The DSIR would not certify part of my client's research spend. Is there a provision that allows it without any approval at all?
Yes. Section 35(1)(i) allows, in computing business income, "any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business". It carries no approval requirement of any kind — no DSIR approval of a facility, no Central Government approval of an institution — and no weighting: the deduction is the expenditure, at a hundred per cent. It is the natural fallback wherever a weighted claim under s.35(2AB) is cut down to the figure in Form 3CL, and since AY 2021-22 it gives exactly the same number as s.35(2AB) for revenue expenditure, because the s.35(2AB) proviso has taken that deduction down to the expenditure incurred.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2020-04-01, reported as Section 35 as printed on the Income Tax Department's section page stamped "Year: 2025"; https://incometaxindia.gov.in/w/section-35-64. It bears on section 35, section 35(1)(i), section 35(1)(iv), section 35(2), section 35(2)(iv), section 35(2AB), section 35(3), section 37(1), section 43(4), section 32 of the Income Tax Act 1961, in Deductions & Disallowances matters.
The library has carried nothing on s.35(1)(i), and it is the provision most often overlooked in exactly the disputes it answers. Where the DSIR quantifies less than was spent, the assessee has three ways to reach the excess: attack the quantification, which after 1 July 2016 has become much harder; claim the excess under s.37(1), which the Delhi Tribunal allowed in Anand NVH Products; or claim it under s.35(1)(i) as revenue expenditure on scientific research related to the business, which is what the assessee in EID Parry (India) had asked the lower authorities to do. The scope of 'scientific research related to the business' is not narrow — s.43(4) makes it include any research which may lead to or facilitate an extension of the business, as the Karnataka High Court applied in Talisma Corporation on the capital limb — and 'related to the business' is a wider expression than 'for the purposes of the business'. Two limits matter. First, s.35(1)(i) is confined to expenditure not in the nature of capital expenditure; capital spend goes to s.35(1)(iv) read with s.35(2), and that carries the s.35(2)(iv) bar on also claiming depreciation under s.32(1)(ii) on the same asset. Second, s.35(3) provides that if a question arises whether, and to what extent, any activity constitutes scientific research or an asset is being used for scientific research, the Board refers it to the prescribed authority, whose decision is final for an activity other than one under clauses (ii) and (iii) of s.35(1) — so the officer has a route to a binding determination, but it is that route and not a unilateral disallowance.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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This is a statement of the statutory position, not a case. Section 35(1)(i), as printed on the departmental page stamped Year: 2025, allows in respect of expenditure on scientific research: "any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business." Clause (iv) of the same sub-section allows, "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)". Clause (iv) of sub-section (2) provides that where a deduction is allowed for any previous year under the section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under s.32(1)(ii) for the same or any other previous year in respect of that asset. Sub-section (3) provides that if any question arises under the 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 Board shall refer the question to the Central Government where it relates to an activity under clauses (ii) and (iii) of sub-section (1), whose decision shall be final, and to the prescribed authority in any other case, whose decision shall be final. The meaning of 'scientific research related to the business' comes from s.43(4), which the Karnataka High Court reproduced in Talisma Corporation as defining scientific research to mean any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries, and as providing that references to scientific research related to a business or class of business include any scientific research which may lead to or facilitate an extension of that business.
Statutory position. Revenue expenditure laid out or expended on scientific research related to the business is deductible in full under s.35(1)(i) with no approval requirement and no weighting. Capital expenditure on scientific research related to the business carried on by the assessee is dealt with separately under s.35(1)(iv) read with s.35(2), and where a deduction is allowed under s.35 in respect of expenditure represented by an asset, s.35(2)(iv) bars depreciation under s.32(1)(ii) on that asset. Where a question arises whether an activity constitutes scientific research, s.35(3) provides for a reference to the prescribed authority whose decision is final.
Not a decided case. The structure of s.35(1) is that clause (i) takes revenue expenditure on the assessee's own research with no gatekeeper, clauses (ii) and (iii) take contributions to approved outside institutions and therefore require Central Government approval, and clause (iv) takes capital expenditure on the assessee's own research and hands quantification to sub-section (2). The approval machinery in s.35(2AB) — approval of the in-house facility by the prescribed authority, the agreement under s.35(2AB)(3) and the report under Rule 6(7A) in Form 3CL — is attached to the weighted deduction alone, which is why the removal of the weighting from AY 2021-22 leaves s.35(1)(i) and s.35(2AB) giving the same figure for revenue expenditure while only one of them carries a gate.
any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business.
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Handle my notice → Ask a CA on WhatsAppYes. Section 35(1)(i) allows, in computing business income, "any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business". It carries no approval requirement of any kind — no DSIR approval of a facility, no Central Government approval of an institution — and no weighting: the deduction is the expenditure, at a hundred per cent. It is the natural fallback wherever a weighted claim under s.35(2AB) is cut down to the figure in Form 3CL, and since AY 2021-22 it gives exactly the same number as s.35(2AB) for revenue expenditure, because the s.35(2AB) proviso has taken that deduction down to the expenditure incurred. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 35, section 35(1)(i), section 35(1)(iv), section 35(2), section 35(2)(iv), section 35(2AB), section 35(3), section 37(1), section 43(4), section 32 of the Income Tax Act 1961. It is reported as Section 35 as printed on the Income Tax Department's section page stamped "Year: 2025"; https://incometaxindia.gov.in/w/section-35-64. The library has carried nothing on s.35(1)(i), and it is the provision most often overlooked in exactly the disputes it answers. Where the DSIR quantifies less than was spent, the assessee has three ways to reach the excess: attack the quantification, which after 1 July 2016 has become much harder; claim the excess under s.37(1), which the Delhi Tribunal allowed in Anand NVH Products; or claim it under s.35(1)(i) as revenue expenditure on scientific research related to the business, which is what the assessee in EID Parry (India) had asked the lower authorities to do. The scope of 'scientific research related to the business' is not narrow — s.43(4) makes it include any research which may lead to or facilitate an extension of the business, as the Karnataka High Court applied in Talisma Corporation on the capital limb — and 'related to the business' is a wider expression than 'for the purposes of the business'. Two limits matter. First, s.35(1)(i) is confined to expenditure not in the nature of capital expenditure; capital spend goes to s.35(1)(iv) read with s.35(2), and that carries the s.35(2)(iv) bar on also claiming depreciation under s.32(1)(ii) on the same asset. Second, s.35(3) provides that if a question arises whether, and to what extent, any activity constitutes scientific research or an asset is being used for scientific research, the Board refers it to the prescribed authority, whose decision is final for an activity other than one under clauses (ii) and (iii) of s.35(1) — so the officer has a route to a binding determination, but it is that route and not a unilateral disallowance. If it applies to you, the first step is this: Where a s.35(2AB) claim is restricted to the Form 3CL figure, claim the excess revenue expenditure in the alternative under s.35(1)(i) and under s.37(1) at the assessment stage, not for the first time in appeal.
This is a statement of the statutory position, not a case. Section 35(1)(i), as printed on the departmental page stamped Year: 2025, allows in respect of expenditure on scientific research: "any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business." Clause (iv) of the same sub-section allows, "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)". Clause (iv) of sub-section (2) provides that where a deduction is allowed for any previous year under the section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under s.32(1)(ii) for the same or any other previous year in respect of that asset. Sub-section (3) provides that if any question arises under the 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 Board shall refer the question to the Central Government where it relates to an activity under clauses (ii) and (iii) of sub-section (1), whose decision shall be final, and to the prescribed authority in any other case, whose decision shall be final. The meaning of 'scientific research related to the business' comes from s.43(4), which the Karnataka High Court reproduced in Talisma Corporation as defining scientific research to mean any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries, and as providing that references to scientific research related to a business or class of business include any scientific research which may lead to or facilitate an extension of that business. The matter was decided on 2020-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position. Revenue expenditure laid out or expended on scientific research related to the business is deductible in full under s.35(1)(i) with no approval requirement and no weighting. Capital expenditure on scientific research related to the business carried on by the assessee is dealt with separately under s.35(1)(iv) read with s.35(2), and where a deduction is allowed under s.35 in respect of expenditure represented by an asset, s.35(2)(iv) bars depreciation under s.32(1)(ii) on that asset. Where a question arises whether an activity constitutes scientific research, s.35(3) provides for a reference to the prescribed authority whose decision is final.
Not a decided case. The structure of s.35(1) is that clause (i) takes revenue expenditure on the assessee's own research with no gatekeeper, clauses (ii) and (iii) take contributions to approved outside institutions and therefore require Central Government approval, and clause (iv) takes capital expenditure on the assessee's own research and hands quantification to sub-section (2). The approval machinery in s.35(2AB) — approval of the in-house facility by the prescribed authority, the agreement under s.35(2AB)(3) and the report under Rule 6(7A) in Form 3CL — is attached to the weighted deduction alone, which is why the removal of the weighting from AY 2021-22 leaves s.35(1)(i) and s.35(2AB) giving the same figure for revenue expenditure while only one of them carries a gate. In the words reproduced by the source cited on this page: "any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business."
It was decided by the CBDT Circulars & Instructions on 2020-04-01 and is reported as Section 35 as printed on the Income Tax Department's section page stamped "Year: 2025"; https://incometaxindia.gov.in/w/section-35-64. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 35, section 35(1)(i), section 35(1)(iv), section 35(2), section 35(2)(iv), section 35(2AB), section 35(3), section 37(1), section 43(4), section 32, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position. Revenue expenditure laid out or expended on scientific research related to the business is deductible in full under s.35(1)(i) with no approval requirement and no weighting. Capital expenditure on scientific research related to the business carried on by the assessee is dealt with separately under s.35(1)(iv) read with s.35(2), and where a deduction is allowed under s.35 in respect of expenditure represented by an asset, s.35(2)(iv) bars depreciation under s.32(1)(ii) on that asset. Where a question arises whether an activity constitutes scientific research, s.35(3) provides for a reference to the prescribed authority whose decision is final. It arises in Deductions & Disallowances matters, on section 35, section 35(1)(i), section 35(1)(iv), section 35(2), section 35(2)(iv), section 35(2AB), section 35(3), section 37(1), section 43(4), section 32 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Split the research spend into revenue and capital before choosing the clause: s.35(1)(i) takes only the non-capital part; the capital part goes to s.35(1)(iv) read with s.35(2). Argue 'related to the business' through s.43(4), which brings in research that may lead to or facilitate an extension of the business, rather than trying to show a direct nexus with existing products. If the officer says the activity is not scientific research, ask him to route the question through s.35(3) to the prescribed authority rather than deciding it himself. For a year from AY 2021-22 onwards, point out that s.35(2AB) itself now gives only the expenditure incurred, so there is nothing to be gained by the Revenue in forcing the claim out of s.35(2AB) and no loss to the assessee in taking it under s.35(1)(i). Where the s.35(1)(iv) route is chosen for capital spend, do not also claim depreciation on the asset — s.35(2)(iv) bars it.
Validity check could not be completed. The words of s.35(1)(i), s.35(1)(iv), s.35(2)(iv) and s.35(3) are the words printed on the Income Tax Department's section page stamped Year: 2025; the same page was fetched twice for different sub-sections and the clause (i) and clause (iv) text was returned in the same words on both occasions. The label is 'unverified' rather than 'good law' because two supporting elements were not verified from a current primary source: the current text of the Explanation to s.35(1) on pre-commencement research expenditure, which was not transcribed at all, and the current text of s.43(4), which is taken here from a 2013 judgment reproducing it. No case squarely construing s.35(1)(i) was read. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Do NOT use the department's unsuffixed /w/section-35 page: it is stamped Year: 2009 and prints the pre-2010 rates for sub-sections (2AA) and (2AB). Nor /w/section-35-32, stamped Year: 1981, which has no sub-section (2AB) at all. The text used here is from /w/section-35-64, stamped Year: 2025. Two things were NOT read and should be before anything turns on them: the Explanation to s.35(1) dealing with expenditure on scientific research incurred before the commencement of the business (the Year: 2009 archived page flagged that such an Explanation exists, but I did not transcribe the current text of it), and the definition in s.43(4) as it currently stands — the wording of s.43(4) relied on here is the wording the Karnataka High Court reproduced in Talisma Corporation in 2013, which is a judgment reproducing the section rather than a current statutory source. No decided case squarely on s.35(1)(i) was located and read for this entry; the two Tribunal decisions referred to are on s.35(2AB) with the s.37(1) and s.35(1)(i) fallbacks argued alongside. On decided_on: by the convention for statutory entries this field carries the commencement date of the provision, not a decision date. No commencement date was established for s.35(1)(i), s.35(1)(iv), s.35(2)(iv) or s.35(3) — none of them was amended by anything traced on this pass, the Year: 2025 page carries no amendment footnote against any of them, and the date shown is therefore not sourced. Do not read it as the first affected assessment year, and do not cite this entry for when any of these provisions took effect. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position. Revenue expenditure laid out or expended on scientific research related to the business is deductible in full under s.35(1)(i) with no approval requirement and no weighting. Capital expenditure on scientific research related to the business carried on by the assessee is dealt with separately under s.35(1)(iv) read with s.35(2), and where a deduction is allowed under s.35 in respect of expenditure represented by an asset, s.35(2)(iv) bars depreciation under s.32(1)(ii) on that asset. Where a question arises whether an activity constitutes scientific research, s.35(3) provides for a reference to the prescribed authority whose decision is final.
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