I am a major shareholder in a company, which has set up a new industrial undertaking in Silvassa. The company has claimed tax holiday benefit under section 80-IA. Last year, additional plant and machinery have been installed in order to increase the production and manufacture a more advanced product than the earlier one. The assessing officer has disallowed the relief on the ground that the new machinery constitutes a new undertaking. What is the correct position in law?
SK Desai, Dubai
Under the erstwhile section 80-IA of the Income-tax Act, the tax holiday was available for any industrial undertaking, which was set up before March 31, 2000, if it was located in an industrially backward area notified by the government. Since Silvassa falls within this condition of an industrially backward area, the benefit of section 80-IA would be available to your company if the undertaking commenced production by March 31, 2000.
The fact that new plant and machinery have been added subsequently for the same undertaking and for manufacturing a more advanced version of the original product, does not mean that a new undertaking has come into existence. The original undertaking would, therefore, continue to enjoy the tax holiday of 100 per cent of the profits derived from the industrial undertaking for the initial five assessment years, and thereafter at the rate of 30 per cent for the next five years.
Hence, your company should challenge the assessing officer’s order denying the exemption by filing an appeal to the commissioner of Income-tax (Appeals) within thirty days of the date of receipt of the order from the assessing officer.
The writer is a practising lawyer, specialising in tax and exchange management laws of India.
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