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TMI Blog1979 (10) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... the contribution made and the assistance rendered by them. 2. Briefly stated, the relevant facts are that the assessee, a company carried on extensive business of manufacture and sale of hydraulic equipments and accessories. The business requires the final products to conform to rigid international standards and specifications and to match in the competitive world market. With this end in view, the assessee, inter alia, incurred a capital expenditure of Rs. 1,53,301 during the previous year relevant for the assessment year 1972-73 for the purpose of carrying on scientific research to enable it to maintain and improve the quality of its final products and also to make it economically viable. The above expenditure, it may be stated, was allowed as deduction under section 35(1)(iv)/ 35(2)(ia) in that year. It is common ground that part of the aforesaid capital expenditure had also resulted in depreciable capital assets, which continued to be used for scientific research related to the assessee's business and the assessee claimed depreciation under section 32 on the cost of such assets both for the assessment years 1973-74 and 1974-75. According to the ITO, however, the claim was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere similar use for business was a must and yet the Legislature had provided for a special rate of development rebate on scientific research assets. Their submissions have been that scientific research assets qualify for depreciation under section 32, that there is no express or implied bar or prohibition anywhere in the Act including section 35, and that depreciation cannot, therefore, be denied on such assets. In this connection the comparison was made between the Indian Act and the UK Act to show that in the UK Act, there was a specific prohibition against allowing depreciation under section 29(4), while there was none in the Indian Act. Referring then to a number of instances it was submitted that wherever Legislature wanted such a prohibition, it was specifically provided for. In fact we were taken through the relevant provisions of sections 32, 32A, 33, 41 and 43, etc., for the purpose of showing that the provisions on the contrary, contemplate allowance of depreciation on scientific research assets. 5. Before we proceed to consider rival contentions, it may be desirable to mention that almost all the Benches in Bombay have held that the scientific research assets, even whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of the business." To our mind, in view of the aforesaid observations of the Supreme Court in Malayalam Plantations' case and similar observations in other decisions of the Court reported at Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207, CIT v. Birla Brothers (P.) Ltd. [1971] 82 ITR 166 and Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 735, the expression 'used for the purpose of the business' has got to be held to be of wider import which may include within it expenditure on scientific research related to the business. 6.1 Coming then to the expression 'expenditure on scientific research related to the business', we are of the view that the phrase 'scientific research' does not present much difficulty as such because if scientific research is incidental and integral part of the business, it has got to be held that use for scientific research is 'use for business'. The difficulty, it appears, has arisen because of the use of the words 'related to' between 'the scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development unit, which cannot be treated as used for the purpose of the business so long as it is used for scientific research. In this view of the matter, we do not agree with the learned standing counsel for the revenue that 'expenditure on scientific research related to business' and 'used for the purpose of business' are two altogether different concepts. Nor do we agree with the counsel for the assessee that the expenditure on scientific research related to business must necessarily be expenditure for the purpose of the business. Having regard to the inclusive definition of the expression 'scientific research related to the business' in section 43(4)(iii)(a) and the plain dictionary meaning of the word 'related', we are inclined to hold that the Legislature has used two expressions at two different places on purpose, though we also hold that the two expressions do not represent the two sides of a coin so that there can never be simultaneous user for scientific research and for the business. 6.2 That our aforesaid view is correct is clear from the fact that clause (a) of section 33(1), which provides for development rebate, inter alia, requires the capital assets to be whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture on scientific research were used for the purpose of business. Having regard to the nature of the assets and the use they are put to (briefly mentioned by us in paragraph 2 of this order) and keeping in view the ratio of the Supreme Court's decision in the case of Malayalam Plantations Ltd., we have no difficulty in holding that the capital assets in the case before us, which represent capital expenditure on scientific research related to the business, are and can be said to have been used for the purpose of the business. 7. With respect, there does not appear to us any scope for dichotomy that use for scientific research related to the business is opposite of use for the purposes of business. In the case before us, the assets representing capital expenditure on scientific research related to the assessee's business and continuing to be so used are 'used for the purpose of business' within the meaning of section 33(1). Accordingly, we hold that these assets are also used for the purposes of business under section 32(1) and qualify for depreciation. We have next to consider the nature of the deduction by way of depreciation under section 32 and the allowance under section 35 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se provisions were enacted to encourage expenditure on scientific research which was otherwise shy. Mere allowance of the expenditure in full, to our mind, may not be even sufficient compensation. In any event, if the purpose was only to provide accelerated depreciation, these provisions would have been part of section 10(2)(vi) of the 1922 Act and section 32 of the 1961 Act. 7.2 We also do not agree with the learned standing counsel that, but for section 35, expenditure on scientific research could not be allowed as deduction or that section 35 is a self-contained code as regards expenditure on scientific research and, therefore, the rights and obligations of the assessees should flow as regards expenditure on scientific research from that section only. These submissions are also, it may be stated, without any merit. In this connection, it has to be borne in mind that the expenditure on scientific research, as contemplated in section 35(1)(ii) and section 35(1)(iii), is, of course, not allowable but for the specific provision therein. A part of the expenditure, contemplated in section 35(1)(i) and section 35(1)(iv), may also be, inter alia, for extension of the existing business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in that event, there will be two written down values : one on the basis of section 43(6)(b) and the other on the basis of Explanation 1 to section 43(1). According to the learned standing counsel, there cannot be two written down values on the date when the assets ceased to be used for scientific research and on the date when they are used for the purpose of the business. This argument also to our mind, is without any merit. Firstly, because after the insertion of clause (ia) in sub-section (2) of section 35 with effect from 1-4-1967, the provisions of clauses (ii), (iii) and (v) of sub-section (2) of section 35 have become redundant inasmuch as the entire cost of capital expenditure itself is allowed deduction in full in the year of its incurrence. Therefore, when such assets continue to be used in the business after they ceased to be used for scientific research, the question of depreciation will not arise as actual cost, in view of Explanation 1 to section 43(1), will be nil. In any event, there is no scope for two written down values with regard to the same assets at the same time. Explanation 1 to section 43(1), it may be stated, applies to such depreciable assets only with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n perhaps did not survive. It is significant that sub-section (4) of section 20 of the UK Finance Act, 1944, reads as under : "(4) Where a deduction is allowed for any year under this or the last preceding section in respect of expenditure represented wholly or partly by any assets, no deduction shall be allowed under any provisions of the Income-tax Act other than this part of this Act in respect of wear and tear, obsolescence, depreciation or exceptional depreciation of these assets for any year of assessment during any part of which they are used by the person carrying on the trade for scientific research related to the trade." In our view, there was no necessity for having a provision like this unless the Legislature in UK was of the view that assets representing capital expenditure on scientific research qualified for depreciation and that depreciation should not be allowed thereon because of a different allowance contemplated through these provisions. Again in 1968, another legislation was introduced in UK by the name Capital Allowances Act, 1968, where similar provisions are found enacted in sub-sections (1) and (2) of section 93 as under : "(1) No initial allowances u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inues to be till today, that unlike UK Acts, the bar for allowance of depreciation is only for the year in which the deduction is allowed under section 35 and not for any other year. This remains, in spite of so many amendments of the provisions since 1946, in 1961, 1967, 1974, etc. 9.3 The only argument in favour of the revenue's stand appears to be based on the following part of the statement of objects and reasons given while piloting the Indian Income-tax (Amendment) Act, 1946, for inserting these provisions [section 10(2)(xiv)] : "This clause purposes to allow expenditure on scientific research related to a business or to the class of business carried on. The first two items, viz., revenue expenditure by the assessee on such scientific research and sums paid to research associations or institutions will be allowed in the assessments of the profits of the year in which the expenses were incurred. The other items, viz., capital expenditure, will be allowed in five consecutive equal instalments and will be given also in respect of such expenditure incurred not more than three years before the commencement of the business. Provision is also made for allowing the difference bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on such assets so long as they continue to be used for scientific research. The relevant provisions read as under : "35. (1) In respect of expenditure on scientific research, 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). (2) For the purposes of clause (iv) of sub-section (1)-- (i) in a case where such capital expenditure is incurred before the 1st day of April 1967, one-fifth of the capital expenditure incurred in any previous year shall be deducted for that previous year ; and the balance of the expenditure shall be deducted in equal instalments for each of the four immediately succeeding previous years ; (ia) in a case where such capital expenditure is incurred after 31st day of March 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year. Explanation : Where any capital expenditure has been incurred before the commencement of the business, the aggregate of the expenditure so incurred w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clause supports the assessee's stand that in the years following deduction under section 35, deduction is allowable under section 32 and there being no bar, the assessee should get it. On independently, it appears that clause makes a provision for allowance of depreciation in a situation where the assets cease to be used for scientific research and are used in the business. This may in a way suggest that if depreciation was allowable on the scientific research assets as such, there was no necessity for this clause. As regards Explanation 1 to section 43(1), we do not think that that by itself presents any difficulty inasmuch as Explanation 1 only indicates how actual cost is to be computed when the assets are no longer used for scientific research but continue to be used for the business. It was argued at one stage that clause (iv) above was a proviso, on the other hand, if we interpret section 35(2)(v) to clause (v) and that, if so read, the meaning would be clear and there will be no contradiction. On the other hand, it was argued on behalf of the assessees that after the insertion of clause (ia) in section 35(2), the provisions of clauses (ii), (iii) and (iv) thereof and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what the Legislature could have contemplated. 10.3 Moreover, we find that whenever and wherever the Legislature wanted to restrict any allowance under any provisions of the Act, apart from the relevant provisions under which deduction or allowance is permitted, the language used by the Legislature is very specific. Reference may be made to sections 35B(2), 35C(2), 35CC(3), 35D(6), 35E(8) and 80GGA(4) for the purpose. The above restriction is not out of abundant caution or for the purpose of removal of any doubt. Whenever it is so, a specific appropriate language has been used, e.g., Explanation 2 to section 5, Explanation to section 15, 23(2A) and 32A(9), Explanation to section 34(3)(a), section 37(3C), Explanation 2 to section 40A(7) and Explanations 2 and 5 to section 80G. Similarly, whenever the concessions under the various sections or under the same sections are not meant to be cumulative it is so expressly provided, e.g., under section 20(2), clause (c) of the second proviso to section 23(1), Explanation to section 23(2), sections 24(2), 35(2A)(b), 37(1), 42(b), 80A(2)/(3), 80E(10), 80GGA(3), 80HH(9A), read with sub-section (7), 80L(2), 80M(2), 80MM(3), 80P(3) and 80QQ(2). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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