Tube Investments of India Ltd. vs The Commissioner of Income Tax

R. Jayasimha Babu, J.—The question referred to us for our consideration is, "whether on the facts and in the circumstances of the case, the Income Tax appellate Tribunal is right in holding that the applicant would not be eligible for deduction u/s 35(1)(iv) of the Income Tax Act in relation to the two sums of Rs.5,87,044/- and Rs.5,16,853/- in view of the same having been claimed u/s 35(2B) and in spite of the same having been disallowed under the said section. The assessment year is 1984-85.

Out of the two sums referred to in the question, the sum of Rs.5,16,853/- is the value of a machine imported by the assessee on 22.08.1980 and which machine was used in carrying out scientific research in a program approved by the authority prescribed u/s 35(2B) of the Act. The assessee''s claim for deduction in respect of the value of that machine u/s 35(2B) was rejected by the assessing officer. The assessee''s claim that that expenditure be considered u/s 35(1)(iv) as expenditure incurred on a capital asset used for scientific research was negatived by the appellate authority as also the Tribunal on the ground that the asset itself was not purchased in the previous year relevant to the accounting year. Though the Tribunal was in error in proceeding further to reject the claim also on the ground that when a claim is made u/s 35(2B), such a claim cannot at all be considered even if a portion of it falls squarely u/s 35(1)(iv), the ultimate decision of the Tribunal that this sum cannot be allowed for this assessment year u/s 35(1)(iv) must be upheld.

Section 35 of the Act deals with expenditure on scientific research. Section 35(1)(iv) refers to expenditure of a capital nature on scientific research related to the business carried on by the assessee. Section 35(2B) refers to expenditure, other than capital expenditure incurred on the acquisition of any land or building or construction of any building, on scientific research undertaken under a programme approved in that behalf by the prescribed authority, having regard to the social, economic and industrial need of India. It is only such expenditure as is incurred on a programme which has been approved by the authority prescribed u/s 35(2B), which can be claimed as deduction under that provision. The capital expenditure on the acquisition of land or building whether acquired or constructed cannot be claimed u/s 35(2B). The benefit of Section 35(1)(iv) can be availed by the assessee in respect of expenditure of a capital nature on scientific research if that research is related to the business carried on by the assessee. The approval of the authority prescribed u/s 35(2B) is not an essential pre-requisite for claiming the allowance u/s 35(1)(iv) if it is found that a part of the claim falls within the ambit of Section 35(1)(iv). The mere fact of a claim not having been found admissible u/s 35(2B) will not constitute a bar to allowing an expenditure u/s 35(1)(iv) if that expenditure is capital expenditure and falls squarely within the ambit of Section 35(1)(iv). Capital expenditure incurred on the acquisition of land or construction of building which is excluded by the very terms of Section 35(2B) can be claimed u/s 35(1)(iv).

So far as the other sum of Rs.5,87,044/- is concerned, it has been found by the Tribunal that the assessee had treated the assets of that value in its Profits and Loss Account and Balance Sheet as assets and had also claimed depreciation on those assets in the relevant year. The Tribunal, while upholding the disallowance of that sum u/s 35(2B), has held that the assessee cannot claim the benefit of Section 35(2B) after the assets had been fully depreciated u/s 32. The assessee having enjoyed hundred per cent depreciation cannot claim double deduction, allowable depreciation u/s 35(1)(iv) also being hundred per cent in that year.

The Supreme Court in the case of Escorts Limited vs. Union of India, 199 ITR 44, observed that, "there is a fundamental, though unwritten, axiom that no legislature could have at all intended a double deduction in regard to the same business outgoing; and, if it is intended, it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary the statute should not be read so as to permit an assessee two deductions, both u/s 10(2)(vi) and Section 10(2)(xiv) of the 1922 Act or both u/s 32(1)(ii) and Section 35(1)(iv) of the 1961 Act." The Court went on to hold that Section 35(2)(iv) mandates that the assessee should be granted the special allowance for scientific research and not the routine annual one for depreciation, where a depreciable asset is used for scientific research and qualifies for deduction u/s 35 of the Act.

We, therefore, answer the question referred to us in favour of the revenue and against the assessee.