Bombay High Court
Commissioner Of Income-Tax vs Pyrene Rai Metal Treatment Ltd. on 5 November, 1992
Equivalent citations: [1993]203ITR752(BOM)
Author: B.N. Srikrishna
Bench: B.N. Srikrishna, Sujata V. Manohar
JUDGMENT B.N. Srikrishna, J.
1. The Commissioner of Income-tax has sought and obtained a reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), of following question of law for the opinion of the court in relation to the assessment years 1970-71 to 1972-73 :
"Whether, on the facts and in the circumstances of the case the Tribunal was right in law in holding that the expenditure incurred on plant and machinery utilised for scientific research should be included in the capital computation for the purpose of section 80J in view of rule 19A(2) even though 100 per cent. deduction had been given in respect of the said expenditure under section 35 of the Income-tax Act, 1961 ?"
2. During the three assessment years in question, the Income-tax officer had not taken into account certain amounts representing the cumulative total of expenditure incurred by the assessee on plant and machinery utilised for scientific research upon which the assessee was allowed 100 per cent. deduction in the respective assessments under the provisions of section 35 of the Act. On appeal by the revenue the appellate Assistant Commissioner directed the Income-tax officer to take into account the following amounts in computing the capital under rule 19A for the Income-tax Rules, 1962 :
Assessment year Amount (Rs.)
1970-71 1,25,365
1971-72 1,26,507
1972-73 1,30,535
3. On further appeal to the Appellate Tribunal the Tribunal agreed with the view of the Appellate Assistant Commissioner and dismissed the Revenue's appeal. That is how the question of law mentioned earlier has been referred to us for opinion.
4. Section 35(1)(iv) stipulates that, in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, the assessee, the assessee is entitled to deduction as provided for under the provision of sub-section 35, the Act. Under clause (ia) of sub-section (2) of section 35 the assessee was entitled to and was allowed, 100 per cent deduction of such capital expenditure incurred in the concerned assessment years during the assessment years during year the assessment proceedings.
5. Under section 80J of the Act the assessee is entitled to claim relief by way of deduction at the stipulated percentage relatable to the capital employed in its business. Rule 19A provides for the computation of capital. Sub-rule (2) of the rule 19A provides as under :
"19A. (2) The aggregate of the amounts representing the values of the assets as on the first day of the computation period of the undertaking or of the business of the hotel to the hotel to which the said section 80J applies shall first be ascertained in the following manner :-
(i) in the case of assets entitled to depreciation their written down value;
(ii) in the case of assets acquired by purchase and not entitled to depreciation their actual cost to the assessee;
(iii) in the case of assets acquired otherwise than by purchase and not entitled to depreciation, the value the assets when they became assets of the business;
(iv) in the case of assets being debts due to the person carrying on the business, the nominal amount of those debts;
(v) in the case of assets being cash in hand or bank, the amount thereof..."
6. As far as the assets on which relief under section 35 of the Act had been claimed by the assessee are concerned, there cannot be any dispute that they were used in connection with scientific research which was itself related to the business carried on by the assessee. That being so, the relief which the assessee claimed under section 35 of the Act had, in our view, no connection with the working out of the actual cost or written down value of the assets employed by the assessee in its business. The depreciation of which is admissible under section 32 is an independent deduction permitted by law and, as long as there is no provision in the Act or the Rules which debars the assessee from claiming both benefits available under section 35 by way of deduction and the deduction available under section 80J, we fail to see how the revenue can object to such relief being granted to the assessee.
7. Although, on behalf of the Department, it was strenuously contended that as the assessee had obtained 100 per cent. deduction section 35 of the Act, the value of the assets to the assessee must be deemed to be nil for the purpose of computation of capital under rule 19A(2), we are not impressed by this contention is fallacious as it fallaciously assumes that the reliefs under sections 32 and 35 are both of the some nature. In our view, the two reliefs are distinct and independently claimable.
8. The assessee relies on the judgment of the Andhra Pradesh High Court in the case of CIT v. Warner Hindusthan Ltd. [1986] 160 ITR 217. Question No. 3 therein, which was decided by the High Court, is relevant for our purpose. The Andhra Pradesh High Court held that the fact that deduction is given for the purpose of computing taxable income under section 35 for expenditure on scientific research does not mean that it ceases to be capital employed or an asset. We are in agreement with this part of the statement of law on the third question decided by the said High Court.
9. In fact, in our view, rule 19A(2) deals with both situations. If the assets are entitled to depreciation for the purpose of computation, then their written value has to be taken into consideration. If the assets are not entitled to depreciation then the value of the assets, when they became assets of the business, has to taken into consideration. Since, in the case of the assessee, no depreciation appears to have been claimed on the concerned assets, their value would obviously be the value as on the date of such assets in the books would have to be taken into consideration for the purpose of computation of capital under sub-rule (2) of 19A of the Income-tax Rules, 1962.
10. In the results, the question referred is answered is the affirmative and in favour of the assessee.
11. There shall, however, be no order as to coats.