Nature of Business

Tax planning is also relevant while deciding upon the

nature of business. There are certain businesses which
have special tax treatment. Some of them are:
1. 100% export oriented undertakings
Full exemption under section 10B for 10 consecutive
years in the case of newly established 100% export
oriented undertakings.
2. Export of eligible Articles or things
Full exemption under section 10BA for 10 years for the
profits arising from the export of eligible articles or
things. Eligible articles or things means all hand-made
articles or things which are of artistic value and which
requires the use of wood as main raw material.
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Nature of Business (Cont..)
3. Hotels in hilly or rural areas or place of pilgrimage
Deduction under section 80-IB for an assessee engaged in
the business of hotel located in hilly/rural area or place of
pilgrimage.
4. Operating and owning multiplexes theatres
Deduction under section 80-IB (7A) for an assessee
engaged in the business of operating and owning of
multiplexes theatres.
5. Building, operating and owning of convention centres
Tax benefits in case of business of building, owning and
operating of a convention centre under section 80-IB (7B)
Convention centre means building of a prescribed area
which has a convention hall for the purpose of holding
conferences and seminars and is of such size and number
and having such other facilities and amenities as may be
prescribed.
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Nature of Business (Cont..)
6. Telecommunication services
Deduction of expenditure for obtaining licence to operate
telecommunication services under section 35-ABB
7. Growing or manufacturing tea, coffee or rubber
Tax benefits in case of business of growing and
manufacturing tea or coffee or rubber in India under section
33AB
8. Generation or distribution of power
Tax benefits for assessee engaged in the business of
generation or distribution of power under section 80-IA
9. Production or refining of mineral oil
Tax benefits for industrial undertaking engaged in the
business of commercial production or refining of mineral
oil.
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Nature of Business (Cont..)
10. Venture capital investment or undertaking
Full exemption of income arising from venture capital investment or
venture capital undertaking under section 10(23FB)
11. Income from mutual funds
Exemption of income from notified mutual funds under section
10(23D)
12. Developing housing projects
Deduction available undertakings engaged in developing housing
projects under section 80-IB
13. Profits from retail business
Special provisions for computing profits and gains of retail business
as per section 44AF
14. Royalty income of foreign companies
Special provisions in the case of royalty income of foreign
companies [44D]

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Nature of Business (Cont..)
15. Royalty income of non-residents
Special provisions in case of royalty income of non-residents
[44DA]
16. Infra structural development
Profits and gains of industrial undertakings engaged in
infrastructural development
[80-IA]. For the purpose of this clause, infrastructural facilities
means
a) A road, rail or bridge system;
b) A highway project including housing or other activities being
an integral part of the highway project;
c) A water supply project, water treatment system, irrigation
project, sanitation and sewerage system or solid waste
management system;
d) A port, airport, inland waterway or inland port.

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Nature of Business (Cont..)
17. Treatment of bio-degradable waste [80JJA]
Profits and gains from the business of collecting
and processing of bio-degradable waste.
18. Employment of new workmen [80JJAA]
A cash back incentive is provided to employer
against payment of salaries to new employees.
19. Plying of trucks [44AE]
Tax benefits on the income of plying, hiring or
leasing of trucks and does not own more than 10
trucks at any time during the previous year.

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Tax Benefits under Tea, Coffee, Rubber Business
(Section 33AB)
The assessee must satisfy the following conditions in order to
avail deduction benefit of tax:
Condition 1 The assessee must be engaged in the business
of tea, coffee or business plantation
Condition 2 The assessee must make a deposit in “special
account” with NABARD.
Condition 3 The deposit should be made in specified time
limit. This time limit is within 6 months from
the end of previous year.
Condition 4 The account of assessee should be audited.

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Amount of Deduction:
1. A sum equal to the amount deposited in
special account or
2. 40% of profit of such business computed
under the head of business and profession
before making any deduction u/s 33AB and
before any adjustment under set off and
carry forward of losses u/s 72
3. Whichever is less of the two would be
deductible.
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Withdrawal of Amount from Special Account
• The amount deposited in special account with
NABARD can be withdrawn by the assessee
for specific purpose. This specific purpose is
related with the growth and advancement of
the same business in which the assessee is
involved.
• The amount withdrawn should be utilized
within the same year. If the withdrawn amount
is not utilized in the same previous year then
the unutilized amount would be treated as
taxable profit.
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Transfer of Asset Purchased out of Special Account
The consequences of any asset purchased out of special account are
depending on the time limit of 8 years. These are categorized as follows:

To whom the asset is Transfer within 8 Transfer after 8

transferred years years

1. Transfer to Central/ Deduction will not be Deduction will not

State Government or withdrawn be withdrawn
local authority

2. Transfer in a scheme Deduction will not be Deduction will not

of succession withdrawn be withdrawn

3. Transfer in any other Deduction will be Deduction will not

case withdrawn be withdrawn

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Case Study
Find out the tax consequences in the following cases:
1. Business profit of X Ltd., a tea growing and manufacturing
company is Rs. 70 lakh for the assessment year 2019-20. It
deposits Rs. 25 lakh in the “special account” for claiming
deduction under section 33AB. It wants to claim set off of
brought forward business loss of Rs. 12,00,000.
2. By withdrawing Rs. 20 lakh on January 20, 2020 from the
“special account”, X Ltd. purchases a non-depreciable asset
for Rs. 18 lakh according to the scheme framed by the Tea
Board. The remaining amount of Rs. 2 lakh is not utilized up
to March 31, 2020.
3. The asset which is purchased for Rs. 18 lakh is sold for Rs.
31 lakh on December 3, 2022.

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Solution: Tax Consequences
1. Tax benefit as deduction u/s 33 AB and Amount Taxable for the
assessment year 2019-20:
(Rs in lakh)
Business Profit in 2019-20 70
40% of profit 28
Deposit in special account 25
Less : Tax benefit as deduction u/s 33AB
(being the lower of 40% of profit and amount deposited in
special account) (25)
Profit after deduction u/s 33AB 45
Less : 60% of Profit after deduction as Agriculture Income (27)
Non Agriculture Income 18
Less : Brought forward losses (12)
Net Taxable Income 6

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Solution: Tax Consequences (cond..)
2. Amount withdrawn from special account Rs 20 lakh out of which Rs 18
lakh spent for the tea business in buying a non-depreciable asset as per
the guidelines of Tea Board and Rs 2 lakh being the amount was not
utilized up to March 2020 and would be considered as business income.
40% of Rs. 2 lakh being non-agricultural and would be taxable.
Hence, Taxable Income = Rs. 80,000
3. The asset sold on December 3rd 2022 was purchased on January 20th
2020. So, this asset was transferred within 8 years time. Hence, the entire
amounted deducted earlier has to be withdrawn. The computation of
taxable profit in the assessment year 2022-23 would be as follows:
1. Deduction withdrawn and considered as business
income =Rs. 18 lakh, 40% of which is taxable. Rs. 7,20,000
2. Short term capital gain (Rs. 31-18 lakh) Rs 13,00,000
Total Taxable Income Rs 20,20,000

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Explanatory Notes:
1. As per Rule 8 of Income Tax Act, Income from tea
growing business would be divided between 40
percent non-agricultural Income and taxable and
remaining 60 per cent would be agricultural income
and would be exempt from tax.
2. It is just assumed in 3rd part of the case study that
the asset which was purchased out of money
withdrawn from special account was invested in an
asset which is used in tea business. And the asset
was sold out in the assessment year 2022-23.
3. It is also assumed with respect to the asset that it is
non-depreciable (i.e. depreciation has been ignored).

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