Commissioner of Income Tax vs Smith Kline and French (India) Ltd.

M. Rama Jois, J.—The assessee in this case of Smith Kline and French (India) Ltd., renamed as ESKAYLE LIMITED. In the reference u/s 256(1) of the income tax Act, 1961 (''the Act''), the question referred for our opinion is as under:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee is entitled for deduction u/s 35(1)(iv) of the amount of Rs. 2,83,310 spent on the purchase of buses?"

The facts which are necessary for the purpose of answering the question, are as follows:

During the assessment year, the assessee claimed deduction u/s 35(1)(iv) of the Act. It reads:

"35. Expenditure on scientific research. - (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):"

The particular item of expenditure in respect of which the benefit was claimed was purchase of two buses valued at Rs. 2,83,310. The assessee claimed that this was a capital expenditure incurred for the purposes of facilitating research. The claim was made on the ground that the buses were used to transport the research personnel and was not related to the business of the assessee other than scientific research. The ITO was of the view that this was a conveyance which the assessee was required to provide in respect of its employees and it was the normal transportation expenses, and the mere fact that scientific research personnel were carried in those buses did not convert the transport expenses into expenditure on scientific research. The Commissioner (Appeals), however, accepted the plea of the assessee. He was of the view that the expenditure incurred in purchasing the buses could be treated as expenses for prosecution of scientific research and the distinction as sought to be made out by the IAC was not correct. He was also of the view that all expenditures which are necessary for the purpose of carrying on scientific research, whether directly or indirectly, so long as they are used only for scientific research, should come within the purview of ''expenditure on scientific research''. The Tribunal concurred with the view of the Commissioner (Appeals). In coming to the conclusion, the Tribunal relied on the definition of the words ''scientific research'' given in section 43(4)(i) of the Act as also the Explanation given u/s 43(4)(ii), which read as under:

"4. ''Scientific research'' means any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries,-

(i) ******

(ii) references to expenditure incurred on scientific research include all expenditure incurred for the prosecution, or the provision of facilities for the prosecution, of scientific research, but do not include any expenditure incurred in the acquisition of rights in or arising out of, scientific research;"

The Tribunal rejecting the contention held that they did not see any force in the contention of the department, in view of the clear provisions contained in section 43(4)(i) and 43(4)(ii) extracted above. Thereafter, at the instance of the revenue, the reference has been made.

Shri Srinivasan, the learned counsel for the revenue, contended that the type of expenditures which could be allowed must be those strictly intended for the prosecution of scientific research or facilities for the prosecution bf scientific research, and the buses meant for providing conveyance to the scientific personnel to travel from their respective residences to the factory, cannot be regarded as a facility for the prosecution of scientific research. Sri Sarangan, the learned counsel for the assessee, however, submitted that the language used in the explanation was very wide and every capital expenditure incurred which facilitates the prosecution of scientific research, falls within the definition of the explanation and, consequently, the benefit of section 35(1)(iv) would be attracted.

As stated earlier, the two authorities, namely, the Commissioner (Appeals) and the Tribunal have taken the view that the buses in question were facilities for the prosecution of scientific research and, therefore, the assessee was entitled to the benefit of section 35(1)(iv). We find no reasons to take a different view. Accordingly, we make the following order:

The question referred for our opinion is answered in the affirmative and against the revenue.