Expenditure on scientific research
82a[Expenditure on scientific research.
35. (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.
83[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 authority84 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) any sum paid to a scientific 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:
85Provided that such association, university, college or institution is for the time being approved for the purposes of this clause by the prescribed authority84;
86(iii) any sum paid to a university, college or other institution to be used for research in social science or statistical research related to the class of business carried on, being a university, college or institution which is for the time being approved for the purposes of this clause by the prescribed authority84;
(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).
(2) For the purposes of clause (iv) of sub-section (1),—
87[(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:]
88[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 89[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.
88[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 90[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 91[clause (ii) of sub-section (1)] of section 32 for the same 92[or any other] previous year in respect of that asset;
(v) where the asset 93[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 94 [clause (i) of sub-section (1)] of section 32.
95[(2A) 96Where 97[, before the 1st day of March, 1984,] the assessee pays any sum 98[(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) 99[or to a public sector company] to be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority1 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.]
99[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.]
2[(2B)(a) Where 3[, 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 4[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 the prescribed authority1, 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[(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 amalgamating company if the latter had not so sold or otherwise transferred the asset.]]
82a. Shall be omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
83. Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974.
84. See rule 6.
85. For complete list of approved institutions, etc., under this clause, refer Taxmann's Direct Taxes Circulars. Vol. 1, 1985 edn., p. 216 and Taxmann's Yearly Tax Digest and Referencer, 1986 edn.. p. 4.92/1987 edn., p. 3.67/1988 edn., p. 5.11.
86. For complete list of approved institutions, etc., under this clause, refer Taxmann's Direct Taxes Circulars, Vol. 1, 1985 edn. p. 252 and Taxmann's Yearly Tax Digest and Referencer, 1986 edn., p. 4.98/1987 end., p. 3.79, 118/1988 edn., p. 5.19.
87 Substituted for clause (i) by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.
88. Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.
89. Numbered as Explanation 1 by the Finance Act, 1984, w.e.f. 1-4-1984.
90. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.
91. Substituted for "clauses (i), (ii), (iia), (iii) and (vi) of sub-section (1) or under sub-section (1A)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.
92. Inserted by the Finance (No. 2) Act, 1980, with retrospective effect from 1-4-1962.
93. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.
94. Substituted for "clauses (i), (ii) and (iii) of sub-section (1)'' by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.
95. Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974.
96. For guidelines for approval of scientific research programmes and list of approved programmes, refer Taxmann's Direct Taxes Circulars, Vol. 1, 1985 edn., p. 259 and p. 264, respectively.
97. Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.
98. Inserted by the Finance (No. 2) Act, 1983, w.e.f. 1-4-1984.
99. Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980.
1. See rule 6.
2. Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. For guidelines for approval of scientific research programmes under this sub-section, refer Taxmann's Direct Taxes Circulars, Vol. 1,1985 edn., p. 311.
3. Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.
4. Substituted for "clauses (i), (ii), (iia) and (iii) of sub-section (1) or under sub-section (1A)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.
5. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.
[AS AMENDED BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987]