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Unit 7: Deductions: For Special Conditions

North-Eastern States. For this purpose, substantial expansion means increase in the Notes
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.
The tax holiday in the States of Himachal Pradesh and Uttaranchal will be 100% for the fi rst
five assessment years and 25% (30% in the case of a company) for the next fi ve assessment

years. 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.
Section 80-IE provides for an incentive to an undertaking which has during the period
between 1st April, 2007 and 1st April, 2017, begun or begins, in any of the North-Eastern
States (i.e., the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim and Tripura) – to manufacture or produce any eligible article or thing;
to undertake substantial expansion to manufacture or produce any eligible article or thing;
and to carry on any eligible business.
Eligible article or thing means the article or thing other than the goods falling under Chapter
24 of the First Schedule to the Central Excise Tariff Act, 1985 which pertains to tobacco and
manufactured tobacco substitutes; pan masala as covered under Chapter 21 of the First
Schedule to the Central Excise Tariff Act, 1985; plastic carry bags of less than 20 microns;
and goods falling under Chapter 27 of the First Schedule to the Central Excise Tariff Act,
1985 produced by petroleum oil or gas refi neries.

Where the gross total income of an assessee includes any profits and gains derived by such

an undertaking, a deduction of 100% of the profits and gains derived from such business
for 10 consecutive assessment years commencing with the initial assessment year shall
be allowed in computing the total income of the assessee. Initial assessment year means
the assessment year relevant to the previous year in which the undertaking begins to
manufacture or produce articles or things, or completes substantial expansion.

7.7 Keywords

Arms length price: The price at which two unrelated and non-desperate parties would agree to
a transaction.

Assessing offi cer: He or she is an officer of the Income tax department who has been given

jurisdiction over a particular geographical territory or class of persons.
Co-developer: It implies a person who, or a State Government which has been granted a letter of
approval by the Central Government under section 3(12) of the SEZ Act, 2005.
Deduction: Any item or expenditure subtracted from gross income to reduce the amount of
income subject to tax.
Developer: It is a person who, or a State Government which has been granted a letter of approval
by the Central Government under section 3(10) of the SEZ Act, 2005.
Domestic satellite: It is a satellite owned and operated by an Indian company for providing
telecommunication services.
Market Value: It is the price at which an asset would trade in a competitive auction setting.

Special Economic Zones (SEZs): These are free trade zones, having completely different set of
administrative and taxation laws outside the purview of customs authorities.
Substantial expansion: It means increase in the investment in the plant and machinery by at least
25% of the book value of plant and machinery as on the first day of the previous year in which

the substantial expansion is undertaken.

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