Section 35AD and Hotel Industry (Income Tax)
Querist :
Anonymous
(Querist) 12 July 2010
This query is : Resolved
We are a Partnership Firm having constructed a Hotel and a Shopping Mall.We have commenced operations of the Hotel in April,2010.
Our questions are :
1. Can we claim deduction of 100% of Capital Expenditure incurred on the Project ?
2. What does Capital Expenditure include ?
3. Do we have to segregate expenditure on Hotel and Mall or is the deduction u/s 35AD applicable to both ?
4. What are the advantages or disadvantages in terms of taxation if we covert the Partnership Firm into a LLP or a Private Company ?
Regards,
A V Vishal
(Expert) 12 July 2010
The Finance Act, 2009 inserted Section 35AD to allow deduction of capital expenditure (other than land, goodwill and financial instrument) incurred by the assessee engaged in the business of setting up and operating cold chain facility, warehousing facility for agriculture produce and laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution / storage.
For giving impetus to the hotel industry, the Finance Bill 2010 proposes to extend the said incentive to assessee who builds and operates a new hotel of two star or above category, provided the assessee commences the operations of the said hotel on or after 1st April, 2010. Such deduction is also subject to the following conditions:
Such business is not set up by splitting up, or the reconstruction, of a business in already in existence.
Such business is not set up by transfer of machinery or plant previously used for any purpose. However the assessee may use imported second hand plant machinery subject to certain specified conditions.
It may be mentioned that Section 35AD introduces the investment linked deductions, wherein, the entire capital expenditure (other than land, goodwill and financial instruments) is eligible for expenditure in the very year in which such expenditure is incurred. Further, set off of the losses of such businesses are not allowed against any other business. The losses arising in this business is not allowed as set off against income under any other source / head of income but is allowed to be carried forward indefinitely for setting off against the profits arising from such business only u/s. 73A of the Act. Inclusion of highly capital intensive industry like Hotel industry would encourage lot of investment in this industry.
Querist :
Anonymous
(Querist) 13 July 2010
Thanks.If the Hotel and the Mall are in the same premises,can the entire Capital Expenditure be claimed as a deduction u/s 35AD ?
Regards,
A V Vishal
(Expert) 13 July 2010
No, the condition is that the section is applicable to the hotel industry, however capital expenditure may be claimed pro rata for the portion of hotel
Querist :
Anonymous
(Querist) 14 July 2010
What are the advantages or disadvantages in terms of taxation if we covert the Partnership Firm into a LLP or a Private Company ?
