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TMI Blog1996 (7) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 35(1) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, did the assessee--- (i) expend or incur any expenditure on scientific research related to the business ? (ii) use the entire assets for research ? (iii) discharge the onus that lay on it for claiming the deduction under section 35 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that : (i) 'the research that is being carried on by the assessee is related to the existing business of the assessee in pesticides and other estate stores' and is not the above finding wrong, far-fetched and without any reasonable nexus with the existing business? 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny in which public are substantially interested, claimed deduction under section 35(1) of the Income-tax Act, 1961, for an amount of Rs. 12,08,151. This amount is split up into two categories, viz., Rs. 7,35,164 as revenue expenditure and Rs. 4,72,987 as capital expenditure, The Income-tax Officer has recorded at the outset (see page 9 of the paper book) that the assessee has let in sufficient evidence to show that these items of expenditure relate to the assessee's business of developing plants-tissue-culture technology. The Assessing Officer further observed that there is no material shown by the assessee that the above business was commenced during the year in question. In this connection, reliance was placed on the letter dated January ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax (Appeals), Trivandrum. The first appellate authority has also carried forward the same approach to expect a product as a result of the manufacture by application of the technology as the direct aspect expected to be in sight. In paragraph 12 (page 19) of the order of the first appellate authority after reproducing the submissions that the business in tissue-culture technology for propagation of vegetation plants had actually commenced during the previous year ending on December 31, 1984, as would be seen from connected details furnished in the previous assessment year's record for 1985-86. It was submitted that the deduction is claimed in section 35(1) of the Act on account of research and development activity connected with the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expected an independent product which is a by-product of the use of the scientific technology. It must be said that the situation required really serious application of mind by the Income-tax Appellate Tribunal, Cochin Bench. The Tribunal also found the situation little heavy for digestion and it must be said to the credit of the presiding members of the Tribunal that they have taken pains in understanding the real situation by going almost to a needed work-place to know the real process. We record our appreciation as we found in paragraph 12 of the order of the Tribunal to the effect that the Bench decided to have a first hand knowledge of the going on in the research stations doing research on plant and tissue-culture and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opagation could be considered as related to the business of the assessee or not. The Tribunal has considered that the expenditure of scientific research would be eligible for deduction if the research is "related to the business". In order to find the factual matrix for the answer to the relationship or nexus, the Tribunal has recorded a finding that the assessee is dealing in pesticides, chemicals, other estate stores besides cardamom, pepper, etc. In addition, it renders certain agency services. To be more precise, the Tribunal has recorded that the business of the assessee in relation to the assessment year 1986-87 is in two parts : (a) dealing in certain goods or produces, and (b) rendition of services. The Tribunal has found that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of cardamom by PTC technique. The Tribunal has also, in support, referred to the statistics of purchase and sale of vegetation plants to find that in the previous year the assessee had purchased 5,000 mother plants for a sum of Rs. 10,971 ; and this was to record a conclusion that from the mother plants, multiplication would only start by tissue-culture technology application. The Tribunal has observed that the business of the assessee is of growing of genetically uniform plants in large numbers in a limited space and time by applying tissue-culture technology and in this connection it would have to be stated that the business had commenced right from the day when the mother plants were purchased. In the process of reasoning the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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