Section 80JJAA: Amendment in Deduction of wages of new worker in Budget 2013
Crux from Budget 2013 regarding deduction respect of wages for new regular workmen employed u/s 80JJAA. Now only blue collared employees can bring fortune of additional deductions
Existing provisions of section 80JJAA
The existing provisions contained in section 80JJAA provides for deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by an Indian company in its industrial undertaking engaged in manufacture or production of article or thing. The deduction is available for three assessment years including the assessment year relevant to the previous year in which such employment is provided.
Amendment proposed by Finance Bill, 2013
Finance Bill, 2013 proposes a total change in the eligibility criteria to whom such deduction will be made available, the existing provision was interpreted in a wide manner and was being used for claiming deduction by all industrial undertaking; whereas the provision was inserted by the Finance (No. 2) Act, 1998 to make available deduction only for employment of blue collared jobs. To overcome this misuse, section 80JJAA was amended with effect from 1.4.2014, which is provided as under:
(i) for sub-section (1), the following sub-section shall be substituted, namely:—
“(1) Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from the manufacture of goods in a factory, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent. of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.”
(ii) in sub-section (2), for clause (a), the following clause shall be substituted, namely:—
“(a) if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company;”;
(iii) in the Explanation,—
(a) in clause (i), in the proviso, for the word “undertaking” at both the places where it occurs, the word “factory” shall be substituted;
(iv) after clause (iii), the following clause shall be inserted, namely:—
‘(iv) “factory” shall have the same meaning as assigned to it in clause (m) of section 2 of the Factories Act, 1948.’.
The proposed amendment if carefully examined has deleted the words ‘any industrial undertaking engaged in the manufacture or production of article or thing’ and been replaced by ‘the manufacture of goods in a factory’. This clearly demonstrates that the section 80JJAA is limited and purported to make available deductions only in respect of employment of new workmen in a factory engaged in manufacturing.
(c) Impact of amendment:
The tax incentive under section 80JJAA was intended for employment of blue collared employees in the manufacturing sector whereas in practice, it is being claimed for other employees in other sectors also. It is, therefore, proposed to amend the provisions of section 80JJAA so as to provide that the deduction shall be available to an Indian Company deriving profits from manufacture of goods in its factory. The deduction shall be of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.
It is also proposed to provide that the deduction under this section shall not be available if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company.
If one examines the Memorandum to the Finance (No. 2) Act, 1998 when the said section was inserted, there is no such object. The object of inserting this section then was to encourage the employers to further generate more employment opportunities. On examining memorandum of objects and reasons of the Finance (No.2) Act, 1998 and the present Finance Bill, it is apparent that the proposed amendments are not clarificatory.
No doubts, the said amendment has not been given retrospective effect, to that extent the position of existing assessee who has claimed the benefit of this deduction will not be distorted by the proposed amendment. The proposed amendment substantially limits the deduction only to that assessee who is running a factory as defined under the Factories Act, 1948 and is engaged in manufacturing of goods.
This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.