Prototypes Development Cost can be claimed as R&D cost u/s 35

Prototypes Development Cost can be claimed as R&D cost u/s 35

Someone Asked on This Blog

Can we consider prototype costs as R&D costs? If so, any guidelines as to how many initial productions we can consider as prototypes?

From: san-bw@........com

Yes, in my view you can claim the expenditure on development of prototype of a product if really you can make out a case to show that you had do the research for development of prototypes.You can take help of favourable decision of Indore Bench of Tribunal in Printers House (P.) Ltd. V. Income-tax Officer [2 ITD 235] wherein it was held

"As already stated, in several letters written to the ITO, the assessee had given full details of scientific research activity which had eventually resulted in the development of the assessee's own web-effect machinery. It was not as if the assessee had merely copied the prototype. If the assessee had done so it would have been an infringement of the patent law. However, the prototype, based on the specifications of USA, did not suit Indian conditions and, therefore, it had to be suitably modified. After dismantling the machine, and a detailed study and research by the assessee-company's own Research and Development cell, a new machine was evolved which was suitable for Indian conditions. This being the factual position, we hold that the learned Commissioner proceeded on the incorrect basis that the assessee had merely copied the prototype and, therefore, no scientific research research was involved."

How many prototypes

Prototypes are working models of entrepreneurial ideas for new products. Hence , how many initial production we can consider as prototypes also depends on the fact that how many numbers of new products you are launching . Even in case of one product , many numbers of prototypes can be allowed if the same products have different types and for each product , you can make your case that separate development of prototypes are involved.

Please remember prototypes are not SAMPLES for marketing.What is allowed under Section 35 are the expenditure on scientific research and not the expenditure on making copies of one prototypes for development of your market.