Prakhar Softech Services Ltd.
Article Dated 26th December, 2023

Analysis of Section 33AB and 33ABA of the Income Tax Act

Section 33AB: Tea development account, coffee development account, and rubber development account:

Section 33AB of the Income Tax Act is a provision designed to facilitate deductions for businesses engaged in the cultivation and manufacturing of tea, coffee, or rubber in India. The deduction is allowed in this section if the assessee deposits any amount in National Bank in a special account.

 This section allows the assessee to claim a deduction equal to either:

  • Amount deposited to special account or;

  • 40% of the profits of the business (before allowing this deduction)
    Whichever is lower.

Some points to be noted are:

  1. The deposit shall be made upto the due date of return filing or 6 months from the end of previous year, whichever is earlier.

  2. The deduction is subject to the condition that the business accounts are audited by a qualified Chartered Accountant u/s 44AB or any other law and furnish a report by such CA in form 3AC/AD before the due date specified u/s 44AB.

  3. It is important to note that this deduction must be claimed before offsetting any losses carried forward.

  4. Once a deduction is claimed for a deposited amount in a specific year, no further deductions are permitted for the same amount in subsequent years.

  5. If the assessee is a firm or any association, the deduction isn`t allowed for individual partners or members.

Withdrawal and utilisation of deposited amount:

The deposited amount shall be utilised only for purposes specified by the Tea Board or the Coffee Board or the Rubber Board. Also, if any amount is withdrawn for utilising for specified purposes, the same amount shall be utilised in the year of withdrawal. If such amount is not utilised for the specified purposes or not utilised in year of withdrawal, then the deduction allowed earlier under this section shall be withdrawn, and such amount shall become taxable.

Therefore, withdrawn amount shall be utilised in accordance with approved scheme and not utilising in accordance to such scheme or not utilising in the year of withdrawal shall make the amount taxable. But the question arises what will be the treatment of such deposits in case of closure/dissolution of the business or death of the assessee? The answer lies in the following table, that if the amount is withdrawn in the following cases, such withdrawal shall be treated accordingly:

S.no

Case

Treatment

1

Closure of the Business

Taxable in the year of withdrawal

2

Dissolution of a Firm

3

Death of the Assessee

Not Taxable even if withdrawn and not utilised

4

Partition of HUF

5

Liquidation of the company

Further, if such amount is utilised in accordance to scheme approved by the boards, then also, if such amount is utilised for the following purposes shall become taxable under the head PGBP i.e., the deduction will be withdrawn:

  • Any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of a guest-house.

  • any office appliances (not being computers)

  • Plant and machinery on which 100% deduction is already allowed under the head PGBP.

It is noteworthy that when the amount withdrawn is utilised for any revenue expense, then such expense shall not be allowed as deduction under the head PGBP. Further, if such amount withdrawn is utilised to acquire a plant and machinery, in that case depreciation on such plant and machinery shall be allowed.

Furthermore, if an asset acquired under the scheme is sold or transferred within eight years, a part of the cost related to the deduction is deemed as profits. For example, if Rs.10 lakhs are withdrawn from the account, and withdrawn amount is utilised in purchase of machinery costing 25 lakhs, then in the case of transfer of such machinery within 8 years of its acquisition, the amount of Rs.10 lakhs shall be added to PGBP.

Although if such asset is transferred even within 8 years to the government or, in the case of business succession from a firm to a company, the amount shall not be added back to PGBP.

Section 33ABA: Site Restoration Fund:

Section 33ABA of the Income Tax Act is designed for businesses engaged in the prospecting, extraction, or production of petroleum or natural gas in India, with a prerequisite of a government agreement.

 This section introduces the concept of a "Site Restoration Fund" to facilitate the restoration of sites affected by such activities. Businesses falling under the purview of this section are eligible for a deduction, provided certain conditions are met. The section outlines two key types of accounts: a "special account" with the State Bank of India and a "Site Restoration Account." These accounts are to be used in accordance with schemes approved by the Government of India in the Ministry of Petroleum and Natural Gas.

The deduction is allowed if any amount is deposited in abovementioned accounts. Although the deduction allowable is:

  • Amount deposited to such abovementioned accounts or;

  • 20% of the profits of the business (before allowing this deduction)
    Whichever is lower.

Some points to be noted are:

  1. The deposit shall be made upto the end of the previous year.

  2. The deduction is subject to the condition that the business accounts are audited by a qualified Chartered Accountant u/s 44AB or any other law and furnish a report by such CA in form 3AC/AD before the due date specified u/s 44AB.

  3. It is important to note that this deduction must be claimed before offsetting any losses carried forward.

  4. Once a deduction is claimed for a deposited amount in a specific year, no further deductions are permitted for the same amount in subsequent years.

  5. If the assessee is a firm or any association, the deduction isn`t allowed for individual partners or members.

Withdrawal and utilisation of deposited amount:

The deposited amount shall be utilised only for purposes specified by the Ministry of Petroleum and Natural Gas. Also, if any amount is withdrawn for utilising for specified purposes, the same amount shall be utilised in the year of withdrawal. If such amount is not utilised for the specified purposes or not utilised in year of withdrawal, then the deduction allowed earlier under this section shall be withdrawn, and such amount shall become taxable.

Therefore, withdrawn amount shall be utilised in accordance with approved scheme and not utilising in accordance to such scheme or not utilising in the year of withdrawal shall make the amount taxable. But the question arises what will be the treatment of such deposits in case of closure/dissolution of the business or death of the assessee? The answer lies in the following table, that if the amount is withdrawn in the following cases, such withdrawal shall be treated accordingly:

S.no

Case

Treatment

1

Closure of the Business

Any amount payable to the Central Government shall be exempt and any other amount shall be taxable.

2

Dissolution of a Firm

3

Death of the Assessee

4

Partition of HUF

5

Liquidation of the company

Further, if such amount is utilised in accordance to scheme approved by the Ministry, then also, if such amount is utilised for the following purposes shall become taxable under the head PGBP i.e., the deduction will be withdrawn:

  • Any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of a guest-house.

  • any office appliances (not being computers)

  • Plant and machinery on which 100% deduction is already allowed under the head PGBP.

It is noteworthy that when the amount withdrawn is utilised for any revenue expense, then such expense shall not be allowed as deduction under the head PGBP. Further, if such amount withdrawn is utilised to acquire a plant and machinery, in that case depreciation on such plant and machinery shall be allowed.

Furthermore, if an asset acquired under the scheme is sold or transferred within eight years, a part of the cost related to the deduction is deemed as profits. For example, if Rs.10 lakhs are withdrawn from the account, and withdrawn amount is utilised in purchase of machinery costing 25 lakhs, then in the case of transfer of such machinery within 8 years of its acquisition, the amount of Rs.10 lakhs shall be added to PGBP.

Although if such asset is transferred even within 8 years to the government or, in the case of business succession from a firm to a company, the amount shall not be added back to PGBP.

Both these sections encourage investments in the specified sectors by providing deductions for amounts deposited according to approved schemes. However, they comes with various conditions and restrictions to ensure proper utilization and compliance with the specified guidelines.

CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.

He is also socially active on LinkedIn at linkedin.com/in/capranayjain

CA Pranay Jain
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