Section 35AD - New Provisions: Investment linked deduction in respect of specified businesses

Investment linked deduction in respect of specified businesses

Under the existing provisions of section 35AD of the Income-tax Act, investment-linked tax incentive is provided by way of allowing hundred per cent. deduction in respect of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the “specified business”. Currently, the following specified businesses are eligible for availing investment-linked deduction under section 35AD(8)(c):-

(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;

(iv) building and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central Government;

(v) building and operating, anywhere in India, a new 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.

It is proposed to include two new businesses as “specified business”, i.e.

(a) 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; and

(b) production of fertiliser in India.

The dates of commencement of the “specified business” as an eligibility condition are detailed in section 35AD(5). It is proposed that the date of commencement of operations in the case of the two “specified businesses” of affordable housing projects and production of fertilizer in a new plant or in a newly installed capacity in an existing plant shall be on or after 15t April, 2011.

These amendments will take effect from 15t April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.

Under section 73A, any loss of a “specified business” (under section 35AD) is allowed set-off against profit and gains of any other “specified business”. In order to remove any ambiguity in this regard in respect of the business of hotels and hospitals, it is proposed to remove the word “new” from the definition of “specified business” in the case of hotels and hospitals under section 35AD(8)(c). With this, the loss of an assessee on account of a “specified business” claiming deduction under section 35AD would be allowed to be set off against the profit of another “specified business” under section 73A, whether or not the latter is eligible for deduction under section 35AD. Therefore, an assessee who currently operates a hospital or a hotel would be able to set off the profits of such business against the losses, if any, of a new hospital or new hotel which begins to operate after 1st April, 2010 and which is eligible for deduction of expenditure under section 35AD.

This amendment will take effect retrospectively from 15t April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.