Section 80HHB of the Income Tax Act, 1961, provides for a deduction of 50% of profits and gains earned by a resident Indian company. This deduction is applicable to certain businesses engaged in the operation of a ship or aircraft in international traffic. Let’s explore in detail why the correct answer is 50% and why the other options are not correct.

Why the Correct Answer is 50% (Option D):

Section 80HHB is a specific provision in the Indian Income Tax Act that aims to promote and incentivize the operation of ships or aircraft in international traffic. This deduction is intended to support and boost the shipping and aviation industries in India, as they are vital for international trade and transportation.

The deduction allowed under Section 80HHB is 50% of the profits and gains derived from the operation of a ship or aircraft in international traffic. Here’s a breakdown of why the answer is 50%:

1. Legislative Intent:

The legislative intent behind this provision is to encourage Indian companies to engage in international shipping and aviation activities. By offering a deduction of 50% of the profits and gains from such operations, the government aims to promote investment in these sectors.

2. Specific Nature of Deduction:

Section 80HHB is explicitly related to the profits and gains from international shipping and aviation operations. It does not apply to other businesses or sectors. Therefore, the deduction rate is tailored to the unique requirements and challenges of these industries.

3. Benefit to Resident Indian Companies:

The deduction under Section 80HHB is available to resident Indian companies engaged in international shipping or aviation. It is not applicable to other entities or individuals. This further emphasizes the industry-specific nature of the provision.

Now, let’s explain why the other options are not correct one by one:

Option A: 65%

This option is not correct because Section 80HHB clearly specifies a deduction rate of 50%. There is no provision in the Income Tax Act for a 65% deduction under this section. Any such rate would be inconsistent with the legislative intent of this provision and would not align with the established tax laws.

Option B: 60%

Similarly, the 60% deduction mentioned in this option is not accurate. The correct deduction rate under Section 80HHB is 50%, as explicitly provided in the Income Tax Act. Deviating from this rate would require an amendment to the law, which has not occurred.

Option C: 55%

Option C suggests a deduction rate of 55%, which is also not in line with the provisions of Section 80HHB. The law specifies a 50% deduction for profits and gains from the operation of ships or aircraft in international traffic. Any change in this rate would necessitate an amendment to the Income Tax Act, and until such an amendment occurs, the correct rate remains 50%.

In summary, the correct answer to the question is 50%, as provided under Section 80HHB of the Indian Income Tax Act. This deduction is aimed at promoting and supporting the international shipping and aviation industries by offering a 50% deduction on the profits and gains earned by resident Indian companies engaged in these specific activities.

The other options (65%, 60%, and 55%) are not correct because they do not align with the existing tax law and legislative intent behind Section 80HHB. Any change in the deduction rate would require an official amendment to the Income Tax Act.