1991 (4) TMI 49 - HC - Income Tax

Summary

Issues Involved:
1. Deductibility of payment to National Chemical Laboratory for research under section 37(1) or section 35(1)(ii) of the Income-tax Act, 1961.
2. Claim for deduction of gratuity liability under section 40A(7) of the Income-tax Act, 1961.

Issue 1 - Payment to National Chemical Laboratory for Research:
The assessee paid Rs. 1,12,715 to the National Chemical Laboratory for research on manufacturing anhydrous aluminium chloride from bauxite. Initially claimed deduction under section 35(1)(ii) but also contended it was allowable under section 37. Income-tax Officer rejected the claim as the laboratory was not an approved institution under section 35(1)(ii). Appellate Assistant Commissioner remanded for verification but rejected the claim under section 37. Tribunal found the contribution for research fell under section 35 and not deductible under section 37(1). Court held that if expenditure does not fall under sections 30 to 36, it can be considered under section 37. Without a clear finding that the expenditure falls under earlier sections, it cannot be denied under section 37. Answered the reframed question in the negative and in favor of the assessee, allowing further consideration by the Tribunal.

Issue 2 - Deduction of Gratuity Liability:
In light of the Supreme Court decision in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585, the question of deduction of gratuity liability under section 40A(7) is to be answered in the affirmative and in favor of the Revenue. No costs were awarded in this judgment.