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Assessment & Procedure

Approval of research association or college or university under Section 45

ThinkLedger Editorial
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Introduction

An assessee can claim deduction for amount contributed to a research association, university, college or other institution for undertaking scientific research or social science or statistical research. However, such deduction can be claimed if such association or institution is approved in this behalf. For getting such approval, such association or institution is required to make an application and fulfil the conditions prescribed in this behalf.

1. About

Income-tax Act allows incentives by way of additional deduction under Section 45 for the capital expenditure incurred by the organizations on research work. The deduction available under this provision in respect of expenditure incurred on scientific research are classified into In-house research and payment to outsiders.

If an assessee does not himself carry on research but makes contributions to the specified institutions for this purpose, the deduction is allowed for such contribution. However, the deduction for the payment made to the following institution shall be allowed if such institutions are approved by the authorities:

(a) Contribution to an approved research association [Section 45(3)(a)(i)]; and

(b) Contribution to an approved university or college or other institution [Section 45(3)(a)(ii)]

The application for such approval is submitted under Rule 32. Where the application is a research association, it has to fulfil the conditions specified in Rule 33. Where the application is a university or college or other association, it has to fulfil the conditions specified in Rule 34.

2. Application for approval [Rule 32]

2.1. Form for filing application

Such research association, university, college or other institution is required to make an application for approval in Form 17. Such application shall be made to the Commissioner of Income-tax having jurisdiction over the applicant at any time during the tax year. If such association claims exemption as per Schedule III [Table S. No. 23], annexure to the application shall also be filled.

Applicant shall send a copy of the application to Member (IT), CBDT. Such copy shall be accompanied by the acknowledgement receipt, as an evidence of having furnished the application form.

2.2. Verification of filing application

Application shall be verified by the person authorized to verify the return of income.

2.3. Rectification of application

The Commissioner of Income-tax shall serve a deficiency letter on the applicant if:

(a) Any defect is noticed in the application; or

(b) Any relevant document is not attached thereto.

Such deficiency letter should be served within 1 month from the end of the month in which application is received in his office.

The applicant shall remove the deficiency within a period of one month from the end of the month in which the deficiency letter is served. If the applicant fails to remove the deficiency within the specified period, the Commissioner of Income-tax shall send his recommendation for treating the application as invalid to the Member (IT), CBDT. The Central Government, if satisfied, may pass an order, for reasons to be recorded in writing, treating the application as invalid.

2.4. Grant of approval

If the application form is complete in all respects, the Commissioner of Income-tax may make such inquiry as he may consider necessary regarding the genuineness of the activity of the research association, university, college or other institution. He shall send his recommendation to the Member (IT) for grant of approval or rejection of the application. Such recommendation shall be sent within 3 months from the end of the quarter in which the application form was received in his office.

The Central Government may before granting approval shall call for such documents or information from the applicant as it may consider necessary. It may get any inquiry made for verification of the genuineness of the activity of the applicant.

The Central Government shall, within 12 months from the end of the quarter in which the application is received in the office of Member (IT), CBDT, either issue the requisite notification or pass an order rejecting the application, after recording the reasons therefor in writing.

2.5. Withdrawal of approval

The Central Government may withdraw the approval granted if it is satisfied that:

(a) The research association or university or college or other institution has ceased its activities;

(b) Its activities are not genuine; or

(c) Its activities are not being carried out in accordance with all or any of the conditions specified in Rule 33 or Rule 34.

However, an order treating the application as invalid or rejecting the application or withdrawing the approval shall be passed only after giving a reasonable opportunity of being heard to the research association, university, college or other institution.

A copy of the order invalidating or rejecting the application or withdrawing the approval shall be communicated to the applicant, the Assessing Officer and the Commissioner of Income-tax having jurisdiction over the applicant.

3. Conditions for approval in case of research association [Rule 33]

An application under Rule 32 can be filed if the following conditions, subject to which approval is to be granted to a research association, are satisfied:

3.1. Object of applicant

The applicant shall have the sole object to undertake scientific research or research in social science or statistical research, as the case may be. Such research activity shall be carried by applicant itself.

3.2. Maintenance of books of account and Audit

Applicant shall maintain books of account and get such books audited by a Chartered Accountant. Applicant shall furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under Section 263(1).

Further, applicant shall maintain a separate statement of donations received and amount applied for scientific research or research in social science or statistical research. A copy of such statement, duly certified by the auditor, shall accompany the report of audit.

3.3. Furnishing of statement of activities

Applicant shall furnish a statement (Statement of activities) to Commissioner of Income tax or Director of Income tax containing the following information:

(a) A detailed note on the research work undertaken by it during the tax year;

(b) A summary of research articles published in national or international journals during the year;

(c) Any patent or other similar rights applied for or registered during the year;

(d) Programme of research projects to be undertaken during the forthcoming tax year and the financial allocation for such Programme.

Applicant shall furnish such statement to the Commissioner of Income Tax by the due date of furnishing the return of income under Section 263(1).

3.4. Furnishing of report by Commissioner

The Commissioner of Income tax after making appropriate enquiries, furnish a report to the Central Government if he is satisfied that:

(a) The research association is not maintaining books of account;

(b) The research association has failed to furnish its audit report;

(c) The research association has not furnished its statement of the sums received and the sums applied for scientific research or research in social science or statistical research or a Statement of activities;

(d) The research association has ceased to carry on its research activities, or its activities are not genuine; or

(e) The research association is not fulfilling the conditions subject to which approval was granted to it.

The Commissioner of Income tax or Director of Income tax shall furnish such report to the Central Government within 6 months from the date of furnishing the return of income under Section 263(1).

4. Conditions for approval in case of university, college or other institution [Rule 34]

An application under Rule 32 can be filed if the following conditions, subject to which approval is to be granted to a university, college or other institution, are satisfied:

4.1. Usage of funds

Applicant shall use the funds received by it for scientific research or research in social science or statistical research, as the case may be. Further, such scientific research or research in social science or statistical research shall be carried out by the applicant through its faculty members or its enrolled students.

4.2. Maintenance of books of account and Audit

Applicant shall maintain separate books of account in respect of the sum received for scientific research or research in social science or statistical research, as the case may be. Such books of account shall reflect the amount used for carrying out research.

Such books shall be audited by a Chartered Accountant. Applicant shall furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under Section 139(1).

Further, applicant shall maintain a separate statement of donations received and amount applied for research. A copy of such statement, duly certified by the auditor, shall accompany the report of audit.

4.3. Furnishing of statement of activities

Applicant shall furnish a statement (Statement of activities) to Commissioner of Income tax or Director of Income tax containing the following information:

(a) A detailed note on the research work undertaken by it during the tax year;

(b) A summary of research articles published in national or international journals during the year;

(c) Any patent or other similar rights applied for or registered during the year;

(d) Programme of research projects to be undertaken during the forthcoming year and the financial allocation for such Programme.

Applicant shall furnish such statement to Commissioner of Income tax by the due date of furnishing return of income under Section 263(1).

4.4. Furnishing of report by Commissioner

The Commissioner of Income tax or Director of Income tax may, after making appropriate enquiries, furnish a report to the Central Government if he is satisfied that:

(a) The university or college or other institution is not maintaining books of account;

(b) The university or college or other institution has failed to furnish its audit report;

(c) The university or college or other institution has not furnished its statement of the sums received and the sums applied for research or a Statement of activities;

(d) The university or college or other institution has ceased to carry on its research activities, or its activities are not genuine; or

(e) The university or college or other institution is not fulfilling the conditions subject to which approval was granted to it.