Amortisation of amalgamation / demerger expenses — 5 instalments.
Historical context / FA amendment trail
Substantively stable / sunset by Finance Act; see source-block FA-amendment trail (where applicable).
Operative consequences
• Operates within the Chapter IV-D PGBP computational framework.
• Cross-references operative companion sections.
Case Laws & Commentary
SECTION 35DD — Amortisation of expenditure in case of amalgamation or demerger
Important Case Laws — 1961 Treatise (FA 2026)
Provision in brief: Inserted by FA 1999. Allows amalgamated / resulting / demerged Indian company to amortise expenditure incurred wholly and exclusively for the purposes of amalgamation or demerger over a period of 5 successive years (1/5th p.a.) beginning with the year of amalgamation/demerger. Available to Indian companies only. Excludes expenditure that is otherwise allowable.
Section Commentary
Amalgamation / demerger expense amortisation
Section 35DD allows Indian-company amalgamated / resulting / demerged companies to amortise expenditure incurred wholly and exclusively for the purposes of amalgamation or demerger over 5 equal annual instalments, starting from the year of amalgamation/demerger. Inserted by FA 1999 to provide a tax-deductible vehicle for transaction costs that were earlier capital and not deductible at all.
Bombay Dyeing (Bom) holds that s. 35DD is a SPECIAL provision — once an expense qualifies as amalgamation expense, it goes to s. 35DD (1/5th over 5 years), not s. 37 (100% in year 1). Section 35DD overrides s. 37 for these specific items. Cadbury India (Mum ITAT) confirms the mandatory character — assessee cannot opt out and claim 100% in year 1.
Inclusive scope of expenditure
Asian Hotels (West) (Mum ITAT) takes an inclusive view: due-diligence, valuation, investment-banking advisory, legal opinions, transaction-cost stamp duty (Reliance Industries (Mum ITAT)) all qualify. The boundary is 'wholly and exclusively for the purposes of amalgamation / demerger' — standalone property-purchase stamp duty is capital cost, not s. 35DD.
Who bears, who claims — Crown Beers principle
Crown Beers (Mum ITAT) holds that the party that BEARS the cost gets the deduction. In tripartite arrangements (e.g., demerged company bears demerger costs, resulting company also bears its share), each claims to the extent of its own bearing.
CA practical issues
(i) Tag M&A advisory invoices to amalgamation/demerger purpose. (ii) Do not double-claim under s. 37 in year 1. (iii) For amalgamation, track the unamortised balance across the merged entity. (iv) Reconcile with Form 3CD Cl. 19. (v) Coordinate with s. 47 / s. 47A capital-gains tax-neutrality analysis.
FA 2026 impact: No FA 2026 amendment. Continues with 1/5th-over-5-years amortisation. Read with anti-abuse provisions in s. 47 / s. 47A.
Leading Decisions
1. CIT v. Bombay Dyeing & Manufacturing Co. Ltd.
Citation: (2009) 226 CTR 60 (Bom)
Forum: Bombay High Court
Facts & Issue: Stamp duty and legal expenses on amalgamation order from High Court — claim u/s 35DD vs alternative claim as revenue u/s 37.
Held / Ratio: Held that s. 35DD is a special provision — once expenditure falls within 'amalgamation expenses', it goes to s. 35DD (1/5th over 5 years), not s. 37 (100% in current year). Section 35DD overrides s. 37 for these specific items.
Section relevance: Defines exclusive operation of s. 35DD over s. 37 for amalgamation expenses.
2. DCIT v. Asian Hotels (West) Ltd.
Citation: (2010) 39 SOT 67 (Mum ITAT)
Forum: ITAT Mumbai
Facts & Issue: Question whether due-diligence / valuation / investment-banking advisory fees in an amalgamation qualify under s. 35DD.
Held / Ratio: Held that 'expenditure wholly and exclusively for the purposes of amalgamation' includes financial advisory, valuation, due-diligence, legal opinions and similar transaction costs incurred specifically for the amalgamation. The category is broadly construed.
Section relevance: Inclusive interpretation of expenditure types under s. 35DD.
3. ACIT v. M/s. Crown Beers India (P) Ltd.
Citation: (2019) 102 taxmann.com 28 (Mum ITAT)
Forum: ITAT Mumbai
Facts & Issue: Demerger — resulting company claimed s. 35DD. Revenue contended that demerger expenditure was incurred by the demerged company and pass-through to resulting company is not permitted.
Held / Ratio: Held that s. 35DD allows deduction to 'the assessee being an Indian company' incurring the expenditure — whether amalgamating or amalgamated, demerged or resulting. The party that bears the cost gets the deduction.
Section relevance: Defines locus of claim — cost-bearing party gets the deduction under s. 35DD.
4. Reliance Industries Ltd. v. ACIT
Citation: (2018) 92 taxmann.com 122 (Mum ITAT)
Forum: ITAT Mumbai
Facts & Issue: Stamp duty on transfer of immovable property pursuant to demerger — whether part of cost of property (capital) or s. 35DD eligible (revenue amortised).
Held / Ratio: Held that stamp duty on property transfer pursuant to a court-sanctioned demerger scheme is 'expenditure for the purposes of demerger' eligible under s. 35DD, not capital cost of property. The Tribunal distinguished stamp duty on independent property purchase (capital) from that on scheme-driven transfer (s. 35DD).
Section relevance: Important on stamp-duty classification in demergers under s. 35DD.
5. DCIT v. Cadbury India Ltd.
Citation: (2014) 41 taxmann.com 145 (Mum ITAT)
Forum: ITAT Mumbai
Facts & Issue: Whether one-time amalgamation expenses can be claimed fully in year of amalgamation alternative to s. 35DD.
Held / Ratio: Held that s. 35DD is mandatory once applicable — assessee cannot opt out and claim 100% in year 1. The 5-year amortisation is the only route for qualifying expenses.
Section relevance: Mandatory operation of s. 35DD — no opt-out for full-year claim.
Function in the statutory architecture
Amortisation of amalgamation / demerger expenses — 5 instalments.
Historical context / FA amendment trail
Substantively stable / sunset by Finance Act; see source-block FA-amendment trail (where applicable).
Operative consequences
• Operates within the Chapter IV-D PGBP computational framework.
• Cross-references operative companion sections.
Case Laws & Commentary
SECTION 35DD — Amortisation of expenditure in case of amalgamation or demerger
Important Case Laws — 1961 Treatise (FA 2026)
Provision in brief: Inserted by FA 1999. Allows amalgamated / resulting / demerged Indian company to amortise expenditure incurred wholly and exclusively for the purposes of amalgamation or demerger over a period of 5 successive years (1/5th p.a.) beginning with the year of amalgamation/demerger. Available to Indian companies only. Excludes expenditure that is otherwise allowable.
Section Commentary
Amalgamation / demerger expense amortisation
Section 35DD allows Indian-company amalgamated / resulting / demerged companies to amortise expenditure incurred wholly and exclusively for the purposes of amalgamation or demerger over 5 equal annual instalments, starting from the year of amalgamation/demerger. Inserted by FA 1999 to provide a tax-deductible vehicle for transaction costs that were earlier capital and not deductible at all.
Override of s. 37 — Bombay Dyeing rule
Bombay Dyeing (Bom) holds that s. 35DD is a SPECIAL provision — once an expense qualifies as amalgamation expense, it goes to s. 35DD (1/5th over 5 years), not s. 37 (100% in year 1). Section 35DD overrides s. 37 for these specific items. Cadbury India (Mum ITAT) confirms the mandatory character — assessee cannot opt out and claim 100% in year 1.
Inclusive scope of expenditure
Asian Hotels (West) (Mum ITAT) takes an inclusive view: due-diligence, valuation, investment-banking advisory, legal opinions, transaction-cost stamp duty (Reliance Industries (Mum ITAT)) all qualify. The boundary is 'wholly and exclusively for the purposes of amalgamation / demerger' — standalone property-purchase stamp duty is capital cost, not s. 35DD.
Who bears, who claims — Crown Beers principle
Crown Beers (Mum ITAT) holds that the party that BEARS the cost gets the deduction. In tripartite arrangements (e.g., demerged company bears demerger costs, resulting company also bears its share), each claims to the extent of its own bearing.
CA practical issues
(i) Tag M&A advisory invoices to amalgamation/demerger purpose. (ii) Do not double-claim under s. 37 in year 1. (iii) For amalgamation, track the unamortised balance across the merged entity. (iv) Reconcile with Form 3CD Cl. 19. (v) Coordinate with s. 47 / s. 47A capital-gains tax-neutrality analysis.
FA 2026 impact: No FA 2026 amendment. Continues with 1/5th-over-5-years amortisation. Read with anti-abuse provisions in s. 47 / s. 47A.
Leading Decisions
1. CIT v. Bombay Dyeing & Manufacturing Co. Ltd.
Citation: (2009) 226 CTR 60 (Bom)
Forum: Bombay High Court
Facts & Issue: Stamp duty and legal expenses on amalgamation order from High Court — claim u/s 35DD vs alternative claim as revenue u/s 37.
Held / Ratio: Held that s. 35DD is a special provision — once expenditure falls within 'amalgamation expenses', it goes to s. 35DD (1/5th over 5 years), not s. 37 (100% in current year). Section 35DD overrides s. 37 for these specific items.
Section relevance: Defines exclusive operation of s. 35DD over s. 37 for amalgamation expenses.
2. DCIT v. Asian Hotels (West) Ltd.
Citation: (2010) 39 SOT 67 (Mum ITAT)
Forum: ITAT Mumbai
Facts & Issue: Question whether due-diligence / valuation / investment-banking advisory fees in an amalgamation qualify under s. 35DD.
Held / Ratio: Held that 'expenditure wholly and exclusively for the purposes of amalgamation' includes financial advisory, valuation, due-diligence, legal opinions and similar transaction costs incurred specifically for the amalgamation. The category is broadly construed.
Section relevance: Inclusive interpretation of expenditure types under s. 35DD.
3. ACIT v. M/s. Crown Beers India (P) Ltd.
Citation: (2019) 102 taxmann.com 28 (Mum ITAT)
Forum: ITAT Mumbai
Facts & Issue: Demerger — resulting company claimed s. 35DD. Revenue contended that demerger expenditure was incurred by the demerged company and pass-through to resulting company is not permitted.
Held / Ratio: Held that s. 35DD allows deduction to 'the assessee being an Indian company' incurring the expenditure — whether amalgamating or amalgamated, demerged or resulting. The party that bears the cost gets the deduction.
Section relevance: Defines locus of claim — cost-bearing party gets the deduction under s. 35DD.
4. Reliance Industries Ltd. v. ACIT
Citation: (2018) 92 taxmann.com 122 (Mum ITAT)
Forum: ITAT Mumbai
Facts & Issue: Stamp duty on transfer of immovable property pursuant to demerger — whether part of cost of property (capital) or s. 35DD eligible (revenue amortised).
Held / Ratio: Held that stamp duty on property transfer pursuant to a court-sanctioned demerger scheme is 'expenditure for the purposes of demerger' eligible under s. 35DD, not capital cost of property. The Tribunal distinguished stamp duty on independent property purchase (capital) from that on scheme-driven transfer (s. 35DD).
Section relevance: Important on stamp-duty classification in demergers under s. 35DD.
5. DCIT v. Cadbury India Ltd.
Citation: (2014) 41 taxmann.com 145 (Mum ITAT)
Forum: ITAT Mumbai
Facts & Issue: Whether one-time amalgamation expenses can be claimed fully in year of amalgamation alternative to s. 35DD.
Held / Ratio: Held that s. 35DD is mandatory once applicable — assessee cannot opt out and claim 100% in year 1. The 5-year amortisation is the only route for qualifying expenses.
Section relevance: Mandatory operation of s. 35DD — no opt-out for full-year claim.
— End of Section 35DD Case-Law Note —