VittSphere ONE Calculators Blog CA Prabhakar Kumar · FCA · ICAI 560762
Case lawCBDT Circulars & Instructions › Statutory position — s.35AD: the fourteen specified businesses and the commencement date each must satisfy under s.35AD(5), the hundred per cent capital deduction, the 150 per cent window that ran from AY 2013-14 to AY 2017-18, and the day the deduction became optional
CBDT Circulars & InstructionsCuts both wayss.35ADs.35AD(1)s.35AD(1A)s.35AD(2)s.35AD(5)s.35AD(6A)s.35AD(8)s.35AD(8)(c)s.35AD(8)(e)s.35AD(8)(f)s.115BAAs.115BAB

Statutory position — s.35AD: the fourteen specified businesses and the commencement date each must satisfy under s.35AD(5), the hundred per cent capital deduction, the 150 per cent window that ran from AY 2013-14 to AY 2017-18, and the day the deduction became optional

My client is setting up a cold storage and wants the section 35AD deduction. Which businesses are actually within the section, from what date does each qualify, is the deduction still a hundred per cent, and can we choose not to claim it?

My client is setting up a cold storage and wants the section 35AD deduction. Which businesses are actually within the section, from what date does each qualify, is the deduction still a hundred per cent, and can we choose not to claim it?

Section 35AD allows a deduction of the WHOLE of any capital expenditure incurred wholly and exclusively for a specified business in the previous year in which it is incurred, with a proviso pulling pre-commencement capital expenditure into the year operations commence if it was capitalised in the books on that date. Since the Finance Act, 2020 (Act 12 of 2020) amended sub-section (1) with effect from 1 April 2020, the words are "An assessee shall, if he opts, be allowed a deduction" — the deduction became OPTIONAL from AY 2020-21, which is what makes the section 115BAA and 115BAB concessional regimes workable. There are fourteen specified businesses in section 35AD(8)(c), and each qualifies only if it commences operations on or after the date given for it in section 35AD(5). These are the dates the business must have COMMENCED OPERATIONS on or after; they are not the dates on which each business was added to the list by amendment, and the two do not coincide. The dates are as follows: cross-country natural gas pipeline networks from 1 April 2007; a two-star-or-above hotel, a hospital with at least a hundred beds, and a slum redevelopment or rehabilitation housing project from 1 April 2010; an affordable housing project and a new or newly installed fertiliser plant from 1 April 2011; an inland container depot or container freight station, bee-keeping and honey and beeswax production, and a sugar warehousing facility from 1 April 2012; a slurry pipeline for transporting iron ore and a semi-conductor wafer fabrication unit from 1 April 2014; a new infrastructure facility from 1 April 2017; and everything else falling within the list — cold chain facilities, agricultural produce warehousing and crude or petroleum oil pipelines — from 1 April 2009. A weighted deduction of one and one-half times ran alongside for five businesses under sub-section (1A), inserted by the Finance Act, 2012 with effect from 1 April 2013 and OMITTED by the Finance Act, 2016 (Act 28 of 2016) with effect from 1 April 2018; so 150 per cent is available for AY 2013-14 to AY 2017-18 and a hundred per cent before and after.

Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2020-04-01, reported as Section 35AD of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-35ad-16 (heading "Deduction in respect of expenditure on specified business", Year: 2025); legislative history from the footnote lists on /w/section-35ad-4 (Year 2013), /w/section-35ad-5 (Year 2014), /w/section-35ad-6 (Year 2015), /w/section-35ad-7 (Year 2016), /w/section-35ad-9 (Year 2020) and /w/section-35ad-11 (Year 2021). It bears on section 35AD, section 35AD(1), section 35AD(1A), section 35AD(2), section 35AD(5), section 35AD(6A), section 35AD(8), section 35AD(8)(c), section 35AD(8)(e), section 35AD(8)(f), section 115BAA, section 115BAB of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Assessment & Scrutiny matters.

Still good law. The current text is verified on a departmental page stamped Year 2025, and the sub-section structure is the same on the pages stamped Year 2021, Year 2023 and Year 2024. The commencement dates are taken from footnote lists on year-stamped archived pages and from the words of sub-section (5) itself, because the Year 2025 page carries no footnote list. Two things the label cannot carry. First, I could not source the enacting Act for clause (ak) of sub-section (5) or clause (ba) of sub-section (8), so those two additions are dated only by the qualifying date the clauses themselves state. Second, I did not check judicial treatment of sub-sections (1), (1A), (5) or (8) beyond the Tribunal order in Jaybhole Cold Storage noted elsewhere in this batch.

Why it matters

Practitioners lose section 35AD claims on the commencement date far more often than on anything else, because the date is not in the definition of the business but in sub-section (5), and each business has its own. A hotel that commenced operations in 2009 is not within the section at all, because clause (aa) requires commencement on or after 1 April 2010; the general clause (b) date of 1 April 2009 applies only to cases "not falling under any of the above clauses". The 150 per cent window is a second date trap in the opposite direction: an assessee whose cold chain facility, agricultural warehouse, hospital, affordable housing project or fertiliser plant commenced on or after 1 April 2012 was entitled to one and one-half times the expenditure for assessment years 2013-14 to 2017-18 and to a hundred per cent from AY 2018-19, when sub-section (1A) was omitted. Beyond the dates, three features shape the claim. Sub-section (2) imposes gateway conditions: the specified business must not be set up by splitting up or reconstructing a business already in existence, and must not be set up by transferring previously used plant or machinery — subject to the twenty per cent tolerance in sub-section (8)(e) and the imported-machinery relief in sub-section (8)(d). Sub-section (8)(f) narrows what counts as capital expenditure: land, goodwill and financial instruments are excluded outright, and any payment or aggregate of payments to a person in a day exceeding ten thousand rupees otherwise than by account payee cheque, account payee bank draft, electronic clearing system or another prescribed electronic mode is excluded too. And sub-section (6A) preserves the deduction for a hotel owner who transfers the OPERATION of the hotel to another while continuing to own it — the owner is deemed still to be carrying on the specified business, which reverses what would otherwise be a fatal outsourcing.

Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.

Not yet CA-verified. This entry was found through the sources listed under the Sources tab, and the summary reflects what those sources say. Nobody has yet read the full judgment and signed it off. Check the source before relying on it.

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