Section 35E of the Income Tax Act
Income-tax Act, 2025: s.51
Section 35E of the Income-tax Act, 1961 corresponds to section 51 (Amortisation of expenditure for prospecting certain minerals) of the Income-tax Act, 2025.
Read section 51 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 35E is CIT v. Sri Mangayarkarasi Mills (P) Ltd. (315 ITR 114), cited in 48 of the 69 judgments on BharatTax that turn on this section.
Leading authorities on Section 35E
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.
Sponsorship expenditure, when akin to advertisement expenses, constitutes revenue expenditure and is allowable as a business deduction under the Income-tax Act.
Expenditure incurred to remove a restriction, obstruction, or disability preventing the carrying on of an existing business is revenue expenditure, provided no capital asset is acquired. The nature of the lease, purpose of expenditure, and its relation to profitable business operations are key considerations in mining cases.
Where the exact quantification of a liability is to be determined in the future, but the liability itself is certain, it can be accounted for. This principle is applied when a wage agreement is being finalized.
Expenditure incurred on the replacement of a part of machinery is deductible as revenue expenditure if it does not result in an increase in productivity or capacity.
Section 35E allows deduction for capital expenditure that is otherwise not deductible. However, if expenditure is admissible under Section 37(1), Section 35E should not be invoked to force amortization over 10 years instead of allowing it in the year of incurrence.
