Section 43(4)

Section 43(4) — the law in short

What the courts have decided on section 43(4), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Talisma Corporation Pvt Ltd — software development spend is capital expenditure on scientific research deductible under s.35(1)(iv) High CourtHelps taxpayerValidity unconfirmed
  The Assessing Officer has capitalised my client's product development spend and given it only depreciation. Can we still get it as scientific research expenditure, and can the alternative claim be raised for the first time before the Commissioner (Appeals)?
  The Karnataka High Court held that expenditure on further developing and improving a software product is expenditure on scientific research related to the business, and that even if it is capital in nature it is to be deducted under s.35(1)(iv); it answered both questions of law in favour of the assessee and dismissed the Revenue's appeal. The Court reached that conclusion through the definition in s.43(4), which makes references to scientific research related to a business include any scientific research which may lead to or facilitate an extension of that business. The alternative claim had been raised for the first time before the appellate authority and not before the Assessing Officer, and the Court did not treat that as an obstacle.
• Statutory position — s.35(1)(i): revenue expenditure on scientific research needs no approval and is allowed in full CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  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.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.