The Finance Act, 2009 inserted Section 35AD to allow deduction of capital expenditure (other than land, goodwill and financial instrument) incurred by the assessee engaged in the business of setting up and operating cold chain facility, warehousing facility for agriculture produce and laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution / storage.

For giving impetus to the hotel industry, the Finance Bill 2010 proposes to extend the said incentive to assessee who builds and operates a new hotel of two star or above category, provided the assessee commences the operations of the said hotel on or after 1st April, 2010. Such deduction is also subject to the following conditions:

  1. Such business is not set up by splitting up, or the reconstruction, of a business in already in existence.
  2. Such business is not set up by transfer of machinery or plant previously used for any purpose. However the assessee may use imported second hand plant machinery subject to certain specified conditions.

It may be mentioned that Section 35AD introduces the investment linked deductions, wherein, the entire capital expenditure (other than land, goodwill and financial instruments) is eligible for expenditure in the very year in which such expenditure is incurred. Further, set off of the losses of such businesses are not allowed against any other business. The losses arising in this business is not allowed as set off against income under any other source / head of income but is allowed to be carried forward indefinitely for setting off against the profits arising from such business only u/s. 73A of the Act. Inclusion of highly capital intensive industry like Hotel industry would encourage lot of investment in this industry.

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June 2021