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R&D related weighted deduction under Section 35(2AB) should be available even if approval in the prescribed format is signed by Nodal Officer and not by Secretary, DSIR
 

R&D related weighted deduction under Section 35(2AB) should be available even if approval in the prescribed format is signed by Nodal Officer and not by Secretary, DSIR

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Recently, the Mumbai Bench of the Income-tax Appellate Tribunal in the case of Fermet Biotech Ltd. (the taxpayer) held that deduction under Section 35(2AB) of the Income-tax Act, 1961 in respect of ...

Recently, the Mumbai Bench of the Income-tax Appellate Tribunal in the case of Fermet Biotech Ltd. (the taxpayer) held that deduction under Section 35(2AB) of the Income-tax Act, 1961 in respect of scientific research expenditure incurred on in-house scientific research facility (R&D facility) cannot be denied to the taxpayer, even though the order of approval in Form 3CM is not granted by the Secretary, Department of Scientific and Research (DSIR), but by some Nodal Officer on/or behalf of the Secretary, DSIR, provided all other conditions for approval are fulfilled by the taxpayer.

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    R&D related weighted deduction under Section 35(2AB) should be available even if approval in the prescribed format is signed by Nodal Officer and not by Secretary, DSIR R&D related weighted deduction under Section 35(2AB) should be available even if approval in the prescribed format is signed by Nodal Officer and not by Secretary, DSIR Document Transcript

    • KPMG FLASH NEWS KPMG IN INDIA R&D related weighted deduction under Section 35(2AB) should be available even if approval in the prescribed format is signed by Nodal Officer and not by Secretary, DSIR 26 February 2014 Background Recently, the Mumbai Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Fermet 1 Biotech Ltd. (the taxpayer) held that deduction under Section 35(2AB) of the Income-tax Act, 1961 (the Act) in respect of scientific research expenditure incurred on in-house scientific research facility (R&D facility) cannot be denied to the taxpayer, even though the order of approval in Form 3CM is not granted by the Secretary, Department of Scientific and Research (DSIR), but by some Nodal Officer on/or behalf of the Secretary, DSIR, provided all other conditions for approval are fulfilled by the taxpayer.  In response to the show cause notice, the taxpayer filed a copy of renewal of recognition of in-house R&D facility issued and signed by Scientist-G, DSIR, New Delhi.  The Assessing Officer (AO) passed an order under Section 143(3) of the Act and disallowed the deduction claimed under Section 35(2AB) of the Act on the following grounds:  Provisions of Section 35(2AB) of the Act provides that the approval has to be issued by the Secretary, DSIR and not by the Scientist  On the renewal certificate, it was mentioned Facts of the case  The taxpayer is a company which is engaged in the business of manufacturing, marketing and processing of drug intermediates pharmaceuticals, chemicals and bulk drugs. The taxpayer was claiming deduction under Section 35(AB) of the Act in respect of scientific research expenditure incurred on R&D facility. ________________ 1 that the recognition is not for the purpose of tax exemption or for quantum of tax concession.  On an appeal before the Commissioner of Income-tax (Appeals) [CIT(A)], the action of the AO was upheld on the contention that the approval order from prescribed authority in Form 3CM was not obtained by the taxpayer. Fermet Biotech Limited v. ACIT [ITA No. 4341/Mum/2012, dated 12 February 2014] - Taxsutra.com © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
    • Issue before the Tribunal  Whether the taxpayer is entitled for deduction under Section 35(2AB) of the Act in the present case? Note: Certain other issues were also raised before the Tribunal in the present case. This flash news deals with issue pertaining to R&D related weighted deduction. Tribunal’s rulings  The Tribunal observed that the letter issued by DSIR is only for renewal of recognition of in-house R&D facility. There is no formal order or approval for such in-house R&D facility in prescribed form i.e. Form 3CM.  The Tribunal noted that Section 35(2AB)(4) of the Act read with Rule 6 of the Income-tax Rules, 1962 (Rules) provides the procedure for making application in Form 3CK before the prescribed authority and the prescribed authority is required to grant approval in Form 3CM.  The Tribunal, on principles, held that deduction under Section 35(2AB) of the Act cannot be denied to the taxpayer, even though the order of approval in Form 3CM is not granted by the Secretary, DSIR, but by some Nodal Officer on/or behalf of the Secretary, DSIR, provided all other conditions for approval are fulfilled by the taxpayer.  The Tribunal observed that in the present case, the taxpayer could not show whether any approval of in-house R&D facility is issued in the prescribed form (i.e. Form 3CM) for relevant assessment year by DSIR even if it is signed by any authority like Scientist-G for on/or behalf of the Secretary, DSIR.  Accordingly, the matter was restored to the file of AO with a direction to verify whether any order for approval of inhouse R&D facility has been issued by DSIR in the prescribed form (viz. Form 3CM) for relevant assessment year, even though such order could be signed by ‘Scientist-G’. Our comments This is a welcome decision, wherein it has been held that relief should be granted to the taxpayer under Section 35(2AB) of the Act even though the order of approval in Form 3CM is not granted by the Secretary, DSIR, but by some Nodal Officer on/or behalf of the Secretary, DSIR. However, the Tribunal held that the order of approval in prescribed form should be obtained. It is interesting to note that in the case of Meco Instruments Pvt. 2 Ltd. , the Mumbai Tribunal held that even though the approval was not available in the prescribed form for the relevant assessment year, the taxpayer would still be entitled to weighted deduction under Section 35(2AB) of the Act for inhouse R&D expenditure. The Tribunal also held that it was only a procedural defect and merely on the ground of technicalities of procedure, the benefit bestowed by legislature cannot be denied. __________________ 2 ACIT v. Meco Instruments Pvt. Ltd. [ITA No. 4246/Mum/2009] © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
    • www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi 4/F, Palal Towers M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata – 700091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. ©2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.