1995 (4) TMI 28 - HC - Income Tax

Capital Asset Expenditure Incurred Question Of Law Scientific Research Expenditure Setting Up

Summary

Issues:
1. Deduction claim under section 35(1)(iv) for property at Spur Tank Road, Madras.
2. Deduction claim under section 35(1)(iv) for land in Gujarat.

Analysis:

Issue 1: Deduction claim for property at Spur Tank Road, Madras
The petitioner, a company engaged in manufacturing pesticides and chemicals, claimed a deduction of Rs. 59,88,893 under section 35(1)(iv) of the Income-tax Act, 1961, for a property at Spur Tank Road, Madras, intended for a research laboratory. The Income-tax Officer disallowed the claim citing non-utilization for research purposes and partial administrative use. The Commissioner of Income-tax (Appeals) and the Appellate Tribunal upheld this decision, as the petitioner failed to prove the property was purchased for research purposes. The Tribunal concluded that the petitioner did not establish the property's intended use for research and development, as evidenced by the lack of supporting evidence beyond the petitioner's statement. Additionally, the Income-tax Officer noted administrative use of a portion of the property, further weakening the claim. Consequently, the Tribunal denied the deduction claim for the property at Spur Tank Road, Madras.

Issue 2: Deduction claim for land in Gujarat
The petitioner also claimed a deduction of Rs. 42,67,554 under section 35(1)(iv) for ten acres of land in Gujarat, intended for a scientific research unit. However, the Income-tax Officer disallowed the claim, stating the land was not acquired, and no research activities were conducted on it. The Commissioner of Income-tax (Appeals) and the Appellate Tribunal concurred with this decision. The petitioner argued possession of the land under section 53 of the Transfer of Property Act should qualify for the deduction. Nevertheless, the Tribunal found no evidence presented to prove the land's use for research and development purposes. Consequently, the Tribunal upheld the decision to disallow the deduction claim for the land in Gujarat. As the Tribunal's conclusions were based on factual assessments, no legal questions arose from the Tribunal's order as suggested by the petitioner. Therefore, the petition was dismissed.

This judgment highlights the importance of providing substantial evidence to support deduction claims under section 35(1)(iv) of the Income-tax Act, 1961. Failure to establish the intended use of properties for research and development purposes can lead to disallowance of deduction claims, as evidenced by the decisions made in this case.