2010 (3) TMI 1131 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) order regarding treatment of expenses paid to Trade Mark Attorneys and weighted deduction u/s 35(2AB)(1) for clinical trials outside approved R&D labs.

Issue 1 - Treatment of expenses paid to Trade Mark Attorneys:

The Revenue appealed against CIT(A) order directing to treat expenses paid to Trade Mark Attorneys as revenue expenditure. The Revenue argued that the expenses should be treated as capital expenditure, while the assessee contended that it is revenue expenditure necessary for regulatory requirements. CIT(A) directed to withdraw depreciation and allow the expenses as business expenditure, citing ITAT orders and Supreme Court decisions. The ITAT upheld CIT(A) decision based on consistency with earlier years and legal precedents, rejecting Revenue's appeal.

Issue 2 - Weighted deduction u/s 35(2AB)(1) for clinical trials outside approved R&D labs:

The second ground of appeal was against allowing weighted deduction u/s 35(2AB)(1) for expenses incurred on clinical trials outside approved R&D labs. The Revenue disallowed 50% of the claimed deduction as the expenses were not incurred inside approved facilities. CIT(A) accepted the assessee's claim, but the ITAT held that the weighted deduction is only available for expenses on in-house research and development facility as approved by the prescribed authority. The ITAT referred to the language of the section and Explanation, concluding that expenses on clinical trials outside approved facilities do not qualify for the deduction. The ITAT reversed CIT(A) order based on legal interpretation, upholding Revenue's appeal partially.