2011 (7) TMI 105 - HC - Income Tax

Computation of deduction u/s 080-I - Whether the Tribunal was right in holding that the Research and Development expenses ought to be deducted while computing the income derived from the New Industrial Undertaking for the payment of computing relief u/s 80HH and 80-I? - Revenue pointed out that in respect of the same assessee for the assessment years 1989-1990 and 1990-1991, this Court in its decision reported in M/s.Bush Boake Allen (India) Ltd Vs.The Assistant Commissioner of Income Tax (T.C.(A) No.548 of 2004), respectively, had set aside the order of the Tribunal and remitted the matter back to the Tribunal to consider whether there was research and development undertaken regarding the product that is manufactured at the Chithoor Unit - This Court pointed out that if the research did not pertain to the product manufactured at Chithoor, then the allocation of the expenses to Chithoor unit will be justified.

Summary

Issues:
1. Whether Research and Development expenses should be deducted while computing income for relief under Section 80HH and 80-I?
2. Whether Research and Development expenses are related to the profits derived by the unit eligible for relief under Section 80HH and 80-I?

Analysis:

Issue 1: The High Court considered the substantial question of law regarding the treatment of Research and Development expenses in the computation of income for relief under Section 80HH and 80-I for the assessment year 1991-92. The Court noted that in previous decisions for the same assessee in different assessment years, it was established that if the research did not pertain to the product manufactured at a specific unit, then the allocation of expenses to that unit would be justified. The Court referred to its earlier orders in similar cases and directed the Tribunal to reconsider whether there was research and development undertaken specifically related to the product manufactured at the Chithoor unit. Consequently, the Court set aside the Tribunal's order and remitted the matter back for fresh consideration.

Issue 2: In addressing the second issue raised by the assessee, the High Court reiterated its decision based on the earlier rulings regarding Research and Development expenses and their relevance to the profits derived by the unit eligible for relief under Section 80HH and 80-I. The Court emphasized the importance of the research being directly linked to the product manufactured at the unit in question. Following the precedent set in previous cases involving the same assessee, the Court allowed the appeal, setting aside the Tribunal's order, and directed a fresh consideration by the Tribunal on the matter. The Court's decision was in line with the principles established in prior judgments, ensuring consistency and adherence to legal precedents.

In conclusion, the High Court's judgment in this case focused on the treatment of Research and Development expenses in the context of computing income for relief under Section 80HH and 80-I. By following established legal principles and previous rulings, the Court provided clarity on the allocation of such expenses and the necessity for a direct connection between research activities and the products manufactured at the relevant unit. The decision underscored the importance of consistency in legal interpretation and application, ensuring fair and just outcomes in tax assessment matters.