Income Tax Act

Official PDF pages 81–85

SOURCE PDF PAGE 81
( c )   in case of block of assets, the written down value computed in the
following manner:
[(A – D) + B – C] – E, where
A = the written down value of the block of assets in the immediately
preceding tax year;
B = actual cost of any asset falling within that block, acquired during
the tax year;
C = moneys payable together with scrap value, if any, in respect
of any asset falling within the block, which is sold, transferred,
demolished, destroyed or discarded during the tax year, where “C”
shall not exceed (A – D) + B;
D = depreciation actually allowed in respect of block of assets in
relation to the said immediately preceding tax year;
E = in the case of a slump sale, the actual cost of the asset falling
within that block as reduced by—
( i )   depreciation actually allowed in respect of tax year commenc -
ing on 1st April, 1986 or any earlier tax year; and
( ii )   depreciation allowable for tax year commencing on or after
1st April, 1987 under this Act or under the Income-tax Act,
1961 (43 of 1961), as if such asset was the only asset in the
relevant block of asset.
(2) Where any block of asset is transferred by—
( a )   a holding company to its subsidiary company and the conditions of
section 70(1)( c ) are satisfied;
( b )   a subsidiary company to its holding company and the conditions of
section 70(1)( d ) are satisfied; or
( c )   amalgamating company to the amalgamated company being an Indian
company,
then the actual cost of the block of assets, irrespective of anything contained in
section 39, in the hands of transferee company or amalgamated company, as the
case may be, shall be the same as written down value of the block of assets as in the
case of the transferor company or the amalgamating company in the immediately
preceding tax year as reduced by depreciation actually allowed in respect of that
block of asset in relation to that tax year.
(3) Where any asset, forming part of a block of assets is transferred by a demerged
company to a resulting company, the written down value of block of assets of
demerged company for the immediately preceding tax year, shall be reduced by
the written down value of the assets transferred to the resulting company pursuant
to such demerger.
(4) Where any asset, forming part of a block of assets is transferred by a demerged
company to a resulting company then the actual cost of the block of assets, irrespec -
tive of anything contained in section 39, for resulting company shall be the written

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SOURCE PDF PAGE 82
down value of the assets transferred from the demerged company immediately
before such demerger.
(5) Where any block of assets is transferred by a private company or unlisted public
company to a limited liability partnership and the conditions in section 70(1)( ze )
are satisfied, then the actual cost of the block of assets, irrespective of anything
contained in section 39, in the hands of limited liability partnership shall be writ -
ten down value in the hands of said company as on the date of conversion of the
company into limited liability partnership.
(6) Where any asset forming part of the block of assets is transferred to a
company under the scheme of corporatisation of a recognised stock exchange in
India approved by the Securities and Exchange Board of India, the written down
value of the block of assets in the hands of such company, shall be the written down
value of the assets transferred immediately before such transfer.
(7) In a case of succession in business or profession under section 313, where an
assessment is made in the hands of successor under section 313(2), the written
down value of any asset or block of assets shall be the amount which would have
been taken as its written down value, if the assessment had been made directly on
the person succeeded to.
(8) For the purposes of this section, any allowance in respect of any depreciation
carried forward under section 33(11) shall be deemed to be the depreciation
actually allowed.
(9) Where an assessee was not required to compute his total income for the purposes
of this Act for any tax year or tax years preceding the tax year under consideration,—
( a )   the actual cost of an asset shall be adjusted by the amount attributable
to the revaluation of such asset, if any, in the books of account;
( b )   the total amount of depreciation on such asset provided in the books of
account of the assessee in respect of such tax year or tax years preceding
the tax year under consideration shall be deemed to be the depreciation
actually allowed under this Act for the purposes of this clause; and
( c )   the depreciation actually allowed under clause ( b ) shall be adjusted by
the amount of depreciation attributable to such revaluation of the asset.
(10) For the purposes of this section, where the income of an assessee is derived, in
part from agriculture and in part from business chargeable to income-tax under the
head “Profits and gains of business or profession”, for computing the written down
value of assets acquired before the tax year, the total amount of depreciation shall
be computed as if the entire income is derived from the business of the assessee
under the head “Profits and gains of business or profession” and the depreciation
so computed shall be deemed to be the depreciation actually allowed under this Act
or under the Income-tax Act, 1961 (43 of 1961).
(11) For the purposes of this section, the term “sold” shall have the meaning assigned
to it in section 38(6)( a ).

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Capitalising impact of foreign exchange fluctuation.
42.   (1) Irrespective of anything contained in any other provision of this Act,
where at the time of making payment during the tax year, there is a variation
in liability of an assessee as expressed in Indian currency, due to change in rate of
exchange, in relation to an asset acquired for the purpose of business or profes -
sion from a country outside India, it shall be dealt with in the manner specified in
sub-sections (2) and (3).
(2) For this section, the liability shall exclude any part met directly or indirectly
by any other person or authority and the “variation in liability” shall be computed
as—
A = B – C
where,—
A = variation in liability;
B = payment expressed in Indian currency at the time when it is made—
( a )   towards the whole or part of the cost of asset; or
( b )   towards repayment of the whole or part of the moneys borrowed,
directly or indirectly, along with interest in foreign currency,
specifically for acquiring such asset;
C = liability, corresponding to the amount referred in B, in Indian cur -
rency at the time of acquisition of such asset.
(3) The variation in liability shall be added or reduced from the—
( a )   actual cost of the asset as referred in section 39; or
( b )   expenditure of capital nature referred to in section 32( i ) or 45(1)( a )
( i ); or
( c )   cost of acquisition of a capital asset (not being a capital asset referred
to in section 74) for the purpose of section 72,
and the amount arrived at after such addition or deduction shall be taken to be the
actual cost of the asset or the amount of expenditure of a capital nature or, as the
case may be, the cost of acquisition of the capital asset.
(4) Where the assessee has entered into a contract with an authorised dealer as
defined in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999),
for providing him with a specified sum in a foreign currency on or after a stipu -
lated future date at the rate of exchange specified in the contract to enable him
to meet the whole or any part of the said liability, the amount, if any, to be added
to, or deducted from, the actual cost of the asset or the amount of expenditure of
a capital nature or, as the case may be, the cost of acquisition of the capital asset
under this section shall, in respect of so much of the sum specified in the contract
as is available for discharging the said liability, be computed with reference to the
rate of exchange specified therein.

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Taxation of foreign exchange fluctuation.
43.   (1) Subject to the provisions of section 42, any gain or loss arising on
account of change in foreign exchange rates on foreign currency transactions
shall be treated as income or loss, as the case may be, and shall be computed as per
the income computation and disclosure standards notified under section 276(2).
(2) The provisions of sub-section (1) shall be applicable to all foreign currency
transactions, including those relating to—
( a )   monetary items and non-monetary items;
( b )   translation of financial statements of foreign operations;
( c )   forward exchange contracts; and
( d )   foreign currency translation reserves.
Amortisation of certain preliminary expenses.
44.   (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 )   in addition to expenditure in clauses ( a ) and ( b ), 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 Com -
panies Act, 2013 (18 of 2013);

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SOURCE PDF PAGE 85
( 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 may
be prescribed.
(3) In relation to expenditure specified in sub-section (2)( a ), the assessee shall
furnish a statement containing the particulars of the expenditure in such form and
manner, as may be prescribed.
(4) The allowable deduction under sub-section (1) in respect of aggregate of expend -
iture 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 assessee
is an Indian company, at its option.
(5) For the purposes of 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 actual cost as shown in the
books of the assessee as on the last day of the tax year in which the
business commences;
( ii )   for cases under sub-section (1)( b ), the actual cost as shown in the
books of the assessee as on the last day of the tax year in which
either the extension of the undertaking is completed, or the new
unit commences production or operations, as the case may be,
in so far as such fixed assets have been 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 com -
pleted 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;