9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2008 (8) TMI 384 - AT - Income TaxDenial of exemption u/s 10B - Export Oriented Undertaking - Denial of deduction u/s 35(1)(iv) - - R D work for its parent company in USA - business of contract research and providing of laboratory facility - Denial of deduction u/s 80-IB(8A). Denial of exemption u/s 10B - Export Oriented Undertaking - R D work for its parent company in USA - business of contract research and providing of laboratory facility - HELD THAT - We observe that the benefit of exemption u/s 10B was denied to the assessee on the basis of letter of the Department of Information and Technology which clearly stated that the activities of the assessee were not covered under the IT/ITES (Information Technology Enabled Services). The ld. AR has not made any submission as to how the finding of the ld. CIT(A) in rejecting the benefit of exemption u/s 10B is incorrect. We therefore uphold the impugned order on this issue. This ground is not allowed. Denial of deduction u/s 35(1)(iv) - R D work for its parent company in USA - HELD THAT - We have perused the copy of profit and loss account of the assessee and noted that the major chunk of its income is the Product development charges at Rs. 4.50 crores from the parent company and the only other income is that of Rs. 24, 000 and odd. As against this income the assessee has claimed deduction for expenditure towards raw material consumption research and development expenses of revenue nature and administrative expenses - the ld. Counsel for the assessee has argued that it is covered u/s 35(1)(iv) r/w section 43(4)(iii)(a) - The harmonious construction of 35(1)(iv) and section 43(4)(iii)(a) provisions clearly indicates that there should be a business carried on by the assessee and the scientific research should relate to that business which is carried on by the assessee. It nowhere suggests that the business of carrying on scientific research is covered within the ambit of this provision - The contribution of the assessee s activity is facilitating the extension of business of Nostrum USA and not that of its own. The situation would have been otherwise if the assessee had been engaged in the pharmaceutical business and had utilized the scientific research carried out by it in its business of producing tablets etc. in which case it would have been qualified for deduction within four corners of this clause. In our considered opinion the ld. CIT(A) correctly proceeded in holding that the assessee is not eligible for deduction u/s 35(1)(iv). We therefore approve the view taken by him on this issue. This ground is not allowed - In the result the appeal is dismissed. Denial of deduction u/s 80-IB(8A) - In view of the denial of exemption u/s 10B the assessee requested the AO for the alternative claim of deduction u/s 80-IB(8A) during the course of assessment proceedings - HELD THAT - On going through the scheme of section 80-IB in totality we observe that the four conditions stipulated under sub-section (2) are to be fulfilled only if the eligible assessee is an industrial undertaking within the meaning of sub-sections (3) to (5) as the case may be. Since the instant assessee is engaged in the business of carrying out scientific research and development and has been approved by the Government of India for the benefit of deduction u/s 80-IB(8A) in our considered opinion the conditions of sub-section (2) are not required to be fulfilled by it. The ld. CIT(A) has interpreted section 80-IB in an inconsistent manner so as to cast such obligations on the assessee which have not been imposed by the statute. We therefore overturn the impugned order on this issue and direct the AO to allow deduction. In the result this appeal is partly allowed.
Issues Involved:
1. Denial of exemption under section 10B. 2. Denial of deduction under section 35(1)(iv). 3. Denial of deduction under section 80-IB(8A). Issue-wise Detailed Analysis: 1. Denial of Exemption under Section 10B: The assessee claimed exemption under section 10B, asserting that it was engaged in the business of contract research and providing laboratory facilities. The Assessing Officer (AO) denied the exemption, noting that the assessee was not manufacturing or exporting anything, but merely providing laboratory services to its parent company, Nostrum Pharmaceutical Inc., USA. The AO also highlighted that the assessee was not involved in the development or sale of computer software. The Department of Information Technology clarified that the assessee's activities did not fall under IT/ITES, leading to the denial of exemption. The CIT(A) upheld this decision. The Tribunal, after hearing both sides, agreed with the CIT(A), noting that the assessee failed to provide any substantial argument against the denial. Thus, the ground was not allowed. 2. Denial of Deduction under Section 35(1)(iv): The assessee claimed a deduction under section 35(1)(iv) for capital expenditure on scientific research. The AO denied the deduction, arguing that the assessee was not involved in manufacturing or selling medicinal drugs but was conducting research solely for its parent company. The AO cited the definition of "scientific research" under section 43(4)(iii) and a precedent from the Bombay High Court. The CIT(A) upheld this denial. The Tribunal examined the nature of the assessee's activities, which involved developing formulations for its parent company and not engaging in any manufacturing activity. The Tribunal concluded that the assessee's research did not contribute to its own business extension but facilitated the business of its parent company. Therefore, the Tribunal upheld the denial of deduction under section 35(1)(iv). 3. Denial of Deduction under Section 80-IB(8A): For the assessment year 2004-05, the assessee sought an alternative deduction under section 80-IB(8A) after the denial of exemption under section 10B. The AO rejected this claim, noting that the assessee did not claim this deduction in the initial assessment year and failed to produce a mandatory certificate in Form 10CCB. The CIT(A) disagreed with the AO's reasoning but denied the deduction on the grounds that the assessee did not manufacture or produce any article or thing, as required by section 80-IB(2)(iii). The Tribunal analyzed the provisions of section 80-IB and concluded that the conditions under sub-section (2) apply only to industrial undertakings, not to companies engaged in scientific research and development. Since the assessee was approved for deduction under section 80-IB(8A) by the Government of India, the Tribunal determined that the conditions of sub-section (2) were not applicable. Consequently, the Tribunal overturned the CIT(A)'s decision and directed the AO to allow the deduction under section 80-IB(8A). Conclusion: - The Tribunal upheld the denial of exemption under section 10B for both assessment years. - The Tribunal upheld the denial of deduction under section 35(1)(iv) for both assessment years. - The Tribunal reversed the denial of deduction under section 80-IB(8A) for the assessment year 2004-05 and directed the AO to allow the deduction.
|
