297. Guidelines for approval of programme of rural development required to be obtained for the purposes of deduction of expenditure thereon under sub-section (1)

1. The Finance (No. 2) Act, 1977 has introduced a new section 35CC under which companies and co-operative societies will be entitled to a deduction, in the computation of their taxable profits, of the expenditure incurred by them during the previous year on any programme of rural development.  The deduction will be allowed only where the company or co-operative society has obtained the prior approval of the prescribed authority in respect of the programme before incurring such expenditure. The provisions of this section have been explained in paragraph 14 of Circular No. 229 [F.  No. 131/9/77/TPL], dated 9-8-1977.

2. [**                               **                                                    **                                                       **]

Areas falling outside local limits of specified municipalities and cantonment boards, which will not be regarded as ‘rural areas’ for the purpose of section 35CC have been specified in notification issued by the Central Government on September 29,1977 [Annex 1].

3. Keeping in view the objective underlying this incentive and the requirements of the statutory provisions, the prescribed authority has evolved an illustrative list of categories of projects of rural development which would be considered by it for approval for the purposes of section 35CC [Annex II]. It may be pointed out that this list is merely illustrative and not exhaustive and the items mentioned therein may be modified or supplemented in due course in the light of the different types of cases which come up for approval.

4. Some of the more important points which the applicants should keep in view while formulating schemes for rural development for approval under section 35CC are given in Annex III.

5. It would facilitate prompt disposal of applications for approval under section 35CC by the prescribed authority if six copies of the application giving information on the points indicated in Annex IV, duly signed and certified to be correct by a person authorised to sign the return of income of the applicant company/co-operative society, are furnished together  with six copies of a note setting out details of the programme of rural development for approval under section 35CC by the prescribed authority.

6. The programmes of rural development have been defined in the Explanation below sub-section (1) of section 35CC to include any programme for promoting the social and economic welfare of, or the uplift of, the public in any rural area. The projects or schemes which the applicants may like to develop in the rural areas should be formulated keeping in view the local needs, resources of the community and the plans and programmes of the State Government for that area.

7. Applications for approval of programmes of rural development, along with relevant enclosures as stated above, may be addressed to the Secretary, Central Board of Direct Taxes, Room No. 47B, North Block, New Delhi-110001. One copy of the application, along with the relevant enclosures should also be forwarded to the Chief Secretary of the concerned State or the Officer nominated by him in this behalf.

Circular : No. 231 [F. No. 203/201/77-IT(A-II)], dated 14-11-1977.


[Not printed here; see independent entry at Sl. No. 299 on p. 1.1278 post.]


1. Assistance in the setting up of rural industries in selected areas by the rural weak to provide them self-employment.

2. (a) Establishment, and ( b) running of dispensaries, maternity and child welfare centres and family welfare centres.

3. Nutrition programmes for school children.

4. (a) Establishment, and ( b) running of educational and vocational training centres.

5. (a) Construction, and ( b) maintenance of rural link roads, village streets, pavements and drainage.

6. (a) Construction, and ( b) maintenance of drinking water projects such as wells, tubewells, etc., and cleaning of wells and ponds.

7. Rural electrification, i.e., provision of street lighting in villages and electrification of Harijan/tribal homes.

8. Assistance to the weaker sections in constructing houses on sites provided in rural areas by Government, village panchayats, etc.

9. Minor irrigation schemes, including boring of tubewells and installation of pumping sets for the benefit of groups of small/marginal farmers.

10. Supply of improved varieties of seeds and provision of facilities for seed testing to groups of small/marginal farmers and assistance to such farmers for establishing seed farms.

11. Supply of fertilisers and insecticides to groups of small/marginal farmers and giving guidance and training to such farmers in the use of fertilisers, insecticides, etc.

12. Supply of plant protection equipment, sprayers, farm machinery, implements, etc., to the village panchayats for the use of groups of small/marginal farmers.

13. Animal husbandry-assisting the farmers in cattle improvement through establishment of veterinary dispensaries, artificial insemination centres, etc., dairy products processing and marketing.

14. Assistance to groups of small/marginal farmers, landless labourers, etc., in poultry farming, horticulture, pisciculture, etc.

15. Establishment of workshops for servicing and repair of farm machinery and training of artisans, mechanics, etc.


1. The benefit of the programme of rural development should flow to the public in general (as against individuals) in the rural area and not to the applicant company/cooperative society itself.

2. Section 35CC envisages that a company or co-operative society should undertake a specific programme of rural development and obtain the approval of the prescribed authority in respect of such programme.  Hence, mere contributions to a programme of rural development undertaken by another person would not qualify for deduction under section 35CC.

3. Where the expenditure incurred by the applicant results in the acquisition or creation of a capital asset, 100 per cent deduction of such expenditure would be allowed only if the assessee has divested itself of the ownership of such asset in favour of the village panchayat, local authority, etc., before the end of the accounting year in which the expenditure is incurred.

4. Ordinarily the programme will be approved for an initial period of one accounting year.  In case the programme extends beyond one accounting year, it may be informally approved for the successive years but a formal approval order will, however, be passed for each year separately if the prescribed authority is satisfied that the programme has been implemented properly.  For this purpose, the prescribed authority may monitor the implementation of the programme.

5. The application for approval of the programme for rural development should contain complete details of the programme and indicate the rural area where the programme is to be executed.

The application should in particular provide information in respect of the following :

–   Particulars of the “rural area” and evidence to show that it qualifies as a “rural area” within the meaning of the expression as defined in clause (b) of the Explanation to sub-section (1) of section 35CC.

–   The total period during which the programme is expected to be completed and the total monetary outlay involved.  Yearwise break-up of capital as well as revenue expenditure should be given.

–   If the programme is to be executed in different phases, the monetary outlay of each phase and its coverage should be given.

–   If the whole or a part of the programme is to be executed on behalf of the applicant by any agent or contractor appointed by it, please furnish the name/address of such agent or contractor, the work to be executed by them and the remuneration to be paid to them.

–   If the expenditure results in the acquisition or the creation of a capital asset, at what stage and in what manner the applicant proposes to divest itself of the ownership of such assets?  Whether proper arrangements have been made for the continued maintenance of such assets?


1.   Name and address of the applicant

2.   Status (whether company or co-operative society)

3.   Residential status (whether resident/non-resident)

4.   Name of District/Ward/Circle where assessed to income-tax and Permanent Account Number

5.   Nature of the business with place where offices/factories/farms/orchards are located

6.   Does the applicant (including its directors) have any property in the rural area where the programme for rural development is proposed to be executed?

7.   What facilities are available with the applicant for executing the programme?

8.   Whether the applicant is in a position to execute the programme on its own or it would require assistance or co-ordination with some other private, public or government agency ?

9.   Has the applicant undertaken similar programme of rural development in the past ? If so, details thereof ?

10.Audited Balance Sheet and Profit and Loss Account for the latest year for which they are available.



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Category : Income Tax (26537)
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