295. Effect of withdrawal of tax concession under section 35C in a case where expenditure has been incurred by sugar factory on cane development programmes and same was found eligible for deduction under section 37(1)

1. Under the provisions of section 35C of the Income-tax Act, 1961, a company or a co-operative society, which uses any product of agriculture, animal husbandry or dairy or poultry farming as raw material or processes such products, was eligible for a deduction of the amount of expenditure incurred, whether directly or through an approved association or body, for the provision of agricultural inputs and extension services to cultivators, growers or producers of such products.

2. This deduction was withdrawn by the Finance Act, 1984, in respect of expenditure incurred on or after 1-3-1984.

3. Section 37(1) of the Income-tax Act, 1961, however, provides that any expenditure, not being in the nature of capital expenditure or personal expenses of the taxpayers, laid out or expended wholly and exclusively for the purposes of his business, is to be allowed as deduction in computing the income chargeable under the head “Profits and gains of business or profession”.  Hence, any expenditure incurred by a sugar factory on cane development programmes would be eligible for deduction in computing the taxable profits if, having regard to the facts and circumstances of the case, the Assessing Officer is satisfied that the conditions laid down in section 37(1) of the Act are fulfilled. The withdrawal of the tax concession under section 35C would not affect this position.

Circular : No. 578, dated 12-9-1990.

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