Mukund Industries Ltd. (MIL), is a big corporate house, with presence in several industries and businesses, subsidiaries and sister concerns. As the Company Secretary, you are also a key person in the Group's taxation ma

CS Professional · Direct Tax Law & Practice · PYQS · June 2019
Mukund Industries Ltd. (MIL), is a big corporate house, with presence in several industries and businesses, subsidiaries and sister concerns. As the Company Secretary, you are also a key person in the Group's taxation matters, including international taxation. MIL holds a think tank meeting in the month of April, 2019 to arrive at a preliminary idea of its income-tax liability for the previous year 2018-19. Abhinav Pvt. Ltd.'s activities: Abhinav Pvt. Ltd. (APL) is one of the group companies, having a small presence in the overseas market also. It has agricultural lands in country L with which India does not have a DTAA. The global turnover of APL during this year was ₹210 crores. During the last 7 years, the company has been showing an increase of around 6% in its turnover, as compared to the earlier year. During the PY 2018-19, APL derived business income of ₹140 lakh from its Indian operations, but made a loss of ₹10 lakh from its core business operations in country L. From its agricultural operations in country L, APL made net surplus of ₹22 lakh. In country L, the income earned from other sources was ₹8 lakh. In country L, tax paid is ₹5.4 lakh. Agricultural income is taxed there and business loss can be set off against any other income in the same year. Results of Vaamana & Co.: MIL is a partner in a firm Vaamana & Co. On behalf of MIL, Mr. Vishnu, its director, is a working partner in the said firm. The Taxation Manager furnishes gist of the firm's workings, which are furnished infra. The partnership firm, has earned net profit of ₹79 lakhs, before remuneration to working partners. Only depreciation pertaining to current year has been considered in this. The partnership deed provides for remuneration of ₹40 lakhs to the working partners, and this amount has also been actually paid by the firm. The income from other sources earned by the firm during the PY 2018-19 is ₹76 lakhs. The firm has brought forward business loss of ₹7 lakhs (eligible for set off) and unabsorbed depreciation of ₹6 lakhs, both pertaining to the AY 2018-19. Workings of industrial undertaking owned by RPL: Rajalakshmi Textiles Pvt. Ltd. (RPL) is a subsidiary of MIL. Two industrial undertakings are owned by RPL, units P and Q. Both units are eligible for claiming deduction u/s 80-IA. During the PY 2018-19, unit P made a profit of ₹70 lakhs, while unit Q made a loss of ₹15 lakhs. Gross total income of RPL is ₹590 lakhs. RPL wants to know whether the total deduction available u/s 80-IA is ₹70 lakhs (without considering loss made in Unit Q) or is ₹55 lakhs (after setting off loss of unit Q). Advice the assessee suitably.

Answer & Explanation:

As per the provision of section 80IA of the Income-tax Act, 1961, where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any eligible business, there shall be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100% of the profits and gains derived from such business for ten consecutive assessment years. The deduction available u/s 80-IA of the Income-tax Act, 1961 is related to the unit and not to the assessee concerned. In other words, it is unit specific deduction and not assessee specific deduction. Therefore, in the given situation, the deduction available to Unit P is ₹70 lakhs. It cannot be reduced by the loss made by unit Q. Further, deduction u/s 80-IA of the Income-tax Act, 1961, cannot exceed the gross total income of the assessee. This condition is also met here, since the gross total income of APL is ₹590 lakhs.

Topics: Deductions from Gross Total Income

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