Income Tax Act

Official PDF pages 86–90

SOURCE PDF PAGE 86
( c )   “long-term borrowings” means—
( i )   any moneys borrowed by the company from Government or Indus -
trial Finance Corporation of India Limited or any other financial
institution which is eligible for deduction under section 32( e ) or
any banking institution (not being a financial institution referred
to above); or
( ii )   any moneys borrowed or debt incurred by it in a foreign country
in respect of the purchase outside India of capital plant and
machinery, where the tenure of moneys borrowed or debt is not
less than seven years.
(6) If the assessee is a person, other than a company or a co-operative society, no
deduction shall be admissible under sub-section (1) unless,—
( a )   the accounts of the assessee for the year or years in which the expend -
iture specified in sub-section (2) is incurred have been audited by an
accountant before the specified date referred to in section 63; and
( b )   the assessee furnishes for the first year in which the deduction under
this section is claimed, the report of such audit by such date in such
form duly signed and verified by such accountant and setting forth such
particulars, as may be prescribed.
(7) If an undertaking of Indian company entitled for deduction under sub-section
(1) is transferred before expiry of five years specified in the said sub-section, in a
scheme of amalgamation, to another Indian company, then—
( a )   no deduction under sub-section (1) shall be allowed to the amalgamating
company for the tax year in which amalgamation takes place; and
( b )   all provisions of this section shall continue to apply to the amalgamated
company as they would have applied to the amalgamating company, as
if the amalgamation had not taken place.
(8) If an undertaking of Indian company entitled for deduction under sub-section
(1) is transferred before five years specified in the said sub-section, in a scheme of
demerger to another company, then—
( a )   no deduction under sub-section (1) shall be allowed to the demerged
company for the tax year in which demerger takes place; and
( b )   all provisions of this section shall continue to apply to the resulting
company as they would have applied to the demerged company, as if the
demerger had not taken place.
(9) If a deduction under this section is claimed and allowed for any tax year in
respect of any expenditure referred to in sub-section (2), deduction shall not be
allowed for such expenditure under any other provision of this Act for the same or
any other tax year.
Expenditure on scientific research.
45.   (1)( a ) A deduction shall be allowed for any expenditure, being in the
nature of—

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SOURCE PDF PAGE 87
( i )   capital expenditure, but not on acquisition of land which is acquired as
such or as part of any property; or
( ii )   revenue expenditure,
incurred on scientific research related to the business of the assessee subject to
provisions of this section.
( b ) A deduction shall also be allowed under this sub-section in respect of the
aggregate of expenditure (not being in the nature of capital expenditure), related
to business, incurred on—
( i )   salary to an employee engaged in such scientific research; or
( ii )   purchase of materials used in such scientific research,
where such expenditure is incurred within three years immediately preceding the
commencement of business, to the extent certified by the prescribed authority as
incurred on such research and such expenditure shall be deemed to have been
incurred in the tax year in which the business is commenced.
( c ) For the purposes of this sub-section, the aggregate of capital expenditure
incurred within three years immediately preceding the commencement of busi -
ness shall be deemed to have been incurred in the tax year in which the business
is commenced.
(2)( i ) A deduction shall be allowed in respect of any expenditure on scientific
research incurred (not being expenditure in the nature of cost of any land or build-
ing) by a company engaged in the business of—
( A )   bio-technology; or
( B )   manufacture or production of any article or thing, which is not specified
in Schedule XIII,
on in-house research and development facility as approved by the prescribed
authority, subject to the conditions and manner, as may be prescribed.
( ii ) No deduction shall be allowed under this sub-section to a company approved
under sub-section (3)( b )( ii ).
( iii ) No deduction shall be allowed in respect of the expenditure mentioned in
clause ( i ) under any other provision of this Act.
( iv ) The expenditure under clause ( i ) shall be allowed subject to such conditions
and on furnishing of documents in such form and manner, as may be prescribed.
( v ) For the purposes of this sub-section, “expenditure on scientific research”, in
relation to drugs and pharmaceuticals, shall include expenditure incurred on clini -
cal drug trial, obtaining approval from any regulatory authority under any Central
Act or State Act or Provincial Act and filing an application for a patent under the
Patents Act, 1970 (39 of 1970).
(3) A deduction shall be allowed for any sum, paid to—
( a )   ( i )   a research association having the object of undertaking scientific
research or to a University, college or institution to be used for
scientific research; or
( ii )   a research association having the object of undertaking research
in social science or statistical research or to a University, college

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SOURCE PDF PAGE 88
or institution to be used for research in social science or statistical
research;
( b )   a company which is—
( i )   registered in India having the main object of scientific research
and development; and
( ii )   approved by such authority, for the purposes of this clause in such
manner and subject to such conditions, as may be prescribed;
( c )   ( i )   a national laboratory; or
( ii )   a University; or
( iii )   an Indian Institute of Technology; or
( iv )   a specified person,
with a specific direction that the said sum shall be used for scientific research
undertaken under a programme approved in this behalf by the prescribed
authority.
(4) For the purposes of sub-section (3),—
( a )   the expenditure shall be allowed subject to such conditions and on fur -
nishing of documents in such form and manner, as may be prescribed;
and
( b )   in respect of clause ( a ) of the said sub-section, only such association,
University, college or other institution shall be eligible for deduction,
which for the time being is approved in the manner and subject to such
conditions, as may be prescribed, and is specified by the Central
Government, by notification.
(5) The deduction for any sum under sub-section (3) shall not be denied merely on
the ground that subsequent to the payment of such sum by the assessee, the approval
granted to such entities or the programme undertaken by entities as mentioned in
sub-section (3)( c ), has been withdrawn.
(6) Where a deduction is allowed for any tax year under this section in respect of
expenditure, represented wholly or partly by an asset, no deduction shall be allowed
under section 33(3) for the same or any other tax year in respect of that asset.
(7) The provisions of section 33(11) in respect of depreciation shall apply in relation
to deductions allowable for capital expenditure under sub-section (1).
(8) No deduction in respect of the sum mentioned in sub-section (3)( c ) shall be
allowed under any other provision of this Act.
(9) If any question arises under this section as to whether, and if so, to what extent
any activity constitutes or constituted scientific research, or any asset is or was being
used, for scientific research, the Board shall refer the question to—
( a )   the Central Government, when such question relates to any activity under
sub-section (3)( a ), and its decision shall be final;
( b )   the prescribed authority, when such question relates to any other activity
other than the activity specified in clause ( a ), whose decision shall be
final.

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(10) When an amalgamating company, in a scheme of amalgamation, sells or
otherwise transfers to the amalgamated company (being an Indian company) any
asset representing capital expenditure on scientific research, the provisions of this
section shall apply to the amalgamated company as they would have applied to
the amalgamating company if the latter had not so sold or otherwise transferred
the asset.
(11) For the purposes of this section,—
( a )   “National Laboratory” means a scientific laboratory functioning at
the national level under the aegis of the Indian Council of Agricultural
Research, the Indian Council of Medical Research, the Council of Scientific
and Industrial Research, the Defence Research and Development Organi -
sation, the Department of Electronics, the Department of Bio-Technology
or the Department of Atomic Energy and which is approved as a National
Laboratory by such authority and in such manner, as may be prescribed;
( b )   “salary” has the meaning assigned to it in section 16 read with section
18 subject to the following modifications:
( i )   in section 16, clauses ( e ) and ( j ) shall be omitted;
( ii )   in section 18, the references to “assessee” shall be construed as
references to “employee of former employee” and the reference to
“his employer or former employer” and “an employer or a former
employer” shall be construed as reference to “the assessee”;
( c )   “specified person” means such person approved by the prescribed
authority; and
( d )   “land”, for the purpose of sub-section (1)( a )( i ), includes any interest in
land.
Capital expenditure of specified business.
46.   (1) An assessee, at his option, shall be allowed a deduction of the whole of
the capital expenditure incurred, wholly and exclusively, for the purposes of any
specified business carried on by him during the tax year in which such expenditure
is incurred.
(2) Where the expenditure referred to in sub-section (1) is incurred prior to the
commencement of its operations and such expenditure is capitalised in the books
of account as on the date of commencement of its operations, it shall be allowed
during the tax year in which such business is commenced.
(3) This section shall apply to the specified business fulfilling all of the following
conditions:—
( a )   it is not set up by splitting up, or the reconstruction, of an already existing
business;
( b )   it is not set up by the transfer of machinery or plant previously used for
any purpose to the specified business;
( c )   if the business is of the nature referred to in sub-section (11)( d )( iii )
and such business—

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( i )   is owned by a company formed and registered in India under the
Companies Act, 2013 (18 of 2013) or by a consortium of such com -
panies or by an authority or a board or a corporation established
or constituted under any Central Act or State Act;
( ii )   has been approved by the Petroleum and Natural Gas Regulatory
Board established under section 3(1) of the Petroleum and Natural
Gas Regulatory Board Act, 2006 (19 of 2006) and notified by the
Central Government in this behalf;
( iii )   has made not less than such proportion of its total pipeline capacity
as specified by regulations made by the Petroleum and Natural Gas
Regulatory Board established under section 3(1) of the Petroleum
and Natural Gas Regulatory Board Act, 2006 (19 of 2006) availa -
ble for use on common carrier basis by any person other than the
assessee or an associated person; and
( iv )   fulfils any other condition as may be prescribed;
( d )   if the business is of the nature referred to in sub-section (11)( d )( xiv ),
such business,—
( i )   is owned by a company registered in India or by a consortium of
such companies or by an authority or a board or corporation or
any other body established or constituted under any Central Act
or State Act;
( ii )   entity referred to in sub-clause ( i ) has entered into an agreement
with the Central Government or a State Government or a local
authority or any other statutory body for developing or operating
and maintaining or developing, operating and maintaining a new
infrastructure facility.
(4) No deduction shall be allowed under the provisions of Chapter VIII-C in relation
to such specified business for the same or any other tax year, if a deduction under
sub-section (1) is claimed and allowed.
(5) No deduction in respect of the expenditure referred to in sub-section (1) shall
be allowed to the assessee under any other section in any tax year or under this
section in any other tax year, if the deduction has been claimed and allowed to him
under this section.
(6) The provisions of this section shall apply to the specified business referred to in
column B of the Table below if it commences its operations as specified in column
C thereof.