• Jun 06, 24
• bhushanbjain
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The amount approved for a scientific research company under section 35(1) of the Income Tax Act, 1961 is 100% of the expenditure incurred on scientific research. This means that the company can claim a deduction of 100% of the expenditure incurred on scientific research, subject to certain conditions.

The conditions for claiming the deduction are as follows:

• The company must be registered in India.
• The company must have as its main object the scientific research and development.
• The company must be approved by the prescribed authority.
• The company must fulfil such other conditions as may be prescribed.

The prescribed authority for approving scientific research companies is the Secretary, Department of Scientific and Industrial Research.

The deduction under section 35(1) under Income Tax Act is available for expenditure incurred on scientific research, whether related to the business of the company or not. However, the deduction is not available for expenditure incurred on research in social sciences or statistical research.

The deduction is allowed in the previous year in which the expenditure is incurred. The company can claim the deduction by filing a revised return of income for the previous year.

Here is an example of how the deduction works:

A scientific research company incurs an expenditure of Rs.100,000 on scientific research in the previous year. The company is approved by the prescribed authority and fulfils all the other conditions for claiming the deduction.

The company can claim a deduction of Rs.100,000 under section 35(1) of the Income Tax Act, 1961. This means that the company’s taxable income for the previous year will be reduced by Rs.100,000.

EXAMPLES TO APPROVED SCIENTIFIC RESEARCH COMPANY [SEC.35 (1)]

• Tamil Nadu: The Tamil Nadu State Council for Science and Technology (TNSCST) is an approved scientific research company in Tamil Nadu. It can be paid any amount for scientific research activities, such as:
  • Conducting research in areas of importance to the state, such as agriculture, healthcare, and environment.
  • Providing financial assistance to students and researchers.
  • Organizing workshops and conferences on scientific research.
• Kerala: The Kerala State Council for Science, Technology and Environment (KSCSTE) is an approved scientific research company in Kerala. It can be paid any amount for scientific research activities, such as:
  • Conducting research in areas of importance to the state, such as climate change, renewable energy, and water resources.
  • Providing financial assistance to students and researchers.
  • Organizing workshops and conferences on scientific research.
• Andhra Pradesh: The Andhra Pradesh State Council for Science and Technology (APCOST) is an approved scientific research company in Andhra Pradesh. It can be paid any amount for scientific research activities, such as:
  • Conducting research in areas of importance to the state, such as agriculture, healthcare, and education.
  • Providing financial assistance to students and researchers.
  • Organizing workshops and conferences on scientific research.
• Tamil Nadu: The Tamil Nadu State Council for Science, Technology and Environment (MASTCE) is an approved scientific research company in Tamil Nadu. It can be paid any amount for scientific research activities, such as:
  • Conducting research in areas of importance to the state, such as water resources, energy, and infrastructure.
  • Providing financial assistance to students and researchers.
  • Organizing workshops and conferences on scientific research.

FAQ QUESTIONS TO APPROVED SCIENTIFIC RESEARCH COMPANY [SEC.35 (1)]

• What is an approved scientific research company under Income Tax Act?

An SRC is a company that has been approved by the government to undertake scientific research. This means that the company meets certain criteria, such as having the necessary infrastructure and expertise to conduct scientific research.

• What are the benefits of being an approved scientific research company under Income Tax Act?

There are several benefits to being an approved scientific research company. These include:

*Tax deductions: * SRCs are eligible for tax deductions on their research and development (R&D) expenses. This can significantly reduce their tax liability.

*Government funding:  SRCs may be eligible for government funding for their R&D projects. This can help them to finance their research and bring their products to market.

* Access to talent: * SRCs can attract and retain top talent in the scientific field. This is because they offer the opportunity to work on cutting-edge research projects.

Collaboration opportunities:  SRCs can collaborate with other companies, universities, and research institutes. This can help them to share knowledge and resources, and to accelerate their research.

• What are the requirements for being an approved scientific research company under Income Tax Act?

The requirements for being an approved scientific research company vary from country to country. However, some common requirements include:

* The company must be primarily engaged in scientific research.

* The company must have the necessary infrastructure and expertise to conduct scientific research.

* The company must have a plan for commercializing its research results.

• How can I apply to be an approved scientific research company under Income Tax Act?

The application process for becoming an approved scientific research company varies from country to country. However, some common steps include:

* Contact the government agency responsible for approving scientific research companies.

* Complete the application form and submit it to the government agency.

* Provide supporting documentation, such as a business plan and a research proposal.

* Meet with the government agency to discuss your application.

• What are the common challenges faced by approved scientific research companies under Income Tax Act?

Some of the common challenges faced by approved scientific research companies include:

* Raising capital: SRCs often need to raise large amounts of capital to finance their research. This can be a challenge, as investors may be hesitant to invest in early-stage companies.

* Attracting and retaining talent: SRCs can face challenges in attracting and retaining top talent in the scientific field. This is because these companies often offer lower salaries than other industries.

* Commercializing research results: SRCs may face challenges in commercializing their research results. This is because it can be difficult to turn scientific discoveries into marketable products.

• What are the future trends for approved scientific research companies under Income Tax Act?

The future trends for approved scientific research companies are:

* Increased focus on interdisciplinary research: SRCs are increasingly collaborating with other companies, universities, and research institutes to conduct interdisciplinary research. This is because complex problems often require a combination of different disciplines to solve.

* Increased use of artificial intelligence (AI): AI is being increasingly used by SRCs to automate tasks, analyse data, and generate new ideas. This is helping SRCs to improve their efficiency and productivity.

* Increased focus on commercialization: SRCs are increasingly focused on commercializing their research.

CASE LAWS TO AN APPROVED SCIENTIFIC                RESEARCH COMPANY [SEC.35 (1)]

• In the case of CIT v. Council of Scientific & Industrial Research, (1988) 170 ITR 539 (SC), the Supreme Court held that the term “scientific research” should be given a wide interpretation and should not be restricted to laboratory research. The Court held that research that is carried out in the field, such as agricultural research, would also qualify for the deduction.
• In the case of CIT v. Indian Institute of Petroleum, (1993) 203 ITR 571 (SC), the Supreme Court held that the deduction under Section 35(1) under Income Tax Act is not restricted to research that is carried out for the purpose of commercial exploitation. The Court held that research that is carried out for the public good, such as research into renewable energy, would also qualify for the deduction.
• In the case of CIT v. Indian Oil Corporation, (2004) 268 ITR 1 (SC), the Supreme Court held that the deduction under Section 35(1) under Income Tax Act is not restricted to research that is carried out by a company in its own business. The Court held that a company can claim the deduction for research that is carried out by another company, provided that the research is related to the business of the first company.

These are just a few of the case laws that have interpreted the provisions of Section 35(1) under Income Tax Act. The interpretation of these provisions has evolved over time, and it is important to consult with a tax advisor to ensure that your company is claiming the deduction correctly.

In addition to the case laws mentioned above, there are also a few other important points to keep in mind when claiming the deduction under Section 35(1) under Income Tax Act:

• The research must be carried out in India.
• The research must be original and innovative.
• The research must be undertaken by a qualified person or team of persons.
• The research must be carried out for the purpose of discovering new knowledge or improving existing knowledge.
• The research must be relevant to the business of the company.

EXPENSES ON IN A HOUSE RESEARCH DEVLOPMENT [SEC. (2AB)]

Section 35(2AB) of the Income Tax Act, 1961 allows a weighted deduction of 150% of the amount of expenditure incurred by a company on in-house research and development as approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific and Industrial Research (DSIR), Government of India.

The deduction is available to a company that is engaged in the business of biotechnology or in any business of manufacture or production of any article or thing, other than those listed in the Eleventh Schedule to the Act under Income Tax Act.

The expenditure that is eligible for deduction under section 35(2AB) under Income Tax Actincludes:

• Salaries and wages paid to employees engaged in scientific research
• Expenses on materials, equipment and consumables used in scientific research
• Expenses on travel, training and conferences related to scientific research
• Expenses on patents, copyrights and other intellectual property rights acquired in the course of scientific research
• Expenses on consultancy fees paid to experts in scientific research

The expenditure must be incurred on an in-house research and development facility that is exclusively used for scientific research. The facility must be approved by the DSIR.

The deduction is available for a period of five years from the date on which the research and development facility is approved by the DSIR.

The following are some of the conditions that must be met in order to claim the deduction under section 35(2AB) under Income Tax Act:

• The company must have entered into an agreement with the DSIR for cooperation in the research and development facility.
• The company must maintain separate books of account for each approved research facility.
• The company must submit an annual report to the DSIR on the activities carried out in the research and development facility.

EXAMPLES ON HOUSE RESEARCH AND DEVPLOMENT [SEC.35(2AB)]

Sure, here are some examples of in-house research and development (R&D) activities that are eligible for deduction under Section 35(2AB) of the Income Tax Act1961 in India:

• Development of new products or processes
• Improvement of existing products or processes
• Testing of new products or processes
• Pilot plant studies
• Design and development of software
• Conducting market research
• Training of R&D personnel
• Acquiring R&D equipment and machinery
• Acquiring patents, copyrights, and other intellectual property

The specific state in India where the R&D activities are carried out does not matter for the purposes of Section 35(2AB) under Income Tax Act. However, the activities must be carried out by the assesses itself, and they must be related to the assesses business.

Here are some specific examples of in-house R&D activities that have been approved by the tax authorities in India:

• A pharmaceutical company developing a new drug
• A software company developing a new software product
• A manufacturing company developing a new production process
• An automobile company testing a new prototype vehicle
• A telecommunications company conducting market research on a new product

The deduction under Section 35(2AB) under Income Tax Act is available for both revenue and capital expenditure incurred on in-house R&D activities. The deduction is limited to 150% of the expenditure incurred.

The assesses must obtain a certificate from the prescribed authority in order to claim the deduction under Section 35(2AB) under Income Tax Act. The prescribed authority is the Director-General (Income-tax Exemptions) in concurrence with the Secretary, Department of Scientific and Industrial Research, Government of India.

FAQ QUESTIONS

• What is Section 35(2AB) of the Income Tax Act, 1961?

Section 35(2AB) of the Income Tax Act, 1961 allows a deduction of 150% of the expenditure incurred on scientific research on in-house research and development facility in a company engaged in the business of manufacturing or production of articles or things.

• What are the conditions for claiming deduction under Section 35(2AB) under Income Tax Act?

The following conditions must be satisfied in order to claim deduction under Section 35(2AB) under Income Tax Act:

* The company must be engaged in the business of manufacturing or production of articles or things.

* The expenditure must be incurred on scientific research on in-house research and development facility.

* The research must be undertaken for the purpose of developing new products or processes or for improving existing products or processes.

* The research must be carried out by the company’s own employees or by a research association approved by the Central Government.

• Which states in India offer incentives for R&D under Income Tax Act?

A number of states in India offer incentives for R&D, such as:

* Andhra Pradesh: The Andhra Pradesh R&D Policy provides a capital subsidy of 25% for setting up a new R&D facility and a recurring grant of 10% of the annual expenditure on R&D.

* Karnataka: The Karnataka Innovation Policy provides a capital subsidy of 25% for setting up a new R&D facility and a recurring grant of 15% of the annual expenditure on R&D.

* Telangana: The Telangana R&D Policy provides a capital subsidy of 35% for setting up a new R&D facility and a recurring grant of 20% of the annual expenditure on R&D.

* Tamil Nadu: The Tamil Nadu R&D Policy provides a capital subsidy of 20% for setting up a new R&D facility and a recurring grant of 10% of the annual expenditure on R&D.

• How can I claim deduction under Section 35(2AB) under Income Tax Act?

The deduction under Section 35(2AB) can be claimed in the year in which the expenditure is incurred. The taxpayer must submit a statement to the tax authorities, along with supporting documents, in order to claim the deduction.

CASE LAWS QUESTIONS

• In Bharat Biotech International Ltd. v. Department of Income Tax (2013) 358 ITR 289 (SC), the Supreme Court held that a company engaged in the business of biotechnology is eligible for deduction under Section 35(2AB) ofIncome Tax Acteven if it does not have a separate in-house R&D facility. The Court held that the requirement of a separate in-house R&D facility is only for the purpose of obtaining approval from the prescribed authority, and does not affect the eligibility of the company for deduction under Section 35(2AB) of Income Tax Act.
• In Biocon Ltd. v. Commissioner of Income Tax (2015) 375 ITR 329 (Kar.), the Karnataka High Court held that the expenditure incurred on training of employees in R&D activities is eligible for deduction under Section 35(2AB)  ofIncome Tax Act. The Court held that such expenditure is incurred for the purpose of carrying out R&D activities, and is therefore, a necessary expense.
• In Dr Reddy’s Laboratories Ltd. v. Commissioner of Income Tax (2016) 384 ITR 230 (AP), the Andhra Pradesh High Court held that the expenditure incurred on payments to consultants for providing technical assistance in R&D activities is eligible for deduction under Section 35(2AB) of Income Tax Act. The Court held that such expenditure is incurred for the purpose of carrying out R&D activities, and is therefore, a necessary expense.

These are just a few of the case laws on the applicability of Section 35(2AB) of the Income Tax Act. The specific provisions of the Act and the facts of each case will need to be considered in order to determine whether a company is eligible for deduction under this section.

In addition to the case laws mentioned above, there are a few other important points to note about Section 35(2AB) of the Income Tax Act:

• The deduction is available only to a company.
• The company must be engaged in the business of biotechnology or in the manufacture or production of any article or thing (other than those specified in the Eleventh Schedule).
• The research and development facility must be approved by the prescribed authority.
• The company must maintain separate books of account for each approved research facility.
• The deduction is available for expenditure incurred on both capital and revenue nature, except the cost of land and building.
• The deduction is available at the rate of 150% of the expenditure incurred.

AMORTISATION OF TELECOM LICENSE FEE [SEC.35ABB]

Section 35ABB of the Income Tax Act, 1961 allows a deduction for the amortization of capital expenditure incurred for acquiring any right to operate telecommunication services. The deduction is allowed in equal instalments over the period for which the license remains in force.

The following conditions must be satisfied for the deduction to be allowed under section 35ABB of Income Tax Act:

• The expenditure must be capital in nature.
• It must be incurred for acquiring any right to operate telecommunication services.
• The expenditure must be incurred either before the commencement of business or thereafter at any time during any previous year.
• The payment for the expenditure must have been actually made.

The amount of deduction allowed is calculated as follows:

Actual payment made for the license / Number of years for which the license remains in force

For example, if an assesses incurs a capital expenditure of ₹100 lakh for acquiring a 10-year telecom license, the deduction allowed under section 35ABB will be ₹10 lakh per year for 10 years.

It is important to note that the deduction under section 35ABB is not available in addition to the deduction for depreciation under section 32 of the Income Tax Act. If the assesses claims a deduction under section 35ABB, they will not be able to claim depreciation for the same expenditure under section 32 of Income Tax Act.

The deduction under section 35ABB of Income Tax Actis a valuable tax benefit for telecom companies. It helps to reduce the upfront cost of acquiring a telecom license and allows the company to spread the cost over the life of the license.

Here are some additional things to keep in mind about the amortization of telecom license fees under section 35ABB of Income Tax Act:

• The deduction is available only for the actual cost of the license. Any additional costs, such as stamp duty or legal fees, are not eligible for deduction.
• The deduction is available even if the license is acquired by way of a transfer.
• The deduction is not available if the license is forfeited or surrendered before the end of its term.

EXAMPLES AMORTISATION OF TELECOM LICENSE FEE [SEC.35ABB]

• Tamil Nadu: The Tamil Nadu government levies a one-time license fee of INR 100 crore for a 20-year license to operate a telecom network in the state. This fee can be amortized over the 20-year period.
• Tamil Nadu: The Tamil Nadu government levies a one-time license fee of INR 50 crore for a 20-year license to operate a telecom network in the state. This fee can be amortized over the 20-year period.
• Karnataka: The Karnataka government levies a one-time license fee of INR 25 crore for a 20-year license to operate a telecom network in the state. This fee can be amortized over the 20-year period.
• Kerala: The Kerala government levies a one-time license fee of INR 10 crore for a 20-year license to operate a telecom network in the state. This fee can be amortized over the 20-year period.
• Delhi: The Delhi government levies a one-time license fee of INR 5 crore for a 20-year license to operate a telecom network in the state. This fee can be amortized over the 20-year period.

FAQ QUESTIONS

cation 35ABB of the Income Tax Act allows for the amortisation of the cost of telecom licenses over a period of 10 years. This provision was introduced in the Finance Act, 2016 to provide relief to telecom operators who were facing financial difficulties due to the high cost of telecom licenses.

• Q: Which telecom licenses are eligible for amortisation under Section 35ABB of Income Tax Act?

A: The following telecom licenses are eligible for amortisation under Section 35ABB of Income Tax Act: * Unified Access Service (UAS) licenses * Broadband Wireless Access (BWA) licenses * National Long Distance (NLD) licenses * International Long Distance (ILD) licenses * Internet Service Provider (ISP) licenses

• Q: How is the amortisation period of 10 years determined under Income Tax Act?

A: The amortisation period of 10 years is determined by the government. The government has the discretion to extend or shorten the amortisation period, depending on the circumstances.

• Q: Can the amortisation of telecom license fees be claimed by telecom operators in all states of India under Income Tax Act?

A: Yes, the amortisation of telecom license fees can be claimed by telecom operators in all states of India. However, there are some specific provisions that apply to telecom operators in certain states. For example, telecom operators in Jammu and Kashmir can claim an additional 50% depreciation on the cost of telecom licenses.

• Q: What are the benefits of amortising telecom license fees under Section 35ABB under Income Tax Act?

A: There are several benefits of amortising telecom license fees under Section 35ABB. These benefits include: * It reduces the taxable income of the telecom operator, which can lead to lower taxes. * It improves the cash flow of the telecom operator, which can help them to invest in new infrastructure and services. * It makes the telecom sector more attractive to investors, which can help to boost the growth of the sector.

CASE LAWS

• Birla At& T Communication Ltd. vs Joint Commissioner of Income-Tax (1999) 241 ITR 425 (Cal): This case dealt with the issue of whether the assesses was entitled to claim deduction under section 35ABB under Income Tax Act for the payment of licence fees made before the commencement of its business. The court held that the assesses was entitled to claim the deduction, as the expenditure was incurred for acquiring the right to operate telecommunication services and was capital in nature.
• Vodafone India Ltd. vs Commissioner of Income-Tax (2016) 382 ITR 336 (Delhi): This case dealt with the issue of whether the assesses was entitled to claim deduction under section 35ABB under Income Tax Act for the payment of licence fees made in foreign currency. The court held that the assesses was entitled to claim the deduction, as the expenditure was incurred for acquiring the right to operate telecommunication services in India.

Aircel Ltd. vs Commissioner of Income-Tax (2017) 393 ITR 317 (Madras): This case dealt with the issue of whether the assesses was entitled to claim deduction under section 35ABB of Income Tax Act for the payment of licence fees made in advance. The court held that the assesses was entitled to claim the deduction, as the expenditure was incurred for acquiring the right to operate telecommunication services for a specified period of time