Section 115BAB — Tax on Income of New Manufacturing Domestic Companies

Section 115BAB of the Income-tax Act, 1961, provides a concessional tax rate for new domestic manufacturing companies. It applies to companies incorporated on or after October 1, 2019, and commencing manufacturing operations before March 31, 2024. These companies can opt to pay tax at a reduced rate of 15% (plus surcharge and cess) on their total income, provided they do not avail of any specified incentives or deductions under the Act. The significance of this section lies in its aim to boost the manufacturing sector in India by offering a competitive tax rate, thereby encouraging investment and economic growth. The statutory test requires the company to be engaged in manufacturing or production of any article or thing and not to be formed by splitting up or reconstruction of an existing business. The burden of proof lies with the taxpayer to demonstrate compliance with the conditions. In practice, this section is crucial for strategic tax planning for new manufacturing ventures.

Common Litigation Flashpoints

1. Eligibility criteria for the concessional tax rate
2. Interpretation of 'manufacturing or production'
3. Compliance with the commencement of operations deadline
4. Restrictions on availing other tax incentives or deductions

Judgments on Section 115BAB — Tax on Income of New Manufacturing Domestic Companies

• Income Tax Officer (Exemption) vs Wrestling Federation of India — ITAT,
  The proviso to Section 2(15) does not apply if the receipts are incidental to the fulfillment of the charitable objectives and not used as business receipts.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Radhasoami Satsang, Saomi Bagh, Agra vs Commissioner of Income Tax — SC,
  A fundamental aspect permeating through different assessment years, if sustained by not being challenged, should not be changed in a subsequent year without material change.
• Anand Education Society vs Asstt. Director of Income Tax(E) — ITAT,
  The AO must substantiate claims of excessive payments to relatives with evidence of unreasonableness compared to market standards.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.