Sections 35B and 35C l Export Markets Development Allowance/agricultural Development Allowance
Circular No. 27 was issued by the Central Board of Direct Taxes on 16 August 1969. Its subject is Sections 35B and 35C l Export Markets Development Allowance/agricultural Development Allowance.
Explains when expenditure incurred through an association counts for the weighted deductions in sections 35B and 35C. The Finance Act, 1968 gave a domestic company or resident non-corporate person a weighted deduction of one and one-half times qualifying expenditure on developing export markets for Indian goods on a long-term basis, and gave a company in an agro-based industry the same weighting for expenditure on specified agricultural inputs and extension services to independent farmers, cultivators or producers in India. Both allowances cover expenditure incurred indirectly: for the export allowance, expenditure incurred in association with another person; for the agricultural allowance, expenditure through an association or body approved by the prescribed authority. Members or constituents of such an association qualify on their share of its expenditure provided the expenditure falls under one or more of the qualifying categories in the sections and rules; any expenditure of the association on other activities is isolated; and the net amount under the specified heads, after excluding that and after taking credit for any grant or subsidy from Government or another source, is apportioned among the members on a rational basis and recovered from them. Proper accounts must be kept by the association to allow verification. For section 35C the association or body must be approved by the prescribed authority, and the approving authorities were to be notified in the Rules.
A question was raised on the circumstances and conditions in which indirectly incurred expenditure counts, particularly expenditure by export houses developing markets on behalf of their constituents and by industry associations providing inputs and extension services to growers.
| Under the 1961 Act | Now |
|---|---|
| s.35B | no counterpart recorded |
| s.35C | no counterpart recorded |
SECTIONS 35B AND 35C l EXPORT MARKETS DEVELOPMENT ALLOWANCE/AGRICULTURAL DEVELOPMENT ALLOWANCE
293. Weighted deduction for export markets development allowance/agricultural development allowance under sections 35B and 35C, respectively - Whether circumstances in which, and the conditions subject to which, expenditure incurred indirectly will count therefor
1. The Finance Act, 1968 made provisions in sections 35B and 35C, respectively, for the grant of "export markets development allowance" and "agricultural development allowance" in computing the profits and gains from business. Under section 35B, an assessee, being a domestic company or a resident non-corporate person, who incurs expenditure under specified heads for development of export markets for Indian goods on a long-term basis, is entitled to a weighted deduction of a sum equal to one and one-half times the amount of the qualifying expenditure in computation of his business profits. Under section 35C, a company engaged in any agro-based industry, which incurs expenditure in the provision of agricultural inputs and extension services of the specified categories to independent farmers, cultivators or producers in India of the products of agriculture, animal husbandry or dairy or poultry farming, is entitled to a deduction of a sum equal to one and one-half times the amount of the qualifying expenditure in the computation of its business profits. [The details of these provisions have been explained in paragraphs 42-46 and 54-59 of the Board’s Circular No. 6-P of 1968, dated 6-7-1968]. The weighted deduction under both these sections is available not only with reference to the qualifying expenditure incurred directly by the assessee but also with reference to such expenditure incurred indirectly by him. In the case of the export markets development allowance, expenditure incurred by the assessee in association with any other person also qualifies for the allowance. In the case of agricultural development allowance, expenditure incurred through an association or body approved in this behalf by the prescribed authority, also qualifies for the allowance.
2. A question has been raised as to the circumstances in which, and the conditions, if any, subject to which, expenditure incurred by an assessee indirectly, as stated above, will count for the weighted deduction contemplated under sections 35B and 35C. This is particularly important in the case of expenditure incurred by export houses for development of export markets on behalf of their constituents, or by associations, such as IJMA, providing agricultural inputs and extension services to jute growers with a view to improving the productivity and quality of jute. While it is not possible to lay down any general rule in this regard which would be applicable in all situations, it may be stated that individual members of constituents of an association or body, which undertakes export markets development or agricultural development on behalf of or for the benefit of its members, will qualify for the weighted deduction under section 35B or 35C with reference to their share in the expenditure incurred by the association or body, provided—
a. the expenditure falls under one or more of the several qualifying categories specified in the respective sections and the rules, if any, framed thereunder;
b. where the expenditure incurred by the association or body includes any expenditure on activities other than those which fall under the specified heads, such expenditure is isolated; and
c. the net amount of expenditure incurred by the association or body under the specified heads [i.e., after excluding the expenditure referred to in (b) above, and after taking credit for any grant or subsidy received by it from the Government or any other source for carrying on the said activities] is apportioned among the members of the association or body on a rational basis and recovered from them.
To facilitate verification, it is necessary that proper accounts are maintained in respect of expenditure incurred by an association or body with reference to which the allowance under section 35B or 35C is claimed by its members or constituents.
3. It is to be noted that the weighted deduction under section 35C by way of agricultural development allowance for expenditure incurred by an assessee under specified heads through an association or body is available only if such association or body has been approved in this behalf by the prescribed authority. The authorities which are to grant approval in such cases will be notified shortly in the Income-tax Rules, 1962.
Circular : No. 27 [F. No. 1(252)/69-TPL], dated 16-8-1969.
In an assessment where a member's claim to a share of an association's promotional or extension spending has been disallowed.
Source: the Income Tax Department’s own published text — its page for this instrument.