A Comprehensive Guide to Section 35AC of the Income Tax Act 1961 & Related Rule 11L Applications
Introduction
Section 35AC of The Income Tax Act, 1961 is concerned with the deduction of certain amounts spent for the purpose of the “promotion of science and technology”. This section has been prescribed in the Act since 1 April 1997, which is considered to be the date from which all the limits and exemptions mentioned in this section are applicable. In simple terms, section 35AC provides for deduction of a certain amount from the taxable income of the taxpayer, who makes an eligible expenditure for a specific project or scheme approved by the National Committee. This section is applicable to both individuals and organisations/associations.
What is Expenditure under Section 35AC?
Section 35AC of the Income Tax Act, 1961 provides for expenditure on certain eligible projects or schemes as approved by Central Government. The expenditure should be incurred either by the assessee or by an association or institution approved by the Central Government. The approved association or institution must be engaged in the promotion of science or technology and should be registered for a scientific or technological purpose. According to the provision of this section, the amount spent on such projects is allowed as deduction in the total taxable income of the assessee.
What are the Eligible Projects and Schemes under Section 35AC?
Some of the eligible projects and schemes that can be approved by Central Government and can be included in section 35AC of the Income Tax Act, 1961 are related to the following activities:
(i) Research and development related to science or technology of any industry or field of human knowledge.
(ii) Setting up of research laboratories, including university or scientific research laboratories, or both.
(iii) Setting up of Science Arts, Education or Research Trusts.
(iv) Setting up of industrial museums and centres for scientific activities.
(v) Setting up of any institution or association, for the promotion of science or technology.
(vi) Construction, modernization and repairs of any building, plant, machinery, equipment, apparatus or any works connected with such activities.
(vii) Purchase of books, periodicals, journals or apparatus related to science or technology, for use in the laboratory or any other similar facility.
(viii) Purchase of any building, plant or machinery, or equipment for use in the laboratory, or any other similar facility.
(ix) Setting up or purchase of computers or similar electronic equipment, for use in the laboratory or any other similar facility.
(x) Setting up of any center for promotion of science or technology, including university-level centers, research centers, hospitality centres, student bursaries, and the like.
(xi) Setting up of any institution, association, trust, or enterprise for the promotion of any art, literature, culture, sports, or any other form of scientific research or technological development.
Rule 11L – Application for Approval of a Project or Scheme by the National Committee
Rule 11L of the Income Tax Rules, 1962 provides the procedure for the application of approval of a project or scheme approved by the Central Government. The application should be made in Form 10B-C by the applicant carrying the required documents. The applicant should make a written application for approval of the project or scheme to the Central Government, which shall be scrutinised by the Central Government or the Committee set up by it for the purpose. The Committee shall then recommend, approve or reject the project or scheme after considering its merits.
The application should be made only when the association or institution meets the prescribed conditions under section 35AC of the Income Tax Act, 1961, and also when it is satisfied that the said works are helpful for the development of science or technology. The documents that the applicant should attach to the application form are as follows –
(i) A copy of the association/institution’s registration for any scientific or technological purpose.
(ii) A copy of the balance sheet of the association/institution.
(iii) Details of the project or scheme which is proposed to be approved by the Government or the Committee.
(iv) Details of the expenditure-wise breakdown of the proposed project or scheme.
(v) Details of the consultants or engineers, appointed by the association/institution for the purpose of the implementation of the project or scheme.
(vi) An undertaking from the applicant that all the funds which are provided shall be only utilized for the purpose of the project or scheme.
(vii) An undertaking from the applicant that the applicant shall be solely responsible for the proper management, implementation and operational aspects of the project or scheme.
(viii) An undertaking from the applicant that it shall adhere to the conditions mentioned in section 35AC of the Income Tax Act, 1961.
Once the application is approved by the Central Government or the Committee set up by it, the association/institution will be eligible to get the deduction of the amount spent for the purpose of the project or scheme.
Conclusion
Section 35AC of the Income Tax Act, 1961 provides for the deduction of certain amounts spent for the purpose of the promotion of science and technology. The eligible projects or schemes should be approved by the Central Government or the Committee by it, and should be in accordance with the conditions mentioned in the section. Rule 11L of the Income Tax Rules, 1962 provides the procedure for the application of approval of a project or scheme. It is important for the applicant to attach all the required documents with the application form, in order to obtain the approval of the project or scheme. Once the application is approved, the applicant will be eligible to get the deduction of the amount spent for the purpose of the project or scheme.
Moreover, it is important for the taxpayer to prove that the expenditure made for the purpose of the project or scheme under this section is reasonable and exclusive. This is essential to ensure that the taxpayer avails the benefit provided under section 35AC of the Income Tax Act, 1961.
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(Author can be reached at email address casharma.sharad2000@gmail.com or on Mobile No. 9990365673)
Disclaimer: “Neither this article nor the information contained herein shall in any way be construed as forming a contract or shall constitute professional advice required before acting upon any matter. CA Sharad Kumar Sharma has taken all due care in the preparation of this article for accuracy in its contents at the time of publication. However, no liability shall be accepted by him in the event of any direct, indirect or consequential damages arising out of or in any way connected with the use of this article or its contents. “
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