Section 36(1)(viia)(c) of the Income Tax Act
Income-tax Act, 2025: ss.29, 30, 31, 32
Section 36(1)(viia)(c) falls under section 36 of the Income-tax Act, 1961, which corresponds to section 29 (Deductions related to employee welfare), section 30 (Deduction on certain premium), section 31 (Deduction for bad debt and provision for bad and doubtful debt) and section 32 (Other deductions) of the Income-tax Act, 2025.
Read section 29 of the 2025 ActRead section 30 of the 2025 ActRead section 31 of the 2025 ActRead section 32 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 36(1)(viia)(c) is Housing & Urban Development Corporation Ltd. v. Addl.CIT (396 ITR 667), cited in 20 of the 53 judgments on BharatTax that turn on this section.
Leading authorities on Section 36(1)(viia)(c)
The Delhi High Court, in Housing & Urban Development Corporation Ltd. v. Addl.CIT, succinctly captured the legal position regarding certain deductions, although it potentially misdirected itself by equating the assessee's facts with those in Southern Technologies Ltd. v. Asstt. CIT.
Expenditure incurred by an assessee engaged in iron ore business and trading towards construction of infrastructure facilities, as per an MOU with the government, is considered a prudent business decision and thus a deductible revenue expenditure under Section 37(1).
Deductions under sections 36(1)(viia)(c) and 36(1)(viii) are to be allowed as per the scheme laid down by the ITAT. The issue of allowing these deductions is highly debatable and beyond the scope of rectification under section 154.
Interest paid on borrowed funds cannot be considered an expense incurred wholly and exclusively for the purpose of earning income if the borrowed funds are deposited for short periods and earn interest. The interest income from such deposits is incidental and independent of the borrowings.
