Deduction towards CSR Expenditure for scientific research allowed U/s 35 as it is covered by Section 35 which is independent and are not overridden by Explanation 2.
In a significant ruling, the Bombay High Court has held that CSR expenditure incurred by Lupin Ltd. towards scientific research is eligible for deduction under Section 35(1)(ii) of the Income-tax Act, 1961.
Let us have a Short Overview of the case:
Facts:
Lupin Ltd. had donated ₹3.13 crore to Sankara Nethralaya, an approved institution for scientific research. The donation formed part of the company’s mandatory Corporate Social Responsibility (CSR) spend under the Companies Act, 2013. The Assessing Officer and the CIT(A) disallowed the deduction, relying on Explanation 2 to Section 37(1), which prohibits deduction of expenses incurred for CSR.
Arguments:
Lupin argued that Section 35(1)(ii), which allows 100% deduction for contributions to approved research institutions, is a specific provision and cannot be overridden by the general restriction in Section 37(1). The CBDT itself had clarified in Circular No. 1/2020 that only claims under Section 37(1) would be hit by the CSR bar, not other specific deduction sections.
Verdict:
The Bombay High Court agreed. It ruled that:
Explanation 2 to Section 37(1) only disallows CSR expenditure claimed under that section.
Deductions under Section 35 are governed independently and are not overridden by Explanation 2.
The donation qualified under Section 35(1)(ii) as it was to an approved institution, and hence was rightly allowable.
With this, the court held that CSR expenditure incurred by Lupin Ltd. towards scientific research is eligible for deduction under Section 35(1)(ii) of the Income-tax Act, 1961.
The copy of the order is as under:
