Section 35(1)(iv) of the Income Tax Act
Income-tax Act, 2025: s.45
Section 35(1)(iv) falls under section 35 of the Income-tax Act, 1961, which corresponds to section 45 (Expenditure on scientific research) of the Income-tax Act, 2025.
Read section 45 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 35(1)(iv) is Alembic Chemical Works Co. Ltd. v. CIT (177 ITR 377), cited in 275 of the 234 judgments on BharatTax that turn on this section.
Leading authorities on Section 35(1)(iv)
Expenditure that provides a commercial advantage of an enduring nature may still be classified as revenue expenditure if its purpose is to facilitate existing trading operations, improve business efficiency, or upgrade existing products, depending on the specific context and objective.
The Supreme Court held that discount on the issue of debentures is a deductible expenditure that can be spread proportionately over the period for which the debentures remain outstanding, rather than being claimed entirely in the year of issue. This treatment acknowledges the enduring benefit derived from the funds raised through debentures.
When computing profits of an eligible unit for tax incentives, profits attributable to marketing and R&D activities carried out outside the eligible unit should not be demarcated or excluded. The re-computation of deductions under tax holiday sections is justified only when there is an arrangement to earn more than ordinary profits.
Disallowance under Section 14A cannot be added back when computing book profit under Section 115JB, as Section 115JB is a complete code in itself.
A mere substantial profit does not inherently indicate an arrangement to earn profits beyond ordinary levels to abuse tax concessions under Section 80-IA(9) or (10). The Assessing Officer must provide specific evidence of such an arrangement.
The Tribunal has comprehensive jurisdiction to deal with issues in an appeal and can allow a new ground to be raised, assimilating issues from the CIT (Appeals) order.
The Income Tax Appellate Tribunal has the power to consider claims for losses under any provision of the Act, even if not initially raised in the return of income, when deciding an appeal. This is due to the Tribunal's plenary powers under Section 254 of the Income Tax Act.
An Assessing Officer cannot arbitrarily adjust the profit margin of a specific unit by comparing it to the overall profit margin of the assessee, especially when the units have different business natures and separate books of accounts are maintained.
Expenditure on product development may be treated as capital expenditure, leading to disallowance of weighted deduction claimed under Section 35(2AB) for in-house scientific research.
