CONCESSIONAL TAX RATE UNDER SECTION 115BAB

Concession rate of tax

Section 115BAB of the Income Tax Act, 1961 (‘Act’ for short) was inserted vide Taxation Law (Amendment) Act, 2019 with effect from 01.04.2020. This section offers concessional tax rate on the income of new manufacturing domestic companies. Section 115BAB provides that the income-tax payable in respect of the total income of a person, being a domestic company, other than those mentioned under Section 115BA (tax on income of certain manufacturing domestic companies) and Section 115BAA (Tax on certain domestic companies), for any previous year relevant to the assessment year beginning on or after the 01.04.2020, shall, at the option of such person, be computed at the rate of 15% .

Conditions

To avail the said concession of tax, the following conditions are to be fulfilled-

• the company has been set-up and registered on or after the 01.10.2019, and has commenced manufacturing or production of an article or thing on or before the 31.03.2024 and,-

• the business is not formed by splitting up, or the reconstruction, of a business already in existence. This condition shall not apply in respect of a company, business of which is formed as a result of the re-establishment, reconstruction or revival by the person of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in the said section;
• does not use any machinery or plant previously used for any purpose. Any machinery or plant which was used outside India by any other person shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled-

• such machinery or plant was not, at any time previous to the date of the installation used in India;
• such machinery or plant is imported into India from any country outside India; and
• no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the person.

in the case of a person, any machinery or plant or any part thereof previously used for any purpose is put to use by the company and the total value of such machinery or plant or part thereof does not exceed twenty per cent. of the total value of the machinery or plant used by the company, then, for the purposes of sub-clause (ii) of this clause, the condition specified therein shall be deemed to have been complied with;

• does not use any building previously used as a hotel or a convention centre, as the case may be, in respect of which deduction under section 80-ID has been claimed and allowed.

• the company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it.  the business of manufacture or production of any article or thing shall not include business of,-

• development of computer software in any form or in any media;
• mining;
• conversion of marble blocks or similar items into slabs;
• bottling of gas into cylinder;
• printing of books or production of cinematograph film; or
• any other business as may be notified by the Central Government in this behalf; and

• the total income of the company has been computed,

• without any deduction under the provisions of section 10AA or section 32(1)(IIA) or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section 35AD or section 35CCC or section 35CCD or under any provisions of Chapter VI-A other than the provisions of section 80JJAA or section 80M;
• without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A where such loss or depreciation is attributable to any of the deductions referred to in sub-clause (i).
• by claiming the depreciation under the provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed.

Form

Rule 21AF of Income Tax Rules, 1962 provides for giving option to avail the reduced tax rate under Section 115BAB. The said rule provides that the option to be exercised in accordance with the provisions of sub-section (7) of section 115BAB by a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall be in Form No. 10-ID.

Case law

In Vivrn Foods Private Limited C/o. Rajkumar Mundra, Village-Sarona, Raipur Versus The Income Tax Officer, Ward-1 (2), Raipur (C.G.) - 2025 (7) TMI 515 - ITAT RAIPUR the appellant assessee filed its return of income on 12.11.2024 @ Rs.1.99 crores. The appellant wanted to avail lower tax rate under Section 115BAB. For this purpose, the assessee has to file its income tax return on or before 30.11.2024. The said return was processed and tax has been levied @ 30% for Rs.59.55 lakhs. The assessee indicated in the income tax return that he has opted for tax rate @ 15% under Section 115BAB of the Act. The assessee filed Form No. 10ID on 21.09.2024 for the assessment year 2024-25.

The appellant filed appeal against the assessment order before the ITAT, Raipur Bench, raising the following grounds of appeal-

• Commissioner of Income-tax (Appeals), NFAC has erred in deciding the appeal ex-parte without providing adequate opportunity and without following principals of natural justice.
• the Commissioner of Income-tax (Appeals), NFAC has erred in confirming the disallowance of claim of lower rate of tax under section 115BAB of the Income Tax Act, 1961 and upholding the rejection of Form-10ID by the ld. CPC, Bangalore, without appreciating that the appellant had duly complied with the conditions prescribed under the said section and exercised option in the year of commencement of actual manufacturing activity as per provisions of sub-section (2) read with sub-section (7) of sec.115BAB of the Act.
• The impugned order is bad in law and on facts.

The appellant submitted the following before the ITAT-

• the company was incorporated on 05.06.2020 and it was involved in manufacturing activities.
• since the incorporation, the company has not been involved in any other business operation till date other than the business of manufacturing or production, therefore, the assessee had claimed the benefit of concessional tax rates as per provisions of section 115BAB of the Act. The same was however not allowed by the CPC/A.O.

The ITAT observed that the assessee first filed income tax return for A.Y.2021-22 on 24.02.2022. However, Form 10ID was filed by the assessee on 21.09.2024 electronically which is after due date of first return of income filed on 24.02.2022. The ITAT analysed the provisions of Section 115 BAB of the Act. The ITAT observed that in order to take benefit of the said provision, the assessee needs to file Form 10ID on or before the due date specified as per sub section (1) of Section 139 of the Act for furnishing the return of income for the first assessment year commencing on or after 1st day of April, 2020. the assessee filed first income tax return for A.Y.2021-22 on 24.02.2022  Form 10ID was only filed by the assessee on 21.09.2024 electronically which was after due date from the first return of income filed.

The ITAT held that since the mandate of the provision is not complied with, therefore, the CPC/A.O. had rightly denied the benefit of concessional tax rate to the assessee as per Section 115BAB of the Act. The quasi-judicial authorities while interpreting fiscal statutes cannot interpret the provision in a way other than the way it is provided in the statute itself. The ITAT found that the quasi-judicial authorities while interpreting fiscal statutes cannot interpret the provision in a way other than the way it is provided in the statute itself.