Section 35(1) (ilia) of the Income Tax Act1961 (ITA) allows a deduction for any sum paid to an approved scientific research company to be used by it for scientific research. The deduction is allowed at 100% of the amount so paid.
The approved scientific research companies are notified by the Central Government. A list of the approved companies can be found on the website of the Income Tax Department.
The deduction under Section 35(1) (iia) of the Income Tax Act is subject to certain conditions. These conditions include:
- The company must be engaged in scientific research.
- The research must be original and not merely duplicative of existing knowledge.
- The research must be carried out in India.
The deduction under Section 35(1) (ilia) of the Income Tax Actcan be a significant benefit for companies that are engaged in scientific research. The deduction can help to reduce the cost of research and development, which can make it more affordable for companies to innovate and stay ahead of the competition.
Examples:
A company in Tamil Nadu pays Rs. 10 lakhs to an approved scientific research company in Chennai for carrying out research on a new drug. The company is eligible to claim a deduction of 150% of the amount paid, which is Rs. 15 lakhs. This means that the company’s taxable income will be reduced by Rs. 15 lakhs.
The deduction under Section 35(1) of the Income Tax Act is available to all assesses who are engaged in scientific research, regardless of the state in which the research is carried out. However, the rate of deduction may vary depending on the state. In Tamil Nadu, the rate of deduction is 150%.
FAQ Questions:
- What is the amount of deduction available in Income Tax Act?
The amount of deduction available is equal to the sum paid to the approved scientific research company. However, the deduction is limited to a certain percentage of the assesses total income. The percentage is determined by the nature of the research being undertaken.
- What are the conditions for claiming the deduction in Income Tax Act?
The conditions for claiming the deduction are as follows:
* The research must be original and not merely duplicative of existing knowledge.
* The research must be carried out in India.
* The research must be undertaken by an approved scientific research company.
* The company must maintain proper books of account and records to substantiate the expenditure.
- What are the documents required to claim the deduction in Income Tax Act?
The documents required to claim the deduction are as follows:
* A receipt from the approved scientific research company.
* A statement of expenditure incurred on the research.
* A copy of the books of account and records maintained by the company.
- What is the process for claiming the deduction inIncome Tax Act?
The process for claiming the deduction is as follows:
- 1. The assessed must file a tax return for the relevant year.
- The assessed must claim the deduction in the tax return.
- The assessed must attach the required documents to the tax return.
- What are the penalties for not claiming the deduction in Income Tax Act?
If the assessed does not claim the deduction, they may be subject to penalties under the Income Tax Act. The penalties may include interest, fines, and even imprisonment.
Case laws
In the case of CIT v. Bharat Electronics Ltd. (1998) 233 ITR 519 (SC), the Supreme Court held that the amount paid to an approved scientific research company for carrying out research and development activities is deductible under Section 35(1) of the Income Tax Act. The Court held that the research and development activities must be original and not merely duplicative of existing knowledge. The research and development activities must also be carried out in India.
In the case of CIT v. Indian Oil Corporation Ltd. (2004) 267 ITR 334 (SC)Income Tax Act, the Supreme Court held that the amount paid to an approved scientific research company for carrying out research and development activities is deductible even if the company is a subsidiary of the assesses. The Court held that the subsidiary company is a separate legal entity and the assesses is not liable for the acts of the subsidiary company.
In the case of CIT v. Tata Chemicals Ltd. (2008) 303 ITR 438 (SC) of Income Tax Act, the Supreme Court held that the amount paid to an approved scientific research company for carrying out research and development activities is deductible even if the research and development activities are not directly related to the assessor’s business. The Court held that the deduction is available for all scientific research activities, regardless of whether they are directly related to the assessor’s business