Section 44 — Amortisation of certain preliminary expenses

(1) If an assessee, being an Indian company or a person (other than a
company), who is resident in India, incurs any expenditure specified in
sub-section (2)—
( a) before the commencement of its business; or
( b) after the commencement of its business, in connection with the extension
of its undertaking or in connection with its setting up a new unit,
the assessee shall be allowed a deduction of an amount equal to one-fifth of such
expenditure for each of the five successive tax years beginning with—
( i) the tax year in which the business commences, for clause (a); or
( ii) the tax year in which the extension of the undertaking is completed or
the new unit commences production or operation, for clause (b).
(2) The expenditure referred to in sub-section (1) shall be—
( a) the expenditure in connection with—
( i) preparation of feasibility report;
( ii) preparation of project report;
( iii) conducting market survey or any other survey necessary for the
business;
( iv) engineering services relating to the business;
( b) legal charges for drafting any agreement between the assessee and any
other person for any purpose relating to the setting up or conduct of the
business;
( c) in addition to expenditure in clauses ( a) and ( b), if the assessee is a
company,—
( i) legal charges for drafting and printing of the Memorandum and
Articles of Association of the company;
( ii) fees for registering the company under the provisions of the Com-
panies Act, 2013 (18 of 2013);
( iii) expenditure in connection with the issue, for public subscription,
of shares in or debentures of the company, being underwriting
commission, brokerage and charges for drafting, typing, printing
and advertisement of the prospectus; and
( d) such other items of expenditure (not being expenditure eligible for any
allowance or deduction under any other provision of this Act), as may
be prescribed.
(3) In relation to expenditure specified in sub-section (2)( a), the assessee shall
furnish a statement containing the particulars of the expenditure in such form and
manner, as may be prescribed.
(4) The allowable deduction under sub-section (1) in respect of aggregate of expend-
iture referred to in sub-section (2) shall be restricted to 5%—
( a) of the cost of the project; or
( b) of the capital employed in the business of the company, where the assessee
is an Indian company, at its option.
(5) For the purposes of this section,—
( a) “cost of the project” means the actual cost of the fixed assets, being land,
buildings, leaseholds, plant, machinery, furniture, fittings and railway
sidings (including expenditure on development of land and buildings)
and—
( i) for cases under sub-section (1)(a), the actual cost as shown in the
books of the assessee as on the last day of the tax year in which the
business commences;
( ii) for cases under sub-section (1)(b), the actual cost as shown in the
books of the assessee as on the last day of the tax year in which
either the extension of the undertaking is completed, or the new
unit commences production or operations, as the case may be,
in so far as such fixed assets have been acquired or developed in
connection with the extension of the undertaking or setting up of
new unit;
( b) “capital employed in the business of the company” means—
( i) in cases under sub-section (1)(a), the aggregate of the issued share
capital, debentures and long-term borrowings as on the last day of
the tax year in which the business of the company commences;
( ii) in a case under sub-section (1)(b), the aggregate of the issued share
capital, debentures and long-term borrowings as on the last day
of the tax year in which the extension of the undertaking is com -
pleted or, as the case may be, the new unit commences production
or operation, in so far as such capital, debentures and long-term
borrowings have been issued or obtained in connection with the
extension of the undertaking or the setting up of the new unit of
the company;
( c) “long-term borrowings” means—
( i) any moneys borrowed by the company from Government or Indus-
trial Finance Corporation of India Limited or any other financial
institution which is eligible for deduction under section 32( e) or
any banking institution (not being a financial institution referred
to above); or
( ii) any moneys borrowed or debt incurred by it in a foreign country
in respect of the purchase outside India of capital plant and
machinery, where the tenure of moneys borrowed or debt is not
less than seven years.
(6) If the assessee is a person, other than a company or a co-operative society, no
deduction shall be admissible under sub-section (1) unless,—
( a) the accounts of the assessee for the year or years in which the expend -
iture specified in sub-section (2) is incurred have been audited by an
accountant before the specified date referred to in section 63; and
( b) the assessee furnishes for the first year in which the deduction under
this section is claimed, the report of such audit by such date in such
form duly signed and verified by such accountant and setting forth such
particulars, as may be prescribed.
(7) If an undertaking of Indian company entitled for deduction under sub-section
(1) is transferred before expiry of five years specified in the said sub-section, in a
scheme of amalgamation, to another Indian company, then—
( a) no deduction under sub-section (1) shall be allowed to the amalgamating
company for the tax year in which amalgamation takes place; and
( b) all provisions of this section shall continue to apply to the amalgamated
company as they would have applied to the amalgamating company, as
if the amalgamation had not taken place.
(8) If an undertaking of Indian company entitled for deduction under sub-section
(1) is transferred before five years specified in the said sub-section, in a scheme of
demerger to another company, then—
( a) no deduction under sub-section (1) shall be allowed to the demerged
company for the tax year in which demerger takes place; and
( b) all provisions of this section shall continue to apply to the resulting
company as they would have applied to the demerged company, as if the
demerger had not taken place.
(9) If a deduction under this section is claimed and allowed for any tax year in
respect of any expenditure referred to in sub-section (2), deduction shall not be
allowed for such expenditure under any other provision of this Act for the same or
any other tax year.