Income-tax Act,1961
Act No : 43
Section :
Expenditure on scientific research 2.
1[35. Expenditure on scientific research 2. (1)In respect of expenditure on scientific research, the following deductions shall be allowed- (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. 2[Explanation.-Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary [as defined in Explanation 2 below sub-section (5) of section 40A] to an employee engaged in such scientific research or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced;] (ii) any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research: Provided that such association, university, college or institution is for the time being approved for the purposes of this ----------------------------------------------------------------------- 1 Reintroduced with modifications by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 3 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4- 1974. ----------------------------------------------------------------------- 1.199 clause by the prescribed authority' 1[by notification in the Official Gazette]; 4[(iii)any sum paid to a university, college or other institution to be used for research in social science or statistical research: Provided that such university, college or institution is for the time being approved for the purposes of this clause by the prescribed authority' by notification' in the Official Gazette;] (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2): 7[Provided that the scientific research association, university, college or other institution referred to in clause (ii) or clause (iii) shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of approval, or continuance thereof, under clause (ii) or, as the case may be, clause (iii): Provided further that the prescribed authority may, before granting approval under clause (ii) or clause (iii), call for such documents (including audited annual accounts) or information from the scientific research association, university, college or other institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the scientific research association, university, college or other institution and that authority may also make such inquiries as it may deem necessary in this behalf: Provided also that any notification issued by the prescribed authority under clause (ii) or clause (iii) shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification.] (2) For the purposes of clause (iv) of sub-section (1),- ---------------------------------------------------------------------- 1 See rule 6 and Form No. 3CF. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to substitution, clause (iii) read as under: "(iii) any sum paid to a university, college or other institution to be used for research in social science or statistical research related to the class of business carried on, being a university, college or institution which is for the time being approved for the purposes of this clause by the prescribed authority by notification in the Official Gazette;" The italicised words were inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 7 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4- 1989. ----------------------------------------------------------------------- 1.200 1[(i) in a case where such capital expenditure is incurred before the 1st day of April, 1967, one-fifth of the capital expenditure incurred in any previous year shall be deducted for that previous year; and the balance of the expenditure shall be deducted in equal instalments for each of the four immediately succeeding previous years; (ia) in a case where such capital expenditure is incurred after the 31st day of March, 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year:] 2[Provided that no deduction shall be admissible under this clause in respect of any expenditure incurred on the acquisition of any land, whether the land is acquired as such or as part of any property, after the 29th day of February, 1984.] Explanation 3[1].-Where any capital expenditure has been incurred before the commencement of the business, the aggregate of the expenditure so incurred within the three years immediately preceding the commencement of the business shall be deemed to have been incurred in the previous year in which the business is commenced. 4[Explanation 2.-For the purposes of this clause,- (a) "land" includes any interest in land; and (b) the acquisition of any land shall be deemed to have been made by the assessee on the date on which the instrument of transfer of such land to him has been registered under the Registration Act, 1908 5 (16 of 1908), or where he has taken or retained the possession of such land or any part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 6 (4 of 1882), the date on which he has so taken or retained possession of such land or part;] (ii) notwithstanding anything contained in clause (i), where an asset representing expenditure of a capital nature 7[incurred before the 1st day of April, 1967,] ceases to be used in a previous year for scientific research related to the business and the value of the asset at the time of the cessation, together with the aggregate of deductions already allowed under clause (i) falls short of the said expenditure, then- (a) there shall be allowed a deduction for that previous year of an amount equal to such deficiency, and (b) no deduction shall be allowed under that clause for that previous year or for any subsequent previous year; (iii) if the asset mentioned in clause (ii) is sold, without having been ---------------------------------------------------------------------- 1 Substituted for clause (i) by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 2 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. 3 ibid. 4 Ibid. 6 Ibid. 7 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. ------------------------------------------------------------------------ 1.201 used for other purposes, in the year of cessation, the sale price shall be taken to be the value of the asset at the time of the cessation; and if the asset is sold, without having been used for other purposes, in a previous year subsequent to the year of cessation, and the sale price falls short of the value of the asset taken into account at the time of cessation, an amount equal to the deficiency shall be allowed as a deduction for the previous year in which the sale took place; (iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under 1[clause (ii) of sub-section (1)) of section 32 for the same 2[or any other] previous year in respect of that asset; (v) where the asset 3[mentioned in clause (ii)] is used in the business after it ceases to be used for scientific research related to that business, depreciation shall be admissible under 4[ clause (ii) of sub-section (1)] of section 32. 5[(2A) Where, 6[, before the 1st day of March, 1984,] the assessee pays any sum 7[being any sum paid with a specific direction that the sum shall not be used for the acquisition of any land or building or construction of any building] to a scientific research association or university or college or other institution referred to in clause (ii) of sub-section (1) 8[or to a public sector company] to be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority' having regard to the social, economic and industrial needs of India, then,- (a) there shall be allowed a deduction of a sum equal to one and onethird times the sum so paid; and (b) no deduction in respect of such sum shall be allowed under clause (ii) of sub-section (1) for the same or any other assessment year.] 10[Explanation.-For the purposes of this sub-section, "public sector company" shall have the same meaning as in clause (b) of the Explanation below sub-section (2B) of section 32A.] 11[(2AA) Where the assessee pays any sum to a National Laboratory 12[or a University or an Indian Institute of Technology] with a specific ---------------------------------------------------------------------- 1 Substituted for "clauses (i), (ii), (iia), (iii) and (vi) of sub- section (1) or under sub-section (1A)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 2 Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1962. 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 4 Substituted for "clauses (i), (ii) and (iii) of sub-section (1)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 5 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4- 1974. 6 Inserted by Finance Act, 1984, w.e.f. 1-4-1984. 7 Inserted by Finance (No. 2) Act, 1983, w.e.f. 1-4-1984. 8 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. 10 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. 11 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. 12 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. ----------------------------------------------------------------------- 1.202 direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority, I then- (a) there shall be allowed a deduction of a sum equal to one and onefourth times the sum so paid; and (b) no deduction in respect of such sum shall be allowed under any other provision of this Act: Provided that every National Laboratory 2[or University or Indian Institute of Technology] desirous of obtaining approval under this subsection shall make an application in the prescribed form and manner to the prescribed authority: Provided further that the prescribed authority may, before granting approval, call for such documents or information from the National Laboratory 3[or the University or the Indian Institute of Technology] as it thinks necessary in order to satisfy itself about the genuineness of the activities relating to scientific research of such Laboratory 4 [or University or Institute, as the case may be]. 5[Explanation.-For the purposes of this section,- (a) "National Laboratory" means a scientific laboratory functioning at the national level under the aegis of the Indian Council of Agricultural Research, the Indian Council of Medical Research, the Council of Scientific and Industrial Research, the Defence Research and Development Organisation, the Department of Electronics, the Department of Bio- Technology or the Department of Atomic Energy and which is approved as a National Laboratory by the prescribed authority in such manner as may be prescribed; (b) "University" shall have the same meaning as in Explanation to clause (ix) of section 47; (c) "Indian Institute of Technology" shall have the same meaning as that of "Institute" in clause (g) of section 3 of the Institutes of Technology Act, 196 1 6 (59 of 1961).]] 7[(2B)(a) Where 8[, before the 1st day of March, 1984,] an assessee has incurred any expenditure (not being in the nature of capital expenditure incurred on the acquisition of any land or building or construction of any building) on scientific research undertaken under a programme approved in this behalf by the prescribed authority having ----------------------------------------------------------------------- 2 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 3 Ibid. 4 Ibid. 5 Substituted by the Finance Act, 1994, w.e.f. 1-4-1995 for the following: 'Explanation.-For the purposes of this sub-section, "National Laboratory" means a scientific laboratory functioning at the national level under the aegis of the Indian Council of Agricultural Research, the Indian Council of Medical Research or the Council of Scientific and Industrial Research and which is approved as a National Laboratory by the prescribed authority in such manner as may be prescribed.' 7 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. 8 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. ----------------------------------------------------------------------- 1.203 regard to the social, economic and industrial needs of India, he shall, subject to the provisions of this sub-section, be allowed a deduction of a sum equal to one and one-fourth times the amount. of the expenditure certified by the prescribed authority to have been so incurred during the previous year. (b)Where a deduction has been allowed under clause (a) for any previous year in respect of any expenditure, no deduction in respect of such expenditure shall be allowed under clause (i) of sub-section (1) or clause (ia) of sub-section (2) for the same or any other previous year. (c)Where a deduction is allowed for any previous year under this subsection in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed in respect of that asset under 1[clause (ii) of sub-section (1)) of section 32 for the same or any subsequent previous year. (d)Any deduction made under this sub-section in respect of any expenditure on scientific research in excess of the expenditure actually incurred shall be deemed to have been wrongly made for the purposes of this Act if the assessee fails to furnish within one year of the period allowed by the prescribed authority for completion of the programme, a certificate of its completion obtained from that authority, and the provisions of sub-section (5B) of section 155 shall apply accordingly.] (3)If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research, the Board shall refer the question to the prescribed authority,2 whose decision shall be final. (4)The provisions of sub-section (2) of section 32 shall apply in relation to deductions allowable under clause (iv) of sub-section (1) as they apply in relation to deductions allowable in respect of depreciation. 3[(5) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company (being an Indian company) any asset representing expenditure of a capital nature on scientific research,- (i) the amalgamating company shall not be allowed the deduction under clause (ii) or clause (iii) of sub-section (2); and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the asset.]] ----------------------------------------------------------------------- 1 Substituted for 'clauses (i), (ii), (iia) and (iii) of sub- section (1) or under sub-section (1A)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. ----------------------------------------------------------------------- 1.204 2. Before allowing the deduction under the section, the Income- tax Officer shall call for from the sponsor/contributor a certificate issued by the research association/ institution certifying inter alia the amount actually paid by the sponsor/contributor to the research programme as approved and mentioned in the notification and also certifying that the total contribution received from all the sponsors/contributors to the research programme as approved received from all the sponsors/contributors do not exceed the cost of the programme, as approved by the prescribed authority. [Circular No. 294, dated 27th February, 1981] 1[35A. Expenditure on acquisition of patent rights or copyrights (1) In respect of any expenditure of a capital nature incurred after the 28th day of February, 1966, on the acquisition of patent rights or copyrights (hereafter, in this section, referred to as rights) used for the purposes of the business, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure. Explanation.-For the purposes of this section,- (i) "relevant previous years" means the fourteen previous years beginning with the previous year in which such expenditure is incurred or, where such expenditure is incurred before the commencement of the business, the fourteen previous years beginning with the previous year in which the business commenced: Provided that where the rights commenced, that is to say, became effective, in any year prior to the previous year in which expenditure on the acquisition thereof was incurred by the assessee, this clause shall have effect with the substitution for the reference to fourteen years of a reference to fourteen years less the number of complete years which, when the rights are acquired by the assessee, have elapsed since the commencement thereof, and if fourteen years have elapsed as aforesaid, of a reference to one year; (ii) "appropriate fraction" means the fraction the numerator of which is one and the denominator of which is the number of the relevant previous years. (2) Where the rights come to an end without being subsequently revived or where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) are not less than the cost of acquisition thereof remaining unallowed, no deduction under sub-section (1) shall be allowed in respect of the previous year in which the rights come to an end or, as the case may be, the whole or any part of the rights is sold or in respect of any subsequent previous year. (3)Where the rights either come to an end without being subsequently revived or are sold in their entirety and the proceeds of the sale (so far as they consist of capital sums) are less than the cost of acquisition thereof remaining unallowed, a deduction equal to such cost remaining unallowed, or, as the case may be, such cost remaining unallowed as reduced by the proceeds of the sale, shall be allowed in respect of the previous year in which the rights come to an end, or, as the case may be, are sold. ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. ----------------------------------------------------------------------- 1.205 (4) Where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) exceed the amount of the cost of acquisition thereof remaining unallowed, so much of the excess, as does not exceed the difference between the cost of acquisition of the rights and the amount of such cost remaining unallowed shall be chargeable to income-tax as income of the business of the previous year in which the whole or any part of the rights is sold. Explanation.-Where the whole or any part of the rights is sold in a previous year in which the business is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year. (5) Where a part of the rights is sold and sub-section (4) does not apply, the amount of the deduction to be allowed under sub-section (1) shall be arrived at by- (a) subtracting the proceeds of the sale (so far as they consist of capital sums) from the amount of the cost of acquisition of the rights remaining unallowed; and (b) dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the rights are sold.] 1[(6) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers the rights to the amalgamated company (being an Indian company),- (i) the provisions of sub-sections (3) and (4) shall not apply in the case of the amalgamating company; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the rights.] 2[35AB. Expenditure on know-how (1) Subject to the provisions of sub-section (2), where the assessee has paid in any previous year any lump sum consideration for acquiring any know-how for use for the purposes of his business, one- sixth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance amount shall be deducted in equal instalments for each of the five immediately succeeding previous years. (2) Where the know-how referred to in sub-section (1) is developed in a laboratory, university or institution referred to in sub-section (2B) of section 32A, one-third of the said lump sum consideration paid in the previous year by the assessee shall be deducted in computing the profits and gains of the business for that year, and the balance amount shall be deducted in equal instalments for each of the two immediately succeeding previous years. ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 2 Inserted by the Finance Act, 1985, w.e.f. 1-4-1986. ---------------------------------------------------------------------- 1.206 Explanation.-For the purposes of this section, "know-how" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto).] 1[35AC. Expenditure on eligible projects or schemes' (1) Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee' for carrying out any eligible project or scheme, the assessee shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year: Provided that a company may, for claiming the deduction under this sub-section, incur expenditure either by way of payment of any sum as aforesaid or directly on the eligible project or scheme. (2) The deduction under sub-section (1) shall not be allowed unless the assessee furnishes along with his return of income a certificate- (a ) 4 where the payment is to a public sector company or a local authority or an association or institution referred to in subsection (1), from such public sector company or local authority or, as the case may be, association or institution; (b) 'in any other case, from an accountant, as defined in the Explanation below sub-section (2) of section 288, in such form, manner and containing such particulars (including particulars relating to the progress in the work relating to the eligible project or scheme during the previous year) as may be prescribed. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub.section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year. Explanation.-For the purposes of this section,- (a) "National Committee" means the Committee constituted by the Central Government, from amongst persons of eminence in public life, in accordance with the rules made under this Act; (b) "'eligible project or scheme" means such project or scheme for promoting the social and economic welfare of, or the uplift of, the public as the Central Government may, by notification7 in the Official Gazette, specify in this behalf on the recommendations of the National Committee.] ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. ---------------------------------------------------------------------- 1.207 1[35B. Export markets development allowance.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989. ] 2[35C. Agricultural development allowance.-Omitted by the Direct Tax ------------------------------------------------------------------------ 1 Prior to the omission, section 35B, as inserted by the Finance Act, 1968, w.e.f. 1-4-1968 and amended by the Finance Act, 1973, w.r.e.f. 1-4-1968; Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4- 1973; Finance Act, 1978, w.e.f. 1-4-1978; Finance Act, 1979, w.e.f. 1- 4-1980; Finance (No. 2) Act, 1980, w.e.f. 1-4-1981 and Finance Act, 1983, w.e.f. 1-4-1983, read as under: "35B. Export markets development allowance.-(1)(a) Where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968 but before the 1st day of March, 1983, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year: Provided that in respect of the expenditure incurred after the 28th day of February, 1973, but before the 1st day of April, 1978, by a domestic company, being a company in which the public are substantially interested, the provisions of this clause shall have effect as if for the words 'one and one-third times", the words "one and one-half times" had been substituted. (b) The expenditure refer-red to in clause (a) is that incurred wholly and exclusively on- (i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business; [(ii) [(iii) (iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities; [(V) [(vi) (vii) travelling outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from, and return to, India; [(viii) * * *] (ix) such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed. Explanation 1.-In this section, "domestic company" shall have the meaning assigned to it in clause (2) of section 80B. Explanation 2.-For the removal of doubts, it is hereby declared that nothing in clause (b) shall be construed to include any expenditure which is in the nature of purchasing and manufacturing expenses ordinarily dubitable to the trading or manufacturing account and not to the profit and loss account. [(1A) * * *] (2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.' 2 Prior to the omission, section 35C, as inserted by the Finance Act, 1968, w.e.f. 1-4-1968 and amended by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976; Finance Act, 1983 and Finance Act, 1984, both w.e.f. 1-4-1984, read as under: "35C. Agricultural development allowance.-(1)(a) Where any company or a cooperative society is engaged in the manufacture or processing of any article or thing which is made from, or uses in such manufacture or processing as raw material, any product of agriculture, animal husbandry, or dairy or poultry farming, and ---------------------------------------------------------------------- 1.208 Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] 1[35CC. Rural development allowance.-Omitted by the Direct Tax Laws ---------------------------------------------------------------------- -> -> has incurred, after the 29th day of February, 1968 but before the 1st day of March, 1984, whether directly or through an association or body which has been approved for the purposes of this section by the prescribed authority any expenditure in the provision of any goods, services or facilities specified in clause (b) to a person (not being a person referred to in clause (b) of sub-section (2) of section 40A) who is a cultivator, grower or producer of such product in India, the company or co-operative society shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incur-red during the previous year. (b) The goods, services or facilities referred to in clause (a) are the following:- (i) fertilizers, seeds, pesticides, concentrates for cattle and poultry feed, tools or implements, for use by such cultivator, grower or producer; (ii) dissemination of information on, or demonstration of, modem techniques or methods of agriculture, animal husbandry, or dairy or poultry farming, or advice on such techniques or methods; (iii) such other goods, services or facilities as may be prescribed. Explanation.-In computing the expenditure which is to be allowed as deduction under this section, the amount, if any, received by the company or cooperative society in consideration of, or as compensation for, such goods, services or facilities shall be deducted. (2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure of the nature specified in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.' 1 Prior to the omission, section 35CC, as inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-9-1977 and amended by the Finance Act, 1983, w.e.f. 1-4-1983 and the Finance Act, 1985, w.e.f. 17-3-1985, read as under: "35CC. Rural development allowance.-(1) Where the assessee, being a company or a co-operative society, incurs any expenditure on any programme of rural development, the assessee shall, in accordance with and subject to the provisions of this section be allowed a deduction of the amount of such expenditure incurred during the previous year: Provided that the approval of the prescribed authority has been obtained by the assessee in respect of such programme before incurring the expenditure: Provided further that the prescribed authority shall not approve any programme unless such programme is a programme falling within any such class or category of programmes of rural development as may be specified by the Central Government in this behalf: Provided also that no programme shall be approved under this section after the 16th day of March, 1985. Explanation.-For the purposes of this sub-section,- (a) "programme of rural development" includes any programme for promoting the social and economic welfare of, or the uplift of, the public in any rural area; (b) "rural area" means any area other than- (i)an area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (ii)an area within such distance, not being more than fifteen kilometres, from the local limits of any municipality or cantonment board referred to in sub- clause (i), as the Central Government may, having regard to the stage of development of such area (including the extent of, and ---------------------------------------------------------------------- 1.209 (Amendment) Act, 1987, w.e.f 1-4-1989.1 1[35CCA. Expenditure by way of payment to associations and institutions for carrying out rural development programmes' 3[(1)] Where an assessee incurs any expenditure by way of payment of any sum- (a) to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved by the prescribed authority;4 or (b) to an association or institution, which has as its object the training of persons for implementing programmes of rural development; 5[or] 6[(C) to a rural development fund set up and notified' by the Central Government in this behalf 8[; or] 9[(d) to the National Urban Poverty Eradication Fund set up and notified by the Central Government in this behalf,] ------------------------------------------------------------------------ -> -> scope for, urbanisation of such area) and other relevant considerations, specify in this behalf by notification in the Official Gazette. (2) Where the expenditure referred to in sub-section (1) results in the acquisition or creation of an asset, being building, machinery, plant or furniture, and the assessee does not divest itself of the ownership of such asset before the end of the previous year, no deduction in respect of such expenditure shall be allowed under sub- section (1) but the assessee shall be entitled to the allowance for depreciation in respect of the asset so acquired or created as if such asset was used for the purposes of the business and the provisions of sections 32, 34, 41 and 43 shall, so far as may be, apply accordingly. (3) No deduction shall be allowed in respect of the expenditure referred to in subsection (1) unless the assessee furnishes, along with the return of income for the assessment year for which the deduction is claimed, a statement of such expenditure in the prescribed form duly signed and verified by an accountant as defined in the Explanation below sub-section (2) of section 288 and setting forth such particulars as may be prescribed. (4) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.' 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. It was earlier omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 35CCA was originally inserted by the Finance Act, 1978, w.e.f. 1-6-1978. 3 Substituted by the Finance Act, 1979, w.e.f. 1-6-1979. 5 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 6 Ibid. 8 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 9 Ibid. ---------------------------------------------------------------------- 1.210 the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year.) 1[(2) The deduction under clause (a) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution referred to in the said clause unless the assessee furnishes a certificate from such association or institution to the effect that- (a) the programme of rural development had been approved by the prescribed authority before the 1st day of March, 1983; and (b) where such payment is made after the 28th day of February, 1983, such programme involves work by way of construction of any building or other structure (whether for use as a dispensary, school, training or welfare centre, workshop or for any other purpose) or the laying of any road or the construction or boring of a well or tube-well or the installation of any plant or machinery, and such work has commenced before the 1st day of March, 1983.] 2[(2A) The deduction under clause (b) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution unless the assessee furnishes a certificate from such association or institution to the effect that- (a) the prescribed authority had approved the association or institution before the 1st day of March, 1983; and (b) the training of persons for implementing any programme of rural development had been started by the association or institution before the 1st day of March, 1983.] 3[(2B) No certificate of the nature referred to in sub-section (2) or subsection (2A) shall be issued by any association or institution unless such association or institution has obtained from the prescribed authority authorisation in writing to issue certificates of such nature.] Explanation.-For the purposes of this section, "programme of rural development" shall have the meaning assigned to it in the Explanation to sub-section (1) of section 35CC. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in subsection (1), deduction shall not be allowed in respect of such expenditure under section 35C or section 35CC or section 80G or any other provision of this Act for the same or any other assessment year.] ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. Prior to substitution, sub-section (2), as amended by the Finance Act, 1979, w.e.f. 1-6-1979, read as under: "(2) The deduction under sub-section (1) shall not be allowed with respect to expenditure by way of payment of any sum to any association or institution, unless such association or institution is for the time being approved in this behalf by the prescribed authority: Provided that the prescribed authority shall not grant such approval for more than three years at a time.' 2 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 3 Ibid. ----------------------------------------------------------------------- 1.211 1[35CCB. Expenditure by way of payment to associations and institutions for carrying out programmes of conservation of natural resources 2[(1) Where an assessee incurs any expenditure by way of payment of any sum- (a) to an association or institution, which has as its object the undertaking of any programme of conservation of natural resources or of afforestation, to be used for carrying out any programme of conservation of natural resources or afforestation approved by the prescribed authority4; or (b) to such fund for afforestation as may be notified5 by the Central Government, the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year.] (2) The deduction -under 6[clause (a) of) sub-section (1) shall not be allowed with respect to expenditure by way of payment of any sum to any association or institution, unless such association or institution is for the time being approved in this behalf by the prescribed authority: Provided that the prescribed authority shall not grant such approval for more than three years at a time. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in subsection (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.] 7[35D. Amortisation of certain preliminary expenses (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),- ----------------------------------------------------------------------- 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. It was earlier omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 35CCB was originally inserted by the Finance Act, 1982, w.e.f. 1-6-1982. 2 Substituted by the Finance Act, 1990, w.e.f. 1-4-1991. Prior to the substitution, subsection (1) read as under: '(1) Where an assessee incurs any expenditure by way of payment of any sum to an association or institution, which has as its object the undertaking of any programme of conservation of natural resources, to be used for carrying out any programme of conservation of natural resources approved by the prescribed authority, the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year. 5 The National Fund for Afforestation and Wastelands Development has been notified for this purpose. 6 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 7 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4- 1971. ------------------------------------------------------------------------ 1.212 (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up a new industrial unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one- tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or operation. 1(2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely:- (a) expenditure in connection with- (i) preparation of feasibility report; (ii) preparation of project report; (iii)conducting market survey or any other survey necessary for the business of the assessee; (iv) engineering services relating to the business of the assessee: Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services refer-red to in this clause is carried out by the assessee himself or by a concern which is for the time being approved in this behalf by the Board; (b) legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business of the assessee; (c) where the assessee is a company, also expenditure- (i) by way of legal charges for drafting the Memorandum and Articles of Association of the company; (ii) on printing of the Memorandum and Articles of Association; (iii)by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956); (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; (d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed. (3) Where the aggregate amount of the expenditure referred to in sub-section (2) exceeds an amount calculated at two and one-half per cent- ---------------------------------------------------------------------- 1.213 (a) of the cost of the project, or (b) where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company, the excess shall be ignored for the purpose of computing the deduction allowable under sub-section (1). Explanation.-In this sub-section,- (a) "cost of the project" means- (i) in a case refer-red to in clause (i) of sub- section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the business of the assessee commences; (ii) in a case referred to in clause (ii) of sub- section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the extension of the industrial undertaking is completed or, as the case may be, the new industrial unit commences production or operation, in so far as such fixed assets have been acquired or developed in connection with the extension of the industrial undertaking or the setting up of the new industrial unit of the assessee; (b) "capital employed in the business of the company" means- (i) in a case referred to in clause (i) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the business of the company commences; (ii) in a case referred to in clause (ii) of sub- section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the extension of the industrial undertaking is completed or, as the case may be, the new industrial unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of the industrial undertaking or the setting up of the new industrial unit of the company; (c) "long-term borrowings" means- (i) any moneys borrowed by the company from Government or the Industrial Finance Corporation of India or the Industrial Credit and 'Investment Corporation of India or any other financial institution which is for the time being approved by the Central Government for the purposes of clause (viii) of subsection (1) of section 36 or any banking institution (not being a financial institution referred to above), or (ii) any moneys borrowed or debt incurred by it in, a foreign country in respect of the purchase outside India of capital plant 1.214 and machinery, where the terms under which such moneys are borrowed or the debt is incurred provide for the repayment thereof during a period of not less than seven years. (4) Where the assessee is a person other than a company or a co- operative society, no deduction shall be admissible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub- section (2) of section 288, and the assessee. furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (5) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation,- (i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place. (6) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in sub-section (2), the expenditure in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year. ---------------------------------------------------------------------- 1.215 1[35E. Deduction for expenditure on prospecting, etc., for certain minerals2 (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, is engaged in any operations relating to prospecting for, or extraction or production of, any mineral and incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2), the assessee shall, in accordance with and subject to the provisions of this section, be allowed for each one of the relevant previous years a deduction of an amount equal to one-tenth of the amount of such expenditure. (2) The expenditure referred to in sub-section (1) is that incurred by the assessee after the date specified in that sub-section at any time during the year of commercial production and any one or more of the four years immediately preceding that year, wholly and exclusively on any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or group of associated minerals: Provided that there shall be excluded from such expenditure. any portion thereof which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insurance moneys realised by the assessee in respect of any property or rights brought into existence as a result of the expenditure. (3) Any expenditure- (i) on the acquisition of the site of the source of any mineral or group of associated minerals referred to in sub- section (2) or of any rights in or over such site; (ii) on the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or (iii) of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 32, shall not be deemed to be expenditure incur-red by the assessee for any of the purposes specified in sub-section (2). (4) The deduction to be allowed under sub-section (1) for any relevant previous year shall be- (a) an amount equal to one-tenth of the expenditure specified in subsection (2) (such one-tenth being hereafter in this sub-section referred to as the instalment); or (b) such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that previous year arising from the commercial exploitation [whether or not such commercial exploitation is as a result of the operations or development referred to in sub-section (2)] of any ----------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4- 1971. ----------------------------------------------------------------------- 1.216 mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated minerals as aforesaid in respect of which the expenditure was incurred, whichever amount is less: Provided that the amount of the instalment relating to any relevant previous year, to the extent to which it remains unallowed, shall be carried forward and added to the instalment relating to the previous year next following and deemed to be part of that instalment, and so on, for succeeding previous years, so, however, that no part of any instalment shall be carried forward beyond the tenth previous year as reckoned from the year of commercial production. (5) For the purposes of this section,- (a) "operation relating to prospecting" means any operation undertaken for the purpose of exploring, locating or proving deposits of any mineral, and includes any such operation which proves to be infructuous or abortive; (b) "Year of commercial production" means the previous year in which as a result of any operation relating to prospecting, commercial production of any mineral or any one or more of the minerals in a group _of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule, commences; (c) "relevant previous years" means the ten previous years beginning with the year of commercial production. (6) Where the assessee is a person other than a company or a co- operative society, no deduction shall be admissible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub- section (2) of section 288, and the assessee furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (7) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation- (i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place. (8) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in sub-section (2), the expenditure in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year.] 1.217
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