Section 42 of the Income Tax Act
Income-tax Act, 2025: s.54
Section 42 of the Income-tax Act, 1961 corresponds to section 54 (Business of prospecting for mineral oils) of the Income-tax Act, 2025.
Read section 54 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 42 is Niko Resources Ltd. v. Union of India (374 ITR 369), cited in 40 of the 77 judgments on BharatTax that turn on this section.
Leading authorities on Section 42
The retrospective insertion of an Explanation to Section 80IB(9) of the Income Tax Act is unconstitutional. Blocks licensed under a single contract cannot be treated as a single undertaking for the purpose of deduction under Section 80IB(9).
The Production Sharing Contract (PSC) is a self-contained code. Provisions of the Income-tax Act apply to the computation of income of the assessee under the PSC. Overhead charges incurred by the head office and charged to the assessee's profit and loss account are allowable as a deduction if incurred for the purpose of business.
The Assessing Officer must record reasons for not being satisfied with a suo motu disallowance made by an assessee under section 14A, and this satisfaction must be based on the assessee's accounts.
The Supreme Court may reconsider the issue of eligibility for deduction under Section 80-IA where the assessee has incurred losses in earlier years and claims the deduction in the year it became profitable. The court also deliberated on the allowability of certain expenses claimed by the assessee.
The case recognizes the evolving landscape of international business operations and the role of holding companies in ensuring adherence to global standards by subsidiary entities to protect brand value.
An expenditure not allowed as a specific deduction can still be considered an allowable business loss under the general principles of income computation, even if a specific condition for that deduction was not met.
Mineral oil wells are considered "plant" for depreciation purposes under Section 32 of the Income Tax Act, as buildings of a special nature are not excluded from the definition of plant.
Section 42 of the Income-tax Act allows deductions specified in an agreement between the assessee and the Central Government. Expenses incurred for business activities may be allowed as business expenditure even if not specifically deductible under Section 42.
An assessment cannot be reopened if the issue sought to be reassessed is already pending before an appellate authority. Reopening the assessment in such circumstances is invalid and the notice issued under section 148 is liable to be quashed.
