Section 35AD:
Deduction in respect of expenditure on specified business.
1(1) An assessee shall be
allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and
exclusively, for the purposes of any specified business carried on by him during the previous year in
which such expenditure is incurred by him:
Provided that the expenditure incurred, wholly and exclusively, for the purposes of any specified
business, shall be allowed as deduction during the previous year in which he commences operations of his
specified business, if
(a) the expenditure is incurred prior to the commencement of its operations; and
(b) the amount is capitalised in the books of account of the assessee on the date of
commencement of its operations.
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(2) This section applies to the specified business which fulfils all the following conditions,
namely:
(i) it is not set up by splitting up, or the reconstruction, of a business already in existence;
(ii) it is not set up by the transfer to the specified business of machinery or plant previously used
for any purpose;
(iii) where the business is of the nature referred to in sub-clause (iii) of clause (c) of
sub-section (8), such business,
(a) is owned by a company formed and registered in India under the Companies
Act, 1956 (1 of 1956) or by a consortium of such companies or by an authority or a board or a
corporation established or constituted under any Central or State Act;
(b) has been approved by the Petroleum and Natural Gas Regulatory Board established
under sub-section (1) of section 3 of the Petroleum and Natural Gas Regulatory Board
Act, 2006 (19 of 2006) and notified by the Central Government in the Official Gazette in this
behalf;
(c) has made not less than 3
such proportion of its total pipeline capacity as specified by
regulations made by the Petroleum and Natural Gas Regulatory Board established under subsection (1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of
2006) available for use on common carrier basis by any person other than the assessee or an
associated person; and
(d) fulfils any other condition as may be prescribed.
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(iv) where the business is of the nature referred to in sub-clause (xiv) of clause (c) of
sub-section (8), such business,
(A) is owned by a company registered in India or by a consortium of such companies or by an
authority or a board or corporation or any other body established or constituted under any Central
or State Act;
(B) entity referred to in sub-clause (A) has entered into an agreement with the Central
Government or a State Government or a local authority or any other statutory body for
developing or operating and maintaining or developing, operating and maintaining, a new
infrastructure facility.
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(3) Where a deduction under this section is claimed and allowed in respect of the specified business
for any assessment year, no deduction shall be allowed under the provisions of 6
section 10AA and Chapter VIA under the heading C.Deductions in respect of certain incomes in relation to such
specified business for the same or any other assessment year.
(4) 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.
(5) The provisions of this section shall apply to the specified business referred to in sub-section (2) if
it commences its operations,
(a) on or after the 1st day of April, 2007, where the specified business is in the nature of laying
and operating a cross-country natural gas pipeline network for distribution, including storage facilities
being an integral part of such network; 7
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(aa) on or after the 1st day of April, 2010, where the specified business is in the nature of
building and operating a new hotel of two-star or above category as classified by the Central
Government;
(ab) on or after the 1st day of April, 2010, where the specified business is in the nature of
building and operating a new hospital with at least one hundred beds for patients;
(ac) on or after the 1st day of April, 2010, where the specified business is in the nature of
developing and building a housing project under a scheme for slum redevelopment or rehabilitation
framed by the Central Government or a State Government, as the case may be, and which is notified
by the Board in this behalf in accordance with the guidelines as may be prescribed; 9
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(ad) on or after the 1st day of April, 2011, where the specified business is in the nature of
developing and building a housing project under a scheme for affordable housing framed by the
Central Government or a State Government, as the case may be, and notified by the Board in this
behalf in accordance with the guidelines as may be prescribed;
(ae) on or after the 1st day of April, 2011, in a new plant or in a newly installed capacity in an
existing plant for production of fertilizer; 11
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(af) on or after the 1st day of April, 2012, where the specified business is in the nature of setting
up and operating an inland container depot or a container freight station notified or approved under
the Customs Act, 1962 (52 of 1962);
(ag) on or after the 1st day of April, 2012, where the specified business is in the nature of beekeeping and production of honey and beeswax;
(ah) on or after the 1st day of April, 2012, where the specified business is in the nature of setting
up and operating a warehousing facility for storage of sugar; 13
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(ai) on or after the 1st day of April, 2014, where the specified business is in the nature of laying
and operating a slurry pipeline for the transportation of iron ore;
(aj) on or after the 1st day of April, 2014, where the specified business is in the nature of setting
up and operating a semi-conductor wafer fabrication manufacturing unit, and which is notified by the
Board in accordance with such guidelines as may be prescribed; 15
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(ak) on or after the 1st day of April, 2017, where the specified business is in the nature of
developing or operating and maintaining or developing, operating and maintaining, any infrastructure
facility; and
(b) on or after the 1st day of April, 2009, in all other cases not falling under 17
any of the above
clauses.
(6) The assessee carrying on the business of the nature referred to in clause (a) of sub-section (5) shall
be allowed, in addition to deduction under sub-section (1), a further deduction in the previous year
relevant to the assessment year beginning on the 1st day of April, 2010, of an amount in respect of
expenditure of capital nature incurred during any earlier previous year, if
(a) the business referred to in clause (a) of sub-section (5) has commenced its operation at any
time during the period beginning on or after the 1st day of April, 2007 and ending on the 31st day of
March, 2009; and
(b) no deduction for such amount has been allowed or is allowable to the assessee in any earlier
previous year.
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(6A) Where the assessee builds a hotel of two-star or above category as classified by the Central
Government and subsequently, while continuing to own the hotel, transfers the operation thereof to
another person, the assessee shall be deemed to be carrying on the specified business referred to in subclause (iv) of clause (c) of sub-section (8).
(7) The provisions contained in sub-section (6) of section 80A and the provisions of sub-sections (7)
and (10) of section 80-IA shall, so far as may be, apply to this section in respect of goods or services or
assets held for the purposes of the specified business.
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(7A) Any asset in respect of which a deduction is claimed and allowed under this section shall be
used only for the specified business, for a period of eight years beginning with the previous year in which
such asset is acquired or constructed.
(7B) Where any asset, in respect of which a deduction is claimed and allowed under this section, is
used for a purpose other than the specified business during the period specified in sub-section (7A),
otherwise than by way of a mode referred to in clause (vii) of section 28, the total amount of deduction so
claimed and allowed in one or more previous years, as reduced by the amount of depreciation allowable
in accordance with the provisions of section 32, as if no deduction under this section was allowed, shall
be deemed to be the income of the assessee chargeable under the head Profits and gains of business or
profession of the previous year in which the asset is so used.
(7C) Nothing contained in sub-section (7B) shall apply to a company which has become a sick
industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986), during the period specified in sub-section (7A).
(8) For the purposes of this section,
(a) anassociated person, in relation to the assessee, means a person,
(i) who participates, directly or indirectly, or through one or more intermediaries in the
management or control or capital of the assessee;
(ii) who holds, directly or indirectly, shares carrying not less than twenty-six per cent of the
voting power in the capital of the assessee;
(iii) who appoints more than half of the Board of directors or members of the governing
board, or one or more executive directors or executive members of the governing board of the
assessee; or
(iv) who guarantees not less than ten per cent of the total borrowings of the assessee;
(b) cold chain facility means a chain of facilities for storage or transportation of agricultural
and forest produce, meat and meat products, poultry, marine and dairy products, products of
horticulture, floriculture and apiculture and processed food items under scientifically controlled
conditions including refrigeration and other facilities necessary for the preservation of such produce;
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(ba) infrastructure facility means
(i) a road including toll road, a bridge or a rail system;
(ii) a highway project including housing or other activities being an integral part of the
highway project;
(iii) a water supply project, water treatment system, irrigation project, sanitation and
sewerage system or solid waste management system;
(iv) a port, airport, inland waterway, inland port or navigational channel in the sea;
(c) specified business means any one or more of the following business, namely :
(i) setting up and operating a cold chain facility;
(ii) setting up and operating a warehousing facility for storage of agricultural produce;
(iii) laying and operating a cross-country natural gas or crude or petroleum oil pipeline
network for distribution, including storage facilities being an integral part of such network;
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(iv) building and operating, anywhere in India, a 22
hotel of two-star or above category as
classified by the Central Government;
(v) building and operating, anywhere in India, a 23
hospital with at least one hundred beds for
patients;
(vi) developing and building a housing project under a scheme for slum redevelopment or
rehabilitation framed by the Central Government or a State Government, as the case may be, and
notified by the Board in this behalf in accordance with the guidelines as may be prescribed;
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(vii) developing and building a housing project under a scheme for affordable housing
framed by the Central Government or a State Government, as the case may be, and notified by the
Board in this behalf in accordance with the guidelines as may be prescribed;
(viii) production of fertilizer in India;
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(ix) setting up and operating an inland container depot or a container freight station notified
or approved under the Customs Act, 1962 (52 of 1962);
(x) bee-keeping and production of honey and beeswax;
(xi) setting up and operating a warehousing facility for storage of sugar;
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(xii) laying and operating a slurry pipeline for the transportation of iron ore;
(xiii) setting up and operating a semi-conductor wafer fabrication manufacturing unit notified
by the Board in accordance with such guidelines as may be prescribed;
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(xiv) developing or maintaining and operating or developing, maintaining and operating a
new infrastructure facility;
(d) any machinery or plant which was used outside India by any person other than the assessee
shall not be regarded as machinery or plant previously used for any purpose, if—
(i) such machinery or plant was not, at any time prior to the date of the installation by the
assessee, used in India;
(ii) such machinery or plant is imported into India from any country outside India; and
(iii) no deduction on account of depreciation in respect of such machinery or plant has been
allowed or is allowable under the provisions of this Act in computing the total income of any
person for any period prior to the date of installation of the machinery or plant by the assessee;
(e) where in the case of a specified business, any machinery or plant or any part thereof
previously used for any purpose is transferred to the specified business and the total value of the
machinery or plant or part so transferred does not exceed twenty per cent of the total value of the
machinery or plant used in such business, then, for the purposes of clause (ii) of sub-section (2), the
condition specified therein shall be deemed to have been complied with;
(f) any expenditure of capital nature shall not include 28
any expenditure in respect of which the
payment or aggregate of payments made to a person in a day, otherwise than by an account payee
cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a
bank account, exceeds ten thousand rupees or any expenditure incurred on the acquisition of any land
or goodwill or financial instrument.
Notes:
1. Ins. by Act 33 of 2009, s. 13 (w.e.f. 1-4-2010).
2. Sub-section (1A) Omitted by Act 28 of 2016, s. 18 (w.e.f 1-4-2018).
3. Subs. by Act 14 of 2010, s. 10, for the words one-third of its total pipeline capacity (w.e.f. 1-4-2010).
4. Ins. by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).
5. Subs. by Act 14 of 2010, s. 10, for sub-section (3) (w.e.f. 1-4-2011).
6. Ins. by Act 25 of 2014, s. 12 (w.e.f. 1-4-2015).
7. The word and omitted by Act 14 of 2010, s. 10 (w.e.f. 1-4-2011).
8. Ins. by s. 10, ibid. (w.e.f. 1-4-2011).
9. The word and omitted by Act 8 of 2011, s. 6 (w.e.f. 1-4-2012).
10. Ins. by s. 6, ibid. (w.e.f. 1-4-2012).
11. The word and omitted by Act 23 of 2012, s. 9 (w.e.f. 1-4-2013).
12. Ins. by s. 9, ibid. (w.e.f. 1-4-2013).
13. The word and omitted by Act 25 of 2014, s. 12 (w.e.f. 1-4-2015).
14. Ins. by s. 12, ibid. (w.e.f. 1-4-2015).
15. The word and omitted by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).
16. Ins. by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).
17. Subs. by Act 23 of 2012, s. 9, for clause (a), clause (aa), clause (ab) and clauses (ac) (w.e.f. 1-4-2013).
18. Ins. by s. 9, ibid. (w.e.f. 1-4-2011).
19. Ins. by Act 25 of 2014, s. 12 (w.e.f. 1-4-2015).
20. Ins. by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).
21. Ins. by Act 14 of 2010, s. 10 (w.e.f. 1-4-2011).
22. Subs. by Act 8 of 2011, s. 6, for new hotel (w.e.f. 1-4-2011).
23. Subs. by s. 6, ibid., for new hospital (w.e.f. 1-4-2011).
24. Ins. by Act 8 of 2011, s. 6 (w.e.f. 1-4-2012).
25. Ins. by Act 23 of 2012, s. 9 (w.e.f. 1-4-2013).
26. Ins. by Act 25 of 2014, s. 12 (w.e.f. 1-4-2015).
27. Ins. by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).
28. Ins. by Act 7 of 2017, s. 13 (w.e.f. 1-4-2018).