Section 35 of the Income Tax Act

Income-tax Act, 2025: s.45

Section 35 of the Income-tax Act, 1961 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 is Mathuram Agrawal v. State of Madhya Pradesh (8 SCC 667), cited in 70 of the 169 judgments on BharatTax that turn on this section.

Leading authorities on Section 35

Mathuram Agrawal v. State of Madhya Pradesh
8 SCC 667 · 1999 · Supreme Court
70
citing judgments

The case distinguishes between legitimate tax planning and transactions that are colourable devices or shams, affirming that while legal arrangements to reduce tax are permissible, transactions lacking legitimacy and designed purely to evade tax are not.

DCIT v. Sun Pharmaceutical Ind Ltd.
329 ITR 479 · 2010 · High Court
49
citing judgments

Amortization claimed on capitalized leasehold land, which is reported as an asset in the balance sheet, is an allowable deduction for income-tax purposes.

CIT v. Sri Mangayarkarasi Mills (P) Ltd.
315 ITR 114 · 2009 · Supreme Court
48
citing judgments

Expenditure qualifies as 'current repairs' if it maintains existing machinery without replacement, creates no new asset, restores functional efficiency without increasing capacity, and is not an independent unit. Conversely, the cost of replacing machinery, especially independent units, constitutes capital expenditure.

Banyan & Berry v. CIT
222 ITR 831 · 1996 · High Court
44
citing judgments

Legitimate tax planning, executed within the framework of law, is permissible and distinct from tax avoidance through colourable devices or sham transactions. The concept of 'colourable device' or 'sham' cannot be applied to defeat a legal situation unless the acts are of a doubtful or questionable bona fide character.

CIT v. Saurashtra Cements Ltd.
168 ITR 164 · 1987 · High Court
37
citing judgments

Penalty charges recovered from suppliers of capital goods are to be treated as capital receipts. Compensation related to delay in the procurement of capital assets, or for the sterilization of a profit-earning source, is a capital receipt.

Whittle Anderson Ltd. v. CIT
79 ITR 613 · 1971 · High Court
36
citing judgments

An asset kept ready for use in a business is considered to be 'used' for the purpose of business, entitling the assessee to depreciation, even if it is not actively operated or was not used in prior years. Passive usage of an asset also qualifies for depreciation.

CIT v. Mewar Oil and General Mills Ltd. (No. 1)
271 ITR 311 · 2004 · High Court
24
citing judgments

Income from a new industrial undertaking cannot be recomputed by setting off carry forward unabsorbed depreciation or depreciation allowance from previous years if there were no carry forward losses from the prior year to be set off against the current year's income.

CIT v. Ramaraji Surgical Cotton Mills
294 ITR 328 · 2007 · Supreme Court
24
citing judgments

The High Court's direction to the CIT(Appeals) to consider specific Supreme Court judgments implies that cases may be decided on merits by appellate authorities based on relevant precedents without necessarily remanding them to the Assessing Officer.

Surendra Engineering Corporation v. ACIT
86 ITD 121 · 2003 · ITAT
21
citing judgments

Decisions of the Tribunal, including Special Benches, that have followed earlier decisions in the assessee's own case or the case of Hero Exports v. CIT, are binding on coordinate benches, especially when the revenue cannot controvert the findings. This principle of consistency is applied to allow additional grounds of appeal.

CIT v. Project Automobiles
167 ITR 781 · 1987 · High Court
18
citing judgments

Premium paid for obtaining a lease on land is a capital expenditure, even if paid in annual installments.

Judgments on Section 35