Rule 35 — Prescribed authority, procedure, form, manner and conditions for approval by a company for deduction for expenditure on scientific research under section 45(3)(b). Made under s.45, s.263, s.265, s.515 of the Income-tax Act, 2025.
Rule 35 gives effect to Section 45, Section 263, Section 265 and Section 515 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) names the prescribed authority for section 45(3)(b): the Chief Commissioner of Income-tax having jurisdiction over the applicant.
Sub-rule (2) sets the procedure. The company applies in Form No. 17 to the Commissioner of Income-tax having jurisdiction, at any time during the financial year immediately preceding the tax year from which approval is sought; where approval is sought from the tax year 2026-27, or from the tax year in which the applicant is incorporated, the application may be made at any time during that tax year. Form No. 17 is verified by the person authorised to verify the return under section 265, and a copy of the application with the acknowledgement receipt goes to the prescribed authority. The order granting or rejecting approval must issue within twelve months from the end of the quarter in which the application was received in the office of the Chief Commissioner. A defect or missing document draws a deficiency letter from the Commissioner before the expiry of one month from the end of the month in which the application is received in his office, and the applicant has a maximum of one month from the end of the month in which the deficiency letter is served to remove it; failing that, the Commissioner recommends that the application be treated as invalid and the Chief Commissioner may pass an order to that effect. If the application is complete, the Commissioner may inquire into the genuineness of the company's activity and send his recommendation for grant or rejection before the expiry of three months from the end of the quarter in which the application was received in his office. The Chief Commissioner may call for documents or information and cause verification, and may grant approval or, for reasons recorded in writing, reject the application. He may also withdraw an approval if satisfied that the company has ceased to carry on its activities, or its activities are not genuine or are not being carried on in accordance with the conditions in this rule. No order treating the application as invalid, rejecting it or withdrawing approval may be passed without a reasonable opportunity of being heard, and a copy of any such order goes to the applicant, the Assessing Officer and the Commissioner. An order under this rule has effect, at any one time, for such tax year or years as may be specified, not exceeding five tax years, and the applicant may apply for a fresh order at least three months before the effective period expires.
Sub-rule (3) sets the conditions of approval: the sum paid to the company shall be used for scientific research; the company shall carry on scientific research through its own employees using its own assets; it shall maintain separate books of account for sums received for scientific research, reflect the amount used for research, have those books audited by an accountant as defined in section 515(3)(b) and furnish the audit report to the Commissioner by the due date under section 263(1)(c); it shall maintain a separate statement of donations received and amounts used for research, certified by the auditor and accompanying the audit report; and it shall each year, by that same due date, furnish a statement containing a detailed note on the research work undertaken, a summary of research articles published in national or international journals, patents or similar rights applied for or registered, and the research programme for the forthcoming year with financial allocations. Where the Commissioner finds that the company is not maintaining separate books, has failed to furnish its audit report, has not furnished the statements, has ceased research or is not genuine, or is not fulfilling the conditions of approval, he may after appropriate enquiries report to the jurisdictional Chief Commissioner within six months from the date of furnishing the return of income under section 263(1).
Section 45(3)(b) allows a deduction for sums paid to an approved company for scientific research, but leaves the authority, the form, the manner and the conditions of approval to be prescribed. This rule splits the work between two officers — the Commissioner takes and vets the application, the Chief Commissioner decides — and puts outer dates on each step so an application cannot sit indefinitely. The conditions in sub-rule (3) exist because the deduction is claimed by the donor while the research is done by the recipient: separate books, an audit and an annual research statement are how the Department sees that the money went where the deduction says it went.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| When the application may be made | At any time during the financial year immediately preceding the tax year from which approval is sought | General rule for approval under section 45(3)(b) | Sub-rule (2)(a) |
| Relaxed timing | At any time during the tax year itself | Where approval is sought from the tax year 2026-27, or from the tax year in which the applicant is incorporated | Sub-rule (2)(b) |
| Time to grant or reject approval | Within twelve months from the end of the quarter in which the application was received in the Office of the Chief Commissioner of Income-tax | Applies to an order for approval and to an order rejecting the application | Sub-rule (2)(e) |
| Time to issue a deficiency letter | Before the expiry of one month from the end of the month in which the application is received in his office | Where a defect is noticed in Form No. 17 or a relevant document is not attached | Sub-rule (2)(f) |
| Time to remove the deficiency | A maximum period of one month from the end of the month in which the deficiency letter is served | Failure leads to a recommendation that the application be treated as invalid | Sub-rule (2)(g) |
| Time for the Commissioner's recommendation | Before the expiry of the period of three months from the end of the quarter in which the application was received in his office | Where the application form is complete in all respects | Sub-rule (2)(i) |
| Maximum effective period of an approval order | Not exceeding five tax years | At any one time, for such tax year or years as may be specified in the order — an outer limit, not a fixed term | Sub-rule (2)(o) |
| When to apply for a fresh order | At least three months before the expiry of the effective period | Application to the Commissioner of Income-tax having jurisdiction | Sub-rule (2)(p) |
| Time for the Commissioner's report on default | Within six months from the date of furnishing the return of income under section 263(1) | On any of the circumstances in sub-rule (3)(f)(i) to (v), after making appropriate enquiries | Sub-rule (3)(f) |
| Due date for the audit report and the annual research statement | The due date of furnishing the return of income under section 263(1)(c) | Both go to the Commissioner of Income-tax having jurisdiction over the case | Sub-rule (3)(c) and (e) |
The application goes to the Commissioner but the order comes from the Chief Commissioner, and the twelve-month outer date in sub-rule (2)(e) runs from the end of the quarter of receipt in the Chief Commissioner's office, not the Commissioner's — which is why sub-rule (2)(d) requires a copy of the application with the acknowledgement receipt to be sent to the prescribed authority. Five tax years is a maximum, not the term of every approval: sub-rule (2)(o) lets the order specify a shorter period, so the effective period has to be read off the order itself, and sub-rule (2)(p) requires the renewal application three months before it expires. Approval is not the end of the obligation. Sub-rule (3)(b) requires the research to be carried on through the company's own employees using its own assets, so outsourced research breaches the approval, and sub-rules (3)(c) to (e) tie the continuing approval to an audit report and an annual research statement filed by the section 263(1)(c) due date. Withdrawal under sub-rule (2)(l), like rejection, requires a reasonable opportunity of being heard under sub-rule (2)(m).
A company applies in Form No. 17 in March 2027 for approval from the tax year 2027-28, sending a copy with the acknowledgement receipt to the Chief Commissioner. The Commissioner notices a missing document and serves a deficiency letter in April; the company then has until the end of May to cure it. The application being complete, the Commissioner sends his recommendation, and the order granting approval — say for three tax years, within the five-year limit in sub-rule (2)(o) — must issue within twelve months from the end of the quarter in which the application reached the Chief Commissioner's office.
The company meets it when applying in Form No. 17 and every year afterwards in the audit report and research statement it files with the Commissioner. A donor claiming the deduction under section 45(3) meets it indirectly, by checking that the recipient company's approval order covers the tax year of payment.
the prescribed authority shall be the Chief Commissioner of Income-tax having jurisdiction over the applicant
the applicant company shall carry on scientific research through its own employees using its own assets
Any order passed by the Chief Commissioner of Income-tax under this rule shall, at any one time, have effect for such tax year or years, not exceeding five tax years, as may be specified in the order.