What is Section 35DD?
Where an assessee, being an Indian company, incurs any expenditure on or after 1-4-1999 wholly and exclusively for the purpose of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to 1/5th of such expenditure for each of five successive previous years beginning with the previous year in which the amalgamation or demerger takes place.
No deduction shall be allowed in respect of the expenditure mentioned above under any other provision of Section 35DD of the Indian Income Tax Act.
Who should incur and claim amortisation expenditure under section 35DD?
This is a concept of tax planning. If the expenditure on amalgamation is incurred by the amalgamating company, it will be able to claim 1/5th expenditure in the year of amalgamation but the balance 4/5th expenditure will not be allowed as deduction to the amalgamated company as it has ceased to exist.
On the other hand, if such expenditure is incurred by the amalgamated company, it will be eligible for deduction over a period of 5 years as it continues to exist.
However, in case of demerger, this problem does not arise, as in this case both the demerged company and resulting company continue to exist.
Where in a previous year business reorganization (amalgamation or demerger) of a cooperative bank takes place, the deduction under this section for the year in which business reorganization took place shall be allowed to the predecessor cooperative bank as proportionate deduction for the unexpired period. Further, in the subsequent previous year deduction for the unexpired period shall be allowed to the successor cooperative bank.