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TMI Blog1984 (5) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... is not disputed that out of the above, a sum of Rs. 12,67,514 had been met by the Government of India. The Commissioner, after issuing a show cause notice under section 263 and bearing the assessee, held that the expenditure has been incurred out of the grant-in-aid and not out of the profits of the assessee and, thus, the assessee was not entitled to deduction under section 35(1)(iv) to the extent of Rs. 12,67,514. He, accordingly, modified the order of the IAC. The assessee is in appeal. 2. At the outset, the assessee raised a preliminary objection that the Commissioner was not entitled to revise an order of assessment passed by the IAC under section 263. He submitted that the Commissioner can invoke his powers under section 263 only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is shoes, should, likewise, take the approval of the Commissioner. The Court, accordingly, held that the IAC should have obtained the permission of the Commissioner for retaining the impugned books of account for a period beyond 15 days. From the above, it follows that when an IAC is asked to perform the functions of the ITO by an order under section 125A(1), he becomes an ITO for all practical purposes. Therefore, the Commissioner will have power to revise his orders which may be erroneous insofar as they are prejudicial to the revenue. This proposition flows directly from the decision of the Karnataka High Court, which is binding on us. We, accordingly, reject the legal contention raised by the assessee. 4. Coming to the merits, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch, the following deductions shall be allowed--- (i) to (iii) (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2)." (a) The income-tax taxes income. The deduction to be allowed is for expenditure which are debited to the profit and loss account. Normally deductions of revenue expenditure alone are allowed. One of the exceptions is section 35(1)(iv). We have, therefore, to consider whether the capital expenditure referred to in section 35(1)(iv) should be met out of the revenue resources of the assessee or not in order to qualify for deduction. (b) Apparently, there does not appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 35(1)(iv) are satisfied and the deduction is permissible. 6. We have now to examine two more aspects of the issue : (i) whether the expenditure should have been incurred out of the assessee's own resources, and (ii) whether the assessee should be the owner of the capital asset acquired by incurring expenditure. Apparently there does not appear to be anything in the Act requiring the assessee to spend the moneys out of his own resources. Let us take the case of an assessee who receives a gift. The money is introduced in the business and out of that some payments of a revenue nature are made. In computing the income of the assessee the payments are not disallowed on the ground that the disbursements were not made out of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th capital and consumable purchased, permanent, semi-permanent assets required solely or mainly out of the Government grant. (iii) The assets referred to in (ii) above acquired out of the Government grant will be the property of the Government and should not without prior sanction of the Government be disposed of, or encumbered or utilised for purposes other than those for which the grant has been sanctioned. An undertaking shall be given by the ITI, Bangalore, that they agree to be governed by these conditions. (iv) At the conclusion of the project, the Government will be free to sell or otherwise dispose of the assets which are the property of the Government and ITI, Bangalore, shall render to the Government the necessary facilities for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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