1. Applicability: The assessee should be an Indian Company or Non-Corporate resident assessee.
2. Purpose of preliminary expenses:
Before commencement of business – For setting up of any undertaking or business.
After commencement of business – Extension of existing undertaking
Or setting up new unit.
Note: W.e.f. A.Y. 2009-10, the benefit u/s 35D is also available to Non-Industrial undertaking incurring expenditure with extension of its business after its commencement.
3. List of specified expenditure: Expenditure incurred in connection with
Indian Compnay:
- Preparation of feasibility report, project report or for conducting market survey or any other survey or engineering services relating to the business of the assessee.
- Legal charges for drafting any agreement setting up or for conduct of any business.
- Legal charges for drafting and printing Memorandum and Articles of Association.
- Fees for registering the company under companies Act,
- Issue of shares or debentures of the company, undertaking commission, brokerage and charges for drafting, typing, printing and advertisement of prospectus.
Non-Corporate Resident Assessee:
- Preparation of feasibility report, project report or for conducting market survey or any other survey or engineering services relating to the business of the assessee.
- Legal charges for drafting any agreement setting up or for conduct of any business.
4. Maximum permissible expenditure:
- In case of company, 5% of cost of project or capital employed, at the option of the Indian Company.
- In case of any other assessee, 5% of the cost of project.
5. Amount of deduction: Actual expenditure, subject to the maximum permissible expenditure as computed above, will be allowed as deduction in five equal installments beginning from the year of commencement of production or operation.
6. Capital employed: Issued share capital + debentures + Long term borrowings.
7. Cost of project: It means actual cost of fixed assets like land, building, leasehold, plant and machinery, furniture and fittings and railway sidings as shown in the books of the assessee on the last day of the previous year in which the assessee commences business / extension of undertaking is completed / new industrial unit commences production.
8. Audit report: Assesses other than company and co-operative society, are required to furnish the Audit report in Form 3AE along with the return of income for the first year.
9 .Business Reorganization: In case of amalgamation or de-merger of an Indian company, the amalgamated or the resulting company is entitled to deduction from the previous year in which the amalgamation or de-merger takes place.
10. No other deduction: No deduction will be available under any other section in respect of expenditure incurred under this section.
