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Income Tax Laws – I

Notes

Notes Cost of project means the actual cost (or additional cost incurred after commencement
of business in connection with extension or setting up an industrial undertaking) of fixed
assets, namely, land, buildings, leaseholds, plant, machinery, furniture, fittings and railway
sidings (including expenditure on development of land and buildings), which are shown
in the books of the assessee as on the last day of the previous year in which the business of
the assessee commences.
Capital employed in the business of a company: It means the aggregate of the issued share
capital, debentures and long-term borrowings, as on the last day of the previous year in
which the business of the company commences.
Amount of deduction: One-fifth of the qualifying expenditure is allowable as deduction in
each of the five successive years beginning with the year in which the business commences,
or as the case may be, the previous year in which extension of the industrial undertaking
is completed or the new industrial unit commences production or operation.
6. Bonus or commission to employees: Bonus or commission paid to an employee is allowable
as deduction subject to certain conditions:
Admissible only if not payable as profit or dividend: One of the conditions is that
the amount payable to employees as bonus or commission should not otherwise
have been payable to them as profit or dividend.
Deductible on payment basis: Bonus or commission is allowed as deduction only
where payment is made during the previous year or on or before the due date of
furnishing return of income under section 139.
7. Interest on borrowed capital: Interest on capital borrowed is allowed as deduction if the
following conditions are satisfied:
Table 9.6: Conditions for Interest on Borrowed Capital

Condition 1 The assessee must have borrowed money.
Condition 2 The money so borrowed must have been used for the purpose of business.
Condition 3 Interest is paid or payable on such borrowing.

General Deduction

Section 37(1) is a residuary section. In order to claim deduction under this section, the following
conditions should be satisfied:

Table 9.7: Conditions for General Deductions

Condition 1 The expenditure should not be of the nature described under sections 30 to 36.
Condition 2 It should not be in the nature of capital expenditure.
Condition 3 It should not be personal expenditure of the assessee.
Condition 4 It should have been incurred in the previous year.
Condition 5 It should be in respect of business carried on by the assessee.
Condition 6 It should have been expended wholly and exclusively for the purpose of such
business.
Condition 7 It should not have been incurred for any purpose, which is an offence or is
prohibited by any law.

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