Determination of the deduction amount in accordance with Section 80 (1a) (1) EStG in the light of the most recent BGH collective judgment.
The governments of every country need resources to carry out their essential activities and responsibilities. The operation of state institutions, the development of the country’s infrastructure and the financing of projects and programs for public welfare are examples of this. Each country has established an appropriate tax method by its government to make this process effective. India is no exception with its diverse sources of income and revenue stream. It underlines the importance of taxes on a broad front and distinguishes between the many forms of taxation. India has a well structured tax system with two features that define the meaning of taxes: progressive and proportional. It is progressive in that the tax is levied at higher rates for higher income and income levels. Meanwhile, it is proportional in the sense that the tax rate is proportional to the amount of income or income taxed. The author of this article attempts to calculate and describe the withholding amount under Section 80 1A (1) of the Income Tax Act in light of a recent ruling by the Chamber of the Supreme Court of India.
Tax deductions are permitted for companies that are involved or that set up, maintain or operate in accordance with Section 80 1A of the Income Tax Act.
- Telecommunication services
- Infrastructure resources
- SEZ and business parks (special economic zones)
- Distribution or generation of electricity
- Reconstruction of power plants
- Distribution of natural gas
Requirements for claiming deductions:
Industrial companies must meet certain criteria in order to receive a tax deduction according to Section 80 IA. The details are as follows:
1. The industrial enterprise is owned either by a single Indian company or a group of Indian companies, or by a board of directors, corporation, agency or other body established under any state or central law.
2. The construction of the new infrastructure should be approved by a public corporation, local authority or government.
3. Maintenance or operation of the facility should have started after April 1, 1995.
In addition to these basic criteria, there are other criteria for a particular infrastructure development such as telecommunications, power generation, etc.
Maximum deduction and initial rating:
Section 80IA allows a tax deduction of up to 100 percent of the income and profits generated by such companies. However, only profits and income from the last 20 years are eligible for this deduction.
Profits or profits from 10 consecutive years from the last 15 years are deductible under Section 80IA for airports, ports, inland ports, inland waterways and fairways. It is worth noting that there are several exclusions for certain companies. As noted, Section 80IA allows certain industrial companies to claim a tax credit on income and earnings earned in the past 20 or 15 years for every 10 consecutive years. In most cases, the first year of assessment is the year in which a company starts operations.
However, the first tax year according to § 80IA is the year in which the taxed person started to claim the tax deduction, not the year in which the activity was started.
1. Infrastructure: For infrastructure support you need an infrastructure facility operated by an Indian company. From April 1, 1995 to April 1, 2017, ITRs must be submitted and deductions claimed on time. A CA will conduct the test. For ten years in a row you will achieve 100% profit. The initial AY begins during the first 15 months of the assessee’s activity.
2. Telecommunication Services: An organization that provides telecommunications services. Starting April 1, 1995 through March 31, 2005. ITRs must be submitted and deductions claimed on time. A CA will conduct the test. It should be a brand new company (with a few exceptions discussed below)
The profit in the first five years is 100%. 30 percent profit over the next five years
The initial AY begins during the first 15 months of the assessee’s activity.
3. Electricity generation, transmissionand distribution services: A company located in any area of India for the generation or generation and distribution of electricity. Operations began on April 1, 1993 and ended on March 31, 2017.
Transfer from April 1, 1999 to March 31, 2017. Restoration and improvement took place between April 1, 2004 and March 31, 2011. ITRs must be submitted and deductions claimed on time. A CA will conduct the test. It should be a brand new company (with a few exceptions discussed below). For ten years in a row you will achieve 100% profit. The initial AY begins during the first 15 months of the assessee’s activity.
4. Industrial park and special economic zone: An organization that establishes and operates a business park or special economic zone approved by the federal government. For SEZ, the start date is April 1, 1997 and the end date is March 31, 2005. For industrial parks, the period runs from April 1, 2009 to March 31, 2011.
ITRs must be submitted and deductions claimed on time. A CA will conduct the check. You will achieve 100% profit for ten years in a row. The initial AY begins during the first 15 months of the assessee’s activity.
5. Modification of a unit: An Indian company, which had a controlling interest prior to November 30, 2005, was involved in the construction of a power generation facility for reconstruction or revitalization. Operations will start before March 31, 2011. It is necessary to submit ITRs in a timely manner and claim deductions. A CA conducts an audit. You will get 100% profit for ten years in a row. The first year should begin during the first 15 years of the assessee’s activity.
6. Gas distribution network: An Indian company specializing in the construction and operation of transnational natural gas distribution networks including pipelines and storage facilities. Start work on or after April 1, 2007. ITRs must be submitted and deductions claimed on time. A CA will conduct the test. It should be a brand new company (with a few exceptions discussed below). For ten years in a row you will achieve 100% profit. The initial AY begins during the first 15 months of the assessee’s activity.
CASE ANALYSIS BY THE INCOME TAX OFFICER V. M / S. RELIANCE ENERGY LTD. CIVIL COMPLAINT NO. 1327 FROM 2021.
Corum: Justice L Nageshwar Rao, Justice Vineet Saran.
Plea in law: In this landmark case, the Supreme Court ruled that “Deduction of industrial profits under Section 80-1A should not be limited to business income only. In this legal question, the plea that led to such a ruling by the Supreme Court is to be seen in the fact that the expert has limited the deduction under Section 80 1A of the Act to “only operating income”. He made the point that only income for the company needs to be taken into account to allow deduction of income for the company, and following the same analogy, income from other sources should only be deducted from income from other sources.
The important elements of Section 80-IA (1) of the Act were underlined by the Departmental Bank of Judges L. Nageshwara Rao and Vineet Saran. To begin with, an assessee’s “total gross income” should include profits and profits. Second, a company or company derives such profits and advantages from a business referred to in paragraph 4. Finally, the Assesse is entitled to a deduction of 100 percent of the income and the income from such a company for ten consecutive years of assessment. Finally, such a deduction should be allowed when calculating the assessee’s “total income”.
The Supreme Court ruled that paragraph (5) of Section 80-IA of the Act is limited to the determination of the deduction amount under paragraph (1) of Section 80-IA of the Act, placing “qualified business” as the “sole source of income”. Subsection (5) cannot be used to limit the deduction under subsection (1) solely to ‘income from business operations’. “
Legal Analysis: In this article we came across a very important section of the Income Tax Act, d the Profits and Profits of the industrial companies or companies involved in the development of the infrastructure. ‘ The regulation basically defines the conditions and the amount of the deduction that can be claimed from the profits and profits from the eligible company. To understand it more clearly, we came across the above-mentioned case of Reliance Energy Ltd where the Supreme Court made a distinction between profits and profits on qualifying business and business income in order to explain the size of the deductible profits and gains. According to Section 80-IA (1), the gross total income of an Assess comprises the income and profits that a company or a company generates from any business. For the calculation of the deduction amount according to this paragraph for the assessment year, the income and earnings of a company eligible for support to which paragraph 1 applies, regardless of other provisions of this paragraph, are law.
In paragraph 15 of the case in question, the Supreme Court concluded that the scope of Section 80-IA (5) is limited to the determination of the deduction amount under Section 80-IA (1) by using “qualified deal” as the sole source for Income. Section 80-IA (5) cannot be used to interpret a limitation of Section 80-IA (1) to corporate income only. The Supreme Court ruled that for the purposes of calculating the deduction, consider a qualifying company as the sole source of income. It is irrelevant under which income category the income is taxable. Losses from ineligible companies do not affect the amount of the deduction.