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ITA Chapter 4 P3

Written down value of depreciable asset

  1. For the purposes of computation of income under the head “Profits and gains of business or profession”, written down value means—
    1. in case the asset is acquired in the tax year, the actual cost to the assessee;
    2. in case the asset is acquired before the tax year, actual cost to the assessee less depreciation actually allowed under this Act or under the Income-tax Act, 1961 (43 of 1961);
    3. in case of block of assets, the written down value computed in the following manner:

      [(A – D) + B – C] – E, where—

      A = the written down value of the block of assets in the immediately preceding tax year;

      B = actual cost of any asset falling within that block, acquired during the tax year;

      C = moneys payable together with scrap value, if any, in respect of any asset falling within the block, which is sold, transferred, demolished, destroyed or discarded during the tax year, where “C” shall not exceed (A – D) + B;

      D = depreciation actually allowed in respect of block of assets in relation to the said immediately preceding tax year;

      E = in the case of a slump sale, the actual cost of the asset falling within that block as reduced by—

      1. depreciation actually allowed in respect of tax year commencing on 1st April, 1986 or any earlier tax year; and
      2. depreciation allowable for tax year commencing on or after 1st April, 1987 under this Act or under the Income-tax Act, 1961 (43 of 1961), as if such asset was the only asset in the relevant block of asset.
  2. Where any block of asset is transferred by—
    1. a holding company to its subsidiary company and the conditions of section 70(1)(c) are satisfied;
    2. a subsidiary company to its holding company and the conditions of section 70(1)(d) are satisfied; or
    3. amalgamating company to the amalgamated company being an Indian company,

    then the actual cost of the block of assets, irrespective of anything contained in section 39, in the hands of transferee company or amalgamated company, as the case may be, shall be the same as written down value of the block of assets as in the case of the transferor company or the amalgamating company in the immediately preceding tax year as reduced by depreciation actually allowed in respect of that block of asset in relation to that tax year.

  3. Where any asset, forming part of a block of assets is transferred by a demerged company to a resulting company, the written down value of block of assets of demerged company for the immediately preceding tax year, shall be reduced by the written down value of the assets transferred to the resulting company pursuant to such demerger.
  4. Where any asset, forming part of a block of assets is transferred by a demerged company to a resulting company then the actual cost of the block of assets, irrespective of anything contained in section 39, for resulting company shall be the written down value of the assets transferred from the demerged company immediately before such demerger.
  5. Where any block of assets is transferred by a private company or unlisted public company to a limited liability partnership and the conditions in section 70(1)(ze) are satisfied, then the actual cost of the block of assets, irrespective of anything contained in section 39, in the hands of limited liability partnership shall be written down value in the hands of said company as on the date of conversion of the company into limited liability partnership.
  6. Where any asset forming part of the block of assets is transferred to a company under the scheme of corporatisation of a recognised stock exchange in India approved by the Securities and Exchange Board of India, the written down value of the block of assets in the hands of such company, shall be the written down value of the assets transferred immediately before such transfer.
  7. In a case of succession in business or profession under section 313, where an assessment is made in the hands of successor under section 313(2), the written down value of any asset or block of assets shall be the amount which would have been taken as its written down value, if the assessment had been made directly on the person succeeded to.
  8. For the purposes of this section, any allowance in respect of any depreciation carried forward under section 33(11) shall be deemed to be the depreciation actually allowed.
  9. Where an assessee was not required to compute his total income for the purposes of this Act for any tax year or tax years preceding the tax year under consideration,—
    1. the actual cost of an asset shall be adjusted by the amount attributable to the revaluation of such asset, if any, in the books of account;
    2. the total amount of depreciation on such asset provided in the books of account of the assessee in respect of such tax year or tax years preceding the tax year under consideration shall be deemed to be the depreciation actually allowed under this Act for the purposes of this clause; and
    3. the depreciation actually allowed under clause (b) shall be adjusted by the amount of depreciation attributable to such revaluation of the asset.
  10. For the purposes of this section, where the income of an assessee is derived, in part from agriculture and in part from business chargeable to income-tax under the head “Profits and gains of business or profession”, for computing the written down value of assets acquired before the tax year, the total amount of depreciation shall be computed as if the entire income is derived from the business of the assessee under the head “Profits and gains of business or profession” and the depreciation so computed shall be deemed to be the depreciation actually allowed under this Act or under the Income-tax Act, 1961 (43 of 1961).
  11. For the purposes of this section, the term “sold” shall have the meaning assigned to it in section 38(6)(a).

Capitalising impact of foreign exchange fluctuation

  1. Irrespective of anything contained in any other provision of this Act, where at the time of making payment during the tax year, there is a variation in liability of an assessee as expressed in Indian currency, due to change in rate of exchange, in relation to an asset acquired for the purpose of business or profession from a country outside India, it shall be dealt with in the manner specified in sub-sections (2) and (3).
  2. For this section, the liability shall exclude any part met directly or indirectly by any other person or authority and the “variation in liability” shall be computed as—

    A = B – C

    where,—

    A = variation in liability;

    B = payment expressed in Indian currency at the time when it is made—

    1. towards the whole or part of the cost of asset; or
    2. towards repayment of the whole or part of the moneys borrowed, directly or indirectly, along with interest in foreign currency, specifically for acquiring such asset;

    C = liability, corresponding to the amount referred in B, in Indian currency at the time of acquisition of such asset.

  3. The variation in liability shall be added or reduced from the—
    1. actual cost of the asset as referred in section 39; or
    2. expenditure of capital nature referred to in section 32(i) or 45(1)(a)(i); or
    3. cost of acquisition of a capital asset (not being a capital asset referred to in section 74) for the purpose of section 72,

    and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset.

  4. Where the assessee has entered into a contract with an authorised dealer as defined in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999), for providing him with a specified sum in a foreign currency on or after a stipulated future date at the rate of exchange specified in the contract to enable him to meet the whole or any part of the said liability, the amount, if any, to be added to, or deducted from, the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset under this section shall, in respect of so much of the sum specified in the contract as is available for discharging the said liability, be computed with reference to the rate of exchange specified therein.

Taxation of foreign exchange fluctuation

  1. Subject to the provisions of section 42, any gain or loss arising on account of change in foreign exchange rates on foreign currency transactions shall be treated as income or loss, as the case may be, and shall be computed as per the income computation and disclosure standards notified under section 276(2).
  2. The provisions of sub-section (1) shall be applicable to all foreign currency transactions, including those relating to—
    1. monetary items and non-monetary items;
    2. translation of financial statements of foreign operations;
    3. forward exchange contracts; and
    4. foreign currency translation reserves.

Amortisation of certain preliminary expenses

  1. If an assessee, being an Indian company or a person (other than a company), who is resident in India, incurs any expenditure specified in sub-section (2)—
    1. before the commencement of its business; or
    2. after the commencement of its business, in connection with the extension of its undertaking or in connection with its setting up a new unit,

    the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive tax years beginning with—

    1. the tax year in which the business commences, for clause (a); or
    2. the tax year in which the extension of the undertaking is completed or the new unit commences production or operation, for clause (b).
  2. The expenditure referred to in sub-section (1) shall be—
    1. the expenditure in connection with—
      1. preparation of feasibility report;
      2. preparation of project report;
      3. conducting market survey or any other survey necessary for the business;
      4. engineering services relating to the business;
    2. 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;
    3. in addition to expenditure in clauses (a) and (b), if the assessee is a company,—
      1. legal charges for drafting and printing of the Memorandum and Articles of Association of the company;
      2. fees for registering the company under the provisions of the Companies Act, 2013 (18 of 2013);
      3. expenditure 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; and
    4. 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. In relation to expenditure specified in sub-section (2)(a), the assessee shall furnish a statement containing the particulars of the expenditure in such form and manner, as may be prescribed.
  4. The allowable deduction under sub-section (1) in respect of aggregate of expenditure referred to in sub-section (2) shall be restricted to 5%—
    1. of the cost of the project; or
    2. of the capital employed in the business of the company, where the assessee is an Indian company, at its option.
  5. For the purposes of this section,—
    1. “cost of the project” means 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) and—
      1. for cases under sub-section (1)(a), the actual cost as shown in the books of the assessee as on the last day of the tax year in which the business commences;
      2. for cases under sub-section (1)(b), the actual cost as shown in the books of the assessee as on the last day of the tax year in which either the extension of the undertaking is completed, or the new unit commences production or operations, as the case may be, in so far as such fixed assets have been acquired or developed in connection with the extension of the undertaking or setting up of new unit;
    2. “capital employed in the business of the company” means—
      1. in cases under sub-section (1)(a), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the tax year in which the business of the company commences;
      2. in a case under sub-section (1)(b), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the tax 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;
    3. “long-term borrowings” means—
      1. any moneys borrowed by the company from Government or Industrial Finance Corporation of India Limited or any other financial institution which is eligible for deduction under section 32(e) or any banking institution (not being a financial institution referred to above); or
      2. 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 tenure of moneys borrowed or debt is not less than seven years.
  6. If the assessee is a person, other than a company or a co-operative society, no deduction shall be admissible under sub-section (1) unless,—
    1. 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 before the specified date referred to in section 63; and
    2. the assessee furnishes for the first year in which the deduction under this section is claimed, the report of such audit by such date in such form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed.
  7. If an undertaking of Indian company entitled for deduction under sub-section (1) is transferred before expiry of five years specified in the said sub-section, in a scheme of amalgamation, to another Indian company, then—
    1. no deduction under sub-section (1) shall be allowed to the amalgamating company for the tax year in which amalgamation takes place; and
    2. all provisions of this section shall continue to apply to the amalgamated company as they would have applied to the amalgamating company, as if the amalgamation had not taken place.
  8. If an undertaking of Indian company entitled for deduction under sub-section (1) is transferred before five years specified in the said sub-section, in a scheme of demerger to another company, then—
    1. no deduction under sub-section (1) shall be allowed to the demerged company for the tax year in which demerger takes place; and
    2. all provisions of this section shall continue to apply to the resulting company as they would have applied to the demerged company, as if the demerger had not taken place.
  9. If a deduction under this section is claimed and allowed for any tax year in respect of any expenditure referred to in sub-section (2), deduction shall not be allowed for such expenditure under any other provision of this Act for the same or any other tax year.

Expenditure on scientific research

    1. A deduction shall be allowed for any expenditure, being in the nature of—
      1. capital expenditure, but not on acquisition of land which is acquired as such or as part of any property; or
      2. revenue expenditure,

      incurred on scientific research related to the business of the assessee subject to provisions of this section.

    2. A deduction shall also be allowed under this sub-section in respect of the aggregate of expenditure (not being in the nature of capital expenditure), related to business, incurred on—
      1. salary to an employee engaged in such scientific research; or
      2. purchase of materials used in such scientific research,

      where such expenditure is incurred within three years immediately preceding the commencement of business, to the extent certified by the prescribed authority as incurred on such research and such expenditure shall be deemed to have been incurred in the tax year in which the business is commenced.

    3. For the purposes of this sub-section, the aggregate of capital expenditure incurred within three years immediately preceding the commencement of business shall be deemed to have been incurred in the tax year in which the business is commenced.
    1. A deduction shall be allowed in respect of any expenditure on scientific research incurred (not being expenditure in the nature of cost of any land or building) by a company engaged in the business of—
      1. bio-technology; or
      2. manufacture or production of any article or thing, which is not specified in Schedule XIII,

      on in-house research and development facility as approved by the prescribed authority, subject to the conditions and manner, as may be prescribed.

    2. No deduction shall be allowed under this sub-section to a company approved under sub-section (3)(b)(ii).
    3. No deduction shall be allowed in respect of the expenditure mentioned in clause (i) under any other provision of this Act.
    4. The expenditure under clause (i) shall be allowed subject to such conditions and on furnishing of documents in such form and manner, as may be prescribed.
    5. For the purposes of this sub-section, “expenditure on scientific research”, in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central Act or State Act or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).
  3. A deduction shall be allowed for any sum, paid to—
      1. a research association having the object of undertaking scientific research or to a University, college or institution to be used for scientific research; or
      2. a research association having the object of undertaking research in social science or statistical research or to a University, college or institution to be used for research in social science or statistical research;
    2. a company which is—
      1. registered in India having the main object of scientific research and development; and
      2. approved by such authority, for the purposes of this clause in such manner and subject to such conditions, as may be prescribed;
      1. a national laboratory; or
      2. a University; or
      3. an Indian Institute of Technology; or
      4. a specified person,

      with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority.

  4. For the purposes of sub-section (3),—
    1. the expenditure shall be allowed subject to such conditions and on furnishing of documents in such form and manner, as may be prescribed; and
    2. in respect of clause (a) of the said sub-section, only such association, University, college or other institution shall be eligible for deduction, which for the time being is approved in the manner and subject to such conditions, as may be prescribed, and is specified by the Central Government, by notification.
  5. The deduction for any sum under sub-section (3) shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee, the approval granted to such entities or the programme undertaken by entities as mentioned in sub-section (3)(c), has been withdrawn.
  6. Where a deduction is allowed for any tax year under this section in respect of expenditure, represented wholly or partly by an asset, no deduction shall be allowed under section 33(3) for the same or any other tax year in respect of that asset.
  7. The provisions of section 33(11) in respect of depreciation shall apply in relation to deductions allowable for capital expenditure under sub-section (1).
  8. No deduction in respect of the sum mentioned in sub-section (3)(c) shall be allowed under any other provision of this Act.
  9. If any question arises under this section as to whether, and if so, to what extent any activity constitutes or constituted scientific research, or any asset is or was being used for scientific research, the Board shall refer the question to—
    1. the Central Government, when such question relates to any activity under sub-section (3)(a), and its decision shall be final;
    2. the prescribed authority, when such question relates to any other activity other than the activity specified in clause (a), whose decision shall be final.
  10. When an amalgamating company, in a scheme of amalgamation, sells or otherwise transfers to the amalgamated company (being an Indian company) any asset representing capital expenditure on scientific research, the provisions of this section shall 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.
  11. For the purposes of this section,—
    1. “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 such authority and in such manner, as may be prescribed;
    2. “salary” has the meaning assigned to it in section 16 read with section 18 subject to the following modifications:
      1. in section 16, clauses (e) and (j) shall be omitted;
      2. in section 18, the references to “assessee” shall be construed as references to “employee of former employee” and the reference to “his employer or former employer” and “an employer or a former employer” shall be construed as reference to “the assessee”.
    3. “specified person” means such person approved by the prescribed authority; and
    4. “land”, for the purpose of sub-section (1)(a)(i), includes any interest in land.

Capital expenditure of specified business

  1. An assessee, at his option, shall be allowed a deduction of the whole of the capital expenditure incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the tax year in which such expenditure is incurred.
  2. Where the expenditure referred to in sub-section (1) is incurred prior to the commencement of its operations and such expenditure is capitalised in the books of account as on the date of commencement of its operations, it shall be allowed during the tax year in which such business is commenced.
  3. This section shall apply to the specified business fulfilling all of the following conditions:—
    1. it is not set up by splitting up, or the reconstruction, of an already existing business;
    2. it is not set up by the transfer of machinery or plant previously used for any purpose to the specified business;
    3. if the business is of the nature referred to in sub-section (11)(d)(iii) and such business—
      1. is owned by a company formed and registered in India under the Companies Act, 2013 (18 of 2013) or by a consortium of such companies or by an authority or a board or a corporation established or constituted under any Central Act or State Act;
      2. has been approved by the Petroleum and Natural Gas Regulatory Board established under section 3(1) of the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006) and notified by the Central Government in this behalf;
      3. 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 section 3(1) of the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006) available for use on common carrier basis by any person other than the assessee or an associated person; and
      4. fulfils any other condition as may be prescribed.
    4. if the business is of the nature referred to in sub-section (11)(d)(xiv), such business,—
      1. is owned by a company registered in India or by a consortium of such companies or by an authority or a board or corporation or any other body established or constituted under any Central Act or State Act;
      2. entity referred to in sub-clause (i) has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility.
  4. No deduction shall be allowed under the provisions of Chapter VIII-C in relation to such specified business for the same or any other tax year, if a deduction under sub-section (1) is claimed and allowed.
  5. No deduction in respect of the expenditure referred to in sub-section (1) shall be allowed to the assessee under any other section in any tax year or under this section in any other tax year, if the deduction has been claimed and allowed to him under this section.
  6. The provisions of this section shall apply to the specified business referred to in column B of the Table below if it commences its operations as specified in column C thereof.
  7. Where the assessee builds a hotel of two star or above category as classified by the Central Government and subsequently, transfers the hotel operation thereof to another person while retaining its ownership, the assessee shall be deemed to be carrying on the specified business referred to in sub-section (11)(d)(iv).
  8. The provisions contained in sections 122(6) and 140(8) and (13) shall, so far as may be, apply to this section in respect of goods or services or assets held for the purposes of the specified business.
  9. Any asset for which a deduction is claimed and allowed under this section—
    1. shall be used only for the specified business for a period of eight years beginning with the tax year in which such asset is acquired or constructed;
    2. is used for the purpose other than specified business during the period referred to in clause (a), and is not chargeable to tax under section 26(2)(k), then the total amount of deduction so claimed and allowed in one or more tax years, as reduced by the amount of depreciation allowable under section 33, as if no deduction under this section was allowed, shall be deemed to be the income chargeable under the head “Profits and gains of business or profession” of the tax year in which the asset is so used.
  10. The provisions of sub-section (9)(b) shall not apply to a company which has become a sick industrial company under section 17(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), as it stood before its repeal by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (1 of 2004) during the period specified in sub-section (9)(a).
  11. For the purposes of this section,—
    1. “associated person”, in relation to the assessee, means a person,—
      1. who participates, directly or indirectly, or through one or more intermediaries in the management or control or capital of the assessee;
      2. who holds, directly or indirectly, shares carrying at least 26% of the voting power in the capital of the assessee;
      3. who appoints more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of the assessee; or
      4. who guarantees at least 10% of the total borrowings of the assessee.
    2. “cold chain facility” means a chain of facilities for storage or transportation of agricultural and forest produce, meat and meat products, poultry, marine and dairy products, products of horticulture, floriculture and apiculture and processed food items under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce;
    3. “infrastructure facility” means—
      1. a road including toll road, a bridge or a rail system;
      2. a highway project including housing or other activities being an integral part of the highway project;
      3. a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system;
      4. a port, airport, inland waterway, inland port or navigational channel in the sea;
    4. “specified business” means any one or more of the following businesses:—
      1. setting up and operating a cold chain facility;
      2. setting up and operating a warehousing facility for storage of agricultural produce;
      3. laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network;
      4. building and operating, anywhere in India, a hotel of two star or above category as classified by the Central Government;
      5. building and operating, anywhere in India, a hospital with at least 100 beds for patients;
      6. developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government and which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed;
      7. developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government and which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed;
      8. production of fertilizer in India;
      9. setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962 (52 of 1962);
      10. bee-keeping and production of honey and beeswax;
      11. setting up and operating a warehousing facility for storage of sugar;
      12. laying and operating a slurry pipeline for the transportation of iron ore;
      13. setting up and operating a semi-conductor wafer fabrication manufacturing unit which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed;
      14. developing, or maintaining and operating, or developing, maintaining and operating, a new infrastructure facility;
    5. any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if—
      1. such machinery or plant was not, at any time before the date of the installation by the assessee, used in India;
      2. such machinery or plant is imported into India; and
      3. no deduction of depreciation for such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period before the date of installation of the machinery or plant by the assessee.
    6. if any machinery or plant or its part previously used for any purpose is transferred to the specified business and its total value does not exceed 20% of the total value of the machinery or plant used in such business, then the conditions specified in sub-section (3)(b) shall be deemed to be complied with;
    7. any expenditure of capital nature shall not include any expenditure—
      1. for which the payment or aggregate of payments made to a person in a day, is not through specified banking or online mode, exceeds ₹10,000; or
      2. incurred on the acquisition of any land or goodwill or financial instrument.

Expenditure on agricultural extension project and skill development project

  1. Any expenditure (excluding cost of any land or building) incurred, on—
    1. agricultural extension project by any assessee; or
    2. any skill development project by a company,
    shall be allowed as a deduction, in the tax year in which such expenditure is incurred provided such project is notified by the Board as per the guidelines issued by it.
  2. If a deduction under this section is claimed and allowed for any tax year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed for such expenditure under any other provision of this Act for the same or any other tax year.

Tea development account, coffee development account and rubber development account

  1. Where an assessee is carrying on business of growing and manufacturing tea or coffee or rubber in India, such assessee shall be allowed a deduction on the basis of deposits into the special account or deposit account and computed as per the provisions of Schedule IX.
  2. Any amount withdrawn or utilised or released from the aforesaid accounts at the time of closure or otherwise shall be charged to tax as per the provisions of Schedule IX.
  3. Where any asset acquired as per the special scheme or the deposit scheme, as referred to in Schedule IX, is sold or otherwise transferred in any tax year, it shall be charged to tax in accordance with the provisions of the said Schedule.

Site Restoration Fund

  1. An assessee carrying on a business of prospecting, extracting, or producing petroleum or natural gas, or both, in India, and who has an agreement with the Central Government for this business, shall be allowed a deduction on the basis of deposit to special account or site restoration account and computed as per the provisions of Schedule X.
  2. Any amount withdrawn or transferred from the aforesaid accounts at the time of closure or otherwise shall be charged to tax in the year in which the amount is transferred or withdrawn as per the provisions of Schedule X.
  3. Where any asset acquired as per the special scheme, or the deposit scheme, as referred to in Schedule X, is sold or otherwise transferred in any tax year, it shall be charged to tax in accordance with the provisions of the said Schedule.

Special provision in case of trade, profession or similar association.

  1. Irrespective of anything to the contrary contained in this Act, if, during the tax year, the amount received by a specified association from its members falls short of the expenditure incurred by such association solely for the protection or advancement of common interest of its members, then the amount so falling short shall be allowed as deduction from the income of such association under the head “Profits and gains of business or profession” and the remaining amount, if any, shall be allowed deduction from its income under any other head.
  2. For the purposes of sub-section (1),—
    1. “specified association” means any trade, professional or similar association, not covered in Schedule III (Table: Sl. No. 24), whose income or its part is not distributed to its members (other than as grants to any associations or institutions affiliated to it);
    2. the amount received by the specified association from its members shall include amount by way of subscription or otherwise, and shall not include any remuneration received by the association for rendering any specific services to such members;
    3. expenditure incurred by specified association shall not include—
      1. expenditure deductible under any other provision of this Act; and
      2. any capital expenditure.
  3. The effect of other provisions of this Act relating to carry forward and set off of brought forward losses or allowances shall be given before allowing deduction under sub-section (1).
  4. The maximum allowable deduction under this section shall not exceed 50% of the total income as computed before allowing deduction under this section.

Amortisation of expenditure for prospecting certain minerals

  1. An assessee, being an Indian company or a person (other than a company) who is resident in India, who is engaged in any operations relating to prospecting for, or extraction or production of, any mineral, shall be allowed a deduction of an amount equal to one-tenth of the amount of expenditure referred to in sub-section (2), in each of the relevant tax years.
  2. The expenditure referred to in sub-section (1) is the expenditure incurred by the assessee at any time during the year of commercial production and any one or more of the four tax 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 Schedule XII or on the development of a mine or other natural deposit of any such mineral or group of associated minerals.
  3. The expenditure under sub-section (2) shall be reduced by such expenditure 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.
  4. The following expenditure shall be excluded from the expenditure referred to in sub-section (2):—
    1. any expenditure on the acquisition of the site of the source of any mineral or group of associated minerals referred to in the said sub-section or of any rights in or over such site;
    2. any expenditure on the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or
    3. any expenditure of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 33.
  5. The deduction to be allowed under sub-section (1) for any relevant tax year shall be—
    1. an amount equal to one-tenth of the expenditure specified in sub-section (2) as reduced by the expenditure mentioned in sub-sections (3) and (4) (such one-tenth being herein referred to as the instalment); or
    2. such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that tax 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-sections (2) and (3)) of any mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated minerals under this section in respect of which the expenditure was incurred, whichever is less.
  6. If any part of the instalment for a relevant tax year is not fully allowed, it shall be carried forward to the subsequent tax year, becoming part of the instalment of that tax year and such carrying forward may continue for each following tax year, but no instalment shall be carried forward beyond the tenth tax year from the tax year in which commercial production began.
  7. 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,—
    1. the accounts of the assessee for the tax year or years in which the expenditure specified in sub-section (2) are incurred have been audited by an accountant, before the specified date referred to in section 63; and
    2. the assessee furnishes for the first tax year in which the deduction under this section is claimed, the report of such audit, by such date, in such form and duly signed and verified by such accountant, as may be prescribed.
  8. If an undertaking of an Indian company, entitled for deduction under sub-section (1), is transferred before ten years specified in the said sub-section in a scheme of amalgamation or demerger, to another Indian company, then,—
    1. no deduction shall be allowed to the amalgamating or demerged company for the year in which such amalgamation or demerger takes place; and
    2. all the provisions of this section shall continue to apply to the amalgamated or resulting company as it would have applied to the amalgamating or demerged company, as if the amalgamation or demerger had not taken place.
  9. If a deduction under this section is claimed and allowed for any tax year in respect of any expenditure referred to in sub-section (2), deduction shall not be allowed for such expenditure under any other provision of this Act for the same or any other tax year.
  10. For the purposes of this section,—
    1. “operation relating to prospecting” means any operation undertaken for the purposes of exploring, locating or proving deposits of any mineral and includes any such operation which proves to be infructuous or abortive;
    2. “year of commercial production” means the tax 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 Schedule XII, commences;
    3. “relevant tax years” means the ten tax years beginning with the year of commercial production.

Amortisation of expenditure for telecommunications services, amalgamation, demerger, scheme of voluntary retirement, etc.

  1. Where an expenditure of the nature specified in column B of the Table given below is incurred during the tax year, a deduction or part thereof shall be allowed in equal instalments in each of the successive tax years as mentioned in column D of the said Table, beginning from the initial tax year specified in column C thereof.
  2. Where the licence or spectrum referred to in sub-section (1) (Table: Sl. No. 3 or 4)—
    1. is transferred, and the proceeds of the transfer (so far as they consist of capital sums) are less than the expenditure though incurred, but remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of the transfer, shall be allowed in respect of the tax year in which the licence or spectrum is transferred;
    2. is transferred, whether in whole or in part, and the proceeds of the transfer (so far as they consist of capital sums) exceed the amount of the expenditure though incurred, but remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred to obtain the licence or spectrum and the amount of such expenditure remaining unallowed, shall be chargeable to income-tax as profits and gains of the business in the tax year in which the licence or spectrum has been transferred;
    3. is transferred under clause (b) in a tax year in which the business is no longer in existence, the provisions of said clause shall apply as if the business is in existence in that tax year;
    4. is transferred, whether in whole or in part, and the proceeds of the transfer (so far as they consist of capital sums) are equal or greater than the amount of expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed under sub-section (1) in respect of the tax year in which the licence or spectrum is transferred or in respect of any subsequent tax year or years;
    5. is sold or otherwise transferred by the amalgamating company or demerged company, as the case may be, in a scheme of amalgamation or demerger, to the amalgamated company or resulting company, being an Indian company,—
      1. the provisions of clauses (a), (b), (c) and (d) shall not apply to the amalgamating or demerged company; and
      2. all the provisions of this section shall continue to apply to the amalgamated or resulting company as it would have applied to the amalgamating or demerged company, as if the transfer had not taken place.
  3. Where a part of licence or spectrum referred to in sub-section (1) (Table: Sl. No. 3 or 4) is transferred in a tax year and sub-section (2)(b) and (c) does not apply, the deduction to be allowed under sub-section (1) for the expenditure though incurred but remaining unallowed shall be arrived at by—
    1. subtracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure remaining unallowed; and
    2. dividing the remainder by the number of relevant tax years which have not expired at the beginning of the tax year during which the licence or spectrum is transferred.
  4. No deduction shall be allowed—
    1. for depreciation under section 33(1) to (10) in respect of expenditure mentioned in sub-section (1) (Table: Sl. No. 3 or 4), where deduction under this section is claimed and allowed for any tax year;
    2. under any other provision of this Act in respect of the expenditure mentioned in sub-section (1) (Table: Sl. No. 1 or 2).
  5. In case any deduction has been claimed and granted in respect of an expenditure referred to in sub-section (1) (Table: Sl. No. 3) in a tax year and subsequently there is failure on part of the assessee to comply with any of the provisions of this section, then,—
    1. the deduction shall be deemed to have been wrongly allowed;
    2. the Assessing Officer may, irrespective of any other provisions of this Act, recompute the total income of the assessee for the said tax year by making necessary rectification;
    3. the provisions of section 287 shall, so far as may be, apply; and
    4. the period of four years specified in section 287(8) shall be counted from the end of the tax year in which such failure takes place.
  6. Where a specified business reorganisation takes place before the expiry of the period specified in sub-section (1) (Table: Sl. No. 2.D), in case of an expenditure referred against serial number 2 thereof, then,—
    1. the provisions of this section, as far as may be, shall continue to apply to the successor entity as they would have applied to the predecessor entity if such reorganisation had not taken place; and
    2. no deduction shall be allowed to the predecessor entity under this section for the tax year in which such reorganisation takes place.
  7. For the purposes of this section,—
    1. “actually paid” means the actual payment of expenditure irrespective of the tax year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee or payable in such manner, as may be prescribed;
    2. “equal instalments” shall be calculated by taking numerator as 1 and denominator as the tax years mentioned in column D of the Table in sub-section (1);
    3. “specified business reorganisation” means—
      1. amalgamation of an Indian company and its undertaking with another Indian company; or
      2. demerger of an undertaking of an Indian company to another company; or
      3. succession of a firm or proprietorship concern to a company fulfilling conditions as laid down in section 70(1)(zd); or
      4. conversion of a private company or unlisted public company to a limited liability partnership fulfilling conditions laid down in section 70(1)(ze).

Full value of consideration for transfer of assets other than capital assets in certain cases

  1. In case of transfer of an asset (other than a capital asset), being land or building or both, if the consideration received or accrued from such transfer is less than the stamp duty value, then such stamp duty value for computing profits and gains from transfer of such asset shall be deemed to be the full value of consideration.
  2. The provisions of sub-section (1) shall not apply if the stamp duty value does not exceed 110% of the consideration received or accrued and in such a case, the consideration received or accrued shall be deemed to be the full value of consideration.
  3. If the date of agreement fixing the value of consideration for transfer of asset and date of registration for transfer of such asset are different, then the stamp duty value as on date of agreement may be taken to be the full value of consideration under sub-section (1).
  4. The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part thereof has been received by specified banking or online mode on or before the date of agreement for transfer of such asset.
  5. For the determination of the stamp duty value under sub-section (1), the provisions of section 78(2) and (3) shall apply.

Business of prospecting for mineral oils

  1. Where the assessee undertakes specified oil exploration business, then deduction specified in sub-sections (3) and (4) shall be allowed while computing the income under the head “Profits and gains of business or profession”.
  2. For the purposes of this section, “specified oil exploration business” means business consisting of prospecting for or extraction or production of mineral oils where the following conditions are fulfilled:—
    1. the Central Government has entered into an agreement with the assessee;
    2. such agreement is entered for association or participation of the Central Government or any person authorised by it; and
    3. such agreement is laid before each House of Parliament.
  3. The deduction referred to in sub-section (1) shall be—
    1. for the period before the beginning of commercial production, expenditure towards infructuous or abortive exploration incurred in respect of any surrendered area;
    2. for the period after the commencement of commercial production, expenditure (whether before or after such production) in respect of drilling or exploration activities or services or in respect of physical assets used in that connection;
    3. for the tax year of commencement of commercial production and such succeeding tax years as specified in the agreement, towards depletion of mineral oil in the mining area.
  4. The deductions referred to in sub-section (1) shall be—
    1. either in lieu of, or in addition to, any allowance admissible under this Act as specified in the agreement; and
    2. computed and made in the manner specified in the agreement and the other provisions of this Act shall be deemed to have been modified to such extent.
  5. Where the business or any interest therein as referred to in sub-section (1) is wholly or partly transferred as per the provisions of the agreement, the profit shall be charged to tax or deduction shall be allowed in the following manner:—
    1. where A is less than C, then (C – A) shall be allowed as deduction in the tax year in which such business or interest is transferred;
    2. where A is greater than C,—
      1. but less than B, then (A – C) shall be the profit chargeable under the head “Profits and gains of business or profession” for the tax year in which such transfer takes place;
      2. in any other case, only (B – C) shall be the profit chargeable under the said head for the tax year in which such transfer takes place; and
      3. no deduction shall be allowed for the expenditure incurred remaining unallowed in the tax year in which such transfer takes place or any subsequent tax year,
    where,—
    A = proceeds of the transfer (so far as they consist of capital sums);
    B = total amount of expenditure incurred in connection with the business or to obtain interest therein;
    C = amount of expenditure incurred remaining unallowed.
  6. If the business or interest therein is no longer in existence in the year of transfer, the provisions of sub-section (5) shall apply as if such business is in existence during the said year.
  7. Where the business or interest therein is sold or otherwise transferred in a scheme of amalgamation or demerger and the amalgamated entity or the resulting entity being an Indian company, then the provisions of sub-section (5) shall—
    1. not apply to the amalgamating or demerged company; and
    2. continue to apply to the amalgamated or resulting company as it would have applied to the amalgamating or demerged company as if the transfer had not taken place.

Insurance business

  1. Irrespective of anything to the contrary contained in the provisions of this Act for computing income under the head “Income from house property”, “Capital gains” or “Income from other sources”, or in section 390(5) and (6), or in sections 26 to 54, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed as per the provisions of Schedule XIV.

Special provision in case of interest income of specified financial institutions

  1. Irrespective of anything to the contrary contained in this Act, the interest income in relation to bad or doubtful debts of a specified financial institution shall be chargeable to tax under the head “Profits and gains of business or profession” in the tax year in which such interest is—
    1. credited to the profit and loss account; or
    2. actually received, whichever is earlier.
  2. For the purposes of this section,—
    1. “specified financial institution” means—
      1. a public financial institution; or
      2. a scheduled bank; or
      3. a co-operative bank, other than—
        1. a primary agricultural credit society; or
        2. a primary co-operative agricultural and rural development bank; or
      4. a State Financial Corporation; or
      5. a State Industrial Investment Corporation; or
      6. any such class of non-banking financial companies, as may be notified by the Central Government;
    2. “bad or doubtful debts” shall be such categories of debts, as may be prescribed, having regard to the guidelines issued in relation to such debts by the Reserve Bank of India.

Revenue recognition for construction and service contracts

  1. The profits and gains arising from a construction contract or a contract for providing services, shall be determined on the basis of percentage of completion method, subject to provisions of sub-section (2), as per the income computation and disclosure standards notified under section 276(2).
  2. For the purposes of sub-section (1), the profits and gains arising from a contract for providing services shall be determined—
    1. on the basis of project completion method, if the duration of such contract is not more than ninety days;
    2. on the basis of straight line method, if the contract involves indeterminate number of acts over a specified period of time.
  3. For the purposes of percentage of completion method, project completion method or straight line method under this section,—
    1. the contract revenue shall include retention money;
    2. the contract costs shall not be reduced by any incidental income in the nature of interest, dividends or capital gains.

Special provision for computing profits and gains of business or profession on presumptive basis in case of certain residents.

  1. The provisions of sections 26 to 54, to the extent contrary to this section, shall not apply to the manner of computation of profits and gains of the specified business or profession in sub-section (2).
  2. The profits and gains of any specified business or profession as mentioned in column B of the Table below, carried on by an assessee specified in column C of the said Table, having total turnover or gross receipts of business or profession during the tax year specified in column D and computed in the manner specified in column E thereof, shall be deemed to be the profits and gains of such business or profession chargeable to tax under the head “Profits and gains of business or profession”.
  3. Any assessee mentioned in column C of the Table in sub-section (2), who claims that—
    1. the profits or gains actually earned from the specified business or profession are lower than the profits or gains computed in the manner mentioned in column E of the said Table; and
    2. whose total income exceeds the maximum amount which is not chargeable to tax,
    shall be required to—
    1. keep and maintain such books of account and other documents as required under section 62; and
    2. get the accounts audited and furnish a report of such audit as required under section 63.
  4. Any loss, allowance or deduction allowable under the provisions of this Act, shall not be allowed against the income computed in the manner specified in sub-section (2).
  5. For the purposes of sub-section (2) (Table: Sl. No. 2), where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in section 35(e).
  6. The written down value of any asset used for the purposes of specified business or profession shall be computed as if the assessee mentioned in column C of the Table in sub-section (2) had claimed and was actually allowed deduction in respect of depreciation thereon for each of the relevant tax years.
  7. Where an eligible assessee declares profit for any tax year as per the provisions of sub-section (2) (Table: Sl. No. 1) and he declares profit for any of the five tax years succeeding such tax year in contravention of the provisions of sub-section (1), then he shall not be eligible to claim the benefit of the provisions of this section for five tax years subsequent to the tax year in which the profit has not been declared as per the provisions of the said sub-section.
  8. Irrespective of anything contained in foregoing provision of this section, where provisions of sub-section (7) are applicable to an eligible assessee and his total income exceeds the maximum amount which is not chargeable to income-tax, he shall be required to keep and maintain such books of account and other documents as required under section 62 and get them audited and furnish a report of such audit as required under section 63.
  9. For the purposes of sub-section (2) (Table: Sl. Nos. 1 and 3), the receipt of amount or aggregate of amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.
  10. The provisions of sections 62 and 63 shall not apply in so far as they relate to the business referred to in sub-section (2) (Table: Sl. No. 2) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.
  11. For the purposes of this section,—
    1. “eligible assessee” means an individual, a Hindu undivided family, or a firm other than a limited liability partnership, who is resident in India, and who—
      1. 8[***]
      2. has not claimed any deduction under Chapter VIII-C for the relevant tax year;
      3. does not carry on specified profession as defined in section 62(4);
      4. does not earn any income in the nature of commission or brokerage;
      5. does not carry on any agency business;
    2. “specified assessee” means an individual or a firm, other than a limited liability partnership, who is a resident in India;
    3. “limited liability partnership” shall have the same meaning as assigned to it in section 2(1)(n) of the Limited Liability Partnership Act, 2008 (6 of 2009);
    4. the expressions “goods carriage”, “gross vehicle weight” and “unladen weight” shall have the same meaning as respectively assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
    5. “heavy goods vehicle” means any goods carriage, the gross vehicle weight of which exceeds 12,000 kilograms; and
    6. an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.

Computation of royalty and fee for technical services in hands of non- residents.

  1. Income in the nature of royalty or fees for technical services received by a specified assessee during a tax year, shall be computed under the head “Profits and gains of business or profession” under this Act, if the following conditions are satisfied:—
    1. income is received from the Government or an Indian concern;
    2. income is in pursuance to an agreement made by the specified assessee with the Government or the Indian concern;
    3. the specified assessee carries on business in India through a permanent establishment, or performs professional services from a fixed place of profession, situated in India; and
    4. the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession.
  2. No deduction shall be allowed against the income computed under sub-section (1) in respect of the following amounts:—
    1. any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or
    2. amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices.
  3. The provisions of section 61 in so far as it relates to business referred to in section 61(2) (Table: Sl. No. 5), shall not apply in respect of the income referred to in this section.
  4. The specified assessee shall keep and maintain books of account and other documents as per the provisions of section 62, get his accounts audited on or before the specified date referred to in section 63 by an accountant, and furnish report of audit in the prescribed form, duly signed and verified by the accountant.
  5. For the purposes of this section, the expression “specified assessee” means a non-resident (not being a company) or a foreign company.

Deduction of head office expenditure in case of non-residents

  1. Irrespective of anything to the contrary contained in sections 26 to 54, in the case of a non-resident assessee, deduction of head office expenditure incurred by such assessee as is attributable to his business or profession in India, shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession” subject to provisions of sub-section (2).
  2. The deduction allowable under sub-section (1) shall be restricted—
    1. if the adjusted total income of the assessee is a loss, to an upper monetary limit of 5% of the average adjusted total income of the assessee; or
    2. in any other case, to an upper monetary limit of 5% of the adjusted total income of the assessee.
  3. For the purposes of this section,—
    1. “adjusted total income” means the total income computed under this Act, without giving effect to the allowance referred to in this section or in section 33(11) or the deduction referred to in section 32(i)(A) or any loss carried forward under section 111(1) or 112(1) or 113(2) or 115(2) or the deductions under Chapter VIII;
    2. “average adjusted total income” means,—
      1. if the assessee is assessable for each of the three tax years immediately preceding the relevant tax year, the arithmetic mean of his adjusted total income over those three tax years;
      2. if the assessee is assessable only for two of the said three tax years, the arithmetic mean of his adjusted total income over those two tax years;
      3. if the assessee is assessable only for one of the said three tax years, his adjusted total income for that tax year;
    3. “head office expenditure” means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of—
      1. rent, rates, taxes, repairs or insurance of any premises outside India used for the business or profession;
      2. salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisites or profits in lieu of, or in addition to, salary, whether paid or allowed to any employee or other person employed in, or managing the affairs of, any office outside India;
      3. travelling by any employee or other person employed in, or managing the affairs of, any office outside India; and
      4. such other matters connected with executive and general administration, as may be prescribed.

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