Page 264 - DCOM301_INCOME_TAX_LAWS_I

Unit 9: Income under the Head Business and Profession

In the cases given below, the above-mentioned rule is not applicable: Notes
Table 9.2: Exceptions to the Rule of Providing Depreciation

Exception 1 If written down value of the block of asset is reduced to zero, though the
block is not empty
Exception 2 If the block of assets is empty or ceases to exist on the last day of the previous
year (though the written down value is not zero)
Exception 3 If in the first year in which an asset is acquired, it is put to use for less than
180 days
The concept of depreciation since holding lot of importance in income from business and
profession is discussed in detail in later sections of this unit.
4. Expenditure on scientific research: The term “scientific research” means “any activity for
the extension of knowledge in the fields of natural or applied sciences including agriculture,
animal husbandry or fisheries”. With a view to accelerating scientific research, section 35
provides tax incentives. Under this section amount deductible in respect of scientific research
may be classified as under:

Table 9.3: Amount Deductible in Respect of Scientific Research

Expenditure on research carried on by the Contribution to outsiders
assessee
1. Revenue expenditure under section 35(1)(i) 1. Contribution to an approved scientific
2. Capital expenditure under section 35(2) research association under section
35(1)(ii)l(iii)
3. Expenditure on an approved in-house
research under section 35(2AB) 2. Payment to National Laboratory under
section 35(2AA)

Revenue expenditure incurred by the assessee himself [sec. 35(1) (i)]: Where the assessee himself
carries on scientific research and incurs revenue expenditure, deduction is allowed for
such expenditure only if such research relates to the business.

Example: Suppose X Ltd. is engaged in the business of manufacture of paper and it incurs
revenue expenses for conducting scientific research for improving the quality of steel, such
expenditure is not deductible, as it is not related to the business of the taxpayer.
Contribution made to outsiders [sec. 35(1)(ii)1(iii)]: Where the assessee does not himself carry
on scientific research but makes contributions to other institutions for this purpose, a
weighted deduction is allowed. The amount of deduction is equal to one and one-fourth
times of any sum paid to a scientific research association or to a university, college or
other institution if F
a. the payment is made to an approved scientific research association which has, as its
object, undertaking of scientific research related or unrelated to the business of the
assessee [sec. 35(1) (ii)];
b. the payment is made to an approved university, college or institution for the use of
scientific research related or unrelated to the business of the assessee [sec. 35(1) (ii)];
and
c. the payment is made to an approved university, college or institution for the use of
research for social science or statistical research related or unrelated to the business
of the assessee [sec. 35(1)(iii)].
Approval under section 35(1) (ii)l (iii) is given by the Central Government and not by a
prescribed authority.

LOVELY PROFESSIONAL UNIVERSITY 259