Section 35D l Amortisation of Preliminary Expenses
Circular No. 162A was issued by the Central Board of Direct Taxes on 27 May 1975. Its subject is Section 35D l Amortisation of Preliminary Expenses.
Lays down the guidelines on which the Board will approve outside concerns under the proviso to section 35D(2)(a). Section 35D lets an Indian company or a resident non-company assessee amortise specified preliminary expenditure incurred after 31st March 1970, in ten equal instalments over ten years beginning with the year the business commences, the extension is completed or the new industrial unit starts production. Among the qualifying heads is expenditure on preparing a feasibility report or project report, conducting a market or other necessary survey, and engineering services, and such expenditure qualifies where the work is done within the company's own organisation or by the assessee himself, or, where it is entrusted outside, where that concern is for the time being approved by the Central Board of Direct Taxes. Approval calls for adequate competence and expertise in the relevant services, experience being taken into account; it is ordinarily given to Indian consultancy concerns resident in India, a foreign concern being approved only for services not available with Indian concerns; the applicant must have been in consultancy work for at least a year before applying and have received professional fees exceeding Rs. 10,000 from at least one party in a year; and an income-tax clearance certificate must be produced. The application goes in duplicate in the annexed form, signed and certified by the person authorised to sign the applicant's return.
Section 35D made approval by the Board a condition where the report, survey or engineering work is entrusted to an outside concern, and the Board set out how it would decide such applications.
SECTION 35D l AMORTISATION OF PRELIMINARY EXPENSES
304. Guidelines for approval under proviso to clause (a) of sub-section (2) to concerns carrying out work in connection with preparation of feasibility/project report, etc., for the purposes of amortisation of preliminary expenses
1. Section 35D provides for the amortisation of certain preliminary expenses incurred by an Indian company or a resident assessee, other than a company, before the commencement of business or in connection with the extension of an industrial undertaking or the setting up of a new industrial unit. The amortisation will be allowed against the profits of the Indian company or other resident assessee in ten equal instalments over a period of 10 years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or operation. Such amortisation is allowed only in respect of expenditure incurred after March 31, 1970 under specified heads. One of the heads of the qualifying expenditure specified for this purpose is expenditure in connection with (i ) preparation of feasibility report; (ii) preparation of project report; (iii) conducting market survey or any other survey necessary for the business of the assessee; and (iv) engineering services relating to the business of the assessee.
These items of expenditure will qualify for amortisation where the work, in connection with the preparation of the feasibility report or the project report or the conducting of the market survey or other survey or the engineering services, is carried out within the organisation of the company or by the assessee himself, or, where it is entrusted to an outside concern, such concern is, for the time being, approved for the purpose of this section by the Central Board of Direct Taxes.
2. The following guidelines are being laid down by the Board for granting approval under section 35D(2)(a ):
(1) The applicant must have adequate competence and expertise to render consultancy services in respect of items referred to in section 35D(2)(a). Experience of the applicant in the field of consultancy services will also be taken into consideration by the Board.
(2) The approval will be ordinarily granted to Indian consultancy concerns which are resident in India. However, in case approval is sought for by a foreign concern, the approval will be granted only in respect of such services offered by the foreign concerns which are not available with Indian concerns.
(3) The applicant must have been working in the field of consultancy services, at least for one year before the application is made and must have received professional fees exceeding Rs. 10,000 from at least one party in any year.
(4) Approval under section 35D will be granted only to such consultancy concerns which produce income-tax clearance certificate from the Income-tax Department.
3. An application for approval for this purpose should be made in duplicate in the attached form [Annex]. The information furnished should be duly signed and certified to be correct by the person authorised to sign the return of income-tax on behalf of the applicant.
Circular : No. 162A [F. No. 203/7/71-IT(A-II)], dated 27-5-1975.
ANNEX - APPLICATION FORM
1. Particulars of the applicant for approval under section 35D(2)(a)
(i ) Name and address
(ii) Status (whether Individual/Firm/Company)
(iii) If a company, whether an Indian company within the meaning of section 2(26) of the Income-tax Act, 1961
(iv) If not a company, whether resident in India
(v) Nature of consultancy services rendered
(vi) Designation of the Income-tax Officer having jurisdiction for assessment purpose and Permanent Account Number
2. In case the applicant is—
(i ) a firm or a company, the names of the partners/directors along with their academic qualifications may be furnished
(ii) an individual, his educational qualifications may be given
3. Details of the lines in which the concern has specialised—
(i) A brief note regarding the lines of consultancy services in which the applicant has specialised may be given
(ii) Names of the parties along with the addresses to whom consultancy services were rendered during the course of last three years
(iii) Details of consultancy service agreements pending for execution at the time of making this application along with the names and addresses of the parties
4. What are the arrangements and facilities available with the applicant for providing the consultancy services?
5. Particulars of the approval in respect of consultancy services granted by State Governments or other departments of the Government of India—
(i) Names of the State Governments who have granted approval. Copies of the letters of approval may be attached
(ii) Names of the Departments/Ministeries of the Government of India who have granted approval. Copies of the letters of approval may be attached
6. Any other information which the applicant considers relevant
The above information is correct and complete to the best of my knowledge and belief. I am the person authorised to sign the return of income on behalf of the applicant under the provisions of the Income-tax Act, 1961.Date.................................
.......................................................................
Place................................
Signature of the applicant
In an assessment where amortisation of feasibility or project report expenditure is questioned because the consultant was not approved, and in an application to the Board for such approval.
Source: the Income Tax Department’s own published text — its page for this instrument.