My company is the resulting company in a demerger and it bore the legal and professional costs of the scheme. The Assessing Officer says only the demerged company can claim s.35DD. Is he right?
No, at least where the resulting company was already in existence. The Delhi High Court held that the word 'assessee' in s.35DD(1) is not confined to the demerged company; the legislature used it having regard to the various ways demerger schemes are structured. It also held that where the one-fifth deduction was allowed in the earlier years of the block, it should not have been disallowed in later years on reasoning that does not comport with a plain reading of the section.
Decided by the High Court (Rajiv Shakdher J and Talwant Singh J) on 2021-07-05, reported as ITA 213/2020, ITA 214/2020 and ITA 215/2020, High Court of Delhi; assessment years 2007-08 and 2008-09; reserved 9 April 2021. It bears on section 35DD, section 35DD(1), section 35DD(2), section 260A of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
This is the only reasoned High Court treatment of s.35DD that I could locate, and it decides the argument the Revenue actually runs. The Tribunal below had reasoned that a resulting company 'cannot incur expenditure before its birth', so 'assessee' must mean the demerged parent — the High Court answered that this ignores that a demerger can be a spin-off into an existing company as much as a split-off creating a new one. Two practical limits deserve emphasis. First, the Court's reasoning turns on the resulting company having been in existence and having actually incurred the expenditure; a resulting company incorporated by the scheme itself cannot have incurred pre-incorporation costs and the reasoning would not carry it. Second, the Court reinforced the result with consistency across the amortisation block, which matters because s.35DD spreads one deduction over five years and the Revenue habitually attacks it in year three or four. Note also the boundary with s.35D: s.35D(5) and (5A) deal with the transfer of an undertaking that is already amortising preliminary expenses, which is a different question from who may claim the demerger expenditure itself.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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An undertaking of NIIT Ltd. was spun off under a scheme of demerger approved by the Delhi High Court, effective from 1 April 2003. The demerged undertaking vested in an existing company, the appellant, then known as NIIT Technologies Ltd. The appellant incurred Rs 2,20,03,694 on legal and professional expenses in AY 2004-05 for pursuing the scheme of demerger, and claimed one-fifth of that sum, Rs 44,00,739, under s.35DD for the first time in AY 2004-05 and again in each of AYs 2005-06 to 2008-09. The claim was allowed in AYs 2004-05, 2005-06 and 2006-07. For AYs 2007-08 and 2008-09 the Assessing Officer disallowed it, holding it could be claimed only in the hands of the demerged company, NIIT Ltd., because s.35DD uses the expression 'assessee' and not 'assessees'. The Commissioner (Appeals) and the Tribunal upheld that view, the Tribunal reasoning that in a demerger the resulting company comes into existence as a result of the demerger and cannot incur expenditure before its birth, so 'assessee' cannot include the resulting company, and rejecting the consistency plea on the strength of Distributors (Baroda) P. Ltd. v. Union of India (155 ITR 120).
The Tribunal's view was held to be flawed and question of law no.(i) as framed in ITA 213/2020 and 214/2020 was answered in favour of the assessee and against the Revenue (paras 11 to 11.4). The word 'assessee' in s.35DD is not confined to the demerged company; on the facts, the resulting company was already in existence and had incurred the expenditure, and the argument that the deduction can be claimed only by the demerged company was misconceived (para 11.2). Further, the deduction having been allowed in AYs 2004-05 to 2006-07, it should not have been disallowed in AYs 2007-08 and 2008-09 on reasoning that does not comport with a plain reading of s.35DD and with the understanding of how a demerger scheme operates (para 11.3).
The Court held the Tribunal had failed to appreciate the various ways in which a demerger takes place: a demerger is a legal device used to restructure business operations and can ordinarily occur by way of spin-off or split-off, a spin-off possibly involving transfer of an undertaking to a new or a subsidiary company with shares offered to the shareholders of the demerged company, and a split-off occurring when the demerged entity segregates itself into independent companies and the parent ceases to exist (para 11.1). Here one undertaking of NIIT Ltd. was transferred to another existing company, so the resulting company was already in existence and the premise of the Tribunal's construction failed; the legislature used the word 'assessee' having regard to the various ways in which the schemes are structured (para 11.2). The Court added that the interpretation of such provisions should align, wherever possible, with how ordinary men of commerce construe such business structuring operations, and that consistency across the amortisation block told against the disallowance (para 11.3).
The legislature has used the word "assessee" having regard to the various ways in which the schemes are structured.
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Handle my notice → Ask a CA on WhatsAppNo, at least where the resulting company was already in existence. The Delhi High Court held that the word 'assessee' in s.35DD(1) is not confined to the demerged company; the legislature used it having regard to the various ways demerger schemes are structured. It also held that where the one-fifth deduction was allowed in the earlier years of the block, it should not have been disallowed in later years on reasoning that does not comport with a plain reading of the section. This was decided by the High Court (Rajiv Shakdher J and Talwant Singh J) and bears on section 35DD, section 35DD(1), section 35DD(2), section 260A of the Income Tax Act 1961. It is reported as ITA 213/2020, ITA 214/2020 and ITA 215/2020, High Court of Delhi; assessment years 2007-08 and 2008-09; reserved 9 April 2021. This is the only reasoned High Court treatment of s.35DD that I could locate, and it decides the argument the Revenue actually runs. The Tribunal below had reasoned that a resulting company 'cannot incur expenditure before its birth', so 'assessee' must mean the demerged parent — the High Court answered that this ignores that a demerger can be a spin-off into an existing company as much as a split-off creating a new one. Two practical limits deserve emphasis. First, the Court's reasoning turns on the resulting company having been in existence and having actually incurred the expenditure; a resulting company incorporated by the scheme itself cannot have incurred pre-incorporation costs and the reasoning would not carry it. Second, the Court reinforced the result with consistency across the amortisation block, which matters because s.35DD spreads one deduction over five years and the Revenue habitually attacks it in year three or four. Note also the boundary with s.35D: s.35D(5) and (5A) deal with the transfer of an undertaking that is already amortising preliminary expenses, which is a different question from who may claim the demerger expenditure itself. If it applies to you, the first step is this: Establish on the record who actually incurred and paid the legal and professional expenses of the scheme, and produce the invoices and the ledger — the section allows the deduction to the assessee who 'incurs' the expenditure.
An undertaking of NIIT Ltd. was spun off under a scheme of demerger approved by the Delhi High Court, effective from 1 April 2003. The demerged undertaking vested in an existing company, the appellant, then known as NIIT Technologies Ltd. The appellant incurred Rs 2,20,03,694 on legal and professional expenses in AY 2004-05 for pursuing the scheme of demerger, and claimed one-fifth of that sum, Rs 44,00,739, under s.35DD for the first time in AY 2004-05 and again in each of AYs 2005-06 to 2008-09. The claim was allowed in AYs 2004-05, 2005-06 and 2006-07. For AYs 2007-08 and 2008-09 the Assessing Officer disallowed it, holding it could be claimed only in the hands of the demerged company, NIIT Ltd., because s.35DD uses the expression 'assessee' and not 'assessees'. The Commissioner (Appeals) and the Tribunal upheld that view, the Tribunal reasoning that in a demerger the resulting company comes into existence as a result of the demerger and cannot incur expenditure before its birth, so 'assessee' cannot include the resulting company, and rejecting the consistency plea on the strength of Distributors (Baroda) P. Ltd. v. Union of India (155 ITR 120). The matter was decided on 2021-07-05 by the High Court (Rajiv Shakdher J and Talwant Singh J). On those facts the High Court held as follows. The Tribunal's view was held to be flawed and question of law no.(i) as framed in ITA 213/2020 and 214/2020 was answered in favour of the assessee and against the Revenue (paras 11 to 11.4). The word 'assessee' in s.35DD is not confined to the demerged company; on the facts, the resulting company was already in existence and had incurred the expenditure, and the argument that the deduction can be claimed only by the demerged company was misconceived (para 11.2). Further, the deduction having been allowed in AYs 2004-05 to 2006-07, it should not have been disallowed in AYs 2007-08 and 2008-09 on reasoning that does not comport with a plain reading of s.35DD and with the understanding of how a demerger scheme operates (para 11.3).
The Court held the Tribunal had failed to appreciate the various ways in which a demerger takes place: a demerger is a legal device used to restructure business operations and can ordinarily occur by way of spin-off or split-off, a spin-off possibly involving transfer of an undertaking to a new or a subsidiary company with shares offered to the shareholders of the demerged company, and a split-off occurring when the demerged entity segregates itself into independent companies and the parent ceases to exist (para 11.1). Here one undertaking of NIIT Ltd. was transferred to another existing company, so the resulting company was already in existence and the premise of the Tribunal's construction failed; the legislature used the word 'assessee' having regard to the various ways in which the schemes are structured (para 11.2). The Court added that the interpretation of such provisions should align, wherever possible, with how ordinary men of commerce construe such business structuring operations, and that consistency across the amortisation block told against the disallowance (para 11.3). In the words reproduced by the source cited on this page: "The legislature has used the word "assessee" having regard to the various ways in which the schemes are structured."
It was decided by the High Court on 2021-07-05 and is reported as ITA 213/2020, ITA 214/2020 and ITA 215/2020, High Court of Delhi; assessment years 2007-08 and 2008-09; reserved 9 April 2021. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 35DD, section 35DD(1), section 35DD(2), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Tribunal's view was held to be flawed and question of law no.(i) as framed in ITA 213/2020 and 214/2020 was answered in favour of the assessee and against the Revenue (paras 11 to 11.4). The word 'assessee' in s.35DD is not confined to the demerged company; on the facts, the resulting company was already in existence and had incurred the expenditure, and the argument that the deduction can be claimed only by the demerged company was misconceived (para 11.2). Further, the deduction having been allowed in AYs 2004-05 to 2006-07, it should not have been disallowed in AYs 2007-08 and 2008-09 on reasoning that does not comport with a plain reading of s.35DD and with the understanding of how a demerger scheme operates (para 11.3). It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 35DD, section 35DD(1), section 35DD(2), section 260A of the Income Tax Act 1961, and was decided by Rajiv Shakdher J and Talwant Singh J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. State how the demerger was structured (spin-off into an existing company, or split-off creating a new entity) — the Court's reasoning turns on this. If the one-fifth was allowed in any earlier year of the five-year block, put the assessment orders for those years on record and take the consistency point expressly. Remember s.35DD(2): no deduction for the same expenditure under any other provision, so do not run an alternative s.37(1) claim for the same amount in the same year. Check the year of the amalgamation or demerger: the block of five successive previous years begins with the previous year in which the amalgamation or demerger takes place, not the year the scheme is sanctioned.
Searched for later treatment; none was found. That is not the same as a source affirming it. The s.35DD holding stands unapplied and unchallenged. Later decisions do cite this judgment, reported as Coforge Ltd v ACIT [2021] 436 ITR 546 (Del), but they cite it for the separate s.14A holding in the same judgment — that Rule 8D cannot be applied mechanically without recorded satisfaction and that no disallowance arises where there is no exempt income — and even there the citation is usually counsel's rather than the Bench's. In DCIT v Hindustan Times Ltd (ITAT Delhi, 11 March 2026) the reference sits at paragraph 5 in the assessee's argument, and the Tribunal decided on its own earlier order in the assessee's own assessment year 2011-12 case. One later decision recorded as citing it, Inder Dev Gupta v ACIT (Delhi High Court, 21 November 2025), does not mention Coforge at all, so that entry is a mis-attribution and should not be relied on as treatment. Nothing pairing this case name with s.35DD has been found beyond the judgment itself and an earlier order of 13 January 2021 in the same matter. So the holding that the resulting company may claim the one-fifth amortisation under s.35DD, the demerger expenditure not being confined to the demerged company, is a High Court decision that no later Bench has taken up either way. Treat it accordingly: it is directly in point, it is the only reasoned High Court treatment of s.35DD known here, and it has neither been approved nor doubted above. Two things would change the picture — a Supreme Court ruling on the meaning of 'assessee' in s.35DD(1), or a case in which the resulting company was incorporated by the scheme and therefore could not have incurred the expenditure, which is the fact pattern this judgment expressly does not cover. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The electronic text of this judgment in wide circulation is TRUNCATED: it stops mid-sentence in paragraph 14.2 at page 28 of 33, so the final disposal paragraph and the judges' signature lines are not covered, and the truncation is in the source rather than in any one copy of it. That does not affect the s.35DD issue, which is decided completely and self-containedly: question of law no.(i) in ITA 213/2020 and ITA 214/2020 is answered in favour of the assessee at paragraph 11.4. The other two issues in the judgment — s.14A read with Rule 8D, and one-time commuted lease rent — are NOT covered by this entry, and a reader who needs them must go to a complete report. The text of s.35DD reproduced in the order below is quoted from the Tribunal's order as set out within the judgment. It matches an older printing of the section and is used here only as legislative history; read s.35DD as it stands for the year in hand before computing anything. Three points on how far the holding carries. The reasoning at paragraph 11.1 rests on a taxonomy of demergers — a spin-off, which may transfer an undertaking to a new or a subsidiary company with shares offered to the shareholders of the demerged company, and a split-off, where the demerged entity segregates into independent companies and the parent ceases to exist. The Court's answer is that the legislature used the word 'assessee' in s.35DD(1) with those variations in view. On these facts the resulting company was already in existence and had itself incurred the Rs 2,20,03,694 of legal and professional expenditure, so the Tribunal's premise that a resulting company 'cannot incur expenditure before its birth' simply did not apply. A resulting company incorporated by the scheme itself is a different case and this judgment does not decide it. The second support the Court gave was consistency: the one-fifth deduction of Rs 44,00,739 had been allowed in assessment years 2004-05 to 2006-07 and was disallowed only in 2007-08 and 2008-09, which is the pattern to watch, because s.35DD spreads one deduction over five years and the challenge usually comes in year four or five. Third, keep s.35DD apart from s.35D: sub-sections (5) and (5A) of s.35D deal with an undertaking already amortising preliminary expenses that is transferred, which is a different question from who may claim the demerger expenditure itself, and s.35DD(2) bars any other deduction for the same expenditure. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Tribunal's view was held to be flawed and question of law no.(i) as framed in ITA 213/2020 and 214/2020 was answered in favour of the assessee and against the Revenue (paras 11 to 11.4). The word 'assessee' in s.35DD is not confined to the demerged company; on the facts, the resulting company was already in existence and had incurred the expenditure, and the argument that the deduction can be claimed only by the demerged company was misconceived (para 11.2). Further, the deduction having been allowed in AYs 2004-05 to 2006-07, it should not have been disallowed in AYs 2007-08 and 2008-09 on reasoning that does not comport with a plain reading of s.35DD and with the understanding of how a demerger scheme operates (para 11.3).
TaxSphere, “Coforge Ltd (formerly NIIT Technologies Ltd) v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/coforge-niit-technologies-35dd-resulting-company-may-claim/ (validity last checked 2026-09-08)
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