Section 35D deduction turns on when a company accepts and pays promoters' pre-incorporation liability, not when promoters spent it.

For deduction under section 35D, expenditure is treated as incurred by the company when it accepts and discharges promoters' pre-incorporation liability, not when the promoters originally spend the amounts. A company is not liable for such expenditure until it comes into existence and adopts the liability. On that basis, reimbursement made after 31 March 1970 pursuant to the company's acceptance of the liability satisfied the statutory timing and qualified for deduction under section 35D.

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Issues: Whether expenditure initially incurred by promoters before 31 March 1970, but reimbursed by the company after that date upon acceptance of the liability, qualified for deduction under section 35D of the Income-tax Act, 1961.

Analysis: Section 35D allows deduction only where the assessee incurs the specified expenditure after 31 March 1970. A company comes into legal existence only on incorporation, and pre-incorporation liabilities of promoters do not become liabilities of the company until the company accepts them. Once the company accepts the promoters' liability and makes payment in pursuance of that acceptance, the expenditure is treated as incurred by the company at that stage. The statutory condition is therefore satisfied by the date of acceptance and payment, not by the earlier date on which the promoters originally spent the amounts.

Conclusion: The expenditure was incurred by the assessee after 31 March 1970 and was eligible for deduction under section 35D.

Ratio Decidendi: For purposes of section 35D, expenditure is incurred by a company when it accepts and discharges the promoters' pre-incorporation liability, and not when the promoters first incur that liability.

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