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.
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 authority to 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) an amount equal to one and three-fourth times of any
sum paid to a 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
:
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;
(iia) an amount equal to one and one-fourth times of 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 ;
(iii) an amount equal to one and one-fourth times of [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
:
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.
Explanation.—The deduction, to which the assessee
is entitled in respect of any sum paid to a 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) :
Provided that the 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 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 Central Government may, before
granting approval under clause (ii) or clause (iii), call
for such documents (including audited annual accounts) or
information from the research association, university, college
or other institution as it thinks necessary in order to satisfy
itself about the genuineness of the activities of the research
association, university, college or other institution and
that Government may also make such inquiries as it may deem
necessary in this behalf :
Provided also that any 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:
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),—
(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 :
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.
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.
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 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
clause (ii) of sub-section (1) of section 32 for the same
or any other previous year in respect of that asset ;
(v) 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 clause (ii) of sub-section (1) of section 32.
(2A) Where , before the 1st day of March, 1984, the assessee
pays any sum (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) 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.
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.
(2AA) Where the assessee pays any sum to a National Laboratory
or a 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
one and three-fourth times the sum so paid ; and
(b) no deduction in respect of such sum shall be allowed
under any other provision of this Act :
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 Director General in such form as may be prescribed.
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.
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);
(d) “specified person” means such person as
is approved by the pres-cribed authority.
(2AB)(1) Where a company engaged in the business of bio-technology
or in 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 a sum equal to two times of the
expenditure so incurred.
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 for audit of the accounts maintained for that
facility.
(4) The prescribed authority shall submit its report in relation
to the approval of the said facility to the Director General
in such form and within such time as may be prescribed.
(5) No deduction shall be allowed in respect of the expenditure
referred to in clause (1) which is incurred after the 31st
day of March, 2012.
(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.
(2B)(a) 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 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.
(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 32 shall
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.
(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 amalga-mating company if the latter had not so sold
or otherwise transferred the asset.
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