9911796707
TMI Blog1988 (2) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... orporations were wholly owned subsidiaries of the U.P. Electronics Corporation, i.e., the assessee. It was also contended that it was only by way of administrative convenience that the work of research and development was undertaken by the Corporation while the results were actually used by the factories wholly owned subsidiaries. The assessee, therefore, claimed that the expenditure incurred on research and development was for the purpose of business and deduction was allowable under section 35 of the Act. The assessee claimed relief under that section to the extent of Rs. 19,23,250 out of which Rs. 15,83,208 related to the expenditure for the year under consideration as the balance related to the earlier years which were claimed as revenue expenditure but later on written back. The assessing officer examined the accounts and the claim of the assessee in this respect. According to him, relief can be given if the income was assessed under the head "Business and profession". He noted that the assessee-corporation, on the other hand, derived income from other sources. Even otherwise, the assessing officer was of the view that if the assessee was engaged in the business of investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer held that section 35(2)(a) was not applicable at all as there was no such payment made by the assessee to another Scientific Research Association. It was also pointed out that no instance was given to show that the project reports had been given by the assessee-corporation to the entrepreneurs for which any scientific research was needed. The assessing officer noted certain reasons as to why the claim of the assessee could not be accepted. He stressed the fact that the assessee derived income only from interest, sale of investments, dividends, etc., and no scientific research was needed for such purposes. The assessing officer visited the place of the assessee for making certain enquiries. He noted that the equipments were for testing purposes and in any case they would be required by the subsidiary companies if they have to maintain quality control in the competitive market. He emphasised that such instruments were necessary part for the production of various items by the subsidiary companies and cannot be said to be related to any scientific research. In the circumstances, the assessing officer found that the claim of the assessee should be rejected. 4. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to emphasise that even if a payment is made by any assessee to a Scientific Research Association would be qualified for rebate as a "Scientific Research" would mean any activity for the extension of knowledge in the fields of natural or applied science including agricultural, etc. It is, therefore, urged that the claim of the assessee may be, allowed now. 6. The learned Departmental Representative, on the other hand, supports the order of the CIT(A). It is urged that the assessee did not carry on any business apart from deriving income from consultancy charges, etc. It is also submitted that whether any research and development was carried, such activity did not relate at all to the purpose or activity of the assessee-corporation as it is the subsidiary companies which carries on the business of manufacturing T.V. sets and other electronic items. It is also urged that the subsidiary companies are independent units and, therefore, the CIT(A) has rightly sustained the disallowance. It is argued at length that the assessee's claim has been rightly rejected by the authorities below and the appeal may be dismissed. Reference is made to certain authorities to support the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it may be mentioned here that the assessee at the first instance before the CIT(A) raised an objection that the assessing officer was not competent to adjudicate on the point whether the assessee was carrying on research and development or not and that the matter has to be decided by the Department of Science and Technology, Govt. of India, which alone could determine the point. The CIT(A) in that context gave a finding that the assessee had already been recognised by the Govt. of India, Department of Science and Technology and the period of recognition had been further extended up to 31-3-1985 and the CIT(A) has conclusively found that there cannot be any dispute now that the assessee was carrying on research and development operations. This finding of the CIT(A) has not been controverted by the Revenue before us. The assessment year involved is 1982-83 and the assessee's accounting year ended on 31-3-1982. 9. That apart we have already gone through the memorandum of association as well as the annual reports including the audited balance sheet and other accounts for our consideration. The CIT(A) noted that the assessee's main source of income was consultancy charges which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee was entitled to the benefit of section 35, we are of the view that depreciation as admissible will have to be taken into consideration in respect of such plant and machinery used for the purpose of research and development. Accordingly, the assessing officer will look into the point and to give admissible relief on account of depreciation, etc., on such items as admissible after clarifying that the prerequisite conditions have been fulfilled. This part of the order of the authorities below Is set aside so that the assessing officer would ascertain the extent of the admissible depreciation as per law after giving the assessee a reasonable opportunity of being heard. 12. The next ground of appeal is regarding charging of interest under section 139(8) and under section 217. The CIT(A) took into account the decision of the Allahabad High Court as reported in 124 ITR 708 (sic). He has given the direction to the assessing officer to allow reduction to the assessee as would be entitled consequent to any relief allowed by the appellate order. No further direction is necessary. 13. In the result, the appeal filed by the assessee is allowed - - TaxTMI - TMITax - Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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