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TMI Blog2012 (9) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit thereof to a third party. It can always grant a licence in respect of any patent or design to a third party. In that event, the other units would not derive any benefit in respect thereof. The presumption of a nexus between the R & D activities and the units is not well founded - in favour of assessee. - INCOME TAX APPEAL NO.8 OF 2007 - - - Dated:- 12-9-2012 - S.J. VAZIFDAR AND M.S. SANKLECHA, JJ. Ms.Asifa Khan for the Appellant. Mr.Suresh Kumar for the Respondent. JUDGMENT (PER S.J. VAZIFDAR, J) :- 1. This is an appeal under section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal dated 1.8.2006 in a group of Income Tax Appeals pertaining to various assessment years. The present appeal is against the order insofar as it relates to ITA No.1964/M/1997 and pertains to the assessment year 1993-1994. 2. By an order dated 3.3.2008, the Division Bench admitted the appeal on the following substantial questions of law :- 1) Whether, on the facts and in the circumstances of the case and in law the ITAT was justified in confirming the allocation of Research and Development expenses incurred by the Head Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I-A in respect of the said units. (C). The Commissioner of Income Tax (Appeals) and the Tribunal upheld the assessment order. The Tribunal held that the expenditure for the R D work in the head office had been incurred for the benefit of the manufacturing units ; that the head office was maintained for the benefit of the manufacturing units only and therefore, the expenditure incurred in the head office was for the benefit of the manufacturing units ; that the head office itself does not have any income except the income of manufacturing units and that the R D expenses incurred although for the development of new drugs were for the benefit of the assessee's manufacturing units. The Tribunal held that there was no justification for the claim that this expenditure ought not to be apportioned among the assessee's units. Incidentally, the CIT (A) had also observed that there was a composite fund of the assessee which comprised income from various units and expenditure even in respect of the units was incurred from this composite fund. Based on this the CIT (A) rejected the appellant's contention that the R D expenses incurred by the head office had nothing to do with the units. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no dispute that the assessee is entitled to the benefits of the provisions of sections 80-HH, 80-I and 80-IA. Section 80-I provides that where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains an amount equal to twenty per cent thereof. Section 80-IA provides that where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount specified therein. Section 80-HH provides that whether the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, there shall be in accordance with law and subject to the provisions of the section be allowed in computing the total income of the assessee a deduction from such profits and gains of an amount equal to 20% thereof. 9. While computing the profits and gains of the concerned undertaking, only expenses relating thereto can be deducted. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efrom cannot, in our view, be held to constitute a profit and gain derived from the assessee's industrial undertaking. The Supreme Court held that there must be for the application of the words derived from a direct nexus between the profits and gains and an industrial undertaking. Sections 80-I and 80- IA also use the expression derived from . If there must be a direct nexus between the profits and gains and an industrial undertaking, it must follow equally that there must be a direct nexus between an industrial undertaking and the expenses which are sought to be apportioned / attributable to it. Expenses which do not relate to an industrial undertaking / unit under consideration and they relate to other units or to the head office of the assessee, cannot be taken into consideration while computing the deduction under the said provisions. 11. Ms.Khan's reliance upon a judgment of the Division Bench of the Madras High Court in Bush Boake Allen (India) Ltd. vs. Asst. CIT (Mad), (2005) 273 ITR 152 is well founded. In that case, the assessee claimed a deduction under sections 80-HH and 80-I. The Assessing Officer allocated certain expenditure on research and development pert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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