Section 35A — Expenditure on acquisition of patent rights…

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

Expenditure on acquisition of patent rights or copyrights.

35A. (1) In respect of any expenditure of a capital nature incurred after the 28th day of February, 1966 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 asses see,

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.

(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 amalga-mating company if the latter had not so sold or otherwise

transferred the rights.

(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.

Function in the statutory architecture

Section 35A allowed a deduction for capital expenditure incurred after 28-2-1966 but before 1-4-1998 on acquiring patent rights or copyrights used for the business. The expenditure was written off in equal fractions over fourteen “relevant previous years”, beginning with the year of expenditure or, if earlier, the year the business commenced. Where the rights had become effective before acquisition, the period was reduced by the complete years already elapsed.

Operative consequences

If the rights ended without revival, or were sold for at least the unallowed cost, no further deduction was allowed from that year (sub-section (2)).
If the rights ended, or were sold in full for less than the unallowed cost, the shortfall was allowed in that year (sub-section (3)).
If sale proceeds exceeded the unallowed cost, the excess up to the amount already allowed was taxed as business income of the year of sale, even if the business had ceased (sub-section (4)).
On amalgamation or demerger, the write-off continued in the hands of the amalgamated or resulting Indian company (sub-sections (6) and (7)).

Status

The section has no new application for AY 2026-27. Only expenditure incurred before 1-4-1998 qualified, and the fourteen-year write-off has run its course. The Finance Act, 2026 does not amend this section.

The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject there is no provision in the Income-tax Act, 2025.

← ITA 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025
s. 35A — amortisation of capital expenditure on patent rights or copyrights	No corresponding provision in the Income-tax Act, 2025

Section 35A — Expenditure on acquisition of patent rights or copyrights

Function in the statutory architecture

Operative consequences

Status