Section 35AD Amendment
Section 35AD of the Act, relating to deduction in respect of expenditure on specified business, provides for 100% deduction on capital expenditure (other than expenditure on land, goodwill and financial assets) incurred by the assessee on certain specified businesses.
Under sub-section (1) of section 35AD, the said deduction of 100% of the capital expenditure is allowable during the previous year in which such expenditure has been incurred.
Further, sub-section (4) provides that no deduction is allowable under any other section in respect to the expenditure referred to in sub-section (1). At present, an assessee does not have any option of not availing the incentive under said section.
Due to this, a legal interpretation can be made that a domestic company opting for concessional tax rate under section 115BAA(i.e. option to pay tax at the rate of 22%) or section 115BAB(i.e. Option for new manufacturing companies to pay tax at the rate of 15%) of the Act, which does not claim deduction under section 35AD, would also be denied normal depreciation under section 32 due to operation of sub-section (4) of section 35AD.
In short, companies opting for section 115BAA or section 115BAB were not be able to take deduction of normal depreciation u/s 32 because of the legal wordings of section 35AD(4).To make section 35AD optional, section 35AD has amended.
Therefore, it is proposed to amend sub-section (1) of section 35AD to make the deduction thereunder optional. It is further proposed to amend sub-section (4) of section 35AD to provide that no deduction will be allowed in respect of expenditure incurred under sub-section (1) in any other section in any previous year or under this section in any other previous year, if the deduction has been claimed by the assessee and allowed to him under this section.
This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.