Section 80HH of The Income Tax Act,1961

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The Income Tax Act, of 1961 is the main statute of Income Tax in India. It provides for levy, administration, collection, and recovery of Income Tax.

As per Section 80HH,

(1) If 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 is applied, as per the provisions of this section, it will be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equivalent to 20% thereof.

(2) This section applies to any industrial undertaking which satisfies the following conditions, namely: —

(i) The manufacturing or production of the articles should have begun or after 31 December 1970 but before 1 April 1990, in a rural area.

(ii) it should have not been formed by the splitting up, or the reconstruction, of a business already in existence in any backward area.

Also, this condition will not be applied 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 which 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 rural area;

(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.

(3) This section applies to the business of any hotel, where all the following conditions are satisfied, namely: —

(i) the business of the hotel should have started functioning after 31 December 1970 but before 1 April 1990, in any rural area;

(ii) the business of the hotel should not be 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) will 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:

Also,

(i) in the case of an industrial undertaking that has begun to manufacture or produce articles, and

(ii) in the case of the business of a hotel that has started functioning,

after 31 December 1970, but before 1 April 1973, this subsection will 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 1 April 1974.

(5) If the assessee is a person other than a company or a cooperative society, the deduction under sub-section (1) will not be admissible unless the accounts of the industrial undertaking or the business of the hotel for the previous year are relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the nation 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 will be computed as if the transfer, in either case, had been made at the market value of such goods as on that date :

Also, in the opinion of the 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, the Assessing Officer may compute such profits and gains on such a reasonable basis as he may deem fit.

(7) Where it appears to the 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, the Assessing Officer will, in computing the profits and gains of the industrial undertaking or the hotel for the purposes of the deduction under this section, take the number of profits as may be reasonably deemed to have been derived therefrom.

(8) [***]

(9) In a case where the assessee is entitled also to the deduction 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, the effect will first be given to the provisions of this section.

(9A) 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 will not be allowed under this section for the same or any other assessment year.

(10) Nothing contained in this section will be applied in relation to any undertaking engaged in mining.

(11) 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 on this behalf:

Provided that any notification under this subsection may be issued so as to have retrospective effect to a date not earlier than the 1 April 1983.