Page 265 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes Capital expenditure incurred by an assessee himself [sec. 35(2)J]: Where the assessee incurs any
expenditure of a capital nature on scientific research related to his business, the whole of
such expenditure incurred in any previous year is allowable as deduction for that previous
year.

Notes One should note the following points:

1. If an assessee incurs capital expenditure on scientific research related to his business,
then deduction is available even if the relevant asset is not put to use for research
and development purposes during the previous year.
2. The above expenses may be on plant or equipment for research or constructing
building (excluding cost of land) for research or expenses of capital nature connected
with research like expenses on purchase of buses to transport research personnel.
3. Where any capital expenditure has been incurred on scientific research related to
business before the commencement of business, the amount of such expenditure,
incurred within three years immediately preceding the commencement of the
business, is deductible in the previous year in which the business is commenced
[Explanation to section 35(2)(i)].
4. The aforesaid deduction is not available in respect of capital expenditure incurred
on the acquisition of any land.
5. No deduction by way of depreciation is admissible in respect of an asset used in
scientific research.
6. If the asset is sold without having been used for other purposes, surplus (i.e., sale
price) or deduction already allowed under section 35, whichever is less, is chargeable
to tax as business income of the previous year in which the sale took place [section
41(3)]. The excess of sale price over cost of acquisition (or indexed cost of acquisition)
is chargeable to tax under section 45 under the head “Capital gains”.

Contribution to national laboratory [sec. 35(2AA)J: The payment is made to National Laboratory;
or University; or Indian Institute of Technology; or Specified person as approved by the
prescribed authority for undertaking scientific research programme.
Amount of deduction: If the aforesaid conditions are satisfied, the taxpayer is eligible for
weighted deduction, which is equal to one and one fourth times of actual payment. Such
contribution, which is eligible for weighted deduction, is not eligible for any other
deduction under the Act.
Expenditure on in-house research and development expenses [sec. 35(2AB)]: Section 35(2AB)
provides for a weighted deduction in respect of expenditure on in-house research and
development expenses subject to the following conditions:
1. The taxpayer is a company.
2. It is engaged in the specified business.

3. It incurs any expenditure on scientific research and such expenditure is of capital
nature or revenue nature (not being expenditure in the nature of cost of any land and
building).
4. The above expenditure is incurred on in-house research and development facility
up to March 31, 2007.

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