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Unit 2 Lesson 1
Unit 2 Lesson 1
LESSON 1
ASSESSMENT OF COMPANIES-1
STRUCTURE OF THE CHAPTER
2.1 Introduction
2.2 Residential status and incidence of tax
2.3 Types of Companies
2.4 Companies in which public are substantially interested [Sec. 2(18)]
2.5 Carry forward and set off of losses in the case of certain companies [Sec. 79]
2.6 Deductions available to corporate assessees
2.7 Computation of taxable income of companies
2.8 Computation of amount of corporate tax liability
2.9 Minimum alternate tax (MAT) [Sec. 115JB]
2.10 Tax on distributed profits of domestic companies
2.11 Tax on income distributed to unit holders
2.12 Miscellaneous points
2.13 Summary
2.1 INTRODUCTION
This lesson discusses the tax planning with respect to financial management decisions.
Residential Status
As per section 6(3), a company is said to be resident in India in any previous year, if –
1. it is an Indian company; or
2. during that year, the control and management of its affairs is situated wholly in India.
From the assessment year 2017-18, a company is said to be a resident in India in any previous
year, if –
1. it is an Indian company; or
2. its place of effective management (POEM), in that year, is in India.
Note –
"Place of effective management" means a place where key management and commercial decisions
that are necessary for the conduct of business of an entity as a whole are, in substance made.
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“Indian income” –
Any of the following three is an Indian income:
1. If income is received (or deemed to be received) in India during the previous year and at
the same time it accrues or arises (or is deemed to accrue or arise) in India during the
previous year.
2. If income is received (or deemed to be received) in India during the previous year but it
accrues or arises (or is deemed to accure or arise) outside India during the previous year.
3. If income is received outside India during the previous year but it accrues or arises (or is
deemed to accrue or arise) in India during the previous year.
“Foreign income” –
If the following two conditions are satisfied, then such income is “foreign income” –
1. Income is not received (or not deemed to be received) in India and
2. Income does not accrue or arise (or is deemed to accrue or arise) in India.
2. Foreign Income – Foreign income is taxable in the hands of resident company and exempt
in the hands of non-resident in India.
1
As per the Income Tax Act, 1961.
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Domestic company means an Indian company or any other company which in respect of its
income, liable to tax under the Act, has made the prescribed arrangements for the declaration and
payment of dividends within India in accordance with section 194. In other words, we can say
that all Indian companies are domestic companies.
Such companies are also known as widely held companies. A company is regarded as a company
in which the public are substantially interested in the following cases:
1. Government owned company:
It is a company owned by the Government or RBI.
3. Section 25 companies:
A company registered under section 25 of the Companies Act, 1956 [now registered under
section 8 of the Companies Act, 2013].
There are around 2,749 companies which were registered under section 25 of the
Companies Act, 1956. ICAI Accounting Research Foundation is one of them.
Following types of companies are covered under section 8 of the Companies Act, 2013 –
A limited company which –
2
As per the Income Tax Act, 1961.
3
As per the Income Tax Act, 1961.
4
It is book value and not the market value.
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a. has in its objects the promotion of commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment or any such
other object;
b. intends to apply its profits, if any, or other income in promoting its objects; and
c. intends to prohibit the payment of any dividend to its members,
7. Listed companies:
A company which is not a private company as defined in Companies Act, 1956 [now as
defined in Companies Act, 2013] and equity shares in the company were, as on the last day
of the relevant previous year, listed in a recognised stock exchange in India.
*Industrial companies comprise those companies whose business consists mainly in the
construction of ships or in the manufacture (or processing) of goods or in mining or in
the generation or distribution of electricity (or any other form of power).
Notes –
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1. Statutory Corporation are public enterprises into existence by a Special Act of the
Parliament. The Act defines its powers and functions, rules and regulations governing its
employees and its relationship with government departments. Some of the examples are:
Airport Authority of India (AAI)
National Highway authority of India (NHAI)
Central warehousing Corporation (CWC)
Inland Waterways authority of India (IWAI)
Food Corporation of India (FCI)
Life Insurance Corporation of India (LIC)
Case 1 –
In the following cases state whether the company is one in which the public are substantially
interested:
a. The shares of X & Co. Private Limited are held as follows:
i. Central Government 10%
ii. The Reserve Bank of India 25%
iii. A Corporation, owned by the R.B.I. 10%
iv. Mr. A 30%
v. Mr. B 25%
b. 75% equity shares of Y & Co. Private Limited were held by the public and its affairs during
the relevant previous year were controlled by seven persons.
Case 2 –
Discuss whether the following companies can be said to be companies in which the public are
substantially interested:
a. X Industries (P) Ltd.:
The entire equity share capital was beneficially held by public and its affairs were managed
during the financial year by more than five persons.
b. B Industries Ltd.:
During the year, more than 75 per cent of the equity share capital of the company was
beneficially held by the public in general. The shares of the company were not listed in a
recognized stock exchange in India.
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c. C Industries Ltd.:
The Company is running a textile mill. 60 per cent of its equity share capital was
beneficially held during the year by D & Co. Ltd. which is a widely-held company, i.e., a
company in which the public were substantially interested. The shares of C Industries Ltd.
are not listed in a recognized stock exchange in India.
b. A public company, whose shares are not listed in a recognised stock exchange in India, can
be said to be a company in which the public are substantially interested only if its ordinary
shares carrying at least 50% (40% in the case of industrial companies viz. shipping, mining,
electricity etc.) of the voting power were beneficially held throughout the previous year,
whether singly or jointly, by
i. the Government; or
ii. a statutory corporation; or
iii. a company in which the public is substantially interested or any wholly owned
subsidiary of such a company.
Here, B Ltd. is a company which does not fulfil the above condition. Hence, it cannot be
said to be a company in which the public were substantially interested.
c. C Industries Ltd. was a subsidiary company of D & Co. which was a widely-held company
during the relevant year. Therefore, C Industries Ltd. was also a widely-held company.
Although its shares were not listed in a recognised stock exchange in India, it can be said
to be a company in which the public were substantially interested.
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d. Every public company, whose shares are listed on the last day of previous year in a
recognized stock exchange in India, can be said to be a company in which the public are
substantially interested irrespective of the persons holding its shares. Therefore, X & Co.
Ltd. can be said to be a company in which the public were substantially interested.
e. Since 45% of the shares of Y & Co. Ltd. which is engaged in mining business were held
by a company in which the public were substantially interested and a 100% subsidiary of
such company, it (Y & Co. Ltd.) can be said to be a company in which the public were
substantially interested even though its shares were not listed in a recognised stock
exchange in India.
2.5 CARRY FORWARD AND SET OFF OF LOSSES IN THE CASE OF CERTAIN
COMPANIES [SEC. 79]
In the case of companies in which the public are not substantially interested, loss will not be carried
forward and set-off unless the shares of the company carrying not less than 51% of the voting
power were beneficially held by the same person (s) both on the last day of the previous year in
which the loss was incurred and on the last day of the previous year in which brought forward loss
is desired to be set off.
If, however, after change in its shareholding, the assessee becomes a 100% subsidiary of a
company in which the public are substantially interested, then the provisions of section 79 would
not be applicable.
Exceptions –
The above provision of section 79 is not applicable in the following cases:
a. Transfer by gift to a relative:
Where a change in the voting power takes place in a previous year consequent upon the
death of a shareholder or on account of transfer of shares by way of gift to any relative of
the shareholder making such gift.
Relevant cases –
1. Carry forward of losses cannot be denied on ground of change in shareholding due to
merger if management of company continues to remain with same set of people - CIT v.
Select Holiday Resorts (P.) Ltd.
2. The provisions of section 79 are applicable only in the case of carry forward of losses.
Carry forward of unabsorbed depreciation allowance, capital expenditure on scientific
research or family planning is not affected by the provisions of section 79 –CIT v. Kalpaka
Enterprises (P.) Ltd.
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Treatment of Unabsorbed depreciation
Step 1: Unabsorbed depreciation is first deductible from the income chargeable under the
head “Profits and gains from business and profession”.
Step 2: Depreciation allowance, if not fully deductible under “Profits and gains from business
and profession”, it is deductible from the income chargeable under other heads of income
(except salaries and gambling incomes) for the same assessment year.
Step 3: If depreciation allowance is still unabsorbed, it can be carried forward to the subsequent
year.
Notes –
1. In the subsequent year(s), unabsorbed depreciation can be set-off against any income
(except salaries and gambling).
2. In the matter of set-off, following order of priority must be followed in the subsequent
year(s):
a. Current depreciation
b. Brought forward business loss
c. Unabsorbed depreciation
Case 1 –
ABC Pvt. Ltd. is a company incorporated on 01.04.2011, and the only capital issued is in the form
of equity shares. The shares are held throughout by A, B and C, equally. The company has made
losses/ profits in the past as under and these have been accepted by the tax department on
assessment:
Assessment Business Unabsorbed Total
Year Loss (Rs.) Depreciation (Rs.) (Rs.)
2012-13 ---- 10,00,000 10,00,000
2013-14 ---- 8,00,000 8,00,000
2014-15 4,50,000 7,50,000 12,00,000
Total 4,50,000 25,50,000 30,00,000
During the previous year ended 31.03.2015, A transferred his shares to P and during the previous
year ended 31.03.2016, B transferred his shares to Q. During the year ended 31.03.2015, the
company made a profit of Rs. 10,00,000 (before charging depreciation of Rs. 6,00,000) and during
the year ended 31.03.2016, a profit of Rs. 30,00,000 (before charging depreciation of Rs.
5,00,000). Compute taxable income of the company with proper working for the assessment year
2016-17.
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As on 31.03.2016 ---- ---- 33.33% 33.33% 33.33%
Case 2 –
On April 1, 2015, X and his wife purchased all the shares of a private limited company. Up to
March 31, 2015, the company had accumulated business losses of Rs. 5,00,000 and unabsorbed
depreciation amounting to Rs. 3,00,000. For the previous year 2015-16, the profits of business are
computed at Rs. 4,50,000. Would the company be entitled to carry-forward and set-off the past
accumulated losses and unabsorbed depreciation?
Would it make any difference if X and his wife have received the shares as a gift from a relative?
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2. Shareholding as on 31.03.2016 X and his wife
Option II: If X and his wife have received the shares as a gift from a relative, provisions of section
79 do not apply; in such a case, income would be calculated as follows:
Assessment year 2016-17:
Amount (Rs.)
Business income 4,50,000
Less: Brought forward business loss 4,50,000
Business income Nil
Carried forward business loss Rs. 50,000 and unabsorbed depreciation Rs. 3,00,000
Section 80G:
Deduction in respect of donations to certain funds, charitable institutions, etc.
This deduction is available to all the taxpayers.
On the following donations, no maximum limit is applicable. Taxpayer can donate the amount
without any limit:
Donee Deduction
(in %age)
National Defence Fund set up by the Central Government 100%
Prime Minister’s National Relief Fund 100%
National Children’s Fund 100%
Prime Minister’s Armenia Earthquake Relief Fund 100%
National Foundation for Communal Harmony 100%
An approved university/ educational institution 100%
Any fund set up by the Government of Gujarat for providing relief to victims 100%
of earthquake in Gujarat
Zila Saksharta Samiti 100%
National Blood Transfusion Council (NBTC) and State Council for Blood 100%
Transfusion
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Fund set up by a State Government for the medical relief to the poor 100%
Central Welfare Fund of the Army and Air Force and the Indian Naval 100%
Benevolent Fund
Andhra Pradesh Chief Minister’s Cyclone Relief Fund 100%
National Illness Assistance Fund 100%
Chief Minster’s Relief Fund or Lieutenant Governor’s Relief Fund 100%
National Sports Fund or National Cultural Fund or Fund for Technology 100%
Development and Application
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental 100%
Retardation and Multiple Disabilities
Swachh Bhahat Kosh, National Fund for Control of Drug Abuse 100%
Clean Ganga Fund (amount donated by residents only) 100%
Prime Minister’s Drought Relief Fund 50%
Jawaharlal Nehru Memorial Fund 50%
Indira Gandhi Memorial Trust 50%
Rajiv Gandhi Foundation 50%
On the following donations, there is a restriction on the amount which is eligible for deduction
under this section:
Government or any approved local authority, institution or association to be 100%
utilised for the purpose of promoting family planning
Government or any local authority to be utilised for any charitable purpose 50%
other than the purpose of promoting family planning
Any other approved fund* or any institution which satisfies the conditions 50%
mentioned in section 80G(5)
Any authority constituted in India by (or under) any law enacted either for the 50%
purpose of dealing with and satisfying the need for housing accommodation or
for the purpose planning, development or improvement of cities, towns and
villages, or for both
Any corporation for promoting interest of minority community 50%
Any notified temple, mosque, gurudwara, church or other place (for renovation 50%
or repair)
Maximum amount
The maximum amount for all the deductions given in Table 2 above must not exceed 10% of the
adjusted gross total income i.e., where the aggregate of sums mentioned in the above table exceeds
10% of the adjusted gross total income, then the amount in excess of 10% of the adjusted gross
total income will be ignored while computing the aggregate of the sums in respect of which
deduction is to be allowed.
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d. Short-term capital gain which is taxable under section 111A @ 15%; and
e. Incomes referred to in section 115A, 115AB, 115AC or 115AD.
Mode of payment
1. Donation can be given in cash or by cheque or draft. Donation in kind is not included.
2. It is to be noted that no deduction shall be allowed under section 80G in respect of
donation in cash of an amount exceeding Rs. 10,000.
Sec. 80-IA, Sec. 80-IAB, Sec. 80-IB, Sec. 80-IC, Sec. 80-ID and Sec. 80-IE:
Discussed in detail in next lesson [Tax planning and specific management decisions]
Section 80JJA:
Deduction in respect of profits and gains from the business of processing of bio-degradable
waste
This section is applicable where gross total income of an assessee includes any profits and gains
derived from the business of collecting, processing or treating of bio-degradable waste for
generating power or producing bio-fertilizers, bio-pesticides or other biological agents or for
producing bio-gas or making pellets or briquettes for fuel or organic manure.
Amount of deduction:
The whole of the profits and gains of the above activities shall be deductible for a period of 5
consecutive assessment years beginning with the assessment year relevant to the previous year in
which such business commences.
Miscellaneous point:
No deduction under section 80C to 80U is given from LTCG, STCG under section 111A as well
as lottery incomes.
Relevant provisions while computing income from business have been explained below –
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Rent, rates, taxes, repairs and insurance for building [Sec. 30]
Deduction is allowed in respect of rent, rates, taxes, repairs and insurance for premises used for
the purpose of business or profession.
If all the above conditions are satisfied, depreciation is available (it is a must, it is not at the
option of the assessee to claim or not to claim, depreciation in such cases).
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7 Buses, lorries and taxis used in the business of 30%
running them on hire
8 Aeroplanes 40%
9 Containers made of glass or plastic used as re-fills 50%
10 Computers 60%
11 Energy saving devices 80%
12 Air pollution control equipments, water pollution 100%
control equipments
Intangible 13 Know-how, patents, copyrights, trademarks, 25%
assets licenses, franchises and any other business or
(acquired commercial rights of similar nature
after March
31, 1998)
b. If block of asset is empty or ceases to exist on the last day of the previous year, though
the written down value is not zero (*In such cases, written down value of the block on
the first day of the next previous year will be taken as Nil); or
4. Method of depreciation:
Method of computation of depreciation is written down value method. However,
depreciation is available in the case of tangible assets according to “straight-line” method
in the case of an undertaking engaged in generation or generation and distribution of power
in some cases.
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b. If an asset is not used at all, no depreciation in respect of that asset is available. This
rule is applicable in the first year in which the asset is acquired as well as in the
subsequent years.
c. If an asset is acquired during any previous year but not put to use during that previous
year; the actual cost of such asset will become part of the block of assets on day 1 of
the next year. For example, if any asset is purchased during the previous year 2014-15
but put to use in the previous year 2015-16; this asset is a part of the block on April 1,
2015. This rule is applicable even if the asset is not put to use in the previous year 2014-
15. Here, depreciation is available for the first time in the previous year 2015-16.
d. If nothing is mentioned about the date of use of an asset, then assume that the asset is
put to use on the same day the asset is acquired.
Additional depreciation
To claim additional depreciation, the following conditions must be satisfied by the assessee:
1. Manufacture/ production of any article or thing:
The assessee should be engaged in the manufacture or production of any article or thing
(may be priority sector item or even non-priority sector item given in the Eleventh
Schedule) or generation or generation & distribution of power.
2. New plant and machinery installed and acquired after March 31, 2005:
Additional depreciation is available only in respect of new plant and machinery acquired
and installed after March 31, 2005.
Notes –
Additional depreciation is not available in respect of building or furniture even if
the other conditions are satisfied.
Additional depreciation is not available in respect of old plant and machinery.
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than 180 days in the year in which it is acquired, the rate of additional depreciation will be 10 per
cent of the cost of acquisition in the first year and the balance 10% would be available in the
immediately succeeding previous year.
Rate of additional depreciation for acquisition and installation of new plant and machinery in
notified backward area in A.P., Bihar, Telangana or West Bengal provided the new plant and
machinery has been acquired and installed during April 1, 2015 to March 31, 2020:
In this case, additional depreciation is available in respect of new plant and machinery acquired
and installed @ 35 per cent of the actual cost (and not 20%). If, however, the asset is put to use
for less than 180 days in the year in which it is acquired, the rate of additional depreciation will be
17.5 per cent (the remaining 17.5 per cent will be allowed as deduction in the next year).
Note –
If because of some reason, normal depreciation is not available, we can still claim additional
depreciation provided conditions of additional depreciation are satisfied.
Unabsorbed depreciation
Following steps should be applied to claim depreciation:
Step 1: Depreciation allowance of the previous year is first deductible from the income chargeable
under the head “Profits and gains of business or profession”.
Step 2: Depreciation allowance, if not fully deductible under the head “Profits and gains of
business or profession”, it is deductible from the income chargeable under other heads of income
(except salaries) for the same assessment year.
Step 3: If depreciation allowance is still unabsorbed, it can be carried forward to the subsequent
year.
Notes –
1. Unabsorbed depreciation can be carried forward for unlimited number of years.
2. Continuity of business is not relevant for the purpose of adjusting unabsorbed depreciation.
3. In the subsequent year(s), unabsorbed depreciation can be set-off against any income
(except income under the head salaries). In the matter of set-off, following order of priority
must be followed to adjust unabsorbed depreciation from the “Profits and gains of business
or profession” in the subsequent year(s):
d. current depreciation
e. brought forward business loss
f. unabsorbed depreciation
Investment allowance for acquisition and installation of new plant and machinery [Sec. 32AC]
A tax incentive offered to businesses to encourage capital investment in which they can deduct a
specified percentage of capital costs from taxable income. Investment allowance will be in
addition to depreciation.
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Where an assessee, being a company, engaged in the business of manufacture or production of
any article or thing, acquires and installs “New Asset” during any previous year and the
aggregate amount of actual cost of such new assets exceeds 25 crore rupees, then, there shall be
allowed a deduction for the assessment years 2015-16 to 2017-18, of a sum equal to 15% of the
actual cost of new asset acquired and installed during the previous year.
For the purposes of this section, “New Asset” means a new plant or machinery but does not
include—
a. any plant or machinery which before its installation by the assessee was used either within
or outside India by any other person;
b. any plant or machinery installed in any office premises or any residential accommodation,
including accommodation in the nature of a guest house;
c. any office appliances including computers or computer software;
d. any vehicle;
e. ship or aircraft; or
f. any plant or machinery, the whole of the actual cost of which is allowed as deduction
(whether by way of depreciation or otherwise) in computing the income chargeable under
the head “Profits and gains of business or profession” of any previous year.
Investment allowance for acquisition and installation of new plant and machinery in notified
backward area in A.P., Bihar, Telangana or West Bengal [Sec. 32AD]
This deduction will be over and above the deduction available under section 32AC.
Where an assessee, engaged in the business of manufacture or production of any article or thing,
acquires and installs “New Asset” during April 1, 2015 to March 31, 2020, a sum equal to 15% of
the actual cost of new asset acquired and installed during the previous year is allowed as deduction
in the year in which the new asset is installed.
For the purposes of this section, “New Asset” means a new plant or machinery but does not
include—
a. any plant or machinery which before its installation by the assessee was used either within
or outside India by any other person;
b. any plant or machinery installed in any office premises or any residential accommodation,
including accommodation in the nature of a guest house;
c. any office appliances including computers or computer software;
d. any vehicle;
e. ship or aircraft; or
f. any plant or machinery, the whole of the actual cost of which is allowed as deduction
(whether by way of depreciation or otherwise) in computing the income chargeable under
the head “Profits and gains of business or profession” of any previous year.
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Following is the classification of such expenditures which are deductible under section 35:
1. Revenue expenditure incurred by the assessee himself [Sec. 35(1)(i)]
100 per cent deduction is allowed for such expenditure, if such research relates to the
business.
Pre-commencement period expenses:
Revenue expenses (other than expenditure on providing perquisites to employees) incurred
before the commencement of business (but within 3 years immediately before
commencement of business) on scientific research related to the business are deductible in
the previous year in which the business in commenced. However, the deduction is limited
to the extent it is certified by the prescribed authority.
Such expenses may be the expenditure on purchasing materials used in scientific research,
salary paid to employees (not being a perquisite).
b. Where any capital expenditure has been incurred on scientific research related to
business before the commencement of business, the amount of such expenditure
incurred within 3 years immediately preceding the commencement of the business,
is deductible in the previous year in which the business is commenced.
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c. Deduction is available even if the relevant asset is not put to use for research and
development purposes during the previous year in which the expenditure is
incurred.
e. If an asset is sold without having been used for other purposes, then surplus (i.e.,
sale price) or deduction already allowed under section 35, whichever is less, is
chargeable to tax as business income of the previous year in which the sale took
place [Sec. 41(3)]. The excess of sale price over cost of acquisition (or indexed cost
of acquisition) is chargeable to tax under section 45 under the head “Capital Gains”.
However, if the aforesaid conditions are not satisfied, then deduction may be claimed as
per the rules mentioned in point (1) and point (3) above relating to revenue expenses and
capital expenses respectively.
In respect of the aforesaid expenditure, no deduction shall be allowed under any other
provisions of the Act.
* Cost of building (excluding cost of land) is eligible for 100 per cent deduction under
section 35(2).
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b. The taxpayer has paid any sum to a company (hereinafter referred to as “payee-
company”) to be used by the payee for scientific research.
c. The scientific research may or may not be related to the business of the tax payer.
d. The payee-company is registered in India which has, as its main object, scientific
research and development.
e. The payee-company is for the time being approved by the prescribed authority.
f. The payee-company fulfils such other conditions as may be prescribed.
With a view to avoid multiple claims for deduction, it has been provided that the payee-
company will not be entitled to claim weighted deduction of 200 per cent under section
35(2AB). However, deduction to the extent of 100 per cent of the sum spent as revenue
expenditure or capital expenditure on scientific research, which is available under section
35(1), will continue to be allowed.
If all the above conditions are satisfied, then deduction can be claimed under this section.
If the above conditions are not satisfied, then one may claim deduction in respect of revenue
expenditure under section 37(1).
Amount of deduction:
The payment will be allowed as deduction in equal installments over the period starting from the
year in which such payment has been made* and ending in the year in which the license comes to
an end.
* In case where the licence fee is actually paid before the commencement of the business to operate
communication services, then deduction is available for the previous years beginning with the
previous year in which such business is commenced and ending with the previous year in which
the licence comes to an end.
Where a deduction is claimed and allowed under section 35ABB, no deduction will be available
in respect of the same expenditure under section 32.
Payment to associations and institutions for carrying out rural development programmes [Sec.
35CCA]
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This section provides deductions of sums paid by any assessee to:
1. any association or institution to be used for carrying out any programme of rural
development approved before March 1, 1983;
2. an association or institution which has its object the training of persons for implementation
of a rural development programme approved before March 1, 1983;
3. the National Fund for Rural Development; and
4. notified National Urban Poverty Eradication Fund.
Where a deduction is claimed and allowed for any assessment year in respect of any expenditure
referred to above, deduction shall not be allowed in respect of such expenditure under any other
provisions of the Act for the same or any other assessment year.
Where a deduction is claimed and allowed for any assessment year in respect of any expenditure
referred to above, deduction shall not be allowed in respect of such expenditure under any other
provisions of the Act for the same or any other assessment year.
Amount of deduction:
One-fifth of the qualifying expenditure is allowable as deduction in each of the 5 successive years
beginning with the year in which the business commences, or as the case may be, the previous year
in which extension of the undertaking is completed or the new unit commences production or
operation.
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1. The work should be carried on by the assessee itself or by a concern approved by the
Board:
Expenditure in connection with preparation of feasibility report, preparation of project
report, conducting a market survey (or any other survey necessary for the business of the
assessee), or engineering services relating to the business of the assessee, provided the
work is carried on by the assessee himself or by a concern which is for the time being
approved in this behalf by the board.
2. The work can be carried on by the assessee itself or by any concern (approved or not
approved):
a. Legal charges for drafting any agreement between the assessee and any other person
relating to the setting up of the business of the assessee.
b. Legal charges for drafting the memorandum and articles of association, if the taxpayer
is a company.
c. Printing expenses of the memorandum and articles of association, if the taxpayer is a
company.
d. Registration fee of a company under the provisions of the Companies Act.
e. Expenses in connection with the public issue of shares or debentures of a company,
underwriting commission, brokerage and charges for drafting, typing, printing and
advertisement of the prospectus.
f. Any other expenditure which is prescribed* (*Nothing is prescribed so far).
Note:
If expenditure is allowed as deduction under section 35D, the same is not allowed as deduction
under any other provision of the Act.
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Amortization of expenditure in the case of amalgamation/ demerger [Sec. 35DD]
If an Indian company or co-operative bank incurs any expenditure on or after April 1, 1999 for the
purpose of amalgamation or demerger, the expenditure is deductible in 5 equal annual installments
and the first installment starts from the previous year in which amalgamation or demerger takes
place.
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