Procedure to obtain approval under Section 45(2)(i) and 45(3)(c)

Introduction

Where assessee pays any sum to a National Laboratory or a University or an IIT or a specified person for scientific research, the deduction shall be allowed under Section 45(3)(c) if application for approval is filed in Form 7. Similarly, where assessee incurs any expenditure on scientific research on in-house research and development facility, deduction shall be allowed under section 45(2)(i) if application for approval is filed in Form 11.

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 also allowed for such contribution. The deduction under the following provisions for the expenditure incurred on in-house research or the payment made to outsiders shall be allowed only if the research programmes are approved by the authorities:

(a) Contribution to an approved national laboratory, etc. [Section 45(3)(c) ]; and

(b) Expenditure on approved in-house research [Section 45(2)(i)].

2. Approval under Section 45(3)(c)

The deduction under Section 45(3)(c) is allowed to every assessee who makes payment to National Laboratory or a University or Indian Institute of Technology (IITs) or specified person approved by the prescribed authority (‘donee’).

2.1. Form for filing application

An application for approval shall be made in Form 7.

2.2. Passing of order

The prescribed authority shall, if he is satisfied that it is feasible to carry out the scientific research programme, pass an order in writing in Form 8. However, an order rejecting application shall only be passed after providing a reasonable opportunity of being heard.

Such order accepting or rejecting application shall be passed within 2 months from the end of the month in which application is received. The Principal Scientific Adviser to the Government of India may authorise an officer who is not below the rank of a Deputy Secretary to issue such order, after the scientific research programme has been approved by him.

Further, The National Laboratory, University, Indian Institute of Technology or specified person (herein after referred as applicant) shall issue a receipt of payment for carrying out an approved programme of scientific research in Form 9.

2.3. Approval of programme

The following conditions need to be fulfilled for approval of a programme:

(a) The programme should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature;

(b) The prescribed authority

(c) The applicant shall submit to the specified authority a yearly statement showing progress of implementation of the approved programme and actuals of expenditure incurred thereon;

(d) The prescribed authority shall not extend the duration of the programme or approve any escalation in costs;

(e) The applicant shall maintain a separate account for each approved programme which shall be audited annually and a copy thereof shall be furnished to specified authority on or before the due date for filing return of income for each succeeding tax year;

(f) Assets acquired by the prescribed authority for executing the approved programme shall not be disposed of without the approval of the specified authority;

(g) On completion of the approved programme, applicant shall jointly submit the following to the specified authority:

• A completion certificate along with a copy of the report on the research activities carried out;

• Salient features of the result obtained; and

• Its further application for commercial exploitation;

(h) Prescribed authority shall submit a copy of the audited statement of accounts for the approved programme to the specified authority within 6 months of the completion of the programme.

3. Approval under Section 45(2)(i)

Deduction under this provision is allowed to a company which is engaged in the business of bio-technology or in any business of manufacture or production of any article or thing (except those specified in the XIII Schedule). This deduction is allowed for the expenditure incurred on in-house research, and approved development facility.

3.1. Form for filing application

An application for approval shall be made in Form 11.

3.2. Passing of order

The Secretary, Department of Scientific and Industrial Research shall, if he is satisfied the prescribed conditions are fulfilled, pass an order in writing in Form 14. However, an order rejecting application shall only be passed after providing a reasonable opportunity of being heard.

3.3. Approval of programme

The following conditions need to be fulfilled for approval of expenditure incurred on in-house research and development facility by a company:

(a) The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of similar nature;

(b) The prescribed authority

• In relation to the approval of in-house research and development facility in Part A of Form 12;

• In relation to quantification of the expenditure incurred on in-house research and development facility by the company during the previous year and eligibility for deduction under Section 45(2) in Part B of Form No. 12;

(c) The report in Form No. 12 shall be furnished electronically by the prescribed authority to Chief Commissioner of Income-tax having jurisdiction over such company;

(d) Such report is required to be furnished within 120 days of the grant of the approval in a case of Part A of Form No. 12 and within 120 days of the submission of the audit report in a case of Part B of Form No. 12;

(e) The company shall maintain a separate account for each approved facility which shall be audited annually and a report of audit in Form 13 shall be furnished electronically to the prescribed authority on or before the due date specified under Section 263(1) for furnishing the return of income, for each succeeding year;

(f) Assets acquired in respect of development of scientific research and development facility shall not be disposed of without the approval of prescribed authority.

References

Prescribed authority in the case of a National Laboratory or a University or an Indian Institute of Technology is the head of the National Laboratory or the University or the Indian Institute of Technology, as the case may be and in the case of a specified person prescribed authority is the Principal Scientific Adviser to the Government of India.

Commissioner of Income-tax having jurisdiction over sponsor

The Secretary, Department of Scientific and Industrial Research

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.