Report No. 12
35. Expenditure on scientific research.-
(1) In respect of expenditure on scientific research, the following deductions shall be allowed-
(i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business;
[Section 10(2)(xii)]
(ii) any sum paid to a scientific research association which has as its objects the undertaking of scientific research related to the class of business carried on, and which is approved for the purposes of this clause by the prescribed authority;
[Section 10(2)(xiii), part]
(iii) any sum paid to a university, college or other institution to be used for scientific research, research in social science or statistical research related to the class of business carried on, being a.......university, college or institution which is for the time being approved for the purposes of this clause by the prescribed authority;
[Section 10(2)(xiii), part]
(iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2).
[Section 10(2)(xiv), first para., earlier part]
(2) For the purposes of clause (iv) of sub-section (1),-
(i) one-fifth of the capital expenditure incurred in any previous year shall be deducted for that previous year; and the balance of the expenditure shall be deducted in equal instalments for each of the four immediately succeeding previous years.
[Section 10(2)(xiv), first para., latter part]
Explanation.-Where any capital expenditure has been incurred before the commencement of the business, the aggregate of the expenditure so incurred within three years immediately preceding the commencement of the business shall be deemed to have been incurred in the previous year in which the business is commenced;
[Section 10(2)(xiv), first Proviso]
(ii) notwithstanding anything contained in clause (i), where an asset representing......expenditure of a capital nature ceases to be used in a previous year for scientific research related to the business and the value of the asset at the time of the cessation, together with the aggregate of deductions already allowed under clause (i), falls short of-the said expenditure, then-
[Section 10(2)(xiv), 2nd proviso (a), opening lines]
(a) there shall be allowed a deduction for that previous year of an amount equal to such deficiency, and
[Section 10(2)(xiv), 2nd Proviso (a) (ii)]
(b) no deduction shall be allowed under that clause for that previous year or for any subsequent previous year;
[Section 10(2)(xiv), 2nd proviso (a)(i) modified]
(iii) if the asset mentioned in clause (ii) is sold, without having been used for other purposes, in the year of cessation, the sale price shall be taken to be the value of the asset at the time of the cessation; and if the asset is sold, without having been used for other purposes, in a previous year subsequent to the year of cessation, and the sale price falls short of the value of the asset taken into account at the time of cessation, an amount equal to the deficiency shall be allowed as a deduction for the previous year in which the sale took place;
[Section 10(2)(xiv), 2nd Proviso (b)]
(iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under section 32(1) clauses (i) (ii) and (iv) [10(2)(vi) or (vii) i.e., section authorising depreciation allowance] for the same previous year in respect of that asset;
[Section 10(2)(xiv), 2nd Proviso (d)]
(v) where the asset is used in the business after it ceases to be used for scientific research related to that business, depreciation shall be admissible under section 32(1), clauses (i) (ii) and (iv), [10(2) (vi) and (vii) i.e., section authorising depreciation allowance].
[Section 10(2)(xiv), 2nd Proviso (e), earlier part]
(3) If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted or any asset is or was being used for scientific research, the Central Board of Revenue shall refer the question to the prescribed authority, whose decision shall be final.
[Section 10(2)(xiv), 2nd Proviso (g)]
(4) The provisions of sub-section (2) of section 32 [section re: depreciation] shall apply in relation to deductions allowable under clause (iv) of sub-section (1) as they apply in relation to deductions allowable in respect of depreciation.
[Section 10(2)(xiv), 2nd Proviso (p part]
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