Section 35AD- Deduction in Respect of Expenditure on Specified Business
Updated: Oct 13, 2022
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Section 35AD of the Income Tax Act, 1961 relates to the deduction when the expenditure is made on the specified business.
As per its first subsection, when an assessee makes a capital expenditure exclusively and wholly for any specified business that he carries on during the previous year in which the expenditure has been incurred, then in such a case, the assessee would be eligible for a deduction in respect of such expenditure. Provided that:-
The expenditure is incurred before the commencement of the operations.
The amount has been capitalized in the assessee’s books of account on the date of commencement of its operations.
Subsection (2) of Section 35AD states that a business would be called a specified business for this Section if:-
It is not set up by reconstruction or splitting up any business already in existence.
The transfer does not set it up for the specified business of machinery or plant previously used for any purpose.
Where the business is of the nature mentioned in sub-clause (iii) of clause (c) of sub-section (8), such business:-
(a) Is owned by a company formed and registered in India under the Companies Act, 1951 or by a consortium of such companies, an authority, a corporation, or a board established or constituted under any Central or State Act.
(b) Has been approved by the Petroleum and Natural Gas Regulatory Board established under sub-section (1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006 and notified by the Central Government in the Official Gazette on this behalf.
(c) Has made not less than such proportion of its total pipeline capacity as specified by regulations made by the Petroleum and Natural Gas Regulatory Board established under sub-section (1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006 available for use on common carrier basis by any person other than the assessee or an associated person; and
(d) Fulfils any other condition as may be prescribed.
Subsection (3) of Section 35AD states that if an assessee has claimed deduction under this Section for any specified assessment year, then no further deduction shall be allowed under the provisions of Chapter VI-A under the heading “C.- Deductions in respect of Certain Incomes” for the same assessment year.
Section 35AD subsection (4) states that no deduction in relation to expenditure referred to under subsection (1) would be allowed to an assessee under any other section in any previous year or under this Section in any other previous year.
The fifth subsection states that the provisions of this Section would apply to the specified business referred to in subsection (2) if it commences its operations:-
On or after 1st April 2007, if the specified business is in relation to operating and laying a cross-country natural gas pipeline network for distribution, that shall also include storage facilities that are an integral part of such network.
(aa) On or after 1st April 2010, if the specified business is in the nature of operating and building a new hotel of 2 stars or above as specified by the Central Government.
(ab) On or after 1st April 2010, where the specified business is in nature of building and operating a new hospital with at least 100 beds for patients.
(ac) On or after the 1st April 2010, where the specified business is in the nature of developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed.
(ad) On or after the 1st day of April 2011, where the specified business is like developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf under the guidelines as may be prescribed.
(ae) On or after the 1st day of April 2011, in a new plant or a newly installed capacity in an existing plant for the production of fertilizer.
(b) On or after 1st April 2009, in any other cases not falling under clause (a), clause (aa), clause (ab), and clause (ac).
Subsection (6) states that apart from deduction under subsection (1), an additional deduction shall be allowed to an assessee carrying on the business as specified in clause (a) of subsection (5) for the previous year relevant to the assessment year beginning from 1st April 2010, of an amount concerning the expenditure of capital nature incurred in the last year, if:-
The business referred to in clause (a) of subsection (5) has commenced its operation on or after 1st April 2007 and ended on 31st March 2009;
No deduction for such amount has been allowed or is allowable to an assessee in any earlier previous year.
Subsection (7) of Section 35AD states that the provisions of subsection (6) of Section 80A and that of subsection (7) of Section80-IA shall apply to this Section for the goods or assets or services held for the specified business.