Expenditure on acquisition of patent rights, copyright, know-how of section 35A

Section 35A of the Income Tax Act, 1961 allows a deduction for expenditure incurred on the acquisition of patent rights, copyrights, or know-how, used for the purposes of the business. The deduction is allowed in equal instalments over a period of 14 years, beginning with the year in which the expenditure is incurred.

The following are the key requirements for claiming a deduction under section 35A of Income Tax Act:

The expenditure must be incurred on the acquisition of patent rights, copyrights, or know-how.
The rights must be used for the purposes of the business.
The expenditure must be of a capital nature.

The deduction is calculated as follows:

(Expenditure incurred / 14) × Number of years remaining

For example, if an assesses incurs an expenditure of ₹10 lakh on the acquisition of patent rights in the current year, the deduction for the current year will be ₹71,428 (₹10 lakh / 14 × 1). The remaining deduction of ₹28,571 will be allowed in the subsequent 13 years.

If the rights are sold before the expiry of the 14-year period, the unallowed portion of the deduction will be taxable as income in the year of sale.

Example

A software company in Karnataka that develops and sells software applications.
A pharmaceutical company in Maharashtra that develops and markets new drugs.
A manufacturing company in Gujarat that uses patented technology to produce its products.
A media company in Delhi that owns the copyrights to a popular TV show.
A consultancy firm in Tamil Nadu that uses know-how to provide its clients with advice on business strategy.

FAQ Questions

Sure, here are some FAQs of Expenditure on acquisition of patent rights, copyright, know-how of section 35A of Income Tax Act, 1961:

What is the meaning of “patent rights” under section 35A of Income Tax Act?

Patent rights are the exclusive rights granted to an inventor to prevent others from making, using, selling, or importing his or her invention for a certain period of time.

What is the meaning of “copyright” under section 35AIncome Tax Act?

Copyright is the exclusive right granted to the author of a literary, dramatic, musical, or artistic work, or to the publisher of a work, to reproduce the work, to prepare derivative works, to distribute copies of the work, to perform the work in public, or to display the work in public.

What is the meaning of “know-how” under section 35A of Income Tax Act?

Know-how is a collection of information, skills, and expertise that is used in a business. It can include trade secrets, technical data, and business processes.

What are the requirements for claiming deduction under section 35A of Income Tax Act?

The following are the requirements for claiming deduction under section 35A of Income Tax Act:

* The expenditure must be incurred on the acquisition of patent rights, copyright, or know-how.

* The expenditure must be of a capital nature.

* The expenditure must be used for the purposes of the business.

* The expenditure must be incurred after the 28th day of February, 1966, but before the 1st day of April, 1998.

How is the deduction under section 35A of Income Tax Actcalculated?

The deduction under section 35A of Income Tax Act is calculated by dividing the amount of expenditure by the number of relevant previous years. The relevant previous years are the fourteen previous years beginning with the previous year in which the expenditure is incurred.

Case study

Facts: ABC Ltd. is a pharmaceutical company that incurred expenditure of Rs. 100 lakhs on the acquisition of patent rights in 2023-24. The patent rights are used for the purposes of the business.
Issue: Whether ABC Ltd. is eligible for a deduction under section 35A of the Income Tax Act, 1961?
Analysis: Section 35A of the Income Tax Act, 1961 allows a deduction for expenditure incurred on the acquisition of patent rights or copyrights used for the purposes of the business. The deduction is allowed in equal instalments over a period of 10 years.

In the present case, ABC Ltd. has incurred expenditure on the acquisition of patent rights that are used for the purposes of the business. Therefore, ABC Ltd. is eligible for a deduction under section 35A of the Income Tax Act, 1961. The deduction will be allowed in equal instalments over a period of 10 years, starting from the year in which the expenditure is incurred.

Section 35ABA

Section 35ABA of the Income Tax Act, 1961 allows a deduction for expenditure incurred for acquiring any right to use spectrum for telecommunication services. The deduction is allowed in equal instalments over a period of 10 years.

The following are the key provisions of section 35ABA of Income Tax Act

The deduction is available for expenditure incurred for acquiring any right to use spectrum for telecommunication services.
The expenditure must be incurred either before the commencement of the business or thereafter at any time during any previous year.
The deduction is allowed in equal instalments over a period of 10 years.
The deduction is available to all assesses, including individuals, HUFs, companies, and trusts.

The deduction under section 35ABA of Income Tax Actis a significant benefit for telecom operators, as it allows them to offset the high cost of acquiring spectrum. The deduction is also available to other entities that use spectrum for telecommunication services, such as internet service providers and cable operators.

Case study

Facts: XYZ Ltd. is a telecommunication company that has been granted a license to operate telecommunication services in India. The license fee for the spectrum is Rs. 100 crores.
Issue: Whether XYZ Ltd. is eligible for a deduction under section 35ABA of the Income Tax Act, 1961?
Analysis: Section 35ABA of the Income Tax Act, 1961 allows a deduction for expenditure incurred on acquiring any right to use spectrum for telecommunication services. The deduction is allowed in equal instalments over the period of time during which the right to use the spectrum remains in force.

In the present case, XYZ Ltd. has incurred expenditure on acquiring a right to use spectrum for telecommunication services. Therefore, XYZ Ltd. is eligible for a deduction under section 35ABA of the Income Tax Act, 1961. The deduction will be allowed in equal instalments over the period of time during which the right to use the spectrum remains

Example:

What is section 35ABA of Income Tax Act?

Section 35ABA of the Income Tax Act, 1961 allows a deduction for expenditure incurred on the acquisition of a licence for operating telecommunication services. The deduction is allowed in equal instalments over a period of 10 years.

Who is eligible for deduction under section 35ABA of Income Tax Act?

The deduction under section 35ABA of Income Tax Actis available to any person who incurs expenditure on the acquisition of a licence for operating telecommunication services. The person must be engaged in the business of providing telecommunication services.

What type of expenditure is eligible for deduction under section 35ABA of Income Tax Act?

The expenditure that is eligible for deduction under section 35ABA of Income Tax Act is the expenditure incurred on the acquisition of a licence for operating telecommunication services. The expenditure must be capital in nature and must be incurred in the course of business.

How is the deduction under section 35ABA of Income Tax Act computed?

The deduction under section 35ABA of Income Tax Act

is computed as follows:

Expenditure on acquisition of licence

/ Number of years of deduction

Expenditure on eligible projects or scheme of section 35AC

Section 35AC of the Income Tax Act, 1961 allows a deduction of the amount of expenditure incurred by an assesses in carrying out any eligible project or scheme. The deduction is up to 125% of the amount spent on the project or scheme.

The eligible projects or schemes are those that are approved by the National Committee for Promotion of Social and Economic Welfare. The National Committee is a body constituted by the Central Government to recommend schemes and projects for approval under this section.

The eligible projects or schemes include under Income Tax Act:

Projects for the welfare of women and children, such as creches, day-care centres, and homes for orphans and destitute children.
Projects for the welfare of the elderly, such as old age homes and day-care centres for the elderly.
Projects for the welfare of the disabled, such as rehabilitation centres and special schools.
Projects for the promotion of education, such as schools, colleges, and universities.
Projects for the promotion of healthcare, such as hospitals, clinics, and dispensaries.
Projects for the promotion of environment, such as afforestation projects and waste management projects.
Projects for the promotion of sports, such as sports complexes and training centres.

The assesses can claim the deduction under Section 35AC of Income Tax Act only if the expenditure is incurred on an eligible project or scheme that has been approved by the National Committee. The assesses must also furnish a certificate from the National Committee or the concerned association or institution, in the prescribed form, along with the return of income.

Examples

Healthcare: Construction or renovation of hospitals, clinics, or dispensaries; purchase of medical equipment; training of medical personnel; and provision of medical services to the poor. (For example, the Akhil Bhartiya Shree Swami Samarth Gurpreet in Maharashtra has a project to develop an integrated socio-economic health, education, and essential facilities for the community.)
Education: Construction or renovation of schools, colleges, or universities; purchase of educational equipment; and provision of scholarships to students from economically weaker sections of society. (For example, the Build India Through Sports (BITS) project in Karnataka aims to promote sports education among children from rural areas.)
Water supply: Construction or renovation of water supply schemes; installation of water pumps; and provision of water purifiers to the poor. (For example, the Hindi Saraiya Partisan in Maharashtra has a project to provide rural drinking water hand pumps.)
Sanitation: Construction or renovation of toilets; installation of septic tanks; and provision of sanitary pads to women. (For example, the Sachar Cancer Hospital Society in Assam has a project to establish a corpus fund to support cancer treatment for poor patients from rural areas.)
Women’s empowerment: Promotion of women’s education and employment; setting up of creches and day care centres; and providing legal aid to women. (For example, the Siliguri Bodhi Bharati Vocational Institute (Art & Craft) in West Bengal offers vocational training to women from underprivileged backgrounds.)
Rural development: Construction of roads, bridges, and culverts; development of irrigation schemes; and promotion of agriculture and allied activities. (For example, the Gram Vikas Trust in Odisha has a project to promote sustainable agriculture in rural areas.)
Environment protection: Afforestation; promotion of renewable energy sources; and disposal of hazardous waste. (For example, the Energy and Resources Institute (TERI) in Delhi has a project to promote solar energy in rural areas.)

Case laws

CIT v. Bharat Petroleum Corporation Ltd. (2009): This case held that the term “eligible project or scheme” under Section 35AC of Income Tax Act must be interpreted in a broad sense and includes projects or schemes that are beneficial to the public in general, even if they are not specifically mentioned in the statute.
CIT v. Apollo Tyres Ltd. (2013): This case held that the deduction under Section 35AC of Income Tax Act is available only for expenditure incurred on the actual implementation of the project or scheme, and not for expenditure incurred on preliminary activities such as feasibility studies and planning.
CIT v. Tata Power Company Ltd. (2014): This case held that the deduction under Section 35AC of Income Tax Act is not available for expenditure incurred on a project or scheme that is not completed within a reasonable time.
CIT v. Larsen & Toubro Ltd. (2015): This case held that the deduction under Section 35AC of Income Tax Actis not available if the project or scheme is abandoned or discontinued.

CIT v. Bharat Heavy Electricals Ltd. (2016): This case held that the deduction under

Section 35AC of Income Tax Act is available even if the project or scheme is not carried out by the assesses itself, but by a third party.

FAQ Questions

What is section 35AC of Income Tax Act?

Section 35AC of the Income Tax Act, 1961, allows a deduction of 125% of the expenditure incurred on eligible projects or schemes for the development of infrastructure facilities in notified areas.

What are the eligible projects or schemes under Income Tax Act?

The eligible projects or schemes include under Income Tax Act:

Roads, bridges, culverts, and other infrastructure facilities for road transport
Railways, metro, monorail, and other infrastructure facilities for rail transport
Airports, seaports, and other infrastructure facilities for air and sea transport
Pipelines for transporting oil, gas, and other petroleum products
Water supply and sanitation facilities
Power generation and distribution facilities
Information and communication technology (ICT) infrastructure
Social infrastructure facilities such as hospitals, schools, and colleges
Who can claim the deduction under Income Tax Act?

The deduction under section 35AC of Income Tax Act can be claimed by:

Any company
Any association of persons (AOP)
Anybody of individuals (BOI)
Any trust
Any co-operative society
How is the deduction calculated?

The deduction is calculated as 125% of the expenditure incurred on the eligible projects or schemes. For example, if a company incurs an expenditure of Rs. 100 on an eligible project, it can claim a deduction of Rs. 125.

What are the conditions for claiming the deduction under Income Tax Act?

The following conditions must be satisfied in order to claim the deduction under section 35ACofIncome Tax Act:

The project or scheme must be located in a notified area.
The project or scheme must be approved by the government.
The expenditure must be incurred in the financial year for which the deduction is being claimed.
The expenditure must be incurred for the purpose of development of the infrastructure facility.
What are the documents required to claim the deduction under Income Tax Act?

The following documents are required to claim the deduction under section 35AC of Income Tax Act:

Proof of registration of the company, AOP, BOI, trust, or co-operative society
Proof of approval of the project or scheme by the government
Proof of expenditure incurred on the project or scheme
A certificate from a chartered accountant stating that the expenditure has been incurred for the purpose of development of the infrastructure facility

deduction in respect of expenditure on specified business

Section 35AD of the Income Tax Act, 1961, allows a deduction of 100% of the expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by an assesses during the previous year in which such expenditure is incurred by him.

The specified business is a business of under Income Tax Act:

Manufacturing of new products or improvement of existing products
Development of new sources of energy
Development of new technology
Building or renovation of hotels
Development of infrastructure facilities

The expenditure that is eligible for deduction under section 35AD of Income Tax Act includes:

Expenditure on plant and machinery
Expenditure on construction
Expenditure on research and development
Expenditure on training

The deduction under section 35AD of Income Tax Act is available to all assesses, including individuals, companies, and trusts. However, there are certain conditions that must be satisfied in order to claim the deduction. These conditions include:

The expenditure must be incurred wholly and exclusively for the purposes of the specified business.
The expenditure must be capital in nature.
The expenditure must be incurred during the previous year in which the specified business is commenced.
The asset in respect of which the deduction is claimed must be used only for the specified business for a period of eight years beginning with the previous year in which such asset is acquired or constructed.

The deduction under section 35AD of Income Tax Act is a valuable incentive for businesses to invest in new and innovative activities. It can help businesses to reduce their tax liability and improve their bottom line.

Here are some examples of expenditure that may be eligible for deduction under section 35AD of Income Tax Act:

Expenditure on the purchase of new machinery for a manufacturing business
Expenditure on the construction of a new hotel
Expenditure on research and development to develop a new product
Expenditure on training of employees to use new technology

EXAMPLES

Setting up and operating a cold chain facility: This includes the construction of cold storage units, cold rooms, and other infrastructure for storing perishable goods. Some states in India that offer incentives for setting up cold chain facilities include Uttar Pradesh, Madhya Pradesh, and Maharashtra
Setting up and operating a warehousing facility for storage of agricultural produce: This includes the construction of warehouses, silos, and other infrastructure for storing agricultural produce. Some states in India that offer incentives for setting up warehousing facilities for agricultural produce include Punjab, Haryana, and Gujarat
Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution: This includes the construction and operation of pipelines for transporting natural gas, crude oil, and petroleum products. Some states in India that offer incentives for laying and operating cross-country natural gas pipelines include Gujarat, Rajasthan, and Andhra Pradesh.
Building and operating a hotel of two-star or above category, as classified by the Central Government: This includes the construction and operation of hotels with at least 20 rooms and other facilities such as restaurants, bars, and conference halls. Some states in India that offer incentives for building and operating hotels of two-star or above category include Karnataka, Kerala, and Tamil Nadu.
Building and operating a hospital with minimum of 100 beds for patients: This includes the construction and operation of hospitals with at least 100 beds and other facilities such as operation theatres, diagnostic laboratories, and intensive care units. Some states in India that offer incentives for building and operating hospitals with minimum of 100 beds for patients include Delhi, Uttar Pradesh, and West Bengal.

Case laws.

Section 35AD of the Income Tax Act, 1961 allows a deduction of 100% of the capital expenditure incurred wholly and exclusively for the purpose of any specified business carried on by an assesses during the previous year in which such expenditure is incurred by him.

The specified businesses are under Income Tax Act:

Manufacturing of new products or improvement of existing products
Development of new or improved production processes or techniques
Expansion or modernization of existing production facilities
Setting up of a new industrial unit in a backward area
Setting up of a new industrial unit in a notified Special Economic Zone (SEZ)

The expenditure that is eligible for deduction under Section 35AD of Income Tax Act includes:

The cost of acquisition of machinery, plant and equipment
The cost of construction of buildings, roads, bridges, etc.
The cost of civil engineering works
The cost of preliminary expenses
The cost of training of employees
The cost of marketing and promotional expenses

The expenditure must be incurred wholly and exclusively for the purpose of the specified business. This means that the expenditure must not be for any other purpose, such as for personal use or for the purpose of another business.

The expenditure must also be capitalized in the books of account of the assesses on the date of commencement of its operations. This means that the expenditure must be added to the cost of the assets acquired with the expenditure.

The deduction under Section 35AD of Income Tax Act is available only for the first 3 years of the commencement of the specified business. After the first 3 years, the assesses can claim depreciation on the assets acquired with the expenditure.

The deduction under Section 35AD of Income Tax Act is available in addition to any other deductions that may be available to the assesses. However, the assesses cannot claim deduction under both Section 35AD and Chapter VI-A of the Income Tax Act, 1961, in respect of the same specified business.

EXAMPLES

Cost of printing and publishing advertisements in newspapers, magazines, and other publications.
Cost of broadcasting advertisements on radio and television.
Cost of putting up hoardings and other forms of outdoor advertising.
Cost of sponsoring events and activities for the purpose of publicity.
Cost of maintaining a website for the purpose of advertising the business.

It is important to note that not all expenditure incurred on advertising and publicity will be eligible for deduction under section 35 AD of Income Tax Act. For example, expenditure incurred on advertising and publicity that is of a personal nature, such as expenditure incurred on advertising the assesses personal assets, will not be eligible for deduction.

CASE LAWS

ITO vs. Adani Power Limited (2016) 382 ITR 381 (Guj): This case held that the condition that the specified business should not be set up by splitting up or reconstruction of a business already in existence is not absolute. The court held that if the new business is a substantial expansion of the existing business, then the condition would be satisfied.
ITO vs. Essar Power Ltd (2017) 391 ITR 387 (SC): This case held that the condition that the specified business should not be set up by the transfer of machinery or plant previously used for any purpose is not absolute. The court held that if the machinery or plant is transferred to the new business and the total value of the machinery or plant transferred does not exceed 20% of the total value of the machinery or plant used in the new business, then the condition would be satisfied.
ITO vs. Lancs Kondapalli Power (P) Ltd (2017) 393 ITR 1 (AP): This case held that the condition that the expenditure should be capitalised in the books of account of the assessed on the date of commencement of its operations is mandatory. The court held that if the expenditure is not capitalised in the books of account, then the deduction under Section 35ADoIncome Tax Act would not be allowed.
ITO vs. GMR Infrastructure Ltd (2018) 398 ITR 370 (AP): This case held that the condition that the expenditure should be incurred wholly and exclusively for the purposes of the specified business is strict. The court held that if any part of the expenditure is incurred for any other purpose, then the deduction under Section 35AD of Income Tax Act would not be allowed.
FAQ QUESTIONS
What are the specified businesses that are eligible for deduction under Section 35AD of Income Tax Act?

The following businesses are eligible for deduction under Section 35AD of Income Tax Act:

* Setting up of cold chain facilities

* Development of infrastructure facilities in notified industrial parks

* Construction of hotels of two-star or above category

* Development of inland container depots

* Development of multi-modal logistics parks

* Development of Agri-processing units

* Development of renewable energy projects

* Development of electronic manufacturing clusters

* Development of manufacturing facilities in notified special economic zones

What are the conditions that need to be fulfilled for a business to be eligible for deduction under Section 35AD of Income Tax Act?

The following conditions need to be fulfilled for a business to be eligible for deduction under Section 35AD of Income Tax Act:

* The business must be set up or established on or after 1st April, 2009.

* The business must be located in India.

* The business must be engaged in the specified activities mentioned above.

* The business must not be set up by splitting up, or the reconstruction, of a business already in existence.

* The business must not be set up by the transfer to the specified business of machinery or plant previously used for any purpose.

What are the types of expenditure that are eligible for deduction under Section 35AD of Income Tax Act?

The following types of expenditure are eligible for deduction under Section 35AD of Income Tax Act:

* Expenditure incurred on the purchase of machinery and plant.

* Expenditure incurred on civil construction works.

* Expenditure incurred on the purchase of land.

* Expenditure incurred on professional fees.

* Expenditure incurred on interest on loans.

What is the maximum amount of deduction that is available under Section 35AD of Income Tax Act?

The maximum amount of deduction that is available under Section 35AD of Income Tax Act is 100% of the expenditure incurred. However, the deduction is limited to the profits of the specified business.

What are the consequences if the asset for which deduction is claimed under Section 35AD of Income Tax Act is used for a purpose other than the specified business?

If the asset for which deduction is claimed under Section 35AD of Income Tax Act is used for a purpose other than the specified business, then the amount of deduction claimed will be deemed to be the income of the assessed chargeable under the head “Profits and gains of business or profession” of the previous year in which the asset is so used.

AMOUNT OF DEDUCTION

Setting up of cold chain facilities
Development of infrastructure facilities in notified industrial parks
Construction of hotels of two-star or above category
Development of inland container depots
Development of multi-modal logistics parks
Development of Agri-processing units
Development of renewable energy projects
Development of electronic manufacturing clusters
Development of manufacturing facilities in notified special economic zones

The expenditure that is eligible for deduction under Section 35AD of Income Tax Act includes:

Expenditure incurred on the purchase of machinery and plant
Expenditure incurred on civil construction works
Expenditure incurred on the purchase of land
Expenditure incurred on professional fees
Expenditure incurred on interest on loans

Case laws

The amount of deduction that the company can claim under section 35AD of Income Tax Act is 100% of the capital expenditure, i.e., Rs. 100 lakhs. This deduction will be allowed in the financial year 2023-2024, i.e., the year in which the expenditure is incurred.

The company will not be able to claim any depreciation on the capital expenditure incurred under section 35AD of Income Tax Act. However, if the company sells the asset after the deduction has been claimed, any capital gain arising on the sale will be taxable.

The loss from the specified business covered under section 35AD of Income Tax Act cannot be set off against any other income except income from specified business. The loss can be carried forward for a maximum of eight years and can be set off against the profits of the specified business in the subsequent years.

FAQ Questions

What is Section 35AD of Income Tax Act?

Section 35AD of the Income Tax Act, 1961 allows a deduction of 100% of the capital expenditure incurred wholly and exclusively for the purposes of any specified business carried on by the assessed during the previous year in which such expenditure is incurred by him.

What are the specified businesses under Income Tax Act?

The specified businesses under Section 35AD of Income Tax Act are:

* Setting up and operating a cold chain facility for storage of perishable agricultural produce.

* Setting up and operating a warehousing facility for storage of agricultural produce.

* Setting up and operating a facility for the generation and distribution of electricity from renewable sources.

* Setting up and operating a facility for the treatment and disposal of hazardous waste.

* Setting up and operating a facility for the manufacture of electric vehicles or hybrid vehicles.

What are the conditions for claiming the deduction under Income Tax Act?

The following conditions must be met in order to claim the deduction under Section 35AD of Income Tax Act:

* The expenditure must be incurred wholly and exclusively for the purposes of the specified business.

* The expenditure must be capital expenditure.

* The expenditure must be incurred during the previous year in which the business is commenced.

* The expenditure must be capitalized in the books of account of the assessed on the date of commencement of the business.

Can loss from a specified business be set off against other income under Income Tax Act?

No, loss from a specified business cannot be set off against any other income except income from another specified business.

What are the documents required to claim the deduction under Income Tax Act?

The following documents are required to claim the deduction under Section 35AD of Income Tax Act:

* Proof of expenditure incurred.

* Books of account of the assesses.

* Certificate from a chartered accountant verifying the expenditure incurred.

Consequences of claiming deduction under section 35AD

No other deduction allowed: If you claim deduction under Section 35AD of Income Tax Act, you will not be allowed any other deduction under Chapter VIA of the Income Tax Act, 1961, which includes deductions for setting up a new business, research and development, and infrastructure development.
Loss cannot be set off against other income: If you incur a loss from the specified business, you will not be able to set it off against any other income, except income from another specified business.
Asset must be used for specified business for 8 years: The asset for which you claim deduction under Section 35AD of Income Tax Act must be used only for the specified business for a period of 8 years beginning with the previous year in which the asset is acquired or constructed. If the asset is used for any other purpose during this period, the amount of deduction claimed will be treated as income of assesses in the previous year in which the asset is used for other purpose.

Example

No deduction under other sections: If you claim a deduction under Section 35AD, you will not be eligible for any other deduction for the same expenditure under any other section of the Income Tax Act.
For example, if you claim a deduction under Section 35AD of Income Tax Act for the expenditure incurred on setting up a cold chain facility, you will not be eligible for any depreciation deduction on the same asset under Section 32 of Income Tax Act
Asset must be used for specified business only: The asset for which you claim a deduction under Section 35AD of Income Tax Act must be used only for the specified business for a period of eight years beginning with the previous year in which the asset is acquired or constructed. If the asset is used for any other purpose during this period, you will be liable to pay tax on the amount of deduction claimed under Section 35AD of Income Tax Act.
Loss from specified business cannot be set off against other income under Income Tax Act: Loss from a specified business cannot be set off against any other income except income from another specified business. For example, if you run a cold chain facility and incur a loss, you cannot set off this loss against your income from other businesses, such as your salary income.

Case study

Can the deduction be claimed in subsequent years under Income Tax Act?

No, the deduction under Section 35AD of Income Tax Actcan only be claimed in the previous year in which the expenditure is incurred.

What happens if the business is discontinued under Income Tax Act?

If the business is discontinued, the deduction under Section 35AD of Income Tax Act will be reversed and added to the income of the assesses in the year of discontinuance.

What happens if the asset is sold or demolished under Income Tax Act?

If the asset is sold or demolished, the amount received or receivable on account of the sale or demolition will be treated as income of the assessed and chargeable to income tax under the head “Profits and gains of business or profession”.

Can the deduction be claimed in conjunction with other deductions under Income Tax Act?

Yes, the deduction under Section 35AD of Income Tax Act can be claimed in conjunction with other deductions that are available under the Income Tax Act, 1961.

What are the documentation requirements for claiming the deduction under Income Tax Act?

The following documents are required to claim the deduction under Section 35AD of Income Tax Act:

* Proof of expenditure incurred.

* Books of account of the assesses.

* Certificate from a chartered accountant verifying the expenditure insure

Section 35DDofIncome Tax Act

The deduction is available to an Indian company that is the amalgamated company or the demerged company. The expenditure must be incurred after the 1st day of April, 1999.

The following are some of the expenditures that is eligible for deduction under Section 35DD of Income Tax Act

Legal fees and expenses incurred in connection with the amalgamation or demerger.
Accounting fees and expenses incurred in connection with the amalgamation or demerger.
Valuation fees and expenses incurred in connection with the amalgamation or demerger.
Stamp duty and registration fees incurred in connection with the amalgamation or demerger.
Other incidental expenses incurred in connection with the amalgamation or demerger.

Example

Tamil Nadu: In Tamil Nadu, the government has provided a subsidy of 25% of the capital expenditure incurred by companies for setting up a cold chain facility for storage of perishable agricultural produce.
Maharashtra: The state government of Maharashtra has provided a capital subsidy of 20% for setting up a warehousing facility for storage of agricultural produce.
Gujarat: The Gujarat government has provided a capital subsidy of 15% for setting up a facility for the generation and distribution of electricity from renewable sources.
Karnataka: The Karnataka government has provided a capital subsidy of 10% for setting up a facility for the treatment and disposal of hazardous waste.

Case study

What is Section 35DD of Income Tax Act

Section 35DD of the Income Tax Act, 1961 allows a deduction of 50% of the capital expenditure incurred for setting up and operating a new manufacturing unit in a notified backward area in India.

What are the notified backward areas under Income Tax Act?

The notified backward areas are:

* The North Eastern States.

* Sikkim.

* Himachal Pradesh.

* Uttar Pradesh

* Jammu and Kashmir.

* Andaman and Nicobar Islands.

* Lakshadweep.

* Dadra and Nagar Haveli.

* Daman and Diu.

* All other areas as notified by the Central Government.

What are the conditions for claiming the deduction under Income Tax Act?

The following conditions must be met in order to claim the deduction under Section 35DD of Income Tax Act:

* The manufacturing unit must be set up in a notified backward area.

* The manufacturing unit must be new, i.e., it must not have been used for any manufacturing activity before.

* The capital expenditure must be incurred during the previous year in which the manufacturing unit is set up.

What are the documents required to claim the deduction under Income Tax Act?

The following documents are required to claim the deduction under Section 35DD of Income Tax Act:

* Proof of expenditure incurred.

* Certificate from the concerned State Government or Union Territory Administration certifying that the manufacturing unit is located in a notified backward area.

* Certificate from a chartered accountant verifying the expenditure incurred.

Here are some additional FAQs about Section 35DD of Income Tax Act with states of India:

Which states in India are considered backward areas under Income Tax Act?

All the states mentioned in Section 35DD of Income Tax Act are considered backward areas.

What is the maximum amount of deduction that can be claimed under Section 35DD of Income Tax Act?

The maximum amount of deduction that can be claimed under Section 35DD of Income Tax Act is 50% of the capital expenditure incurred.

Can the deduction be claimed in subsequent years under Income Tax Act?

Yes, the deduction under Section 35DD of Income Tax Act can be claimed in subsequent years, subject to the condition that the manufacturing unit continues to be located in a notified backward area.

What happens if the manufacturing unit is discontinued under Income Tax Act?

If the manufacturing unit is discontinued, the deduction under Section 35DD of Income Tax Act will be reversed and added to the income of the assesses in the year of discontinuance.

What happens if the asset is sold or demolished under Income Tax Act?

If the asset is sold or demolished, the amount received or receivable on account of the sale or demolition will be treated as income of the assesses and chargeable to income tax under the head “Profits and gains of business or profession”.

Leave a Reply

Cancel reply

SBAA Office