What is Section 35(4)?
For claiming deduction on account of deduction of capital expenditure on scientific research, it may be noted that the deduction of such capital expenditure shall be allowed to the extent of the profit chargeable for that previous year from that business. There cannot be a business loss due to such deduction, says section 35(4).
Therefore, if full effect cannot be given in a previous year on account of deduction of capital expenditure on scientific research owing to there being no profits or gains chargeable for that previous year or owing to profit being less than the expenditure, then such expenditure, which could not be absorbed, shall be known as unabsorbed capital expenditure on scientific research and subject to the following provisions of section 72(2) and section 73(3), it will be deemed to be an expenditure of scientific research for the succeeding previous year and so on.
According to Section 35(4) of the Income Tax Act, There can be a business loss due to deduction of revenue expenditure on scientific research but there cannot be a business loss due to deduction of capital expenditure on scientific research.
If capital expenditure on scientific research cannot be claimed as deduction due to insufficiency of business profit, the balance is known as unabsorbed capital expenditure on scientific research and its treatment shall be the same as in case of unabsorbed depreciation.