1992 (11) TMI 34 - HC - Income Tax

Summary

Issues:
Interpretation of section 80J in relation to capital computation for scientific research expenditure under section 35 of the Income-tax Act, 1961.

Analysis:
The High Court of BOMBAY deliberated on a reference under section 256(1) of the Income-tax Act, 1961, regarding the inclusion of expenditure on plant and machinery utilized for scientific research in the capital computation for section 80J. The dispute arose from the Revenue's appeal against the Appellate Assistant Commissioner's direction to consider specific amounts in computing capital under rule 19A of the Income tax Rules, 1962 for the assessment years 1970-71 to 1972-73. The Tribunal upheld the Appellate Assistant Commissioner's decision, leading to the reference to the High Court for opinion.

Section 35(1)(iv) allows for deduction of capital expenditure on scientific research, with 100% deduction under section 35(2)(ia) for the relevant assessment years. Section 80J provides for deduction based on capital employed, and rule 19A outlines the computation of capital. The Court emphasized that the relief claimed under section 35 for scientific research expenditure is distinct from depreciation under section 32 and can be independently claimed alongside deduction under section 80J.

The Department argued that assets with 100% deduction under section 35 should be deemed nil for capital computation under rule 19A(2), a contention dismissed by the Court. Citing the Andhra Pradesh High Court's judgment, the Court affirmed that expenditure on scientific research, even with deduction, remains part of capital employed. Rule 19A(2) considers assets' written down value or actual cost, depending on depreciation eligibility, and as no depreciation was claimed by the assessee, the value at acquisition for business purposes should be considered.

Ultimately, the Court answered the referred question in favor of the assessee, highlighting the distinct nature of deductions under sections 35 and 80J. The judgment aligns with the principle that scientific research expenditure, even with deduction, forms part of the capital employed and must be considered in capital computation under rule 19A(2).

In conclusion, the Court's decision clarifies the treatment of scientific research expenditure in capital computation for tax deductions, emphasizing the independent nature of deductions under relevant sections of the Income-tax Act, 1961.