Section 35D

Section 35D — the law in short

What the courts have decided on section 35D, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Berger Paints India Ltd v CIT Supreme CourtHelps department
  My s.35D claim is capped at 5% of capital employed. Does the share premium I collected count as capital employed?
  No. Capital employed in the business of the company for s.35D(3)(b) is the aggregate of three things only — issued share capital, debentures and long-term borrowings. Share premium is none of them, and the Supreme Court held that if Parliament had meant to include it, it would have said so in the Explanation. The ceiling is therefore computed on the face value subscribed, not on what the subscribers actually paid.
• CIT v Majestic Auto Ltd High CourtHelps taxpayer
  The Assessing Officer wants to push my consultancy fee into s.35D and spread it over five years instead of allowing it as revenue expenditure. Can he, just by calling it a survey?
  Not without showing the expenditure actually falls within one of the categories in s.35D(2). The Punjab and Haryana High Court rejected the Revenue's attempt to bring a management consultant's fee for a study on reorganisation of the assessee's core business within s.35D(2)(a)(iii), 'conducting market survey or any other survey necessary for the business of the assessee', because nothing in the pleadings or the orders below showed the engagement was aimed at conducting any survey. The Tribunal's finding that the expenditure was revenue was upheld and the appeal dismissed.
• Embassy Office Parks REIT v DCIT — a REIT cannot amortise its IPO expenses under section 35D(2)(c) because it is not a company ITATHelps departmentNo later treatment found
  Our REIT incurred large expenses on its initial public offer and listing. Can it write them off over ten years under section 35D like a listed company?
  No, on the Bangalore Tribunal's reasoning. Clause (c) of section 35D(2) opens with the words 'where the assessee is a company', and a SEBI-registered Real Estate Investment Trust constituted under the Indian Trusts Act 1882 is neither a company under the Companies Act 2013 nor a company within section 2(17) of the Income-tax Act, so the deduction is unavailable however closely the public issue of units resembles a public issue of shares. The Tribunal held those opening words to be a conscious legislative limitation and not surplusage, refused to read units as shares, and dismissed the appeal.
• Adani Power Ltd v Dy CIT ITATCuts both waysNo later treatment found
  The AO has thrown out most of my IPO expenses because they are not named in s.35D(2). Is that list closed?
  It depends, and the burden is yours. The Tribunal accepted that the word 'being' in s.35D(2) makes the list inclusive, so there is room to argue for an item not spelled out. But it held the scope is not unrestricted and the assessee must prove each item is directly or indirectly connected with the issue of shares - vehicle hire, travel consultant fees, foreign travel and filing fees had gone through two authorities without that evidence. The order does not give one answer: for assessment year 2010-11 the claim went back to the Assessing Officer for verification, while for 2011-12 the identical ground was dismissed. The one part of the claim that survived on the merits was the amount the Commissioner (Appeals) had specifically tied to the share issue, which the Department failed to have restored.
• Statutory position — s.44DB: when a co-operative bank amalgamates, demerges or converts, the year's deduction under ss.32, 35D, 35DD and 35DDA is split by days, not lost CBDT Circulars & InstructionsCuts both waysNo later treatment found
  Our co-operative bank amalgamated in October. The successor is claiming the whole year's depreciation and amortisation. Is that right, and what happens to our part of it?
  It is not right, and the section says so arithmetically. Section 44DB provides that the deduction under section 32, section 35D, section 35DD or section 35DDA shall, in a case where business reorganisation of a co-operative bank has taken place during the financial year, be allowed in accordance with that section. The predecessor co-operative bank gets A x B / C, where A is the amount of the deduction that would have been allowable had the business reorganisation not taken place, B is the number of days from the beginning of the financial year up to the day before the reorganisation, and C is the total number of days in that financial year. The successor co-operative bank, or the converted banking company, gets the same formula with B taken as the number of days from the date of the reorganisation to the end of the financial year. The section then provides for the continued application of sections 35D, 35DD and 35DDA to the successor for the remaining years. The Explanation defines 'business reorganisation' as the reorganisation of business involving the amalgamation or demerger of a co-operative bank or the conversion of a primary co-operative bank, and defines the amalgamating, amalgamated, predecessor and successor banks, 'co-operative bank' by reference to the Banking Regulation Act, 1949, 'demerger', and 'conversion' by reference to a Reserve Bank of India circular of 27 September 2018.

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.