2008 (8) TMI 579 - HC - Income Tax

Deduction made under sec-tion 35AB(2) - assessee had set up in-house research and development facility and incurred capital and revenue expenditure - return filed by the assessee, it had claimed weighted deduction under section 35AB(2), i.e., at one and half times the expenses incurred on the entire expenditure incurred on establishment of the income of the facility - Assessing Officer held that as approval under section 35AB(2) has been granted with effect from February 27, 2001,disallowed the weighted deduction on the expenditure incurred before February 27, 2001 - approval letter by a note, it was mentioned that the facility approved for the purpose of section 35AB(2) - Held that - entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction - assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35AB(2) of the Act by the assessee - Appeal is dismissed

Summary

Issues:
Interpretation of section 35AB(2) of the Income-tax Act, 1961 regarding the eligibility of weighted deduction on expenditure incurred for in-house research and development facility.

Detailed Analysis:

1. Issue: Interpretation of Section 35AB(2)
The primary issue in this case revolves around the interpretation of Section 35AB(2) of the Income-tax Act, 1961, concerning the eligibility of weighted deduction on expenditure incurred for an in-house research and development facility. The assessee had applied for approval from the Ministry of Science and Technology, and the approval was granted from a specific date. The Assessing Officer disallowed the deduction for expenditure incurred before the approval date. The Commissioner of Income-tax (Appeals) upheld this decision, leading the assessee to appeal before the Tribunal.

2. Tribunal's Decision and Legal Analysis
The Tribunal analyzed the legislative intent behind Section 35AB(2) to encourage research and development in the industrial sector. It emphasized that the provision does not specify that expenditure can only be claimed from the approval date onwards. The Tribunal highlighted that once the facility is approved, all expenditure incurred for its development is eligible for weighted deduction. It also considered Rule 6(5A) and Form No. 3CM, concluding that the entire expenditure on the development of the facility should be allowed for weighted deduction.

3. Court's Ruling and Conclusion
The High Court concurred with the Tribunal's reasoning, emphasizing that the legislative intent was to promote the development of research and development facilities by providing deductions for expenditure. The Court held that the assessee is entitled to claim weighted deduction for the entire expenditure incurred, as the approval was granted during the relevant assessment year. Consequently, the Court dismissed the appeal, stating that no substantial question of law arises from the Tribunal's order.

In conclusion, the judgment clarifies the interpretation of Section 35AB(2) and affirms that once a research and development facility is approved, all expenditure incurred for its development is eligible for weighted deduction, irrespective of the approval date.