2002 (9) TMI 45 - HC - Income Tax

whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in holding that the applicant would not be eligible for deduction under section 35(1)(iv) of the Income-tax Act, 1961, in relation to the two sums of ₹ 5,87,044 and ₹ 5,16,853 in view of the same having been claimed under section 35(2B) and in spite of the same having been disallowed under the said section. We, answer the question referred to us in favour of the Revenue and against the assessee.

Summary

Issues:
1. Eligibility for deduction under section 35(1)(iv) of the Income-tax Act, 1961 in relation to specific sums.
2. Rejection of claim for deduction under section 35(2B) and its impact on eligibility under section 35(1)(iv).
3. Treatment of capital expenditure on scientific research under sections 35(1)(iv) and 35(2B).
4. Claiming depreciation on assets used for scientific research and its impact on deductions under different sections.
5. Interpretation of statutory provisions regarding double deductions for the same business expenditure.

Analysis:
1. The case involved a question of eligibility for deduction under section 35(1)(iv) of the Income-tax Act, 1961 concerning two specific sums. The Tribunal held that the applicant would not be eligible for deduction under section 35(1)(iv) in relation to the sums claimed under section 35(2B, which were disallowed. The Tribunal's decision was based on the rejection of the claim for deduction under section 35(2B and the subsequent disallowance under section 35(1)(iv) due to the asset not being purchased in the relevant accounting year.

2. Regarding the rejection of the claim for deduction under section 35(2B, the Tribunal erred in concluding that a claim under section 35(2B) cannot be considered even if a portion of it falls under section 35(1)(iv). However, the Tribunal's decision to disallow the sum under section 35(1)(iv) for that assessment year was upheld. The approval of the prescribed authority under section 35(2B is not a prerequisite for claiming the allowance under section 35(1)(iv) if the expenditure is of a capital nature and related to scientific research for the business.

3. Section 35 of the Act deals with expenditure on scientific research, with section 35(1)(iv) referring to capital expenditure on scientific research related to the business. On the other hand, section 35(2B) pertains to expenditure on scientific research approved by the prescribed authority, excluding capital expenditure on land or building acquisition. Capital expenditure on land or building can be claimed under section 35(1)(iv) if related to scientific research for the business, even if not approved under section 35(2B.

4. The Tribunal also addressed the issue of claiming depreciation on assets used for scientific research, emphasizing that after fully depreciating assets under section 32, the benefit of section 35(2B) cannot be claimed. The principle against double deductions for the same business expenditure was highlighted, citing the Supreme Court's observation in a previous case regarding legislative intent to avoid double deductions unless expressly provided for in the statute.

5. In conclusion, the court ruled in favor of the Revenue, emphasizing that the special allowance for scientific research under section 35 should be granted instead of routine depreciation, ensuring that no double deductions are permitted unless explicitly stated in the statute. This decision clarified the interpretation of statutory provisions to prevent double deductions for the same business expenditure, affirming the importance of adherence to legislative intent in tax deductions.