Section 28(vii)

Section 28(vii) — the law in short

What the courts have decided on section 28(vii), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Statutory position — s.35AD(7A), (7B) and (7C) with s.28(vii): the asset must serve the specified business for eight years, and on breach the deduction comes back net of notional depreciation CBDT Circulars & InstructionsCuts both ways
  A hotel building on which we claimed section 35AD is now being used partly for a different business, and another asset has been sold. What exactly is charged, in which year, and is a sale treated the same way as a change of use?
  Section 35AD(7A) imposes a use condition, not a holding condition: any asset in respect of which a section 35AD deduction is claimed and allowed "shall be used only for the specified business, for a period of eight years beginning with the previous year in which such asset is acquired or constructed". Section 35AD(7B) supplies the consequence of breach. Where such an asset is used for a purpose other than the specified business during that eight-year period, the total deduction claimed and allowed in one or more previous years, AS REDUCED BY the depreciation that would have been allowable under section 32 had no section 35AD deduction been allowed, is deemed to be the assessee's income under "Profits and gains of business or profession" of the previous year in which the asset is so used. Sub-section (7B) expressly carves out a use "by way of a mode referred to in clause (vii) of section 28" — and section 28(vii) charges as business income any sum, whether received or receivable, in cash or kind, on account of any capital asset other than land, goodwill or a financial instrument being demolished, destroyed, discarded or transferred, where the whole of the expenditure on that asset was allowed as a deduction under section 35AD. So a sale, demolition, destruction or discarding is taxed under section 28(vii) on what is received or receivable, and a mere change of use is taxed under section 35AD(7B) on the net deduction. Section 35AD(7C) exempts from sub-section (7B) a company which has become a sick industrial company under section 17(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 during the eight-year period. Sub-sections (7A), (7B) and (7C) were inserted by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, so the use condition bites from AY 2015-16.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.