Delhi HC allows Expenditure Incurred prior to recognition of R & D Center [Read Judgment]

While allowing expenditure incurred prior to recognition of Research & Development (R & D) center, a division bench of the Delhi High Court held that such expenses are also eligible for the purpose of section 35(2AB) of the Income Tax Act, 1961.

Before the High Court, the Petitioner contended that since the DSIR has approved the recognition of the Rohtak R&D Centre, the expenditure for R&D incurred thereon, deserves to be considered since inception, and that it would therefore, be entitled to claim deduction from AY 2011-12.

Analyzing the provisions of section 35 (2AB) of the Income Tax Act, a bench of Justices S Muralidhar and Prathibha M Patil noted that the purpose behind the said provision is obviously to encourage the establishment of R&D facilities in the country and also to encourage innovation and investment on innovation.

Allowing the petition, the bench said that it is the settled provision in law that for availing the benefit under Section 35 (2AB) of the Act what is relevant is not the date of recognition or the cutoff date mentioned in the certificate of the DSIR or even the date of approval but the existence of the recognition. “If a R&D Centre is not recognised it is not entitled to deduction but if it is recognised, it is entitled to the benefit. The Gujarat High Court in Claris Lifesciences (supra) has rightly observed that the date of approval of the R&D Centre, not being a part of the provision, extending benefit only from the date of recognition “amounts to reading more in the law which is not expressly provided“.

Read the full text of the Judgment below.

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