Madras High Court
Bush Boake Allen (India) Ltd. vs Assistant Commissioner Of Income Tax on 19 December, 2003
Equivalent citations: (2004)192CTR(MAD)165, [2005]273ITR152(MAD)
Author: S.R. Singharavelu
Bench: R. Jayasimha Babu, S.R. Singharavelu
JUDGMENT S.R. Singharavelu, J.
1. The assessee is a company carrying on the business in the manufacture and sale of flavours, essence, etc. For the asst. yr. 1989-90, the company filed a return, in which, a claim of deduction under Sections 80HH and 80-I of the IT Act was made. In the assessment made, the AO allocated a sum of Rs. 54,92,889 as expenditure on research and development pertaining to Chithoor unit. Assessee's appeal and further appeal to the Tribunal having proved unsuccessful, assessee is now before us.
2. Counsel for the assessee submitted that the amount so included does not pertain to Chithoor unit, in which unit there is no research and development activity undertaken and carried out. Learned counsel for the assessee also submitted that regarding the products that were manufactured in Chithoor unit, no research and development was undertaken at Madras and that, therefore, the allocation of some amount on that head to Chithoor unit was not warranted.
3. It is pertinent to point out that both under Sections 80HH and 80-I, where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking to which that section applies, there shall be allowed in computing the total income of the assessee a deduction from such profits and gains of an amount equal to 20 per cent thereof. The assessee claims benefits under the above provisions after excluding the expenses on research and development carried out by it at its establishment at Madras. The AO allocated a sum of Rs. 54,92,889 as expenses for the benefit of the Chithoor unit as a consequence of which the deduction under Sections 80HH and 80-I of the IT Act got reduced and the burden of taxation becomes heavier for the assessee.
4. Learned counsel for the assessee submitted that there was no research and development expenses at Chithoor unit, and that research and development carried out at Madras was not with regard to the product manufactured at Chithoor. This question has not been properly dealt with in the orders of the authorities concerned. Apportionment of expenses on activities of research and development to Chithoor unit merely on the presumption that products manufactured at Chithoor also had the benefit of the research made at Chennai by research and development department is not proper.
5. The Tribunal has also not gone into this aspect. A careful perusal of the order of the Tribunal would show that the Tribunal has not addressed itself to this aspect of the matter. Instead, there was a presumption made that any technology about new flavours and essence will automatically be utilised in Chithoor unit also without examining as to whether the research and development actually carried out at Madras was of use for the unit at Chithoor, as the assessee has other manufacturing units besides the one at Chithoor. It is only on such presumption, allocation of the research and development expenses to Chithoor unit was held by the Tribunal to be justified.
6. For the purpose of determining as to whether at all there was research and development undertaken regarding the product that is manufactured in Chithoor unit, the matter is remitted back to the Tribunal. If it did pertain to the product manufactured at Chithoor, only then the allocation of the expense to Chithoor unit would be justified.