2000-VIL-306-ITAT-PNE
Equivalent Citation: ITD 079, 233, TTJ 074, 120,
Income Tax Appellate Tribunal PUNE
Date: 04.08.2000
VIJAY SEEDS CO. (P.) LTD.
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX
BENCH
Member(s) : K. C. SINGHAL., S. C. TIWARI.
JUDGMENT
Per Singhal Judicial Member--The first issue arising in this appeal relates to the disallowance of Rs. 2,18,582 under section 35 on account of expenditure on buildings for research and development section.
2. The assessee is engaged in the manufacturing and sale of Hybrid seeds and improved variety of seeds. During the year under consideration, the assessee had incurred expenditure on the acquisition of building, plant & machinery, and tractor in respect of research and development section as under:
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Building Rs. 2,18,582
Plant & Machinery Rs. 2,06,000
Tractor Rs. 1,37,474
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Total Rs. 5,62,658
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It claimed depreciation of Rs. 3,84,999 in respect of block of assets and also claimed 100% deduction by way of capital expenditure under section 35. The Assessing Officer asked the assessee to produce xerox copies and the original bills in respect of the above expenditure on which 100% deduction was claimed. However, the assessee failed to produce the same. Further according to the Assessing Officer, the assessee could not establish the documentary evidence, the "Act co-relationship of the assets with the research and development and use of each of these assets in the research and development of the company. Accordingly, the claim under section 35 was rejected. However, the depreciation as claimed by the assessee was allowed.
3. The matter was carried before the CIT(A) before whom the necessary evidence was produced and it was submitted that no proper opportunity was granted by the Assessing Officer for producing the necessary evidence. Accordingly, the evidence produced before him were remitted to the Assessing Officer for comments. After considering the report of the Assessing Officer, it was held by him that assessee had recognised research and development unit covered by section 35 of the Act. Accordingly, the expenditure on plant & machinery of Rs. 2,06,000 and expenditure on tractor of Rs. 1,37,476 was held to be capital expenditure directly connected with the scientific research related to the business of assessee and consequently, it was held that assessee was entitled to 100% deduction in respect of these two items. However, in respect of expenditure on building, it was held by him that such expenditure was not directly connected with the scientific research. However, the assessee was held to be eligible for normal depreciation under section 32 on the specified block of assets. Aggrieved by the same, the assessee is in appeal before the Tribunal.
4. The Ld. counsel for the assessee, Shri Sathe has submitted before us that for claiming deduction under section 35, it is not necessary that expenditure must be directly connected with the scientific research. According to him, it is sufficient if such expenditure is indirectly connected and incidental to such activity. In this connection, he has relied on the decision of the Bombay High Court in the case of CIT v. Sandoz (India) Ltd [1994] 206 ITR 385 wherein the deduction under section 35 was allowed in respect of approach road to the research laboratory. He also relied on the decision of Karnataka High Court in the case of CIT v. Smith Kline & French (India) Ltd [1994] 77 Taxman 153 wherein the claim under section 35 was allowed in respect of Buses which were used for transporting research personnel. On the other hand, the Ld. D.R. has relied an the order of CIT(A) and has further contended that the expenditure on immovable property cannot be said to be expenditure on scientific research. According to him the word "on" clearly indicates that expenditure must be directly on scientific research. However, he further prayed that some time be given to him for filing the written submissions. Accordingly, two weeks' time was given to him in this regard. However, no such written submissions have been filed by him. After the expiry of two weeks, he was summoned to the Chamber and he further requested to allow some more time. Accordingly, he was directed to file the written submissions by 21st July, 2000. Despite the extended time given to him, he has not filed the written submissions. Accordingly, we proceed to decide the matter on the basis of arguments made in the Court.
5. After considering the rival submissions of the parties, we find force in the contention of the Ld. counsel for the assessee. No doubt, under section 35(1)(iv), the deduction is allowable in respect of expenditure of capital nature on scientific research which prima facie indicate that expenditure must be directly on scientific research. But, it appears from the scheme of the Act that Legislature has used the words "on scientific research" in the widest possible sense including the expenditure on immovable properties. The words "on scientific research" have been defined by the Legislature under section 43(4) according to which the expenditure incurred on scientific research would include all expenditure incurred for the prosecution, or the provision of facilities for the prosecution of scientific research. This definition clearly shows that even the capital expenditure incidental to the scientific research, would fall within the ambit of the words "on scientific research". Further it would be useful to refer to the proviso to clause (ia) of section 35(2) which provides that no deduction shall be admissable in respect of any expenditure incurred on acquisition of any land after 29th day of February, 1984. This provision clearly shows that Legislature intended to allow the deduction in respect of immovable property and it was only in respect of land, the deduction was disallowed after 29th February, 1984. The case law relied upon by the Ld. counsel for the assessee also supports the view which we have taken. it is, therefore, held that assessee is entitled to 100% deduction in respect of the expenditure on building under section 35.
6. Since it is held that assessee is entitled to deduction under section 35 as a necessary corollary, it is held that assessee is not entitled to depreciation which the lower authorities have allowed. For this legal proposition reference can be made to the decision of Supreme Court in the case of Escorts Ltd v. Union of India [1993] 199 ITR 43. The Ld. counsel for the assessee also does not have any objection if the depreciation allowed by the Assessing Officer is withdrawn.
7. In view of the above order of CIT(A) is set aside on this issue and the Assessee Officer is directed to allow 100% deduction in respect of expenditure on building and withdraw the claim of depreciation allowed by him.
8. The next issue relate to the disallowance of Rs. 9,143 being the amount spent at the time of Ganpati Festival. After hearing both the parties, this issue is decided in favour of the assessee, in view of the decision of Supreme Court in the case of CIT v. T. V. Sundaram Iyengar & Sons (P.) Ltd [1990] 186 ITR 276 wherein the expenses incurred for the labour welfare were held to be allowable. It is well known fact that in Maharashtra Ganapati Festival is celebrated at a large scale and employees of the industrial undertakings generally celebrate such festival in the premises of the factory. Therefore, any expenditure incurred to boost morale of employees should be considered as an expenditure for labour welfare. We, accordingly, held so. The order of CIT(A) is therefore, set aside and the disallowance sustained by him is hereby deleted.
9. In the result, appeal is allowed protento.
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