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),—
(i) before the commencement of his business, or
(ii) after the commencement of his business, in connection
with the extension of his undertaking or in connection with
his setting up a new 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 undertaking is
completed or the new unit commences production or operation
:
Provided that where an assessee incurs after the 31st day
of March, 1998, any expenditure specified in sub-section (2),
the provisions of this sub-section shall have effect as if
for the words “an amount equal to one-tenth of such
expenditure for each of the ten successive previous years”,
the words “an amount equal to one-fifth of such expenditure
for each of the five successive previous years” had
been substituted.
(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 referred 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—
(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) :
Provided that where the aggregate amount of expenditure referred
to in sub-section (2) is incurred after the 31st day of March,
1998, the provisions of this sub-section shall have effect
as if for the words “two and one-half per cent”,
the words “five per cent” had been substituted.
Explanation.—In this sub-section—
(a) “cost of the project” means—
(i) in a case referred 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 undertaking is completed or, as the case may be, the
new unit commences production or operation, in so far as such
fixed assets have been acquired or developed in connection
with the extension of the undertaking or the setting up of
the new 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 undertaking is completed
or, as the case may be, the new 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 undertaking or the setting up of the
new 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 eligible for deduction under clause (viii)
of sub-section (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 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 amalga-mating company if the amalgamation had not taken
place.
(5A) 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 specified in sub-section (1),
to another company in a scheme of demerger,—
(i) no deduction shall be admissible under sub-section (1)
in the case of the demerged company for the previous year
in which the demerger takes place; and
(ii) the provisions of this section shall, as far as may
be, apply to the resulting company, as they would have applied
to the demerged company, if the demerger 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.
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