EXPENDITURE ON SCIENTIFIC RESEARCH [SEC.35] – Sailesh Bhandari & Associates

Section 35 of the Income Tax Act, 1961 allows a deduction for expenditure incurred on scientific research. The deduction is available to both individuals and companies.

The following are the types of expenditure that are eligible for deduction under Section 35under Income Tax Act:

Any expenditure incurred on scientific research in relation to the business of the assesses.
Any sum paid to a research association or university or college or other institution to be used for scientific research.
Any sum paid to a company to be used by it for scientific research.

The deduction is available at the following rates:

150% of the amount paid in case of expenditure incurred on scientific research by an individual or company other than a company approved under Section 35(2AB) under Income Tax Act.
100% of the amount paid in case of expenditure incurred on scientific research by a company approved under Section 35(2AB) under Income Tax Act.

Section 35(2AB) under Income Tax Act provides for a special deduction for expenditure incurred on in-house scientific research and development by a company engaged in the business of biotechnology or manufacture/production of any article/thing (other than those listed in the Eleventh Schedule). The deduction is available at the rate of 125% of the amount paid.

To claim the deduction under Section 35 under Income Tax Act, the assesses must satisfy the following conditions:

The expenditure must be incurred for the purpose of scientific research.
The expenditure must be incurred in India.
The expenditure must be incurred during the relevant assessment year.
The expenditure must be supported by documentary evidence.

The deduction under Section 35 under Income Tax Act is a valuable incentive for companies and individuals to invest in scientific research. It helps to promote innovation and technological development, which are essential for economic growth.

Here are some examples of expenditure that are eligible for deduction under Section 35 under Income Tax Act:

Salary paid to research personnel
Purchase of equipment and materials for research
Cost of conducting experiments
Cost of publications
Patent fees

EXAMPLES ON EXPENDITURE & SCIENTIFIC RESEARCH

Section 35 of the Income Tax Act, 1961 allows a deduction for expenditure incurred on scientific research. This deduction is available to both companies and individuals.

The following are some examples of scientific research that would be eligible for the deduction under Section 35 under Income Tax Act:

Research and development of new products or processes
Research into new materials or technologies
Research into the improvement of existing products or processes
Research into the prevention or cure of diseases
Research into environmental protection
Research into renewable energy sources

The deduction is available for both revenue and capital expenditure. Revenue expenditure is expenditure that is incurred on a regular basis, such as the salaries of research scientists and the purchase of research materials. Capital expenditure is expenditure that is incurred on the acquisition of fixed assets, such as research equipment and buildings.

The deduction is available for both in-house research and research that is outsourced to third parties. However, the deduction for outsourced research is only available if the research is conducted in India.

The deduction under Section 35 under Income Tax Act is a significant incentive for companies and individuals to invest in scientific research. This incentive has helped to boost the growth of the Indian research and development sector in recent years.

Here are some specific examples of scientific research that have been conducted in India and have been eligible for the deduction under Section 35 under Income Tax Act:

The development of a new drug to treat cancer
The development of a new solar cell technology
The development of a new process for extracting oil from shale
The development of a new method for recycling plastic waste
The development of a new way to generate electricity from wind power

FAQ QUESTIONS ON EXPENDITURE & SCIENTIFIC RESEARCH

What is Section 35(1) of the Income Tax Act?

Section 35(1) of the Income Tax Act provides for a deduction of 125% of the expenditure incurred on scientific research in India. This deduction is available to companies, trusts, and other institutions that are engaged in scientific research.

What are the qualifying activities for deduction under Section 35(1) of the Income Tax Act?

The following activities are considered to be scientific research for the purposes of Section 35(1) under Income Tax Act:

* Research in natural sciences, engineering, technology, medical sciences, social sciences, or humanities.

* Research in the development of new products or processes.

* Research in the improvement of existing products or processes.

* Research in the development of new knowledge.

Who is eligible for deduction under Section 35(1) under Income Tax Act?

The following entities are eligible for deduction under Section 35(1) under Income Tax Act:

* Companies incorporated in India.

* Trusts registered under the Indian Trusts Act, 1882.

* Universities, colleges, or other institutions that are approved by the Central Government for the purposes of scientific research.

What are the documentation requirements for deduction under Section 35(1) under Income Tax Act?

The following documents must be kept by the taxpayer in order to claim the deduction under Section 35(1) under Income Tax Act:

* A certificate from a scientific research institution or a university, college, or other institution approved by the Central Government, stating that the expenditure incurred is on scientific research.

* A detailed account of the expenditure incurred on scientific research.

* A statement showing the amount of deduction claimed under Section 35(1) under Income Tax Act.

What are the time limits for claiming deduction under Section 35(1) under Income Tax Act?

The deduction under Section 35(1) under Income Tax Act must be claimed in the same assessment year in which the expenditure is incurred. However, if the expenditure is incurred in the previous year, the deduction can be claimed in the current year, subject to certain conditions

CASE LAWS

scientific research sec35 under income tax

CIT v. National Rayon Corporation Ltd. (1983) 140 ITR 143 (Bom.): This case held that the deduction under section 35(1)(i) under Income Tax Act is not restricted to expenditure incurred on research carried out by the assesses himself. It can also be claimed for expenditure incurred on research carried out by another person on behalf of the assesses.
CIT v. Indian Farmers Fertilizers Corporation Ltd. (1996) 221 ITR 59 (SC): This case held that the deduction under section 35(1)(i) under Income Tax Act is not restricted to expenditure incurred on research that is directly related to the assesses business. It can also be claimed for expenditure incurred on research that is of a general nature and is not directly related to the assesses business, as long as it is likely to benefit the assesses business in the future.
CIT v. Tata Chemicals Ltd. (2003) 263 ITR 147 (SC): This case held that the deduction under section 35(1)(i) under Income Tax Act
is not restricted to expenditure incurred on research that is carried out in India. It can also be claimed for expenditure incurred on research that is carried out outside India, as long as the research is carried out for the benefit of the assesses business.
CIT v. Biocon Ltd. (2017) 390 ITR 418 (Kar.): This case held that the deduction under section 35(2AA) und Income Tax Act is available even if the research is carried out by a company that is not a scientific research association or a university or college. However, the company must be approved by the prescribed authority for the purpose of the section 2AA underIncome Tax Act

CONTRIBUTION TO OUTSIDERS [SEC.35]

Section 35(1)(ii) of the Income Tax Act, 1961 allows a deduction of 150% of the amount paid to any of the following agencies for scientific research, whether related to the business of the assesses or not:

A research association which has the object of undertaking scientific research; or
A university, college or other institutions to be used for scientific research.

The deduction is available for any payment made in the previous year in which the payment is made.

The following are some of the important points to note about the contribution to outsider’s deduction under section 35 under Income Tax Act:

The deduction is available only if the payment is made to an approved research association or institution. The list of approved research associations and institutions is published by the Central Government.
The deduction is available only for expenditure incurred on scientific research. Scientific research means any systematic investigation into the natural or physical world or any of its phenomena, including the application of such knowledge for practical purposes.
The deduction is not available for expenditure incurred on research in social sciences or statistical research.
The deduction is available only for payments made in cash.
The deduction is available only for payments made to an Indian research association or institution.

The contribution to outsider’s deduction under section 35 under Income Tax Act is a valuable incentive for businesses to invest in scientific research. This deduction can help businesses to reduce their tax liability and encourage them to innovate and develop new products and services.

Here are some examples of payments that would be eligible for the contribution to outsider’s deduction under section 35 under Income Tax Act:

Payment to a research association for conducting research on a new product development.
Payment to a university for conducting research on a new manufacturing process.
Payment to a college for conducting research on a new marketing strategy.

EXAMPLES CONTRIBUTION TO OUTSIDERS [SEC.35]

Section 35 of the Income Tax Act, 1961 allows a deduction for expenditure incurred on scientific research. This deduction is available to both individuals and companies.

The deduction is available for the following types of expenditure incurred on scientific research under Income Tax Act:

Revenue expenditure incurred by an assesses who himself carries on scientific research.
Contribution to outside institutions for scientific research.
Amount paid to an approved scientific research company.
Capital expenditure incurred by an assesses who himself carries on scientific research.
Contribution to National Laboratory for Scientific Research.
Expenses on In-House Research and Development Expenses.

The deduction is available to all states in India.

Here are some examples of contribution to outsiders that are eligible for deduction under Section 35 under Income Tax Act:

Contribution to a university or college for research in a scientific field.
Contribution to a research institute for research in a scientific field.
Contribution to a trust or foundation that carries out scientific research.
Contribution to a company that is engaged in scientific research.

The amount of deduction that is available depends on the type of expenditure and the state in which the research is carried out. In general, the deduction is available for 100% of the expenditure incurred. However, there are some exceptions to this rule. For example, the deduction for contribution to a National Laboratory for Scientific Research is 150% of the expenditure incurred.

The deduction under Section 35 under Income Tax Act is a valuable tax incentive for businesses and individuals who are involved in scientific research. It can help to offset the costs of research and development, and it can encourage innovation.

Here are some additional things to keep in mind about the deduction under Section 35:

The deduction is available only for expenditure that is incurred for scientific research.
The research must be undertaken in India.
The research must be original and innovative.
The research must be undertaken for the purpose of developing new or improved products or processes

FAQ QUESTIONS CONTRIBUTION TO OUTSIDERS

Section 35 of the Income Tax Act, 1961 (the “Act”) allows a deduction for certain expenditure incurred by a company for scientific research and development (R&D). One of the types of expenditure that is eligible for deduction under Section 35 is “contribution to outsiders for scientific research”.

The following are some frequently asked questions (FAQs) about contribution to outsiders for scientific research under Section 35 of the Income Tax Act, t:

What is a “contribution to outsiders” under Income Tax Act?

A “contribution to outsiders” is a payment made by a company to an outside organization for the purpose of scientific research. The outside organization can be a university, a research institute, or another company.

What are the requirements for a contribution to be eligible for deduction under Section 35 of the Income Tax Act?

The following are the requirements for a contribution to be eligible for deduction under Section 35 of the Income Tax Act,:

* The contribution must be made to an organization that is engaged in scientific research.

* The contribution must be made for the purpose of scientific research.

* The contribution must be made in cash.

* The contribution must be made during the relevant financial year.

What is the maximum amount of deduction that can be claimed under Section 35 of the Income Tax Act, for contribution to outsiders?

The maximum amount of deduction that can be claimed under Section 35 of the Income Tax Act, for contribution to outsiders is 150% of the amount of expenditure incurred by the company on in-house R&D.

What are the records that the company must keep to claim a deduction for contribution to outsiders under Income Tax Act?

The company must keep the following records to claim a deduction for contribution to outsiders under Income Tax Act:

* A copy of the receipt for the contribution.

* A letter from the outside organization confirming that the contribution was received and that it will be used for scientific research.

* A statement from the company’s R&D manager explaining how the contribution will be used for scientific research.

CASE LAWS CONTRIBUTION TO OUTSIDERS

In the case of CIT v. Indian Farmers Fertilizer Cooperative Limited (2007) 292 ITR 435 (SC), the Supreme Court held that the deduction under Section 35(1)(ii) under income tax act is available only if the contribution is made to an approved scientific research association or institution. The association or institution must be engaged in scientific research and must have been approved by the prescribed authority.
In the case of CIT v. Bharat Heavy Electricals Limited (2011) 335 ITR 193 (SC), the Supreme Court held that the deduction under Section 35(1)(ii) under income tax act income tax act is not available if the contribution is made to a company. A company cannot be an approved scientific research association or institution.
In the case of CIT v. National Dairy Development Board (2013) 357 ITR 316 (SC), the Supreme Court held that the deduction under Section 35(1)(ii) under income tax act is available even if the contribution is made to a foreign scientific research association or institution. However, the association or institution must be engaged in scientific research that is relevant to the business of the assesses.

In addition to these case laws, there are a number of other rulings and circulars issued by the Income Tax Department that provide guidance on the interpretation of Section 35.

Here are some of the key points to remember about the deduction for contribution to outsiders for scientific research under Section 35 of the income tax act:

The contribution must be made to an approved scientific research association or institution under income tax act.
The association or institution must be engaged in scientific research under income tax act.
The contribution must be for scientific research that is relevant to the business of the assesses under income tax act.
The deduction is available up to a maximum of 100% of the amount paid under income tax act.

AMENDMENTS APPLICABLE FROM APRIL1, 2021

There are a number of amendments to the Companies Act, 2013 that are applicable from April 1, 2021. Some of the key amendments include:

Mandatory registration of NGOs with MCA for raising CSR funds. Every entity that intends to undertake any CSR activity must register itself with the Central Government by filing the form CSR-1 electronically with the Registrar.
Reduction in the minimum offer period for right offers from 15 days to 7 days. This is to facilitate faster capital rising by companies.
Introduction of an abridged annual return for OPCs and small companies. This will reduce the compliance burden on these companies.
Increase in the penalty for non-compliance with the Companies Act from Rs.1000 to Rs.1 lakh. This is to deter violations of the law.
Introduction of new provisions for data protection and privacy. These provisions are aimed at protecting the personal data of individuals.
Amendments to the provisions related to mergers and acquisitions. These amendments are aimed at simplifying and streamlining the M&A process.

These are just some of the key amendments to the Companies under income tax act, 2013 that are applicable from April 1, 2021. Companies should familiarize themselves with these amendments in order to comply with the law.

In addition to the above, here are some other amendments that are applicable from April 1, 2021:

Increase in the maximum number of members in a One Person Company (OPC) from 10 to 20.
Allowing NRIs to incorporate OPCs.
Relaxation of the requirement for filing annual returns and financial statements for small companies.
Introduction of new provisions for corporate social responsibility (CSR).
Amendments to the provisions related to independent directors.

EXAMPLES APPLICABLE FOR APRIL1,2021

The Companies Act, 2013: The Ministry of Corporate Affairs (MCA) notified ten amendments to the Companies Act, 2013, which came into effect from April 1, 2021. These amendments included changes to the definition of a listed company, the mandatory registration of NGOs with the MCA for raising CSR funds, and the reduction in the minimum offer period for right offers.
The Income Tax Act, 1961: The Finance Act, 2021, introduced several amendments to the Income Tax Act, 1961, which came into effect from April 1, 2021. These amendments included changes to the tax rates, the introduction of a new surcharge for the purposes of health and education, and the exemption of income from the Agni veer Corpus Fund from income tax.
The GST Act, 2017: The Central Government notified several amendments to the GST Act, 2017, which came into effect from April 1, 2021. These amendments included changes to the definition of an outward supply, the introduction of a new reverse charge mechanism for certain services, and the reduction in the rate of GST on certain goods and services.
The Labour Laws (Exemption from application to certain establishments in Special Economic Zones) Amendment Act, 2020: This Act exempted certain establishments in special economic zones (SEZs) from the application of certain labour laws, such as the Factories Act, 1948, and the Payment of Wages Act, 1936. The exemption came into effect from April 1, 2021.
The Motor Vehicles Act, 1988: The Central Government notified several amendments to the Motor Vehicles under income tax act, 1988, which came into effect from April 1, 2021. These amendments included changes to the penalties for traffic violations, the introduction of a new driving license format, and the requirement for all vehicles to be fitted with speed governors.

FAQ QUESTIONS APPLICABLE FOR APRIL1, 2021

What are the changes to the standard deduction under income tax act?

The standard deduction has been increased from Rs.50,000 to Rs.75,000 for individuals and HUFs. This means that taxpayers can deduct this amount from their gross income before calculating their taxable income.

What are the changes to the surcharge and cess under Income Tax Act?

A surcharge of 10% is levied on the income tax payable by individuals and HUFs with taxable income above Rs.50 lakhs. A cess of 4% is levied on the income tax payable by all taxpayers.

What are the changes to the deduction for medical expenses under Income Tax Act?

The deduction for medical expenses has been increased from Rs.60, 000 to Rs.1.5 lakhs. This deduction is available for expenses incurred on the treatment of self, spouse, children, parents, and dependents.

What are the changes to the deduction for home loan interest under Income Tax Act?

The deduction for home loan interest has been increased from Rs.2 lakhs to Rs.3 lakhs. This deduction is available for interest payments on a home loan taken for the purchase or construction of a residential house.

What are the changes to the deduction for education expenses under Income Tax Act?

The deduction for education expenses has been increased from Rs.1000 to Rs.50,000. This deduction is available for expenses incurred on the education of self, spouse, children, and dependents.

These are just some of the changes to the Income Tax Act that came into effect from April 1, 2021. For more information, please refer to Income Tax Act or consult with a tax advisor.

CASE LAWS APPLICABLE FOR APRIL1,2021

Mahindra and Mahindra Financial Services Limited Vs DCIT (ITAT Delhi): The Delhi ITAT held that the amendment to section 36(1)(VA) and 43B of the Income Tax Act, 2016, which was introduced by the Finance Act, 2021, is prospective in nature and not retrospective. This means that the amendment will only apply to payments made on or after April 1, 2021.
ITO Vs. CIT: The Supreme Court held that the Income Tax Officer (ITO) cannot initiate reassessment proceedings beyond the period of four years from the end of the assessment year. This means that the ITO cannot initiate reassessment proceedings for the assessment year 2013-14 or 2014-15 if they were not initiated before April 1, 2021.
CIT Vs. Vodafone India Services Pt. Ltd.: The Supreme Court held that the definition of “virtual digital asset” under the Income Tax Act, 2016, includes Bit coin and other crypt currencies. This means that gains arising from the transfer of Bit coin and other crypto currencies are taxable under the Income Tax Act.
CIT Vs. Infosys Foundation: The Supreme Court held that trusts and institutions that are registered under section 12A of the Income Tax Act are not liable to pay income tax on their income. This means that trusts and institutions that are registered under section 12A will not have to pay income tax on their income, even if they derive income from commercial activities.
CIT Vs. HDFC Bank Ltd.: The Supreme Court held that the interest income earned by banks on non-convertible debentures issued by companies is taxable under the head “Income from other sources”. This means that banks will have to pay income tax on the interest income they earn on non-convertible debentures issued by companies.