EWAC ALLOYS LTD Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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D.V. Junnarkar, Accountant Member -
(1.) THE assessee has filed this appeal against the order of the Commissioner (Appeals) on three grounds. THE first ground is concerning his order upholding the rejection of the allowance under Section 35 of the Income-tax Act, 1961 ('the Act') in respect of laboratory equipment worth Rs. 94,687 and a building worth Rs. 1,18,452. THE facts of the case are that during the year under consideration, the assessee spent the following amounts on scientific research:
THE ITO enquired from the assessee whether the aforesaid assets were used by the assessee for the scientific research relating to the business of the assessee during the previous year. As regards the first item of Rs. 3,08,175 he was satisfied that the laboratory equipment was actually used during the year on scientific research. He, therefore, allowed the assessee's claim under Section 35. In respect of the balance of the expenditure, he rejected the assessee's claim solely on the ground that the relevant assets were not put to actual use on scientific research. He, therefore, rejected the assessee's claim.
(2.) Having lost before the Commissioner (Appeals), the assessee has appealed before the Tribunal. In the course of this argument, the learned counsel for the assessee has invited our attention to the provisions of Section 35(1)(iv) and 35(2)(ia), whereunder the assessee has preferred the claim. Under the former provision, the assessee was eligible for deduction in respect of the expenditure of a capital nature on scientific research related to the business carried on by the assessee, as may be admissible under the provisions of Sub-section (1) of Section 35. Under Section 35(2)(ia) in case where such expenditure has been incurred after 31-3-1967, whole of such capital expenditure has to be allowed for that previous year. It was submitted on behalf of the assessee that all the three ingredients for allowance under this section are present in the instant case, viz., that the expenditure has been incurred during the year that was of a capital nature and that it was related to the scientific research carried on by the assessee. It was a different matter that these assets purchased by the expenditure were not put to actual use during the year. But the lower authorities have not disputed the fact that the relevant assets were meant for scientific research. On behalf of the revenue, the learned departmental representative has supported the orders of the authorities below on the ground that the construction of the building was not yet actually completed and the laboratory equipment was in transit.
We have carefully considered the facts and circumstances of the case and the submissions on either side. It is on record that the assessee was carrying on scientific research on a small-scale basis prior to the accounting period under consideration. During the year under consideration, the assessee has laid out some money on scientific research. In fact, machinery worth Rs. 3,08,175 has been actually put to use for that purpose and the ITO has allowed the deduction under Section 35. Now the question is in respect of the rest of the expenditure amounting to Rs. 94,687 on the laboratory equipment and Rs. 1,18,452 in respect of the building. The lower authorities have not denied the assessee's claim that this expenditure was meant for scientific research and that it was of a capital nature. We agree with the learned counsel for the assessee that all the three ingredients necessary to be satisfied for allowance under Section 35 have been met in this case, viz., that the expenditure has been incurred during the year ; that it was of a capital nature and finally it was for scientific research. In the circumstances, in our opinion, the assessee was eligible for deduction under Section 35 in respect of this expenditure. The Commissioner (Appeals), however, erred in upholding the order of the ITO, rejecting the assessee's claim. The claim will now be allowed.
4 & 5. [These paras are not reproduced here as they involve minor issues not covered by the synopsis.]
6. In the result, the assessee's appeal is partly allowed.
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