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TMI Blog2003 (1) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration and before they ceased to be scientific research without using them in the business. These assets were thus held for more than 36 months and consequently they were long term capital assets on the date of sale. The sale consideration to the extent of cost as was allowed under section 35 was assessed to tax under section 41(3) of the Act. The difference between the cost as increased to indexed cost and sale consideration was claimed as a long term loss under the head "capital gain". It is also claimed as loss under the head "business". The position of the cost, the sale price, the indexed cost and the loss in tabulated as under:- Particulars Cost as Increase on Sale Consider- Loss wit Loss wit Allowed account of ation assessed reference reference under indexed under to actual to to indexed section cost section 41(3) cost cost 35 Rs. Rs. Rs. Rs. Rs. (1) (2) (3) (4) (5) (2 + 4) (6) (3 + 5) Equipment & furniture 8,80,195 9,22,995 3,00,000 5,80,195 15,03,190 Research & Development Building 7,36,007 10,59,850 6,75,000 6,61,007 11,70,857 16,16,202 19,82,845 9,79,000 6,41,202 26,24,047 There seems to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) to be worked out on account of sale of the R&D assets. As per these provisions, assessee has in fact earned the income chargeable under section 41(3) of the Act. The decision quoted by the assessee company of Hon'ble Gujarat High Court in the case of CIT v. Bhavnagar Trust Corporation P. Ltd. ( 69 ITR 278) is not applicable at all because the dividend income earned on the shares were in fact the business assets held as stock-in-trade. Accordingly, dividend income has correctly been treated as business income as per the decision of Gujarat High Court. In fact, this decision goes against the assessee's claim of computing the capital gain on the sale of R&D assets as it was a business asset and accordingly expenditure on that allowed as a revenue expenditure under section 35 of the Act. Assessee had also quoted a Supreme Court decision in the case of Western State Trading Company P. Ltd. v. CIT 80 ITR 21 (SC). A careful reading of this decision is merely an approval of the decision of the Gujarat High Court. Since it has already been held that Gujarat High Court is not applicable in the instant case, the applicability of the decision of Hon'ble Supreme Court does not arise. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court has laid down that if the language of the statute is clear and unambiguous, it would be wrong to discard the plain meaning of the words. Similar principle has been laid down by the Supreme Court in its judgments reported as 55 ITR 741 and 32 ITR 615. Considering the facts of the appellant's case and considering the clear and unambiguous language of section 41(3), it is held that the appellant's case is covered by the provisions of section 41(3). Accordingly, it is held that the Assessing Officer's action in disallowing the appellant's claim for the alleged capital loss is in keeping with the statutory provisions of section 41(3). Therefore, the Assessing Officer's action in rejecting the appellant's claim for alleged capital loss on the sale of research and development (scientific research) assets stands confirmed. Moreover, considering the facts and clear provisions of section 41(3), it is held that the Assessing Officer's action in rectifying the said mistake by resorting to the provisions of section 154 also stands confirmed." The said decision of the CIT(A) has been vacated by the Tribunal vide order dated 13-12-2000 in ITA No. 2486/Ahd./1996 on the ground that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 653 and (2) CIT v. A.L.A. Chemicals (P.) Ltd. [1993] 203 ITR 891 and a decision of Andhra Pradesh High Court in the case of CIT v. Warner Hindustan Ltd. [1986] 160 ITR 217 , the decision of Karnataka High Court in the case of CIT v. HMT Ltd. [1993] 203 ITR 811 and the decision of Gujarat High Court in the case of CIT v. Sarabhai Sons (P.) Ltd. [1993] 204 ITR 728. These are the cases where the cost of the assets used in scientific research were attempted to be excluded while computing the capital employed for the purposes of deduction under section 80J on the ground that the entire cost of these assets had been allowed as a deduction under section 35. The courts have held that these were not to be reduced. For the proposition that the loss is to be allowed a set off, the learned counsel of the assessee relied upon the provisions of section 71(2) and the Supreme Court decision in the case of Western States Trading Co. (P.) Ltd. v. CIT [1971] 80 ITR 21 and the Gujarat High Court decision in the case of CIT v. Bhavnagar Trust Corpn. (P.) Ltd. [1968] 69 ITR 278 . 7. The learned Departmental Representative supported the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. We may usefully refer to the decision of the Andhra Pradesh High Court in the case of Warner Hindustan Ltd. (supra) wherein the court observed at page 227 of the reports as under:- "The fact that deduction is given for the purpose of computing taxable income under section 35 for expenditure on scientific research does not mean that it ceases to be capital employed or an asset." These observations were approved by Their Lordships of Gujarat High Court in the case of Sarabhai Sons (P.) Ltd. (supra) by stating "hence the fact that deduction is given for the purpose of computing taxable income under section 35 or the expenditure on scientific research does not mean that it ceases to be capital employed or an asset and, therefore, in computing the total value of assets under rule 19A(2) of the Income-tax Rules, 1962, capital expenditure on scientific research which has already been allowed should be included." It is true that these were the observations in regard to assessee's claim under section 80J wherein the cost of scientific research assets were to form part of capital employed was the question but they apply with equal force to the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction of the allowance on scientific research asset and the depreciation are basically of the same nature intended to enable the assessee to write off certain items of capital expenditure against his business profit" 11. On a careful reading of the decision of Supreme Court, it would be noticed that the court itself made an exception by stating that "if in absence of clear statutory indication to the contrary". In other words, the Legislature may provide for allowance of the same amount of expenditure for various purposes. We may mention a few cases which come under section 80J and the inclusion of scientific research assets allowed fully under section 35, were again held includible in computing capital employed. The cost of acquisition is included in value of assets while computing the capital employed under section 80J. It is not an allowance as such. It is included to determine the capital employed to grant deduction under section 80J. It is value on the 1st day of the computation period and irrespective of its disposal in the midst of the year it is not to be diluted. These considerations along with others as pointed out by three High Courts aforesaid are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business profits". A deduction under section 80J is not of the same nature as a deduction under section 35. Therefore, in our view, the ratio of the Supreme Court judgment in Escorts Ltd.'s case (1993) 199 ITR 43, will not apply to the computation of capital under section 80J for the purpose of determining the quantum of deduction under section 80J." 13. The observations of Gujarat High Court in the case of Sarabhai Sons (P.) Ltd. (supra) in this connection are at page 733 of the report as under:- "Section 80J falls in Chapter VI-A of the Act. Section 80A, as it then stood, provided that, in computing the total income of the assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in sections 80C to 80U. Clause (5) of section 80B defined "gross total income" as the total income computed in accordance with the provisions of the Act before making any deduction under the Chapter or under section 280-O. Section 2(45) defines "total income" to mean the total amount of income referred to in section 5, computed in the manner laid down in the Act. One of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation in the Act itself to show that the deduction contemplated by section 80J was to be granted in addition to other deductions that were available under other provisions of the Act." 14. The deduction claimed by the assessee is of the indexed cost which is the amount of the actual cost which is allowed under section 35 and the amount of increase on account of inflation index. The cost of acquisition for the purposes of section 48 as is generally understood in the common parlance is the price paid for the acquisition of an asset. Section 55(2) provides for some different amount to be the cost of acquisition in certain eventualities with which we are not concerned in this case. If the cost of acquisition of an asset is the price paid by the assessee that amount has to be allowed as a deduction under the main provisions of section 48 of the Act. It has to be allowed at a higher amount as an indexed cost of acquisition by virtue of the second proviso to section 48. Second proviso of section 48 reads as under:- "Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 35 while computing the business income of the assessee may be a relevant consideration for not allowing the cost of acquisition while computing the capital gain arising on transfer of the capital asset, on the principle of prohibition for double deduction of the same amount of capital expenditure or the cost of acquisition. As both the sections deal with computing the income of the assessee under the same Chapter IV of the Act, it would be a case of allowing double deduction to the assessee of the same amount once while computing income under section 28 and again under section 45 of the Act and which may be held to be not contemplated by the Legislature as envisaged by the Supreme Court in the case of Escorts Ltd. (supra). We, therefore, hold that the assessee is not entitled to deduction of cost of acquisition of the scientific research assets as the same has been allowed already as a deduction under section 35. 16. The further claim of the assessee that the said loss is to be allowed as a business loss, in our opinion, has no force. The loss is arising firstly because of the enhanced cost of acquisition by reason of the inflation index and that is the procedure provided ..... X X X X Extracts X X X X X X X X Extracts X X X X
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