TaxTMI 
TaxTMI 
TaxTMI 
2024 (2) TMI 755
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....R&D facilities of the Petitioner for the FY 2018-19 (relevant to assessment year 2019- 20); and d. Pass such other orders which this Hon'ble Court may deem fit and proper on the facts and in the circumstances of the case." 2. The petitioner is essentially aggrieved by the weighted deductions claimed by it under Section 35(2AB) of the Income Tax Act, 1961[Act] in respect of expenditure incurred on the creation and establishment of an in-house Research and Development facility [R & D facility], being restricted to the period - 27 February 2019 to 31 March 2020. 3. The writ petitioner contends that the stipulation of weighted deductions being eligible only from 27 February 2019 [being the date on which the research facility was approved], is wholly illegal and violative of the plain language and intent underlying Section 35(2AB) of the Act. As is evident from the reliefs claimed, the petitioner seeks deductions being granted on the entire expenditure made on the establishment and creation of the R & D facility for Financial Year 2018-19 and thus taking into account all expenditure incurred in connection therewith with effect from 01 April 2018. For the purposes of evaluating the c....
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....the period 27 February 2019 to 31 March 2021. On 25 November 2019, the respondent is stated to have issued Form 3CM subject to the qualification that the approval would be applicable for the period 27 February 2019 to 31 March 2020. It was in the aforesaid backdrop that the petitioner appears to have been called upon to submit an amended Auditors Certificate setting out the expenditure that may have been incurred in that period. This is evident from a reading of the communication dated 28 February 2020 issued by the respondent to the petitioner. 8. The petitioner sought modification of the aforesaid stipulations as appearing in the ultimate recognition and approval granted by the respondent vide its communication dated 08 May 2020. However, on 11 May 2020, the respondent addressed a communication to the following effect: - "From: N. K. Gupta <[email protected]> Sent: 11 May 2020 11:26 To: Dubey Vachaspati Cc: Regupathy Muralidharan; C N Ananda Kumar; Paramasivam Ganesh Subject: Re: 3CL documents FY 2018-19 - M/s Nagravision Dear Sir Your kind attention is requested for the following guidelines: "i Approval to the in-house R&D centers having valid recogn....
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....uction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop the facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on a plain reading of the section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered rule 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of the rule and Form clearly suggests that once the facility is approved, the entire expenditure so incurred on development of the research and development facility has to be allowed for weighted deduction as provided by section 35AB(2). The Tribunal has also considered the legislative intention behind the above enactment and observed that to boost the research and development facility in India, the Legislature has provided this provision to encour....
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....th Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred: Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred. Explanation.-For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970). (2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act. (3) No com....
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.... Institute of Technology or the Principal Scientific Adviser to the Government of India shall, if he is satisfied that it is feasible to carry out the scientific research programme then, subject to other conditions prescribed in this rule and section 35(2AA) of the Act, pass an order in writing in Form No. 3CH: Provided that a reasonable opportunity of being heard shall be granted to the sponsor before rejecting an application: Provided further that an order under this rule shall be passed within two months of the receipt of the application under sub-rule (1A): Provided also that 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. (5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3CM: Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application. (6) The National Laboratory, University, Indian Institute....
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....isposed of without the approval of the Principal Chief Commissioner of Income- tax or Chief Commissioner of Income-tax or Principal Director General of Income-tax or Director General of Income-tax having jurisdiction over the sponsor; (g) On completion of the approved programme, a completion certificate along with a copy of the report on the research activities carried out and salient features of the result obtained and its further application for commercial exploitation shall be jointly submitted by the sponsor and the National Laboratory, University, Indian Institute of Technology or specified person to the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax or Principal Director General of Income-tax or Director General of Income-tax having jurisdiction over the sponsor ; (h) A copy of the audited statement of accounts for the approved programme shall be submitted by the Head of the National Laboratory, University or Indian Institute of Technology or the Principal Scientific Adviser to the Government of India to the Principal Chief Commissioner of Income- tax or Chief Commissioner of Income-tax or Principal Director General of Income-tax or Directo....
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....ncome-tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture and transmission of data, and shall also be responsible for the day-to-day administration in relation to furnishing the information in the manner so specified." 14. As is evident from Rule 6(4) of the Rules, an applicant seeking to avail the benefit of weighted deductions is obliged to furnish an application in Form 3CK. Form 3CK invites the DSIR to enter into and engage in a collaborative arrangement with the R & D facility that is created by an assessee. The agreement is thus one of the pre-conditions for an assessee who claims weighted deductions in terms of Section 35 (2AB). The application so made by an assessee is thereafter scrutinized and examined by the DSIR and if it be satisfied that all conditions specified in Rule 6 are satisfied, it proceeds to accord approval to the facility in terms comprised in Form 3CM. Form 3CM is extracted hereinbelow: - "FORM NO. 3CM Order of approval of in-house Research and Development facility under section 35(2AB) of the Income-tax Act, 1961 1. Name, Address and PAN of the company. 2. Nature of the business of the company - Manufacture....
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....rch and Development facility is adequate for carrying out scientific research. 5. Registration number, date and validity of recognition granted by Department of Scientific and Industrial Research to the in-house Research and Development centre of the company. 6. Whether agreement for co-operation and Research and Development facility and for audit of the accounts maintained for that facility entered into. Part B 1. Assessment year 2. Previous year 3. Location of the research and development facility 4. Annual production of the eligible products during the year 5. Details of expenditure: (in Rs. Lakhs) A. (i) Land (ii) Buildings B. Capital expenditure: (i) Equipment (ii) Others (iii) Total C. Revenue expenditure: (i) Expenditure directly related to research and development (a)..... (b)...... (c)...... (ii) Total D. Total expenditure on the approved research and development centre (excluding land and building) E. Details of assets disposed of/transferred I certify that the above details are true and correct to the best of my knowledge and belief. Signature of Secretary, Department of Scientific and Industrial Research Date:............
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....cluding capital expenditure on land and buildings, on such centre in the financial year preceding the year in which the firm applied to prescribed authority for the approval - such capital expenditure incurred in the said preceding year provided the company claims such capital expenditure in their I.T. returns for concerned assessment year and fulfils other conditions of approval & eligibility for weighted deductions. vii. For claiming benefit on capital expenditure as mentioned in para v and vi above, Companies should: * Submit the request for claim of such expenditure in the covering letter at the time of application in Form 3CK for approval u/s 35(2AB) of IT Act, 1961. * Provide complete break-up & details of capital equipment investment on R&D of more than Rs one Crore excluding expenditure on land and building, in the financial year preceding the year in which the firm applied to the prescribed authority for the approval." 18. According to the respondent, it is only such expenditure which is borne by an assessee after its R & D facility has been approved by the DSIR which would qualify for deductions under Section 35(2AB) of the Act. It is perhaps in the light of the Gu....
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....g been incurred before approval or recognition is conferred upon that facility by the prescribed authority. If the expenditure which could form the subject of Section 35(2AB) were to be restricted only to that which is incurred post the grant of approval to the center in terms of Rule 6(5A), there would hardly be any incentive for the creation of such a facility. The irrationality of that stand further comes to the fore when one bears in mind the fact that if the facility were not existing, there would be no occasion for the DSIR to either inspect the same or enter into a collaborative arrangement. 21. The position struck by the respondent is rendered even more untenable when we test it against the plain language employed in Rule 6(7A)(b)(ii) of the Rules and which speaks of quantification of "expenditure incurred on" in-house scientific research and sums expended in connection therewith "during the previous year". 22. Both Section 35(2AB) and Rule 6 speak of expenditure which has already been incurred and therefore it would be wholly incorrect to read those provisions as envisaging benefits being extended only to such expenditure that may have been sustained after the facility h....