Delhi High Court Directs DSIR To Issue Report Quantifying Expenditure On Scientific Research Incurred By The Assessee

The Division Bench of Justices Manmohan and Manmeet Pritam Singh Arora observed that the DSIR is statutorily bound to issue the Form 3CL within 120 days in accordance with Rule 6(7A) (ba) of the Income Tax Rules, 1962, certifying the expenditure incurred by the assessee on its in-house R&D units.

In terms of the guidelines issued by the Department of Scientific and Industrial Research (DSIR), requiring in-house Research and Development (R&D) units to have valid 'recognition', the petitioner- SRF Ltd.'s in-house R&D units were granted recognition.

The petitioner submitted an application in terms of Rule 6(7A) (c) of the Income Tax Rules, 1962, for certification of the R&D expenditure incurred by it in respect to all its R&D units. The application was accompanied by the auditor's report and Form 3CLA. The DSIR failed to issue a report in Form 3CL, certifying the expenditure incurred by the petitioner on its in-house R&D units.

The petitioner filed writ petitions before the Delhi High Court, seeking directions to the DSIR to issue reports on the expenditure incurred by the petitioner in Form 3CL. The petitioner also sought a declaration declaring that the said expenditure incurred by the petitioner in the relevant assessment years were entitled to deduction under Section 35(2AB) of the Income Tax Act, 1961.

Section 35(2AB) (1) of the Income Tax Act provides that where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule, incurs any expenditure on scientific research on an in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred.

The petitioner SRF Ltd. submitted before the High Court that as per Section 35(2AB) (3), no company shall be entitled to deduction, unless it has entered into an agreement with DSIR for cooperation in R&D facility, which in terms of Rule 6(4) has to be in Form 3CK. The petitioner added that the DSIR, on being satisfied that all the necessary conditions are met, is required to pass an order of approval in Form 3CM under Rule 6(5A) of the Income Tax Rules. The petitioner further added that under Section 35 AB (4) read with Rule 6(7A) (c), the assessee/petitioner is required to furnish the audit report in Form 3CLA to DSIR.

The petitioner averred that the DSIR is required to submit a report in Form 3CL under Rule 6(7A) (b) of the Income Tax Rules to the Principal Commissioner of Income Tax or the Chief Commissioner of Income Tax, quantifying the expenditure on scientific research incurred by the assessee on in-house R&D units.

The petitioner submitted that in the absence of the report furnished in Form 3CL by the DSIR, the deductions claimed by the petitioner under Section 35(2AB) of the Income Tax Act would be denied.

The Union of India contended that the petitioner has challenged the quantification of the amount eligible for deduction with respect to certain assessment years, by filing a writ petition (W.P. (C) No. 1772/2018) before the Delhi High Court, and that the DSIR has not initiated the process of issuing Form 3CL to the petitioner since the High Court in that case had not issued any directions to issue the said Form.

The Court ruled that the DSIR is statutorily bound to issue the Form 3CL within 120 days in accordance with Rule 6(7A) (ba) of the Income Tax Rules. The Court further observed that the Delhi High Court in that case had not restrained the DSIR from issuing Form 3CL for any other assessment year.

The Court, thus directed the DSIR to issue reports on the expenditure incurred by the petitioner for the relevant assessment years in Form 3CL within six weeks.

Hence, the Court allowed the writ petition.

Case Title: SRF Ltd. versus Union of India

Citation: Citation: 2022 LiveLaw (Del) 714

Dated: 14.07.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Satyen Sethi and Mr.Arta Trana Panda, Advocates.

Counsel for the Respondents: Mr. Naginder Benipal, Senior Panel Counsel for Union of India/Respondent No. 1 along with Mr. Ankit Siwach, Advocate. Ms. Vibhooti Malhotra, Senior Standing Counsel for Revenue along with Mr. Udit Sharma, Advocate.

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