Clause 33 - Deduction for operating expenditure - Direct Taxes Code Bill, 2009

Deduction for operating expenditure 33. (1) The amount of operating expenditure referred to in clause (a) of sub-section (1) of section 32 shall be the aggregate of - (a) the amount of expenditure specified in sub-section (2), if - (i) the expenditure is laid out or expended, wholly and exclusively, for the purposes of the business; and (ii) it fulfills all other conditions, if any, specified therein; and (b) the amount of deductions specified in sub-section (3) subject to the fulfillment of the conditions, if any, specified therein. (2) The amount of expenditure referred to in clause (a) of sub-section (1) shall be the amount of expenditure on, or on account of,- (i) purchase of raw material, stores, spares and consumables, or stock-in-trade; (ii) rent actually paid for any premises if it is occupied by the person and used by him; (iii) repairs to buildings if it is occupied and used by the person and the repairs are current in nature; (iv) land revenue, local rates or municipal taxes in respect of premises occupied and used by the person; (v) repair to, or replacement of parts of, machinery, plant or furniture used by the person, if the repair or replacement is current in nature; (vi) maintenance of computer software or hardware; (vii) salary or wages to employees; (viii) remuneration to any working participant to the extent it is in accordance with the agreement of the association and relates to the period falling after the date of the agreement; (ix) any premium paid to effect, or to keep in force, an insurance in respect of,- (a) any premise occupied and used by the person; (b) any machinery, plant or furniture used by the person; (c) stocks or stores belonging to the person; (d) the health of any employee of the person; and (e) any other asset owned by the person; (x) any premium paid by a person, being a federal milk co-operative society, to effect, or to keep in force, an insurance in respect of the cattle owned by a member of a primary society engaged in supplying milk, raised by its members, to the person; (xi) welfare of workmen and staff; (xii) power and fuel; (xiii) freight, clearing and forwarding charge; (xiv) selling expense in the nature of commission, brokerage, discount, or warranty charge; (xv) sales promotion including advertisement and publicity not exceeding the amount charged to profit and loss account; (xvi) training of employees; (xvii) conference; (xviii) use of hotel or boarding and lodging facilities; (xix) conveyance, tour or travel; (xx) repair, running or maintenance of motor car or aircraft; (xxi) postage and telecommunication; (xxii) audit and such other professional fee; (xxiii) legal expenses; (xxiv) entertainment and provision of hospitality; (xxv) maintenance of any accommodation in the nature of guest-house; (xxvi) subscription, including entrance fee, to a club or a trade association or the use of their facilities; (xxvii) festival celebration; (xxviii) salary to an employee engaged in, or on the purchase of material used in, scientific research and development, within three years immediately preceding the commencement of the business; (xxix) scientific research and development related to the business; (xxx) contribution by a person, being an employer, to an approved fund subject to such limits and conditions, as may be prescribed and to the extent the amount is actually paid; (xxxi) contribution to the employees account in any fund, referred to in clause (xvi) of sub-section (2) of section 31, to the extent,- (a) the amount has been received from his employees as their contribution to the fund; and (b) it is actually paid. (xxxii) any head office expenditure by a non-resident, as is attributable to his business in India, to the extent of an amount equal to one-half per cent. of the total sales, turnover or gross receipts; (xxxiii) cost of acquisition of the asset as in the case of the predecessor and cost of any improvement made thereto and expenditure incurred wholly and exclusively in connection with the transfer of the asset, by the predecessor, if - (a) the person is the successor in the business reorganisation; (b) the asset becomes the property of the person under a scheme of business reorganisation; and (c) the asset is sold by the person as a business trading asset; (xxxiv) cost of acquisition of the asset as in the case of the transferor or the donor, and cost of any improvement made thereto and expenditure incurred wholly and exclusively in connection with the transfer of the asset (including the payment of gift tax, if any), by the transferor or the donor, if - (a) the person is the transferee or the donee; (b) the asset becomes the property of the person on the total or partial partition of a Hindu undivided family or under a gift or will or an irrevocable trust; and (c) the asset is sold by the person as a business trading asset; (xxxv) protecting or safeguarding the goodwill of the person, which has necessarily to be preserved for the purpose of his business; (xxxvi) business reorganisation, dissolution or liquidation of the business; (xxxvii) tax, duty, cess, royalty or fee, by whatever name called, under any law for the time being in force, if the amount is actually paid; (xxxviii) bonus or commission to employees for services rendered if- (a) the amount would not have been payable to employees as profits or dividends had it not been paid as bonus or commission; and (b) the amount is actually paid; (xxxix) encashment of leave to the credit of his employees, to the extent the amount is actually paid; and (xl) gratuity to his employees on their retirement or on termination of their employment, to the extent the amount is actually paid; (xli) the objects and purposes of a body corporate, authorised by the Central, State or Provincial Act under which it is constituted or established and notified by the Central Government in the Official Gazette for the purposes of this clause; (xlii) the amount paid by a public financial institution by way of contribution to a credit guarantee fund trust for small industries which is notified by the Central Government in the Official Gazette for the purposes of this clause; and (xliii) the amount of any other expenditure. (3) The amount of deductions referred to in clause (b) of sub-section (1) shall be the following:- (a) the value of inventory of the business, as at the beginning of the financial year; (b) loss of inventory, or money, on account of theft, robbery, fraud or embezzlement, occurring in the course of the business, if the inventory, or the money, is written off in the books of account; (c) any amount credited to the provision for bad and doubtful debts account, not exceeding one percent of the aggregate average advances computed in the prescribed manner if,- (i) the person is a permitted financial institution; (ii) the amount is charged to the profit and loss account for the financial year in accordance with the prudential norms of the Reserve Bank of India in this regard; and (iii) the amount of trade debt or part thereof written off as irrecoverable in the books of the person is debited to the provision for bad and doubtful debts account; (d) the debit balance, if any, on the last day of the financial year, in the provision for bad and doubtful debts account made under clause (c), if the balance has been transferred to the profit and loss account of the financial year; (e) trade debt or part thereof, if,- (i) the person is not a permitted financial institution; and (ii) the amount is written off as irrecoverable in the books of the person; (f) payment to a creditor, determined in accordance with the formula - A - (B + C) Where A = amount paid to the creditor during the financial year in discharge of existing or remitted liability which has been included in the total income by virtue of clause (xiii) of sub-section (2) of section 31; B = amount of liability outstanding in the account of the creditor at the beginning of the financial year; C = amount of liability added during the financial year in respect of the creditor; and the amount 'A' is greater than the amount of 'B+C'; (g) the networth of any undertaking transferred under a slump sale; (4) Notwithstanding anything to the contrary contained in sub-section (2) or subsection (3) the amount of operating expenditure shall not include the amount of expenditure, being in the nature of, or on account of, - (a) personal expenses of the person; (b) capital expenditure including expenditure in respect of which capital allowance is allowable under section 35; (c) finance charges; (d) any unascertained liability of the person; (e) remuneration payable to any sleeping participant; (f) any expenditure incurred by a person on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party; (g) wealth-tax; and (h) any rate or tax,- (i) levied on the profits of any business ; (ii) assessed at a proportion of , or otherwise on the basis of, the profits of any business; or (iii) paid which is eligible for relief of tax under section 206 or section 258, as the case may be; and (i) any dividend declared or distributed. (5) Any amount of expenditure or deduction referred to in sub-section (1) or subsection (2) or under section 34 or under section 35, which is not allowable by reason of the fact that the expenditure is in violation of the condition, if any, or is in excess of the amount, if any, specified therein, shall not be allowed as a deduction under clause (xliii) of sub-section (2) only on the reasoning that it is laid out or expended, wholly and exclusively, for the purposes of business. (6) The deduction in respect of the amount referred to in clause (xxx), and clauses (xxxvii) to (xl), of sub-section (2) shall, notwithstanding anything contained insub-section (1), be allowed in the financial year in which the amount is actually paid or in the financial year in which the liability has arisen, whichever is later.