Special provisions in respect of certain undertakings or enterprises in certain special category States [Section 80-IC] :
(i) This section allows tax holiday to the new undertakings or existing undertakings on their substantial expansion in the states of Himachal Pradesh, Uttaranchal, Sikkim and North – Eastern States.
(ii) For this purpose, “substantial expansion” means increase in the investment in plant and machinery by at least 50% of the book value of the 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.
(iii) The tax holiday in the states of Himachal Pradesh and Uttaranchal will be 100% for the first five assessment years and 25% (30% in the case of a company) for the next five assessment years.
(iv) However, tax holiday in the states of Sikkim and North-Eastern States will be 100% for ten assessment years commencing from the initial assessment year.
(v) For the purpose of exemption, two classifications have been made and the Thirteenth Schedule and Fourteenth Schedule have been inserted in the Income-tax Act. The said Schedules specify the list of articles and the States for the purposes of availing deduction under this section.
(vi) The first classification is applicable to undertakings or enterprises which manufacture or produce any article or thing, not being any article or thing specified in the 13th Schedule (namely, tobacco, aerated beverages, pollution causing paper and paper products etc.) in any export processing zone or integrated infrastructure development centre or industrial g rowth centre or industrial estate or industrial park or software technology park or industrial areas or theme park in these States as notified by the Board.
(vii) The second classification is applicable to those undertakings or enterprises which manufacture or produce article or thing specified in the 14th Schedule only in these States without any specification of the specified zone, area etc.
(viii) The period during which the undertakings in different States should begin or should have begun to manufacture or produce are given hereunder –
| Himachal Pradesh and Uttaranchal | From 7.1.03 and ending before 1.4.2012 |
| Sikkim | From 23.12.02 and ending before 1.4.2007 |
| North-Eastern States | From 24.12.97 and ending before 1.4.2007 |
(ix) No benefit to these undertakings will be available under any of the sections in Chapter VIA in relation to the profits and gains of such undertakings.
(x) While computing the total period of 10 years the period for which the benefit under section 80IB has already been availed, if any, shall also be included.
(xi) The other conditions such as that it should not be formed by splitting or reconstruction of a business already in existence, or by transfer to a new business of plant and machinery previously used for any purpose are the same as are applicable for claiming benefit under section 80IA.
(xii) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or vice versa, and if the consideration for such transfer does not correspond with the market value of the goods or services then the profits and gains of the eligible business shall be computed as if the transfer was made at market value. However, if, in the opinion of the Assessing Officer, such computation presents exceptional difficulties, the Assessing Officer may compute the profits on such reasonable basis as he may deem fit.
The market value, in relation to any goods or services transferred between the eligible business and any other business carried on by the assessee, shall mean –
(1) the price that such goods or services would ordinarily fetch in the open market; or
(2) the arm‘s length price as defined under section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA.
(xiii) The deductions claimed and allowed under this section shall not exceed the profits and gains of the eligible business. Further, where deduction is claimed and allowed under this section for any assessment year no deduction in respect of such profits will be allowed under any other section under this chapter.
(xiv) The Assessing Officer is empowered to make an adjustment while computing the profit and gains of the eligible business on the basis of the reasonable profit that can be derived from the transaction, in case the transaction between the assessee carrying on the eligible business under section 80-IC and any other person is so arranged that the transaction produces excessive profits to the eligible business.
If the aforesaid arrangement between the assessee carrying on the eligible business and any other person is a specified domestic transaction referred to in section 92BA, then, the amount of profit of such transaction shall be determined having regard to arm‘s length price as defined under section 92F and not as per the reasonable profit from such transaction.