Mather and Platt (I) Ltd. vs Commissioner of Income Tax

By this reference u/s 256(1) of the income tax Act, 1961 (''the Act''), the following question has been referred to this Court for its opinion :

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the action of the ITO in not allowing the claim of the assessee for a deduction u/s 35(1) of the income tax Act, 1961 ?

The assessee is an industrial company engaged in manufacture of textile machinery, etc. Assessment was for the year 1978-79. The assessee had claimed before the ITO deduction u/s 35(1) (iv) of the Act, in respect of an expenditure of Rs. 32,634 which expenditure was stated to have been incurred for scientific research. The ITO did not allow claim of the assessee. This expenditure of Rs. 32,634 was incurred by the assessee on the installation of test bed. According to the ITO, test bed was required by the assessee for the purposes of carrying out its normal production activity. Thus, according to the ITO, the expenditure on the installation of test bed was primarily for the purpose of incurring essential production requirement and scientific research, if any, was only incidental. The ITO, therefore, held that this expenditure did not qualify for deduction. He further stated in his order of assessment that in case the Board had referred the question to the prescribed authority u/s 35(3) for its decision, the assessment could be rectified if the decision was in favour of the assessee. The order of the ITO was confirmed by the Commissioner (Appeals). The assessee appealed to the Tribunal. The Tribunal upheld the action of the ITO. The Tribunal while doing so also took note of the difficulties which the department would have to incur in determining the loss to the revenue in the event before the competent authority deciding the matter in favour of the revenue. The Tribunal, however, gave a positive direction in its order that in the event of the decision of the prescribed authority being in favour of the assessee, the ITO shall proceed to rectify the assessment accordingly. We have heard the learned counsel appearing at today''s hearing. Aggrieved by the order of the Tribunal, the applicant is before this Court. Grievance of the assessee is that either the ITO ought to have allowed claim of the assessee or he should have referred the matter to the Board. In other words, the procedure followed by the ITO was not in accordance with law. We have carefully considered the submission. An uncontroverted factual position brought to our notice by the learned counsel for the assessee is that the reference was made by the Commissioner, to the Board on 8-11-1979 and the Board in turn made a reference to the prescribed authority on 29-11-1979. The prescribed authority after a detailed examination of the controversy answered the question referred by the Board by its order dated 11-3-1985. The decision of the prescribed authority is final under the Act.

In view of the above, the controversy raised on behalf of the assessee in regard to the correctness of the procedure followed by the ITO is purely academic. In any view of the matter, the assessee is not entitled to any deduction u/s 35(1) (iv) and the order of the ITO refusing to allow the deduction appears to us to be correct. If the view taken by the prescribed authority in its order dated 11-3-1985 is to be borne in mind, it follows that the assessee was not entitled to claim deduction in respect of the said amount. In view of the above, we answer the question referred to us in the affirmative and in favour of the revenue.

Order accordingly.