The promoters of the company are law compliant and do not want to be seen on the wrong side of law. However, they are also prudent minded and want…

(a) In a major tax policy initiative, section 115BAB has been inserted w.e.f. A.Y. 2020-21 to provide an option to new manufacturing or electricity generating domestic companies set up and registered on or after 1.10.2019 and commences manufacturing or generating electricity on or before 31.3.2024 for availing concessional income tax rates subject to fulfilment of certain conditions contained thereunder like non-availability of profit-linked deductions and investment-linked tax deduction under the Act, non-availability of deduction for contribution to research and development, additional depreciation etc. Section 115BAB provides for concessional rate of tax @15% (plus surcharge@10% plus HEC@4%). The option for section 115BAB has to be exercised in the very first year in which the eligible company is set up, failing which it cannot exercise such option in the future years. However, once the company exercises such option under 115BAB, as the case may be, in a year, it would continue to be governed by the special provisions u/s 115BAB thereafter and cannot opt for regular provisions in any subsequent year. It may be noted that companies exercising option under section 115BAB are not liable to minimum alternate tax under section 115JB. The following are the conditions specified under section 115BAB: (a) the company has been set-up and registered on or after the 1.10.2019, and has commenced manufacturing or production of an article or thing on or before the 31.3.2024 and, (i) the business is not formed by splitting up, or the reconstruction, of a business already in existence: (ii) 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 - (A) such machinery or plant was not, at any time previous to the date of the installation used in India; (B) such machinery or plant is imported into India from any country outside India; and (C) 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. Further, where 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 the machinery or plant or part so transferred does not exceed 20% of the total value of the machinery or plant used by the company, then, the condition specified that the company does not use any machinery or plant previously used for any purpose would be deemed to have been complied with. (b) 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 referred to in clause (b) shall not include business of,— (i) development of computer software in any form or in any media; (ii) mining; (iii) conversion of marble blocks or similar items into slabs; (iv) bottling of gas into cylinder; (v) printing of books or production of cinematograph film; or (vi) any other business as may be notified by the Central Government in this behalf; and (c) the total income of the company has to be computed - (i) without any deduction under the provisions of section 10AA or section 32 (1) (iia) or section 33AB or section 33ABA or section 35 (1) (ii) /(iia)/ (iii) or section 35(2AA) or section 35(2AB) 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; (ii) 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) . (iii) by claiming the depreciation under the provision of section 32 determined in such manner as may be prescribed. However, additional depreciation u/s 32 (1) (iia) cannot be claimed. In the present case, company is eligible to opt for concessional tax rate of 15% (plus surcharge@ 10% plus HEC @ 4%), since it satisfies the following condition - (1) It is a company registered after 1.10.2019 and has started production on or before 31.3.2024. (2) Its business is not formed by splitting or reconstruction of business already in existence. (3) Although it has used plant and machinery previously used, it falls within overall cap of 20% stipulated u/s 115BAB. The total value of plant and machinery used by the company is 10.65 crores. However, value of machinery previously used is only - 2.00 crore which is 18.78% of total value of plant and machinery. Hence, this newly set up domestic company satisfies this criterion also. (4) The company is engaged in business of manufacturing of an article or thing and research in relation to it. (4) The company’s business does not fall into prohibited categories. (5) The company has not taken benefit of other beneficial provisions as listed out under section 115BAB. (6) The company has to exercise the option by filing Form 10-ID by due date of filing first return of income under section 139 for A.Y. 2024-25.