The Tax Publishers2020 TaxPub(DT) 1564 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 35(2AB),

Merely because prescribed authority segregated the expenditure into two parts, namely, those incurred within in-house facility and those were incurred outside, by itself would not be, sufficient to deny the benefit to assessee under section 35(2AB) because extensive clinical trials would be an intrinsic part of development of any such new pharmaceutical drug and it cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company.

Business deduction under section 35(2AB) - Research and development expenditure - Disallowance on the ground of assessee having carried out certain expenditures outside the in-house R&D center -

Assessee claimed deduction under section 35(2AB) in respect of research and development expenditure. AO disallowed deduction on the ground that assessee had carried out certain expenditures outside the in-house R&D center. Held: Extensive clinical trials would be an intrinsic part of development of any such new pharmaceutical drug. It cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company. If one gives such restricted meaning to the term expenditure incurred on in house research and development facility, one would on one hand be completely diluting the deduction envisaged under sub-section (2AB) of section 35 and on the other, making Explanation to section 35(2AB)(1) quite meaningless.The activities of obtaining approval of the authority and filing of an application for patent necessarily would be outside the in-house research facility. Thus restricted meaning suggested by AO could not be applied. Merely because prescribed authority segregated the expenditure into two parts, namely, those incurred within in-house facility and those were incurred outside, by itself would not be sufficient to deny the benefit to assessee under section 35(2AB).

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

INCOME TAX ACT, 1961

Section 32(1)(ii)

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT