Amortisation of certain preliminary expenses

(1)

If an assessee, being an Indian company or a person (other than a company), who is resident in India, incurs any expenditure specified in sub-section (2)— (a) before the commencement of its business; or (b) after the commencement of its business, in connection with the extension of its undertaking or in connection with its setting up a new unit, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive tax years beginning with— (i) the tax year in which the business commences, for clause (a); or (ii) the tax year in which the extension of the undertaking is completed or the new unit commences production or operation, for clause (b).

(2)

The expenditure referred to in sub-section (1) shall be— (a) the expenditure in connection with— (i) preparation of feasibility report;

(ii)

preparation of project report;

(iii)

conducting market survey or any other survey necessary for the business;

(iv)

engineering services relating to the business;

(b)

legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business;

(c)

if the assessee is a company,— (i) legal charges for drafting and printing of the Memorandum and Articles of Association of the company;

(ii)

fees for registering the company under the provisions of the Companies Act, 2013;

(iii)

expenditure in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; and (d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act), as prescribed.

(3)

In relation to expenditure specified in sub-section (2)(a), the assessee shall 15 furnish a statement containing the particulars of the expenditure in such form and manner, as prescribed.

(4)

The total expenditure referred to in sub-section (2) shall be restricted to 5%— (a) of the cost of the project; or (b) of the capital employed in the business of the company, where the 20 assessee is an Indian company, at its option.

(5)

In this section,—

(a)

“cost of the project” means the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings) and— (i) for cases under sub-section (1)(a), the cost is calculated as of the last day of the tax year when the business commences;

(ii)

for cases under sub-section (1)(b), the cost is calculated as of the last day of the tax year when either the extension of the undertaking is completed, or the new unit commences production or operations, which only includes fixed assets acquired or developed in connection with the extension of the undertaking or setting up of new unit;

(b)

“capital employed in the business of the company” means— (i) in cases under sub-section (1)(a), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the tax year in which the business of the company commences;

(ii)

in a case under sub-section (1)(b), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the tax year in which the extension of the undertaking is completed or, as the case may be, the new unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of the undertaking or the setting up of the new unit of the company;

(c)

“long-term borrowings” means— (i) any moneys borrowed by the company from Government or IFCI Ltd., or ICICI Ltd., or any other financial institution which is eligible for deduction under section 32(e) or any banking institution (not being a financial institution referred to above); or (ii) any loan or debt incurred by it in a foreign country in respect of the purchase outside India of capital plant and machinery, where the tenure of loan or debt is not less than seven years.

(6)

If the assessee is a person, other than a company or a co-operative society, no deduction shall be admissible under sub-section (1) unless,— (a) the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant before the specified date referred to in section 63; and (b) the assessee furnishes for the first year in which the deduction under this section is claimed, the report of such audit by such date in such form duly signed and verified by such accountant and setting forth such particulars, as prescribed.

(7)

If an undertaking of Indian company entitled for deduction under sub-section (1) is transferred before expiry of five years specified in the said sub-section, in a scheme of amalgamation, to another Indian company, then— (a) no deduction under sub-section (1) shall be allowed to the amalgamating company for the tax year in which amalgamation takes place; and (b) all provisions of this section shall continue to apply to the amalgamated company as they would have applied to the amalgamating company, as if the amalgamation has not taken place.

(8)

If an undertaking of Indian company entitled for deduction under sub-section (1) is transferred before five years specified in the said sub-section, in a scheme of demerger to another company, then— (a) no deduction under sub-section (1) shall be allowed to the demerged company for the tax year in which demerger takes place; and (b) all provisions of this section shall continue to apply to the resulting company as they would have applied to the demerged company, as if the demerger has not taken place.

(9)

If a deduction under this section is claimed and allowed for any tax year in respect of any expenditure referred to in sub-section (2), deduction shall not be allowed for such expenditure under any other provision of this Act for the same or any other tax year.