Para 3 - CONDITIONS SUBJECT TO WHICH APPROVAL/ RENEWAL OF APPROVAL IS GIVEN: - Guidelines For Approval Of In-house R & D Centres 2016 (Updated 2017)

CONDITIONS SUBJECT TO WHICH APPROVAL/ RENEWAL OF APPROVAL IS GIVEN: 4. The approval is subject to the following conditions: i) The company should have necessary valid permits / licences, if these are required, from statutory authorities for its operations and for setting up the in-house R D centre at the location where the R D centre exists and the same should be renewed from time to time as required by the said authorities. ii) In case the company has applied to the Prescribed Authority for approval of more than one in-house R D centre under section 35(2AB) of the I.T.Act, each of such centres should have a valid recognition by DSIR. iii) Company shall not claim deduction in respect of the expenditure written off under Section 35(2AB) under any other provision of the IT Act. iv) The company should also submit an undertaking as per Part C of Form No. 3CK to maintain separate accounts for each R D centre approved under Section 35(2AB) by the Prescribed Authority, and to get the accounts duly audited every year by an Auditor as defined in sub-section (2) of section 288 of the IT Act 1961. (The statutory auditors of the Company should audit the R D accounts. To facilitate this audit separate books of accounts for R D should be maintained. Also, the statutory auditors should sign the auditors certificate in the details required to be submitted as per Section-C of the guidelines to facilitate submission of Report in Form 3CL). v) The company should enter into an agreement with the Prescribed Authority (Secretary, DSIR) for co-operation in such research and development facility and for audit of the accounts maintained for that facility, as per format given in Part B of Form 3CK. Note: The word co-operation shall, inter-alia, mean that the first party shall be willing to undertake projects of national importance, as may be assigned to it by the Prescribed Authority, on its own, or in association with laboratories of CSIR, ICAR, ICMR, DRDO; DBT, MCIT, M/O Environment, DOD, DAE, Department of Space, Universities, Colleges or any other public funded institution(s). The First Party would be free to exploit the results of such R D projects, subject however, to any conditions which may be imposed by Government of India, in view of national security or in public interest . The company shall submit Undertaking on its Letter head to: a) Maintain separate accounts for each R D centre and to reflect the expenditures in schedules/notes to accounts in the Annual Report after getting the same duly audited by Statutory Auditors. b) That they do not manufacture any product listed in Schedule 11 of IT Act. vi) The audited accounts for each year maintained separately for each approved centre shall be furnished to the Secretary, Department of Scientific Industrial Research by 31st day of October of the succeeding year, along with information as per Annexure-IV of the Guidelines. vii) Assets acquired and products, if any emanating out of R D work done in approved facility, shall not be disposed off without approval of the Secretary, DSIR. Sales realisation arising out of the assets sold shall be offset against the R D expenditure of the R D Centre claimed under section 35(2AB) for the year in which such sales realisation accrues under section 35(2AB) of IT Act, 1961. Expenditure claimed for deduction under the subsection shall be reduced to that extent. viii) The R D facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature. ix) Expenditures, which are directly identifiable with approved R D facility only, shall be eligible for the weighted tax deduction. However, expenditure in R D on utilities which are supplied from a common source which includes services area or the pilot plant other than R D may be admissible, provided they are metered and subject to certification by a Chartered Accountant. x) Expenditure on manpower from departments, other than R D centre, such as manufacturing, quality control, tool room etc. and expenses incurred on manpower engaged in non R D activities such as attending consultation meetings, ascertaining customer choice/response to new products under development and other liaison work shall not qualify for deduction under section 35(2AB) of I.T. Act 1961. xi) Capital expenditure on R D, eligible for weighted deduction will include only plant and equipment or any other tangible item. Capitalized expenditure of intangible nature and expenditure reported as Capital Work In Progress (CWIP) will not be eligible for weighted deduction. Company to submit list of capital equipments, with date of purchase/installation cost. Vehicles purchased for reference testing purpose will not be admissible. xii) Grants/Gifts, donations, presents and payments obtained by the company for sponsored research in the approved in-house R D centres shall be shown as credit to the R D accounts for the purpose of Section 35(2AB) of I.T. Act, 1961, and the R D expenditure claimed for deduction under the sub-section shall be reduced to that extent. xiii) Expenditure of general nature, such as, expenditure on production, maintenance and quality control departments, manufacturing overheads/ depreciation/ interest/ lease rentals on manufacturing/ quality control equipment, manpower expenditure in manufacturing/ service departments, head office expenditure, expenditure on security, guest house and canteen and other overheads of common nature, shall not be admissible under Section 35(2AB) of I.T. Act. The personnel with Degree / Diploma in Science or engineering discipline and above qualification will only be regarded as R D manpower eligible for weighted tax deduction. Manpower under the category of retainership / trainees/ consultants and manpower on contract (may include trainees based on employment status) will not be admissible for weighted tax deduction. xiv) The remunerations paid to the members of the board of Directors, should not be included in the R D expenditure for the purpose of Section 35 (2AB). xv) The R D expenditure should necessarily be reported in the audited financial statement prepared for the purpose of published annual report or to be filed with the Registrar as per Companies Act 2013. xvi) The approval by the Prescribed Authority of the R D facility for weighted tax deduction shall be subject to the provisions of I.T. Act, as amended from time to time. xvii) Any commercial and R D activity of the company should be in areas permitted by laws or rules and regulations in force and should be undertaken with due approvals from regulatory authorities wherever such approvals are necessary.