Section 45(3)(b) of the Income Tax Act, 2025 provides a deduction for sums paid to a company which is registered in India, having the main object of scientific research and development, and approved by the prescribed authority. Understanding the approval process is essential for companies seeking to claim this deduction and for donors making contributions.
The Scope of the Provision
Section 45(3)(b) allows deduction for sums paid to【35†L3-L5】:
- A company: Which is registered in India
- Main object: Having the main object of scientific research and development
- Approval: Approved by such authority, for the purposes of this clause in such manner and subject to such conditions, as may be prescribed
The Prescribed Authority
For the purposes of Section 45(3)(b), the prescribed authority shall be the Chief Commissioner of Income-tax having jurisdiction over the applicant【35†L3】.
Approval Process
Application
An application for approval under Section 45(3)(b) by a company shall be made in Form No. 17 to the Commissioner of Income-tax having jurisdiction over the applicant【35†L8-L10】. The application may be made:
- At any time during the financial year immediately preceding the tax year from which the approval is sought【35†L10-L11】
- Where approval is sought from the tax year 2026-27, at any time during the said tax year【35†L12-L14】
- Where approval is sought from the tax year in which the applicant is incorporated, at any time during the said tax year【35†L12-L14】
Verification
The person who is authorised to verify the return of income under section 265, as applicable to the applicant, shall verify Form No. 17【35†L16-L17】.
Scrutiny
If the application form is complete in all respects, the Commissioner of Income-tax may make such inquiry as he may consider necessary regarding the genuineness of the activity of the company and send his recommendation to the Chief Commissioner of Income-tax, for grant of approval or rejection of the application, before the expiry of the period of three months from the end of the quarter in which the application was received in his office【35†L37-L41】.
Approval
The Chief Commissioner of Income-tax may pass an order granting approval to the company, or for reasons to be recorded in writing, reject the application【35†L43-L44】. The order shall be passed within a period of twelve months from the end of the quarter in which the application was received in the Office of the Chief Commissioner of Income-tax【35†L22-L24】.
Validity
Any order passed by the Chief Commissioner of Income-tax under this rule shall, at any one time, have effect for such tax year or years, not exceeding five tax years, as may be specified in the order【35†L59-L61】.
Renewal
The applicant may, at least three months before the expiry of the effective period of the order, make a fresh application to the Commissioner of Income-tax having jurisdiction over the applicant【35†L63-L65】.
Conditions for Approval
Use of Funds
The sum paid to the company shall be used for scientific research【35†L70】.
Research Activity
The applicant company shall carry on scientific research through its own employees using its own assets【35†L71】.
Separate Books of Account
A company approved under Section 45(3)(b) shall maintain separate books of account in respect of the sums received by it for scientific research, reflect therein the amount used for carrying on research【35†L72-L74】.
Audit
The books of account shall be audited by an accountant and the report of such audit duly signed and verified by such accountant shall be furnished to the Commissioner of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under section 263(1)(c)【35†L74-L78】.
Statement of Donations
The company shall maintain a separate statement of donations received and the amount used for research. A copy of such statement duly certified by the auditor shall accompany the report of audit【35†L79-L81】.
Annual Statement
Subsequent to approval, the company shall, every year, by the due date of furnishing the return of income under section 263(1)(c), furnish a statement to the Commissioner of Income-tax having jurisdiction over the case containing【35†L82-L91】:
- A detailed note on the research work undertaken by it during the tax year
- A summary of research articles published in national or international journals during the tax year
- Any patents or other similar rights applied for or registered during the tax year
- Programme of research projects to be undertaken during the forthcoming year and the financial allocation for such subjects
Withdrawal of Approval
Grounds for Withdrawal
The Chief Commissioner of Income-tax may withdraw the approval if he is satisfied that【35†L46-L48】:
- The company has ceased to carry on its activities
- Its activities are not genuine
- Its activities are not being carried on in accordance with all or any of the conditions
Procedure for Withdrawal
No order withdrawing the approval shall be passed without giving a reasonable opportunity of being heard【35†L53-L54】.
Communication
A copy of the order withdrawing the approval shall be communicated to【35†L55-L57】:
- The applicant
- The Assessing Officer
- The Commissioner of Income-tax
Expert Legal Guidance
Understanding the approval process and conditions for company-sponsored scientific research is essential for companies seeking to claim the deduction. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping companies navigate the approval process and maintain compliance.