Amended and updated notes on section 35AB of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to expenditure on know-how.
Chapter IV (Sections 14 to 59) of the Income Tax Act 1961 deals with the provisions related to computation of total income. Section 35AB of IT Act 1961-2023 provides for expenditure on know-how.
Recently, we have discussed in detail section 35A (expenditure on acquisition of patent rights or copyrights) of IT Act 1961. Today, we learn the provisions of section 35AB of Income-tax Act 1961. The amended provision of section 35AB is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 35AB of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-35AB: Expenditure on Know-how
Section 35AB(1) of Income Tax Act
Subject to the provisions of sub-section (2), where the assessee has paid in any previous year relevant to the assessment year commencing on or before the 1st day of April, 1998 any lump sum consideration for acquiring any know-how for use for the purposes of his business, one-sixth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance amount shall be deducted in equal instalments for each of the five immediately succeeding previous years.
Section 35AB(2) of Income Tax Act
Where the know-how referred to in sub-section (1) is developed in a laboratory, university or institution referred to in sub-section (2B) of section 32A, one-third of the said lump sum consideration paid in the previous year by the assessee shall be deducted in computing the profits and gains of the business for that year, and the balance amount shall be deducted in equal instalments for each of the two immediately succeeding previous years.
Section 35AB(3) of Income Tax Act
Where there is a transfer of an undertaking under a scheme of amalgamation or demerger and the amalgamating or the demerged company is entitled to a deduction under this section, then, the amalgamated company or the resulting company, as the case may be, shall be entitled to claim deduction under this section in respect of such undertaking to the same extent and in respect of the residual period as it would have been allowable to the amalgamating company or the demerged company, as the case may be, had such amalgamation or demerger not taken place.
Explanation: For the purposes of this section, “know-how” means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto).