Income Tax, Issue Update

Types of expenditure that can be allowed as amortisation under section 35DD of the Income Tax Act, 1961


Outcome: In favour of Assessee


  • For Assessment Year 2012-13, the Assessee had filed a return of income showing total income of Rs. 25.61 Crs. The case of the Assessee was selected for scrutiny through CASS.
  • In the course of assessment under section 143(3) of the Act, the Assessing Officer required the Assessee to substantiate the claim being made under section 35DD of the Act. According to him the condition laid down in Clause 6.11 (ii) of the Scheme required that the leasehold property being vested with the transferee company i.e. the Assessee, should be transferred as well as registered in the name of the Assessee, which remained unfulfilled and as a consequence, the demerger also remained incomplete.
  • According to the Assessing Officer, the permission fees paid to the Government of West Bengal indicated that the approval was granted by the State Government but he was of the view the registration of the leasehold property in the name of the Assessee was also a precondition in terms of the Scheme. Based on these observations, the Assessing Officer thereafter concluded that the deduction under section 35DD of the Act was not permissible since it was allowable only when the terms of the scheme were fully complied with.
  • Accordingly, the Assessing Officer disallowed the demerger expenses of Rs.2.26 Crs claimed in terms of Section 35DD of the Act.

Key Points

  • In present facts of the case, nowhere does the clause made the demerger conditional upon the ‘registration’ of the leasehold property in the name of the Assessee. It was observed that the Assessing Officer had imported a condition into the Scheme of Arrangement which was neither prescribed by the Parties to the Scheme or by the Hon’ble High Court.
  • The only condition for ‘vesting’ of the leasehold property with the resulting company, was obtaining approval from Government of West Bengal. It was not in dispute that this approval was granted by the Government of West Bengal prior to the Scheme becoming effective from 11.02.2010.
  • Further, even the requisite permission fee was paid prior to the date on which the scheme became effective. It was further observed that this Scheme of Arrangement was sanctioned by the Hon’ble Delhi High Court and it ordered the vesting of the Kolkata undertaking with the Assessee Company from the appointed date i.e. 31.10.2009.
  • Therefore, the vesting of Kolkata undertaking with the Assessee, as contemplated in terms of the Scheme, particularly Clause 6.11(ii) and 6.12, was indeed complete. For the reasons discussed in the foregoing, the very premise on which the Assessing Officer denied the deduction claimed by the Assessee under section 35DD of the Act was found to be factually untenable and hence, deduction under section 35DD was allowable to the Assessee on account of permission fees.

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