2015 (8) TMI 422 - HC - Income Tax

Weighted deduction under section 35(2AB) - expenditure incurred in respect of research and development - Held that - The assessee has to develop facility by incurring expenditure for scientific research and he will have to file application before the prescribed authority, who after following the proper procedure, will allow the application or otherwise and the assessee would be entitled for weighted deduction in respect of all expenditure so incurred. The provision nowhere suggests or implies that machinery is required to be installed and commissioned before the expiry of the relevant previous year. The provision postulates approval of research and development facility, which implies that a development facility shall be in existence, which in turn, presupposes that the assessee must have incurred expenditure in this behalf. The Appellate Tribunal has rightly concluded that in case if the interpretation of the Assessing Officer is accepted, it creates absurdity in the provision inasmuch as the words which are not provided in the statute are to be read into, which is against the settled proposition of law with regard to plain and simple meaning of the provision. The plain and homogenous reading of the provisions would suggest that the entire expenditure incurred in respect of research and development has to be allowed for weighted deduction under section 35(2AB) of the Act. Even on facts, it has been found by the Assessing Officer that an installation certificate had been issued on March 31, 2004, by one Mr. Virupaksha (concerned officer) evidencing that three scientific machines were installed. Hence, we do not find any ground to interfere with the orders passed by the Income-tax Appellate Tribunal to held that the Assessing Officer is not justified in not allowing the weighted deduction under section 35(2AB) of the Act - Decided against revenue.

Summary

Issues: Interpretation of section 35(2AB) of the Income-tax Act, 1961 regarding weighted deduction for expenditure on machinery not installed and commissioned.

In this judgment by the Karnataka High Court, the issue revolved around the interpretation of section 35(2AB) of the Income-tax Act, 1961, concerning the allowance of weighted deduction for expenditure on machinery not installed and commissioned. The assessee, engaged in the manufacture of enzymes and pharmaceutical ingredients, claimed a deduction for expenditure on machinery amounting to &8377; 7,82,25,431 during the assessment year 2003-04. The Assessing Officer disallowed the deduction as the machinery was not installed and commissioned. However, both the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal disagreed with the Assessing Officer's conclusion, stating that the plain reading of the provision did not require machinery to be installed and commissioned before claiming the deduction.

The High Court analyzed the provision of section 35(2AB) which requires the development of facilities, incurring of expenditure for such development, approval by the prescribed authority (DSIR), and allowance of weighted deduction on the expenditure incurred. The court emphasized that the provision does not explicitly mandate machinery installation and commissioning before claiming the deduction. It was highlighted that the interpretation by the Assessing Officer, if accepted, would introduce words not provided in the statute, contrary to the settled legal principle of interpreting provisions based on their plain and simple meaning.

Moreover, the court noted that an installation certificate for the machinery was issued before the end of the relevant previous year, further supporting the assessee's claim for the deduction. Consequently, the High Court upheld the decisions of the lower authorities, dismissing the appeal and concluding that no substantial question of law was involved in the matter. The judgment clarified that the entire expenditure incurred for research and development should be allowed for weighted deduction under section 35(2AB) of the Income-tax Act, irrespective of machinery installation and commissioning status.