Section 35(2AB) — Expenditure on Scientific Research

Section 35(2AB) of the Income-tax Act, 1961 provides for a weighted tax deduction for companies engaged in scientific research and development. This section allows companies to claim a deduction of 200% of the expenditure incurred on in-house research and development facilities, provided these facilities are approved by the Department of Scientific and Industrial Research (DSIR). The deduction applies to expenses such as salaries of research personnel, cost of materials, and other operational costs directly related to R&D activities. This provision is significant as it incentivizes innovation and technological advancement by reducing the effective cost of research activities. To qualify, companies must maintain separate accounts for R&D expenditure and obtain necessary approvals and certifications from DSIR. The burden of proof lies with the taxpayer to demonstrate that the expenses are genuinely incurred for eligible R&D activities.

Common Litigation Flashpoints

1. Eligibility of specific expenses as R&D expenditure
2. Approval and certification process by DSIR
3. Maintenance of separate accounts for R&D activities
4. Interpretation of 'in-house' research facilities

Judgments on Section 35(2AB) — Expenditure on Scientific Research

• The Deputy Commissioner of Income Tax, LTU, Bangalore vs M/s. Biocon Limited — ITAT,
  The provisions of Section 10B are exemption provisions, and profits of the eligible unit should not be set off against losses of non-eligible units.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.