Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether A Firm Is Entitle To Claim Deduction U/s. 35AD @ 150% Of Investment In Assets?

QUERY: The assessee is a partnership firm carrying on medical profession. At present it is carrying on Gynic Branch only for the last several years. It decided to set up 200 bedded multi-specialty hospital and accordingly started the project in May, 2012 under the same partnership firm as a separate unit in order to avail under section 35AD @ 150% of eligible capital expenditure:

(a) Whether this unit can claim deduction under this section though the place of business and the nature of services will be different? No old machinery etc. will be transferred to new building/unit.

(b) Whether the income of both the units owned by the firm will be consolidated for the purpose of applicability of section 115JC or separate treatment?

(c) Can there be any difficulty to claim deduction under section 35AD in case if old unit (Gynic) is also shifted to new Hospital? The new unit may start operation by April-May, 2015.
ANSWER: a) Yes, the partnership firm can claim deduction under section 35AD @ 150% on capital expenditure incurred for setting up and operating hospital anywhere in India with more than 100 beds for patients. From the fact, it is clear that no old machinery would be transferred to new building/unit, hence, it would not be set up by splitting up or the reconstruction of a business already in existence. The expression “splitting up of the business already in existence” indicates a case where the integrity of a business earlier in existence is broken up and different sections of the activities previously conducted are carried on independently. [see CIT v. Hindustan General Industries Ltd. – 137 ITR 851 (Del.)]. The term “reconstruction” implies that the identity of the business should not be lost and substantially the same business should be carried on by substantially the same persons as per the Supreme Court in Textiles Machinery Corporation Ltd. v. CIT [107 ITR 195].

b) Yes, income of both the units would be consolidated of the assessee firm and if tax payable is less than Alternate Minimum Tax (AMT), then the assessee firm will have to pay AMT on adjusted total income. While calculating Adjusted Total Income, the deduction claimed under section 35AD to be added after reducing depreciation allowable under section 32 on such capital asset, at the rate prescribed in Rule 5 of the Income-tax Rules, 1961.

c) No difficulty as explained above

Posted in Income-tax
One comment on “Whether A Firm Is Entitle To Claim Deduction U/s. 35AD @ 150% Of Investment In Assets?
  1. CA Suresh Gaddam says:

    But Act Specifically restricts this to the companies registered under the Companies Act., right? Sec.35AD (2)(iii)

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