, s 80L was omitted from the assessment year 2006-07.48
The provisions of this section entitle an individual or a Hindu undivided family to a deduction in respect of various
specified categories of income. The current limit of Rs 9,000 for deduction under this section is raised to Rs 12,000
from the assessment year 2004-05 in respect of such income, whereas the limit for additional deduction of Rs 3,000 in
respect of interest on any security of the Central Government or a state government remains unchanged.
The deduction under this section is allowable in respect of net income computed after deduction of expenses relatable
thereto.49 However, only those expenses which are incurred wholly and exclusively to earn the specified income are to
be deducted. Thus, interest on fixed deposits with a bank is not required to be reduced by interest paid on loans taken
for business purposes.50 An assessee is entitled to claim deduction only from the gross total income after taking into
account the net business loss incurred during the year.51
In respect of share of profits from a firm, assessable in the hands of the partners up to the assessment year 1992-93,
it was correctly held by the Allahabad High Court that a partner was entitled to deduction under this section in respect
of his share of the dividend received by the firm.52 This decision is superseded by sub-s (3) which was introduced in
1984 with retrospective effect from April 1, 1976.53 Similarly, a beneficiary under a trust is entitled to claim deduction
under this section in respect of the interest on securities received by him from the trustees.54 The trustees of a
discretionary trust are to be assessed in the status of ‘individual’ for the purpose of this section and are thus entitled to
a deduction.55 [As regards interest credited to an employee in his recognised provident fund account, see s 17(1),
Page 2 of 6
S. 80L.
under ‘Annual accretion in recognised provident fund’.] According to the Madras High Court, deduction under this
section is not available to the wife whose dividend income is includible in her husband’s total income under s 64, but is
available to only the husband whose dividend income is clubbed with hers.56
47 Omitted by the Finance Act, 2005 (18 of 2005), s 28 (w.e.f. 1-4-2006). Prior to its omission, section 80L stood as
under:—
‘1[S. 80L. Deductions in respect of interest on certain securities, dividends, etc.—(1) 2[Where the gross total income of an
assessee, being—
(b) a Hindu undivided family, 3[*]
4[(c) * * * *]
includes any income by way of—]

(i) interest on any security of the Central Government or a State Government 5[* * *];
6[(ia) interest on National Savings Certificates (VI Issue) or National Savings Certificates (VII Issue) or National Savings
Certificates (VIII Issue) issued under the Government Savings Certificates Act, 1959 (46 of 1959);]
7[(ii) interest on such debentures, issued by any institution or authority, or any public sector company, or any co-operative
society (including a co-operative land mortgage bank or a co-operative land development bank), as the Central Government
may, be notification in the Official Gazette, specify in this behalf.
8[* * * * *]];
9[(iia) interest on deposits under such National Deposit Scheme as may be framed by the Central Government and notified † by
it in this behalf in the Official Gazette;]

(iii) interest on deposits 10[under any other scheme] framed by the Central Government and notified by it in this behalf in the
Official Gazette;
11[(iiia) interest on deposits under the Post Office (Monthly Income Account) Rules, 1987;]
12[(iv) * * * *]
13[(v) * * * *]
14[(va) * * * *]
(vi) interest on deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any
bank or banking institution referred to in section 51 of that Act) or a co-operative society engaged in carrying on the business of
banking (including a co-operative land mortgage bank or a co-operative land development bank); 15[* *]
16[(via) interest on deposits with any such bank, not being a banking company or a co-operative
society referred to in clause (vi) but being a bank established by or under any law made by Parliament, as may be approved by
the Central Government for the purposes of this clause;]
17[(vii) interest on deposits with a financial corporation which is engaged in providing long-term finance for industrial
development in India 18[and which is eligible for deduction under clause (viii) of sub-section (1) of section 36 ] 19[* * *]:
20[* * * *];
21[(viia) interest on deposits with any authority constituted in India by or under any law enacted either for the purpose of dealing
with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities,
towns and villages, or for both;]
22[(viii) interest on deposits with a co-operative society, not being a co-operative society referred to in clause (vi), made by a
23[member of the society; or]]
24[(ix) dividends from any co-operative society;]
25[(x) interest on deposits with 26[* * *] any public company formed and registered in India with the main object of carrying on the
business of providing long-term finance for construction or purchase of houses in India 27[for residential purposes and which is
eligible for deduction under clause (viii) of sub-section (1) of section 36 ]:
28[* * * *]
there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the
assessee, 29[a deduction as specified hereunder, namely:—
(1) in a case where the amount of such income does not exceed in the aggregate 30[twelve thousand] rupees, the whole of such
amount; and
Page 3 of 6
S. 80L.
(2) in any other case, 30[twelve thousand] rupees:]

31[Provided that where any income referred to in 32[clause (i)] 33[* * *] remains unallowed after the deduction under the foregoing
provision of this section, there shall be allowed in computing the total income of the assessee, an additional deduction of an
amount equal to so much of such income as has remained unallowed, so, however, that the amount of such additional deduction
shall not exceed three thousand rupees:]
34[* * * *].
35[Explanation.—For the purposes of this sub-section, the expression “security” means a Government security as defined in
clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944)].
36[(2) * * * *]
37[(3) For the removal of doubts, it is hereby declared that where the income referred to in sub-section (1) is derived from any
asset held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under the
said sub-section in respect of such income in computing the total income of any partner of the firm or any member of the
association or body.]’.
1. Subs. by the Finance Act, 1970 (19 of 1970), s 14 (w.e.f. 1-4-1971).
2. Subs. by the Finance (No. 2) Act, 1971 (32 of 1971), s 17, for the words “Where the gross total income of an assessee
includes any income by way of—” (w.e.f. 1-4-1972).
3. The word “or” has been omitted by the Finance Act, 1994 (32 of 1994), s 50(f)(i) (w.r.e.f. 1-4-1972) and not 1-4-1968 as given
in the Finance Act, 1994 (32 of 1994).
4. Omitted by the Finance Act, 1994 (32 of 1994), s 50(f)(ii) (w.r.e.f. 1-4-1972 and not 1-4-1968 as given in the Finance Act,
1994 (32 of 1994). Prior to its omission, clause (c) stood as under:—
system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa‡, Daman and Diu,’.
In the above, the words “consisting, in either case, only of” were substituted for “consisting only of” by the Taxation Laws
(Amendment) Act, 1984 (67 of 1984), s 21(a) (w.r.e.f. 1-4-1972).
‡ Goa has attained statehood, with effect from 30-5-1987.
5. The brackets, words, figures and letters “(not being interest payable under section 280D in respect of any annuity deposit
made under Chapter XXII-A)” have been omitted by the Finance Act, 1988 (26 of 1988), s 54(viii) (w.e.f. 1-4-1988).
6. Subs. by the Finance (No. 2) Act, 1991 (49 of 1991), s 33 (w.e.f. 1-4-1992), for the following:—
‘(ia) interest on National Savings Certificates (VI Issue) and National Savings Certificates (VII Issue) issued under the
Government Savings Certificates Act, 1959 (46 of 1959);’.
Above clause (ia) was, originally, inserted by the Direct Tax Laws (Second Amendment) Act, 1989 (36 of 1989), s 9 (w.r.e.f. 1-4-
1984).
7. Clause (ii) has been substituted by the Finance Act, 1986 (23 of 1986), s 20(a) (w.e.f. 1-4-1987), for the following:—
‘(ii) interest on such debentures, issued by any co-operative society (including a co-operative land mortgage bank or a co-
operative land development bank) or any other institution or authority, as the Central Government may, by notification in the
Official Gazette, specify in this behalf;’.
8. The Explanation has been omitted by the Finance Act, 1987 (11 of 1987), s 74(a)(iii) (w.e.f. 1-4-1987). Prior to its omission, it
stood as under:—
‘Explanation.—For the purposes of this clause, “public sector company” means any corporation established by or under any
Central, State of Provincial Act or a Government company as defined in
section 617 of the Companies Act, 1956 (1 of 1956);’.
The above Explanation was substituted along with clause (ii) by Act, 23 of 1986, s 20(a) (w.e.f. 1-4-1987).
9. Clause (iia) has been inserted by the Finance Act, 1984 (21 of 1984), s 15(a) (w.e.f. 1-4-1985).
The National Deposit Scheme, 1984, has been so notified.
10. Subs., for “under any scheme”, by the Finance Act, 1984 (21 of 1984), s 15(b) (w.e.f. 1-4-1985).
11. Clause (iiia) has been inserted by the Finance Act, 1988 (26 of 1988), s 25(a) (w.e.f. 1-4-1989).
12. Omitted by the Finance Act, 2003 (32 of 2003), s 41(a) (w.e.f. 1-4-2004). Prior to its omission, clause (iv) stood as under:—
“(iv) dividends from any Indian company;”.
The above clause (iv) was inserted by the Finance Act, 2002 (20 of 2002), s 35 (w.e.f. 1-4-2003). Earlier, clause (iv) was omitted
by the Finance Act, 1997 (26 of 1997), s 27(a) (w.e.f. 1-4-1998). Prior to its omission, clause (iv) stood as under:—
‘(iv) dividends from any Indian company;’.
13. Omitted by the Finance Act, 2003 (32 of 2003), s 41(a) (w.e.f. 1-4-2004). Prior to its omission, clause (v) stood as under:—
‘(v) income received in respect of units from the Unit Trust of India established under the Unit Trust of India Act, 1963 (11 of
1963), other than the income arising from transfer of such units;’.
Page 4 of 6
S. 80L.
The above clause (v) was inserted by the Finance Act, 2002 (20 of 2002), s 35 (w.e.f. 1-4-2003).
Earlier, clause (v) was omitted by the Finance Act, 1999 (27 of 1999), s 52(a) (w.e.f. 1-4-2000). Prior to its omission, clause (v)
stood as under:—
‘(v) income received in respect of units from the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of
1963);’.
14. Omitted by the Finance Act, 2003 (32 of 2003), s 41(a) (w.e.f. 1-4-2004). Prior to its omission, clause (va) stood as under:—
“(va) income received in respect of units of a Mutual Fund specified under clause (23D) of section 10 other than the income
arising from transfer of such units;”.
The above clause (va) was inserted by the Finance Act, 2002 (20 of 2002), s 35 (w.e.f. 1-4-2003).
Earlier, clause (va) was omitted by the Finance Act, 1999 (27 of 1999), s 52(a) (w.e.f. 1-4-2000). Prior to its omission, clause
(va) stood as under:—
‘(va) income received in respect of units of a Mutual Fund specified under clause (23D) of section 10 ;’.
The above clause (va) was originally inserted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 27 (w.e.f. 1-4-1988).
15. The word “or” was omitted by the Finance (No. 2) Act, 1971 (32 of 1971), s 17 (w.e.f. 1-4-1972).
16. Clause (via) has been inserted by the Finance Act . 1983 (11 of 1983), s 28(a) (w.e.f. 1-4-1984).
17. Subs. by the Finance (No. 2) Act, 1980 (44 of 1980), s 19 (w.e.f. 1-4-1981), for the following:—
“(vii) interest on deposits with a financial corporation which is engaged in providing long-term finance for industrial development
in India and which is approved by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36 ;”
The above was earlier amended by the Finance (No. 2) Act, 1971 (32 of 1971), s 17 (w.e.f. 1-4-1972) and also by the Finance
Act, 1972 (16 of 1972), s 20 (w.e.f. 1-4-1973).
18. Ins. by the Finance Act, 2000 (10 of 2000), s 40(a)(i) (w.e.f. 1-4-2000).
19. The words “or with a public company formed and registered in India with the main object of carrying on the business of
providing long-term finance for construction or purchase of houses in India for residential purposes” have been omitted by the
Finance Act, 1988 (26 of 1988), s 25(b)(i) (w.e.f. 1-4-1989).
20. Proviso has been omitted by the Finance Act, 2000 (10 of 2000), s 40(a)(ii) (w.e.f. 1-4-2000). Prior to its omission, the
proviso stood as under:—
‘Provided that the corporation 1[* *] is for the time being approved by the Central Government for the purposes of clause (viii) of
sub-section (1) of section 36 ;’.
1. The words “or, as the case may be, the company” have been omitted by the Finance Act, 1988 (26 of 1988), s 25(b)(ii) (w.e.f.
1-4-1989).
21. Ins. by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 23 (w.e.f. 1-4-1976).
22. Ins. by the Finance (No. 2) Act, 1971 (32 of 1971), s 17 (w.e.f. 1-4-1972).
23. Subs., for “member of the society,”, by the Finance Act, 1972 (16 of 1972), s 20 (w.e.f. 1-4-1973).
25. Clause (x) has been inserted by the Finance Act, 1988 (26 of 1988), s 25(c) (w.e.f. 1-4-1989).
26. The words “, or dividend received from,” have been omitted by the Finance Act, 1997 (26 of 1997), s 27(b) (w.e.f. 1-4-1998).
27. Subs., for “for residential purposes”, by the Finance Act, 2000 (10 of 2000), s 40(b) (w.e.f. 1-4-2000).
28. Proviso has been omitted by the Finance Act, 1999 (27 of 1999), s 52(b) (w.e.f. 1-4-2000). Prior to its omission, the proviso
stood as under:—
‘Provided that the company is for the time being approved by the Central Government for the purpose of clause (viii) of sub-
section (1) of section 36 .’.
29. Subs. by the Finance Act, 1983 (11 of 1983), s 28(b) (w.e.f. 1-4-1984), for the following:—
‘a deduction as specified hereunder, namely:—
(1) in a case where the amount of such income does not exceed in the aggregate four thousand rupees, the whole of such
amount; and
(2) in any other case, four thousand rupees:
Provided that where the gross total income of the assessee includes any income by way of interest on any security referred to in
clause (i) or interest on any deposits referred to in clause (vi) (being de posits for a period of one year or more), there shall be
allowed in computing the total income of the assessee a further deduction of an amount equal to so much of the income by way
of such interest as has not been allowed by way of deduction under the foregoing provisions of this sub-section; so, however,
that the amount of such further deduction shall not exceed two thousand rupees.’
The above portion was, earlier, substituted by the Finance Act, 1982 (14 of 1982), s 19 (w.e.f. 1-4-1983) for “a deduction as
specified hereunder, namely:—
Page 5 of 6
S. 80L.
(a) in a case where the amount of such income does not exceed in the aggregate three thousand rupees, the whole of such
amount; and
(b) in any other case, three thousand rupees.”.|
30. Subs., for “nine thousand”, by the Finance Act, 2003 (32 of 2003), s 41(b) (w.e.f. 1-4-2003). Earlier, for the words “twelve
thousand” at both the places, the words “nine thousand”, were substituted by the Finance Act, 2001 (14 of 2001), s 46 (w.e.f. 1-
4-2002). Still earlier, the words “twelve thousand” were substituted for the words “thirteen thousand”, by the Finance (No. 2) Act,
1996 (33 of 1996), s 30(a) (w.e.f. 1-4-1997). Earlier, the words “thirteen thousand” were substituted for “ten thousand” by the
Finance Act, 1995 (22 of 1995), s 20 (w.e.f. 1-4-1996). Still earlier, the words “ten thousand” were substituted for “seven
thousand” by the Finance Act, 1993 (38 of 1993), s 16 (w.e.f. 1-4-1994).
31. Ins. by the Finance (No. 2) Act, 1996, (33 of 1996), s 30(b) (w.e.f. 1-4-1997).
32. Subs., for “clause (iv),”, by the Finance Act, 1997 (26 of 1997), s 27(c) (w.e.f. 1-4-1998).
33. The words, brackets, figures and letter, “, clause (v) or clause (va)”, have been omitted by the Finance Act, 1999 (27 of
1999), s 52(c) (w.e.f. 1-4-2000).
34. Omitted by the Finance Act, 1992 (18 of 1992), s 48 (w.e.f. 1-4-1993). Prior to their omission, the first and the second
provisos stood as under:—
‘Provided that where the gross total income of the assessee includes any income by way of interest on any deposits referred to
in clause (iia), or income in respect of units referred to in clause (v) or clause (va), or income by way of interest or dividend
referred to in clause (x), there shall be allowed in computing the total income of the assessee, a further deduction of an amount
equal to so much of such income as has not been allowed by way of deduction under the foregoing provisions of this sub-
section; so, however, that the amount of such further deduction shall not exceed three thousand rupees:
Provided further that where any income by way of interest on any deposits referred to in clause (iia) or any dividends referred to
in clause (iv), remains unallowed after the deduction under the foregoing provisions of this section, there shall be allowed in
computing the total income of the assessee, an additional deduction of an amount equal to so much of such income as has
remained unallowed; so, however, that the amount of such additional deduction shall not exceed three thousand rupees.’.
Earlier, the above two provisos were substituted by the Finance Act, 1988 (26 of 1988), s 25(d) (w.e.f. 1-4-1989), for the
following:—
‘Provided that where the gross total income of the assessee includes any income by way of interest on any deposits referred to
in clause (iia), or income in respect of units referred to in clause (v), there shall be allowed in computing the total income of the
assessee a further deduction of an amount equal to so much of such income as has not been allowed by way of deduction under
the foregoing provisions of this sub-section; so, however, that the amount of such further deduction shall not exceed three
thousand rupees:|
Provided further that where any income by way of interest on any deposits referred to in clause (iia) remains unallowed after the
deduction under the foregoing provisions of this section, there shall be allowed in computing the total income of the assessee,
an additional deduction of an amount equal to so much of such income as has remained unallowed; so, however, that the
amount of such additional deduction shall not exceed two thousand rupees.’.
The above two provisos were, originally, inserted by the Finance Act, 1984 (21 of 1984), s 15(c) (w.e.f. 1-4-1985).
36. Subs-section (2) has been omitted by the Finance Act, 1986, (23 of 1986), s 20(b) (w.e.f. 1-4-1987). Prior to its omission,
sub-section (2) stood as under:—
‘(2) In a case where the assessee is entitled also to the deduction under section 80K in relation to the whole or any part of the
income by way of dividends referred to in clause (iv) of sub-section (1), only so much of such income by way of dividends as
may remain after the deduction under section 80K shall be taken into account for the purpose of allowing the deduction under
sub-section (1).’.
37. Sub-section (3) has been inserted by the Taxation Laws (Amendment) Act, 1984, (67 of 1984), s 21(b) (w.r.e.f. 1-4-1976).
48 Circular No. 3 of 2006, February 27, 2006: 281 ITR (St.) 222.
49 CIT v Industrial Finance 198 ITR 539 .
50 Nandakumar v ITO 204 ITR 856 .

Page 6 of 6
S. 80L.
51 Warner Lambert v CIT 205 ITR 395 .
52 CIT v Brij Raman 118 ITR 397 ; CIT v Gopalkrishna 214 ITR 443 ; CIT v Purshottam Das 229 ITR 557 . Decision to
the contrary in CIT v Janardan 131 ITR 287 is incorrect.
53 CIT v Bhupendra Kumar 220 ITR 203 ; CIT v Mandakini Jog 241 ITR 6 .
54 CIT v Shakuntala 120 ITR 837 .
55 CIT v Krishna 201 ITR 989 ; CIT v Deepak Family 211 ITR 575 ; CIT v Venu Suresh 221 ITR 649 ; CIT v Ramesh
Mahesh 231 ITR 752 ; CIT v Sowmini Ramesh 232 ITR 25 ; CIT v Venu Suresh 233 ITR 99 ; DIT v Shardaben 247
ITR 1 (public trust); DCIT v Harjivandas Juthabhai 258 ITR 785 .
56 CIT v Ramaswamy 146 ITR 627 .
End of Document
S. 80LA. Deductions in respect of certain incomes of Offshore Banking
Units and International Financial Services Centre
S. 80LA. Deductions in respect of certain incomes of Offshore Banking Units and International Financial
Services Centre
(1) 57[Where the gross total income of an assessee,—
(i) being a scheduled bank, or, any bank incorporated by or under the laws of a country outside India; and having
an Offshore Banking Unit in a Special Economic Zone; or
(ii) being a Unit of an International Financial Services Centre,
includes any income referred to in sub-section (2), there shall be allowed, in accordance with and subject
to the provisions of this section, a deduction from such income, of an amount equal to—
(a) one hundred per cent. of such income for five consecutive assessment years beginning with the
assessment year relevant to the previous year in which the permission, under clause (a) of sub-section
(1) of section 23 of the Banking Regulation Act, 1949 (10 of 1949), or permission or registration under
the Securities and Exchange Board of India Act, 1992 (15 of 1992), or any other relevant law was
obtained, and thereafter;24
(b) fifty per cent. of such income for five consecutive assessment years.
(2) The income referred to in sub-section (1) shall be the income—
(a) from an Offshore Banking Unit in a Special Economic Zone; or
(b) from the business referred to in sub-section (1) of section 6 of the Banking Regulation Act, 1949 (10 of 1949),
with an undertaking located in a Special Economic Zone or any other undertaking which develops, develops
and operates or develops, operates and maintains a Special Economic Zone; or
Page 2 of 4
Services Centre
(c) from any Unit of the International Financial Services Centre from its business for which it has been approved
for setting up in such a Centre in a Special Economic Zone.
(3) No deduction under this section shall be allowed unless the assessee furnishes along with the return of income,—
(i) the report, in the form specified by the Central Board of Direct Taxes under clause (i) of sub-section (2) of
section 80LA, as it stood immediately before its substitution by this section, of an accountant as defined in the
Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in
accordance with the provisions of this section; and
(ii) a copy of the permission obtained under clause (a) of sub-section (1) of section 23 of the Banking Regulation
Act, 1949 (10 of 1949).
(a) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of
section 2 of the Special Economic Zones Act, 2005;
(b) “scheduled bank” shall have the same meaning as assigned to it in clause (e) of section 2 of the Reserve
Bank of India Act, 1934 (2 of 1934);
(c) “Special Economic Zone” shall have the same meaning as assigned to it in clause (za) of section 2 of the
Special Economic Zones Act, 2005;
(d) “Unit” shall have the same meaning as assigned to it in clause (zc) of section 2 of the Special Economic
Zones Act, 2005.]
Section 80LA : Deduction in Respect of Certain Incomes of Offshore Banking Units.—This section has been
inserted by the Finance Act, 2003 to take effect from the assessment year 2004-05. The deduction under this section
is available to an assessee being (i) a scheduled bank which is incorporated in India, and (ii) an owner of an offshore
banking unit in a special economic zone [sub-s (1)].
Such assessee is entitled to a 100 per cent. deduction for three consecutive years beginning with the assessment year
in which permission under the Banking Regulation Act, 1949 is obtained, and thereafter, a deduction of 50 per cent. for
two consecutive years [sub-s (1)].
The deduction is available in respect of the income from offshore banking units in a special economic zone, or a
business referred to in s 6(1) of the Banking Regulation Act, 1949 with an undertaking located in a special economic
zone or any other undertaking which develops, operates and maintains a special economic zone which is received in
convertible foreign exchange [sub-s (2)].
Page 3 of 4
Services Centre
In order to claim the deduction under this section, a report from a chartered accountant in the prescribed form
certifying that the deduction has been correctly claimed in accordance with the provisions of this section, and a copy of
the permission obtained under s 23(1)(a) of the Banking Regulation Act, 1949 is required to be furnished [sub-s (3)].
This section was substituted by the Special Economic Zones Act, 2005 with effect from February 10, 2006. The scope
of the deduction is now larger and includes within its ambit any bank incorporated outside India and a unit of an
International Financial Services Centre.
The assessee mentioned in cls (i) and (ii) of sub-s (1) is entitled to a 100 per cent. deduction for five consecutive
assessment years beginning with the assessment year in which permission or registration under the Banking
Regulation Act, 1949 or Securities Exchange Board of India Act, 1992 or any other relevant law as the case may be is
obtained and, thereafter, a deduction of 50 per cent. for five consecutive assessment years.
Under the new section, the income eligible for deduction need not be received in convertible foreign exchange.
57 Subs. by the special Economic zones Act, 2005 (28 of 2005), second Sch. (w.e.f. 10-2-2006) Prior to the substitution
section 80LA read as follows:—1[S. 80LA. Deduction in respect of certain incomes of Offshore Banking Units.—
(1) Where the gross total income of an assessee,—
(i) being a scheduled bank (not being a bank incorporated by or under the laws of a country outside India);
(ii) owning an offshore banking unit in a special economic zone,
includes any income referred to in sub-section (2), there shall be allowed, in accordance with and subject to the provisions of this
section, a deduction from such income, of an amount equal to—
(a) one hundred per cent of such income for three consecutive assessment years beginning with the assessment year relevant
to the previous year in which the permission, under clause (a) of sub-section (1) of section 232 of the Banking Regulation Act,
1949 (10 of 1949), was obtained, and thereafter;
(b) fifty per cent of such income for two consecutive assessment years.
(2) The income referred to in sub-section (1) shall be the income—
(a) from an offshore banking unit in a special economic zone;
(b)from the business, referred to in sub-section (1) of section 62 of the Banking Regulation Act, 1949 (10 of 1949), with an
undertaking located in a special economic zone or any other undertaking which develops, develops and operates or operates
and maintains a special economic zone;
(c)received in convertible foreign exchange, in accordance with the regulations made under the Foreign Exchange Management
Act, 1999 (42 of 1999).
(3) No deduction under this section shall be allowed unless the assessee furnishes along with the return of income,—
(i)in the prescribed form, the report of an accountant as defined in the Explanation below sub-section (2) of section 288,
certifying that the deduction has been correctly claimed in accordance with the provisions of this section; and
(ii)a copy of the permission obtained under clause (a) of sub-section (1) of section 232 of the Banking Regulation Act, 1949 (10
of 1949).
(a)“convertible foreign exchange” shall have the same meaning assigned to it in clause (a) of the Explanation below sub-section
(4C) of section 80HHC ;
(b)“Offshore Banking Unit” means a branch of a Bank in India located in the special economic zone and has obtained the
permission under clause (a) of sub-section (1) of section 232 of the Banking Regulation Act, 1949 (10 of 1949);
Page 4 of 4
Services Centre
(c)“scheduled bank” shall have the same meaning assigned to it in clause (e) of section 22 of the Reserve Bank of India Act,
1934 (2 of 1934);
(d)“special economic zone” shall have the same meaning assigned to it in clause (viii) of the Explanation 2 to section 10A .]
See Circular No. 7 of 2003, dt. 5-9-2003, 263 ITR (St.) 62.
1.Ins. by the Finance Act, 2003 (32 of 2003), s. 42 (w.e.f. 1-4-2004).
2.For text, see Appendix 49.
235 ITR (St.) 35.
End of Document
S. 80M.
S. 80M.
58[* * * *]
1. Section 80M : Intercorporate Dividends.—This section was omitted with effect from the assessment year 1998-
99 when the income from dividend was exempted, only to be re-introduced later from the assessment year 2003-04 as
the exemption in respect of dividend income was removed. However, the section has once again been omitted by the
Finance Act, 2003 with effect from April 1, 2004, now that dividend income is exempted. This section applied only to
one category of dividends,—dividends received by a domestic company from a domestic company. A ‘domestic
company’ means an Indian company, or any foreign company which has made the prescribed arrangements for the
declaration and payment, within India, of the dividends payable out of its income liable to tax under this Act [ s 2(22A)
]. In order to get the benefit of this section it was not necessary that the company receiving dividend should be a
registered shareholder of the company paying it.59 The dividend should be distributed; mere declaration before the due
date for filing the return under s 139(1) and distribution after the due date will not suffice.60
2. Deduction for Units.—The income allocated to the unit capital of a unit scheme is distributable to the unit-holders
as a dividend and, similarly, the income allocated to the initial capital is distributable amongst the contributors as
dividend. The dichotomy between the unit capital and the initial capital gets dissolved under the Unit Trust of India Act,
1963. After referring to ss 25A(1), 25A(2) and 32(3) of that Act, it was held that the income from the Unit Trust of India
was dividend income and entitled to the benefit of s 80M .61 Income from units is not speculative income and has to be
treated as inter-corporate dividend.62 This section was amended by the Finance Act, 1993 whereby the deduction
under the main section available to dividend income from the Unit Trust of India is subject to the limit contained in
clause (a) to the proviso for the year 1994-95. The assessee is thus entitled to a deduction of 4/5th of the dividend
income received from the Unit Trust of India. From assessment year, 1996-97 onwards, no deduction was admissible
under s 80M(1) of the Act for the dividend income received from the Unit Trust of India.63
3. Deduction not to be Calculated with Reference to Gross Dividend, Gross Royalty etc.—Various sections of
Page 2 of 5
S. 80M.
this chapter grant a deduction in respect of the whole or a percentage of the dividend, royalty etc received by the
assessee. Different High Courts had held that in the absence of express statutory indication to the contrary, these
deductions should be calculated with reference to the gross dividend, gross royalty etc, and not with reference to the
net amount after deducting the allowable expenditure. For instance, the deduction under s 80K (now deleted), 80L or
80M should be calculated with reference to the gross dividend without deducting interest charges and other allowable
expenses64 and the deduction under s 80-O should be calculated with reference to the gross royalty without deducting
the expenses for earning it.65 This view was confirmed by the Supreme Court in Cloth Traders Ltd v CIT 66 which was
concerned with intercorporate dividend under s 80M but in which the principle was held applicable also to other
sections like ss 80K, 80MM, 80N and 80-O (the first three of which are now deleted). To supersede this view, the
Finance (No 2) Act, 1980 introduced s 80AA (now deleted) with retrospective effect from April 1, 1968 as regards
intercorporate dividend, and s 80AB with effect from April 1, 1981 as regards other receipts. However, in Distributors
(Baroda) Ltd v UOI 67 (in which the constitutionality of the retrospective effect of s 80AA was challenged) the Supreme
Court overruled Cloth Traders and held that the deduction under s 80M has to be calculated only with reference to the
net amount after deducting the allowable expenditure, and that s 80AA was merely declaratory of the law as it always
was. Thus, it is clear that the relief under this Chapter has now to be calculated with reference to the net amount of
various income receipts—dividend, royalty etc—after deducting the allowable expenditure.68
Where a dealer in shares borrows money for the purpose of his business of dealing in shares, various courts have
taken a view that the entire interest on money borrowed is allowable under s 36(1)(iii) in computing the business
income, and therefore, despite s 80AA, the dividend is not to be reduced by any part of the interest in calculating the
deduction under s 80M .69
Similarly ss 36(1)(viii) and 80M are independent provisions and deduction allowed under section 36(1)(viii) had no
impact on the deduction claimed under s 80M .70 Section 20(1), which contains a rule of proportionality of expenses for
interest on securities. The deduction therein is for estimated expenditure while the deduction under s 80M is only on
actual expenditure.71 However, following the Supreme Court in Distributors (Baroda), Courts have also taken a view
that the gross amount of dividend income is to be reduced by the amount of interest attributable to the money
borrowed for earning such income.72 However, if interest has been deducted on borrowed capital while computing
business income, it is not deductible again while computing the deduction under s 80M .73 But the Calcutta High Court
has held that only the actual expenditure incurred by the assessee in earning the dividend income can be reduced and
there is no scope for reduction of any notional expenditure on an estimate basis.74 Similarly, the Bombay High Court in
CIT v General Insurance 75 has held that salary paid to staff, stamp duty, transfer fee and safe custody charges are
not directly relatable to earning of dividend and hence deduction is to be allowed in respect of the entire dividend
income.
The aggregate amount of the deductions under this Chapter should not in any case exceed the gross total income of
the assessee [ s 80A(2) ]. ‘Gross total income’ means the total income computed in accordance with the provisions of
this Act, before making any deduction under this chapter [ s 80B(5) ]. [See s 90A under, ‘No deductions where ‘total
income’ is a loss’]. The relief under this section is to be computed on the dividend income included in the total income
computed after setting off of loss76 and unabsorbed depreciation.77 as also development rebate.78
The deduction under this section is also available to a company in respect of dividends from itself, received as a
beneficiary of a trust.79 Relief is also held to be available in respect of dividend received on the reduction of the
company’s capital.80 When the dividend income of a firm is included in the assessment of a partner, as assessable
upto the assessment year 1992-93, the partner is entitled to the deduction under this section in respect of such
income.81
Page 3 of 5
S. 80M.
4. Appeal and Reference.—In the context of s 80M, the undernoted cases held that referable questions of law
arose,82 under s 256 .
58 Omitted by the Finance Act, 2003 (32 of 2003), s 43 (w.e.f. 1-4-2004). See Circular No. 7 of 2003, September 5, 2003,
263 ITR (St.) 62. Prior to its omission, section 80M stood as under:—
‘S. 80M. Deduction in respect of certain inter-corporate dividends.—(1) Where the gross total income of a domestic
company, in any previous year, includes any income by way of dividends from another domestic company, there shall, in
accordance with and subject to the provisions of this section, be allowed, in computing the total income of such domestic
company, a deduction of an amount equal to so much of the amount of income by way of dividends from another domestic
company as does not exceed the amount of dividend distributed by the first-mentioned domestic company on or before the due
date.
(2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under
sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.
Explanation.—For the purposes of this section, the expression “due date” means the date for furnishing the return of income
under sub-section (1) of section 139 .’.
The above section 80M was inserted by the Finance Act, 2002 (20 of 2002), s 36 (w.e.f. 1-4-2003). See Circular No. 8 of 2002,
August 27, 2002, 258 ITR (St.) 13. Earlier, section 80M was omitted by the Finance Act, 1997 (26 of 1997), s 28 (w.e.f. 1-4-
1998). See Circular No. 763, February 18, 1998, 230 ITR (St.) 54.
59 CIT v Indian Iron 156 ITR 314 ; CIT v Puja Investments Pvt. Ltd 272 ITR 606, (2006) 203 CTR (P&H) 322 ; CIT v
Jamnalal and Sons 294 ITR 286 .
60 Delhi Tourism and T. D. C. Ltd. v CIT 285 ITR 114, (2006) 205 CTR 471 (Del); CIT v Saumya Finance and Leasing
Co. P. Ltd. 300 ITR 422, (2008) 215 CTR 359 (Bom).
61 CIT v State Bank of India 262 ITR 662, (2003) 181 CTR 63 (Bom).
62 CIT v Lakshmi Mills Co. Ltd. 290 ITR 663 .
63 South Indian Bank Ltd. v CIT 308 ITR 351, (2009) 308 ITR 351 (Ker).
64 Madras Auto v ITO 101 ITR 589 ; CIT v Emcete 109 ITR 491 ; Ramadas v CIT 115 ITR 883 ; CIT v Grover 115 ITR
885 ; CIT v Varadarajan 119 ITR 150 ; CIT v United General Trust 119 ITR 664 ; CIT v J K Bankers 124 ITR 687 ;
CIT v Darbhanga 80 ITR 72, CIT v New Great Ins 90 ITR 348, CIT v Madras Motor Ins 99 ITR 243, CIT v Advance
Ins 119 ITR 660 and CIT v Sahu (IT appln no 19 of 1972 (Bom) decided on 27 June1972)—rendered under old ss 85
and 85A and 99(1)(iv); Kumbakonam v CIT 92 ITR 302 ; CIT v State Bank 141 ITR 37 rendered under old s 86A ; and
deleted s 235 .
65 CIT v Isthmian 113 ITR 570 ; CIT v Crompton 119 ITR 921 .
Page 4 of 5
S. 80M.
66 118 ITR 243.
67 155 ITR 120 followed in CIT v Ramakrishna 179 ITR 638 ; CIT v Amalgamations 214 ITR 399 ; Shree Synthetics Ltd.
v CIT 303 ITR 451 ; CIT v Mahavir Spinning Mills Ltd. 308 ITR 445 . Williamson Financial Services Ltd. v CIT 295 ITR
371, (2008) 168 Taxman 261 (Gau) - overruled on a different point in 297 ITR 17 (SC), (2008) 2 SCC 202 . CIT v
National &Grindlays Bank Ltd. 202 ITR 559, (1993) 109 CTR 264 (Cal) is incorrect as the Calcutta High Court failed to
note the Supreme Court decision in Distributors (Baroda) P. Ltd.
68 See CIT v National Ins 159 ITR 314 (insurance company). Madras High Court has held that the Supreme Court’s
decision in Distributors (Baroda) should be confined to s 80M, and deduction under s 80K would be available on gross
dividend for period not covered by s 80AB : CIT v Madras Motor Ins 159 ITR 601 and CIT v Narayanan 159 ITR 618 .
Calcutta High Court has taken similar view and held that Cloth Traders still holds good for purpose of allowing relief on
gross dividend under old s 85A : Pilani v CIT 165 ITR 138 .
69 CIT v Cotton Fabrics 131 ITR 99 ; CIT v Laxmi Agents 125 ITR 227 ; CIT v National Grindlays 202 ITR 559 ; CIT v
Mahendra Sobhagchand 203 ITR 178 ; CIT v Kanoria Investments 232 ITR 7 . Cf Nandakumar v ITO 204 ITR 856 ;
CIT v Apoorva Shantilal 255 ITR 390 .
70 CIT v Madhya Pradesh Audyogik Vikas Nigam Limited 274 ITR 625, (2004) 192 CTR 423 (MP); DCIT v G.I.I.C. Ltd.
325 ITR 597 .
71 CIT v Central Bank of India 264 ITR 522, (2003) 130 Taxman 225 .
72 CIT v Maganlal 236 ITR 456 ; CIT v Chemical Holdings 249 ITR 540 ; CIT v Industrial Finance 198 ITR 539 ; CIT v
Maganlal Chaganlal P. Ltd. 284 ITR 663 ; CIT v Balika Finance Co. Ltd. 299 ITR 421, (2008) 215 CTR 255 (Mad) -
per contra, CIT v Emrald Co. Ltd. 284 ITR 586, (2006) 201 CTR 124 (Bom).
73 CIT v Emrald Co. Ltd. 284 ITR 586, (2006) 201 CTR 124 (Bom).
74 CIT v United Collieries 203 ITR 857 ; Maharashtra Apex Corporation Ltd. v CIT 286 ITR 585, (2006) 203 CTR 45
(Ker); Faridabad Investment Co. Ltd. v CIT 338 ITR 26 ; State Bank of Indore v CIT 275 ITR 23, (2009) 193 CTR 62
(MP).
75 254 ITR 203, 204.
76 CIT v Bhoruka 198 ITR 734 .
77 Kesoram v CIT 191 ITR 518 ; CIT v Bhoruka 198 ITR 734 .
78 CIT v Milling Trading 211 ITR 690 .
79 CIT v T Stanes 200 ITR 396 ; CIT v T Stanes 216 ITR 433 .
Page 5 of 5
S. 80M.
80 CIT v Jai Hind 202 ITR 316 .
81 CIT v Avik Investment 250 ITR 854 .
82 CIT v Kabirdas Investment Co (P) Ltd 249 ITR 776 ; State Bank of Indore v CIT 223 ITR 762 .
End of Document
S. 80MM.
S. 80MM.
83[* * * *]
1. Deleted Section 80MM : Payment Received for Technical Know-how and Services.—In order to qualify for
relief under this section, which is applicable for the assessment years 1970-71 to 1983-84, the agreement for the
provision of technical know-how1 should provide for one or more of the items specified in sub-s (2); it is not necessary
that it should provide for all those items. The term ‘provision of technical know-how’ is of wide amplitude and includes
the transfer of any right including granting of a license in respect of any patent, design or similar property.2 The
technical know-how can be both in connection with the installation or erection of machinery or plant and in the day-to-
day working of the units.3 The technical know-how which the assessee provides may have been acquired by it from a
foreign company.4 The assessee company does not lose the benefit of this section by also agreeing to act as selling
agent of the company to which it supplies the technical know-how.5 In Simon Carves India Ltd v CBDT ,6 the Delhi
High Court analysed the provisions of this section, and set aside the order of the Board refusing approval to the
agreement since the Board had not properly applied its mind to these provisions and the facts of the case. Similarly,
the Board in exercise of its power under s 119(2), should condone the delay for submission of the agreement in cases
of genuine hardship.7
The deduction under this section is to be allowed on the net income and not on the gross income.8
2. Writ, Direction or Order.—A writ, direction or order may be issued in appropriate cases.9 An order granting partial
approval after considering the agreement cannot be interfered with in writ proceedings.10 For the principles underlying
the grant of such relief, see s 293, under ‘Writs, directions and orders under Constitution’.
Page 2 of 3
S. 80MM.
In the context of s 80MM the undernoted case held that referable question of law did not arise11 under s 256 .
83 Section 80MM has been omitted by the Finance Act, 1983 (11 of 1983), s 29 (w.e.f. 1-4-1984). See Circular No. 372,
December 8, 1983, 146 ITR (St.) 9.
Omitted section 80MM .— Section 80MM, prior to its omission by the Finance Act, 1983, with effect from 1-4-1984, stood as
under:—
‘1[S. 80MM. Deduction in the case of an Indian company in respect of royalties, etc., received from any concern in
India.—(1)Where the gross total income of an 2[assessee, being an Indian company 3[***]], includes any income by way of
royalty, commission, fees or any other payment
(not being income chargeable under the head “Capital gains”) 4[received by the assessee] from any person carrying on a
business in India in consideration for—
(i) the provision of technical know-how which is likely to assist in the manufacture or processing of goods or materials, or in the
installation or erection of machinery or plant for such manufacture or processing, or in the working of a mine, oil well or other
source of mineral deposits, or in the search for, or discovery or testing of, mineral deposits or the winning of access to them, or
in carrying out any operation relating to agriculture, animal husbandry, dairy or poultry farming, forestry or fishing, or
(ii) rendering services in connection with the provision of such technical know-how,
5[under an agreement entered into by the assessee with such person on or after the 1st day of April, 1969, and approved by the
6[Board] in this behalf, 7[there shall, in accordance with and subject to the provisions of this section, be allowed a deduction] from
such income of an amount equal to forty per cent. thereof, in computing the total income of the assessee:
Provided that the application for such approval is made to the 8[Board] before the 1st day of October of the relevant assessment
year:]
9[Provided further that approval of the Board shall not be necessary in the case of any such agreement which has been
approved for the purposes of the deduction under this sub-section by the Central Government before the 1st day of April, 1972,
and every application for such approval of any such agreement pending with the Central Government immediately before that
day shall stand transferred to the Board for disposal.]
(2) For the purposes of this section “provision of technical know-how” means,—
(i) the transfer of all or any rights (including the granting of a licence) in respect of_a patent, invention, model, design, secret
formula or process or similar property;
(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or
process or similar property;
(iii) the use of any patent, invention, model, design, secret formula or process or similar property;
(iv) the imparting of any information concerning industrial, commercial or scientific knowledge, experience or skill.
10[(2A) * * *]
(3) The provisions of sub-section (1) shall not apply in relation to any income in respect of which the assessee is entitled to the
deduction specified in Section 80-O .]’.
1. Section 80MM was inserted by the Finance Act, 1969 (14 of 1969), s 9 (w.e.f. 1-4-1970).
2. The words, etc. “assessee, being an Indian company or a person (other than a company) who is resident in India” were
substituted for “assessee being an Indian company” by the Finance (No. 2) Act, 1971, (32 of 1971), s 19 (w.e.f. 1-4-1972).
3. Words, etc. “or a person (other than a company) who is resident in India” were omitted by the Finance Act, 1974 (20 of 1974),
s 7(a) (w.e.f. 1-4- 1975).
4. Subs., for “received by it”, by the Finance (No. 2) Act, 1971 (32 of 1971), s 19 (w.e.f. 1-4- 1972).
5. Subs. by the Finance Act, 1970, 19 of 1970, s 16 (w.e.f. 1-4-1970), for the following:—
“under an agreement entered into by the assessee with such person on or after the 1st day of April, 1969, and for which
approval of the Central Government in this behalf is applied for before the 1st day of the October of the relevant assessment
year, there shall be allowed a deduction from such income of an amount equal to forty per cent. thereof, in computing the total
income of the assessee.”.
6. Subs., for “Central Government”, by the Finance (No. 2) Act, 1971 (32 of 1971), s 19 (w.e.f. 1-4-1972).
7. Subs. by the Finance (No. 2) Act, 1971 (32 of 1971), s 19, for “there shall be allowed a deduction” (w.e.f. 1-4-1972).
8. Subs., for “Central Government”, by the Finance (No. 2) Act, 1971, (32 of 1971), s 19 (w.e.f. 1-4-1972).
Page 3 of 3
S. 80MM.
9. Ins. by the Finance (No. 2) Act, 1971 (32 of 1971), s 19 (w.e.f. 1-4-1972).
10. The following sub-section (2A) was inserted in s 80MM by the Finance (No. 2) Act, 1971 (32 of 1971) (w.e.f. 1-4-1972),
namely:—
“(2A) Where the assessee is a person other than a company or a co-operative society, the deduction under sub-section (1) shall
not be admissible unless the accounts of the assessee for the previous year 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 and setting forth such particulars as may be
prescribed.”
This sub-section (2A) was omitted by the Finance Act, 1974 (20 of 1974), s 7(b) (w.e.f. 1-4-1975).
1 Includes a techno-economic feasibility study: Lurgi v CBDT ,121 ITR 287; Holtec v CBDT ,120 ITR 696. See also post
the cases decided under s 80-O .
2 CIT v Sofremines ,186 ITR 67.
3 Dey Paper v CBDT ,187 ITR 624.
4 Lurgi v CBDT ,121 ITR 141.
5 RG Sales v ITO ,140 ITR 466.
6 120 ITR 172; Holtec v CBDT 120 ITR 696 ; Lurgi v CBDT 121 ITR 141 ; Lurgi v CBDT 121 ITR 287 ; Dey Paper
Consultants v CBDT 187 ITR 624 . Contrast Albright v CBDT 166 ITR 583 (Board’s order of refusal upheld by Bom
HC).
7 Tea Consultancy and Plantation Services (India) Pvt. Ltd. v UOI 278 ITR 356, (2005) 194 CTR 481 (Del).
8 Industrial Consulting v CIT 189 ITR 346 .
9 See the various cases cited above.
10 Chemical Consultants v CBDT 207 ITR 1003 .
11 CIT v Travel Corporation of India Ltd 209 ITR 555 .
End of Document
S. 80N.
S. 80N.
12[* * * *]
Deleted Section 80N : Dividends Received from Certain Foreign Companies.—This section, which is applicable
for assessment years prior to 1986-87, grants substantial tax concessions to Indian companies which are engaged in
consultancy and technical services.
One of the conditions of relief under this section is that the dividend should be received in convertible foreign
exchange; and this condition has been given retrospective effect by the Finance Act, 1974.
In case of an assessment already completed, an amendment may be made under s 155(11) (now deleted) in order to
grant deduction under this section.
This section was considered in the undermentioned cases.13
12 Section 80N has been omitted by the Finance Act, 1985 (32 of 1985), s 22 (w.e.f. 1-4-1986). See Circular No. 421,
June 12, 1985, 156 ITR (St.) 130.
Page 2 of 2
S. 80N.
Omitted section 80N .— Section 80N, prior to its omission by the Finance Act, 1985, with effect from 1st April, 1986, stood as
under:—
‘1[S. 80N. Deduction in respect of dividends received from certain foreign companies.—Where shares in a foreign
company have been allotted to an 2[assessee, being an Indian company
3[****],] in consideration of any patent, invention, model, design, secret formula or process, or similar property right, or
information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed
to be made available or provided to the foreign
company by the assessee, or in consideration of technical services rendered or agreed to be rendered to the foreign company
by the assessee, under an agreement approved by the 4[Board in this behalf], and any income by way of dividend on such
shares 5[included in the gross total income of the assessee is received in convertible foreign exchange in India, or having been
received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India,
is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating
payments and dealings in foreign exchange, there shall be allowed 6[a
deduction of an amount equal to fifty per cent. of the income] so received in, or brought into, India,] in computing the total income
of the assessee:
7[Provided that the application for such approval is made to the Board before the 1st day of October of the relevant assessment
year:
Provided further that the approval of the Board shall not be necessary in the case of any such agreement which has been
approved for the purposes of the deduction under this section by the Central Government before the 1st day of April, 1972, and
every application for such approval of any such agreement pending with the Central Government immediately before that day
shall stand transferred to the Board for disposal.]
(i) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as
convertible foreign exchange for the purposes of the law for the time being in force for regulating payments and dealings in
foreign exchange;
(ii) any income used by the assessee outside India in the manner permitted by the Reserve Bank of India shall be deemed to
have been brought into India in accordance with the law for the time being in force for regulating payments and dealings in
foreign exchange, on the date on which such permission is given.]’.
1. For amendment of section 80N as it stood immediately before 1st April, 1969, see, section 17 of the Finance Act, 1974
[(1974) 94 ITR (St.) 47].
2. The words, etc. “assessee, being an Indian company or a person (other than a company) who is resident in India,” were
substituted for the words “assessee being an Indian company” by the Finance (No. 2) Act, 1971 (32 of 1971), s 20(a) (w.e.f. 1-4-
1972).
3. The words, etc. “or a person (other than a company) who is resident in India” were omitted by the Finance Act, 1974 (20 of
1974), s 8(a) (w.e.f. 1-4-1975).
4. Subs., for “Central Government in this behalf before the 1st day of October of the relevant assessment_ year”, by the Finance
(No. 2) Act, 1971 (32 of 1971), s 20(b) (w.e.f. 1-4-1972).
5. Subs., for “is included in the gross total income of the assessee, there shall be allowed a deduction of the whole of such
income,”, by the Finance Act, 1974 (20 of 1974), s 8(b) (w.r.e.f. 1-4-1969).
6. Subs., for “a deduction of the whole of the income”, by the Finance Act, 1984 (21 of 1984), s 17 (w.e.f. 1-4-1985).
7. Ins. by the Finance (No. 2) Act, 1971 (32 of 1971), s 20(c) (w.e.f. 1-4-1972).
8. Ins. by the Finance Act, 1974 (20 of 1974), s 8(c) (w.r.e.f. 1-4-1969).
13 ACC v CIT ,221 ITR 215; Larsen and Toubro v CIT ,215 ITR 123.
End of Document
S 80-O. Deduction in respect of royalties, etc., from certain foreign
enterprises
S 80-O. Deduction in respect of royalties, etc., from certain foreign enterprises
14 15,16[Where the gross total income of an assessee, being an Indian company,]17 [or a person (other than a company)
who is resident in India] includes18[any income received by the assessee from the Government of a foreign State or foreign
enterprise in consideration for the use outside India of any patent, invention, design or registered trade mark]19 [* * *
*]20[and such income is received in convertible foreign exchange in India, or having been received in convertible foreign
exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by
or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in
foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section,21[a deduction of
an amount equal to—
(i) forty per cent. for an assessment year beginning on the 1st day of April, 2001;
(ii) thirty per cent. for an assessment year beginning on the 1st day of April, 2002;
(iii) twenty per cent. for an assessment year beginning on the 1st day of April, 2003;
(iv) ten per cent. for an assessment year beginning on the 1st day of April, 2004,
of the income so received in, or brought into, India, in computing the total income of the assessee and no deduction shall
be allowed in respect of the assessment year beginning on the 1st day of April, 2005, and any subsequent assessment
year]:
22[* * * *]
23[24[Provided] that such income is received in India within a period of six months from the end of the previous year,
or25[within such further period as the competent authority may allow in this behalf]:]
26[Provided further that no deduction under this section shall be allowed unless the assessee furnishes a certificate, in the
Page 2 of 9
prescribed form27, along with the return of income, certifying that the deduction has been correctly claimed in accordance
with the provisions of this section.]
(i) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank
of India as convertible foreign exchange for the purposes of the law for the time being in force for regulating
payments and dealings in foreign exchange;
(ii) 29[(ii)“foreign enterprise” means a person who is a non-resident;]]
(iii) 30[“servicesrendered or agreed to be rendered outside India” shall include services rendered from India but shall
not include services rendered in India;]
(iv) 31[“competent authority” means the Reserve Bank of India or such other authority as is authorised under any law
for the time being in force for regulating payments and dealings in foreign exchange.
32[****]]
1. Section 80-O : Royalty, Commission, Fees etc Received from Foreign Enterprises.—This section was
originally introduced to grant substantial tax concessions to Indian companies [ s 2(26) ], and from the assessment
year 1992-93, it has also extended to non-corporate assessees who are resident in India, in respect of receipts of
royalty or similar payments for patent, design, technical services, etc from a foreign enterprise.
The scope of this section has undergone a major change from the assessment year 1998-99; it is now restricted to the
exploitation of patent rights, trade marks or technical know-how abroad and the deduction under this section is
curtailed in phases and will not be available from assessment year 2005-06.
The law up to the assessment year 1997-98 was interpreted in several judgments which will be relevant for pending
cases. According to the Supreme Court (a) the section requires the agreement to be between the assessee and a
foreign government or a foreign enterprise, and (b) ‘foreign enterprise’ does not include an enterprise of an Indian
company in a foreign land.33 The deduction would be available even where the foreign recipient of the services utilises
the benefits of such services in India.34
The Supreme Court in Continental Construction Ltd v CIT 35 held that the nature of services covered under this
section may be varied. It observed that the true interpretation of the expression ‘any similar payment’ does not lie in
the preceding three words viz ‘royalty, commission or fee’ but in the second part of the section and connotes income
which need not be in the nature of royalty, commission or fee only; it could be any payment of like nature, i.e., made in
consideration of the use or supply of such an asset, knowledge or services in the same manner as royalty,
commission or fee for such services.
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In CBDT v Oberoi ,36 it was held that ‘technical services’ always included within it ‘professional services’ as well, and
the amendment to this effect by the Finance (No 2) Act, 1991 was only of a clarificatory nature.
An agreement to conduct a public opinion survey for a foreign broadcasting corporation was held to be covered by this
section,37 but not an agreement to act as an employment or recruiting bureau.38 The Supreme Court has held that for
the purpose of this section ‘technical services’ would include management of a modern hotel.39 Similarly, the Bombay
High Court has held that the question whether a managerial service is a technical service is a matter that would
require to be evaluated in the background of the facts of each case and it cannot be postulated as a general
proposition of law that all managerial services must necessarily be non-technical services.40 Loaning of services of
technicians41 or rendering technical services by sending technical personnel abroad42 would be covered by this
section. Designs prepared by an architect in India but used outside India will be entitled to deduction under this section
as the fees were received in convertible foreign exchange.43 The assessee who tests samples of products in India and
sends the results to a foreign party renders technical services only in India and is not entitled to the benefit of this
section.44 It is submitted that cl (iii) of the Explanation, which was inserted by the Finance (No. 2) Act, 1991, makes
services rendered from India eligible but services rendered in India are not eligible.
A circular45 has clarified that as long as technical and professional services are rendered from India and are received
by a foreign Government or enterprise outside India, deduction under s 80-O would be available. Applying the said
circular, it was held that as long as the technical and professional services were rendered from India and were
received by a foreign Government or enterprise outside India, deduction under s 80-O would be available to the
person rendering the services even if the foreign recipient of the services utilized the benefit of such services in
India.46 The important purpose of this section was to encourage earnings in convertible foreign exchange. However,
an assessee who receives consideration under a consultancy agreement for collecting and analysing data and
information pertaining to an industry from all over the world and advising in various matters with special reference to
India is entitled to the benefit of this section.47
Similarly, an assessee providing commercial information and receiving commission from foreign buyers in foreign
exchange in India is entitled to the benefit of this section.48 No relief is permissible unless satisfactory evidence exists
that commercial information was furnished or technical services rendered. Mere receipt of sales commission will not
qualify for deduction.49 Giving of a right to manufacture and sell goods outside India, even if it is termed a trade
restriction, would not disentitle the assessee from claiming deduction under this section; further, giving of training to
foreign professionals in India would also be entitled to this deduction.50 Developing educational materials through CDs
and books will not be a new invention or design to qualify for deduction.51
The Supreme Court in the Continental Construction case has also laid down the principle of apportionment that in the
case of a composite agreement, wherein the assessee receives a consolidated amount as consideration for purposes
which also include matters outside the scope of s 80-O, it is the duty of the AO to grant the deduction under this
section in respect of consideration attributable to services covered by the section; the deduction under this section
cannot be denied merely on the ground that the agreement does not specifically use the nomenclature of services
mentioned in the section.52 It is also not necessary that the technical services should be rendered personally and not
through the medium of others.53 The deduction under this section is subject to the provisions of s 80AB and therefore
only the net income is eligible for deduction.54
Further, it has been held that in computing the net income, the business loss of earlier years and unabsorbed
Page 4 of 9
depreciation is to be deducted from the total income.55
One of the conditions of relief under this section is that the payment should be received in convertible foreign
exchange; and this condition has been given retrospective effect by the Finance Act, 1974. The deduction is restricted
to the percentage of income actually received in India in convertible foreign exchange.56 However, receipts of
brokerage by a re-insurance agent retained in India, before remittance of the net premia to his foreign principal, is
entitled to deduction under the section and a two-way traffic of formal remittance first and receipt of commission
thereafter from the foreign insurer is not necessary.57
There is a complete identity of matters governed by this section and s 80HHB, dealing with deduction in respect of
profits from projects outside India, and therefore, from the assessment year 1983-84 onwards, in terms of sub-s (5) of
s 80HHB, deduction under that section would prevail over this section.58 However, for the prior period, while granting
approval to an agreement, the Board is required to consider the application in the context of this section only and the
approval cannot be denied on the ground that it is covered by s 80HHB .59
It was further clarified by the Supreme Court60 that, in its earlier decision in Continental Constructions,61 it did not hold
that income which was not wholly relatable to s 80HHB would not be available for deduction under any other provision.
There can be different forms of foreign contracts the consideration wherein would be available for deduction under s
80-O or s 80HHB . Where the relief is clearly referable only to s 80-O, the assessee would continue to receive
deduction available thereunder.
Upto the assessment year 1991-92, another condition to be fulfilled under this section was that the agreement was to
be approved by the Chief CIT or the Director General.62 The section also required the production of the agreement in
respect of which the deduction was claimed before the 1st October of the assessment year in relation to which the
approval was first sought. However, there is no provision under the Act for the condonation of delay in the production
of such agreement for approval.63 Rule 11E prescribed the form in which the application for such approval was to be
made.
The power of the board to grant approval to an agreement is quasi judicial in nature64 and hence, before the denial of
approval, the assessee must be given an opportunity of being heard.65 The board is also required to give an
opportunity to the assessee if the copy of the agreement or the information cannot be supplied due to adverse political
conditions in a foreign country.66 An application for approval of the agreement can be filed even after the end of the
previous year during which the services are rendered and it is not necessary that the agreement should be approved
before the services are rendered.67
In the Continental Construction case, the Supreme Court has also held that the approval of agreement by the board
cannot be tentative, provisional, qualified or hedged in with conditions. An approval granted by the board enures for
the entire period of agreement and the board cannot limit the relief to certain assessment years only; further, it is not
competent for the department to question the approval granted by the board.
2. Writ, Direction or Order.—A writ, direction or order may be issued in appropriate cases.68 If the Board is guilty of
passing an erroneous order or of inaction, the remedy of the assessee lies in invoking the writ jurisdiction of the High
Court, but if the Board has refused to approve the agreement, the tribunal cannot dispense with the statutory
Page 5 of 9
requirement of an approval of the board.69 However, as long as the Board has followed the requisites of the section
and has considered all relevant material, it is not permissible to invoke the writ jurisdiction of the High Court.70 [For the
principles underlying the grant of such relief, see under s 293, ‘Writs, directions and orders under Constitution’.]
In the context of s 80-O, the undernoted case held that referable questions of law arose71 under s 256 .
14 This Section 80-O was substituted by the Finance (No. 2) Act, 1971 (32 of 1971), s 21 (w.e.f. 1-4-1972). See Circular
No. 72 of 1972, January 6, 1972.
15 For amendment of section 80-O as it stood immediately before 1st April, 1972, see, section 17 of the Finance Act,
1974 ((1974) 94 ITR (St.) 47).
16 Subs., for “(1) Where the gross total income of an assessee, being an Indian company or a person (other than a
company) who is resident in India,”, by the Finance Act, 1974 (20 of 1974), s 9(b) (w.e.f. 1-4-1975). See Circular No.
138 of 1974, June 17, 1974.
17 Subs., for “(1) Where the gross total income of an assessee, being an Indian company or a person (other than a
company) who is resident in India,”, by the Finance Act, 1974 (20 of 1974), s 9(b) (w.e.f. 1-4-1975). See Circular No.
138 of 1974, June 17, 1974.
18 Ins. by the Finance (No. 2) Act, 1991 (49 of 1991), s 34(a) (w.e.f. 1-4-1992). See Circular No. 621, December 19,
1991, 195 ITR (St.) 154.
19 The words “under an agreement approved in this behalf by the Chief Commissioner or the Director General” have
been omitted by the Finance (No. 2) Act, 1991 (49 of 1991), s 34(c) (w.e.f. 1-4-1992). Earlier, above words were
substituted for “under an agreement approved by the Board in this behalf” by the Finance Act, 1988 (26 of 1988), s
26(a)(i) (w.e.f. 1-4-1989). See Circular No. 528, December 16, 1988, 176 ITR (St.) 154.
20 Subs., for “and such income is received in convertible foreign exchange in India, there shall be allowed, in accordance
with and subject to the provisions of this section, a deduction of an amount equal to fifty per cent. of the income so
received in India, in computing the total income of the assessee”, by the Finance Act, 1988 (26 of 1988), s 26(a)(ii)
(w.e.f. 1-4-1988).
Earlier, the words “there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of the
whole of such income” were substituted for “and such income is received in convertible foreign exchange in India, †[or having
been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside
India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating
payments and dealings in foreign exchange,] there shall be allowed, in accordance with and subject to the provisions of this
section, ‡[a deduction of the whole of the income] so received in, or brought into India” by the Finance Act, 1974 (20 of 1974), s
9(a)(i) (with retrospective effect from 1-4-1972).
In the above portion, the portion put within the parentheses marked ‡ was, subsequently, substituted by the words “a deduction
of an amount equal to fifty per cent. of the income” by the Finance Act, 1984 (21 of 1984), s 18 (w.e.f. 1-4-1985). See Circular
No. 387, July 6, 1984, 152 ITR (St.) 1. Further, the portion put within the parentheses marked † was, subsequently, omitted by
the Finance Act, 1987 (11 of 1987), s 36(a)(i) (w.e.f. 1-4-1988). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
Also, the words “so received in, or brought into, India” were substituted by the words “so received in India” by the Finance Act,
1987 (11 of 1987), s 36(a)(ii) (w.e.f. 1-4-1988).
Page 6 of 9
21 Subs., for “a deduction of an amount equal to fifty per cent. of the income so received in, or brought into India, in
computing the total income of the assessee”, by the Finance Act, 2000 (10 of 2000), s 41 (w.e.f. 1-4-2001). See
Circular No. 794, August 9, 2000, 245 ITR (St.) 21.
22 The first and the second provisos were omitted by the Finance (No. 2) Act, 1991 (49 of 1991), s 34(d) (w.e.f. 1-4-
1992). Prior to their omission, the first and the second provisos stood as under:—
‘Provided that the application for the approval of the agreement referred to in this section is made to the Chief Commissioner, or
as the case may be, the Director-General in the prescribed form and verified in the prescribed manner before the 1st day of
October of the assessment year in relation to which the approval is first sought:
Provided further that the approval of the Chief Commissioner, or as the case may be, the Director-General shall not be
necessary in the case of any such agreement which has been approved for the purposes of the deduction under this section by
the Central Government before the 1st day of April, 1972, or by the Board before the 1st day of April, 1989, and every
application for such approval of any such agreement pending with the Board immediately before the 1st day of April, 1989, shall
stand transferred to the Chief Commissioner or the Director-General for disposal:’.
The above two provisos were substituted by the Finance Act, 1988 (26 of 1988), s 26(b) (w.e.f. 1-4-1989), for the following:—
‘Provided that the application for the approval of the agreement referred to in this sub-section is made to the Board before the
1st day of October of the assessment year in relation to which the approval is first sought:
Provided further that approval of the Board shall not be necessary in the case of any such agreement which has been approved
for the purposes of the deduction under this section by the Central Government before the 1st day of April, 1972, and every
application for such approval of any such agreement pending with the Central Government immediately before that day shall
stand transferred to the Board for disposal.’.
24 Subs., for “Provided also”, by the Finance (No. 2) Act, 1991 (49 of 1991), s 34(e) (w.e.f. 1-4-1992).
53(a) (w.e.f. 1-6-1999). See Circular No. 779, September 14, 1999, 240 ITR (St.) 3. In the above, the words “Chief
Commissioner or Commissioner” were substituted for “Commissioner” by the Direct Tax Laws (Amendment) Act, 1987
(4 of 1988), s 2 (w.e.f. 1-4-1988).
27 See, rule 29AA of the Income-tax Rules, 1962, and Form No. 10HA appended to those Rules. See Circular No. 421,
June 12, 1985, 156 ITR (St.) 130.
‘Explanation.—The provisions of the Explanation to section 80N shall apply for the purposes of this section as they apply for the
purposes of that section.’.
The above Explanation was, originally, inserted by the Finance Act, 1974 (20 of 1974), s 9(a)(ii) (w.r.e.f. 1-4-1972).
29 Subs. by the Finance Act, 1987 (11 of 1987), s 36(c) (w.e.f. 1-4-1988), for the following:—
‘ any income used by the assessee outside India in the manner permitted by the Reserve Bank of India shall be deemed to have
been brought into India in accordance with the law for the time being in force for regulating payments and dealings in foreign
exchange, on the date on which such permission is given.’.
Page 7 of 9
30 Ins. by the Finance (No. 2) Act, 1991 (49 of 1991), s 34(f) (w.e.f. 1-4-1992).
32 Sub-section (2) has been omitted by the Finance Act, 1974 (20 of 1974), s 9(c) (w.e.f. 1-4-1975). Prior to its omission,
sub-section (2) stood as under:—
(2)“(2) Where the assessee is a person other than a company or a co-operative society, the deduction under sub-section (1)
shall not be admissible unless the accounts of the assessee for the previous year 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 and setting forth such particulars as may
be prescribed.”.
33 Petron v CBDT 175 ITR 523 . See also CIT v Parrys 176 ITR 449 .
34 Circular No 700 dated March 23, 1995,213 ITR (St) 78. But see Expl cl (iii).
35 195 ITR 81(SC),applied in Raunaq International v UOI,256 ITR 761.
36 231 ITR 148(SC).
37 Da Costa v UOI 121 ITR 751 . See also the cases under s 80MM .
38 Eastman v CBDT 132 ITR 637 .
39 CBDT v Oberoi 231 ITR 148 (SC), disapproving JK v CBDT 118 ITR 312 ; Ghai v CBDT 124 ITR 301 .
40 Godrej v s B Potnis 203 ITR 947 .
41 Simon v ITO 159 ITR 167 .
42 Shaw Wallace v CBDT 196 ITR 241 .
43 CIT v Charles M. Correa 323 ITR 174, (2010) 232 CTR 61 (Bom).
44 Searle v CBDT 145 ITR 673 ; Anand and Anand v CIT 286 ITR 432, (2006) 200 CTR 1 (Del) (services rendered in
India); distinguished in CIT v Inchcape India P. Ltd. 273 ITR 92, (2005) 193 CTR 290 (Del) (services rendered in
India).
45 Circular No. 700 dated March 23, 1995 : 213 ITR (St.) 78.
Page 8 of 9
46 CIT v Inchcape India P. Ltd. 273 ITR 92, (2005) 193 CTR 290 (Del); Li & Fung India P. Ltd. v CIT 305 ITR 105,
(2008) 216 CTR 252 (Del).
47 AS Mani v CIT 227 ITR 380 .
48 CIT v Mittal Corporation 272 ITR 87, (2005) 193 CTR 1 (Del).
49 CIT v Khursheed Anwar 311 ITR 468 .
50 CBDT v HMT 199 ITR 144 .
51 Thomas P.C. v ACIT 326 ITR 388, (2010) 231 CTR Ker 306 .
52 See also Associated Cement v CIT 221 ITR 215 .
53 Continental Construction v CIT 195 ITR 81 (SC).
54 CIT v M K Raju 239 ITR 232 ; CIT v M N Dastur 243 ITR 10 ; CIT v Chemical & Mettalurgical 247 ITR 749 ; CIT v
Marketing Research Corporation 61 CTR 204 ; CIT v Asian Cable Corporation Ltd. (No. 2) 262 ITR 537, (2005) 180
CTR 293 (Bom); Grover S. R. v ACIT 280 ITR 580, (2006) 200 CTR (Del); ACIT v Abcon Engineering and Systems P.
Ltd. 287 ITR 201, (2007) 208 CTR 146 (Ker); CIT v Wipro Infotech Ltd. 323 ITR 151, (2010) 233 CTR (Kar).
55 CIT v M K Raju 239 ITR 232 .
56 CIT v Indus 230 ITR 328 .
57 JB Boda v CBDT 223 ITR 271 (SC); Atlas Cycle Industries Ltd. v CIT 270 ITR 108 .
58 Continental Construction v CIT 195 ITR 81 (SC). Cf KMA International v CBDT 194 ITR 332 and Stup Consultants v
CBDT 187 ITR 353 . See also Dharamsi Morarji v CBDT 206 ITR 608 .
59 Gammon India v CBDT 184 ITR 458 ; Davy Powergas v CBDT 207 ITR 158 and 207 ITR 164 ; Blue Star v CBDT
204 ITR 860 ; Indian Commerce v IAC 229 ITR 335 .
60 Continental Construction Ltd. v UOI 264 ITR 470 (SC), (2003) 11 SCC 22 .
61 Continental Construction Ltd. v CIT 195 ITR 81 (SC), AIR 1992 SC 803, 1992 125 SCC 567 (Supp).
62 CIT v Birla 133 ITR 373 and CIT v Indian Institute of Public Opinion 134 ITR 23 (pre-1971 law).
Page 9 of 9
63 CIT v Data Software 247 ITR 207 (SC). A contrary but better view was earlier taken by the Madras HC in Pallavan
Transport v UOI 233 ITR 745 . Cf under s 80J, sub-s (6A).
64 Pallavan Transport v UOI 233 ITR 745 .
65 Pacific Shipping v CCIT 245 ITR 433 .
66 Dubon Projects v CBDT 200 ITR 577 .
67 CIT v Bhaichand 208 ITR 1 .
68 Apte v CBDT 153 ITR 824 ; Trading Engineers v CBDT 176 ITR 317 . See also the various cases cited above.
69 CIT v Phaltan Sugar 191 ITR 403 .
70 Khatri Consultants v CBDT 203 ITR 634 .
71 CIT v Om Inter Services (P) Ltd. 235 ITR 429 .
End of Document
S. 80P. Deduction in respect of income of co-operative societies
(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income
referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this
section, the sums specified in sub-section (2), in computing the total income of the assessee.
(a) in the case of a co-operative society engaged in—
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii) a cottage industry, or
(iii) 72[the marketing of agricultural produce grown by its members, or]
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the
purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its members,73[or]
(vi) 74[the collective disposal of the labour of its members, or

(vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing
of fish, or the purchase of materials and equipment in connection therewith for the purpose of supplying
them to its members,]
the whole of the amount of profits and gains of business attributable to any one or more of such
activities:
75[Provided
that in the case of a co-operative society falling under sub-clause (vi) or sub-clause (vii),
the rules and bye-laws of the society restrict the voting rights to the following classes of its
members, namely:—
Page 2 of 15
(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied
activities;
(2) the co-operative credit societies which provide financial assistance to the society;
(3) the State Government;]
(b) 76[in
the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or
vegetables raised or grown by its members to—
(i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits
or vegetables, as the case may be; or
(ii) the Government or a local authority; or
(iii) a Government company as defined in section 617 77 of the Companies Act, 1956 (1 of 1956), or a
corporation established by or under a Central, State or Provincial Act (being a company or corporation
engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public),
the whole of the amount of profits and gains of such business;]
(c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b)
(either independently of, or in addition to, all or any of the activities so specified),78[so much of its profits and
gains attributable to such activities as does not exceed,—
(i) where such co-operative society is a consumers’ co-operative society,79[one hundred thousand rupees];
and
(ii) in any other case,80[fifty thousand rupees].
Explanation.—In this clause, “consumers’ co-operative society” means a society for the benefit of
the consumers;]
(d) in respect of any income by way of interest or dividends derived by the co-operative society from its
investments with any other co-operative society, the whole of such income;
(e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for
storage, processing or facilitating the marketing of commodities, the whole of such income;
(f) in the case of a co-operative society, not being a housing society or an urban consumers’ society or a society
carrying on transport business or a society engaged in the performance of any manufacturing operations with
the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any
income by way of interest on securities81[* *] or any income from house property chargeable under section 22
.
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Explanation.—For the purposes of this section, an “urban consumers’ co-operative society” means a
society for the benefit of the consumers within the limits of a municipal corporation, municipality,
municipal committee, notified area committee, town area or cantonment.
(3) In a case where the assessee is entitled also to the deduction under82[83[* * *]84[ section 80HH or section 80HHA
85[or section 80HHB ]86[or section 80HHC ]87[or section 80HHD ]88[or Section 80-I ]89[or Section 80-IA ] or section
80J ]]90[or section 80JJ ]91[* * * *], the deduction under sub-section (1) of this section, in relation to the sums
specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income,
if any, as referred to in those clauses included in the gross total income as reduced by the1[deductions under2[
section 80HH,3[ section 80HHA,4[ section 80HHB,]5[ section 80HHC,]6[ section 80HHD,] Section 80-I,7[ Section
80-IA,] section 80J ]]8[and section 80JJ ]].
(4) 9[The provisions of this section shall not apply in relation to any co-operative bank other than a primary
agricultural credit society or a primary co-opertive agricultural and rural development bank.
(a) “co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to
them in Part V10 of the Banking Regulation Act, 1949 (10 of 1949);
(b) “primary co-operative agricultural and rural development bank” means a society having its area of operation
confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural
development activities.]
1. Section 80P [ Section 14(3) of 1922 Act]: Deductible Income of Co-operative Societies.—A co-operative
society is defined by s 2(19), and includes a regional rural bank for the purposes of this Act.
This section should be liberally construed to effectuate the legislative object of encouraging and promoting the growth
of co-operative societies.11 The expression “attributable to” is wider than the expression “derived from” and suggests
that the legislature intended to cover receipts from sources other than the actual conduct of the business of the
assessee.12 It grants a deduction in respect of some categories of income of a co-operative society.13 The profits of
certain specified businesses are totally exempt from tax,14 the profits of a business carried on by a consumers’ co-
operative society are exempt up to a maximum of Rs 1,00,000 (Rs 40,000 up to assessment year 1998-99), and the
profits of other businesses are exempt up to a maximum of Rs 50,000 (Rs 20,000 up to assessment year 1998-99).
The profit exempted is the net profit included in the total income and not the gross profit of business.15 Further, the
exemption is in respect of income derived from the various activities mentioned in the section and not in respect of
gross receipts from any or all the activities, and the words ‘the whole of the amount of profits and gains of business’
appearing in sub-s (2) refer to only such income which is attributable to the activities which are exempt; and if separate
books of accounts are not maintained and expenses have been incurred jointly for earning both the incomes, then the
expenses relatable to earning the non exempt income is to be apportioned.16 A contrary view was taken in a case
where the business of the assessee was one and indivisible and it was held that the common expenditure could not be
apportioned between specified and taxable activities. The deduction under s 80P(2)(a)(iv) is allowable on the gross
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income of the society and not on net income.17 Before allowing the deduction under this section, the carried forward
losses of the earlier years are required to be set off.18
(a) Sub-section (2)(a)(i).—The basic requirement of the sub-section is that the assessee must be engaged in
carrying on the business of banking or providing credit facilities to its members.19
The interest received by a co-operative banking society on deposits made from its circulating capital is deductible as
being part of the profits of its banking business.20 Interest on bank deposit is ancillary and incidental to the business of
providing credit facility to its members and hence exempt.21 Interest on securities held by a co-operative society as the
stock-in-trade of its banking business is wholly deductible under this clause, though it may not qualify for deduction
under cl (f).22 [See deleted s 18, under ‘Securities held as trading assets’]. Interest earned by the assessee on the
activity of granting loans exclusively to members for the purchase of goods from itself is entitled to deduction.23 In CIT
v Karnataka State Co-op ,24 the Supreme Court held that the interest arising from investment made out of the reserve
fund in compliance with statutory provisions to enable the assessee to carry on banking business is exempt. The
income arising out of interest from government securities,25 interest on refund of excess income-tax paid,26 interest
earned from unutilized funds27 dividend from shares of other co-operative institutions,28 or from investment in other
banks29 or an industrial finance corporation,30 rental income,31 locker rent,32 miscellaneous income attributable to
banking business,33 recovery of training cost and security forfeiture,34 underwriting commission,35 commission for
collecting electricity bills36 or income from letting of commercial asset.37 However, interest earned on loans advanced
to employees of the society bank is not eligible for deduction as this was not part of its banking activity.38 is entitled to
exemption. Similarly, interest earned on investment of the employees’ provident fund is not eligible as the money did
not belong to the assessee-bank.39
Mere withdrawal of funds from banking activity is not sufficient to deny deduction, but if it is proved that the withdrawal
of funds for investment has resulted in permanent deprivation of funds, the deduction could be denied: investment in
Indira Vikas Patra could be brought back to banking business and hence is eligible for deduction.40
However, the service charge collected from members for arranging loans does not constitute one of the sources of
income attributable to banking activities and is, therefore, not entitled to deduction.41
The subsidy received by a co-operative banking society from the Government for opening new branches and granting
loans to the poor at low interest is part of the profits from, or in any event ‘profits…attributable to’, its banking
business.42 On the contrary, subsidy received by a sugar co-operative society is for repayment of loans taken to set up
new units or for expansion is not income in the course of trade but is capital in nature.43 Income derived by a co-
operative bank from conducting a chit fund is exempt as profit from the business of providing credit facilities to its
members.44 ‘Providing credit facilities’ means providing credit by way of loans, and not selling goods on credit,45 and
would include guaranteeing payments.46 Extending credit in the course of housing activity, being one of the objects of
the assessee, is regarded as one of providing credit facilities.47 However, the Supreme Court, in Madras Auto v CIT ,48
held that the business of buying auto rickshaws and selling them to members under a hire purchase agreement could
not be considered as offering a credit facility. To be eligible for exemption, credit facilities should be provided by the
society to its own members and not to the members of its member societies.49
(b) Sub-section (2)(a)(ii).—The concept of ‘cottage industry’ is discussed in the undermentioned cases.50 The
exemption under this clause was held available where an apex society supplied raw material and machinery to the
primary society to be supplied to weavers, and then it purchased the manufactured goods from them for being sold in
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the market.51 Similarly, the profit from the activity of manufacture of cloth carried out through primary societies, which
are under the direction, supervision and control of the apex society, is entitled to deduction under this clause.52
(c) Sub-section (2)(a)(iii).—This clause has been amended by the Income-tax (Second Amendment) Act, 1998 with
retrospective effect from April 1, 1968 to restrict the exemption only to co-operative societies engaged in marketing of
agricultural produce grown by its members. This amendment was to supercede the decision of the Supreme Court in
Kerala State Co-op Ltd v CIT 53 holding that a co-operative society would be entitled to exemption for marketing
agricultural produce belonging to its members and not necessarily grown by them. However, the amendment did not
authorise the reopening of an assessment which was already barred by limitation.54
In this clause the word ‘marketing’ is an expression of wide import55—it is not be restricted only to the buying and
selling activity: it also includes all the intermediate processes connected with the marketing of the agricultural produce
of the members.56 Under this section, the exemption is available only to profits attributable to the actual sales of
specified commodities to its members, and not the sales to the non-members.57 Income from ginning and pressing
with the aid of power would be exempt if these activities are ancillary to the society’s main activity of marketing the
agricultural produce of its members.58 Similarly, a society which purchases paddy from its members, hulls it and sells
the rice, is entitled to exemption.59 Likewise, the commission charges received by a society for marketing the cotton of
its members are exempt even if the society gins and presses the cotton before marketing it.60 Income from lorries hired
for the purpose of transporting agricultural produce is entitled to exemption as it would come within the meaning of
“marketing”.61
(cc) Sub-section 2(a)(iii) and (v).—An interesting question of interpretation of sub-clause (iii) and sub clause (v)
arose before the Full Bench of the Punjab & Haryana High Court.62 It was held that s 80P was enacted with a view to
encourage and promote growth of the co-operative sector in the economic life of the country and in pursuance of the
declared policy of the Government. The correct way of reading the different heads of exemption enumerated in the
section would be to treat each as a separate and distinct head of exemption. Whenever a question arose as to
whether any particular category of an income of a co-operative society is exempt from tax, it should be seen whether
the case falls within any of the several heads of exemption. If it falls within any one head, it would be free from tax
notwithstanding that the conditions of another head of exemption were not satisfied and such income would not be
free from tax under that head of exemption.
In the case before the Full Bench, it was held that sub-cl (iii) had a wider scope. Under this sub-clause, the members
had to be growers themselves, meaning thereby, that for the society with members being growers, the deduction was
available even if the agricultural produce was marketed without further processing or even if it was processed with the
use of power. On the other hand sub-cl (v) was a restrictive clause and had to be understood as covering a case of
members having agricultural produce not grown by them. Sub-clause (v) was applicable on fulfillment of the following
conditions:
(a) some processing had to be carried out on the agricultural produce; and
(b) the processing was without the aid of power.
Thus, in that case, it was observed that there cannot be sufficient market for purchase of sugarcane itself as grown by
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its members. The sugarcane necessarily was to be converted into sugar before it could be made marketable.
Therefore, keeping in view the legislative intent for enacting s 80P(2)(a)(iii), the benefit thereunder could not be denied
to a society which manufactures and sells sugar out of the sugarcane grown by its members. Agricultural produce
grown by members of society for public distribution system is eligible for deduction.62a
‘Agricultural produce’ includes eggs.63 The Andhra Pradesh High Court has held that exemption under this clause is
available only if the agricultural produce marketed by the society continues to belong to its members at all points of
time. The society is not entitled to exemption if it makes outright purchases from its members and effects sales on its
own account.64 Exemption is not available to a society which markets the agricultural produce of the members of its
member societies.65 Exemption is not available to a society in respect of income earned from marketing agricultural
produce of non-members.66
(d) Sub-section (2)(a)(iv).—This clause is not restricted to a primary society, but applies also to an apex society
which supplies the stated articles to its member societies.67 Further, for getting the benefit of this clause it is not
necessary that the supplies by the society should be confined to its members; such supplies may extend to non-
members also, though in respect of the profits from such supplies the society would not be entitled to exemption under
this clause but only to the limited deduction under cl (c).68 ‘Articles intended for agriculture’ means articles directly
required for agricultural operations.69 The Bombay High Court has held that water is an ‘article’ intended for
agriculture, and therefore, income from lift irrigation scheme is entitled to exemption.70 Exemption is not available to a
society which merely acts as a distributing agent of the government.71
(e) Sub-section (2)(a)(vi).—In order that a society may be entitled to deduction under this clause, the voting rights
should be restricted to the three classes of members mentioned in the proviso.72 ‘Collective disposal of the labour of its
members’ would mean rendering of actual labour by the members, and mere overall supervision of field work done by
paid employees is not entitled to the benefit of this clause.73 There was a finding of fact that the society’s purpose was
the collective disposal of the labour of its members for discharge of financial and social interest of labourers who were
its members. The society was entitled to a deduction under s 80P(2)(a)(vi) .74
(f) Sub-section (2)(c).—Where a co-operative society, carrying on the business of supplying sugarcane, invests part
of its profits in government securities as a statutory condition for carrying on its business, the interest earned on the
securities would be ‘profits…attributable to’ the activity of supplying sugarcane and therefore exempt under this
clause.75 Rent received by a society from letting out surplus space in its building is not covered by this clause,76 but a
contrary view has also been taken that letting out of shops to persons other than members is entitled to deduction.77
Dividend from shares in companies would be entitled to deduction under this clause.78 However, interest earned
against a letter of credit opened for acquiring plant and machinery prior to the commencement of production is
incidental to the acquisition of assets and such interest is not eligible for deduction under this clause.79 Taking a
dissenting view, the Allahabad High Court has held that income earned on deposits with banks and post offices made
out of funds raised by selling its assets, when the sugar factory was itself under construction, is income from
investments in fixed deposits attributable to the activities of the society.80
Where the co-operative society was not a “consumers society” but an industrial society, the deduction is limited under
s 80P(2)(c) .81
Where a co-operative society carries on insurance business—if that is at all possible after the nationalisation of life
and general insurance businesses—the profits of that business are to be computed in accordance with the rules set
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out in the First Schedule. The computation of the total income of an assessee carrying on insurance business is not in
accordance with the provisions for computing income under different heads laid down in ss 22 to 59, but an artificial
figure of income is arrived at by applying the rules contained in the First Schedule (s 44 ).
(g) Sub-section (2)(d).—Amounts advanced by an apex society to its member societies for business purposes may
amount to ‘investments’ and in that case the interest received would be exempt under this clause.82 Interest on short-
term call deposits advanced to a co-operative bank,83 dividend from the Agricultural Refinance Corpn and income from
units of the Unit Trust of India is entitled to deduction under this clause.84 The provision does not make any distinction
with regard to the source of investment, and therefore, the deduction would be available without adjusting the interest
paid.85 Dissenting with this view, the Allahabad High Court held that s 80P(2)(d) was subject to s 80AB and the
deduction is allowable only on the net interest.86
In view of s 14A, interest received on advances made to the members of the society is eligible for exemption after
excluding the expenditure attributable to the earning of such income.87 It is submitted that this decision is incorrect.
(h) Sub-section (2)(e).—Under this clause exemption is available in respect of income derived from the letting of
godowns or warehouses,88 or a cold storage89 only where the purpose of letting is storage, processing or facilitating
the marketing of commodities.90 However, any income derived by the society unconnected with such letting or use of
the godowns would not fall under clause (e). The Supreme Court has held that if the assessee stored the commodities
in question in its godowns as part of its own trading stock, then he was not entitled to claim the deduction.91 ‘Letting’, in
this sub-section, is used not in the technical sense, but in a wide and comprehensive sense to include a transaction
under which the society stores the goods of its members or outsiders and renders them incidental services.92 In cases
where the activities of the assessee include other activities to facilitate the marketing of commodities, it is for the
assessee to bifurcate the income derived by it from the exempt activity and determine the income attributed to such
activity.93
2. Appeal and Reference.—In the context of s 80 P, the undernoted cases held that referable questions of law
In the context of s 80P(2)(d), the undernoted cases held that substantial question of law did not arise.96
72 Subs. by the Income-tax (Second Amendment) Act, 1998 (11 of 1999), s 8 (w.r.e.f. 1-4-1968), for the following:—
‘(iii) the marketing of the agricultural produce of its members, or’.
See Circular No. 772, January 6, 1972.
73 The word “or” and clauses (vi) and (vii) have been inserted by the Finance (No. 2) Act, 1971 (32 of 1971), s 22 (w.e.f.
1-4-1972). See Circular No. 72, January 6, 1972.
74 The word “or” and clauses (vi) and (vii) have been inserted by the Finance (No. 2) Act, 1971 (32 of 1971), s 22 (w.e.f.
1-4-1972).
Page 8 of 15
75 Ins. by the Finance (No. 2) Act, 1971 (32 of 1971), s 22 (w.e.f. 1-4-1972).
76 Clause (b) has been substituted by the Finance Act, 1983 (11 of 1983), s 30 (w.e.f. 1-4-1984), Circular No. 372,
December 8, 1983, 146 ITR (St.) 9, for the following:—
‘(b) in the case of a co-operative society, being a primary society engaged in supplying milk raised by its members to—
(i) a federal milk co-operative society; or
(ii) the Government or a local authority; or
(iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or
under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk to the public),
the whole of the amount of profits and gains of such business;’.
Earlier, the above clause (b) was substituted by the Finance Act, 1978 (19 of 1978), s 18 (w.e.f.
1-4-1979), Circular No. 240, May 17, 1978, 117 ITR (St.) 17, for the following:—
‘(b) in the case of a co-operative society, being a primary society engaged in supplying milk raised by its members to a federal
milk co-operative society, the whole of the amount of profits and gains of such business;’.
78 Subs. by the Finance Act, 1979 (21 of 1979), s 14 (w.e.f. 1-4-1980), Circular No. 258, June 14, 1979, 131 ITR (St.) 88,
for “so much of its profits and gains attributable to such activities as does not exceed twenty thousand rupees;”.
The words in italics were, earlier, substituted for “fifteen thousand rupees” by the Finance Act, 1969 (14 of 1969), s 10(a) (w.e.f.
1-4-1970). See Circular No. 22, July 17, 1969.
79 Subs., for “forty thousand rupees”, by the Finance (No. 2) Act, 1998 (21 of 1998), s 37(a) (w.e.f. 1-4-1999). See
Circular No. 772, December 23, 1998, 235 ITR (St.) 35.
80 Subs., for “twenty thousand rupees”, by the Finance (No. 2) Act, 1998 (21 of 1998), s 37(b) (w.e.f. 1-4-1999).
81 The words and figures “chargeable under section 18 ” have been omitted by the Finance Act, 1988 (26 of 1988), s 27
(w.e.f. 1-4-1989).
82 The words, etc. “ section 80H or section 80HH or section 80J ” were substituted for “ section 80H or section 80J ” by
the Direct Taxes (Amendment) Act, 1974 (26 of 1974), s 11(a) (w.r.e.f. 1-4-1974).
83 The words, etc. “ section 80H or” were omitted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 24(i)
(w.e.f. 1-4-1976). See Circular No. 179, September 30, 1975, 102 ITR (St.) 9 (in force from 1-10-1975); Circular No.
204, July 24, 1976, 110 ITR (St.) 21 (in force from 1-4-1976).
84 The words, etc. “ section 80HH or section 80HHA or section 80J ” were substituted for “ section 80HH or section 80J ”
by the Finance (No. 2) Act, 1977 (29 of 1977), s 29(2)(d)(i) (w.e.f. 1-4-1978). See Circular No. 229, August 9, 1977, 111
ITR (St.) 9.
85 Ins. by the Finance Act, 1982 (14 of 1982), s 32(iii)(a) (w.e.f. 1-4-1983).
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86 Ins. by the Finance Act, 1983 (11 of 1983), s 39(d)(i) (w.e.f. 1-4-1983). See Circular No. 372, December 8, 1983, 146
ITR (St.) 9.
87 Ins. by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 57(2)(a) (w.e.f. 1-4-1989). See Circular No. 550,
January 1, 1990, 182 ITR (St.) 114.
88 Ins. by the Finance (No. 2) Act, 1980 (44 of 1980), s 35(vi) (w.e.f. 1-4-1981). See the Finance (No. 2) Act, 1980.
89 Ins. by the Finance Act, 1993 (38 of 1993), s 18(a) (w.r.e.f. 1-4-1991). See Circular No. 657, August 30, 1993, 204 ITR
(St.) 106.
90 Ins. by the Finance Act, 1989 (13 of 1989), s 25(b)(i) (w.e.f. 1-4-1990). Earlier, “or section 80JJ ” were inserted by the
Finance Act, 1975 (25 of 1975), s 24(2)(c)(i) (w.e.f. 1-4-1976) and these were omitted by the Finance Act, 1985 (32 of
1985), s 36(c) (w.e.f. 1-4-1986). See Circular No. 421, June 12, 1985, 156 ITR (St.) 130.
91 The words, etc. “or section 80JJA ” have been omitted by the Finance Act, 1983 (11 of 1983), s 39(d)(ii) (w.e.f. 1-4-
1984). Originally, these were inserted by the Finance Act, 1979 (21 of 1979), s 22(2)(c)(i) (w.e.f. 1-4-1980).
1 The words, etc. “deductions under section 80HH, section 80J and section 80JJ ” were substituted for “deductions
under section 80H, section 80HH, section 80J and section 80JJ ” by the Taxation Laws (Amendment) Act, 1975 (41 of
1975), s 24(ii) (w.e.f. 1-4-1976).
2 The words, etc. “ section 80HH, section 80HHA, section 80J ” were substituted for “ section 80HH, section 80J ” by the
Finance (No. 2) Act, 1977 (29 of 1977), s 29(2)(d)(ii) (w.e.f. 1-4-1978).
3 The words, etc. “ section 80HHA, Section 80-I, Section 80-J ” were substituted for “ section 80HHA, section 80J ” by
the Finance Act, 1981 (16 of 1981), s 25(a) (w.e.f. 1-4-1981).
4 Ins. by the Finance Act, 1982 (14 of 1982), s 32(iii)(b) (w.e.f. 1-4-1983).
5 In effect, inserted by the Finance Act, 1983 (11 of 1983), s 39(d)(iii) (w.e.f. 1-4-1983).
6 Ins. by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 57(2)(b) (w.e.f. 1-4-1989).
7 Ins. by the Finance Act, 1993 (38 of 1993), s 18(b) (w.r.e.f. 1-4-1991).
8 In effect, inserted by the Finance Act, 1989, (13 of 1989), s 25(b)(ii) (w.e.f. 1-4-1990).
Earlier, reference to section 80JJ was inserted by the Finance Act, 1975, (25 of 1975), s 24(2)(c)(ii) (w.e.f. 1-4-1976). Reference
to section 80JJA was, earlier, inserted by the Finance Act, 1979, (21 of 1979), s 22(2)(c)(ii) (w.e.f. 1-4-1980) and omitted by the
Finance Act, 1983 (11 of 1983), s 39(d)(iv) (w.e.f. 1-4-1984).
9 Ins. by the Finance Act, 2006 (21 of 2006), s 19 (w.e.f. 1-4-2007). Earlier, original sub-section (4) was omitted by the
Finance Act, 1969, (14 of 1969), s 10(b) (w.e.f. 1-4-1970), which stood as under:—
Page 10 of 15
“(4) Nothing contained in this section shall apply to a co-operative society carrying on insurance business in respect of the profits
and gains of that business computed in accordance with section 44 .”.
11 See p 21, nn 68 and 69.
12 CCIT v Kisan Sahakari Chini Mills Ltd. 273 ITR 42, (2005) 196 CTR 220 (All).
13 See Mysore Soc v CIT 75 ITR 445 (urban consumers’ co-operative society).
14 However, they may still be liable to surcharge under a Finance Act: Madurai Bank v ITO 101 ITR 24 (SC) and CIT v
Jalgaon Co-op Bank 143 ITR 326 . See also p 181, n 24.
15 Sabarkantha Zilla v CIT 203 ITR 1027 (SC); Gandevi Taluka v CIT 207 ITR 175 ; CIT v Surat Dist 211 ITR 726 ; CIT
v Anakapalli Soc 175 ITR 584 (not gross receipts).
16 Kota Co-op Marketing v CIT 207 ITR 608 ; Lahaul Potato v CIT 232 ITR 718 .
17 CIT v Jamnagar Jilla Sahakari Kharidvechan Sangh Ltd. 283 ITR 116, (2006) 201 CTR 243 (Guj).
18 CIT v Kotagiri Industrial 224 ITR 604 ; Karnataka State v CIT 251 ITR 736 ; CIT v Ganganagar Sahakari Spinning
Mills Ltd. 265 ITR 540, (2004) 186 CTR 407 (Raj).
19 CIT v Co-op Supply 204 ITR 713 .
20 Bihar State Bank v CIT 39 ITR 114 (SC); Assam Bank v CIT 112 ITR 87 . Cf Malwa Mills Sanstha v CIT 140 ITR 379
(interest paid by business unit of co-operative society to its banking unit is not income of latter).
21 Bihar State Housing Co-operative Federation Ltd. v CIT 315 ITR 286, (2008) 4 PLR 205 .
22 UP Bank v CIT 61 ITR 563 ; Berhampur Bank v CIT 93 ITR 168 ; Malabar Bank v CIT 401 ITR 87 ; CIT v
Ahmedabad Bank 101 ITR 733 ; CIT v Orissa Housing Corpn 104 ITR 157 ; CIT v Madurai Bank 148 ITR 196 ; CIT v
Rajasthan State Bank 163 ITR 213 ; CIT v Bhopal Bank 164 ITR 713 ; Madras Mortgage Bank v CIT 67 ITR 89 (SC)
and AP Mortgage Bank v CIT 100 ITR 472 (apportionment where securities were partly held for non-business
purposes); and cases cited under s 72, ‘“Profits…of any business” may include income under other heads’.
23 CIT v Krishak Sahakari 258 ITR 594 ; CIT v Salem Co-operative Sugar Mills Ltd. 286 ITR 635 .
24 251 ITR 194 (SC), overruling Madhya Pradesh Co-operative v ACIT 218 ITR 438 (SC); CIT v Nawanshahar Central
Co-operative Bank Ltd. 289 ITR 6 (SC), (2007) 15 SCC 611 ; CIT v Grain Merchants Co-operative Bank Ltd. 267 ITR
742, (2004) 134 Taxman 249 (Kar); Bihar State Co-operative Bank Ltd. v CIT 328 ITR 139, (Pat) (interest on
Page 11 of 15
compulsory investment in government securities); CIT v Rajasthan State Co-operative Bank 272 ITR 600, (2005) 199
CTR 588 (Bom); CIT v Maharashtra State Co-operative Bank Ltd. 282 ITR 581, (2005) 199 CTR 588 (Bom); CIT v
Kangra Co-operative Bank Ltd. 309 ITR 106, (2009) 221 CTR 192 (HP); CIT v H. P. State Co-operative Bank Ltd. 323
ITR 1, (2010) 236 CTR 324 (HP); CIT v Muzaffar Nagar Kshetriya Gramin Bank Ltd. 323 ITR 202, (All) (interest from
non-SLR funds); CIT v Andhra Pradesh State Co-operative Bank Ltd. 336 ITR 516 (2011) 244 CTR 86 (AP); CIT v
Nawanshahar Central Co.op Bank Ltd. 349 ITR 689 (SC), (2012) 254 CTR 108 (SC) (interest on public sector bonds).
25 CIT v Bangalore Dist 233 ITR 282 (SC); CIT v Baroda Peoples Co-operative Bank Ltd. 280 ITR 282, (2005) 198
CTR 1 (Raj); CIT v Punjab State Co-operative Bank Ltd. 304 ITR 113, (HDFC Bonds); CIT v Sri Ram Sahakari Bank
Ltd. 266 ITR 632, (2004) 186 CTR 734 (Kar).
26 CIT v Haryana State Co-operative Apex Bank Ltd. 322 ITR 404 .
27 CIT v Iqbalpur Co-operative Cane Development Union Ltd. 315 ITR 441, (2010) 230 CTR 95 (Utt).
28 CIT v Ramanathpuram Dist 255 ITR 423 (SC).
29 ITO v Karnataka Central Co-operative Bank Ltd. 266 ITR 635, (2004) 186 CTR 737 (Kar).
30 CIT v Bangalore Dist 233 ITR 282 (SC).
31 CIT v Grain Merchants Co-operative Bank Ltd. 267 ITR 742, (2004) 134 Taxman 249 (Kar). For a contrary view, see
Bihar Rajya Sahakari Bhoomi Vikas Co-operative Bank Ltd. v CIT 313 ITR 247, (2009) 226 CTR 201 (Pat).
32 Mehsana Dist v ITO 251 ITR 522 (SC).
33 CIT v Jila Sahakari 225 ITR 421 .
34 Gorakhpur Kshetriya Gramin Bank v CIT 292 ITR 205 .
35 CIT v Nawanshahar Central Co-op. Bank Ltd. 349 ITR 689, (2012) 254 CTR 108 (SC).
36 CIT v Ahmednagar District Central Co-operative Bank Ltd. 264 ITR 38, (2003) 185 CTR 336 (Bom).
37 CIT v Madurai Dist 239 ITR 700 . Contra Gujarat State v CIT 250 ITR 229 .
38 CIT v Sirohi S. B. V. Bank Ltd. 321 ITR 533, (2009) 221 CTR 395 (Raj).
39 Bihar Rajya Sahkari Bhoomi Vikas Co-operative Bank Ltd. v CIT 313 ITR 247, (2004) 186 CTR 266 (Raj).
Page 12 of 15
40 CIT v Ratnagiri Dist 254 ITR 697 ; CIT v Solapur Nagari Audyogic Sahakari Bank Ltd. 328 ITR 292, (2010) 229 CTR
73 (Bom).
41 CIT v Anakapalli 245 ITR 616 .
42 CIT v Madurai Bank 148 ITR 196 ; CIT v Dhar Bank 149 ITR 438 (also commission, brokerage, admission fee from
members, incidental charges and financial penalties); Bhopal Bank v CIT 169 ITR 573 (also commission, but not locker
rent). Cf deleted s 80-I, under ‘Profits “attributable to” priority industry’.
43 CIT v Ponni Sugars and Chemicals Ltd. 306 ITR 392 (SC), (2008) 9 SCC 337 ; CIT v Salem Co-operative Sugar
Mills Ltd. 286 ITR 635 (incentive subsidy).
44 CIT v Kottayam Bank 96 ITR 181 .
45 CIT v Coral Stores 106 ITR 868 ; CIT v UP Cane Union 114 1TR 70; Rodier Co-op Stores v CIT 135 ITR 355 ; CIT v
Madras Autorickshaw Drivers’ Soc 143 ITR 981, affirmed in 249 ITR 330 (SC) (hire-purchase sales); Kerala
Consumers’ Fed v CIT 170 ITR 455 .
46 CIT v UP Cane Fed 122 ITR 913, 916, affirmed in 237 ITR 574 (SC).
47 CIT v Pondicherry Co-op 188 ITR 671 ; CIT v Attur Agricultural Producers Co-operative Marketing Society Ltd. 306
ITR 151 ; CIT v Tamil Nadu Co-operative Silk Producers Ltd. 311 ITR 224 (interest received from members for
supplying material on credit).
48 Madras Auto v CIT 249 ITR 330 (SC); CIT v Co-op Supply 220 ITR 352 .
49 UP Co-op v CIT 237 ITR 574 (SC), affirming CIT v UP Cane Fed 122 ITR 913 ; CIT v Co-op Supply 220 ITR 352 ;
Assam Apex Soc v CIT 201 ITR 338 (SC). Cfn 2 below.
50 District Co-op Fed v CIT 87 ITR 639 ; District Dev Fed v CIT 88 ITR 330 ; CIT v Chichli Soc 114 ITR 720 ; CIT v
Hastkala Samiti 114 ITR 723 ; CIT v Indian Co-op Union 134 ITR 108 ; CIT v Taj 170 ITR 465 . Cf Co-op Typewriter
Services v CIT 118 ITR 512 .
51 CIT v MP State Handloom 231 ITR 243 .
52 CIT v Rajasthan Rajya 258 ITR 88 . Cf CIT v Quilon Central 229 ITR 348 .
53 231 ITR 814.
54 National Agricultural v UOI 260 ITR 548 (SC).
55 Meenachil Rubber v CIT 193 ITR 108 .

Page 13 of 15
56 CIT v Haryana State 182 ITR 53 ; Budhewal Co-op. Sugar Mills Ltd. v CIT 315 ITR 351, (2009) 225 CTR (P&H) 261
(FB).
57 CIT v Nagpur Zilla 209 ITR 481 ; CIT v Vidarbha Co-op 212 ITR 412 ; Ahmednagar Central v CIT 227 ITR 458 .
58 Broach Soc v CIT 177 ITR 418 (SC); CIT v Co-op Processing 216 ITR 632 .
59 CIT v Ryots Soc 115 ITR 709, cited with approval in Broach Soc v CIT 177 ITR 418, 422 (SC). Contra South Arcot
Soc v CIT 97 ITR 500 ; CIT v Kisan Rice Mills 103 ITR 264 ; CIT v Mahasamund Soc 103 ITR 499 .
60 CIT v Karjan Soc 129 ITR 821, cited with approval in Broach Soc v CIT 177 ITR 418, 422 (SC) (interest, godown
charges and insurance charges received from purchasers for delay in taking deliveries are also exempt).
61 CIT v Ryots Agricultural Produce Co-operative Marketing Society Ltd. 323 ITR 666, (2010) 2 KCCR 894 .
62 Budhewal Co-op. Sugar Mills Limited v CIT 315 ITR 351, (2009) 225 CTR (P&H) 261 (FB).
62a Satyamangalam Agricultural Producer’s Co-operative Marketing Society Ltd v. ITO 357 ITR 347 .
63 CIT v Mulkanoor Bank 173 ITR 629 .
64 Ibid.
65 Assam Apex Soc v CIT 201 ITR 338 (SC); CIT v UP Cane Fed 122 ITR 913, affirmed in 237 ITR 574 (SC).
66 CIT v Kota Co-operative Marketing Society 262 ITR 452 .
67 CIT v Tamil Nadu Marketing Fed 144 ITR 74 . Cf nn 95 and 13 above.
68 CIT v Guntur Soc 154 ITR 799 ; Vidarbha Marketing Soc v CIT 156 ITR 422 .
69 UP Fed v CIT 84 ITR 317 (coal not included).
70 CIT v Shetkari Sahakari 238 ITR 983 .
71 Punjab Marketing Fed v CIT 128 ITR 189 . Cf CIT v Guntur Soc 154 ITR 799 .
72 Gora Vibhag Mandali v CIT 161 ITR 658 .

Page 14 of 15
73 Nilagiri Engineering v CIT 208 ITR 326 .
74 CIT v Gurdaspur Hardochhanni Co-op LIC Society 303 ITR 145, (2007) 164 Taxman 607 (P&H).
75 CIT v Co-op Cane Dev Union 118 ITR 770 . Cf deleted s 80-I, under ‘Profits “attributable to” priority industry’.
76 Kottayam Bank v CIT 172 ITR 443 ; Kottayam Dist v CIT 188 ITR 568 ; Sindhi Sahiti v CIT 214 ITR 232 .
77 CIT v Ratanabad Co-op 215 ITR 549 ; CIT v The Industrial Co-op 196 ITR 174 .
78 CIT v Ramnathpuram Dist 224 ITR 226 .
79 Karnal Co-op v CIT 233 ITR 531 .
80 CCIT v Kisan Sahakari Chinni Mills Ltd. 273 ITR 42, (2005) 196 CTR 220 (All).
81 Tamil Nadu Brick and Tile Manufacturers Industrial Service Co-operative Society Ltd. v CIT 265 ITR 332, (2003) 182
CTR 158 (Mad).
82 CIT v UP Co-op Fed 176 ITR 435 (SC).
83 CIT v Haryana Co-op 180 ITR 631 ; CIT v Haryana State 234 ITR 714 .
84 CIT v U P Rajya 208 ITR 758 .
85 CIT v Doaba Co-op 230 ITR 774 . Contra CIT v Rajasthan Rajya 215 ITR 448 .
86 CIT v Duggh Utpadak Sahkari Sangh Ltd. 277 ITR 35 .
87 Punjab State Co-operative Milk Producers Federation Ltd. v CIT 336 ITR 495, (2011) 245 (P&H) 432.
88 Not shops: CIT v Ahmedabad Maskati Soc 162 ITR 142 ; CIT v Bhandara Zilla 212 ITR 124 .
89 CIT v District Co-operative Federation 271 ITR 22, (2005) 193 CTR 99 (All).
90 Surat Vankar Sahakari Sangh v CIT 79 ITR 722 ; Udupi Taluk Soc v CIT 166 ITR 365 (income unconnected with
letting not exempt).
Page 15 of 15
91 Udaipur Sahkari Upbhokta Thok Bhandar Ltd. v CIT 315 ITR 21, (2009) 8 SCC 393 .
92 CIT v South Arcot Soc 92 ITR 371 : affirmed in 176 ITR 117 (SC); CIT v Bhandara Zilla 212 ITR 124 .
93 CIT v Jammu & Kashmir Co-op 248 ITR 289 ; CIT v Jammu & Kashmir Co-op 204 ITR 289 .
94 CIT v Sonepat Co-operative Marketing Society Ltd 235 ITR 475 ; Sonepat Co-operative Marketing Society Ltd v ITAT
223 ITR 693 .
95 CIT v Co-operative Processing and Marketing Society 216 ITR 632 ; Sindhi Sahiti Multipurpose and Transport Co-
operative Society Ltd v CIT 214 ITR 232 . s 80P(2) CIT v Keshave Kray Vikray Sahkari Samiti Ltd 254 ITR 365 ; CIT v
UP Rajya Sahkari Bhumi Vikas Bank Ltd 208 ITR 758 .
96 CIT v Haryana Co-op Sugar Mills Ltd. 123 Taxman 584 .
End of Document
S. 80Q. Deduction in respect of profits and gains from the business of
publication of books
S. 80Q. Deduction in respect of profits and gains from the business of publication of books
(1) 1[Where in the case of an assessee the gross total income of the previous year relevant to the assessment year
commencing on the 1st day of April, 1992, or to any one of the four assessment years next following that
assessment year, includes any profits and gains derived from a business carried on in India of printing and
publication of books or publication of books, 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 twenty per cent. thereof.
(2) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section
80HHC or Section 80-I or Section 80-IA or section 80J 2 or section 80P, in relation to any part of the profits and
gains referred to in sub-section (1), the deduction under sub-section (1) shall be allowed with reference to such
profits and gains included in the gross total income as reduced by the deductions under section 80HH, section
80HHA, section 80HHC, Section 80-I, Section 80-IA, section 80J2 and section 80P .
(3) For the purposes of this section, “books” shall not include newspapers, journals, magazines, diaries, brochures,
tracts, pamphlets and other publications of a similar nature by whatever name called.]
1. Deleted Section 80Q [ Section 14(4) of 1922 Act]: Dividends Received by Member of Co-operative
Society.—While s 80P grants exemption in respect of certain incomes of a co-operative society, this section
exempted a member of a co-operative society from tax in respect of any dividends received by him from the society.
Simultaneously with the deletion of this section, s 80L was amended to grant a limited exemption in respect of
dividends from co-operative societies.
2. Section 80Q : Profits and Gains from the Business of Publication of Books.—This section was introduced to
revive the erstwhile provisions of s 80QQ, which was omitted by the Direct Tax Laws (Amendment) Act, 1987. It grants
a deduction of 20 per cent. to any person carrying on the business of printing and publication of books, or publication
of books without the activity of printing. The section was revived since it can play a vital role in the development of
human resources. The concession under this section is available for a period of five years beginning with assessment
year 1992-93. In case the assessee is entitled to deduction under any other section as specified in sub-s (2), the
deduction under this section is to be allowed after reducing such deduction from the gross total income. The term
Page 2 of 2
S. 80Q. Deduction in respect of profits and gains from the business of publication of books
‘books’ has been defined in sub-s (3). [See also under deleted s 80QQ ].
195 ITR (St.) 154. It may be noted that earlier section 80Q was omitted by the Finance Act, 1972 (16 of 1972), s 21
(w.e.f. 1-4-1973). Prior to its omission, section 80Q stood as under:—
“S. 80Q. Deduction in respect of dividends from co-operative society.—Where the gross total income of an assessee who
is a member of a co-operative society includes any income by way of dividends received by him from the society, the whole of
such income shall be allowed as a deduction in computing his total income.”.
It may be noted that, for and from assessment year 1973-74, dividends from any co-operative society have been brought within
the purview of the deduction under section 80L .
2 Section 80J has been omitted by the Finance (No. 2) Act, 1996 33 of 1996, s 29 (w.r.e.f. 1-4-1989). See Circular No.
762, February 18, 1998, 230 ITR (St.) 12.
End of Document
S. 80QQ.
S. 80QQ.
3[* * * *]
Deleted Section 80QQ : Profits from Publication of Books.—Under the deleted s 80QQ, which contained
provisions similar to the present s 80Q, it was held that a publisher of guides for students is entitled to deduction under
this section.4 However, loss incurred in any other business is to be set off against profits from printing and publishing
in order to compute the deduction under this section.5
3 Section 80QQ has been omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 28 (w.e.f. 1-4-1989).
See Circular No. 545, September 21, 1989, 181 ITR (St.) 198; Circular No. 549, October 31, 1989, 182 ITR (St.) 1;
Circular No. 551, January 23, 1990, 183 ITR (St.) 7.
Omitted section 80QQ .— Section 80QQ, prior to its omission by the Direct Tax Laws (Amendment) Act, 1987, with effect from
1st April, 1989, stood as under:—
‘1[S. 80QQ. Deduction in respect of profits and gains from the business of publication of books.—(1) Where in the case of
an assessee the gross total income of the previous year relevant to the assessment year commencing on the 1st day of April,
1971, or to any one of the 2[fourteen assessment years] next following that assessment year, includes any profits and gains
derived from a business carried on in India of printing and publication of books or publication of books, 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 twenty per cent. thereof.
(2) In a case where the assessee is entitled also to the deduction under 3[4[* *] 5[ section 80HH or
6[ section 80HHA or Section 80-I or] section 80J ]] or section 80P, in relation to any part of the profits and gains referred to in
sub-section (1), the deduction under sub-section (1) shall be allowed with reference to such profits and gains included in the
gross total income as reduced by the deductions under 7[8[* *] 9[ section 80HH, section 80HHA, 10[ Section 80-I, section 80J ]]
and section 80P ].
Page 2 of 2
S. 80QQ.
(3) For the purposes of this section, “books” shall not include newspapers, journals, magazines, diaries, brochures, tracts,
pamphlets and other publications of a similar nature, by whatever name called.]’.
2. Subs., for “nine assessment years”, by the Finance Act, 1981 (16 of 1981), s 12(a) (w.e.f. 1-4-1981). Earlier, the words “nine
assessment years” were substituted for “four assessment years” by the Finance Act, 1975 (25 of 1975), s 16 (w.e.f. 1-4-1975).
3. The words, etc. “ section 80H or section 80HH or section 80J ” were substituted for the words, etc. “ section 80H or section
80J ” by the Direct Taxes (Amendment) Act, 1974 (26 of 1974), s 12(a) (w.e.f. 1-4-1974).
4. The words, etc. “ section 80H or” were omitted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975) s 25(i) (w.e.f. 1-4-
1976).
5. The words, etc. “ section 80HH or section 80HHA or section 80J ” were substituted for “ section 80HH or section 80J ” by the
Finance (No. 2) Act, 1977 (29 of 1977), s 29(2)(e)(i) (w.e.f. 1-4-1978).
6. The words, etc. “ section 80HHA or Section 80-I or” were substituted for “ section 80HHA or” by the Finance Act, 1981 (16 of
1981), s 12(b)(i) (w.e.f. 1-4-1981).
7. The words, etc. “ section 80H, section 80HH, section 80J and section 80P ” were substituted for the words, etc. “ sections
80H, 80J and 80P ” by the Direct Taxes (Amendment) Act, 1974 (26 of 1974), s 12(b) (w.e.f. 1-4-1974).
8. The word, etc. “ section 80H,” omitted by the Taxation Laws (Amendment) Act, 1975 (41 of 1975), s 25(ii) (w.e.f. 1-4-1976).
9. The words, etc. “ section 80HH, section 80HHA, section 80J ” were substituted for “ section 80HH, section 80J ” by the
Finance (No. 2) Act, 1977 (29 of 1977), s 29(2)(e)(ii) (w.e.f. 1-4-1978).
10. The words, etc. “ Section 80-I, section 80J ” were substituted for “ section 80J ” by the Finance Act, 1981 (16 of 1981), s
12(b)(ii) (w.e.f. 1-4-1981).
4 Satyanarayana v CIT 118 ITR 519 ; CIT v Dinesh 120 ITR 376 .
5 CIT v Macmillan 243 ITR 403 .
End of Document
S. 80QQA. Deduction in respect of professional income of authors of text
books in Indian languages
S. 80QQA. Deduction in respect of professional income of authors of text books in Indian languages
(1) 6[Where, in the case of an individual resident in India, being an author, the gross total income of the previous year
relevant to the assessment year7[commencing on—
(a) the 1st day of April, 1980, or to any one of the nine assessment years next following that assessment year; or
(b) the 1st day of April, 1992, or to any one of the four assessment years next following that assessment year,
includes] any income derived by him in the exercise of his profession on account of any lump sum
consideration for the assignment or grant of any of his interests in the copyright of any book, or of
royalties or copyright fees (whether receivable in lump sum or otherwise) in respect of such book, 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 income of an amount equal to twenty-five per cent.
thereof.
(2) No deduction under sub-section (1) shall be allowed unless—
(a) the book is either in the nature of a dictionary, thesaurus or encyclopaedia or is one that has been prescribed
or recommended as a text book, or included in the curriculum, by any University, for a degree or post-
graduate course of that University; and
(b) the book is written in any language specified in the Eighth Schedule to the Constitution or in any such other
language as the Central Government may, by notification in the Official Gazette, specify in this behalf having
regard to the need for promotion of publication of books of the nature referred to in clause (a) in that
language and other relevant factors.

Page 2 of 2
S. 80QQA. Deduction in respect of professional income of authors of text books in Indian languages
(i) “author” includes a joint author;
(ii) “lump sum”, in regard to royalties or copyright fees, includes an advance payment on account of such
royalties or copyright fees which is not returnable;
(iii) “University” shall have the same meaning as in the Explanation to clause (ix) of section 47 .]
88.
7 Subs., for “commencing on the 1st day of April, 1980, or to any one of the nine assessment years next following that
assessment year, includes”, by the Finance (No. 2) Act, 1991 (49 of 1991), s 36 (w.e.f. 1-4-1992). See Circular No.
621, December 19, 1991, 195 ITR (St.) 154. In the above, the words “nine assessment years” were substituted for “four
assessment years” by the Finance Act, 1985 (32 of 1985), s 23 (w.e.f. 1-4-1985). See Circular No. 421, June 12, 1985,
156 ITR (St.) 130.
End of Document
S. 80QQB. Deduction in respect of royalty income, etc., of authors of certain
books other than text books
S. 80QQB. Deduction in respect of royalty income, etc., of authors of certain books other than text books
(1) 8[Where, in the case of an individual resident in India, being an author, the gross total income includes any
income, derived by him in the exercise of his profession, on account of any lump sum consideration for the
assignment or grant of any of his interests in the copyright of any book being a work of literary, artistic or scientific
nature, or of royalty or copyright fees (whether receivable in lump sum or otherwise) in respect of such book, 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 income, computed in the manner specified in sub-section (2).
(2) The deduction under this section shall be equal to the whole of such income referred to in sub-section (1), or an
amount of three lakh rupees, whichever is less:
Provided that where the income by way of such royalty or the copyright fee, is not a lump sum consideration in lieu of all
rights of the assessee in the book, so much of the income, before allowing expenses attributable to such income, as is in
excess of fifteen per cent. of the value of such books sold during the previous year shall be ignored:
Provided further that in respect of any income earned from any source outside India, so much of the income shall be taken
into account for the purpose of this section as is brought into India by, or on behalf of, the assessee in convertible foreign
exchange within a period of six months from the end of the previous year in which such income is earned or within such
further period as the competent authority may allow in this behalf.
(3) No deduction under this section shall be allowed unless the assessee furnishes a certificate in the prescribed form
and in the prescribed manner, duly verified by any person responsible for making such payment to the assessee
as referred to in sub-section (1), along with the return of income, setting forth such particulars as may be
prescribed.
(4) No deduction under this section shall be allowed in respect of any income earned from any source outside India,
unless the assessee furnishes a certificate, in the prescribed form from the prescribed authority, along with the
return of income in the prescribed manner.
Page 2 of 3
(5) Where a deduction for any previous year has been claimed and allowed in respect of any income referred to in
this section, no deduction in respect of such income shall be allowed under any other provision of this Act in any
assessment year.
(a) “author” includes a joint author;
(b) “books” shall not include brochures, commentaries, diaries, guides, journals, magazines, newspapers,
pamphlets, text books for schools, tracts and other publications of similar nature, by whatever name called;
(c) “competent authority” means the Reserve Bank of India or such other authority as is authorised under any law
for the time being in force for regulating payments and dealings in foreign exchange;
(d) “lump sum”, in regard to royalties or copyright fees, includes an advance payment on account of such royalties
or copyright fees which is not returnable.]
Section 80QQB : Deduction in Respect of Royalty income etc, of Authors of Certain Books other than Text
Books.—This section is inserted by the Finance Act, 2003 with effect from the assessment year 2004-05. It provides
for a deduction of up to Rs 3,00,000 to an individual resident, being an author, in respect of any income derived from
the exercise of his profession, on account of lump sum consideration for the assignment or grant of any of his interests
in the copyright of any book, or of royalties or copyright fees—whether receivable in lump sum or otherwise in respect
of such book [sub-s (1)].
The deduction shall be allowed in respect of any book, being a work of literary, artistic or scientific nature. However,
the deduction is not available in respect of income from text books for schools, guides, commentaries, newspapers,
journals, magazines, diaries, brochures, tracts, pamphlets and other publications of a similar nature.
Where an assessee claims deduction under this section, no deduction in respect of the same income may be claimed
under any other provision of the Act [sub-s (5)]. For computing deduction under this section, the amount of eligible
income is not to exceed 15 per cent. of the value of the books sold during the previous year first proviso to sub-s (2).
However, this condition is not applicable where the royalty or copyright fee is receivable in lump sum in lieu of all rights
of the author in the book.
Where the eligible income is earned outside India, the deduction shall be allowed on so much of the income earned in
foreign exchange, which is brought in India within six months from the end of the previous year or within such further
period as the competent authority may allow in this behalf [second proviso sub-s (2)]. For this purpose, the competent
authority is the Reserve Bank of India or such other authority as is authorised under any law for the time being in force
for regulating payments and dealings in foreign exchange.
Page 3 of 3
ITR (St.) 62.
End of Document
S. 80R. Deduction in respect of remuneration from certain foreign sources
in the case of professors, teachers, etc.
S. 80R. Deduction in respect of remuneration from certain foreign sources in the case of professors, teachers,
etc.
Where the gross total income of an individual who is a citizen of India includes any remuneration received by him outside
India from any University or other educational institution established outside India or9[any other association or body
established outside India], for any service rendered by him during his stay outside India in his capacity as a professor,
teacher or research worker in such University, institution, association or body, there shall be10[allowed, in computing the
total income of the individual,11[a deduction from such remuneration of an amount equal to—
(i) sixty per cent. of such remuneration for an assessment year beginning on the 1st day of April, 2001;
(ii) forty-five per cent. of such remuneration for an assessment year beginning on the 1st day of April, 2002;
(iii) thirty per cent. of such remuneration for an assessment year beginning on the 1st day of April, 2003;
(iv) fifteen per cent. of such remuneration for an assessment year beginning on the 1st day of April, 2004,
as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from
the end of the previous year or within such further period as the competent authority may allow in this behalf and no
deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005, and any subsequent
assessment year]:
Provided that no deduction under this section shall be allowed unless the assessee furnishes a certificate, in the
prescribed form, along with the return of income, certifying that the deduction has been correctly claimed in accordance
with the provisions of this section]:]
12[* * * *]
13[Explanation.—For the purposes of this section, the expression “competent authority” means the Reserve Bank of India
Page 2 of 3
etc.
or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in
foreign exchange.]
Section 80R : Remuneration from Certain Foreign Sources in the Case of Professors, Teachers etc.—This
section grants deduction to an individual who is a citizen of India, in respect of remuneration earned, as a professor,
teacher or research worker during his stay outside India, from a university or educational institution established outside
India. Prior to 1 June, 1999, the section provided a deduction of 75 per cent. of such remuneration. The deduction
under this section is curtailed in phases and will not be available from the assessment year 2005-06. One of the
requirements of the section is that the foreign exchange earned must be brought into India within six months from the
end of the year or within such further time as allowed by the competent authority. From the assessment year 1997-98,
a certificate from a chartered accountant is required to be furnished with the return of income [ r 29A ]. This section
was considered in the undermentioned case.14
9 Subs., for “such other association or body established outside India as may be notified in this behalf by the Central
Government in the Official Gazette”, by the Finance Act, 1983 (11 of 1983), s 31 (w.e.f. 1-4-1984). See Circular No.
372, December 8, 1983, 146 ITR (St.) 9.
10 Subs., for “allowed a deduction from such remuneration of an amount equal to fifty per cent. thereof, in computing the
total income of the individual:”, by the Finance Act, 1990 (12 of 1990), s 27(a) (w.e.f. 1-4-1991). See Circular No. 572,
August 3, 1990, 186 ITR (St.) 81.
11 Subs., for “a deduction from such remuneration of an amount 1[equal to seventy-five per cent. of such remuneration, as
is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from
the end of the previous year or] 2[within such further period as the competent authority may allow in this behalf]”, by the
Finance Act, 2000 (10 of 2000), s 42 (w.e.f. 1-4-2001). See Circular No. 794, August 9, 2000, 245 ITR (St.) 21.
1. Subs., for “equal to,—
(i) fifty per cent. of the remuneration; or
(ii) seventy-five per cent. of such remuneration as is brought into India by, or on behalf of, the assessee in accordance with the
Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder,
whichever is higher”, by the Finance (No. 2) Act, 1996 (33 of 1996), s 31 (w.e.f. 1-4-1997).
2. Subs., for “where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the
assessee is, for reasons beyond his control unable to do so within the said period of six months, within such further period as the
Chief Commissioner or Commissioner may allow in this behalf”, by the Finance Act, 1999 (27 of 1999), s 54(a) (w.e.f. 1-6-1999).
12 The proviso has been omitted by the Finance Act, 1990 (12 of 1990), s 27(b) (w.e.f. 1-4-1991). See Circular No. 572,
August 3, 1990, 186 ITR (St.) 81. Prior to its omission, the proviso stood as under:—
‘Provided that where the individual renders continuous service outside India in such University, institution, association or body
for a period exceeding thirty-six months, no deduction under this section shall be allowed in respect of the remuneration for such
service relating to any period after the expiry of the thirty-six months aforesaid.’.
13 Ins. by the Finance Act, 1999 (27 of 1999), s 54(b) (w.e.f. 1-6-1999). See Circular No. 779, September 14, 1999, 240
ITR (St.) 3.
Page 3 of 3
etc.
14 CIT v Hanif Mansuri 207 ITR 285 (before the 1984 amendment).
End of Document
S. 80RR. Deduction in respect of professional income from foreign sources
in certain cases
S. 80RR. Deduction in respect of professional income from foreign sources in certain cases
15[Where the gross total income of an individual resident in India, being an author, playwright, artist,16[musician, actor or
sportsman (including an athlete)], includes any income derived by him in the exercise of his profession from the
Government of a foreign State or any person not resident in India,17[there shall be allowed, in computing the total income of
the individual,18[a deduction from such income of an amount equal to—
(i) sixty per cent. of such income for an assessment year beginning on the 1st day of April, 2001;
(ii) forty-five per cent. of such income for an assessment year beginning on the 1st day of April, 2002;
(iii) thirty per cent. of such income for an assessment year beginning on the 1st day of April, 2003;
(iv) fifteen per cent. of such income for an assessment year beginning on the 1st day of April, 2004,
as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from
the end of the previous year or within such further period as the competent authority may allow in this behalf and no
deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005, and any subsequent
assessment year]:
Provided that no deduction under this section shall be allowed unless the assessee furnishes a certificate, in the
prescribed form, along with the return of income, certifying that the deduction has been correctly claimed in accordance
with the provisions of this section].]
19[Explanation.—For the purposes of this section, the expression “competent authority” means the Reserve Bank of India
or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in
foreign exchange.]
Page 2 of 3
Section 80RR : Professional Income from Foreign Sources in Certain Cases.—This section grants deduction to
a resident individual who is an author, playwright, artist, musician, actor or sportsman, including an athlete, in respect
of income derived outside India. Prior to 1 June, 1999, the section provided a deduction of 75 per cent. of such
remuneration. The deduction under this section is curtailed in phases and will not be available from the assessment
year 2005-06. One of the requirements of the section is that the foreign exchange earned must be brought into India
within six months from the end of the year or within such further time as allowed by the competent authority. From the
assessment year 1997-98, a certificate from a chartered accountant is required to be furnished with the return of
income [ r 29A ].
The word “artist” under s 80RR, despite its wide meaning, will include only those persons who do creative work in any
field and which are considered as an artistic work. A dress designer will be included within the meaning of the term
“artist” and is eligible to claim deduction.20
15 Ins. by the Finance Act, 1969 (14 of 1969), s 11 (w.e.f. 1-4-1970). See Circular No. 22, July 17, 1969.
16 Subs., for “musician or actor”, by the Finance (No. 2) Act, 1980 (44 of 1980), s 20 (w.e.f. 1-4-1980). See Circular No.
281, September 22, 1980, 131 ITR (St.) 4.
81. for the following:—
‘and such income is received in, or brought into, India by him or on his behalf in accordance with the Foreign Exchange
Regulation Act, 1947 (VII of 1947), and any rules made thereunder, there shall be allowed a deduction from such income of an
amount equal to twenty-five per cent. of the income so received or brought, in computing the total income of the individual’.
18 Subs., for “a deduction from such income of an amount 1[equal to seventy-five per cent. of such income, as is brought
into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from the end of
the previous year or] 2[within such further period as the competent authority may allow in this behalf]”, by the Finance
Act, 2000 (10 of 2000), s 43 (w.e.f. 1-4-2001). See Circular No. 794, August 9, 2000, 245 ITR (St.) 21.
(i) fifty per cent. of the income; or
(ii) seventy-five per cent. of such income as is brought into India by, or on behalf of, the assessee in accordance with the Foreign
Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder,
19 Ins. by the Finance Act, 1999 (27 of 1999), s 55(b) (w.e.f. 1-6-1999). See Circular No. 779, September 14, 1999, 240
ITR (St.) 3.
20 CIT v Tarun R. Tahiliani 328 ITR 629 .

Page 3 of 3
End of Document
S. 80RRA. Deduction in respect of remuneration received for services
rendered outside India
S. 80RRA. Deduction in respect of remuneration received for services rendered outside India
(1) 21[Where the gross total income of an individual who is a citizen of India includes any remuneration received by
him in foreign currency from any employer (being a foreign employer or an Indian concern) for any service
rendered by him outside India, there shall, in accordance with and subject to the provisions of this section, be
allowed, in computing the total income of the individual,22[a deduction from such remuneration of an amount equal
to—
(i) sixty per cent. of such remuneration for an assessment year beginning on the 1st day of April, 2001;
(ii) forty-five per cent. of such remuneration for an assessment year beginning on the 1st day of April, 2002;
(iii) thirty per cent. of such remuneration for an assessment year beginning on the 1st day of April, 2003;
(iv) fifteen per cent. of such remuneration for an assessment year beginning on the 1st day of April, 2004,
as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period
of six months from the end of the previous year or within such further period as the competent authority
may allow in this behalf and no deduction shall be allowed in respect of the assessment year beginning
on the 1st day of April, 2005, and any subsequent assessment year]:
Provided that no deduction under this sub-section shall be allowed unless the assessee furnishes a
certificate, in the prescribed form, along with the return of income, certifying that the deduction has been
correctly claimed in accordance with the provisions of this section]:]
23[* * * * *].
(2) The deduction under this section shall be allowed—

Page 2 of 4
(i) in the case of an individual who is or was, immediately before undertaking such service, in the employment of
the Central Government or any State Government, only if such service is sponsored by the Central
Government;
(ii) in the case of any other individual, only if he is a technician and the terms and conditions of his service outside
India are approved in this behalf by the Central Government or the prescribed authority.
Explanation.—For the purposes of this section—
(a) “foreign currency” shall have the meaning assigned to it in24[the Foreign Exchange Management Act, 1999 (42
of 1999)];
(b) “foreign employer” means,—
(i) the Government of a foreign State; or
(ii) a foreign enterprise; or
(iii) any association or body established outside India;
(c) “technician” means a person having specialised knowledge and experience in—
(i) constructional or manufacturing operations or mining or the generation or distribution of electricity or any
other form of power; or
(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building; or
(iii) public administration or industrial or business management; or
(iv) accountancy; or
(v) any field of natural or applied science (including medical science) or social science; or
(vi) any other field which the Board may prescribe in this behalf,
who is employed in a capacity in which such specialised knowledge and experience are actually
utilised;]
(d) 25[“competent authority” means the Reserve Bank of India or such other authority as is authorised under any
law for the time being in force for regulating payments and dealings in foreign exchange.]
Section 80RRA : Remuneration in Foreign Currency for Services Outside India.—This section grants a
deduction to an Indian citizen with regard to any remuneration received by him in foreign currency from any employer
Page 3 of 4
for any service rendered by him outside India. The deduction is available to an individual who was formerly employed
by either the Central or a state government and such service is sponsored by the Central Government, or to an
individual who is a technician and the terms and conditions of his service are approved by the prescribed authority
[sub-s (2)].
The deduction under this section is curtailed in phases and will not be available from the assessment year 2005-06.
The deduction is to be granted if such income is received in convertible foreign currency within six months from the
end of the assessment year or within such further period as allowed by the competent authority in this behalf [sub-s
(1)].
The benefit of this section is not confined to an employee who receives salary, but extends to a consultant who
receives fees for rendering consultancy services.26 There is no warrant to confine the expression ‘remuneration’ in this
section to salary received by a foreign employee. The section uses the expression ‘remuneration’, and not ‘salary’, and
therefore, if a person is retained by a foreign employer and is paid a fee in foreign currency, the payment of the fee is
covered under the term ‘remuneration’, which is a term of wider amplitude than ‘salary’ and the incentive is neither
restricted to the remittance of salaries alone, nor to the cases of employees only.27 An assessee who renders
consultancy services to a foreign company in lieu of remuneration, though not on full time basis in the sense of
creating a master and servant relationship, is entitled to the deduction.28
The amendment by the Finance (No 2) Act, 1991 to s 80-O does not amount to implied partial repeal of this section;
and if an assessee on the same set of facts and circumstances is entitled to deduction from the remuneration received
at 50 per cent. under s 80-O but at the rate of 75 per cent. under this section, then the assessee is entitled to the
deduction under this section, which is the higher of the two.29
This section does not require rendering of any service outside India as a technician; what is required, inter alia, is that
the services must be rendered outside India and the person who rendered such services is a ‘technician’ within the
meaning assigned to the term in cl (c) of the explanation to the section.30 The expression “for any service rendered
outside India” in s 80RRA requires the assessee to be physically present abroad while rendering the service. Mere
receipt of remuneration is not enough.31
Where an assessee is entitled to a deduction under this section, the extent of relief that he is entitled to under s 91 (1)
has been considered in the undermentioned cases.32
Rule 11C prescribes the fields referred to in cl (c)(vi) of the explanation to this section.
21 Subs. by the Finance (No. 2) Act, 1977 (29 of 1977), s 19 (w.e.f. 1-4-1978). See Circular No. 229, August 9, 1977, 111
ITR (St.) 9.
22 Subs., for “a deduction from such remuneration 1[of an amount 2[equal to seventy-five per cent. of such remuneration,
as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months
Page 4 of 4
from the end of the previous year or 3[within such further period as the competent authority may allow in this behalf]”, by
the Finance Act, 2000 (10 of 2000), s 44 (w.e.f. 1-4-2001). See Circular No. 794, August 9, 2000, 245 ITR (St.) 21.
1. Subs., for “of an amount equal to fifty per cent. thereof”, by the Finance Act, 1987 (11 of 1987), s 37 (w.e.f. 1-4-1988).
(i) fifty per cent. of the remuneration; or
(ii) seventy-five per cent. of such remuneration as is brought into India by, or on behalf of, the assessee in accordance with the
Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder,
23 The proviso has been omitted by the Finance Act, 1990 (12 of 1990), s 29 (w.e.f. 1-4-1991). See Circular No. 572,
August 3, 1990, 186 ITR (St.) 91. Prior to its omission, the proviso stood as under:—
‘Provided that where the individual renders continuous service outside India under or for such employer for a period exceeding
thirty-six months, no deduction under this section shall be allowed in respect of the remuneration for such service relating to any
period after the expiry of the thirty-six months aforesaid.’.
24 Subs., for “the Foreign Exchange Regulation Act, 1973 (46 of 1973)”, by the Finance Act, 2013, (17 of 2013) s 4 (w.e.f.
26 CBDT v Adiyta 170 ITR 137 (SC).
27 Kunti Verman v CBDT 220 ITR 120 ; Mahendra Raj v Joint Secy, GoI 257 ITR 569 .
28 Mathur v CBDT 235 ITR 769 ; Aggarwal v GoI 250 ITR 281 .
29 Mathur v CBDT 235 ITR 769 .
30 Taru Lalvani v Secretary, MoF 185 ITR 418 .
31 Pradeep K. R. v CBDT 282 ITR 526, (2006) 203 CTR 147 (Del); CBDT v B. K. Sinha 309 ITR 1, (2009) 221 CTR
284 (Kar) - reversing Mani A.S. v Union of India 264 ITR 5, (2003) 184 CTR 511 (Kar).
32 CIT v Jhanji 185 ITR 586 ; CIT v Parikh 209 ITR 394 ; CIT v Sachdev 193 ITR 498 ; CIT v Mois 210 ITR 284 .
End of Document
S. 80RRB. Deduction in respect of royalty on patents
(1) 33[Where in the case of an assessee, being an individual, who is—
(a) resident in India;
(b) a patentee;
(c) in receipt of any income by way of royalty in respect of a patent registered on or after the 1st day of April,
2003, under the Patents Act, 1970 (39 of 1970), and
his gross total income of the previous year includes royalty, there shall, in accordance with and subject to
the provisions of this section, be allowed a deduction, from such income, of an amount equal to the
whole of such income or three lakh rupees, whichever is less:
Provided that where a compulsory licence is granted in respect of any patent under the Patents Act,
1970 (39 of 1970), the income by way of royalty for the purpose of allowing deduction under this section
shall not exceed the amount of royalty under the terms and conditions of a licence settled by the
Controller under that Act:
Provided further that in respect of any income earned from any source outside India, so much of the
income, shall be taken into account for the purpose of this section as is brought into India by, or on
behalf of, the assessee in convertible foreign exchange within a period of six months from the end of the
previous year in which such income is earned or within such further period as the competent authority
referred to in clause (c) of the Explanation to section 80QQB may allow in this behalf.
(2) No deduction under this section shall be allowed unless the assessee furnishes a certificate in the prescribed
form, duly signed by the prescribed authority, along with the return of income setting forth such particulars as may
be prescribed.
Page 2 of 3
(3) No deduction under this section shall be allowed in respect of any income earned from any source outside India,
unless the assessee furnishes a certificate in the prescribed form, from the authority or authorities, as may be
prescribed, along with the return of income.
(4) Where a deduction for any previous year has been claimed and allowed in respect of any income referred to in
this section, no deduction in respect of such income shall be allowed, under any other provision of this Act in any
assessment year.
(a) “Controller” shall have the meaning assigned to it in clause (b) of sub-section (1) of section 2 34 of the Patents
Act, 1970 (39 of 1970);
(b) “lump sum” includes an advance payment on account of such royalties which is not returnable;
(c) “patent” means a patent (including a patent of addition) granted under the Patents Act, 1970 (39 of 1970);
(d) “patentee” means the person, being the true and first inventor of the invention, whose name is entered on the
patent register as the patentee, in accordance with the Patents Act, 1970 (39 of 1970), and includes every
such person, being the true and first inventor of the invention, where more than one person is registered as
patentee under that Act in respect of that patent;
(e) “patent of addition” shall have the meaning assigned to it in clause (q) of sub-section (1) of section 2 35 of the
Patents Act, 1970 (39 of 1970);
(f) “patented article” and “patented process” shall have the meanings respectively assigned to them in clause (o)
of sub-section (1) of section 2 36 of the Patents Act, 1970 (39 of 1970);
(g) “royalty”, in respect of a patent, means consideration (including any lump sum consideration but excluding any
consideration which would be the income of the recipient chargeable under the head “Capital gains” or
consideration for sale of product manufactured with the use of patented process or of the patented article for
commercial use) for—
(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent; or
(ii) the imparting of any information concerning the working of, or the use of, a patent; or
(iii) the use of any patent; or
(iv) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iii);
(h) “true and first inventor” shall have the meaning assigned to it in clause (y) of sub-section (1) of section 2 37 of
the Patents Act, 1970 (39 of 1970).]
Section 80RRB : Deduction in Respect of Royalty on Patents.—This section has been inserted by the Finance
Act, 2003 with effect from the assessment year 2004-05. It provides a deduction up to Rs 3,00,000 to a resident
individual in respect of receipt by way of royalty in respect of patents registered on or after April 1, 2003 under the
Patents Act, 1970. However, where a compulsory license is granted in respect of any patent under the Patents Act,
Page 3 of 3
1970, the income by way of royalty for the purpose of allowing deduction under this section shall not exceed the
amount of royalty under the terms and conditions of a license settled by the Controller under that Act. It is further
provided that in respect of any income earned from any source outside India, so much of the income is to be taken into
account for the purpose of this section, as is brought into India by, or on behalf of, the assessee in convertible foreign
exchange within a period of six months from the end of the previous year in which such income is earned or within
such further period as the competent authority may allow in this behalf.
ITR (St.) 62.
End of Document
S. 80-S.
S. 80-S.
38[* * * *]
38 Section 80-S has been omitted by the Finance Act, 1986 (23 of 1986), s 22 (w.e.f. 1-4-1987). See Circular No. 461,
July 9, 1986, 161 ITR (St.) 17.
Omitted Section 80-S .— Section 80-S, prior to its omission by the Finance Act, 1986, with effect from 1-4-1987, stood as
under:—
‘80-S. Deduction in respect of compensation for termination of managing agency, etc., in the case of assessees other
than companies.—Where the gross total income of an assessee not being a company includes any income by way of
compensation or other payment which is chargeable as the profits and gains of business or profession in accordance with the
1[provisions of sub-clause (a) or sub-clause (b) or sub-clause (c) of clause (ii) of section 28,] there shall be allowed, in computing
the total income of the assessee, a deduction from such income of an amount equal to twenty-five per cent. thereof, so,
however, that the amount of the deduction under this section shall not, in any case, exceed one hundred thousand rupees.’.
1. Subs., for “provisions of clause (ii) of section 28,”, by the Finance Act, 1973 (21 of 1973), s 11 (w.r.e.f. 1-4-1972).
End of Document
S. 80T.
S. 80T.
39[* * * *]
1. Deleted Section 80T [ Section 17(6) of 1922 Act]: Long-term Capital Gains.—This section, which applies for
assessment years prior to 1988-89, dealt with deduction from long-term capital gains in the case of non-corporate
assessees. Short-term capital gains [ s 2(42B) ] are fully taxed at the same rates as any other income, both in the case
of companies and other assessees. On the other hand, prior to the assessment year 1988-89 long-term capital gains
bore a lower tax burden by only a portion of them being included under this section in the total income of assessees
other than companies,40 and by a lower rate of tax being imposed on companies under s 115 . Both this section and s
115 were deleted with effect from 1 April, 1988, and their provisions were incorporated in s 48 which grants different
deductions to companies and other assessees. [See ss 48(1)(b) and (2), under ‘Standard deductions’].
A registered firm is liable to tax on capital gains and is entitled to deduction under this section,41 but the partners
cannot claim a further deduction in their individual assessments [ s 80A(3) ].
2. Calculation of Deduction Prior to Assessment Year 1988-89.—In view of s 80AB which came into operation on
1 April, 1981, effect should be first given to the provisions of ss 70, 71 and 74, before invoking this section. Any carried
forward long-term capital loss of an earlier year has in every case to be first set off under the pre-1988 s 74(1)(a)(ii)
against long-term capital gains; and the loss of the same assessment year under any other head may also be so set
off, at the option of the assessee, under the pre-1988 s 71(2) . However, the Supreme Court in Rama Varma v CIT 42
has held that s 80AB was retrospective in operation and would apply from the assessment year 1968-69.
Under this section, the amount of capital gains means the profits derived during the year as reduced by the capital loss
suffered during the year, and the deduction is available only to the balance.43 It is only if, after the set-off of such
Page 2 of 4
S. 80T.
losses, any long-term capital gains remain to be included in the gross total income that the deduction under this
section, both of Rs 5,000 (Rs 10,000 for the assessment year 1987-88) and of the prescribed percentage of the capital
gains, would fall to be made from such balance of the long-term capital gains.44 The words ‘such income’ in the main
part of the section mean and refer to the capital gains and not the total income of the assessee; the deduction is to be
made from the capital gains without reducing the business loss, if any.45 Further, in computing the deduction under this
section, short-term capital loss or profit cannot be taken into consideration.46 The deduction under s 54E is to be given
before giving deduction under this section.47
A charitable trust, whose income is exempted under s 11, is not entitled to deduction under this section in respect of
long-term capital gains.48
In the context of s 80T, the undernoted cases held that referable questions of law arose49 or did not arise50 under s
256 .
39 Section 80T has been omitted by the Finance Act, 1987 (11 of 1987), s 38 (w.e.f. 1-4-1988). See Circular No. 495,
September 22, 1987, 168 ITR (St.) 87.
Omitted section 80T .— Section 80T, prior to its omission by the Finance Act, 1987, with effect from 1-4-1988, stood as
follows:—
‘S. 80T. Deduction in respect of long-term capital gains in the case of assessees other than companies.—Where the
gross total income of an assessee not being a company includes any income chargeable under the head “Capital gains” relating
to capital assets other than short-term capital assets (such income being, hereinafter, referred to as long-term capital gains),
there shall be allowed, in computing the total income of the assessee, a deduction from such income of an amount equal to,—
(a) in a case 1[* * * *] where the long-term capital gains do not exceed 2[ten thousand rupees], the whole of such long-term
capital gains;
3[(b) 4[in any other case, ten thousand rupees as increased by a sum equal to—
(A) fifty per cent. of the amount by which the long-term capital gains relating to capital assets, being buildings or lands or any
rights in buildings or lands, or gold, bullion or jewellery, exceed ten thousand rupees;
(B) sixty per cent. of the amount by which the long-term capital gains relating to any other capital assets exceed ten thousand
rupees]:
Provided that where the long-term capital gains relate to—
(i) buildings or lands or any rights in buildings or lands;
(ii) gold, bullion or jewellery; and
(iii) any other capital asset,
or to any two of the categories of capital assets mentioned in the foregoing clauses of this proviso (the assets falling under each
clause being treated as a separate category), the deduction of 5[ten thousand rupees] referred to in this clause shall be allowed
in the following order, namely:—
(1) the deduction shall first be allowed against long-term capital gains relating to the assets mentioned in clause (i);
(2) next, where the amount of the long-term capital gains relating to the assets mentioned in clause (i) is less than 5[ten
thousand rupees], a deduction equal to the amount of the difference between 5[ten thousand rupees] and such capital gains
shall be allowed against the long-term capital gains relating to the assets mentioned in clause (ii); and
(3) thereafter, the balance, if any, of the said 5[ten thousand rupees] shall be allowed as a deduction against the long-term
capital gains relating to the assets mentioned in clause (iii),
and the provisions of sub-clause (A) and sub-clause (B) of this clause shall apply as if the references to 5[ten thousand rupees]
therein were references to the amount of deduction allowed in accordance with clauses (1), (2) and (3) of this proviso:
6[* * * *]]’.
Page 3 of 4
S. 80T.
1. The words “where the gross total income does not exceed ten thousand rupees or” were omitted by the Finance (No. 2) Act,
1980 (44 of 1980), s 21 (w.e.f. 1-4- 1981).
2. Subs., for “five thousand rupees”, by the Finance Act, 1986 (23 of 1986), s 23(i) (w.e.f. 1-4-1987).
‘(b) in any other case, five thousand rupees as increased by a sum equal to—
(i) twenty-five per cent. of the amount by which the long-term capital gains relating to capital assets, being buildings or lands, or
any rights in buildings or lands, exceed five thousand rupees;
(ii) forty per cent. of the amount by which the long-term capital gains relating to any other capital assets exceed five thousand
rupees:
Provided that in a case where the long-term capital gains relate to buildings or lands, or any rights in buildings or lands, as well
as to other assets, the sum referred to in a subclause (ii) of clause (b) shall to taken to be—
(A) where the amount of the long-term capital gains relating to the capital assets mentioned in sub-caluse (i) is less than five
thousand rupees, forty per cent. of the amount by which the long-term capital gains relating to any other capital assets exceed
the difference between five thousand rupees and the amount of the longterm capital gains relating to the capital assets
mentioned in sub-clause (i); and
(B) where the amount of the long-term capital gains relating to the capital assets mentioned in sub-caluse (i) is equal to or more
than five thousand rupees, forty per cent. of the long-term capital gains relating to any other capital assets.’.
In the above, “twenty-five per cent.” was substituted for “thirty-five per cent.” and “forty per cent.” was substituted for “fifty per
cent.” by the Finance (No. 2) Act, 1974 (31 of 1974), s 2(1) (w.e.f. 1-4-1975). Earlier, “thirty-five per cent.” was substituted for
“forty-five per cent.” and “fifty per cent.” was substituted for “sixty-five per cent.” by the Finance (No. 2) Act, 1971 (32 of 1971), s
23 (w.e.f. 1-4-1972).
4. Subs. by the Finance Act, 1986 (23 of 1986), s 23(ii) (w.e.f. 1-4-1987), for the following:—
‘in any other case, five thousand rupees as increased by a sum calculated—
(A) at such of the rates specified in column (2) in the Twelfth Schedule as is applicable, with reference to the amount by which
the long-term capital gains relating to capital assets, being buildings or lands or any rights in buildings or lands, exceed five
thousand rupees;
(B) at such of the rates specified in column (3) in the Twelfth Schedule as is applicable, with reference to the amount by which
the long-term capital gains relating to any other capital assets exceeds five thousand rupees’.
5. Subs., for “five thousand rupees”, by the Finance Act, 1986 (23 of 1986), s 23(i) (w.e.f. 1-4-1987).
6. The second proviso has been omitted by the Finance Act, 1986, (23 of 1986), s 23(iii) (w.e.f. 1-4-1987). Prior to its omission,
the second proviso stood as under:—
‘Provided further that the aggregate amount of deduction under this section in relation to assets mentioned in clause (ii) of the
preceding proviso shall, in no case, exceed fifty thousand rupees.’
40 For computation of tax on capital gains under 1922 Act, see Jamal v ITO ,88 ITR 239.
41 Viswambharam v CIT 91 ITR 588 (FB); CIT v Butaram 106 ITR 636 ; Pearl v CIT 123 ITR 658 ; CIT v Jayantilal 137
ITR 257 .
42 205 ITR 433(SC), affirming Rama Varma v CIT 129 ITR 156 ; Ashaben v CIT 237 ITR 561 ; CIT v Gautam Sarabhai
129 ITR 133 ; CIT v Seshasayee 129 ITR 166 ; CIT v Vimla Kapadia 181 ITR 394 ; Gouri Prasad v CIT 190 ITR 81 .
43 MSP Nadar v CIT 201 ITR 1044 (SC); CIT v Sigappi 140 ITR 448 ; CIT v Birla 174 ITR 361 ; CIT v Rangalal 181
ITR 200 .
44 For pre-1981 law see: CIT v Venkatachalam 120 ITR 688 : affirmed in 201 ITR 737 ; CIT v Ramaswami 120 ITR 694 ;
CIT v Gautam 129 ITR 133 ; Rama v CIT 129 ITR 156 ; CIT v Seshasayee 129 ITR 166 ; CIT v Sigappi 140 ITR 448
and CIT v Birla 174 ITR 361 (gain and loss of same year).
Page 4 of 4
S. 80T.
45 CIT v Venkatchalam 201 ITR 737 (SC); CIT v Moosa 233 ITR 178 .
46 CIT v Shantaben 228 ITR 305 .
47 CIT v Sarda Trading 204 ITR 138 .
48 DIT v Girdharilal 199 ITR 215 .
49 CIT v Om Parkash 228 ITR 722 .
50 CIT v Ramachandra Rao (DL) 236 ITR 51 .
End of Document
S. 80TT.
S. 80TT.
51[* * * *]
Deleted Section 80TT : Winnings from Lottery etc.—See s 10(3), under ‘Winnings from betting, gambling, lotteries,
etc . . .’.
While deduction under this section was admissible in computing the total income of a firm, s 80A(3) prohibited the
partners from also claiming deduction in their individual assessments. [See also s 10(26AA) .
The bonus received by the agent for sale of lottery tickets amounts to a winning from lottery and was eligible for
deduction under this section.52 but a contrary view was taken in some cases.53 A jackpot in horse-racing was held not
to be a winning from lottery and not entitled to a deduction under this section.54
51 Section 80TT has been omitted by the Finance Act, 1986 (23 of 1986), s 24 (w.e.f. 1-4-1987). See Circular No. 461,
July 9, 1986, 161 ITR (St.) 17.
Omitted section 80TT .— Section 80TT, prior to its omission by the Finance Act, 1986, with effect from 1-4-1987, stood as
under:—
‘1[S. 80TT. Deduction in respect of winnings from lottery.—Where the gross total income of an assessee, not being a
company, includes any income by way of winnings from any lottery (such income being hereafter in this section referred to as
winnings), there shall be allowed, in computing the total income of the assessee, a deduction from the winnings of an amount
equal to,—
Page 2 of 2
S. 80TT.
(a) in a case 2[* * * *] where the winnings do not exceed five thousand rupees, the whole of such winnings;
(b) in any other case, five thousand rupees as increased by a sum equal to fifty per cent. of the amount by which the winnings
exceed five thousand rupees.]’.
2. The words “where the gross total income does not exceed ten thousand rupees or” were omitted by the Finance (No. 2) Act,
1980 (44 of 1980), s 22 (w.e.f. 1-4-1981).
52 CIT v Krishnan 228 ITR 557 .
53 Visweswaraiah v CIT 189 ITR 698 ; Commercial Corpn v ITO 201 ITR 348 .
54 Pant v CIT 248 ITR 718 .
End of Document
S. 80TTA. Deduction in respect of interest on deposits in savings account
Total Income > CA.—Deductions in respect of other incomes
CA.—Deductions in respect of other incomes
(1) 55[Where the gross total income of an assessee, being an individual or a Hindu undivided family, includes any
income by way of interest on deposits (not being time deposits) in a savings account with—
(a) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or
banking institution referred to in section 51 56 of that Act);
(b) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage
bank or a co-operative land development bank); or
(c) a Post Office as defined in clause (k) of section 2 57 of the Indian Post Office Act, 1898 (6 of 1898),
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 as specified hereunder, namely:—
(i) in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the
whole of such amount; and
(ii) in any other case, ten thousand rupees.
(2) Where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf
of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in
respect of such income in computing the total income of any partner of the firm or any member of the association
or any individual of the body.
Explanation.—For the purposes of this section, “time deposits” means the deposits repayable on expiry of
fixed periods.]
Page 2 of 2
Section 80TTA : Deduction in respect of interest on deposits in saving account.—This section, inserted by the
Finance Act, 2012, with effect from April 1, 2013, grants a deduction of Rs. 10,000 to individual tax payers and HUFs
on the interest earned on their savings bank account. However, this section does not apply to time deposits or fixed
deposits that are repayable on the expiry of a fixed period.
End of Document
S. 80U. Deduction in case of a person with disability
Total Income > D.—Other deductions
D.—Other deductions
(1) 58[59[Incomputing the total income of an individual, being a resident, who, at any time during the previous year, is
certified by the medical authority to be a person with disability, there shall be allowed a deduction of a sum of fifty
thousand rupees:
Provided that where such individual is a person with severe disability, the provisions of this sub-section shall have effect as
if for the words “fifty thousand rupees”, the words “seventy-five thousand rupees” had been substituted:
60[Provided further that for the assessment years beginning on or after the 1st day of April, 2010, the provisions of the first
proviso shall have effect as if for the words “seventy-five thousand rupees”, the words “one lakh rupees” had been
substituted.]
(2) Every individual claiming a deduction under this section shall furnish a copy of the certificate issued by the
medical authority in the form and manner, as may be prescribed, along with the return of income under section
139, in respect of the assessment year for which the deduction is claimed:
Provided that where the condition of disability requires re-assessment of its extent after a period stipulated in
the aforesaid certificate, no deduction under this section shall be allowed for any assessment year relating to
any previous year beginning after the expiry of the previous year during which the aforesaid certificate of
disability had expired, unless a new certificate is obtained from the medical authority in the form and manner,
as may be prescribed, and a copy thereof is furnished along with the return of income under section 139 .
(a) “disability” shall have the meaning assigned to it in clause (i) of section 2 62 of the Persons with Disabilities
(Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996), and includes “autism”,
“cerebral palsy” and “multiple disabilities” referred to in clauses (a), (c) and (h) of section 2 63 of the National
Page 2 of 4
Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act,
1999 (44 of 1999);
(b) “medical authority” means the medical authority as referred to in clause (p) of section 2 64 of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996), or such
other medical authority as may, by notification, be specified by the Central Government for certifying “autism”,
“cerebral palsy”, “multiple disabilities”, “person with disability” and “severe disability” referred to in clauses (a),
(c), (h), (j) and (o) of section 2 65 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy,
Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);
(c) “person with disability” means a person referred to in clause (t) of section 265 of the Persons with Disabilities
(Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996), or clause (j) of section
265 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act, 1999 (44 of 1999);
(d) “person with severe disability” means—
(i) a person with eighty per cent. or more of one or more disabilities, as referred to in sub-section (4) of
section 5664 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 (1 of 1996); or
(ii) a person with severe disability referred to in clause (o) of section 265 of the National Trust for Welfare of
Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of
1999).]
Section 80U : Allowance to Blind or Physically Handicapped Persons.—The growing passion for bureaucratic
control is well illustrated by the amendment made to this section by the Finance Act, 1989. The amendment extends
the small deduction to the mentally retarded. While the section itself stipulates that the mental retardation must be
such that it ‘has the effect of reducing substantially the capacity to engage in a gainful employment or occupation’, it is
further enacted that the mental retardation should be ‘to the extent specified in the rules made in this behalf by the
board’ and should be further certified by ‘a psychiatrist working in a government hospital’. The underlying notion that
there will be a rush of taxpayers dishonestly certifying themselves as mentally retarded with a view to getting the paltry
deduction of Rs 15,000, is the ultimate in distrust of citizens.
Rule 11D specified permanent disabilities.
The Finance Act, 2003 has substituted a new section for the old section with a view to harmonise the criteria for
defining ‘disability’ as existing under the Income-tax Rules with the criteria prescribed under the Persons with Disability
(Equal Opportunities, Protection of Rights and Full Participation) Act, 1995, and to increase the amount of deduction.
This section now provides a deduction of Rs 50,000 in respect of persons with ‘disability’, as defined under the
Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. The section
provides a higher deduction of Rs 75,000 in respect of a ‘person with severe disability’ under the Persons with
Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995.
Page 3 of 4
For claiming the deduction, a certificate issued by the medical authority under the Persons with Disability (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995, is to be filed along with the return of income. It is
not open to the assessing officer to doubt the genuineness of the certificate of a doctor of a premier institute funded by
the Central Government who had certified the disability of the assessee.66 It is shameful that the Department should
have chosen to file an appeal in the case of an assessee who was blind.
Under the old section, it was held that such certificate culd be produced at any stage of assessment proceedings.67
Further, under the old section it was also held that even if the physical disability did not reduce the capacity to engage
in gainful employment, the assessee was entitled to the benefit under this section.68 Moreover, it was not a condition
precedent for allowing the deduction under this section that the assessee must have been unemployed or earning
nothing.69 This section was also considered in the undermentioned cases.70
58 Ins. by the Finance Act, 1968 (19 of 1968), s 30 and 3rd Sch. (w.e.f. 1-4-1969). See Circular No. 6-P, July 6, 1968.
59 Subs. by the Finance Act, 2003 (32 of 2003), s 46 (w.e.f. 1-4-2004), Circular No. 7 of 2003, September 5, 2003, 263
‘1[S. 80U. Deduction in the case of permanent physical disability (including blindness).—In computing the total income of
an individual, being a resident, who, at the end of the previous year, is suffering from a permanent physical disability (including
blindness) or is subject to mental retardation, being a permanent physical disability or mental retardation specified in the rules
made in this behalf by the Board, which is certified by a physician, a surgeon, an oculist or a psychiatrist, as the case may be,
working in a Government hospital, and which has the effect of reducing considerably such individual’s capacity for normal work
or engaging in a gainful employment or occupation, there shall be allowed a deduction of a sum of 2[forty thousand rupees]:
Provided that such individual produces the aforesaid certificate before the Assessing Officer in respect of the first assessment
year for which he claims deduction under this section:
Provided further that the requirement of producing the aforesaid certificate from a physician, a surgeon, an oculist or a
psychiatrist, as the case may be, working in a Government hospital shall not apply to an individual who has already produced a
certificate before the Assessing Officer under the provisions of this section as they stood immediately before the 1st day of April,
1992.
Explanation.—For the purposes of this section, the expression “Government hospital” shall have the meaning assigned to it in
the Explanation to section 80DD .]’.
1. Subs. by the Finance (No. 2) Act, 1991 (49 of 1991), s 37 (w.e.f. 1-4-1992).
2. Subs., for “twenty thousand rupees”, by the Finance Act, 1995 (22 of 1995), s 21 (w.e.f. 1-4-1996).
60 Ins. by the Finance (No. 2) Act, 2009 (33 of 2009), s 38 (w.e.f. 1-4-2010). See Circular No. 5 of 2010, June 3, 2010,
324 ITR (St.) 293.
61 Subs. by the Finance (No. 2) Act, 2004 (23 of 2004), s 19 (w.e.f. 1-4-2005), Circular No. 5 of 2005, July 15, 2005, 276
ITR (St.) 151, for the following Explanation:—
‘Explanation.—For the purposes of this section,—
(a) “disability” shall have the meaning assigned to it in clause (i) of section 2 of the Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996);
(b) “medical authority” means the medical authority as referred to in clause (p) of section 2 of the Persons with Disabilities (Equal
(c) “person with disability” means a person referred to in clause (t) of section 2 of the Persons with Disabilities (Equal
Page 4 of 4
(d) “person with severe disability” means a person with eighty per cent. or more of one or more disabilities, as referred to in sub-
section (4) of section 56 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act,
1995 (1 of 1996).’.
66 Gurbux Singh v CIT 280 ITR 465 .
67 Snehalata v M. Thanvi 242 ITR 293 ; Srinivasan v ITO 211 ITR 236 (belated claim cannot be rejected).
68 Sardar Harpreet v CIT 187 ITR 679 ; Abdul Jabbar v CIT 237 ITR 389 ; Nithyanam v CIT 239 ITR 328 ; CIT v
Santhanakrishnan 241 ITR 582 ; CIT v Bhagwat Prasad 239 ITR 645 ; CIT v Narendra Oza 257 ITR 466 . Contra
Syed v CIT 246 ITR 698 ; K Srinivasan v CIT 234 ITR 267 .
69 Sardar Harpreet v CIT 187 ITR 679 . Contrast CIT v Santhanakrishnan 241 ITR 582 .
70 Madhusudan v ITO 213 ITR 840 ; CIT v Subramanian 243 ITR 281 .
End of Document
S. 80V.
S. 80V.
71[* * * *]
Deleted Section 80V : Interest on Moneys Borrowed to Pay Taxes.—For the assessment years 1976-77 to 1985-
86 this section permitted a deduction in respect of interest paid by the assessee in the relevant accounting year on
moneys borrowed to pay any tax under this Act, irrespective of the head under which the income was computed.72
The object of this section was to encourage the taxpayer to pay his tax dues under the Act promptly, even by
borrowing, and if there was no nexus between the borrowings and the payment of taxes, then such interest was not
allowable.73 The deduction under this section was also not available in respect of interest paid in respect of any loan
obtained subsequently for discharging the liability incurred earlier74 or for paying interest on instalments of taxes75 or
interest paid for delayed payment of taxes.76 However, if the borrowed amount remained outstanding during the
relevant previous assessment year, and on that account, the interest was paid in the succeeding assessment year,
then the deduction could not be disallowed for the reason that money is not borrowed during the succeeding year.77
[See s 37, under ‘Surtax, death duty, interest and other connected expenses’; and s 57, under ‘Allowance for revenue
expenditure’.]
In the context of s 80V the undernoted cases held that referable question of law did not arise78 under s 256 .
Page 2 of 2
S. 80V.
71 Omitted by the Finance Act, 1994 (32 of 1994), s 28 (w.e.f. 1-4-1995). See Circular No. 657, August 30, 1993, 204 ITR
(St.) 106.
Section 80V as it stood between 1-4-1994 and 31-3-1995.— Section 80V, which was inserted (w.e.f. 1-4-1994) by the
Finance Act, 1993, and which has been omitted (w.e.f. 1-4-1995) by the Finance Act, 1994, stood as follows:—
‘1[S. 80V. Deduction from gross total income of the parent in certain cases.—Where a minor child, whose income is
included in the total income of one of his parents under sub-section (1A) of section 64, is suffering from any disability of the
nature specified in section 80U, then, in computing the total income of such parent, there shall be allowed from the gross total
income of such parent a deduction of a sum to which such minor child would have been entitled under section 80U had the total
income of such minor child been computed separately.’
72 CIT v Bakelite Hylam 171 ITR 583 [deleted s 40A(8) and this section]; CIT v Bakelite Hylam 217 ITR 469 .
73 Hindustan Cocoa v CIT 236 ITR 140 ; CIT v Albright Morarji 236 ITR 914 ; CIT v Ghia 238 ITR 736 ; Empire Stores v
CIT 184 ITR 214 .
74 Abdulhussein v CIT 234 ITR 258 ; Vimla Siddharthbhai v CIT 242 ITR 196 .
75 Bharat Commerce v CIT 230 ITR 733 (SC).
76 Federal Bank v CIT 180 ITR 37 ; Jindal Industries v CIT 200 ITR 232 .
77 Mishri Mal v CIT 199 ITR 812 ; CIT v Ghia 238 ITR 736 .
78 CIT v Sarabhai Chemicals Pvt Ltd 196 ITR 716 ; Empire Stores v CIT 184 ITR 214 .
End of Document
S. 80VV.
S. 80VV.
79[* * * *]
Deleted Section 80VV : Expenditure on Tax Proceedings.—For the assessment years 1976-77 to 1985-86 this
section permitted a deduction, up to Rs 5,000,80 in respect of expenditure incurred by the assessee in the relevant
accounting year on proceedings under this Act or in any court relating to the determination of any liability under this
Act by way of tax, penalty or interest. A deduction under this section was granted irrespective of the head under which
the income was computed. In practice, the effect of this section was:
(i) to grant a limited deduction in the case of income other than under the head ‘Business or profession’, where no
deduction was at all allowable before; and
(ii) to restrict to Rs 5,000 the deduction in the case of income under the head ‘Business or profession’, where formerly
an unlimited deduction was permissible.
The provisions of this section were, with some modifications, incorporated from the assessment year 1986-87 onwards
in s 40A(12), which was deleted from the assessment year 1993-94. [See s 37, under ‘Legal and accountancy
expenses’, and s 40A(12), under ‘Expenditure in connection with proceedings or advice in tax matters’].
This section did not cover expenditure incurred in connection with travel and the preparation of the return,81
expenditure incurred for a petition challenging the reopening of a completed assessment,82 reassessment
Page 2 of 3
S. 80VV.
proceedings,83 surtax assessment84 or retainer fees, whether or not relatable to any proceedings.85 The ceiling limit
will not apply where the payment is made not only for representation before the authorities but for consultation as
well.86 On the other hand, expenditure incurred in connection with any proceedings challenging the steps taken by the
income tax officer87 or for the preparation of statements and schedules annexed to the income-tax return88 are
covered by this section.
The limit of Rs 5,000 under this section applies to any expenditure incurred by the assessee in the previous year and
not in respect of each assessment year.89
Deduction is allowed even though no payment is made in the year, if the assessee follows the mercantile system of
accounting.90
In the context of s 80VV, the undernoted cases held that referable questions of law arose91 or did not arise92 under s
256 .
79 Section 80VV has been omitted by the Finance Act, 1985 (32 of 1985), s 25 (w.e.f. 1-4-1986). See Circular No. 421,
June 12, 1985, 156 ITR (St.) 130.
Omitted section 80VV .— Section 80VV, prior to its omission by the Finance Act, 1985, with effect from 1-4-1986, stood as
under:—
‘1[S. 80VV. Deduction in respect of expenses incurred in connection with certain proceedings under the Act.—In
computing the total income of an assessee, there shall be allowed by way of deduction any expenditure incurred by him in the
previous year in respect of any proceedings before any income-tax authority or the Appellate Tribunal or any court relating to the
determination of any liability under this Act, by way of tax, penalty or interest:
Provided that no deduction under this section shall, in any case, exceed in the aggregate five thousand rupees.]’.
80 Indian Oxygen v CIT 164 ITR 466, 478 -79; Atlas Cycle Industries Ltd. v CIT (2004) 270 ITR 108, (2004) 192 CTR
(P&H) 354 ; Dalima Biscuits P. Ltd. v CIT 304 ITR 181 .
81 CIT v United Commercial 189 ITR 57 .
82 CIT v KC Saigal 258 ITR 426 .
83 Grindlays Bank v CIT 207 ITR 454 .
84 McGaw v CIT 210 ITR 1002 .

Page 3 of 3
S. 80VV.
85 Poddar v CIT 191 ITR 365 ; CIT v Volga 253 ITR 405 ; CIT v Mahavir Jute Mills Ltd. 279 ITR 381, (2005) 198 CTR
67 (All) (retainers for giving opinions).
86 CIT v Porrits and Spencer (Asia) Ltd. 304 ITR 186 .
87 Grindlays Bank v CIT 207 ITR 454 .
88 Brakes India v CIT 224 ITR 138 ; Associated Stone Industries v CIT 261 ITR 766, (2002) 124 Taxman 852 (Raj).
89 Indian Oxygen v CIT 164 ITR 466 ; Dalmia Biscuits v CIT 203 ITR 508 . Contra Saurashtra Cement v CIT, 213 ITR
523 ; Shiv Narain Karmendra Narain v CIT 277 ITR 27, (2005) 193 CTR 561 (All).
90 CIT v Dayal Mistry 252 ITR 571 .
91 JK Synthetics Ltd v CIT 190 ITR 532 .
92 CIT v Escorts Ltd 203 ITR 682 ; CIT v Modipon Limited (No 2) 189 ITR 478 ; Saru Smelting Pvt Ltd v CIT 185 ITR
621 .
End of Document
S. 80VVA.
Income Tax, 10e, 2 Vols, HB > Volume 1 > CHAPTER VI-B Restriction on Certain Deductions in
the Case of Companies
CHAPTER VI-B Restriction on Certain Deductions in the Case of Companies
S. 80VVA.
2[* * * *]
Deleted section 80VVA : Restriction on Deductions in Case of Companies.—This section enumerated various
tax incentives which could not be availed of by a company beyond 70 per cent of its pre-incentive profits and thus, hit
the most dynamic enterprises in the corporate sector. The topic of this section which was in operation for the
assessment years 1984-85 to 1987-88 is now dealt with, in a more drastic form, by s 115J .
In the context of s 80VVA, the undernoted case held that referable questions of law arose3 under s 256 .
2 Chapter VI-B, containing section 80VVA, has been omitted by the Finance Act, 1987 (11 of 1987),
s 40 (w.e.f. 1-4-1988). See Circular No. 495, September 22, 1987, 168 ITR (St.) 87.
Omitted section 80VVA .—Chapter VI-B, containing section 80VVA, prior to its omission by the Finance Act, 1987, with effect
from 1st April, 1988, stood as under:—
‘1[CHAPTER VI-B
Restriction on Certain Deductions in the case of Companies
S. 80VVA . Restriction on certain deductions in the case of companies.—(1) Notwithstanding anything contained in any
other provision of this Act, where in the case of an assessee being a
company, the amount or, as the case may be, the aggregate amount which, but for the provisions of this section, would have
been admissible as deduction for any assessment year under any one or more of the provisions of this Act specified in sub-
Page 2 of 3
S. 80VVA.
section (2) exceeds seventy per cent. of the amount of total income as computed had no deduction been allowed under any of
the said provisions (such total income being hereinafter referred to as the pre-incentive total income), the amount or, as the case
may be, the aggregate amount to be allowed as deduction for that year in respect of any one or more of the said provisions shall
be restricted, in the manner specified in sub-section (3), to seventy per cent. of the pre-incentive total income.
(2) The provisions referred to in sub-section (1) shall be the following, namely:—
(i)clause (iii) of sub-section (1) of section 35 ;
(ii)clause (ia) of sub-section (2) of section 35 ;
(iii)sub-section (2A) of section 35, to the extent to which the deduction under the said sub-section exceeds the sum paid by the
assessee;
(iv)sub-section (2B) of section 35, to the extent to which the deduction under the said sub-section exceeds the expenditure
incurred by the assessee;
(v) section 35C ;
(vi) section 35CC ;
(vii) section 35CCA ;
(viii) section 35CCB ;
(ix)clause (ii) of sub-section (2) of section 33 ;
(x)clause (ii) of sub-section (2) of section 33A ;
(xi)sub-section (1), or, as the case may be, sub-section (1), read with clause (i) of
sub-section (2), of section 33A ;
(xii)clause (ii) of sub-section (3) of section 32A ;
(xiii)sub-section (1), or, as the case may be, sub-section (1), read with clause (i) of
sub-section (3), of section 32A ;
2[(xiiia) section 32AB ;]
3[4[(xiiib)] section 33AB ;]
(xiv) section 80G ;

(xv)clause (b) of sub-section (2) of section 80GGA ;
(xvi)clause (c) of sub-section (2) of section 80GGA ;
(xvii) section 80HH ;
(xviii) section 80HHA ;
(xix) section 80HHB ;
(xx) section 80HHC ;
(xxi) section 80-I ;
(xxii) section 80J ;
5[(xxiii)* *]
6[(xxiv)* *]
(xxv) section 80M ;

7[(xxvi)* *]
(xxvii) section 80-O ; and

(xxviii) section 80QQ .
(3) The deduction under the provisions specified in sub-section (2) shall, for the purposes of restricting under sub-section (1), the
amount or, as the case may be, the aggregate amount of deduction, under those provisions, be allowed in the order in which the
said provisions have been specified in sub-section (2), and accordingly—
(a)deduction shall first be allowed under the provision specified in clause (i) of sub-section (2); and
(b)if no deduction is allowable under the provision specified in the said clause (i) or the deduction allowable under that provision
is less than seventy per cent. of the pre-incentive total income, deduction shall next be allowed under the provision specified in
clause (ii) of sub-section (2); and
(c)if no deduction is allowable under the provision specified in the said clause (ii), or the deduction under that provision together
with the deduction allowed under the provision referred to in the said clause (i), is less than seventy per cent. of the pre-incentive
total income, deduction shall next be allowed under the provision specified in clause (iii) of sub-section (2) and so on until the
aggregate deduction so allowed is equal to seventy per cent. of the pre-incentive total income.
(4) To the extent to which full deduction cannot be allowed in the assessment year in respect of any provision specified in sub-
section (2), by virtue only of the restriction under sub-section (1) (and not by virtue of anything contained in any other section),
the amount remaining unallowed shall be added to the amount, if any, to be allowed to the assessee under the said provision for
the next following assessment year and be deemed to be part of the deduction admissible to the assessee under the said
Page 3 of 3
S. 80VVA.
provision for that year or, if no such deduction is admissible to the assessee for that year, be deemed to be the deduction
admissible to the assessee for that year, and so on for succeeding assessment years.]’.
New Chapter VI-B, containing section 80VVA, was inserted by the Finance Act, 1983 (11 of 1983), s 32 (w.e.f. 1-4-1984). See
Circular No. 372, December 8, 1983, 146 ITR (St.) 9.
2.Clause (xiiia) was inserted by the Finance Act, 1986 (23 of 1986), s 39(b)(i) (w.e.f. 1-4-1987).
3.Ins., as clause (xiiia), by the Finance Act, 1985 (32 of 1985), s 36(d)(i) (w.e.f. 1-4-1986).
4.Clause (xiiia) was renumbered as clause (xiiib) by the Finance Act, 1986 (23 of 1986), s 39(b)(i) (w.e.f. 1-4-1987).
5.Clause (xxiii) was omitted by the Finance Act, 1985 (32 of 1985), s 36(d)(ii) (w.e.f. 1-4-1986). Prior to its omission, clause
(xxiii) stood as under:—
“(xxiii) section 80JJ ;”.
6.Clause (xxiv) was omitted by the Finance Act, 1986 (23 of 1986), s 39(b)(ii) (w.e.f. 1-4-1987). Prior to its omission, clause
(xxiv) stood as under:—
“(xxiv) section 80K ;”.
7.Clause (xxvi) was omitted by the Finance Act, 1985 (32 of 1985), s 36(d)(iii) (w.e.f. 1-4-1986). Prior to its omission, clause
(xxvi) stood as under:—
“(xxvi) section 80N ;”.
3 CIT v Farida Shoes Ltd 235 ITR 560 .
End of Document
S. 81 to 85C.
Income Tax, 10e, 2 Vols, HB > Volume 1 > CHAPTER VII Incomes Forming Part of Total Income
on which no Income-tax is Payable
CHAPTER VII Incomes Forming Part of Total Income on which no Income-tax is Payable
S. 81 to 85C.
Omitted by the Finance (No 2) Act, 1967 (20 of 1967) s 33 and 3rd Sch. (w.e.f. 1-4-1968). Provisions of sections 81, 82, 83,
84, 85, 85A, 85B and 85C were incorporated from the same date in sections 80P, 80Q, 10(29), 80J (now omitted), 80K
(now omitted), 80M, 80N (now omitted) and 80-O, respectively.
1. Deleted Section 81 : Society Dealing in Agricultural Implements.—This section was considered by the
Supreme Court and various High Courts in the undermentioned recent cases.1 The provisions of this section are now
enshrined in s 80P of the Act.
2. Deleted Section 84 : Newly Established Industrial Undertakings.—This section was considered by various
Courts in the undermentioned recent cases.2
3. Deleted Section 85A : Intercorporate Dividends.—This section was construed by various High Courts in the
undermentioned cases.3
1 National Agricultural Co-operative v UOI 260 ITR 548 (SC); Madhya Pradesh Co-operative v A CIT 218 ITR 438
(SC); Salem Co-operative Central v CIT 201 ITR 697 (SC); Assam Co-operative Apex v ACIT 201 ITR 338 (SC); CIT v
Sabarkantha 107 ITR 447, affirmed in Sabarkantha v CIT 203 ITR 1027 (SC); Shetkari Sahakari Sangh v CIT 181
ITR 242 ; CIT v Punjab State Co-op Supply 182 ITR 58 ; CIT v J & K Co-operative Supply 204 ITR 289 .
2 CIT v Alcock Ashdown 224 ITR 353 (SC); Mettur Chemical v CIT 217 ITR 768 (SC); CIT v Budharaja 204 ITR 412
(SC); CIT v Cellulose Products 192 ITR 155 (SC); CIT v Bimetal Bearings 232 ITR 542 ; CIT v Anil Hardboards 207
Page 2 of 2
S. 81 to 85C.
ITR 802 ; CIT v Baroax Moraji 203 ITR 1013 ; CIT v Boots Pure Drug 203 ITR 979 ; CIT v Super Tool 202 ITR 50 ;
Jaipur Udhyog v CIT 198 ITR 282 ; CIT v JK Synthetics 182 ITR 125 ; CIT v Gynamij 181 ITR 265 ; CIT v Karam
Chand Goel 262 ITR 391 (All).
3 ITO v Releigh 102 ITR 616 and Pilani v CIT 165 ITR 138 ; Birla v CIT 121 ITR 142 ; CIT v Central Bank 185 ITR 6
and CIT v Impaco 186 ITR 714 ; Express Newspapers v CIT 148 ITR 484 .
End of Document
S. 86. Share of member of an association of persons or body of individuals
in the income of the association or body
S. 86. Share of member of an association of persons or body of individuals in the income of the association or
body
[Where the assessee is a member of an association of persons or a body of individuals (other than a company or a co-
operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law
corresponding4 to that Act in force in any part of India), income-tax shall not be payable by the assessee in respect of his
share in the income of the association or body computed in the manner provided in section 67A :
Provided that,—
(a) where the association or body is chargeable to tax on its total income at the maximum marginal rate or any higher
rate under any of the provisions of this Act, the share of a member computed as aforesaid shall not be included in
his total income;
(b) in any other case, the share of a member computed as aforesaid shall form part of his total income:
Provided further that where no income-tax is chargeable on the total income of the association or body, the share of a
member computed as aforesaid shall be chargeable to tax as part of his total income and nothing contained in this section
shall apply to the case.]
1. Section 86 (Now Substituted), Deleted Clauses (i) and (ii) [Second and Third Provisos to Section 8 of 1922
Act]: Tax-free Securities.—This topic, after the deletion of cll (i) and (ii) in 1965, was dealt with by s 86A which was
also deleted later. [See under s 86A .]
2. Deleted Clause (iii) [ Section 14(2) (a) of 1922 Act]: Partner’s Share in Profits of Unregistered Firm.—In view
of the new scheme for taxation of firms introduced by the Finance Act, 1992 w.e.f. April 1, 1993, the provisions of this
clause do not find a place in the present s 86, which substituted the old s 86 with effect from the same date. The law
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body
under the old cl (iii) prior to the assessment year 1993-94 stood as follows.
This clause grants exemption from income-tax to a partner of an unregistered firm in respect of his share in the profits
and gains of the firm. However, though the partner’s share of profits is thus exempt from tax, it has to be included in
his total income by reference to which, the rate of tax applicable to his taxable income is determined (s 66 ).5 The firm
is assessed as a single entity; the partners are not assessed on their share of income.6 Section 110 lays down the
mode of computing the tax in such cases.
Three points may be noted about the contents of this clause.
First, the exemption applies only in the case of the partners of an unregistered firm. The levy is made directly on an
unregistered firm, and to tax the partners individually again would result in double taxation. In the case of a registered
firm, the substantial levy is made on the partners individually, each partner’s share of the firm’s profits being added to
his other income and taxed directly in his hands, though the ‘registered firm’s tax’ is levied also on the registered firm.
[See post under ss 182 and 183, ‘Assessment of registered and unregistered firms’.]
Secondly, the partner’s share of profits which is exempt under this clause is to be computed in the manner laid down
in s 67 (now omitted), i.e. it includes any interest, salary, commission or other remuneration payable to him by the firm
in addition to his share in the balance of the firm’s profits. The result is that any interest, salary, commission or other
remuneration received by a partner from his firm would be exempt from tax in his hands under this clause.7 Under s
40(b), any sums paid by way of interest, salary, bonus, commission or remuneration by a firm to any of the partners
are not deductible from the profits of the firm. Since such sums are taxed as part of the income of the firm, they are not
taxed again as the income of the partner to whom they are paid.
Thirdly, the exemption applies only to that portion of a partner’s share of profits on which income-tax is payable by the
firm.8 If the firm’s income is below the taxable limit, the partner’s full share of the firm’s profits would have to be added
to his other income and the benefit of this clause would not be available to him.9
This clause has no application where an unregistered firm is assessed as a registered firm under s 183(b) (now
omitted).
While this clause exempts a partner in respect of his share in an unregistered firm’s profits, in cases where an
unregistered firm incurs a loss, a partner is not allowed to set off, or carry forward and set off, his share of the loss (s
77 ) (now omitted).
3. Deleted Clause (iv) [ Section 14(2)(aa) of 1922 Act]: Partner’s Share in Profits of Registered Firm.—The
object of this clause was to grant partial relief to the individual partners in respect of the tax payable by a registered
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firm. However, the partner’s full share from the firm had to be taken into account in computing his total income (s 66 )
by reference to which the income-tax on the chargeable income was determined (s 110 ). Partial relief in respect of the
registered firm’s tax is now given by the amended s 67(1)(a) .
4. Clause (v) [ Section 14(2)(b) of 1922 Act]: Share in Profits of Association Received by Member.—This clause
had been substituted by the Direct Tax Laws (Amendment) Act 1989. Thereafter, this section has been substituted by
a new section (containing the provisions of this clause only) by the Finance Act, 1992 with effect from April 1, 1993.
(a) Law Prior to Assessment Year 1989-90.—The old clause contained provisions analogous to those contained
in cl (iii) which has been dealt with above. What was exempted from income-tax under this clause was only
that portion of the amount which a member was entitled to receive from an association of persons or body of
individuals, on which income-tax had already been paid by the association or body.10 A private company can
get the benefit of this section as a member of an association of persons.11 By contrast the amended cl (iii)
grants exemption to the partner of an unregistered firm where tax is payable by the firm. The ‘amount’
referred to in this clause would be the amount receivable by the member of the association of persons out of
its income without deduction of the income-tax paid by the association of persons thereon.12 The rebate is
allowable on that portion of the income on which tax has been paid by the association.13 The amount was to
be included in the total income (s 66 ) (now omitted). Section 110 provides the mode of computing the tax in
such cases. The Explanation to this clause, read with s 167A, made provisions for cases where the shares of
the members of an association were indeterminate or unknown.
The clause was expressly confined in its operation to associations and bodies other than a Hindu
undivided family, a firm or a company. The case of Hindu undivided families is dealt with by s 10(2), and
of firms by s 86(iii) . Since the amendment of the 1922 Act by the Finance Act, 1959, no relief is
available to a shareholder in respect of the income-tax paid by the company on its profits, out of which
the dividend is declared.
(b) Law from Assessment Year 1989-90.—Where the assessee is a member of an association of persons or a
body of individuals (other than a company, a co-operative society or a registered society),—
(a) Income-tax is not payable by him in respect of his share in the income of the association or body
computed under s 67A, though such share is includible in his total income (s 66 ), provided the
association or body is chargeable to tax;
(b) such share will not even be included in his total income, where the association or body is chargeable to
tax on its total income at the maximum marginal rate or a higher rate;
(c) such share will be both included in his total income and charged to tax, if the association or body is not
chargeable to tax.
Section 167B makes provision for cases where the shares of the members of an association or body are
indeterminate or unknown.
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body
LAW FROM ASSESSMENT YEAR 1993-94
Section 86 : Share in Profits of Association Received by Member.—This section was substituted by the Finance
Act, 1992 with effect from April 1, 1993. The provisions contained in cl (iii) were not included in the substituted section,
and consequently, the provisions of the only other remaining clause, i.e., cl (v), now constitute this section. [See also
under ‘Deleted cl (iii)’ above.]
4 Subs. by the Finance Act, 1992 (18 of 1992), s 49 (w.e.f. 1-4-1993) for the then existing section 86 . Circular No. 636,
August 31, 1992, 198 ITR (St.) 1. Prior to its substitution section 86 stood as under:—
‘ S. 86 . Other incomes. —Income-tax shall not be payable by an assessee in respect of the following—
1[(i)* * * *]
1[(ii)* * * *]
(iii)if the assessee is a partner of an unregistered firm 2[[not being an unregistered firm assessed as a registered firm under
clause (b) of section 183 ]], any portion of the assessee’s share in the profits and gains of the firm computed in the manner laid
down in section 67 on which 3[income-tax is payable by the firm];
4[(iv)* * * *]
5[(v)if the assessee is a member of an association of persons or a body of individuals (other than a company or a co-operative
society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that
Act in force in any part of India), his share in the income of the association or body computed in the manner provided in section
67A :
Provided that,—
(a)where the association or body is chargeable to tax on its total income at the maximum marginal rate or any higher rate, under
any of the provisions of this Act, the share of a member computed as aforesaid shall not be included in his total income;
(b)in any other case, the share of a member computed as aforesaid shall form part of his total income:
Provided further that where no income-tax is chargeable on the total income of the association or body, the share of a member
computed as aforesaid shall be chargeable to tax as part of his total income and nothing contained in this section shall apply to
the case.]’.
1.Clauses (i) and (ii) have been omitted by the Finance Act, 1965 (10 of 1965), s 23 (w.e.f. 1-4-1965), which stood as under:—
“(i)the interest due on any security of the Central Government issued or declared to be income-tax free;
(ii)the interest due on any security of a State Government issued income-tax free, the income-tax whereon is payable by the
State Government;”.
2.Ins. by the Finance (No. 2) Act, 1971 (32 of 1971), s 24 (w.e.f. 1-4-1971).
3.Subs., for ‘income-tax has already been paid by the firm’, by the Finance Act, 1964 (5 of 1964), s 17 (w.e.f. 1-4-1964).
4.Clause (iv) has been omitted by the Finance Act, 1968 (19 of 1968), s 30 & 3rd Sch. (w.e.f. 1-4-1969), which stood as under:—
“(iv) if the assessee is a partner of a registered firm, the amount which represents the difference between—
(a)the assessee’s share in the total income of the firm, and
(b)his share in such total income as reduced by the income-tax, if any, payable by the firm,
the shares in either case being computed in the manner laid down in section 67 ; and”.
5.Clause (v) has been substituted by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989), s 17 (w.e.f. 1-4-1989), for the
following clause (v):—
‘(v)if the assessee is a member of an association of persons, or a body of individuals other than a Hindu undivided family, a
company or a firm, any portion of the amount which he is entitled to receive from the association or body on which income-tax
has already been paid by the association or body.
Explanation.—For the purposes of this clause, in the case of an association of persons which is assessable under section 167A,
each of the members of the association whose shares in the income or, as the case may be, part of the income of such
association are indeterminate or unknown, shall be deemed to be entitled to receive an equal share in the total income or, as the
Page 5 of 5
body
case may be, such part of the total income of the association and the individual share of such member in such total income or,
as the case may be, part of the total income shall be determined accordingly.’.
In the above clause (v), the Explanation was inserted by the Finance Act, 1981 (16 of 1981), s 13 (w.e.f. 1-4-1981).
5 Jamnadas v CIT 41 ITR 630 (SC); Keshardeo v CIT 48 ITR 404 . Cf Ramniklal v Amin 42 ITR 92 (partner’s share of
loss). Contrast s 10(2), ‘Payments to members of Hindu undivided family’.
6 Bhagmal Saudagar Mal v CIT 267 ITR 637 - following CIT v Khalid Mehdi 165 ITR 685, 57 CTR (AP) 110 and
Hemlata Agarwal v CIT 64 ITR 428, AIR 1968 All 1 .
7 Cf Kanhaiyalal v CIT 5 ITR 739, 747 -48; Kanhaiyala v CIT 9 ITR 70 .
8 Prior to 1964, the condition of exemption was that tax should have been already paid by the firm. Cf cl (v) of this
section and Rateeram v CIT 19 ITR 233 where another partner was assessed on his individual share in firm’s profits
but firm was not assessed. Contrast s 10(2), ‘Payments to members of Hindu undivided family’.
9 Cf Kanhaiyalal v CIT 5 ITR 739 .
10 CIT v Chitpur Pressing 133 ITR 426 ; CIT v Lalita Bhat 221 ITR 257 ; Neeta Shah v CIT 191 ITR 77 (under s 254 );
CIT v Hussainbhai 208 ITR 719 (under s 154 ).
11 CIT v Ideal Entertainment P. Ltd. 336 ITR 357, 236 CTR (Mad) 440.
12 CIT v Lalita Bhat 221 ITR 257 .
13 Revathi v CIT 294 ITR 117, 162 Taxman 487 (Kar).
End of Document
S. 86A.
S. 86A.
14[* * * *]
Deleted Section 86A [Second and Third Provisos to Section 8 of 1922 Act]: Tax-free Securities.—This section,
which replaced s 86(i) and (ii), operated for assessment years prior to 1989-90. The interest exempted under this
section was included in the total income (s 66 ) and the mode of determining the tax is prescribed by s 110 . The
exemption was subject to the limit of the average rate of income-tax [ s 2(10) ] applicable to the assessee or the rate of
twenty-seven and a half per cent, whichever was less. In the case of tax-free securities issued by a state government,
the tax was payable by the state government (s 181 ).
[As regards the computation of deduction, see s 80M, under ‘Deduction not to be calculated with reference to gross
dividend, gross royalty etc’.]
14 Section 86A has been omitted by the Finance Act, 1988 (26 of 1988), s 28 (w.e.f. 1-4-1989). See Circular No. 528,
December 16, 1988, 176 ITR (St.) 154.
Omitted section 86A . — Section 86A, prior to its omission by the Finance Act, 1988, with effect from 1-4-1989, stood as
under:—
‘1[ S. 86A . Deduction from tax on certain securities. —Where there is included in the total income of an assessee—
(i)the interest due on any security of the Central Government issued or declared to be income-tax free, or
(ii)the interest due on any security of a State Government issued income-tax free, the income-tax whereon is payable by the
State Government,
the assessee shall be entitled to a deduction from the amount of income-tax with which he is chargeable on his total income, of
an amount equal to the income-tax calculated on the amount so included at the average rate of income-tax or at the rate of
2[twenty-seven and a half] per cent., whichever is less.]’.
1.Ins. by the Finance Act, 1965 (10 of 1965), s 24 (w.e.f. 1-4-1965).

Page 2 of 2
S. 86A.
2.Subs., for “twenty-five”, by the Finance Act, 1966 (13 of 1966), s 18 (w.e.f. 1-4-1966
End of Document
S. 87. Rebate to be allowed in computing income-tax
Income Tax, 10e, 2 Vols, HB > Volume 1 > CHAPTER VIII [Rebates and Reliefs] > A.—Rebate of
income-tax
CHAPTER VIII [Rebates and Reliefs]
A.—Rebate of income-tax
(1) 1 2 [In computing the amount of income-tax on the total income of an assessee with which he is
chargeable for any assessment year, there shall be allowed from the amount of income-tax (as computed
before allowing the deductions under this Chapter), in accordance with and subject to the provisions
of3[4[ sections 87A, 88 ], 88A 5, 88B, 88C, 88D and 88E], the deductions specified in those sections.
(2) The aggregate amount of the deductions under6[section 87A or section 88 ] or section 88A5 7[or section 88B ]8[or
section 88C ]9[or section 88D or section 88E ] shall not, in any case, exceed the amount of income-tax (as
computed before allowing the deductions under this Chapter) on the total income of the assessee with which he is
chargeable for any assessment year.]
Present Section 87 : Rebate.—The present s 87 was inserted by the Finance Act, 1990 with effect from April 1,
1991. The section allows deductions in accordance with ss 88, 88A, 88B and 88C with respect to the amount of
income tax that is computed before allowing the deduction under this chapter. It also provides that the rebate cannot
exceed the income-tax liability of the assessee.
1 Subs., for “Relief in respect of income-tax”, by the Finance Act, 1990 (12 of 1990), s 30(a) (w.e.f. 1-4-1991). Earlier,
the words “Relief in respect of income-tax” were substituted for “Rebates and reliefs” by the Finance (No. 2) Act, 1967
(20 of 1967), s 33 & 3rd Sch. (w.e.f. 1-4-1968).
2 Sub-headings and sections 87, 88 and 88A have been inserted by the Finance Act, 1990 (12 of 1990), s 30(b) (w.e.f.
1-4-1991). See Circular No. 572, August 3, 1990, 186 ITR (St.) 81. Earlier, sub-headings and sections 87, 87A and 88
were omitted by the Finance (No. 2) Act, 1967 (20 of 1967), s 33 & 3rd Sch. (w.e.f. 1-4-1968).
3 Subs., for “ sections 88, 88A, 88B and 88C ”, by the Finance (No. 2) Act, 2004 (23 of 2004), s 20(a) (w.e.f. 1-4-2005).
Earlier, in the above portion, for the word, figures and letter “and 88B”, the figures, letters and word “, 88B and 88C”
Page 2 of 2
were substituted by the Finance Act, 2000 (10 of 2000), s 45(a) (w.e.f. 1-4-2001). Still earlier, “ sections 88, 88A and
88B ” were substituted for “ sections 88 and 88A ”, by the Finance Act, 1992 (18 of 1992), s 50(a) (w.e.f. 1-4-1993).
4 Subs., for “ section 88 ”, by the Finance Act, 2013 (17 of 2013), s 21(i) (w.e.f. 1-4-2014).
5 It is pertinent to note that section 88A has, subsequently, been omitted (w.r.e.f. 1-4-1994) by the Finance (No. 2) Act,
1996 (33 of 1996), s 35 .
6 Subs., for “ section 88 ”, by the Finance Act, 2013 (17 of 2013), s 21(ii) (w.e.f. 1-4-2014).
9 Ins. by the Finance (No. 2) Act, 2004 (23 of 2004), s 20(b) (w.e.f. 1-4-2005).
End of Document
S. 87A. Rebate of income-tax in case of certain individuals
income-tax
S. 87A. Rebate of income-tax in case of certain individuals
10[An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees,
shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this
Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent.
of such income-tax or an amount of two thousand rupees, whichever is less.]
Finance Bill, 2013, 351 ITR (St.) 102. Earlier, section 87A was omitted by the Finance (No. 2) Act, 1967 (20 of 1967), s
33 and 3rd Schedule (w.e.f. 1-4-1968). Prior to its omission, section 87A stood as under:—
‘1[ S. 87A . Rebate on educational expenses in certain cases.—Where an individual, being a resident, who is not a citizen of
India has expended any sum in the previous year out of his income chargeable to tax for the full-time education of his child
wholly or mainly dependent on him and who is not more than twenty-one years of age at any University, college, school or other
educational institution situate in a country outside India, he shall be entitled to a deduction, from the amount of income-tax on his
total income with which he is chargeable for any assessment year, of an amount equal to the income-tax calculated at the
average rate of income-tax on a sum—
(i)which, in the case of an individual who has one such child, shall not exceed two thousand rupees or twenty-five per cent. of his
total income, whichever is less; and
(ii)which, in the case of an individual who has more than one such child, shall not exceed four thousand rupees or twenty-five
per cent. of his total income, whichever is less.]’.
End of Document
S. 88. Rebate on life insurance premia, contribution to provident fund, etc.
income-tax
(1) 11[12[Subject to the provisions of this section, an assessee, being an individual, or a Hindu undivided family, shall
be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this
Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to—
(i) in the case of an individual or a Hindu undivided family, whose gross total income before giving effect to
deductions under Chapter VI-A, is one lakh fifty thousand rupees or less, twenty per cent. of the aggregate of
the sums referred to in sub-section (2):
Provided that an individual shall be entitled to a deduction of an amount equal to thirty per cent. of the
aggregate of the sums referred to in sub-section (2) if his income under the head “Salaries”—
(a) does not exceed one lakh rupees during the previous year before allowing the deduction under section
16 ; and
(b) is not less than ninety per cent. of his gross total income, as defined in sub-section (5) of section 80B ;
(ii) in the case of an individual or a Hindu undivided family, whose gross total income before giving effect to
deductions under Chapter VI-A, is more than one lakh fifty thousand rupees but does not exceed five lakh
rupees, fifteen per cent. of the aggregate of the sums referred to in sub-section (2);
(iii) in the case of an individual or a Hindu undivided family, whose gross total income before giving effect to
deductions under Chapter VI-A, exceeds five lakh rupees, nil.]
(2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the
assessee13[* * *]—
(i) to effect or to keep in force an insurance on the life of persons specified in sub-section (4);
Page 2 of 13
(ii) to effect or to keep in force a contract for a deferred annuity,14[not being an annuity plan referred to in clause
(xiiia)], on the life of persons specified in sub-section (4):
Provided that such contract does not contain a provision for the exercise by the insured of an option to
receive a cash payment in lieu of the payment of the annuity;
(iii) by way of deduction from the salary payable by or on behalf of the Government to any individual being a sum
deducted in accordance with the conditions of his service, for the purpose of securing to him a deferred
annuity or making provision for his wife or children, in so far as the sum so deducted does not exceed one-
fifth of the salary;
(iv) as a contribution by an individual to any provident fund to which the Provident Funds Act, 1925 (19 of 1925),
applies;
(v) as a contribution to any provident fund set up by the Central Government and notified by it in this behalf in the
Official Gazette, where such contribution is to an account standing in the name of any person specified in
sub-section (4);
(vi) as a contribution by an employee to a recognised provident fund;
(vii) as a contribution by an employee to an approved superannuation fund;
(viii) in a ten-year account or a fifteen-year account under the Post Office Savings Bank (Cumulative Time
Deposits) Rules, 1959, as amended from time to time, where such sums are deposited in an account
standing in the name of the persons specified in sub-section (4);
(ix) as subscription to any such security of the Central Government15[or any such deposit scheme] as that
(x) as subscription to the National Savings Certificates (VI Issue) and National Savings Certificates (VII Issue)
issued under the Government Savings Certificates Act, 1959 (46 of 1959);
(xi) as subscription to any such savings certificate as defined in clause (c) of section 2 16 of the Government
Savings Certificates Act, 1959 (46 of 1959), as the Central Government may, by notification in the Official
Gazette, specify in this behalf;
(xii) as a contribution,17[in the name of any person] specified in sub-section (4), for participation in the Unit-linked
Insurance Plan, 1971 (hereafter in this section referred to as the Unit-linked Insurance Plan) deemed to have
been made under sub-clause (a) of clause (8) of section 19 18 of the Unit Trust of India Act, 1963 (52 of
1963)19;
(xiii) as a contribution20[in the name of any person specified in sub-section (4)] for participation in any such unit-
linked insurance plan of the LIC Mutual Fund notified under clause (23D) of section 10, as the Central
(xiiia) 21[to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation22[or
any other insurer] as the Central Government may, by notification in the Official Gazette, specify;
(xiiib) as subscription, not exceeding ten thousand rupees, to any units of any Mutual Fund notified under
clause (23D) of section 10 or [of] the Unit Trust of India established under the Unit Trust of India Act, 1963
(52 of 1963),23 under any plan formulated in accordance with such scheme as the Central Government may,
by notification in the Official Gazette, specify in this behalf;
(xiiic) as a contribution by an individual to any pension fund set up by any Mutual Fund notified under
clause (23D) of section 10 24[or by the Unit Trust of India established under the Unit Trust of India Act, 1963
(52 of 1963)25], as the Central Government may, by notification in the Official Gazette, specify in this behalf;]
Page 3 of 13
(xiv) as subscription to any such deposit scheme of26[, or as a contribution to any such pension fund set up by,]
the National Housing Bank established under section 3 27 of the National Housing Bank Act, 1987 (53 of
1987) (hereafter in this section referred to as the National Housing Bank), as the Central Government may,
by notification in the Official Gazette, specify in this behalf;
(xiva) 28[as subscription to any such deposit scheme of—
(a) a public sector company which is engaged in providing long-term finance for construction or purchase of
houses in India for residential purposes; or
(b) any authority constituted in India by or under any law enacted either for the purpose of dealing with and
improvement of cities, towns and villages, or for both, not being a scheme the interest on deposits
whereunder qualifies for the purposes of computing the deduction under section 80L, as the Central
Government may, by notification in the Official Gazette, specify in this behalf;]
(xivb) 29[as tuition fees (excluding any payment towards any development fees or donation or payment of
similar nature), whether at the time of admission or thereafter,—
(a) to any university, college, school or other educational institution situated within India;
(b) for the purpose of full-time education of any of the persons specified in sub-section (4);]
(xv) for the purposes of purchase or construction of a residential house property the30[* * * *] income from which is
chargeable to tax under the head “Income from house property” (or which would, if it had not been used for
the assessee’s own residence, have been chargeable to tax under that head), where such payments are
made towards or by way of—
(a) any instalment or part payment of the amount due under any self-financing or other scheme of any
development authority, housing board or other authority engaged in the construction and sale of house
property on ownership basis; or
(b) any instalment or part payment of the amount due to any company or co-operative society of which the
assessee is a shareholder or member towards the cost of the house property allotted to him; or
(c) repayment of the amount borrowed by the assessee from,—
(3) the Life Insurance Corporation, or
(4) the National Housing Bank, or
(5) any public company formed and registered in India with the main object of carrying on the business of
providing long-term finance for construction or purchase of houses in India for residential
purposes31[which is eligible for deduction under clause (viii) of sub-section (1) of section 36 ], or
Page 4 of 13
(6) any company in which the public are substantially interested or any co-operative society, where such
company or co-operative society is engaged in the business of financing the construction of houses,
or
(6A) 32[theassessee’s employer where such employer is an authority or a board or a corporation or any
other body established or constituted under a Central or State Act, or]
(7) the assessee’s employer where such employer is a public company or a public sector company or a
University established by law or a college affiliated to such University or a local authority33[or a co-
operative society];
(d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the
assessee, but shall not include any payment towards or by way of—
(A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of
a co-operative society has to pay for becoming such shareholder or member; or
(B) 34[* * * *]
(C) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried
out after the issue of the completion certificate in respect of the house property by the authority
competent to issue such certificate or after the house property or any part thereof has either been
occupied by the assessee or any other person on his behalf or been let out; or
(D) any expenditure in respect of which deduction is allowable under the provisions of section 24 ;
(xvi) 35[as subscription to equity shares or debentures forming part of any eligible issue of capital approved by the
Board on an application made by a public company36[or as subscription to any eligible issue of capital by any
public financial institution] in the prescribed form:
Provided that where a deduction is claimed and allowed under this clause with reference to the cost of
any equity shares or debentures, the cost of such shares or debentures shall not be taken into account
for the purposes of sections 54EA and 54EB .
37[Explanation.—For the purposes of this clause,—
(i) “eligible issue of capital” means an issue made by a public company formed and registered in India or a
public financial institution and the entire proceeds of the issue are utilised wholly and exclusively for the
purposes of any business referred to in sub-section (4) of section 80-IA ;
(ii) “public company” shall have the meaning assigned to it in section 3 38 of the Companies Act, 1956 (1 of
1956);
(iii) “public financial institution” shall have the meaning assigned to it in section 4A 39 of the Companies Act,
1956 (1 of 1956);]
(xvii) 40[as subscription to any units of any mutual fund referred to in clause (23D) of section 10 and approved by
the Board on an application made by such mutual fund in the prescribed form:
Page 5 of 13
Provided that where a deduction is claimed and allowed under this clause with reference to the cost of
units, the cost of such units shall not be taken into account for the purposes of sections 54EA and 54EB :
Provided further that this clause shall apply if the amount of subscription to such units is subscribed only
in the eligible issue of capital of any company.
Explanation.—For the purposes of this clause, “eligible issue of capital” means an issue referred to in
clause (i) of Explanation to clause (xvi) of sub-section (2) of section 88 .]
(2A) 41[The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on an
insurance policy other than a contract for a deferred annuity as is not in excess of twenty per cent. of the actual
capital sum assured.
Explanation.—In calculating any such actual capital sum, no account shall be taken,—
(ii) of any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be, or, may
be, received under the policy by any person.]
(3) 42[Thesums referred to in sub-section (2) shall be paid or deposited at any time during the previous year, and the
assessee, being an individual or a Hindu undivided family, shall be entitled to a deduction under sub-section (1)
on so much of the aggregate of such sums paid or deposited as does not exceed the total income of the
assessee, chargeable to tax during the relevant previous year.]
(4) The persons referred to in sub-section (2) shall be the following, namely:—
(a) 43[for the purposes of clauses (i), (v), (xii) and (xiii) of that sub-section,—
(ii) in the case of a Hindu undivided family, any member thereof;]
(b) for the purposes of clause (ii) of that sub-section,—
(ii) 44[* * * *]
(c) for the purposes of45[clause (viii)] that sub-section,—

Page 6 of 13
(i) in the case of an individual, such individual or a minor of whom he is the guardian;
(ii) in the case of a Hindu undivided family, any member of the family;
(iii) 46[* * * *]
(d) 47[forthe purpose of clause (xivb) of that sub-section, in the case of an individual, any two children of such
individual.]
(5) 48[Where the aggregate of any sums specified in clause (i) to clause (xvii) of sub-section (2) exceeds an amount
of one hundred thousand rupees, a deduction under sub-section (1) shall be allowed with reference to so much of
the aggregate as does not exceed an amount of one hundred thousand rupees:
Provided that where the aggregate of any sums specified in clause (i) to clause (xv) of sub-section (2)
exceeds an amount of seventy thousand rupees, a deduction under sub-section (1) in respect of such sums
shall be allowed with reference to so much of the aggregate as does not exceed an amount of seventy
thousand rupees:
Provided further that where the aggregate of any sums specified in clause (xv) of sub-section (2) exceeds an
amount of twenty thousand rupees, a deduction under sub-section (1) in respect of such sums shall be
allowed with reference to so much of the aggregate as does not exceed an amount of twenty thousand
rupees:]
49[Provided also that where the aggregate of any sum specified in clause (xivb) of sub-section (2) exceeds
an amount of twelve thousand rupees in respect of a child, a deduction under sub-section (1) in respect of
such sum shall be allowed with reference to so much of the aggregate as does not exceed an amount of
twelve thousand rupees in respect of such child.]
(5A) 50[* * * *]
(6) 51[* * * * *]
(7) Where, in any previous year, an assessee,—
(i) terminates his contract of insurance referred to in clause (i) of sub-section (2), by notice to that effect or where
the contract ceases to be in force by reason of failure to pay any premium, by not reviving52[contract of
insurance,—
(a) in case of any single premium policy, within two years after the date of commencement of insurance; or
(b) in any other case, before premiums have been paid for two years; or]
(ii) terminates his participation in any unit-linked insurance plan referred to in clause (xii) or clause (xiii) of sub-
section (2), by notice to that effect or where he ceases to participate by reason of failure to pay any
contribution, by not reviving his participation, before contributions in respect of such participation have been
paid for five years; or
Page 7 of 13
(iii) transfers the house property referred to in clause (xv) of sub-section (2) before the expiry of five years from
the end of the financial year in which possession of such property is obtained by him, or receives back,
whether by way of refund or otherwise, any sum specified in that clause, then,—
(a) no deduction shall be allowed to the assessee under sub-section (1) with reference to any of the sums,
referred to in clauses (i), (xii), (xiii) and (xv) of sub-section (2), paid in such previous year; and
(b) the aggregate amount of the deductions of income-tax so allowed in respect of the previous year or
years preceding such previous year, shall be deemed to be tax payable by the assessee in the
assessment year relevant to such previous year and shall be added to the tax on the total income of the
assessee with which he is chargeable for such assessment year.
(7A) 53[Ifany equity shares or debentures, with reference to the cost of which a deduction is allowed under sub-section
(1), are sold or otherwise transferred by the assessee to any person at any time within a period of three years
from the date of their acquisition, the aggregate amount of the deductions of income-tax so allowed in respect of
such equity shares or debentures in the previous year or years preceding the previous year in which such sale or
transfer has taken place shall be deemed to be tax payable by the assessee for the assessment year relevant to
such previous year and shall be added to the amount of income-tax on the total income of the assessee with
which he is chargeable for such assessment year.
Explanation.—A person shall be treated as having acquired any shares or debentures on the date on which
his name is entered in relation to those shares or debentures in the register of members or of debenture-
holders, as the case may be, of the public company.]
(i) “contribution” to any fund shall not include any sums in repayment of loan;
(ii) “insurance” shall include—
(a) a policy of insurance on the life of an individual or the spouse or the child of such individual or a member
of a Hindu undivided family securing the payment of specified sum on the stipulated date of maturity, if
such person is alive on such date notwithstanding that the policy of insurance provides only for the return
of premiums paid (with or without any interest thereon) in the event of such person dying before the said
stipulated date;
(b) a policy of insurance effected by an individual or a member of a Hindu undivided family for the benefit of
a minor with the object of enabling the minor, after he has attained majority to secure insurance on his
own life by adopting the policy and on his being alive on a date (after such adoption) specified in the
policy in this behalf;
(iii) “Life Insurance Corporation” means the Life Insurance Corporation of India established under the Life
Insurance Corporation Act, 1956 (31 of 1956);
(iv) “public company” shall have the same meaning as in section 3 54 of the Companies Act, 1956 (1 of 1956);
Page 8 of 13
(v) “security” means a Government security as defined in clause (2) of section 2 55 of the Public Debt Act, 1944
(18 of 1944);
(vi) “transfer” shall be deemed to include also the transactions referred to in clause (f) of section 269UA .]
(9) 56[No deduction from the amount of income-tax shall be allowed under this section to an assessee, being an
individual or a Hindu undivided family for the assessment year beginning on the 1st day of April, 2006, and
subsequent years.]
1. Deleted Section 88 : Donations for Charitable Purposes.—This section was construed in the undermentioned
cases.57
2. Present Section 88 : Rebate on Life Insurance Premia, Contribution to Provident Fund, etc.—The present s
88 was inserted by the Finance Act, 1990 with effect from April 1, 1991. It provides for a deduction from the amount of
income-tax payable by individuals and Hindu undivided families in respect of sums paid or deposited out of the income
chargeable to tax during the previous year in certain specified schemes at a fixed percentage of the aggregate of such
investments or contributions. The eligible investments or contributions include life insurance premia, provident fund
contributions, subscriptions to national savings certificates, investments in specified mutual funds and pension funds,
repayment of principal amount of housing loans or co-operative housing instalments, investment in specified
infrastructure bonds, etc, specified in sub- s 2 . Clause (xv) of sub-s (2) was construed in the undermentioned case.58
Non-resident assessees, who have investment income in India, can claim rebate under s 88 .59
The section has been amended from time to time and the amounts of deduction, the manner of computing the
deduction, the tax saving schemes, etc have varied accordingly. Sub-section (3), inserted with effect from April 1, 2003
provides that the sums referred to in sub-s (2) must be paid or deposited at any time during the previous year, and that
the assessee is entitled to a deduction on the aggregate of such sums to the extent that it does not exceed the total
income-tax liability of the assessee of the previous year.
11 Ins. by the Finance Act, 1990 (12 of 1990), s 30(b) (w.e.f. 1-4-1991). See Circular No. 572, August 3, 1990, 186 ITR
(St.) 81.
12 Subs. by the Finance Act, 2002 (20 of 2002), s 37(a) (w.e.f. 1-4-2003), for the following:—
‘(1) Subject to the provisions of this section, an assessee, being—
(a)an individual, or
(b)a Hindu undivided family, 1[*]
2[(c)* * * *]
shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter)
on his total income with which he is chargeable for any assessment year, of an amount equal to twenty per cent. of the
aggregate of the sums referred to in sub-section (2):
3[Provided that in the case of an individual, whose income, derived from the exercise of his profession as an author, playwright,
artist, musician, actor or sportsman (including an athlete), is twenty-five per cent. or more of his total income, the provisions of
this sub-section shall have effect as if for the words “twenty per cent” the words “twenty-five per cent” had been substituted:]
Page 9 of 13
4[Provided further that an individual shall be entitled to a deduction of an amount equal to thirty per cent. of the aggregate of the
sums referred to in sub-section (2) if his income chargeable under the head “Salaries”—
(a)does not exceed one lakh rupees during the previous year before allowing deduction under section 16 ; and
(b)is not less than ninety per cent. of his gross total income as defined in sub-section (5) of section 80B .]’.
See Circular No. 8 of 2002, August 27, 2002, 258 ITR (St.) 13.
1.The word “or” has been omitted by the Finance Act, 1994 (32 of 1994), s 50(g)(i) (w.r.e.f. 1-4-1991).
2. Section 88(1)(c) has been omitted by the Finance Act, 1994 (32 of 1994), s 50(g)(ii) (w.r.e.f. 1-4-1991). Prior to its omission,
‘(c)an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the
and Diu,’.
3.Ins. by the Finance Act, 1992 (18 of 1992), s 51(i) (w.e.f. 1-4-1993).
4.Ins. by the Finance Act, 2001 (14 of 2001), s 47(a) (w.e.f. 1-4-2002).
13 The words “out of his income chargeable to tax” have been omitted by the Finance Act, 2002 (20 of 2002), s 37(b)
(w.e.f. 1-4-2003). See Circular No. 8 of 2002, August 27, 2002, 258 ITR (St.) 13.
14 Subs., for “not being an annuity plan referred to in clause (ii) of sub-section (1) of section 80CCA ”, by the Finance Act,
1992 (18 of 1992), s 51(ii)(a) (w.e.f. 1-4-1993). See Circular No. 636 of 1992, August 31, 1992, 198 ITR (St.) 1, 105
CTR (Del) 5.
15 Ins. by the Finance Act, 1992 (18 of 1992), s 51(ii)(b) (w.e.f. 1-4-1993).
17 Subs., for “by any person”, by the Finance Act, 1994 (32 of 1994), s 29(1)(i) (w.r.e.f. 1-4-1991). See Circular No. 684 of
1994, June 10, 1994, 208 ITR (St.) 8.
19 Act 52 of 1963 has been repealed by Act 58 of 2002.
20 Subs., for “by an individual”, by the Finance Act, 1994 (32 of 1994), s 29(1)(ii) (w.r.e.f. 1-4-1991).
21 Ins. by the Finance Act, 1992 (18 of 1992), s 51(ii)(c) (w.e.f. 1-4-1993).
22 Ins. by the Finance Act, 2001 (14 of 2001), s 47(b) (w.e.f. 1-4-2002). See Circular No. 14 of 2001, 252 ITR (St.) 65.
24 Ins. by the Finance Act, 1994 (32 of 1994), s 29(1)(iii) (w.e.f. 1-4-1995).

Page 10 of 13
26 Ins. by the Finance Act, 1992 (18 of 1992), s 51(ii)(d) (w.e.f. 1-4-1993).
28 Ins. by the Finance (No. 2) Act, 1991 (49 of 1991), s 38(a) (w.e.f. 1-4-1992). See Circular No. 621 of 1991, December
19, 1991, 195 ITR (St.) 154.
29 Ins. by the Finance Act, 2003 (32 of 2003), s 47(a)(i) (w.e.f. 1-4-2004). See Circular No. 7 of 2003, September 5, 2003,
263 ITR (St.) 62; CIT v B. Narsimha Rao 263 ITR (St.) 62, 185 CTR (AP) 219.
30 The words, figures and letters “construction of which is completed after the 31st day of March, 1987, and the” have
been omitted by the Finance (No. 2) Act, 1991 (49 of 1991), s 38(b)(i) (w.e.f. 1-4-1992). See Circular No. 794 of 2000,
August 9, 2000, 245 ITR (St.) 21, 160 CTR (Mad) 88.
31 Subs., for “which is approved for the purposes of clause (viii) of sub-section (1) of section 36 ”, by the Finance Act,
2000 (10 of 2000), s 46(a) (w.e.f. 1-4-2000).
33 Ins. by the Finance Act, 1992 (18 of 1992), s 51(ii)(e) (w.e.f. 1-4-1992).
34 Section 88(2)(xv)(B) has been omitted by the Finance (No. 2) Act, 1991 (49 of 1991), s 38(b)(ii) (w.e.f. 1-4-1992). Prior
to its omission, sub-clause (B) stood as under:— ‘(B)the cost of the land, except where the consideration for the
purchase of the house property is a composite amount and the cost of the land alone cannot be separately ascertained;
or’.
35 Ins. by the Finance (No. 2) Act, 1996 (33 of 1996), s 34(a) (w.e.f. 1-4-1997). See Circular No. 762 of 1998, February
18, 1998, 230 ITR (St.) 12.
36 Ins. by the Finance Act, 1997 (26 of 1997), s 30(i) (w.e.f. 1-4-1998). See Circular No. 763 of 1998, February 18, 1998,
230 ITR (St.) 54.
37 Subs. by the Finance Act, 2003 (32 of 2003), s 47(a)(ii) (w.e.f. 1-4-2004), for the following:—
‘Explanation.—For the purposes of this clause,—
1[(i)”eligible issue of capital” means an issue made by a public company formed and registered in India or a public financial
institution and the entire proceeds of the issue is utilised wholly and exclusively either for the purposes of developing,
maintaining and operating an infrastructure facility or for generating, or for generating and distributing, power or for providing
telecommunication services whether basic or cellular;]
(ii)”infrastructure facility” shall have the meaning assigned to it in 2[the Explanation to sub-section (4) of section 80-IA ];
(iii)”public company” shall have the meaning assigned to it in section 3 of the Companies Act,1956 (1 of 1956);]
3[(iv)”public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);]’.
1.Subs. by the Finance Act, 1997 (26 of 1997), s 30(ii)(A) (w.e.f. 1-4-1998), for the then existing clause (i) which stood as
follows;—
Page 11 of 13
‘(i)”eligible issue of capital” means an issue made by a public company formed and registered in India and the issue is wholly
and exclusively for the purposes of developing, maintaining and operating an infrastructure facility or for generating, or for
generating and distributing, power;’.
2.Subs., for “clause (ca) of sub-section (12) of section 80-IA ”, by the Finance Act, 1999 (27 of 1999), s 90(d) (w.e.f. 1-4-2000).
3.Ins. by the Finance Act, 1997 (26 of 1997), s 30(ii)(B) (w.e.f.1-4-1998).
40 Ins. by the Finance (No. 2) Act, 1996 (33 of 1996), s 34(a) (w.e.f. 1-4-1997).
42 Ins. by the Finance Act, 2002 (20 of 2002), s 37(c) (w.e.f. 1-4-2003). Earlier, section 88(3) has been omitted by the
Finance Act, 1995 (22 of 1995), s 22(i) (w.e.f. 1-4-1996). Prior to its omission, sub-section (3) stood as follows:—
‘(3) The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on a policy other than
a contract for a deferred annuity as is not in excess of ten per cent. of the actual capital sum assured.
Explanation.—In calculating any such capital sum, no account shall be taken—
(i)of the value of any premiums agreed to be returned, or
(ii)of any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received
under the policy by any person.’.
43 Subs. by the Finance Act, 1994 (32 of 1994), s 29(2)(i) (w.r.e.f. 1-4-1991), for the then existing clause (a) which stood
as under:—
‘(a) for the purposes of clause (i) of that sub-section,—
(i)in the case of an individual, the individual, the wife or husband and any child of such individual, and
(ii)in any other case, any member of the Hindu undivided family or association of persons or body of individuals and any child of
any of the members of such association or body;’.
44 Section 88(4)(b)(ii) has been omitted by the Finance Act, 1994 (32 of 1994), s 29(2)(ii) (w.r.e.f. 1-4-1991). Prior to its
omission, sub-clause (ii) stood as under:—
‘(ii)in the case of an association of persons or body of individuals, any member and any child of any of the members of such
association or body;’.
45 Subs., for “clauses (v) and (viii)”, by the Finance Act, 1994 (32 of 1994), s 29(2)(iii)(a) (w.r.e.f. 1-4-1991).
46 Section 88(4)(c)(iii) has been omitted by the Finance Act, 1994 (32 of 1994), s 29(2)(iii)(b) (w.r.e.f. 1-4-1991). Prior to
its omission, sub-clause (iii) stood as under:—
‘(iii) in the case of an association of persons or body of individuals, such association or body;’.
47 Ins. by the Finance Act, 2003 (32 of 2003), s 47(c) (w.e.f. 1-4-2004). Earlier, section 88(4)(d) has been omitted by the
Finance Act, 1994 (32 of 1994), s 29(2)(iv) (w.r.e.f. 1-4-1991). Prior to its omission, clause (d) stood as under:—
‘(d) for the purposes of clause (xii) of that sub-section,—
(i)in the case of an individual, such individual;
(ii)in the case of an association of persons or body of individuals, any one member of such association or body.’.
Page 12 of 13
‘(5) Where the aggregate of any sums specified in clause (xv) of sub-section (2) exceeds an amount of 1[twenty thousand
rupees], a deduction under sub-section (1) shall be allowed with reference to so much of the aggregate as does not exceed an
amount of 1[twenty thousand rupees].’.
1.Subs., for the words “ten thousand rupees”, at both the places by the Finance Act, 2000 (10 of 2000), s 46(b) (w.e.f. 1-4-2001).
50 Omitted by the Finance Act, 2002 (20 of 2002), s 37(e) (w.e.f. 1-4-2003). Prior to its omission, sub-section (5A) stood
as under:—
‘1[(5A) Where the aggregate of any sums specified in clause (i) to clause (xv) of sub-section (2) exceeds an amount of sixty
thousand rupees, a deduction under sub-section (1) shall be allowed with reference to so much of the aggregate as does not
exceed an amount of sixty thousand rupees:
Provided that in the case of an individual referred to in the proviso to sub-section (1), the provisions of this sub-section shall
have effect as if for the words “sixty thousand rupees”, the words “seventy thousand rupees” had been substituted.]’.
1.Ins. by the Finance Act, 1996 (33 of 1996), s 34(b) (w.e.f. 1-4-1997).
51 Omitted by the Finance Act, 2002 (20 of 2002), s 37(f) (w.e.f. 1-4-2003). Prior to its omission, sub-section (6) stood as
under:—
‘(6) The deduction from the amount of income-tax under sub-section (1) shall not exceed—
(i)in the case of an individual, 1[whose income, derived from the exercise of his profession as an author, playwright, artist,
musician, actor or sportsman (including an athlete), is twenty-five per cent. or more of his total income, seventeen thousand five
hundred rupees;
(ii)in any other case, 2[sixteen thousand rupees].’.
1.Subs., for “being an author, playwright, artist, musician, actor or sportsman (including an athlete), fourteen thousand”, by the
Finance Act, 1992 (18 of 1992), s 51(iii)(a) (w.e.f. 1-4-1993).
2.Subs., for “fourteen thousand rupees”, by the Finance Act, 2000 (10 of 2000), s 46(c) (w.e.f. 1-4-2001). Earlier, the words
“fourteen thousand rupees” were substituted, for “twelve thousand rupees” by the Finance Act, 1996 (33 of 1996), s 34(c) (w.e.f.
1-4-1997). Still earlier, the words “twelve thousand” were substituted for “ten thousand” by the Finance Act, 1992 (18 of 1992), s
51(iii)(b) (w.e.f. 1-4-1993).
52 Subs., for “contract of insurance, before premiums have been paid for two years; or”, by the Finance Act, 1995 (22 of
1995), s 22(ii) (w.e.f. 1-4-1996).
53 Ins. by the Finance (No. 2) Act, 1996 (33 of 1996), s 34(d) (w.e.f. 1-4-1997).
(St.) 138. Also See Circular No. 6 of 2005, July 25, 2005, 276 ITR (St.) 150; Circular No. 3 of 2006, February 27, 2006,
281 ITR (St.) 222.
57 Express Newspapers v CIT 148 ITR 484 ; Godavari Sugar v CIT 193 ITR 141 .
Page 13 of 13
58 Sandeep Shah v ITO 254 ITR 146 .
59 CIT v John K.L., 264 ITR 715 .
End of Document
S. 88A.
income-tax
S. 88A.
60[* * * *]
Deleted Section 88A : Rebate in Respect of Investment in Certain New Shares or Units .—Earlier, s 80CC of the
Act dealt with this subject. This section was inserted by the Finance Act, 1990 with effect from April 1, 1991, and
provided for a deduction in respect of investments in equity shares forming part of any eligible issue of capital or units
issued under the specified schemes. It was deleted by the Finance (No 2) Act, 1996 with retrospective effect from April
1, 1994.
60 Section 88A has been omitted by the Finance (No. 2) Act, 1996 (33 of 1996), s 35 (w.r.e.f. 1-4-1994). See Circular No.
762, February 18, 1998, 230 ITR (St.) 12.
Section 88A as it stood between 1-4-1991 and 31-3-1994.—Prior to its omission (w.r.e.f. 1-4-1994) by the Finance (No. 2)
Act, 1996, section 88A stood as under:—
‘1[ S. 88A . Rebate in respect of investment in certain new shares or units.—(1) Where an assessee being—
(a)an individual; or
(b)a Hindu undivided family; 2[*]
3[(c)* * * *]
has acquired, in the previous year, out of his income chargeable to tax,—
(i)equity shares forming part of any eligible issue of capital; or
(ii)units issued under any scheme of any Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India,
established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963), if the amount of subscription to such units is
subscribed, within a period of six months from the close of subscription under such scheme, only to eligible issue of capital,
he shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this
Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to twenty per cent. of the
cost of such shares or units to such assessee:
Page 2 of 3
S. 88A.
Provided that the amount of subscription to such units may be subscribed, for a period not exceeding six months from the close
of subscription under any scheme referred to in clause (ii) in such securities of the Central Government, as may be approved by
the Board in this behalf:
Provided further that no deduction shall be allowed in respect of units issued under any scheme referred to in clause (ii) where
the subscription under such scheme closes after the 30th day of September, 1990.
Explanation.—Where in any previous year, the assessee has acquired any shares or units referred to in this sub-section and
has, within a period of six months from the end of that previous year paid the whole or a part of the amount, if any, remaining
unpaid on such shares or units, the amount so paid shall be deemed to have been paid by the assessee towards the cost of
such shares or units in the previous year.
(2) Where the aggregate cost to the assessee of the shares or units referred to in sub-section (1) which are acquired by him in
the previous year exceeds twenty-five thousand rupees, the deduction under that sub-section shall be allowed only with
reference to such of those shares or units (being shares or units the aggregate cost whereof to the assessee does not exceed
twenty-five thousand rupees) as are specified by him in this behalf.
(3) For the purposes of this section, “eligible issue of capital” means an issue of equity shares which satisfies the following
(a)the issue is made by a public company formed and registered in India and the issue is wholly and exclusively for the purposes
of carrying on the business of—
(i)construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh
Schedule; or
(ii)providing long-term finance for construction or purchase of houses in India for residential purposes:
Provided that in the case of a public company carrying on the business referred to in this sub-clause, such company is approved
by the Central Government for the purposes of this section; or
(iii)a hospital; or
(iv)a hotel approved by the prescribed authority; or
(v)operation of ships;
(b)the issue is an issue of capital made by the company for the first time:
Provided that this clause shall not apply in the case of an issue of equity shares made by a public company formed and
registered in India with the main object of carrying on the business of operation of ships;
(c)the shares forming part of the issue are offered for subscription to the public and such offer for subscription is made by the
company before the 1st day of April, 1991;
(d)such other conditions as may be prescribed:
Provided that in the case of a company which had originally been incorporated as a private company but has become a public
company under the provisions of the Companies Act, 1956 (1 of 1956), an issue of equity shares made by it for the first time
after it has become a public company shall not be regarded as an eligible issue of capital, if—
(i)such company had declared, distributed or paid any dividend when it was a private company; or
(ii)any of the shares forming part of such issue is offered for subscription at a premium.
Explanation 1.—If any question arises as to whether any issue of equity shares would constitute an eligible issue of capital for
the purposes of this section, the question shall be referred to the Central Government whose decision thereon shall be final.
Explanation 2.—In this sub-section and sub-section (4), “public company” shall have the meaning assigned to it in section 3 of
the Companies Act, 1956 (1 of 1956).
(4) The deduction under sub-section (1) shall not be allowed unless the assessee has—
(i)subscribed to the shares in pursuance of an offer for subscription to the public made by the public company or in pursuance of
a reservation or an option in his favour by reason of his being a promoter of the company; or
(ii)purchased the shares from a person who is specified as an underwriter in respect of the issue of such shares in pursuance of
clause 11 of Part I of Schedule II to the Companies Act, 1956 (1 of 1956), and who has acquired such shares by virtue of his
obligation as such underwriter.
(5) If any equity shares or units, with reference to the cost of which a deduction is allowed under sub-section (1), are sold or
otherwise transferred by the assessee to any person at any time within a period of three years from the date of their acquisition,
the aggregate amount of the deductions of income-tax so allowed in respect of such equity shares or units in the previous year
or years preceding the previous year in which such sale or transfer has taken place shall be deemed to be tax payable by the
assessee for the assessment year relevant to such previous year and shall be added to the amount of income-tax on the total
income of the assessee with which he is chargeable for such assessment year.
Explanation.—A person shall be treated as having acquired any shares or units on the date on which his name is entered in
relation to those shares or units in the register of members of the company or in the relevant records of any Mutual Fund or Unit
Trust of India, referred to in sub-section (1).
Page 3 of 3
S. 88A.
(6) Where a deduction is claimed and allowed under sub-section (1) with reference to the cost of any equity shares, the cost of
such shares shall not be taken into account for the purposes of section 54E .]’.
1.Sub-headings and sections 87, 88 and 88A have been inserted by the Finance Act, 1990 (12 of 1990), s 30(b) (w.e.f. 1-4-
1991). Earlier, sub-headings and sections 87, 87A and 88 were omitted by the Finance (No. 2) Act, 1967 (20 of 1967), s 33 &
3rd Sch. (w.e.f. 1-4-1968).
2.The word “or” has been omitted by the Finance Act, 1994 (32 of 1994), s 50(h)(i) (w.r.e.f. 1-4-1991).
3. Section 88A(1)(c) has been omitted by the Finance Act, 1994 (32 of 1994), s 50(h)(ii) (w.r.e.f. 1-4-1991). Prior to its omission,
‘(c)an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the
and Diu,’.
End of Document
S. 88B.
income-tax
S. 88B.
61[* * * *]
Deleted Section 88B : Rebate of Income-tax in Case of Senior Citizens.—This section was inserted by the
Finance Act, 1992 w.e.f. April 1, 1993. The relief under this section is available to a resident individual assessee who
is sixty-five years old or more at any time during the previous year. A rebate of income-tax not, exceeding rupees
fifteen thousand is granted by this section.
61 Omitted by the Finance Act, 2005 (18 of 2005), s 30 (w.e.f. 1-4-2006). See Circular No. 3 of 2005, June 3, 2005, 275
ITR (St.) 138. Also see, Circular No. 6 of 2005, July 25, 2005, 276 ITR (St.) 150; Circular No. 3 of 2006, February 27,
2006, 281 ITR (St.) 222. Prior to its omission, section 88B as it stood between 1-4-1998 and 31-3-2006 is as follows:—
‘1[ S. 88B . Rebate of income-tax in case of individuals of sixty-five years or above.—An assessee, being an individual
resident in India, who is of the age of sixty-five years or more at any time during the previous year shall be entitled to a deduction
from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, with which
he is chargeable for any assessment year, of an amount equal to hundred per cent. of such income-tax or an amount of 2[twenty
thousand rupees], whichever is less.]’.
1.Subs. by the Finance Act, 1997 (26 of 1997), s 31 (w.e.f. 1-4-1998), for the then existing section 88B .
2.Subs., for “fifteen thousand rupees”, by the Finance Act, 2003 (32 of 2003), s 48 (w.e.f. 1-4-2004). Earlier, the said words were
substituted for “ten thousand rupees” by the Finance Act, 2000 (10 of 2000), s 47 (w.e.f. 1-4-2001).
End of Document
S. 88C.
income-tax
S. 88C.
62[* * * *]
Deleted Section 88C : Rebate of Income in Case of Women Below Sixty-five Years.—This section was inserted
by the Finance Act, 2000 w.e.f. April 1, 2001. A resident woman assessee, who is below the age of sixty-five years at
any time during the previous year, can claim the relief granted by this section. A rebate of income-tax, not exceeding
rupees five thousand is granted by this section.
This section was omitted by the Finance Act, 2005 with effect from April 1, 2006. As the basic slab rate was increased
to Rs.1 lakh, this section became redundant.
62 Omitted by the Finance Act, 2005 (18 of 2005), s 31 (w.e.f. 1-4-2006). Prior to its omission, section 88C as inserted by
the Finance Act, 2000 (10 of 2000), s 48 (w.e.f. 1-4-2001), stood as under:—
“ S. 88C . Rebate of income-tax in case of women below sixty-five years.—An assessee,—
(a) being a woman resident in India; and
(b) below the age of sixty-five years, at any time during the previous year,
shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter)
on her total income, with which she is chargeable for any assessment year, of an amount equal to hundred per cent. of such
income-tax or an amount of five thousand rupees, whichever is less.”.
End of Document
S. 88D.
income-tax
S. 88D.
63[* * * *]
Legislative history.— Section 88D was inserted by the Finance (No. 2) Act, 2004, with effect from April 1, 2005. The
scope of the said section is explained in the Board circular.64 This section was omitted a year later by the Finance Act,
2005 with effect from April 1, 2006. As the basic slab rate was increased to Rs.1 lakh, this section became redundant.
63 Omitted by the Finance Act, 2005 (18 of 2005), s 32 (w.e.f. 1-4-2006). Prior to its omission, section 88D as inserted by
the Finance (No. 2) Act, 2004 (23 of 2004), s 22 (w.e.f. 1-4-2005), stood as under:—
“ S. 88D . Rebate of income-tax in case of certain individuals.—An assessee, being an individual resident in India,—
(a)whose total income does not exceed one hundred thousand rupees, shall be entitled to a deduction from the amount of
income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for
any assessment year, of an amount equal to hundred per cent. of such income-tax;
(b)whose total income exceeds one hundred thousand rupees and the income-tax payable on such total income (as computed
before allowing the deductions under this Chapter) exceeds the amount by which such total income is in excess of one hundred
thousand rupees, shall be entitled to a deduction from the amount of income-tax on his total income, of an amount equal to the
amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds one
hundred thousand rupees.”.
64 Circular No. 5 of 2005, dated August 18, 2005, 276 ITR (St.) 151. See Circular No. 5 of 2005, July 15, 2005, 276 ITR
(St.) 151.
End of Document
S. 88E. Rebate in respect of securities transaction tax
income-tax
(1) 65[Where the total income of an assessee in a previous year includes any income, chargeable under the head
“Profits and gains of business or profession”, arising from taxable securities transactions, he shall be entitled to a
deduction, from the amount of income-tax on such income arising from such transactions, computed in the
manner provided in sub-section (2), of an amount equal to the securities transaction tax paid by him in respect of
the taxable securities transactions entered into in the course of his business during that previous year:
Provided that no deduction under this sub-section shall be allowed unless the assessee furnishes alongwith the return of
income, evidence of payment of securities transaction tax in the prescribed form:
Provided further that the amount of deduction under this sub-section shall not exceed the amount of income-tax on such
income computed in the manner provided in sub-section (2).
(2) For the purposes of sub-section (1), the amount of income-tax on the income arising from the taxable securities
transactions, referred to in that sub-section, shall be equal to the amount calculated by applying the average rate
of income-tax on such income.
(3) 66[No deduction under this section shall be allowed in, or after, the assessment year beginning on the 1st day of
April, 2009.]
Explanation.—For the purposes of this section, the expressions “taxable securities transaction” and “securities transaction
tax” shall have the same meanings respectively assigned to them under Chapter VII67 of the Finance (No. 2) Act, 2004 (23
of 2004).]
Legislative History.— Section 88E was inserted by the Finance (No. 2) Act, 2004, with effect from April 1, 2005. The
Page 2 of 2
scope of the said section is explained in the Board circular.68 Subsequently, by the Finance Act, 2008, sub-s (3) was
inserted with effect from April 1, 2008 and rebate on securities transaction was withdrawn from assessment year
beginning on April 1, 2009. The scope of the said amendment is explained in the Board circular.69
Under this section, STT paid is allowed as a rebate on furnishing proof of payment as prescribed under r 20AB . The
said rule requires furnishing of Forms 10DB and 10DC as the case be. Rebate is also applicable to income computed
under s 115JB .70a
65 Ins. by the Finance (No. 2) Act, 2004 (23 of 2004), s 23 (w.e.f. 1-4-2005). See Circular No. 5 of 2005, July 15, 2005,
276 ITR (St.) 151.
ITR (St.) 42.
68 Circular No. 5 of 2005, July 15, 2005, 276 ITR (St.) 151.
69 Circular No. 1 of 2009, March 27, 2009, 310 ITR (St.) 42.
70a CIT v MBI and Co. Ltd. 358 ITR 1 .
End of Document
S. 89. Relief when salary, etc., is paid in arrears or in advance
Income Tax, 10e, 2 Vols, HB > Volume 1 > CHAPTER VIII [Rebates and Reliefs] > B.—Relief for
income-tax
B.—Relief for income-tax
70[Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in
any one financial year, of salary for more than twelve months or a payment which under the71provisions of clause (3) of
section 17 is a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation to
clause (iia) of section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which
it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant
such relief as may be prescribed:]
72[Provided that no such relief shall be granted in respect of any amount received or receivable by an assessee on his
voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in
the case of a public sector company referred to in sub-clause (i) of clause (10C) of section 10, a scheme of voluntary
separation, if an exemption in respect of any amount received or receivable on such voluntary retirement or termination of
his service or voluntary separation has been claimed by the assessee under clause (10C) of section 10 in respect of such,
or any other, assessment year.]
Section 89 [ Section 60(2) of 1922 Act]: Relief in Respect of Salaries and Interest on Securities.—Under s 15,
salaries are taxable in the year in which they are due or are paid. Where salary is paid in arrears or in advance, or
where a retirement benefit or salary for more than twelve months is received in any one financial year, the income for
that year may be liable to assessment at a rate, higher than that at which it would otherwise have been assessed. In
such cases, the AO has to grant the relief prescribed under this section by r 21A .73 Likewise, under sub-s (2), deleted
with effect from April 1, 1989, to which there was no corresponding provision in the 1922 Act, the AO had to grant
relief, in accordance with r 21B, against the hardship created in cases where interest on securities was received in
arrears.
The section was substituted by the Finance Act, 2002 with retrospective effect from April 1, 1996 to provide a similar
Page 2 of 3
additional relief in respect of family pension to a family member of deceased employee paid in arrears.
Since this section is a beneficial provision intended to give certain benefits to employees, it should not be interpreted
in a restrictive manner.74
Encashment of leave by an employee on his retirement is exempt from tax to the extent provided in s 10(10AA) ; while
encashment of leave by an employee while in service would be entitled to relief under sub-s (1) (old) of this section.75
The section would apply to any payment that is made under the provisions of s 17(3) as a ‘profit in lieu of salary’.76 Ex
gratia compensation received by an assessee consequent to his resignation, or any payment made on the termination
of his services by dismissal or by compulsory retirement or on attaining superannuation would be covered by this
section.77 Similarly, relief under this section would also be available in respect of the amount received by the employee
at the time of voluntary retirement of service.78 Section 89 seeks to mitigate hardship caused by progressive increase
in tax rates. An assessee cannot be denied relief under s 89 on the ground that he was granted exemption under s
10(10C) .79
In the absence of any express provision, the arrears of provident fund credited to the general provident fund account,
pursuant to a settlement with the Electricity Board, cannot be spread over the respective periods for which they were
paid; only the arrears of pay could be spread over under s 89 .80
An application for relief under this section is to be made to AO, and a direct writ petition before the High Court for
obtaining such relief is not maintainable.81
70 Subs., for “Relief in respect of income-tax”, by the Finance Act, 1990 (12 of 1990), s 30(a) (w.e.f. 1-4-1991). Earlier,
the words “Relief in respect of income-tax” were substituted for “Rebates and reliefs” by the Finance (No. 2) Act, 1967
(20 of 1967), s 33 & 3rd Sch. (w.e.f. 1-4-1968).
71 Subs. by the Finance Act, 2002 (20 of 2002), s 38 (w.r.e.f. 1-4-1996), for the following:—
‘ S. 89 . Relief when salary, etc., is paid in arrears or in advance.—(1) Where, by reason of any portion of an assessee’s
salary being paid in arrears or in advance or by reason of his having received in any one financial year salary for more than
twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, his income is
assessed, at a rate higher than that at which it would otherwise have been assessed, 1[the 2[Assessing Officer] shall, on an
application made to him in this behalf, grant such relief as may be prescribed].
3[(2)* * * *]’. See Circular No. 8 of 2002, August 27, 2002, 258 ITR (St.) 13.
1.Subs., for “the Commissioner may, on an application made in this behalf by the assessee, grant such relief as he considers
appropriate”, by the Taxation Laws (Amendment) Act, 1970 (42 of 1970), s 23 (w.e.f. 1-4-1971).
2.Subs., for “Income-tax Officer”, by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2 (w.e.f. 1-4-1988).
3.Sub-section (2) has been omitted by the Finance Act, 1988 (26 of 1988), s 29 (w.e.f. 1-4-1989). Prior to its omission, sub-
section (2) stood as under:—
‘(2) Where, by reason of any portion of income from interest on securities being received in arrears, an assessee’s total income
is assessed at a rate higher than that at which it would otherwise have been assessed, †[the Assessing Officer shall, on an
application made to him in this behalf, grant such relief as may be prescribed].’.
Page 3 of 3
In the above sub-section (2), the portion put within the parentheses marked †(minus subsequent amendment) was substituted
for “the Commissioner may, on an application made in this behalf by the assessee, grant such relief as he considers
appropriate” by the Taxation Laws (Amendment) Act, 1970 (42 of 1970), s 23 (w.e.f. 1-4-1971). In the said portion, the words
“Assessing Officer” were substituted for “Income-tax Officer” by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s 2
(w.e.f. 1-4-1988).
73 Sundaram v Ameerjan 152 ITR 64 (SC); Santraj v Singla 163 ITR 588 (SC); Joshi v UOI 163 ITR 597 (SC); Satyapal
v Wool EPC 169 ITR 507 ; Re Bhagwati 12 ITR 193 .
74 CIT v Visalakshi 206 ITR 531, 533.
75 CIT v SN Chadha 249 ITR 31 ; CIT v Tendolkar 221 ITR 268 . See also Board’s Circular No 431, September 12,
1985; 156 ITR St 82.
76 CIT v SN Chadha 249 ITR 31 .
77 CIT v Visalakshi 206 ITR 531 .
78 CIT v Raman 245 ITR 856, 160 CTR (Mad) 88; CIT v G.V. Venugopal 273 ITR 307 ; State Bank of Travancore v
CBDT 282 ITR 587, 201 CTR (Ker) 492; CIT v S. Sundar 284 ITR 687 ; CIT v J. Ramamani 286 ITR 616 ; CIT v
Nagesh Devidas Kulkarni 291 ITR 407, 210 CTR (Bom) 471; CIT v Koodathil Kallyatan Ambujakshan 309 ITR 113
(optional early retirement scheme), 219 CTR (Bom) 80; CIT v M. Abdul Kareem 311 ITR 162 ; CIT v M. Krishnamurthy
318 ITR 167 ; CIT v T. K. Paliwal 322 ITR 101 ; CIT v S N. Sharma 322 ITR 105 ; CIT v Rabindranath Lal 322 ITR
119, 175 Taxman 297 .
79 CIT v GV Venugopal 273 ITR 307, 193 CTR 661 ; CIT v P Surendra Prabhu 279 ITR 402, 198 CTR (Kar) 209.
80 Kerala Electricity Officers Federation v CBDT 279 ITR 482, 198 CTR (Ker) 625.
81 Shantilal Bagora v State Bank of Indore 255 ITR 60 ; Albert Francis v Oil India 244 ITR 25 .
End of Document
S. 89A.
Income Tax, 10e, 2 Vols, HB > Volume 1 > CHAPTER VIII [Rebates and Reliefs] > B.—Relief for
income-tax
B.—Relief for income-tax
S. 89A.
82[* * * *]
Deleted Section 89A : Tax Relief on Exports.—This section is replaced by s 80HHC qv.
82 Section 89A was inserted by the Finance Act, 1982 (14 of 1982), s 22 (w.e.f. 1-6-1982). See Circular No. 346, June
30, 1982, 138 ITR (St.) 10. The said section 89A has been omitted by the Finance Act, 1983 (11 of 1983), s 33 (w.e.f.
1-4-1983).
Still-born section 89A .—The Finance Act, 1982, inserted section 89A with effect from 1-6-1982, i.e., for and from assessment
year 1983-84. However, the Finance Act, 1983, has omitted the said section 89A with effect from April 1, 1983, i.e., for and from
assessment year 1983-84. Thus, section 89A was still-born. As the provisions were brought on the statute book and are of
beneficial nature, section 89A is given below:—
“89A. Tax relief in relation to export turnover.—(1) Where the export turnover of an assessee, being—
(a) an Indian company, or
(b) a person (other than a company) who is resident in India,
during any previous year relevant to an assessment year in relation to which this section applies, exceeds by more than ten per
cent. his export turnover during the corresponding base year, the asses-see shall be entitled to a deduction from the amount of
income-tax otherwise payable for that assess-ment year of an amount calculated at the rate specified under sub-section (3) on
the amount of such excess.
(a) “corresponding base year” in relation to any previous year, means the previous year imme-diately preceding that previous
year;
(b) “export turnover” means the sale proceeds of any goods or merchandise specified under sub-section (3) exported out of
India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs
station as defined in the Customs Act, 1962 (52 of 1962).
Page 2 of 2
S. 89A.
(2) This section applies in relation to the assessment year commencing on the 1st day of April, 1983, and the four assessment
years next following that year.
(3) The goods or merchandise referred to in the Explanation to sub-section (1) (including the des-tination of their export) and the
rate at which the amount of deduction under that sub-section shall be calculated, shall be such as may be specified by the
Central Government in this behalf by notification in the Official Gazette.
(4) In specifying under sub-section (3) any goods or merchandise (including the destination of their export) and the rate at which
the amount of deduction under sub-section (1) is to be calculated, the Central Government shall have regard to the following
factors, namely:—TAX RELIEF IN RELATION TO EXPORT TURNOVER ;Omitted Section 89A 1711
(a) the cost of manufacture or production of such goods or merchandise and prices of similar goods or merchandise in the
foreign markets;
(b) the need to develop foreign markets for such goods or merchandise;
(c) the need to earn foreign exchange;
(d) any other relevant factor.
(5) The deduction under sub-section (1) for any assessment year shall not exceed ten per cent. of the amount of income-tax
otherwise payable by the assessee for that assessment year on the amount of profits and gains derived from the export of such
goods or merchandise out of India.
Explanation.—For the purposes of this sub-section, the amount of income-tax otherwise payable by the assessee for an
assessment year on the profits and gains derived from the export of such goods or merchandise out of India shall be—
(a) in a case where the total income for that assessment year consists only of such profits and gains, the amount of income-tax
chargeable (without any deduction under this section) on the total income;
(b) in a case where the total income for that assessment year includes any other income, the amount which bears to the income-
tax chargeable (without any deduction under this section) on the total income the same proportion as the amount of such profits
and gains bears to the total income.
(6) For the purposes of sub-section (5), the amount of profits and gains derived from the export of any goods or merchandise out
of India shall be computed in accordance with the rules made by the Board in this behalf.”.
End of Document

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Kanga & Palkhivala IT Act 10th Ed Vol I CH 6A-8

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1. S. 80A. Deductions to be made in computing total income

THE INCOME-TAX ACT, 1961 (ACT NO. XLIII OF 1961)

CHAPTER VI-A Deductions to be Made in Computing Total Income

S. 80A. Deductions to be made in computing total income

Explanation.—For the purposes of this sub-section, the expression “market value”,—

17 Jaiprakash v CIT 215 ITR 302 .

19 CIT v Bhoruka 198 ITR 734 .

THE INCOME-TAX ACT, 1961 (ACT NO. XLIII OF 1961)

CHAPTER VI-A Deductions to be Made in Computing Total Income

25 CIT v Atam Ballabh 258 ITR 485 .

26 CIT v Sarabhai 211 ITR 20, 29 .

THE INCOME-TAX ACT, 1961 (ACT NO. XLIII OF 1961)

CHAPTER VI-A Deductions to be Made in Computing Total Income

32 Rama Varma v CIT 205 ITR 433 (SC).

35 CIT v HMT 203 ITR 811 (ss 80J and 80HH).

36 CIT v Sundaravel Match 245 ITR 605 .

37 CIT v Mentha and Allied Products 326 ITR 297 .

38 CIT v Shirke Construction Co. Ltd. 291 ITR 380 (SC).

40 Grasim Industries v ACIT 245 ITR 677 .

41 CIT v Loonkar Tools 213 ITR 721 .

43 CIT Chemical & Mettalurgical 247 ITR 749 .

47 CIT v Arvind Mills 254 ITR 529 .

51 Circular No. 636, August 31, 1992: 198 ITR (St.) 1.

54 CIT v Apoorva Shantilal 255 ITR 390 .

THE INCOME-TAX ACT, 1961 (ACT NO. XLIII OF 1961)

CHAPTER VI-A Deductions to be Made in Computing Total Income

S. 80AC. Deduction not to be allowed unless return furnished

THE INCOME-TAX ACT, 1961 (ACT NO. XLIII OF 1961)

CHAPTER VI-A Deductions to be Made in Computing Total Income

(i) making deductions under the appropriate computation provisions ;

(iii) adjusting intra-head and/or inter-head losses ; and

(d) the spouse of any person referred to in sub-clause (b);’.

67 Circular No. 56, March 19, 1971.

THE INCOME-TAX ACT, 1961 (ACT NO. XLIII OF 1961)

CHAPTER VI-A Deductions to be Made in Computing Total Income

B —Deductions in respect of certain payments

(vi) as a contribution by an employee to a recognised provident fund;

(vii) as a contribution by an employee to an approved superannuation fund;

(1) the Central Government or any State Government, or

(2) any bank, including a co-operative bank, or

(3) the Life Insurance Corporation, or

(4) the National Housing Bank, or

Explanation.—For the purposes of this clause,—

(xxi) 82[as term deposit—

(i) of the value of any premiums agreed to be returned, or

person, who is—

(i) the value of any premium agreed to be returned; or

(ii) in the case of a Hindu undivided family, any member thereof;

(5) Where, in any previous year, an assessee—

(7) For the purposes of this section,—

(8) In this section,—

(iii) “insurance” shall include—

(iv) the assessee’s contribution to an approved superannuation fund.22

Trust of India Act, 1963 (52 of 1963);) 9(or)

74 For text, see Appendix 77.

75 For text, see Appendix 120.

79 For text, see Appendix 95.

80 For text, see Appendix 59.

81 For text, see Appendix 59.

83 For text, see Appendix 48.

84 For text, see Appendix 48A.