The Income-Tax Act, 1961

¹[35. Expenditure on scientific research.-

(1) In respect of expenditure on scientific research, the following deductions shall be allowed-

(i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business.

²[Explanation.-Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary [as defined in Explanation 2 below sub-section (5) of section 40A] to an employee engaged in such scientific research or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authorityto have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced;]

(ii) ³[an amount equal to ⁴[one and one half] times of any sum paid] to a ⁵[research association] which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research:

⁶[Provided that such association, university, college or other institution for the purposes of this clause-

(A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and

(B) such association, university, college or other institution is specified as such, by notification in the Official Gazette, by the Central Government;]

⁷[Provided further that where any sum is paid to such association, university, college or other institution in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the sum so paid;]

⁸[(iia) 9*** any sum paid to a company to be used by it for scientific research:

Provided that such company-

(A) is registered in India,

(B) has as its main object the scientific research and development,

(C) is, for the purposes of this clause, for the time being approved by the prescribed authority in the prescribed manner, and

(D) fulfils such other conditions as may be prescribed;]

¹[(iii) ²[3*** ⁴[any sum paid] to a research association which has as its object the undertaking of research in social science or statistical research or to a university], college or other institution to be used for research in social science or statistical research:

⁵[Provided that ⁶[such association, university], college or other institution for the purposes of this clause-

(A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and

(B) ⁶[such association, university], college or other institution is specified as such, by notification in the Official Gazette, by the Central Government.]]

⁷[Explanation.-The deduction, to which the assessee is entitled in respect of any sum paid to a ⁸[research association], university, college or other institution to which clause (ii) or clause (iii) applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association, university, college or other institution referred to in clause (ii) or clause (iii) has been withdrawn;]

(iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2):

⁹[Provided that the ⁸[research association], university, college or other institution referred to in clause (ii) or clause (iii) shall make an application in the prescribed form and manner to the ¹⁰[Central Government] for the purpose of grant of approval, or continuance thereof, under clause (ii) or, as the case may be, clause (iii):

Provided further that the ¹⁰[Central Government] may, before granting approval under clause (ii) or clause (iii), call for such documents (including audited annual accounts) or information from the ⁸[research association], university, college or other institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the ⁸[research association], university, college or other institution and that 1¹[Government] may also make such inquiries as it may deem necessary in this behalf:

Provided also that any 1²[notification issued, by the Central Government under clause (ii) or clause (iii), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years] (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification:]

¹[Provided also that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, every notification under clause (ii) or clause (iii) shall be issued or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received by the Central Government.]

(2) For the purposes of clause (iv) of sub-section (1),-

²[(i) in a case where such capital expenditure is incurred before the 1st day of April, 1967, one-fifth of the capital expenditure incurred in any previous year shall be deducted for that previous year; and the balance of the expenditure shall be deducted in equal instalments for each of the four immediately succeeding previous years;

(ia) in a case where such capital expenditure is incurred after the 31st day of March, 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year:]

³[Provided that no deduction shall be admissible under this clause in respect of any expenditure incurred on the acquisition of any land, whether the land is acquired as such or as part of any property, after the 29th day of February, 1984.]

⁴[Explanation 1].-Where any capital expenditure has been incurred before the commencement of the business, the aggregate of the expenditure so incurred within the three years immediately preceding the commencement of the business shall be deemed to have been incurred in the previous year in which the business is commenced.

³[Explanation 2.-For the purposes of this clause,-

(a) "land" includes any interest in land ; and

(b) the acquisition of any land shall be deemed to have been made by the assessee on the date on which the instrument of transfer of such land to him has been registered under the Registration Act, 1908 (16 of 1908), or where he has taken or retained the possession of such land or any part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), the date on which he has so taken or retained possession of such land or part;]

(ii) notwithstanding anything contained in clause (i), where an asset representing expenditure of a capital nature ⁵[incurred before the 1st day of April, 1967], ceases to be used in a previous year for scientific research related to the business and the value of the asset at the time of the cessation, together with the aggregate of deductions already allowed under clause (i) falls short of the said expenditure, then-

(a) there shall be allowed a deduction for that previous year of an amount equal to such deficiency, and

(b) no deduction shall be allowed under that clause for that previous year or for any subsequent previous year;

(iii) if the asset mentioned in clause (ii) is sold, without having been used for other purposes, in the year of cessation, the sale price shall be taken to be the value of the asset at the time of the cessation ; and if the asset is sold, without having been used for other purposes, in a previous year subsequent to the year of cessation, and the sale price falls short of the value of the asset taken into account at the time of cessation, an amount equal to the deficiency shall be allowed as a deduction for the previous year in which the sale took place;

(iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under ¹[clause (ii) of sub-section (1)] of section 32 ²[for the same or any other previous year] in respect of that asset;

(v) ³[where the asset mentioned in clause (ii)is used] in the business after it ceases to be used for scientific research related to that business, depreciation shall be admissible under ⁴[clause (ii) of sub-section (1)] of section 32.

⁵[(2A) ⁶[Where, before the 1st day of March, 1984,the assessee pays any sum] ⁷[(being any sum paid with a specific direction that the sum shall not be used for the acquisition of any land or building or construction of any building)] to a scientific research association or university or college or other institution referred to in clause (ii) of sub-section (1) ⁸[or to a public sector company] to be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority having regard to the social, economic and industrial needs of India, then,-

(a) there shall be allowed a deduction of a sum equal to one and one-third times the sum so paid; and

(b) no deduction in respect of such sum shall be allowed under clause (ii) of sub-section (1) for the same or any other assessment year.]

⁸[Explanation.-For the purposes of this sub-section, "public sector company" shall have the same meaning as in clause (b) of the Explanation below sub-section (2B) of section 32A.]

⁹[(2AA) Where the assessee pays any sum to a National Laboratory ¹⁰[or a 1¹[University or an Indian Institute of Technology or a specified person] with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority, then-

(a) there shall be allowed a deduction of a sum equal to 1²[one and one-half times] the sum so paid; and

(b) no deduction in respect of such sum shall be allowed under any other provision of this Act:

¹[Provided that the prescribed authority shall, before granting approval, satisfy itself about the feasibility of carrying out the scientific research and shall submit its report to the ²[Principal Chief Commissioner or Chief Commissioner or] ³[Principal Director General or Director General] in such form as may be prescribed.]

⁴[Provided further that where any sum is paid to such National Laboratory or university or Indian Institute of Technology or specified person in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this sub-section shall be equal to the sum so paid.]

⁵[Explanation 1.-The deduction, to which the assessee is entitled in respect of any sum paid to a National Laboratory, University, Indian Institute of Technology or a specified person for the approved programme referred to in this sub-section, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to,-

(a) such Laboratory, or specified person has been withdrawn; or

(b) the programme, undertaken by the National Laboratory, University, Indian Institute of Technology or specified person, has been withdrawn.]

⁶[⁷[Explanation 2].-For the purposes of this section,-

(a) "National Laboratory" means a scientific laboratory functioning at the national level under the aegis of the Indian Council of Agricultural Research, the Indian Council of Medical Research, the Council of Scientific and Industrial Research, the Defence Research and Development Organisation, the Department of Electronics, the Department of Bio-Technology or the Department of Atomic Energy and which is approved as a National Laboratory by the prescribed authority in such manner as may be prescribed;

(b) "University" shall have the same meaning as in Explanation to clause (ix) of section 47;

(c) "Indian Institute of Technology" shall have the same meaning as that of "Institute" in clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961);]

⁸[(d) "specified person" means such person as is approved by the prescribed authority.]

⁹[(2AB) (1) Where a company ¹⁰[engaged in the business of bio-technology or in 1¹[any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule]] incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of ¹[a sum equal to ²[one and one-half times] of the expenditure] so incurred.

³[Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred.]

⁴[Explanation.-For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).]

(2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act.

(3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and ⁵[fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed].

(4) The prescribed authority shall submit its report in relation to the approval of the said facility to the ⁶[Principal Chief Commissioner or Chief Commissioner or] ⁷[Principal Director General or Director General] in such form and within such time as may be prescribed.]

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⁹[(6) No deduction shall be allowed to a company approved under sub-clause (C) of clause (iia) of sub-section (1) in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of March, 2008.]

¹⁰[(2B) (a) 1¹[Where, before the 1st day of March, 1984, an assessee has incurred any expenditure] (not being in the nature of capital expenditure incurred on the acquisition of any land or building or construction of any building) on scientific research undertaken under a programme approved in this behalf by the prescribed authority having regard to the social, economic and industrial needs of India, he shall, subject to the provisions of this sub-section, be allowed a deduction of a sum equal to one and one-fourth times the amount of the expenditure certified by the prescribed authority to have been so incurred during the previous year.

(b) Where a deduction has been allowed under clause (a) for any previous year in respect of any expenditure, no deduction in respect of such expenditure shall be allowed under clause (i) of sub-section (1) or clause (ia) of sub-section (2) for the same or any other previous year.

(c) Where a deduction is allowed for any previous year under this sub-section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed in respect of that asset under ¹[clause (ii) of sub-section (1)] of section 32 for the same or any subsequent previous year.

(d) Any deduction made under this sub-section in respect of any expenditure on scientific research in excess of the expenditure actually incurred shall be deemed to have been wrongly made for the purposes of this Act if the assessee fails to furnish within one year of the period allowed by the prescribed authority for completion of the programme, a certificate of its completion obtained from that authority, and the provisions of sub-section (5B) of section 155 shall apply accordingly.]

²[(3) If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research, the Board shall refer the question to-

(a) the Central Government, when such question relates to any activity under clauses (ii) and (iii) of sub-section (1), and its decision shall be final;

(b) the prescribed authority, when such question relates to any activity other than the activity specified in clause (a), whose decision shall be final.]

(4) The provisions of sub-section (2) of section 32shall apply in relation to deductions allowable under clause (iv) of sub-section (1) as they apply in relation to deductions allowable in respect of depreciation.

³[(5) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company (being an Indian company) any asset representing expenditure of a capital nature on scientific research,-

(i) the amalgamating company shall not be allowed the deduction under clause (ii) or clause (iii) of sub-section (2); and

(ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the asset.]

1. Restored by Act 3 of 1989, s. 95 (w.e.f. 1-4-1989). Earlier omitted by Act 4 of 1988, s. 10 (w.e.f. 1-4-1989).

2. Ins. by Act 26 of 1974, s. 5 (w.e.f. 1-4-1974).

3. Subs. by Act 27 of 1999, s. 15, for "any sum paid" (w.e.f. 1-4-2000).

4. Subs. by Act 28 of 2016, s. 15 for "one and three fourth" (w.e.f. 1-4-2018).

5. Subs. by Act 14 of 2010, s. 9, for "scientific research association" (w.e.f. 1-4-2011).

6. Subs. by Act 29 of 2006, s. 5, for the proviso (w.e.f. 1-4-2006).

7. Ins. by Act 28 of 2016, s. 15 (we.f. 1-4-2018).

8. Ins. by Act 18 of 2008, s. 7 (w.e.f. 1-4-2009).

9. The words "an amount equal to one and one-fourth times of" omitted by Act 28 of 2016, s. 15 (w.e.f. 1-4-2018).

1. Subs. by Act 49 of 1991, s. 12, for clause (iii) (w.e.f. 1-4-1992).

2. Subs. by Act 27 of 1999, s. 15, for "any sum paid" (w.e.f. 1-4-2000).

3. The words "an amount equal to one and one-fourth times of" omitted by Act 28 of 2016, s. 15 (w.e.f. 1-4-2018).

4. Subs. by Act 14 of 2010, s. 9, for "any sum paid to a university" (w.e.f. 1-4-2011).

5. Subs. by Act 29 of 2006, s. 5, for the proviso (w.e.f. 1-4-2006).

6. Subs. by Act 14 of 2010, s. 9, for "such university" (w.e.f. 1-4-2011).

7. Ins. by Act 29 of 2006, s. 5 (w.e.f. 1-4-2006).

8. Subs. by Act 14 of 2010, s. 9, for "scientific research association" (w.e.f. 1-4-2011).

9. Ins. by Act 3 of 1989, s. 8 (w.e.f. 1-4-1989).

10. Subs. by Act 27 of 1999, s. 15, for "prescribed authority" (w.e.f. 1-4-2000).

11. Subs. by Act 29 of 2006, s. 5, for "authority" (w.e.f. 1-4-2006).

12. Subs. by s. 5, ibid., for "notification issued by the Central Government under clause (ii) or clause (iii) shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years" (w.e.f. 1-4-2006).

1. Ins. by Act 29 of 2006, s. 5 (w.e.f. 1-4-2006).

2. Subs. by Act 20 of 1967, s. 33 and the Third Schedule, for clause (i) (w.e.f. 1-4-1968).

3. Ins. by Act 21 of 1984, s. 6 (w.e.f. 1-4-1984).

4. The Explanation numbered as Explanation 1 by s. 6, ibid. (w.e.f. 1-4-1984).

5. Ins. by Act 20 of 1967, s. 33 and the Third Schedule (w.e.f. 1-4-1968).

1. Subs. by Act 46 of 1986, s. 32, for "clauses (i), (ii), (iia), (iii) and (iv) of sub-section (1) or under sub-section (1A)" (w.e.f. 1-4-1988).

2. Subs. by Act 44 of 1980, s. 7, for "for the same previous year" (w.e.f. 1-4-1962).

3. Subs. by Act 20 of 1967, s. 33 and the Third Schedule, for "where the asset is used" (w.e.f. 1-4-1968).

4. Subs. by Act 46 of 1986, s. 32, for "clauses (i), (ii) and (iii) of sub-section (1)" (w.e.f. 1-4-1988).

5. Ins. by Act 26 of 1974, s. 5 (w.e.f. 1-4-1974).

6. Subs. by Act 21 of 1984, s. 6, for "Where the assessee pays any sum" (w.e.f. 1-4-1984).

7. Ins. by Act 11 of 1983, s. 12 (w.e.f. 1-4-1984).

8. Ins. by Act 44 of 1980, s. 7 (w.e.f. 1-9-1980).

9. Ins. by Act 38 of 1993, s. 9 (w.e.f. 1-4-1994).

10. Ins. by Act 32 of 1994, s. 13 (w.e.f. 1-4-1995).

11. Subs. by Act 14 of 2001, s. 23, for "University or an Indian Institute of Technology" (w.e.f. 1-4-2002).

12. Subs. by Act 28 of 2016, s. 15, for "two times" (w.e.f. 1-4-2018).

1. Subs. by Act 33 of 1996, s. 12, for the provisos (w.e.f. 1-10-1996).

2. Ins. by Act 20 of 2015, s. 12 (w.e.f. 1-4-2016).

3. Subs. by Act 25 of 2014, s. 4, for "Director General" (w.e.f. 1-6-2013).

4. Ins. by Act 28 of 2016, s. 15 (w.e.f. 1-4-2018).

5. The Explanation inserted by Act 29 of 2006, s. 5 (w.e.f. 1-4-2006).

6. Subs. by Act 32 of 1994, s. 13, for the Explanation (w.e.f. 1-4-1995).

7. The Explanation renumbered as Explanation 2 thereof by Act 29 of 2006, s. 5 (w.e.f. 1-4-2006).

8. Ins. by Act 14 of 2001, s. 23 (w.e.f. 1-4-2002).

9. Ins. by Act 26 of 1997, s. 5 (w.e.f. 1-4-1998).

10. Subs. by Act 14 of 2001, s. 23, for "engaged in the business of" (w.e.f. 1-4-2002).

11. Subs. by Act 33 of 2009, s. 12, for "the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified by the Board" (w.e.f. 1-4-2010).

1. Subs. by Act 10 of 2000, s. 16, for "a sum equal to one and one-fourth times of the expenditure" (w.e.f. 1-4-2001).

2. Subs. by Act 28 of 2016, s. 15 for "two times" (w.e.f. 1-4-2018).

3. Ins. by s. 15, ibid. (w.e.f. 1-4-2018).

4. Ins. by Act 14 of 2001, s. 23 (w.e.f. 1-4-2002).

5. Subs. by Act 20 of 2015, s. 12, for "for audit of accounts maintained for that facility" (w.e.f. 1-4-2016).

6. Ins. by s. 12, ibid. (w.e.f. 1-4-2016).

7. Subs. by Act 25 of 2014, s. 4, for "Director General" (w.e.f. 1-6-2013).

8. Clause (5) omitted by Act 28 of 2016, s. 15 (w.e.f. 1-4-2018).

9. Ins. by Act 18 of 2008, s. 7 (w.e.f. 1-4-2009).

10. Ins. by Act 44 of 1980, s. 7 (w.e.f. 1-9-1980).

11. Subs. by Act 21 of 1984, s. 6, for "Where an assessee has incurred any expenditure" (w.e.f. 1-4-1984).

1. Subs. by Act 46 of 1986, s. 32, for "clauses (i), (ii), (iia) and (iii) of sub-section (1) or under sub-section (1A)" (w.e.f. 1-4-1988).

2. Subs. by Act 27 of 1999, s. 15, for sub-section (3) (w.e.f. 1-4-2000).

3. Ins. by Act 20 of 1967, s. 13 (w.e.f. 1-4-1967).

¹[35A. Expenditure on acquisition of patent rights or copyrights.-

(1) In respect of any expenditure of a capital nature incurred after the 28th day of February, 1966 ²[but before the 1st day of April, 1998], on the acquisition of patent rights or copyrights (hereafter, in this section, referred to as rights) used for the purposes of the business, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure.

Explanation.-For the purposes of this section,-

(i) "relevant previous years" means the fourteen previous years beginning with the previous year in which such expenditure is incurred or, where such expenditure is incurred before the commencement of the business, the fourteen previous years beginning with the previous year in which the business commenced:

Provided that where the rights commenced, that is to say, became effective, in any year prior to the previous year in which expenditure on the acquisition thereof was incurred by the assessee, this clause shall have effect with the substitution for the reference to fourteen years of a reference to fourteen years less the number of complete years which, when the rights are acquired by the assessee, have elapsed since the commencement thereof, and if fourteen years have elapsed as aforesaid, of a reference to one year;

(ii) "appropriate fraction" means the fraction the numerator of which is one and the denominator of which is the number of the relevant previous years.

(2) Where the rights come to an end without being subsequently revived or where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) are not less than the cost of acquisition thereof remaining unallowed, no deduction under sub-section (1) shall be allowed in respect of the previous year in which the rights come to an end or, as the case may be, the whole or any part of the rights is sold or in respect of any subsequent previous year.

(3) Where the rights either come to an end without being subsequently revived or are sold in their entirety and the proceeds of the sale (so far as they consist of capital sums) are less than the cost of acquisition thereof remaining unallowed, a deduction equal to such cost remaining unallowed or, as the case may be, such cost remaining unallowed as reduced by the proceeds of the sale, shall be allowed in respect of the previous year in which the rights come to an end, or, as the case may be, are sold.]

(4) Where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) exceed the amount of the cost of acquisition thereof remaining unallowed, so much of the excess as does not exceed the difference between the cost of acquisition of the rights and the amount of such cost remaining unallowed shall be chargeable to income-tax as income of the business of the previous year in which the whole or any part of the rights is sold.

Explanation.-Where the whole or any part of the rights is sold in a previous year in which the business is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year.

(5) Where a part of the rights is sold and sub-section (4) does not apply, the amount of the deduction to be allowed under sub-section (1) shall be arrived at by-

(a) subtracting the proceeds of the sale (so far as they consist of capital sums) from the amount of the cost of acquisition of the rights remaining unallowed; and

(b) dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the rights are sold.]

¹[(6) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers the rights to the amalgamated company (being an Indian company),-

(i) the provisions of sub-sections (3) and (4) shall not apply in the case of the amalgamating company; and

(ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the rights.]

²[(7) Where in a scheme of demerger, the demerged company sells or otherwise transfers the rights to the resulting company (being an Indian company),-

(i) the provisions of sub-sections (3) and (4) shall not apply in the case of the demerged company; and

(ii) the provisions of this section shall, as far as may be, apply to the resulting company as they would have applied to the demerged company, if the latter had not sold or otherwise transferred the rights.]

1. Ins. by Act 13 of 1966, s. 10 (w.e.f. 1-4-1966).

2. Ins. by Act 21 of 1998, s. 12 (w.e.f. 1-4-1999).

1. Ins. by Act 26 of 1967, s. 14 (w.e.f. 1-4-1967).

2. Ins. by Act 27 of 1999, s. 16 (w.e.f. 1-4-2000).

³[35AB. Expenditure on know-how.-

(1) Subject to the provisions of sub-section (2), where the assessee has paid ⁴[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.

(2) 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.

⁵[(3) 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).]

3. Ins. by Act 32 of 1985, s. 8 (w.e.f. 1-4-1986).

4. Subs. by Act 21 of 1998, s. 12, for "in any previous year" (w.e.f. 1-4-1999).

5. Ins. by Act 27 of 1999, s. 17 (w.e.f. 1-4-2000).

⁶[35ABA. Expenditure for obtaining right to use spectrum for telecommunication services.-

(1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to use spectrum for telecommunication services either before the commencement of the business or thereafter at any time during any previous year and for which payment has actually been made to obtain a right to use spectrum, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure.

(2) The provisions contained in sub-sections (2) to (8) of section 35 ABB, shall apply as if for the word "licence", the word "spectrum" had been substituted.

(3) Where, in a previous year, any deduction has been claimed and granted to the assessee under sub-section (1), and, subsequently, there is failure to comply with any of the provisions of this section, then,-

(a) the deduction shall be deemed to have been wrongly allowed;

(b) the Assessing Officer may, notwithstanding anything contained in this Act, re-compute the total income of the assessee for the said previous year and make the necessary rectification;

(c) the provisions of section 154 shall, so far as may be, apply and the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the failure to comply with the provisions of this section takes place.

Explanation.-For the purposes of this section,-

(i) "relevant previous years" means,-

(A) in a case where the spectrum fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year in which such business commenced;

(B) in any other case, the previous years beginning with the previous year in which the spectrum fee is actually paid, and the subsequent previous year or years during which the spectrum, for which the fee is paid, shall be in force;

(ii) "appropriate fraction" means the fraction, the numerator of which is one and the denominator of which is the total number of the relevant previous years;

(iii) "payment has actually been made" means the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee or payable in such manner as may be prescribed.]

6. Ins. by Act 28 of 2016, s. 16 (w.e.f. 1-4-2017).

¹[35ABB. Expenditure for obtaining licence to operate telecommunication services.-

(1) In respect of any expenditure, being in the nature of capital expenditure, incurred ²[for acquiring any right to operate telecommunication services either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year] and for which payment has actually been made to obtain a licence, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure.

Explanation.-For the purposes of this section,-

³[(i) "relevant previous years" means,-

(A) in a case where the licence fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year in which such business commenced;

(B) in any other case, the previous years beginning with the previous year in which the licence fee is actually paid, and the subsequent previous year or years during which the licence, for which the fee is paid, shall be in force;]

(ii) "appropriate fraction" means the fraction the numerator of which is one and the denominator of which is the total number of the relevant previous years;

(iii) "payment has actually been made" means the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee.

(2) Where the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of the transfer, shall be allowed in respect of the previous year in which the licence is transferred.

(3) Where the whole or any part of the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) exceed the amount of the expenditure incurred remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred to obtain the licence and the amount of such expenditure remaining unallowed shall be chargeable to income-tax as profits and gains of the business in the previous year in which the licence has been transferred.

Explanation.-Where the licence is transferred in a previous year in which the business is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year.

(4) Where the whole or any part of the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are not less than the amount of expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed under sub-section (1) in respect of the previous year in which the licence is transferred or in respect of any subsequent previous year or years.

(5) Where a part of the licence is transferred in a previous year and sub-section (3) does not apply, the deduction to be allowed under sub-section (1) for expenditure incurred remaining unallowed shall be arrived at by-

(a) subtracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure remaining unallowed; and

(b) dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the licence is transferred.

(6) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers the licence to the amalgamated company (being an Indian company),-

(i) the provisions of sub-sections (2), (3) and (4) shall not apply in the case of the amalgamating company; and

(ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not transferred the licence.]

¹[(7) Where, in a scheme of demerger, the demerged company sells or otherwise transfers the licence to the resulting company (being an Indian company),-

(i) the provisions of sub-sections (2), (3) and (4) shall not apply in the case of the demerged company; and

(ii) the provisions of this section shall, as far as may be, apply to the resulting company as they would have applied to the demerged company if the latter had not transferred the licence.]

¹[(8) Where a deduction for any previous year under sub-section (1) is claimed and allowed in respect of any expenditure referred to in that sub-section, no deduction shall be allowed under sub-section (1) of section 32 for the same previous year or any subsequent previous year.]

1. Ins. by Act 26 of 1997, s. 6 (w.e.f. 1-4-1996).

2. Subs. by Act 27 of 1999, s. 18, for "for acquiring any right to operate telecommunication services" (w.e.f. 1-4-1996).

3. Subs. by s. 18, for clause (i) (w.e.f. 1-4-1996).

1. Ins. by Act 27 of 1999, s. 18 (w.e.f. 1-4-2000).

1. Ins. by Act 27 of 1999, s. 18 (w.e.f. 1-4-1996).

²[35AC. Expenditure on eligible projects or schemes.-

(1) Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme, the assessee shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year:

Provided that a company may, for claiming the deduction under this sub-section, incur expenditure either by way of payment of any sum as aforesaid or directly on the eligible project or scheme.

(2) The deduction under sub-section (1) shall not be allowed unless the assessee furnishes along with his return of income a certificate-

(a) where the payment is to a public sector company or a local authority or an association or institution referred to in sub-section (1), from such public sector company or local authority or, as the case may be, association or institution;

(b) in any other case, from an accountant, as defined in the Explanation below sub-section (2) of section 288, in such form, manner and containing such particulars (including particulars relating to the progress in the work relating to the eligible project or scheme during the previous year) as may be prescribed.

³[Explanation.-The deduction, to which the assessee is entitled in respect of any sum paid to a public sector company or a local authority or to an association or institution for carrying out the eligible project or scheme referred to in this section applies, shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee,-

(a) the approval granted to such association or institution has been withdrawn; or

(b) the notification notifying the eligible project or scheme carried out by the public sector company or local authority or association or institution has been withdrawn.]

(3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.

⁴[(4) Where an association or institution is approved by the National Committee under sub-section (1), and subsequently-

(i) that Committee is satisfied that the project or the scheme is not being carried on in accordance with all or any of the conditions subject to which approval was granted; or

(ii) such association or institution, to which approval has been granted, has not furnished to the National Committee, after the end of each financial year, a report in such form and setting forth such particulars and within such time as may be prescribed the National Committee may, at any time, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association or institution, withdraw the approval: Provided that a copy of the order withdrawing the approval shall be forwarded by the National Committee to the Assessing Officer having jurisdiction over the concerned association or institution.

(5) Where any project or scheme has been notified as an eligible project or scheme under clause (b) of the Explanation, and subsequently-

(i) the National Committee is satisfied that the project or the scheme is not being carried on in accordance with all or any of the conditions subject to which such project or scheme was notified; or

(ii) a report in respect of such eligible project or scheme has not been furnished after the end of each financial year, in such form and setting forth such particulars and within such time as may be prescribed, such notification may be withdrawn in the same manner in which it was issued:

Provided that a reasonable opportunity of showing cause against the proposed withdrawal shall be given by the National Committee to the concerned association, institution, public sector company or local authority, as the case may be:

Provided further that a copy of the notification by which the notification of the eligible project or scheme is withdrawn shall be forwarded to the Assessing Officer having jurisdiction over the concerned association, institution, public sector company or local authority, as the case may be, carrying on such eligible project or scheme.]

¹[(6) Notwithstanding anything contained in any other provision of this Act, where-

(i) the approval of the National Committee, granted to an association or institution, is withdrawn under sub-section (4) or the notification in respect of eligible project or scheme is withdrawn in the case of a public sector company or local authority or an association or institution under sub-section (5); or

(ii) a company has claimed deduction under the proviso to sub-section (1) in respect of any expenditure incurred directly on the eligible project or scheme and the approval for such project or scheme is withdrawn by the National Committee under sub-section (5), the total amount of the payment received by the public sector company or the local authority or the association or the institution, as the case may be, in respect of which such company or authority or association or institution has furnished a certificate referred to in clause (a) of sub-section (2) or the deduction claimed by a company under the proviso to sub-section (1) shall be deemed to be the income of such company or authority or association or institution, as the case may be, for the previous year in which such approval or notification is withdrawn and tax shall be charged on such income at the maximum marginal rate in force for that year.]

²[(7) No deduction under this section shall be allowed in respect of any assessment year commencing on or after the 1st day of April, 2018.]

Explanation.-For the purposes of this section,-

(a) "National Committee" means the Committee constituted by the Central Government, from amongst persons of eminence in public life, in accordance with the rules made under this Act;

(b) "eligible project or scheme" means such project or scheme for promoting the social and economic welfare of, or the uplift of, the public as the Central Government may, by notification in the Official Gazette, specify in this behalf on the recommendations of the National Committee.]

2. Ins. by Act 49 of 1991, s. 13 (w.e.f. 1-4-1992).

3. Ins. by Act 29 of 2006, s. 6 (w.e.f. 1-4-2006).

4. Subs by Act 23 of 2004, s. 10 for sub-section (4) (w.e.f. 1-10-2004).

1. Ins. by Act 20 of 2002, s. 16 (w.e.f. 1-4-2003).

2. Ins. by Act 28 of 2016, s. 17 (w.e.f. 1-4-2017).

³[35AD. Deduction in respect of expenditure on specified business.-

(1) An assessee shall be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him:

Provided that the expenditure incurred, wholly and exclusively, for the purposes of any specified business, shall be allowed as deduction during the previous year in which he commences operations of his specified business, if-

(a) the expenditure is incurred prior to the commencement of its operations; and

(b) the amount is capitalised in the books of account of the assessee on the date of commencement of its operations.]

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(2) This section applies to the specified business which fulfils all the following conditions, namely:-

(i) it is not set up by splitting up, or the reconstruction, of a business already in existence;

(ii) it is not set up by the transfer to the specified business of machinery or plant previously used for any purpose;

(iii) where the business is of the nature referred to in sub-clause (iii) of clause (c) of sub-section (8), such business,-

(a) is owned by a company formed and registered in India under the Companies Act, 1956 (1 of 1956) or by a consortium of such companies or by an authority or a board or a corporation established or constituted under any Central or State Act;

(b) has been approved by the Petroleum and Natural Gas Regulatory Board established under sub-section (1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006) and notified by the Central Government in the Official Gazette in this behalf;

(c) has made not less than ²[such proportion of its total pipeline capacity as specified by regulations made by the Petroleum and Natural Gas Regulatory Board established under subsection (1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006)] available for use on common carrier basis by any person other than the assessee or an associated person; and (d) fulfils any other condition as may be prescribed.

³[(iv) where the business is of the nature referred to in sub-clause (xiv) of clause (c) of sub-section (8), such business,-

(A) is owned by a company registered in India or by a consortium of such companies or by an authority or a board or corporation or any other body established or constituted under any Central or State Act;

(B) entity referred to in sub-clause (A) has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining, a new infrastructure facility.]

⁴[(3) Where a deduction under this section is claimed and allowed in respect of the specified business for any assessment year, no deduction shall be allowed under the provisions of ⁵[section 10AA and] Chapter VIA under the heading" C.-Deductions in respect of certain incomes" in relation to such specified business for the same or any other assessment year.]

(4) No deduction in respect of the expenditure referred to in sub-section (1) shall be allowed to the assessee under any other section in any previous year or under this section in any other previous year.

(5) The provisions of this section shall apply to the specified business referred to in sub-section (2) if it commences its operations,-

(a) on or after the 1st day of April, 2007, where the specified business is in the nature of laying and operating a cross-country natural gas pipeline network for distribution, including storage facilities being an integral part of such network; 1***

²[(aa) on or after the 1st day of April, 2010, where the specified business is in the nature of building and operating a new hotel of two-star or above category as classified by the Central Government;

(ab) on or after the 1st day of April, 2010, where the specified business is in the nature of building and operating a new hospital with at least one hundred beds for patients;

(ac) on or after the 1st day of April, 2010, where the specified business is in the nature of developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed; 3***]

⁴[(ad) on or after the 1st day of April, 2011, where the specified business is in the nature of developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed;

(ae) on or after the 1st day of April, 2011, in a new plant or in a newly installed capacity in an existing plant for production of fertilizer; 5***]

6(af) on or after the 1st day of April, 2012, where the specified business is in the nature of setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962 (52 of 1962);

(ag) on or after the 1st day of April, 2012, where the specified business is in the nature of beekeeping and production of honey and beeswax;

(ah) on or after the 1st day of April, 2012, where the specified business is in the nature of setting up and operating a warehousing facility for storage of sugar; 7***]

⁸[(ai) on or after the 1st day of April, 2014, where the specified business is in the nature of laying and operating a slurry pipeline for the transportation of iron ore;

(aj) on or after the 1st day of April, 2014, where the specified business is in the nature of setting up and operating a semi-conductor wafer fabrication manufacturing unit, and which is notified by the Board in accordance with such guidelines as may be prescribed; 9***]

¹[(ak) on or after the 1st day of April, 2017, where the specified business is in the nature of developing or operating and maintaining or developing, operating and maintaining, any infrastructure facility; and]

(b) on or after the 1st day of April, 2009, in all other cases not falling under ²[any of the above clauses.]

(6) The assessee carrying on the business of the nature referred to in clause (a) of sub-section (5) shall be allowed, in addition to deduction under sub-section (1), a further deduction in the previous year relevant to the assessment year beginning on the 1st day of April, 2010, of an amount in respect of expenditure of capital nature incurred during any earlier previous year, if-

(a) the business referred to in clause (a) of sub-section (5) has commenced its operation at any time during the period beginning on or after the 1st day of April, 2007 and ending on the 31st day of March, 2009; and

(b) no deduction for such amount has been allowed or is allowable to the assessee in any earlier previous year.

³[(6A) Where the assessee builds a hotel of two-star or above category as classified by the Central Government and subsequently, while continuing to own the hotel, transfers the operation thereof to another person, the assessee shall be deemed to be carrying on the specified business referred to in subclause (iv) of clause (c) of sub-section (8).]

(7) The provisions contained in sub-section (6) of section 80A and the provisions of sub-sections (7) and (10) of section 80-IA shall, so far as may be, apply to this section in respect of goods or services or assets held for the purposes of the specified business.

⁴[(7A) Any asset in respect of which a deduction is claimed and allowed under this section shall be used only for the specified business, for a period of eight years beginning with the previous year in which such asset is acquired or constructed.

(7B) Where any asset, in respect of which a deduction is claimed and allowed under this section, is used for a purpose other than the specified business during the period specified in sub-section (7A), otherwise than by way of a mode referred to in clause (vii) of section 28, the total amount of deduction so claimed and allowed in one or more previous years, as reduced by the amount of depreciation allowable in accordance with the provisions of section 32, as if no deduction under this section was allowed, shall be deemed to be the income of the assessee chargeable under the head "Profits and gains of business or profession" of the previous year in which the asset is so used.

(7C) Nothing contained in sub-section (7B) shall apply to a company which has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), during the period specified in sub-section (7A).]

(8) For the purposes of this section,-

(a) an"associated person", in relation to the assessee, means a person,-

(i) who participates, directly or indirectly, or through one or more intermediaries in the management or control or capital of the assessee;

(ii) who holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the capital of the assessee;

(iii) who appoints more than half of the Board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of the assessee; or

(iv) who guarantees not less than ten per cent of the total borrowings of the assessee;

(b) "cold chain facility" means a chain of facilities for storage or transportation of agricultural and forest produce, meat and meat products, poultry, marine and dairy products, products of horticulture, floriculture and apiculture and processed food items under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce;

¹[(ba) "infrastructure facility" means-

(i) a road including toll road, a bridge or a rail system;

(ii) a highway project including housing or other activities being an integral part of the highway project;

(iii) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system;

(iv) a port, airport, inland waterway, inland port or navigational channel in the sea;]

(c) "specified business" means any one or more of the following business, namely :-

(i) setting up and operating a cold chain facility;

(ii) setting up and operating a warehousing facility for storage of agricultural produce;

(iii) laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network;

²[(iv) building and operating, anywhere in India, a ³[hotel] of two-star or above category as classified by the Central Government;

(v) building and operating, anywhere in India, a ⁴[hospital] with at least one hundred beds for patients;

(vi) developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed;

¹[(vii) developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed;

(viii) production of fertilizer in India;]

²[(ix) setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962 (52 of 1962);

(x) bee-keeping and production of honey and beeswax;

(xi) setting up and operating a warehousing facility for storage of sugar;]

³[(xii) laying and operating a slurry pipeline for the transportation of iron ore;

(xiii) setting up and operating a semi-conductor wafer fabrication manufacturing unit notified by the Board in accordance with such guidelines as may be prescribed;]

⁴[(xiv) developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility;]

(d) any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if-

(i) such machinery or plant was not, at any time prior to the date of the installation by the assessee, used in India;

(ii) such machinery or plant is imported into India from any country outside India; and

(iii) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of installation of the machinery or plant by the assessee;

(e) where in the case of a specified business, any machinery or plant or any part thereof previously used for any purpose is transferred to the specified business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in such business, then, for the purposes of clause (ii) of sub-section (2), the condition specified therein shall be deemed to have been complied with;

(f) any expenditure of capital nature shall not include ⁵[any expenditure in respect of which the payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees or] any expenditure incurred on the acquisition of any land or goodwill or financial instrument.]

3. Ins. by Act 33 of 2009, s. 13 (w.e.f. 1-4-2010).

1. Sub-section (1A) Omitted by Act 28 of 2016, s. 18 (w.e.f 1-4-2018).

2. Subs. by Act 14 of 2010, s. 10, for the words "one-third of its total pipeline capacity" (w.e.f. 1-4-2010).

3. Ins. by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).

4. Subs. by Act 14 of 2010, s. 10, for sub-section (3) (w.e.f. 1-4-2011).

5. Ins. by Act 25 of 2014, s. 12 (w.e.f. 1-4-2015).

1. The word "and" omitted by Act 14 of 2010, s. 10 (w.e.f. 1-4-2011).

2. Ins. by s. 10, ibid. (w.e.f. 1-4-2011).

3. The word "and" omitted by Act 8 of 2011, s. 6 (w.e.f. 1-4-2012).

4. Ins. by s. 6, ibid. (w.e.f. 1-4-2012).

5. The word "and" omitted by Act 23 of 2012, s. 9 (w.e.f. 1-4-2013).

6. Ins. by s. 9, ibid. (w.e.f. 1-4-2013).

7. The word "and" omitted by Act 25 of 2014, s. 12 (w.e.f. 1-4-2015).

8. Ins. by s. 12, ibid. (w.e.f. 1-4-2015).

9. The word "and" omitted by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).

1. Ins. by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).

2. Subs. by Act 23 of 2012, s. 9, for "clause (a), clause (aa), clause (ab) and clauses (ac)" (w.e.f. 1-4-2013).

3. Ins. by s. 9, ibid. (w.e.f. 1-4-2011).

4. Ins. by Act 25 of 2014, s. 12 (w.e.f. 1-4-2015).

1. Ins. by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).

2. Ins. by Act 14 of 2010, s. 10 (w.e.f. 1-4-2011).

3. Subs. by Act 8 of 2011, s. 6, for "new hotel" (w.e.f. 1-4-2011).

4. Subs. by s. 6, ibid., for "new hospital" (w.e.f. 1-4-2011).

1. Ins. by Act 8 of 2011, s. 6 (w.e.f. 1-4-2012).

2. Ins. by Act 23 of 2012, s. 9 (w.e.f. 1-4-2013).

3. Ins. by Act 25 of 2014, s. 12 (w.e.f. 1-4-2015).

4. Ins. by Act 28 of 2016, s. 18 (w.e.f. 1-4-2018).

5. Ins. by Act 7 of 2017, s. 13 (w.e.f. 1-4-2018).

35B. [Export markets development allowance.]-Omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s. 10 as amended by Act 3 of 1989, s. 95 (w.e.f.1-4-1989). Earlier inserted by Act 19 of 1968, s. 5 (w.e.f. 1-4-1968).

35C. [Agricultural development allowance.]-Omitted by s. 10, ibid. (w.e.f. 1-4-1988) as amended by s. 95, ibid. (w.e.f.1-4-1989). Earlier inserted s. 5, ibid. (w.e.f. 1-4-1968).

35CC. [Rural development allowance.]-Omitted by s. 10, ibid. (w.e.f. 1-4-1988) as amended by s. 95, ibid. (w.e.f.1-4-1989). Earlier inserted s. 5, ibid. (w.e.f. 1-4-1968).

¹[35CCA.Expenditure by way of payment to associations and institutions for carrying out rural development programmes.-

²[(1) Where an assessee incurs any expenditure by way of payment of any sum-

(a) to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved by the prescribed authority; or

(b) to an association or institution, which has as its object the training of persons for implementing programmes of rural development; ³[or]

⁴[(c) to a rural development fund set up and notified by the Central Government in this ⁵[behalf; or] ⁶[(d) to the National Urban Poverty Eradication Fund set up and notified by the Central Government in this behalf,] the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year.]

⁷[(2) The deduction under clause (a) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution referred to in the said clause unless the assessee furnishes a certificate from such association or institution to the effect that-

(a) the programme of rural development had been approved by the prescribed authority before the 1st day of March, 1983; and

(b) where such payment is made after the 28th day of February, 1983, such programme involves work by way of construction of any building or other structure (whether for use as a dispensary, school, training or welfare centre, workshop or for any other purpose) or the laying of any road or the construction or boring of a well or tube-well or the installation of any plant or machinery, and such work has commenced before the 1st day of March, 1983.]

(2A) The deduction under clause (b) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution unless the assessee furnishes a certificate from such association or institution to the effect that-

(a) the prescribed authority had approved the association or institution before the 1st day of March, 1983; and

(b) the training of persons for implementing any programme of rural development had been started by the association or institution before the 1st day of March, 1983.]

¹[Explanation.-The deduction, to which the assessee is entitled in respect of any sum paid to an association or institution for carrying out the programme of rural development referred to in subsection (1), shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee, the approval granted to such programme of rural development, or as the case may be, to the association or institution has been withdrawn.]

(2B) No certificate of the nature referred to in sub-section (2) or sub-section (2A) shall be issued by any association or institution unless such association or institution has obtained from the prescribed authority authorisation in writing to issue certificates of such nature.]

Explanation.-For the purposes of this section, "programme of rural development" shall have the meaning assigned to it in the Explanation to sub-section (1) of section 35CC.

(3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under section 35C or section 35CC or section 80G or any other provision of this Act for the same or any other assessment year.]

1. Restored by Act 3 of 1989, s. 95 (w.e.f. 1-4-1989). Earlier omitted by Act 4 of 1988, s. 10 (w.e.f 1-4-1988). Original s. 35CCA ins. by Act 19 of 1978, s. 7 (w.e.f. 1-6-1978).

2. Subs. by Act 21 of 1979, s. 5, for sub-section (1) (w.e.f. 1-6-1979).

3. Ins. by Act 11 of 1983, s. 16 (w.e.f. 1-4-1983).

4. Ins. by s. 16, ibid. (w.e.f. 1-4-1983).

5. Subs. by Act 22 of 1995, s. 9, for "behalf" (w.e.f. 1-4-1996).

6. Ins. by s. 9, ibid. (w.e.f. 1-4-1996).

7. Subs. by Act 11 of 1983, s. 16 for sub-section (2), (2A) and (2B) (w.e.f. 1-4-1983).

1. Ins. by Act 29 of 2006, s. 7 (w.e.f. 1-4-2006).

²[35CCB. Expenditure by way of payment to associations and institutions for carrying out programmes of conservation of natural resources.-

³[(1) ⁴[Where an assessee incurs any expenditure on or before the 31st day of March, 2002] by way of payment of any sum-

(a) to an association or institution, which has as its object the undertaking of any programme of conservation of natural resources or of afforestation, to be used for carrying out any programme of conservation of natural resources or afforestation approved by the prescribed authority; or

(b) to such fund for afforestation as may be notified by the Central Government, the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year.]

(2) The deduction under ⁵[clause (a) of] sub-section (1) shall not be allowed with respect to expenditure by way of payment of any sum to any association or institution, unless such association or institution is for the time being approved in this behalf by the prescribed authority:

Provided that the prescribed authority shall not grant such approval for more than three years at a time.

(3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.]

2. Restored by Act 3 of 1989, s. 95 earlier omitted by Act 4 of 1988, s.10 (w.e.f. 1-4-1989). Original s. 35CCB was inserted by Act 14 of 1982, s. 9 (w.e.f. 1-6-1982).

3. Subs. by Act 12 of 1990, s. 12, for sub-section (1) (w.e.f. 1-4-1991).

4. Subs. by Act 20 of 2002, s. 17, for "Where an assessee incurs any expenditure" (w.e.f. 1-4-2003).

5. Ins. by Act 12 of 1990, s. 12 (w.e.f. 1-4-1991).

⁶[35CCC. Expenditure on agricultural extension project.-

(1) Where an assessee incurs any expenditure on agricultural extension project notified by the Board in this behalf in accordance with theguidelines as may be prescribed, then, there shall be allowed a deduction of a sum equal to one and one-half times of such expenditure.

¹[Provided that for the assessment year beginning on or after the 1st day of April, 2021, the provisions of this sub-section shall have effect as if for the words "a sum equal to one and one-half times of", the words "a sum equal to" had been substituted.]

(2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provisions of this Act for the same or any other assessment year.]

6. Ins. by Act 23 of 2012, s. 10 (w.e.f. 1-4-2013).

1. Ins. by Act 28 of 2016, s. 19 (w.e.f. 1-4-2017).

²[35CCD. Expenditure on skill development project.-

(1) Where a company incurs any expenditure (not being expenditure in the nature of cost of any land or building) on any skill development project notified by the Board in this behalf in accordance with the guidelines as may be prescribed, then, there shall be allowed a deduction of a sum equal to one and one-half times of such expenditure.]

³[Provided that for the assessment year beginning on or after the 1st day of April, 2021, the provisions of this sub-section shall have effect, as if for the words "an amount equal to one and one-half times of", the words "a sum equal to" had been substituted.]

(2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provisions of this Act for the same or any other assessment year.]

2. Ins. by Act 23 of 2012, s. 10 (w.e.f. 1-4-2013).

3. Ins. by Act 28 of 2016, s. 20 (w.e.f. 1-4-2017).

⁴[35D. Amortisation of certain preliminary expenses.-

(1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),-

(i) before the commencement of his business, or

(ii) after the commencement of his business, in connection with the extension of his ⁵[undertaking] or in connection with his setting up a new ⁶[unit], the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the ⁵[undertaking] is completed or the new ⁶[unit] commences production or operation:

⁷[Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words "an amount equal to one-tenth of such expenditure for each of the ten successive previous years", the words "an amount equal to one-fifth of such expenditure for each of the five successive previous years" had been substituted.]

(2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :-

(a) 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 of the assessee;

(iv) engineering services relating to the business of the assessee:

Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services referred to in this clause is carried out by the assessee himself or by a concern which is for the time being approved in this behalf by the Board;

(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 of the assessee;

(c) where the assessee is a company, also expenditure-

(i) by way of legal charges for drafting the Memorandum and Articles of Association of the company;

(ii) on printing of the Memorandum and Articles of Association;

(iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956);

(iv) 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;

(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) Where the aggregate amount of the expenditure referred to in sub-section (2) exceeds an amount calculated at two and one-half per cent-

(a) of the cost of the project, or

(b) where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company, the excess shall be ignored for the purpose of computing the deduction allowable under sub-section (1):

¹[Provided that where the aggregate amount of expenditure referred to in sub-section (2) is incurred after the 31st day of March, 1998, the provisions of this sub-section shall have effect as if for the words "two and one-half per cent", the words "five per cent" had been substituted.]

Explanation.-In this sub-section-

(a) "cost of the project" means-

(i) in a case referred to in clause (i) of sub-section (1), 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), 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;

(ii) in a case referred to in clause (ii) of sub-section (1), 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), which are shown in the books of the assessee as on the last day of the previous year in which the extension of the ²[undertaking] is completed or, as the case may be, the new ¹[unit] commences production or operation, in so far as such fixed assets have been acquired or developed in connection with the extension of the ²[undertaking] or the setting up of the new ¹[unit] of the assessee;

(b) "capital employed in the business of the company" means-

(i) in a case referred to in clause (i) of sub-section (1), 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;

(ii) in a case referred to in clause (ii) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the extension of the ²[undertaking] is completed or, as the case may be, the new ¹[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 ²[undertaking] or the setting up of the new ²[unit] of the company;

(c) "long-term borrowings" means-

(i) any moneys borrowed by the company from Government or the Industrial Finance Corporation of India or the Industrial Credit and Investment Corporation of India or any other financial institution³[which is eligible for deduction under clause (viii) of sub-section (1) of section 36] 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 terms under which such moneys are borrowed or the debt is incurred provide for the repayment thereof during a period of not less than seven years.

(4) Where the assessee is a person other than a company or a co-operative society, no deduction shall be admissible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

(5) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation,-

(i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and

(ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place.

⁴[(5A) Where the undertaking of an Indian company which is entitled to the deduction under subsection (1) is transferred, before the expiry of the period specified in sub-section (1), to another company in a scheme of demerger,-

(i) no deduction shall be admissible under sub-section (1) in the case of the demerged company for the previous year in which the demerger takes place; and

(ii) the provisions of this section shall, as far as may be, apply to the resulting company, as they would have applied to the demerged company, if the demerger had not taken place.]

(6) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in sub-section (2), the expenditure in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year.

4. Ins. by Act 42 of 1970, s. 8 (w.e.f. 1-4-1971).

5. Subs. by Act 18 of 2008, s. 8, for "industrial undertaking" (w.e.f. 1-4-2009).

6. Subs. by s. 8, ibid., for "industrial unit" (w.e.f. 1-4-2009).

7. Ins. by Act 21 of 1998, s. 14 (w.e.f. 1-4-1999).

1. Ins. by Act 21 of 1998, s. 14 (w.e.f. 1-4-1999).

2. Subs. by Act 18 of 2008, s. 8, for "industrial undertaking" (w.e.f. 1-4-2009).

1. Subs. by Act of 18 of 2008, s. 8, for "industrial unit" (w.e.f. 1-4-2009).

2. Subs. by s. 8, ibid., for "industrial undertaking" (w.e.f. 1-4-2009).

3. Subs. by Act 10 of 2000, s. 17, for "which is for the time being approved by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36" (w.e.f. 1-4-2000).

4. Ins. by Act 27 of 1999, s. 19 (w.e.f. 1-4-2000).

¹[35DD. Amortisation of expenditure in case of amalgamation or demerger.-

(1) Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation or demerger takes place.

(2) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act.]

1. Ins. by Act 27 of 1999, s. 20 (w.e.f. 1-4-2000).

²[35DDA. Amortisation of expenditure incurred under voluntary retirement scheme.-

(1) Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee ³[in connection with his voluntary retirement], in accordance with any scheme or schemes of voluntary retirement, one-fifth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance shall be deducted in equal instalments for each of the four immediately succeeding previous years.]

⁴[(2) Where the assessee, being an Indian company, is entitled to the deduction under sub-section (1) and the undertaking of such Indian company entitled to the deduction under sub-section (1) is transferred, before the expiry of the period specified in that sub-section, to another Indian company in a scheme of amalgamation, the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place.

(3) Where the undertaking of an Indian company entitled to the deduction under sub-section (1) is transferred, before the expiry of the period specified in that sub-section, to another company in a scheme of demerger, the provisions of this section shall, as far as may be, apply to the resulting company, as they would have applied to the demerged company, if the demerger had not taken place.

(4) Where there has been reorganisation of business, whereby a firm is succeeded by a company fulfilling the conditions laid down in clause (xiii) of section 47 or a proprietary concern is succeeded by a company fulfilling the conditions laid down in clause (xiv) of section 47, the provisions of this section shall, as far as may be, apply to the successor company, as they would have applied to the firm or the proprietary concern, if reorganisation of business had not taken place.

⁵[(4A) Where there has been reorganisation ofbusiness, whereby a private company or unlisted public company is succeeded by a limited liability partnership fulfilling the conditions laid down in the proviso to clause (xiiib) of section 47, the provisions of this section shall, as far as may be, apply to the successor limited liability partnership, as they would have applied to the said company, if reorganisation of business had not taken place.

(5) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) in the case of the amalgamating company referred to in sub-section (2), in the case of demerged company referred to in ⁶[sub-section (3), in the case of a firm or proprietary concern referred to in sub-section (4) and in the case of a company referred to in sub-section (4A)] of this section, for the previous year in which amalgamation, demerger or succession, as the case may be, takes place.

(6) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act.]

2. Ins. by Act 14 of 2001, s. 24 (w.e.f. 1-4-2001).

3. Subs. by Act 18 of 2005, s. 11, for "at the time of his voluntary retirement" (w.e.f. 1-4-2004).

4. Subs. by Act 20 of 2002, s. 18, for sub-section (2) (w.e.f. 1-4-2001).

5. Ins. by Act 14 of 2010, s. 11 (w.e.f. 1-4-2011).

6. Subs. by s. 11, ibid., for "sub-section (3) and in the case of a firm or proprietary concern referred to in sub-section (4)" (w.e.f. 1-4-2011).

35E. Deduction for expenditure on prospecting, etc., for certain minerals.-

(1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, is engaged in any operations relating to prospecting for, or extraction or production of, any mineral and incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2), the assessee shall, in accordance with and subject to the provisions of this section, be allowed for each one of the relevant previous years a deduction of an amount equal to one-tenth of the amount of such expenditure.

(2) The expenditure referred to in sub-section (1) is that incurred by the assessee after the date specified in that sub-section at any time during the year of commercial production and any one or more of the four years immediately preceding that year, wholly and exclusively on any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or group of associated minerals:

Provided that there shall be excluded from such expenditure any portion thereof which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insurance moneys realised by the assessee in respect of any property or rights brought into existence as a result of the expenditure.

(3) Any expenditure-

(i) on the acquisition of the site of the source of any mineral or group of associated minerals referred to in sub-section (2) or of any rights in or over such site;

(ii) on the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or

(iii) of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 32, shall not be deemed to be expenditure incurred by the assessee for any of the purposes specified in sub-section (2).

(4) The deduction to be allowed under sub-section (1) for any relevant previous year shall be-

(a) an amount equal to one-tenth of the expenditure specified in sub-section (2) (such one-tenth being hereafter in this sub-section referred to as the instalment); or

(b) such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that previous year arising from the commercial exploitation [whether or not such commercial exploitation is as a result of the operations or development referred to in subsection (2)] of any mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated minerals as aforesaid in respect of which the expenditure was incurred, whichever amount is less:

Provided that the amount of the instalment relating to any relevant previous year, to the extent to which it remains unallowed, shall be carried forward and added to the instalment relating to the previous year next following and deemed to be part of that instalment, and so on, for succeeding previous years, so, however, that no part of any instalment shall be carried forward beyond the tenth previous year as reckoned from the year of commercial production.

(5) For the purposes of this section,-

(a) "operation relating to prospecting" means any operation undertaken for the purposes of exploring, locating or proving deposits of any mineral, and includes any such operation which proves to be infructuous or abortive;

(b) "year of commercial production" means the previous year in which as a result of any operation relating to prospecting, commercial production of any mineral or any one or more of the minerals in a group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule, commences;

(c) "relevant previous years" means the ten previous years beginning with the year of commercial production.

(6) Where the assessee is a person other than a company or a co-operative society, no deduction shall be admissible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

(7) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation-

(i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and

(ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place.

¹[(7A) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of demerger,-

(i) no deduction shall be admissible under sub-section (1) in the case of the demerged company for the previous year in which the demerger takes place; and

(ii) the provisions of this section shall, as far as may be, apply to the resulting company as they would have applied to the demerged company, if the demerger had not taken place.]

(8) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in sub-section (2), the expenditure in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year.]

1. Ins. by 27 of 1999, s. 21 (w.e.f. 1-4-2000).

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