A weighted deduction for R&D requires prior DSIR approval and agreement; it cannot be claimed retrospectively for past years before these conditions are met.

Issue

Is a company entitled to claim a weighted deduction for its in-house R&D expenditure under Section 35(2AB) of the Income-tax Act, 1961, for a particular assessment year if the mandatory agreement and approval from the prescribed authority (DSIR) were only obtained after that assessment year had already ended?

Facts

An assessee-company claimed a weighted deduction for its in-house R&D expenses under Section 35(2AB) for the Assessment Years 2006-07 and 2007-08.
To be eligible for this special deduction, the law requires that the company must have an in-house R&D facility that is approved by the DSIR and, critically, must have entered into an agreement with the DSIR.
In this case, the assessee only entered into the mandatory agreement with the DSIR on August 21, 2008.
The formal approval for the R&D facility was granted even later, on June 17, 2009 (although this approval was stated to be effective from April 1, 2007).
The Assessing Officer and the High Court both denied the deduction for AY 2006-07 and 2007-08 because these key conditions were not met during those years. The assessee then took the matter to the Supreme Court.

Decision

The Supreme Court ruled in favour of the revenue, dismissing the assessee’s appeal.

It upheld the High Court’s finding that entering into an agreement with the DSIR is a “condition precedent” for claiming the deduction. This means the condition must be fulfilled before the deduction can be claimed.
Since this crucial condition of having an agreement was only fulfilled on August 21, 2008—which is long after the end of the financial years relevant to AY 2006-07 and 2007-08—the assessee was not entitled to the weighted deduction for those past years.

Key Takeways

“Conditions Precedent” Must Be Met First: When the law lays down “conditions precedent” for claiming a special deduction or benefit, these conditions must be strictly and timely fulfilled. You cannot claim the benefit for a period and then meet the conditions for it later.
No Retrospective Benefit for R&D Deduction: The approval and agreement for the R&D deduction under Section 35(2AB) operate prospectively from the date they are granted. Even if an approval letter mentions an earlier “effective date,” it cannot retroactively grant a benefit for past years where the statutory conditions were not actually met.
The Agreement and Approval are Both Mandatory: The law requires both the R&D facility to be approved and a formal agreement to be entered into. Fulfilling only one of these conditions, or fulfilling them late, is not sufficient to claim the deduction.
Incentive Provisions are Interpreted Strictly: While incentive provisions like Section 35(2AB) are meant to encourage activities like R&D, the conditions for availing such powerful tax incentives (like a weighted deduction) are typically interpreted strictly by the courts. Taxpayers must ensure all procedural and substantive requirements are met in a timely manner.

SUPREME COURT OF INDIA

Apollo Tyres Ltd.

Assistant Commissioner of Income–tax

SURYA KANT, Ujjal Bhuyan and Nongmeikapam Kotiswar Singh, JJ.

SLP Appeal (C) No(s).21096-21097 of 2021

SEPTEMBER 17, 2025

Joseph Markos, Sr. Adv., Atul Shankar Vinod, Dileep Pillai, Kannan Gopal Vinod, Advs. and M.P. Vinod, AOR for the Petitioner. S. Dwarakanath, A.S.G., Mrs. Nisha Bagchi, Sr. Adv., Raj Bahadur Yadav, AOR, Sumit Teterwal, Keshav Thakur, Vishnu Shankar Jain and Digvijay Dam, Advs. for the Respondent.

ORDER

1. We have heard learned Senior Counsel for the petitioner and carefully perused the material placed on record.

2. In light of the fact that the Writ Petition filed by the petitioner came to be dismissed by the Division Bench of the Delhi High Court on 20.04.2010, against which the Special Leave Petition (C).CC No.419/2015, refiled after an inordinate delay of 1251 days, was also dismissed by this Court, it is difficult to re-open the case.

3. The Special Leave Petitions are, accordingly, dismissed.

Joseph Markose, (SR), V. Abraham Markos, Abraham Joseph Markos, Isaac Thomas, P.G. Chandapillai Abraham, Vipin Anto H.M., Alexander Joseph Markos and Sharad Joseph Kodanthara, Advs. for the Appellant. Christopher Abraham, Adv. for the Respondent.

JUDGMENT

S.V. Bhatti, J. – Heard Senior Counsel Mr. Joseph Markos and Standing Counsel Mr. Christopher Abraham for parties.

2. M/s. Apollo Tyres Ltd Kochi/Assessee is the appellant. The Assistant Commissioner of Income Tax, Circle-1(1), Kochi/Revenue is the respondent in both the appeals.

2.1 The assessee, being aggrieved by the order of the Tribunal and the authorities under section 35(2AB) of the Income-tax Act, 1961 (for short ‘the Act’) filed the instant two appeals. The details of the Assessment Years, Orders etc are stated in the following tabular form:

Sl. No.	Assessment Year & Date of Assessment Order	Order of Commissioner of Income Tax	Income Tax Appellate Tribunal	ITA No.
1	2006-07; dtd.31-3-2015	ITA NO.44/R-1/E/CIT(A)-I/2015-16 DT.26-3-2018	ITA NO.339/COCH/2018 DTD 21-3-2019	225/2019
2	2007-08; dtd.31-3-2015	ITA NO.43/R-1/CIT(A)-I/2015-16 DT.31-3-2017	ITA NO.249/COCH/2018 DTD 21-3-2019	238/2019

2.2 The appeals are admitted on the following substantial question of law.

“Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in confirming the disallowance of deduction under section 35(2AB) of the Income-tax Act?”

The circumstances noted by the Assessing Officer in ITA No. 225/2019 in respect of the present controversy are referred to and the same would be sufficient for consideration and disposing of the other appeal as well.

ITA No. 225/2019

3. The assessee has set up two in-house Research and Development (R&D) facilities, one at Perambra (Cochin) and another at Limda (Vadodara). The facilities are recognized by the Government of India, Ministry of Science and Technology, and Department of Scientific and Industrial Research (DSIR). The R&D facility at Perambra was granted recognition by DSIR in 1987 and the R&D facility at Limda was granted recognition in the year 2001. The assessee has been claiming admissible deduction, i.e., the revenue and capital expenditure incurred by the assessee for maintaining and running the R&D facilities, under section 35(1)(i) and (2)(ia) of the Act. The issue now turns us to the entitlement of weighted deduction at 150% under section 35(2AB). The assessee, on 12-11-2008, applied to the competent authority for approval. The DSIR, vide letter dated 17-6-2009, granted approval for the period 1-4-2007 to 31-3-2010 by incorporating the following condition:

“The above Research and Development facility is approved for the purpose of section 35(2AB) from 1-4-2007 to 31-3-2010, subject to the conditions underlined therein (approval for Financial Year 2007-08 is recommended only for the purpose of claiming weight deduction on capital expenditure on R&D equipment).”

3.1 The Assessing Officer noted that on 21-8-2008 the agreement stipulated by clause (3) of section 35(2AB) of the Act was entered into by the assessee. Therefore, the important stipulation for availing weighted deduction has been complied with on 21-8-2008. The Assessing Officer for two reasons declined the deduction claimed by the assessee under section 35(2AB), namely the assessee has not filed revised return claiming the weighted deduction for the subject Assessment Year, and that the agreement with the Department, which is a condition precedent, was entered into subsequent to the Financial Year during which the deduction is claimed. Therefore, the assessee is not entitled to the weighted deduction of 150% under section 35(2AB). The Commissioner of Income-tax (Appeals) and the Tribunal have confirmed the findings recorded by the Assessing Officer. Hence the Tax Appeal.

4. Before adverting to other circumstances, it is contextual to refer to the judgment dated 20-4-2010 of Delhi High Court in assessee’s own case in Apollo Tyres Ltd. v. Union of India W.P. (C) No. 13338/2009, which has bearing on the consideration of the substantial question raised in the appeal. Briefly referred, the assessee in the said writ petition prayed for quashing the order dated 15-6-2009 wherein the approval was given with effect from 1-4-2007 to 31-3-2010 as against the claim for approval for the period 1-4-2004 to 31-3-2010. In other words, the assessee, after appreciating the effect of the order of the Department in granting the approval for the period 1-4-2007 to 31-3-2010, questioned the said order independently and invited the judgment dated 20-4-2010. The operative portion of the judgment reads thus:

“8. From the aforesaid two provisions of the said guidelines, it was pointed out by Mr. Chandhiok that, in the first instance, the approval to in- house research and development centres having valid recognition by the Department of Scientific and Industrial Research, would, as a normal rule, be considered from the first of April of the year in which the application is made in Form 3CK. He submitted that in the present case, the application in Form 3CK was made on 21-8-2008 and, therefore, in terms of these guidelines, the approval would normally have been granted from 1-4-2008. However, in view of the guideline prescribed in clause (vi) of para 6, a beneficial provision has been made so as to extend the approval of an in-house research and development centre to the previous year, but limited only to capital expenditure (excluding any capital expenditure on land and buildings). It is for this reason, according to Mr. Chandhiok, that the approval in Form 3CM granted on 15-6-2009 has been given with effect from 1-4-2007. It was also pointed out that it is because of these provisions, which are beneficial to the petitioner, that the benefit of weighted tax deduction for the year 2007-08, which is the year prior to the year of application, has been limited to capital expenditure (excluding expenditure on land and building). However, for the period subsequent to 1-4-2008, the petitioner would be entitled to the entire benefit as stipulated under section 35(2AB), both on the capital expenditure as well as on revenue expenditure, excluding, of course, the capital expenditure on land and building.

9. After having considered the arguments advanced by the counsel for the parties, we are inclined to accept the submissions made by Mr. Chandhiok on behalf of the respondent. While it may be true that, initially, the petitioner had obtained approval right upto 31-3-2010, but that approval would be relatable only to section 35(2AB) Before a company is entitled for deduction under the said sub-section (1), it must also enter into an agreement with the prescribed authority for co-operation in such research and development facility and for audit of accounts maintained for that facility. This is specifically stipulated in clause (3) of section 35(2AB) of the said Act. We find that the agreement was entered into only on 21-8-2008 when the petitioner made the application in Form 3CK. We have already mentioned that part ‘B’ of the said form comprises of the said agreement. Such an agreement is a condition precedent to the kind of approval, for the purposes of deduction, which the petitioner is seeking. This condition was only met on 21-8-2008. Therefore, the petitioner’s plea that it ought to have been granted approval with effect from 1-4-2004 and not with effect from 1-4-2007 is not acceptable. 10. Insofar as the plea that the approval has been granted for the financial year 2007-2008 only for capital expenditure and not revenue expenditure, is concerned, we agree with the submissions made by Mr. Chandhiok that the benefit would not have normally accrued to the petitioner for the financial year 2007-2008 because the approval would normally have been granted only in the year in which the application in form 3CK is made. If that were to be the case, then the petitioner could have got approval only with effect from 1-4-2008, It is only because of the beneficial provisions indicated in the guidelines that the benefit has been extended to the earlier year, being the financial year 2007-08, subject to the condition that such benefit would be limited only to the capital expenditure (excluding the capital expenditure on land and building). Thus, on this ground also, we feel that the petitioner has no case.”

5. The learned Senior Counsel appearing for the assessee informs the Court that the Special Leave Petition (SLP), filed against the judgment in Apollo Tyres Ltd. case (supra) with delay condonation petition, was pending during the assessment proceedings. Subsequently, the Supreme Court since did not condone the delay, the SLP was dismissed. Therefore, we are of the view that, for all purposes, the entitlement of assessee for availing benefit from 1-4-2004 is covered by the order dated 15-6-2009 of DSIR and the adjudication of the Delhi High Court in assessee’s own case, Apollo Tyres Ltd. case (supra) A few judgments are referred to for bringing home the argument that once recognition is granted, approval is not very essential and need not be considered for the reason that section 35(2AB) is an additional incentive or deduction provided by the Act. The claim is dependent on fulfilling the requirements of the section. This argument need not be considered for the reasons that the assessee, on the strength of a right in its favour or infirmity in the stipulation of period by DSIR, availed the writ remedy. The prayers of assessee were rejected. The result is that the conclusion recorded against the assessee by the judgment in Apollo Tyres Ltd. case (supra) bars the assessee from re-agitating the same issue in subject assessment proceedings. The request of the assessee was to give approval with effect from 1-4-2004. For available reasons, and now approved by the judgment in Apollo Tyres Ltd. case (supra) it has been granted with effect from 1-4-2007 to 31-3-2010. This conclusion is confirmed by the Delhi High Court. The effort of the assessee again is in respect of the very same Assessment Year for which a different conclusion is attempted to be invited from this Court. The argument for weighted depreciation is rightly rejected by all the authorities under the Act.

5.1 We are in agreement with the findings recorded by all the three authorities and are of the view that the substantial question of law, by following the judgment dated 20-4-2010 of the Delhi High Court in assessee’s own case in Apollo Tyres Ltd. case (supra) is answered in favour of the Revenue and against the assessee.

ITA No. 238/2019

6. By following the aforementioned discussions and the reasons, the substantial question framed in this appeal is answered in favour of the Revenue and against the Assessee.

Income Tax Appeals fail, accordingly dismissed. No order as to costs.