B.COM 6th Sem.

Subject: Fundamentals of Corporate Tax Planning [DSE – 3]

Unit – 3 Syllabus:
Tax Planning with reference to Depreciation, Capital Gain and Scientific Research.
Depreciation

Conditions for allowability of Depreciation:

(a) Classification of Assets:

The assets in respect of which depreciation is claimed must be buildings, machinery, plant or furniture. In addition to
these tangible assets intangible assets like know how, patent rights, copy rights, trade marks, licences,
franchises or any other business or commercial right of similar nature acquired on or after 1.4.1998 are eligible
for depreciation.
(b) Ownership:
Depreciation is allowable to the assessee only in respect of those capital assets which are owned by him. In case of
a building, the assessee must be owner of the super-structure and not necessarily of the land on which it is constructed.
If the assessee is only a tenant of the building but not its owner he is not entitled for allowance in respect of
depreciation thereof.
(c) Used for the purpose of Business or Profession:
The allowance for depreciation is subject to the condition that the assets on which depreciation is claimed are
actually used by the assessee for the purposes of his business or profession during the accounting year.
(d) Use of the asset in the previous year-the asset: in respect of which depreciation is claimed, must have been
used for the purpose of business during the relevant previous year. Even if an asset is used for a few days (or even
for a few hours) during the previous year, depreciation for the entire year is available.However.in the first year, in
which an asset is acquired, the asset should be used at least for 180 days to claim fully year's depreciation (ifit is
used for less than 180 days, half year's depreciation in the first year in which the asset is acquired).
(e) Amount of deduction shall not exceed actual cost: The total amount of all items of depreciation allowance
allowed to the assessee from year to year shall not exceed the actual cost of the block of assets to the assessee.
(f) No deduction on sold assets: No depreciation is allowable in respect of the depreciable asset if the asset concerned
is sold, destroyed, discarded or demolished in the same year in which it was acquired.
(g) In order to be entitled to allowance towards depreciation, the assessee must furnish the prescribed particulars
contained in Annexure `B' attached to the Form of the Return of Income-tax. Any failure on the part of the

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 assessee to furnish fully and truly all material facts, including the particulars prescribed for this purpose, would
entitle the income-tax authorities to refuse to allow deduction towards depreciation.
(h) The Finance Act, 1995 has deleted w.e.f. assessment year 1996-97 the provision pursuant to which one could
write off the entire cost of plant and machinery in the very first previous year in which it was put to use provided
its actual cost did not exceed 5,000, to prevent the widespread misuse of the concession.
(i) In case of joint ownership of an asset, depreciation would be allowed to each of the owner in proportion to the
contribution to the total cost of the asset; and In case of amalgamation during the course of a previous year,
the amalgamating company and the amalgamated company shall share the depreciation in proportion to the
number of days during which the assets remained under their respective ownership. Similarly, in case of
demerger during the course of a previous year (w.e.f. 1.4.2000), the demerged company and the resulting
company shall share the depreciation in proportion to the number of days during which the assets remained
under their respective ownership.

In other words, Depreciation is allowed if all the following conditions are satisfied:
1. Assessee need not be a registered owner, even a beneficial owner can claim depreciation.
2. In case of joint ownership, depreciation is allowed on proportionate basis.
3. Use includes actual as well as passive use (kept ready to use).
4. Depreciation on asset partially owned by the assesssee shall be allowed to the extent of his share in
asset.
5. In case of standby machinery and emergency spares, the depreciation shall be allowed even if they
are ready for use and not put to use.
6. In case of lease, Depreciation is always claimed by lessor whether it is Financial Lease or
Operating Lease.
7. In case of Hire Purchase, assessee gets the ownership only after payment of last installment
but he can claim depreciation from the beginning, assuming assesee is the owner from beginning.

𝑅𝑎𝑡𝑒 𝑜𝑓 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑏𝑙𝑜𝑐𝑘

Depreciation = WDV of Block as on last day of Previous Year X
100
Actual Cost = Cost of Purchase/Construction + Pre-Use Expenses – Portion of Cost met by some Authority (e.g.,
Subsidy from Government)
 In case an asset is acquired and payment exceeding ₹10,000 is given in cash then any amount exceeding ₹10,000
shall be ignored while calculating actual cost of the asset for calculation of depreciation.
Meaning of Block of Assets
The depreciation is provided in respect of "Block of assets". As per Section 2(11) Block of assets means "a group
of assets falling within a class of assets, being tangible assets such as buildings, machinery, plant or
furniture and intangible assets, being know-how, patents, copyrights, trademarks, licences, Franchises or any

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other business or commercial rights of similar nature, in respect of which the same percentage of
depreciation is prescribed".

Important Terms: For the purposes of depreciation, the following terms are important:
i. Actual Cost
ii. Written Down Value

(i) Actual Cost [Section 43(1)]

For computing depreciation, actual cost is the basis in the case of all assets for the first year when the assets are put to use
for the purpose of the business. Subsequently, even in the case of depreciable asset when the written down value is to be
ascertained for the purpose of allowing depreciation, the written down value should be taken to be the book value of the
asset after allowing deduction in respect of the depreciation allowable under the Income-tax Act from the actual cost of the
asset concerned. The actual cost of an asset is essential for the purposes of allowing depreciation also because of the fact
that the aggregate of all the items of depreciation allowable to an assessee in respect of any depreciable asset shall not
exceed the amount of its actual cost. The actual cost of an asset to the assessee is normally the amount of capital expenditure
incurred in respect of the acquisition, installation, etc., of the asset and also the expenses, if any, incurred by him to make the
asset ready for the purpose of its use in the business. Thus, capital expenditure relating to the installation of machinery or
plant, its design, etc., would form part of the actual cost of the machinery although such expenses may be incurred by the
assessee subsequent to the date of its acquisition.
Actual Cost in Certain Special Situations:
(a) Asset used for business after it ceases to be used for scientific research: The actual cost to the assessee for
depreciation purposes shall be the actual cost to the assessee as reduced by any deduction allowed under section
35(1)(iv).
(b) Inventory converted into capital asset and used for business or profession: The fair market value of such
inventory as on the date of its conversion into capital asset determined in the prescribed manner, shall be the actual cost
of such capital asset to the assessee.
(c) Asset is acquired by way of gift or inheritance: Its actual cost shall be the actual cost to the previous owner minus
depreciation allowable to the assessee as if asset was the only asset in the relevant block of assets. Further, any
expenditure incurred by the assessee such as expenditure on freight, installation etc. of such asset would also be
includible in the actual cost.
(d) Second hand asset: Where, before the date of its acquisition by the assessee, the asset was at any time used by any
other person for the purposes of his business or profession, and the Assessing Officer is satisfied that the main purpose
of the transfer of the asset directly or indirectly to the assessee was the reduction of liability of income-tax directly or
indirectly to the assessee (by claiming depreciation with reference to as enhanced cost), the actual cost to the assessee
shall be taken to be such an amount which the Assessing Officer may, with the previous approval of the Joint
Commissioner, determine, having regard to all the circumstances of the case.
(e) Re-acquisition of asset: Where any asset which had once belonged to the assessee had been used by him for the
purposes of his business or profession and there ceased to be his property by reason of transfer or otherwise, is re-
acquired by him, actual cost to the assessee shall be lower of the following two:

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 1. the actual cost when he first acquired the asset minus depreciation allowable the assessee as if asset was the
only asset in the relevant block of assets; or
2. the actual price for which the asset is re-acquired by him
(f) Acquisition of asset previously owned by any person to whom such asset is on lease, hire or otherwise: The
actual cost of the transferred assets, in the case of assessee, is the same as the written down value of the said assets at
the time of transfer thereof to other person.
(g) Building previously the property of the assessee: Its actual cost to the assessee shall be the
actual cost of the building to the assessee, as reduced by an amount equal to the depreciation
calculated at the rates in force on that date that would have been allowable had the building been
used for the purposes of the business or profession since the date of its acquisition by the
assessee.
(h) Asset is acquired outside India by an assessee, being a non-resident and such asset is
brought by him to India: The actual cost of asset to the assessee shall be the actual cost the
asset to the assessee, as reduced by an amount equal to the amount of depreciation calculated at
the rate in force that would have been allowable had the asset been used in India for the said
purposes since the date of its acquisition by the assessee.
(i) Capital asset on which deduction is allowable under section 35AD: The actual cost of any capital
asset, on which deduction has been allowed or is allowable to the assessee under section 35AD, shall
be nil.
(ii) Written down value [Section 43(6)]
The written down means: In the case of assets acquired in the previous year, the actual cost of the assets to the assessee. In
the case of assets acquired before the previous year the actual cost of the assets to the assessee less all depreciation actually
allowed to him in that Previous Year. In the case of any block of assets the written down value will be determined as
under:
Total of written down value of all the assets falling within a block at the beginning of the previous year relevant
to the assessment year
Add: The actual cost of, any new assets falling in the block, acquired during the previous year
Less: Money payable in respect of any asset, falling within that block which is sold, discarded, demolished or
destroyed during the previous year together with the amount of scrap value in respect of any asset.
Less: Depreciation during the previous year relevant to the assessment year

Written down value at the beginning of the previous year relevant to the
Next assessment year

The addition/deduction as aforesaid may be made for calculating written down value for the concerned previous year.
The written down value of any block of assets may be reduced to nil in the following cases:

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(i) Where money receivable in respect of assets sold or otherwise transferred during the previous year plus the
amount of scrap value is more than the written down value at the beginning of the previous year as increased by
the actual cost of any new asset acquired.
(ii) Where all the assets in the relevant block are transferred during the year.

Additional Depreciation [Sec. 32(1)(iiA)]:

 W.E.F. A.Y. 2006-07, an additional depreciation @ 20% of actual cost of P & M is allowed if the
following conditions are fulfilled:
• In case of any new machinery or plant (excluding ships and aircraft) acquired and installed after
March 31, 2005 by an assessee who is engaged in the business of manufacture or production of any
article or thing.
• From A.Y. 2013-14 the same is also allowed to assessee engaged in the business of generation or
generation and distribution of power.
• From assessment year 2017-18 the same is also allowed to the assessee engaged in the business of
transmission of power.
• Where the asset is used for less than 180 days, then 50% depreciation i.e., 1/2 of 20% (i.e. 10%) is
available (Balance 50% of Additional Depreciation can be claimed in next year).
 The Provision inserted vide Finance Act, 2015 with effect from 01.04.2016 provides for enhanced
depreciation to the backward areas:
1. in the State of Andhra Pradesh; or
2. in the State of Bihar; or
3. in the State of Telangana; or
4. in the State of West Bengal.
 Assessee acquires and installs new machinery, then the additional depreciation is available to such
undertaking or enterprise for the period from 01.04.2015 to 31.03.2020 at 35% instead of 20% if asset is
used for 180 days or more.
 17.5% (1/2 of 35%) if the asset is used for less than 180 days during the previous year.
 Non Applicability:
• Ships and Aircrafts
• Second hand or used P & M
• P & M used in office/Home/Guesthouse
• Office Appliances
• Road Transport Vehicles (Car etc.)
• 100% Depreciable Assets (like Pollution Control Equipments) debited to P & L A/c.
Additional Depreciation is only for factories or power generation units, not for dealer or service
providers.

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 Capital Gains
Basis of Charge [Section 45]:
U/s 45(1) any profits or gains arising from the transfer of a capital asset effected in the P.Y. shall be chargeable
to income tax under the head ‘Capital Gains’ and shall be deemed to be the income of the P.Y. unless such
capital gains are exempted u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA or 54GB.
Meaning of Capital Assets [Sec. 2(14)]:
 Section 2(14) defines capital assets as:
(a) Property of any kind held by an assessee whether or not connected with his business or profession;
(b) Any security held by a Foreign Institutional Investor which has invested in such security in accordance
with the regulations made under SEBI Act, 1992.
 This definition has a wide coverage as it includes all types of properties, whether movable or
immovable, tangible or intangible, fixed or floating.
Not included in Capital Assets:
a) Any stock-in-trade, raw materials, consumable stores held by any assessee for the purpose of his
business or profession.
b) Personal effects (movable property) including wearing apparel, motor car, electrical appliances,
refrigerator, furniture etc.; ornaments excluding jewellery, archaeological collections, drawings,
paintings, sculptures, or any work of art held for personal use by the assessee or any other member of his
family dependent upon him.
c) Agricultural Land in rural India – But the Land should not be situated:
(A) in any area which is comprised within the jurisdiction of a municipality (whether known as a
municipality, municipal corporation, notified area committee, town area committee, town
committee or by any other name) or a cantonment board and which has a population of not less
than 10,000; or
(B) in any area within the distance, measured aerially from any municipality or cantonment board as
follows—

Aerial distance from Population as per last

municipality* preceding census.
Within 2 kilometres 10,000 to 1,00,000
Within 6 kilometres 1,00,001 to 10,00,000
Within 8 kilometres More than 10,00,000

*Municipality includes Municipal Corporation, Notified Area Committee, Town Area

Committee, Town Committee and Cantonment Board.

d) 6% Gold Bonds 1977 or 7% Gold Bonds 1980 or National Defence Gold Bonds 1980 issued by the
Central Government.
e) Special Bearer Bonds, 1991.

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 f) Gold Deposit Bonds issued under Gold Deposit Scheme 1999.
g) Deposit Certificates issued under Gold Monetisation Scheme, 2015 [w.e.f. A.Y. 2016-17].

Types of Capital Assets:

1) Short-term Capital Assets [Section 2(42A)]: Short-term Capital Assets are the assets held by an assessee
for not more than 36 months immediately preceding the date of transfer.

Exceptions to the general rule of 36 months or less holding period:

(a) The following assets to be regarded as short-term capital assets if held for 12 months or less before
transfer:

 Security (other than a unit) listed on a recognised stock exchange in India

 Units of UTI
 Units of equity oriented mutual funds
 Zero Coupon Bond

(b) Unlisted shares of companies and immovable property to be regarded as short-term capital assets if
held for 24 months or less before transfer.

2) Long-term Capital Assets [Section 2(29A)]: Assets which do not fall within the definition given in
Section 2(42A) are called as ‘Long Term Capital Assets’.

Types of Capital Gains:

Transfer of Capital Assets:

Transfer—U/s 2(47) of Income-tax Act 1961, the term ‘transfer’ has been defined as Transfer in relation to a capital asset
includes:

i. the sale, exchange or relinquishment of the asset; or

ii. the extinguishment of any rights therein; or

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 iii. the compulsory acquisition thereof under any law; or
iv. in a case where the asset is converted by the owner thereof into, or is treated by him as stock-in-trade of a business
carried on by him, such conversion or treatment; or
v. any transaction involving the allowing of the possession of any immovable property to be taken or retained in part
performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; or
vi. any transaction (whether by way of becoming a member of, acquiring shares in, a co-operative society, company or
other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever)
which has the effect of transferring or enabling the enjoyment of, any immovable property.
vii. maturity or redemption of a zero-coupon bond.
Deemed Transfer [Sec. (45(2)]: In case a capital asset is converted into stock-in-trade, or is treated as stock-in-
trade by the assessee, it will be deemed to have been transferred. The difference between market value and the
cost price shall be taxable as capital gain under this head.

Transactions Not Regarded As Transfer:

Under Section 47, the following transactions are not regarded as transfers. Hence any gain arising from such
transactions are not taxable under the head ‘Capital Gains’:

i. Any distribution of capital asset on the total or partial partition of Hindu Undivided Family.

ii. Any distribution of capital asset on liquidation of a company to its shareholders [Sec. 46(1)].

iii. Any transfer of assets under a gift or will or an irrevocable trust (excluding shares, debentures or
warrants allotted by a company under ESOP scheme).

iv. Any transfer of capital assets by a company to its wholly-owned Indian subsidiary company.

v. Any transfer of capital assets by a subsidiary company to its 100% Indian Holding company.

vi. Any transfer in a scheme of amalgamation of a capital asset by the amalgamating company to the Indian
amalgamated company.

vii. Any transfer of agricultural land in India effected before 1st of March 1970.

viii. Any transfer by way of conversion of bonds, debentures, debenture stock or deposit certificates in any
form, of a company into shares or debentures of that company.

ix. Any transfer made on or before the 31st day of December 1998 by a person (not being a company) of a capital
asset being membership of a stock exchange of a recognised stock exchange to a company in exchange of shares
allotted by that company to the transfer. These shares cannot be transferred for 3 years.

x. In case there is transfer due to lending of securities by its holder under an agreement with the borrower
and as per guidelines issued by Securities Exchange Board of India, or by R.B.I. it shall not be deemed
as transfer.

xi. Any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by
Central Government.

xii. In case a private company or unlisted public company is converted into a limited liability partnership;
the transfer of capital assets or intangible assets to Limited Liability Partnership or a shareholder
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 transfers shares held in such a company, such transfer shall not be regarded as transfer if certain
conditions are fulfilled.

Cost of Acquisition:

Capital gains are ascertained after taking into consideration the cost of acquisition of the capital asset by the
assessee. The cost of acquisition is easily determinable where the asset has been purchased by the assessee. In
other cases, it can be determined by the following modes namely:

1. Goodwill/right to manufacture, produce or process trademark/ or brand name associated with a business/
tenancy rights, stage carriage permits or loom hours, the cost shall be :
(a) If acquired by paying price—the price paid;
(b) If acquired without paying any price and transfer is not covered as transfer u/s 49(1)(i) to 49(1)(iv) – the
cost is nil ;
(c) If acquired without paying any price and transfer is covered as transfer u/s 49(1)(i) to 49(1)(iv) — the
cost is the amount as shown in the books of previous owner.
2. In case asset is acquired by present seller—the cost as shown in his books.
3. Assets acquired under transfers mentioned under section 49(1)—the cost as shown in the books of previous
owner.
4. In case of shares acquired under scheme of amalgamation of companies, or on conversion of debentures or
deposit certificates into shares—the cost of original asset shall remain cost of new asset.
5. For assets acquired before 1-4-2001, the assessee has been given the option to adopt the FMV on 1-4-2001 as
his cost.
6. In case of depreciable assets, WDV of the block as on 14-2019 + any additions made during the year + buying
expenses, if any, shall be deemed as cost.
7. Cost of bonus shares issued before 1-4-2001 shall be their FMV as on 1-4-2001 and those which are issued
after 1-4-2001 cost shall be taken as NIL.
8. Cost of right shares acquired by original shareholder shall be the amount paid to the company and for the
person who obtains right shares on renouncement, the cost will be amount paid to the company + amount paid
to the renouncer.
9. In case shares or debentures are allotted under stock option scheme to employees and their value was taken as
perk under the head "Income from Salaries", the cost of these shares shall be the amount taxed as value of
perk.
10. When a capital asset is converted into stock in trade the cost for the purposes of ascertaining the business profit
shall be the FMV of the asset at which it is converted into stock in trade.
11. In case inventory (or stock-in-trade) is converted into capital asset, the F.M.V. as on the date of conversion
shall be the cost of acquisition of that asset and the period of holding for such capital asset shall be reckoned
from the date of its conversion from inventory into capital asset.

DEEMED COST OF ACQUISITION

Where the capital asset became the property of the assessee in any of the following manner, the cost of
acquisition of asset shall be deemed to be cost for previous owner:

1. On any distribution of assets on the total or partial partition of a Hindu undivided family;

2. Under a gift or will;

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 3. By succession, inheritance or devolution
4. On any distribution of assets on the dissolution of a firm, body of individuals, or other association of
persons, where such dissolution had taken place at any time before the 1st day of April, 1987,
5. Where the capital asset became the property of the assessee in any of the following manner, the cost of
acquisition of asset shall be deemed to be cost for previous owner:
6. On any distribution of assets on the total or partial partition of a Hindu undivided family;
7. Under a gift or will;
8. By succession, inheritance or devolution
9. On any distribution of assets on the dissolution of a firm, body of individuals, or other association of
persons, where such dissolution had taken place at any time before the 1st day of April, 1987.

Cost of Improvement:

1. Goodwill/right to manufacture, produce or process cost of improvement shall be nil.

2. Asset acquired before 1-4-2001, cost of improvement shall be all capital expenses incurred after 1-4-2001
for making any addition or alteration either by previous owner or by present seller. Such expenses incurred
before 1-4-2001 are ignored.
3. Asset acquired after 1-4-2001 cost of improvement shall be all capital expenses incurred after 1-4-2001 for
making any addition or alteration by the assesse after he became its owner.
4. Assets acquired under transfers mentioned under section 49(1) cost of improvement shall be all capital
expenses incurred after 1-4-2001 for making any addition or alteration either by previous owner or by
present seller.

INDEXED COST OF ACQUISITION

Indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as cost
inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in
which the asset was held by the assessee or for the year beginning on 1-4-2001 whichever is later.

Cost Inflation Index (CII), in relation to a previous year, means such index as the central government may,
having regard to 75% of an average rise in the consumer price index for urban non-manual employees for the
immediately preceding previous year to such previous year, by notification in the official gazette, specified in
this behalf

Indexed cost not allowed:

1. Transfer of bonds and debenture by company or govt. other than capital indexed bonds issued by
government,
2. Transfer of shares & debentures by non- resident in foreign currency in Indian company.
3. Transfer of undertaking or division in a slump sale,
4. Transfer of offshore funds,

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5. Transfer of GDR by non-resident purchased in foreign currency.
6. Transfer of securities by FII.[sec 115AD]
Formulae of Indexation:

Situation Indexing
Long term capital assets acquired before 1-4-2001 Actual Cost or FMV on 1-4-2001 (whichever is more) x
under gift, will, partition of H.U.F. or inheritance i.e., C.I.I. of the year of transfer / C.I.I. of 2001-02 i.e., 100
u/s 49(1)

Cost of improvement incurred on or after 1-4-2001 on Cost of Improvement x C. I. I. of the year of transfer
above mentioned assets. C. I. I. of the year of improvement

Long term capital assets acquired on or after 1-4-2001 Actual Cost x C. I. I. of the year of transfer
(not under any of the modes mentioned above) C. I. I. of the year of acquisition
Cost of improvement incurred after 1-4-2001
Cost of Improvement x C. I. I. of the year of transfer
C. I. I. of the year of improvement

Long term capital asset acquired by present seller u/s Actual Cost or FMV on 1-4-2001 (whichever is more) x
49(1) on or after 1-4-2001 but was acquired by C.I.I. of the year of transfer / C.I.I. of the year in which
previous owner before 1-4-2001. present seller became its owner

EXEMPTIONS IN RESPECT OF CAPITAL GAINS:

1. Capital Gains on Compulsory Acquisition of Urban Agricultural Land [Section 10(37)]:

In the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under
the head "Capital gains" arising from the transfer of agricultural land, shall be exempted, where:

(i) such land is situated in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of
section 2;

(ii) such land, during the period of two years immediately preceding the date of transfer, was being used for
agricultural purposes by such Hindu undivided family or individual or a parent of his;

(iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for
which is determined or approved by the Central Government or the Reserve Bank of India;

(iv) such income has arisen from the compensation or consideration for such transfer received by such
assessee on or after the 1st day of April, 2004.

Explanation.—For the purposes of this clause, the expression "compensation or consideration" includes
the compensation or consideration enhanced or further enhanced by any court, Tribunal or other
authority;

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 2. Income from transfer of asset of an undertaking engaged in the business of generation, transmission
or distribution of power [Section 10(40)]:

Any income arising from transfer of a capital asset, being an asset of an undertaking engaged in the
business of generation or transmission or distribution of power where such transfer is effected on or before
the 31st day of March, 2006, to the Indian company notified under sub-clause (a) of clause (v) of sub-
section (4) of section 80-IA;

3. Capital Gains on transfer of long-term residential house property [Section 54]:

4. Capital Gains on transfer of self-cultivated agricultural land in urban areas [Section 54B]:

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5. Capital Gains on compulsory acquisition of land and buildings used in an industrial undertaking
[Section 54D]:

6. Capital Gains on transfer of long-term capital asset being land or building or both [Section 54EC]:

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7. LTCG if amount is invested in the long-term specified asset [Section 54EE]:

8. Transfer of any long-term capital asset (other than residential house) and investment made in a new
residential house [Section 54F]:

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9. Capital Gain on shifting of industrial undertaking from urban area to rural area [Section 54G] / SEZ
[Section 54GA]:

Scientific Research
Scientific Research – Section 43(4):
(i) “scientific research" means any activities for the extension of knowledge in the fields of natural or applied
science including agriculture, animal husbandry or fisheries;
(ii) references to expenditure incurred on scientific research include all expenditure incurred for the
prosecution, or the provision of facilities for the prosecution, of scientific research, but do not include any
expenditure incurred in the acquisition of rights in, or arising out of, scientific research;
(iii) references to scientific research related to a business or class of business include-
a) any scientific research which may lead to or facilitate an extension of that business or, as the case may
be, all businesses of that class;
b) any scientific research of a medical nature which has a special relation to the welfare of workers
employed in that business or, as the case may be, all businesses of that class;

Valuation of Assets – Section-43

i) “actual cost” means the actual cost of the assets to the assessee, reduced by that portion of the cost
thereof, if any, as has been met directly or indirectly by any other person or authority.
ii) Where the actual cost of an asset, being a motor car which is acquired by the assesseee after 31.03.1967,
but before 01.03.1975, and is used otherwise than in a business of running it on hire for tourists, exceeds

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 Rs.25,000, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof
shall be taken to be Rs.25,000.
iii) Where the assessee incurs any expenditure for acquisition of any asset or part thereof in respect of which
a 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 Rs.10,000 such expenditure shall be ignored for the purposes of determination of
actual cost.
iv) Where an asset is used in the business after it ceases to be used for scientific research related to that
business and a deduction has to be made under section 32(1)(ii) in respect of that asset, the actual cost of
the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any
deduction allowed under of section 35(1) (iv) or under any corresponding provision of the Indian
Income Tax Act, 1922.
v) W.e.f. 01.04.2019 where a capital asset referred to in clause (via) of section 28 is used for the purpose of
business or profession, the actual cost of such asset to the assessee shall be the fair market value which
has been taken into account for the purpose of the said clause.

Expenditure on Scientific Research – Section 35:

Section Nature of deduction Who can claim
35(1)(i) Revenue expenditure on scientific research pertaining to business of All assesseee
assesseee is allowed as deduction (Subject to certain conditions).
Note:
Expenditure on scientific research incurred within 3 years before
commencement of business (in the nature of purchase of materials and
salary of employees other than perquisite) is allowed as deduction in
the year of commencement of business to the extent certified by
prescribed authority.
35(1)(ii) 175% of contribution made to approved research association, All assesseee
university, college or other institution to be used for scientific research
shall be allowed as deduction (Subject to certain conditions)
150% of sum paid to such association, university, college or other
institution is allowed as deduction (applicable from AY 2018-19)
35(1)(iia) 125% of contribution made to an approved company registered in All assesseee
India to be used for the purpose of scientific research is allowed as
deduction (Subject to certain conditions)
Entire sum paid to the company is allowed as deduction (applicable
from AY 2018-19)
35(1)(iii) 125% of contribution made to approved research association, All assesseee
university, college or other institution with objects of undertaking
statistical research or research in social sciences shall be allowed as
deduction (Subject to certain conditions)
Entire sum paid to such association, university, college or other
institution is allowed as deduction (applicable from AY 2018-19)

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35(1)(iv) read Capital expenditure incurred during the year on scientific research All assesseee
with 35(2) relating to the business carried on by the assesseee is allowed as
deduction (Subject to certain conditions)
Capital expenditure incurred within 3 years before commencement of
business is allowed as deduction in the year of commencement of
business.
Note:
i. Capital expenditure excludes land and any interest in land;
ii. No depreciation shall be allowed on such assets.
35(2AA) 200% of payment made to a National Laboratory or University or an All assesseee
Indian Institute of Technology or a specified person is allowed as
deduction (Subject to certain conditions).
150% of payment is allowed as deduction (applicable from AY 2018-
19)

35(2AB) 200% of any expenditure incurred by a company on scientific research Company engaged
(including capital expenditure other than on land and building) on in- in business of bio-
house scientific R & D facilities as approved by the prescribed technology or in
any business of
authorities shall be allowed as deduction.
manufacturing or
150% of the expenditure so incurred shall be allowed as deduction production of
(applicable from A.Y. 2018-19). eligible articles or
things

Sale of Scientific Research Assets:

i) Where an asset representing expenditure of a capital nature on scientific research within the meaning of
section 35(2B) is sold, without having been used for other purposes, and the proceeds of the sale
together with the total amount of the deductions made, the amount of the deduction under section
35(2B) exceed the amount of the capital expenditure, the excess or the amount of the deductions so
made, whichever is the less, shall be chargeable to income-tax as income of the business or profession of
the previous year in which the sale took place.
ii) Where the moneys payable in respect of any asset referred to in this sub-section become due in a
previous year in which the business is no longer in existence, the provisions of this sub-section shall
apply as if the business is in existence in that previous year.
iii) Capital Gain / Loss : Sales consideration – cost of acquisition / Index cost of acquisition

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