Budget 2020- Providing an option to the assessee for not availing deduction under section 35AD.
Section 35AD of the Act, relating to deduction in respect of expenditure on specified business, provides for 100 per cent. deduction on capital expenditure (other than expenditure on land, goodwill and financial assets) incurred by the assessee on certain specified businesses. Under sub-section (1) of section 35AD, the said deduction of 100 per cent. of the capital expenditure is allowable during the previous year in which such expenditure has been incurred. Further, sub-section (4) provides that no deduction is allowable under any other section in respect to the expenditure referred to in sub-section (1). At present, an assessee does not have any option of not availing the incentive under said section.
Due to this, a legal interpretation can be made that a domestic company opting for concessional tax rate under section 115BAA or section 115BAB of the Act, which does not claim deduction under section 35AD, would also be denied normal depreciation under section 32 due to operation of sub-section (4) of section 35AD. This has not been the intention of the statute.
Therefore, it is proposed to amend sub-section (1) of section 35AD to make the deduction thereunder optional. It is further proposed to amend sub-section (4) of section 35AD to provide that no deduction will be allowed in respect of expenditure incurred under sub-section (1) in any other section in any previous year or under this section in any other previous year, if the deduction has been claimed by the assessee and allowed to him under this section.
This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.
[Clause 18]
Extract of Relevant Clauses of Finance Bill, 2020
Clause 18
“Clause 18 of the Bill seeks to amend section 35AD of the Income-tax Act relating to deduction in respect of expenditure on specified business.
Sub-section (1) of the said section, interalia, provides for one hundred per cent. deduction on capital expenditure incurred on any specified business during the previous year in which such expenditure is incurred.
It is proposed to amend said sub-section (1) so as to express the assessee to exercise option of availing such deduction in respect of the capital expenditure incurred in respect of specified business during the previous year in which such capital expenditure is incurred.
Sub-section (4) of the said section, interalia, provides that the expenditure on which deduction has been allowed under sub-section (1) shall not be allowed as deduction under any other section in any previous year or under this section in any other previous year.
It is proposed to amend the said sub-section (4) so as to provide that no deduction in respect of the expenditure referred to in sub-section (1) shall be allowed to the assessee under any other section in any previous year or under this section in any other previous year, if the deduction has been claimed by the assessee and allowed to him under this section.
These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.”
Extract of Relevant Amendment Proposed by Finance Bill, 2020
18. Amendment of section 35AD.
In section 35AD of the Income-tax Act,–
(i) in sub-section (1), for the words “An assessee shall”, the words “An assessee shall, if he opts,”shall be substituted;
(ii) in sub-section (4), after the words “in any other previous year”, the words “, if the deduction has been claimed or opted by the assessee and allowed to him under this section”shall be inserted.
