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TMI Blog1989 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances of the case, the Tribunal was right in holding that the expenditure incurred by the assessee on investigation, research and feasibility study is a revenue expenditure to be allowed as a deduction ? (assessment years 1976-77 and 1977-78)." The matter arises out of the income-tax assessments on the respondent for the assessment years 1975-76, 1976-77 and 1977-78. The assessee, in all the case s, is the Kerala State Industrial Development Corporation Limited. The assessment for the assessment year 1975-76 was originally completed on December 28, 1977. The Income-tax Officer computed the deduction under section 36(1)(viii) of the Income-tax Act on the total income before allowing the deduction under section 36(1)(viii) itself. The said assessment was reopened by the Income-tax Officer on the ground that deduction should have been allowed only on the total income as reduced by the deduction under section 36(1)(viii) of the Act. Reassessment was made accordingly. The Commissioner of Income-tax (Appeals) set aside the assessment. When the appeal came up for hearing before the Tribunal, the assessee relied upon the subsequent decision of the Patna High Court reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue and the respondent. It is agreed that the third question, namely, whether the Tribunal was right in holding that the expenditure incurred by the assessee on the investigation, research and feasibility study is a revenue expenditure, to be allowed as a deduction, is covered by our decision in Income-tax References Nos. 42 to 47 of 1982 and 104 of 1983, dated January 31, 1989, (CIT v. Kerala State Industrial Development Corporation Ltd. (No. 1) [1990] 182 ITR 62), wherein we held that the expenditure incurred in investigation, research and feasibility study is only revenue expenditure, to be allowed as a deduction. In the light of the said decision, we answer the third question in the affirmative, that is, in favour of the assessee and against the Revenue. Question No. 1 related to deduction under section 36(1)(viii) of the Income-tax Act. In calculating the total income for the purpose of deduction under section 36(1)(viii), whether the deduction under the said section has to be allowed is, in short, the question to be considered. The same question arose for consideration in respect of the same assessee for the year 1976-77 wherein we held that deduction should be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to tax is determined. First, compute the total income of the concerned assessee in accordance with the other provisions of the Act, i.e., in accordance with all the provisions except section 80E ; secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) ; and, thirdly, if there be profits and gains so attributable, deduct 8% thereof from such profits and gains and then arrive at the net total income exigible to tax." The Act only says that before giving deduction under section 80E, the profits and gains are to be computed in the manner indicated therein. But it clearly says "in accordance with all provisions except section 80E". The charge is on the profits and gains of business as mentioned in section 28 of the Act. Income-tax has to be charged under the head "Profits and gains" and the income chargeable under profits and gains will have to be computed as mentioned in section 29 and, therefore, the computation should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and, similarly, items of unabsorbed depreciation and unabsorbed development rebate will have to be deducted before arriving at the figure that will become exigible to tax as contemplated under section 80E(1). Therefore, we do not think that the decision in Income-tax Reference No. 125 of 1984 requires reconsideration. After the judgment in Income-tax Reference No. 125 of 1984, dated June 19, 1989, Kerala State Industrial Development Corporation Ltd. v. CIT [1989] 180 ITR 323 (Ker), another decision, namely, CIT v. M. P. Audyogik Vikas Nigam Ltd. (No. 1) [1989] 178 ITR 177 (MP), came to our notice wherein the High Court of Madhya Pradesh once again took the same view and held that the deduction under section 36(1)(viii) has to be calculated on the basis of the total income computed before allowing the deduction under section 36(1)(viii). We, therefore, hold that the statutory deduction under section 36(1)(viii) of the Act is to be calculated on the total income before making deduction of the amount allowable under section 36(1)(viii). Hence, we answer the first question also in the affirmative, that is, in favour of the assessee and against the revenue. The second questi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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