Madras High Court
Polaris Financial Technology Limited vs The Secretary on 25 August, 2022
Author: R. Mahadevan
Bench: R. Mahadevan, Mohammed Shaffiq
WA Nos. 554 & 555 of 2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 25.08.2022
CORAM
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
and
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
Writ Appeal Nos. 554 and 555 of 2020
and
C.M.P. Nos. 7894 and 7895 of 2020
---
Polaris Financial Technology Limited
Polaris House
represented by its Director
No.224, Anna Salai
Chennai - 600 006
(presently known as M/s. Polaris Consulting
and Services Limited)
No.34, IT Highway, Navallur
Chennai - 603 103 .. Appellant in both
Now known as Virtusa Consulting & Services Ltd. the Writ appeals
Versus
1. The Secretary
The Department of Scientific and Industrial Research
Technology Bhavan
New Mehrauli Road
New Delhi - 110 016
2. The Assistant Commissioner of Income Tax
Corporate Circle V (2)
Aayakar Bhavan
121, Mahatma Gandhi Road
Nungambakkam, Chennai
https://www.mhc.tn.gov.in/judis
1/24
WA Nos. 554 & 555 of 2020
3. Head of Department
Department of Scientific and Industrial Research
Ministry of Science and Technology
Government of India, Technology Bhavan
New Mehrauli Road .. Respondents in both
New Delhi - 110 016 the Writ Appeals
Appeals filed under Clause 15 of Letters Patent against the common
order dated 19.05.2020 passed in WP Nos. 27545 and 32803 of 2017 on the
file of this Court.
For Appellant : Mr. Srinath Sridevan
in both the Writ Appeals
For Respondents : Mr. Subbu Ranga Bharathi -R1 & R3
Mr. Prabhu Mukunth Arunkumar for
Mrs. Hema Muralikrishnan
in both the Writ Appeals
COMMON JUDGMENT
[Judgment of the Court was delivered by R. MAHADEVAN, J.] Challenging the common order dated 19.05.2020 passed by the learned Judge, in W.P.Nos.27545 and 32803 of 2017, the appellant has come forward with these appeals.
2.The case of the appellant in the aforesaid writ petitions, would run thus:
2.1. The appellant company is engaged in the business of providing software solutions to banking, financial and insurance industry, besides they https://www.mhc.tn.gov.in/judis 2/24 WA Nos. 554 & 555 of 2020 build, maintain, expand and extend highly complex and integrated financial technology solutions through its products and services. According to the appellant, the Research & Development (R&D) Centre established by them is the world's first financial technology design centre (8012 FT Design Centre), which is equipped with a holistic array of product offerings. During the financial year 2012-2013, the 8012 FT design centre launched five major technologies that enabled banks to deliver superior customer experience and unprecedented operational productivity.
2.2. While so, the Central Government, in order to foster indigenous innovation and promote a scientific temper in India, introduced Section 35 (2AB) in the Income Tax Act 1961 (in short, "the Act") to provide fillip for expenditure on R&D, as per which, a company engaged in R&D is permitted to claim 200% deduction (weighted deduction) on the expenditure incurred in a given financial year. To become eligible for claiming such a benefit, the following conditions should be satisfied: (i) Assessee should obtain recognition from the first respondent certifying that the R&D being undertaken is novel and innovative; (ii) Assessee should obtain a separate approval in Form 3CM from the first respondent to claim the weighted deduction for the R&D expenditure incurred during the relevant year under section 35(2AB); and (iii) Once the Approval in Form 3CM is issued, the Assessee is required to submit https://www.mhc.tn.gov.in/judis 3/24 WA Nos. 554 & 555 of 2020 the details of R&D expenditure incurred during the year duly certified by a Chartered Accountant and shall obtain a certificate in Form 3CL from the 1st respondent in order to claim weighted deduction for the R&D expenditure incurred during the relevant year.
2.3. The appellant further averred that they incurred capital expenditure of Rs.8.90 crores and Rs.4.60 crores in its two R&D units established in Siruseri and Navallur during the assessment years 2013-2014 and 2014-2015 and legitimately anticipated that these units would qualify for getting weighted deduction under Section 35 (2AB) of the Act. Accordingly, an application dated 20.01.2012 was submitted for recognition of the units. In the mean while, the guidelines for approval in Form 3CM issued during May 2010, were amended in May 2014, as per which, the companies having in-
house R&D centres, which satisfy the following conditions, are eligible to apply for approval under section 35 (2AB): (i) The company has well defined R&D programmes; (ii)The company maintains proper documentation for the R&D Programmes taken up; (iii)The R&D centres are holding valid recognition by the Department of Science and Industrial Research (DSIR);
(iv) The company shall be engaged in the business of Biotechnology or in the business of manufacturing or production of any article or thing other than those specified in the list of Eleventh schedule; (v) The company maintains separate https://www.mhc.tn.gov.in/judis 4/24 WA Nos. 554 & 555 of 2020 accounts for the R&D expenditures and report the capital and recurring expenditures after duly audited by Statutory Auditors (vi) The in-house R&D centre is located in a separate earmarked area/building and has exclusive R&D manpower of its own; and (vii) the R&D centres are exclusively engaged in research and development for production of any article or thing not being an article or thing specified in the list of eleventh schedule.
2.4. Thus, an assessee who fulfils the conditions stipulated above are entitled to claim deduction from that year itself in view of the retro-active effect of the first respondent's approval. Accordingly, the appellant company had undertaken the process of obtaining the letter of recognition and letter of approval from the first respondent by submitting an application on 20.01.2012. On 25.04.2012, the first respondent also issued recognition for both the units at Navallur and Siruseri, which was valid upto 31.03.2015. Along with the said recognition, the first respondent issued a certificate of Registration for both the R&D units and thereby, the first condition for obtained weighted deduction was completed. Subsequently, the appellant submitted an application in Form 3CK for approval from the first respondent on 26.06.2012 thereby complying with the second condition. Upon scrutinising the same, the first respondent sought certain additional information, which was also produced by the appellant. Thereafter, on 08.07.2014, the first respondent granted approval in https://www.mhc.tn.gov.in/judis 5/24 WA Nos. 554 & 555 of 2020 Form 3CM of the Act only with effect from 01.04.2013 and not from 25.04.2012, which defect was noticed, when the assessment for the relevant assessment year was taken up in the year 2016. Thereafter, on 07.11.2016, the appellant submitted an application to the first respondent requesting to grant such approval with effect from the date of recognition namely 25.04.2012 and to issue Form 3CL in connection with the expenditure incurred. However, no order was passed on the said application, which compelled the appellant to file WP.No.27545 of 2017 to issue a writ of mandamus, directing the first respondent to amend its order dated 08.07.2014 to the limited extent of rectifying the retroactive effect of the approval "from 01.04.2013 to 31.03.2015" to "25.04.2012 to 31.03.2015".
2.5. On 04.12.2017, the first respondent filed a counter affidavit along with a paper book enclosing therewith an order of the third respondent dated 17.01.2017 purporting to rejected the appellant's request, which order was not served on the appellant. However, the appellant preferred WP.No.32803 of 2017 to quash the said order titled "Discussion with M/s.Polaris Financial Technologies Limited" and consequently, direct the first respondent to consider afresh the appellant's representation dated 07.11.2016. https://www.mhc.tn.gov.in/judis 6/24 WA Nos. 554 & 555 of 2020
3.Opposing the relief sought in the writ petitions, a counter affidavit was filed by the first respondent stating inter alia that one of the criteria for recognition under the DSIR scheme is that the R&D unit has to maintain separate books of accounts for the expenditure incurred, both capital and revenue, which should be reflected in the Annual Report and statement of accounts of the company. The DSIR issued certain guidelines for approval in Form 3CK of In-house R&D Centres recognised by DSIR and submission of Report in Form 3CL under Section 35 (2AB) of the Act. In the case of the appellant, after examination of the application submitted for recognition, it was observed that the company was having income from the services only and therefore, they are not eligible for consideration under Section 35(2AB) of the Act.
4.Before the writ court, it was contended by the appellant that the order dated 17.01.2017 has never been communicated to them and therefore, the same is not enforceable against them. Further, the observation of the third respondent in the order dated 17.01.2017 that 'computer is not a capital equipment' is an erroneous reasoning. According to the appellant, they have been creating larger amount of software using the capital equipment viz., computers. It is further contended that creation of software is eligible for relief https://www.mhc.tn.gov.in/judis 7/24 WA Nos. 554 & 555 of 2020 under Section 35 (2AB) of the Act and the same was also recognised by the Central Board of Direct Taxes (CBDT) in the notification No.S.O.452 dated 08.02.2000.
5.By the common order dated 19.05.2020, the learned Judge heard both the writ petitions together and disposed of the same by setting aside the order impugned therein and remitting the matter to the third respondent in WP.No.32803 of 2017. The relevant passage of the said order is quoted below for ready reference:
"26.The petitioner has attempted to claim the benefit of exemption/ deduction under Section 35(2AB) of the Income Tax Act, 1961 and therefore, the petitioner filed an application on 26.06.2012 in Form No.3CK, to obtain the approval under the aforesaid provisions of the Income Tax Act, 1961.
27.The petitioner relied on the recognition/certificate given by the 1st respondent under Notification No.24/2007-Customs dated 01.03.2007 and Notification No.16/2007-Central Excise dated 01.03.2007.
28.Sine qua non for getting approval under Section 35(2AB) of the Income Tax Act, 1961, the company should be engaged in-house research and development facility as approved by the prescribed authority in either;
"a) in business of bio-technology; or
b) in any business of manufacture or production of any
article or thing (not being specified in the list of the Eleventh Schedule of the Income Tax Act, 1961)"
29.Then, such company shall be allowed deduction of a sum equal to one and half times (two time at the relevant time) so incurred. The petitioner company is not engaged in bio-technology.
30.Based on the documents that have been filed and the averments of the petitioner, it appears that the activity of the petitioner prima facie does not come with the broad definition of manufacture in Section 2(29BA).
31.......
https://www.mhc.tn.gov.in/judis 8/24 WA Nos. 554 & 555 of 2020
32.To avail the benefit of exemption/deduction under Section 35(2AB) of the Income Tax, 1961, the petitioner is also required to enter an agreement with the Authority prescribed to research and development facility and fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of report in such manner as may be prescribed as is evident from reading of the aforesaid Section.
33. ....
34.It is not clear as to on what basis the impugned approval in Form 3CM dated 08.07.2014 was issued to the petitioner even though the petitioner prima facie does not appear to qualify for such deduction under the Income Tax Act, 1961.
35.Since there is no discussion as to how the activity undertaken by the petitioner was engaged in manufacture or production of any article or thing, I am inclined to remit the case back to the 1st respondent in W.P.No.27545 of 2017 (3rd respondent in W.P.No.32803 of 2017) to re-examine the issue.
36.Only in the counter affidavit in W.P. No. 27545 of 2017, the 1st respondent has in a round about way stated that the exemption / deduction is available only to a manufacture company and that the income of the petitioner was only from the service provided to its clients, namely banking and financial institutions and therefore, the petitioner was not eligible for deduction.
37. Therefore, the subsequent report dated 04.07.2017 in Form 3CL acknowledging that the petitioner being eligible for exemption / deduction on the expenditure incurred in R&D and that the certificate of recognition granted earlier to the petitioner was valid upto 31.03.2017 also cannot be countenanced.
38.Under these circumstances, I am inclined to set aside the impugned order. Accordingly, the impugned order dated 08.07.2014 in Form No.3CM is set aside and the matter is remitted back to the first respondent in W.P. No. 27545 of 2017 (3rd respondent in W.P. No. 32803 of 2017) namely, the Head of Department of Scientific and Industrial Research to re-examine the issue again in the light of the express language of Section 35(2AB) of the Income Tax Act, 1961 and pass appropriate orders within a period of three months from the date of receipt of a copy of this order, through video conferencing, if situations so warrants on account of continuance of Covid19 pandemic.
39.In case there are no manufacturing activities undertaken by the petitioner, no approval shall be granted to the petitioner. These two writ petitions stand disposed of with the above observation. Connected miscellaneous applications are closed. No costs." 6.1. The learned counsel for the appellant submitted that the appellant https://www.mhc.tn.gov.in/judis 9/24 WA Nos. 554 & 555 of 2020 is a leading developer of software development and providing software solutions to banking, financial and insurance industry. In that process, they are carrying on manufacturing or production activity within the meaning of Section 35(2AB) of the Act, which is also in consonance with the notification issued by the CBDT in S.O. No.452 dated 08.02.2000. Even though the first respondent has accorded approval from 01.04.2013, such approval ought to have been given retrospectively from 25.04.2012. According to the learned counsel, the approval should be with effect from the date of recognition of the R&D units established by the appellant as per the guidelines for approval in Form 3CM of In-house R&D Centres recognised by DSIR and submission of report in Form 3CL under Section 35 (2AB) of IT Act 1961, issued in relation to approvals under Section 35 (2AB) of the Act, which approval is required to be co- terminus with the recognition. It is also submitted by the learned counsel that Section 35(2AB) of the Act provides for deduction of sum equal to two times of the expenditure incurred for scientific research (not being expenditure in the nature of cost of any land or building) or in-house R&D facilities approved by the prescribed authority. The purpose of providing such concession is to encourage the establishment of R&D facilities in the country inter alia to encourage innovation and investment on innovation.
6.2. Continuing further, the learned counsel for the appellant submitted https://www.mhc.tn.gov.in/judis 10/24 WA Nos. 554 & 555 of 2020 that the first respondent, after full and thorough enquiry and after satisfying about the state-of-the-art facilities developed by the appellant, has granted recognition on 25.04.2012. However, the approval in Form 3CM was granted only from 01.04.2013. The delay is on the part of the first respondent in according approval at a later date, however, it should not be put against the appellant in claiming the benefit of deduction under Section 35(2AB) of the Act. In support of his contention, the learned counsel placed reliance on the following decisions:
(i)In CIT v. Claris Life Sciences [326 ITR P. 251] it was observed by the Gujarat High Court as follows:
"....The provisions of Section 35 (2AB) nowhere suggest or imply that 'research & development' facility is to be approved from a particular date and in other words it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading of this section clearly manifests that the assessee has to develop facility, which pre- supposes incurring expenditure in this behalf and applying to the prescribed authority, who, after following proper procedure, will approve the facility or otherwise, and the assessee will be entitled to weighted deduction of any and all expenditure so incurred.
(ii)Following the aforesaid decision of the Gujarat High Court, the Delhi High Court has observed in CIT v. Sandan Vikas [335 ITR 171] and again in Maruti Suzuki v. CIT [397 ITR 728], as follows:
"The settled position in law is that, for availing the benefit under Section 35(2AB) of the Act, what is relevant is not the date of recognition or the cut-off date mentioned in the certificate of the DSIR or even the date of approval but the existence of the recognition. If a R&D Centre is not recognised, it is not entitled to deduction, but if it is recognised, it is entitled to the benefit."
https://www.mhc.tn.gov.in/judis 11/24 WA Nos. 554 & 555 of 2020
(iii)In CIT v. TVS Electronics [(2019) Volume 105, Taxmann.com (Madras) Page No.36], it was observed by this court as under:
"The assessee cannot be punished for the bureaucratic delay in giving such approval for the year in question, which was in the hands of the Department concerned of the Central Government itself. On the very fact that for the period anterior and posterior to the year in question such approval was very well on the record of the revenue, the weighted deduction for the expenditure incurred on the scientific research could not have been disallowed by the authorities below and, therefore, the learned Tribunal, in our view, rightly held such scientific research expenditure to be allowable under Section 35 (2AB) of the Act."
6.3. Pointing out the aforesaid decisions, the learned counsel for the appellant submitted that without considering the claim of the appellant in a proper perspective, the learned Judge disposed the writ petitions, by remanding the matter to the third respondent to re-examine the issue again in the light of the express language of section 35(2AB) of the Act. In this context, the learned counsel submitted that it is beyond any pale of doubt that the appellant is carrying on manufacture and production activity within the meaning of Section 35(2AB) of the Act. To lend support to this submission, the learned counsel referred to the decisions of the Honourable Supreme Court in Commissioner of Income Tax v. Oracle Software India Limited [2010 (2) SCC 667] wherein it was held that 'production of software will amount to manufacture'; and the Delhi High Court in DCIT v. TCIL Bellsouth [2004 Vol.89 TTJ P. 851 (Del)] in which, it was held that 'production of software is a manufacture'.
6.4. It is also submitted by the learned counsel for the appellant that https://www.mhc.tn.gov.in/judis 12/24 WA Nos. 554 & 555 of 2020 the learned Judge decided the writ petitions filed by the appellant on the point of whether the production of software constitutes a manufacture or not, which was irrelevant for the purpose of consideration and it was not part of the order, as assailed in the writ petitions or the pleadings by way of affidavit. Even the counsel for the appellant has not canvassed the same. Thus, the learned Judge failed to appreciate the real issues involved in the writ petitions namely whether the granting of approval was on the basis of the R&D guidelines dated May 2010 issued by the DSIR. In other words, the question, whether production of software products would constitute a manufacture or production process, was never put to challenge before the writ Court. In fact, as per the guidelines issued by the DSIR, the first respondent itself admitted the fact that development of software products are manufacturing or productive activity and granted recognition on 25.04.2012, but the approval was not co-terminus with the recognition as it was granted only on 08.07.2014, with effect from 01.04.2013 and therefore, the findings rendered by the learned Judge with reference to the issue of 'manufacture' as defined in Section 2 (29BA) of the Act, are liable to be set aside. With these averments, the learned counsel sought to quash the order of the learned Judge and allow these writ appeals.
7.1. Per contra, the learned Central Government Standing counsel https://www.mhc.tn.gov.in/judis 13/24 WA Nos. 554 & 555 of 2020 appearing for the first and third respondents submitted that the Government of India announced numerous fiscal incentives for research and development by industry from time to time and many of these incentives are implemented through DSIR. To be eligible for such incentives, recognition of the in-house R&D units by the DSIR is one of the requirements. The in-house R&D units applying for recognition are expected to be engaged in innovative research and development activities related to development of new technologies, design & Engineering, process/product/design improvements etc. One of the criteria for recognition under the DSIR scheme is that the R&D units should maintain separate books of accounts for all the expenditures, both capital and revenue, which should be reflected in the Annual Report and Statement of accounts of the company. The final decision on recognition of an in-house R&D Unit is taken on the basis of discussion notes, visit reports and department's own evaluation. Those units which meet the criteria fixed by the Government, are eligible for various fiscal incentives, including weighted tax deduction on expenditure incurred on scientific research. In fact, the Finance Act, 2010, with effect from 01.04.2011, raised the weighted tax deduction permissible under Section 35 (2AB) of the Act to two times of the expenditure so incurred. As per Rule 6(1B) of the Income Tax Rules, 1962, the prescribed authority, for the purpose of Section 35 (2AB) shall be the Secretary, DSIR. Further, as per Rule https://www.mhc.tn.gov.in/judis 14/24 WA Nos. 554 & 555 of 2020 6 (4), the application required to be furnished by the company under Section 35 (2AB) of the Act shall be in Form 3CK.
7.2. Elaborating further, the learned Central Government Standing Counsel appearing for the first and third respondents submitted that the appellant submitted an application and upon scrutiny of the same, the prescribed authority passed an order in writing in Form No.3CM in accordance with Rule 6 (5A) of the Income Tax Rules, 1962 thereby granting approval to the in-house centre. As per Rule 6 (7A), the report in Form 3CL, has to be submitted within 60 days of grant of approval. The said report submitted by DSIR is in the nature of recommendation and final decision with regard to grant of weighted tax deduction rests with the Director General of Income Tax (Exemptions). In the present case, on 26.06.2012, the appellant submitted the application for approval of in-house R&D Unit for the purpose of Section 35(2AB) and after examination, it was observed that the company was having income from the services only and therefore, they are not eligible for consideration under section 35 (2AB). In other words, the appellant was engaged in the business of services only and some of the required documents along with the application were not submitted. The documents required were finally submitted during August 2013 and based on the DSIR guidelines, the https://www.mhc.tn.gov.in/judis 15/24 WA Nos. 554 & 555 of 2020 approval was considered from 1st April of the concerned financial year in which the company submitted the complete documents. Therefore, approval under Section 35(2AB) of the Act was not granted from 25.04.2012 as claimed by the appellant. The appellant had in fact participated in various meetings convened by the department for consideration of the approval, however, they were informed that as per Section 35 (2AB) of the Act, they are not entitled for deduction under clause (1) unless they enter into an agreement with the prescribed authority for cooperation in such research and development facility and for audit of the accounts maintained for that facility. Thus, unless and until the appellant company enter into an agreement with the prescribed authority in Form 3CM, they cannot claim the benefit of deduction of the expenditure incurred. The learned Judge, on considering the same, directed the third respondent to re-examine the issue again in the light of Section 35(2AB) of the Income Tax Act, 1961 and pass appropriate orders within a period of three months. Therefore, the claim of the appellant will be examined and considered as per the directions issued by the learned Judge and hence, the present appeals are not maintainable. Stating so, the learned central Government standing counsel prayed for dismissal of these appeals.
8.Heard the learned senior standing counsel appearing for the second https://www.mhc.tn.gov.in/judis 16/24 WA Nos. 554 & 555 of 2020 respondent and also perused the materials available on record.
9.It is seen that the appellant is engaged in the business of providing software solutions to banking, financial and insurance industry. During the course of their business, they established two Research & Development (R&D) Centres in Siruseri and Navallur relevant to the assessment year 2013-2014 and 2014-2015. It is stated that as per Section 35 (2AB) of the Act, the appellant company, which is engaged in R&D activities, is entitled to claim 200% deduction (weighted deduction) on the expenditure incurred in the particular financial year, for which, they complied with all the eligibility criteria as indicated in the notification bearing S.O. No. 452 dated 08.02.2020. The appellant's application dated 20.01.2022 seeking recognition of the said units established by them, was accepted and recognition was granted on 25.04.2012 by the first respondent, which was valid upto 31.03.2015. However, they were granted approval in Form 3CM only with effect from 01.04.2013, by order dated 08.07.2014. Subsequently, based on the said approval given from 01.04.2013, the second respondent disallowed the claim of the appellant for weighted deduction in the relevant assessment year. Thereafter, the application dated 07.11.2016 was submitted by the appellant requesting to rectify the mistake crept-in in the approval to get the correct date of retroactivity, grant https://www.mhc.tn.gov.in/judis 17/24 WA Nos. 554 & 555 of 2020 approval with effect from the date of recognition i.e., 25.04.2012 and issue Form 3CL, which was rejected by the third respondent by order dated 17.01.2017, stating that the computers are not capital equipment. It is alleged by the appellant that the said rejection order was not served on them. Therefore, they approached the writ court by invoking Article 226 of the Constitution of India.
10.The grievance expressed by the appellant is that though the recognition for R&D units established by them, was granted on 25.04.2012, the approval in Form 3CM for the purpose of claiming weighted deduction under section 35(2AB), was granted by the first respondent only from 01.04.2013, instead of 25.04.2012. According to the appellant, the approval in Form 3CM is co-terminus with the date of recognition; the appellant had complied with all the conditions stipulated in the notification dated 08.02.2000; and the delay was occurred only on the part of the first respondent in processing their application for approval. Further, the order of rejection passed by the third respondent was not served on the appellant and hence, the same is non est in law. Therefore, the claim of the appellant seeking retroactive effect from 25.04.2012, instead of 01.04.2013, should have been granted by the first respondent, by amending the order dated 08.07.2014.
11.On the other hand, it is the specific stand taken on the side of the https://www.mhc.tn.gov.in/judis 18/24 WA Nos. 554 & 555 of 2020 respondents 1 and 3 that the appellant company was having income from the services only and therefore, they are not eligible for consideration under Section 35(2AB) of the Act. The appellant company also did not provide the required documents along with the application for approval as if they involved in the activity of manufacture. Therefore, the third respondent was right in passing the order of rejection dated 17.01.2017, as regards the claim of the appellant seeking approval from 25.04.2012, instead of 01.04.2013.
12.Admittedly, the creation of software is one of the eligible criteria under Section 35 (2AB) of the Act and it was also recognised by Central Board of Direct Taxes (CBDT) in the notification No. S.O.452 dated 08.02.2000. Whereas, the order of rejection dated 17.01.2017 was passed by the third respondent, without taking note of the compliance of the conditions mentioned in the said notification by the appellant. It is the specific contention on the side of the appellant that the conditions stipulated have been duly complied with by them and they were granted recognition from 25.04.2012, but granted approval on 08.07.2014 in Form 3CM erroneously from 01.04.2013 to 31.03.2015.
13.Even though the learned Judge, while disposing of the writ petitions filed by the appellant, set aside the order dated 08.07.2014 passed by the first respondent and remanded the matter to the third respondent viz., the Head of https://www.mhc.tn.gov.in/judis 19/24 WA Nos. 554 & 555 of 2020 Department of Scientific and Industrial Research to re-examine the issue again in the light of express language contained under Section 35(2AB) of the Act, the appellant has come forward with these writ appeals as against the observations made by the learned Judge in para No.34 to the effect that "it is not clear as to on what basis the impugned approval in Form 3CM dated 08.07.2014 was issued to the petitioner even though the appellant prima facie does not appear to qualify for such deduction under the Income Tax Act, 1961". At the same time, in para No.35 of the order, which is impugned in these appeals, it was observed by the learned Judge that the third respondent, while passing the order of rejection, has not discussed as to how the activity undertaken by the appellant in manufacture or production of any article or thing, would disentitle them to get the weighed deduction and accordingly, remanded the matter to the third respondent herein to re-examine the issue. By observing so, the learned Judge left the matter for decision to be arrived at by the third respondent.
14.We are of the view that such an order passed by the learned Judge need not be interfered with in toto. However, we are inclined to direct the third respondent, while considering the entitlement of the appellant to get the weighed deduction, has to consider the notification dated 08.02.2000 https://www.mhc.tn.gov.in/judis 20/24 WA Nos. 554 & 555 of 2020 whereunder, the specific eligibility criteria has been set out in clause 3, which reads as follows:
"3. In-house R&D Centres of companies, which satisfy the following conditions are eligible to apply for approval of the "Prescribed Authority"
(i) The R&D centres are holding valid recognition by DSIR
(ii) The company has well defined R&D programs
(iii) The company maintains proper documentation for the R&D programs taken up
(iv) The in-house R&D centre is located in a separate earmarked area/building and has exclusive R&D manpower of its own
(v) The R&D Centres are exclusively engaged in research and development for production of any article or thing not being an article or thing specified in the list of the eleventh schedule of the Income Tax Act placed at Annexure-VI."
15.It is also relevant to point out at this juncture that in the counter affidavit dated 08.01.2021 filed by the third respondent viz., Scientist "D", Government of India, Department of Scientific & Industrial Research, Ministry of Science & Technology, Technology Bhavan, New Mehrauli Road, New Delhi - 110 016, in paragraph Nos.24 and 25, it is stated as follows:
"24. The Hon'ble High Court of Madras vide their judgement dated 19.05.2020 under the W.P. No.27545 & 32803 of 2017 directed the respondent i.e. DSIR to re-examine the issue again in the light of the express language of Section 35 (2AB) of the Income Tax Act, 1961 and pass appropriate orders within a period of three months from the date of receipt of a copy of this order, through video conferencing, if situations so warrant on account of continuation of Covid 19 pandemic.
25. It is humbly submitted that this answering respondent is ready and willing to abide by the orders of Hon'ble single Judge in his order dated 19.05.2020."
Therefore, it is evident that the third respondent will consider the claim of the appellant subject to production of the required documents by them. https://www.mhc.tn.gov.in/judis 21/24 WA Nos. 554 & 555 of 2020
16.In view of the above, we dispose these writ appeals filed by the appellant with a direction to the third respondent herein to re-consider the claim of the appellant for getting weighed deduction, by specifically rendering a finding as to whether the production of software constitutes manufacture or not, in the light of the notification no.S.O.452 dated 08.02.2000 of the CBDT, but without being influenced by the observations made by the learned Judge in paragraph nos.34 and 35 and after affording due opportunity to the appellant to put forth their submissions. The appellant is also directed to produce all the required documents for consideration of the third respondent in support of their claim. The third respondent is directed to complete the entire exercise and pass orders thereof on merits and in accordance with law, within a period of three months from the date of receipt of this judgment. Upon receipt of the findings rendered by the third respondent, the first respondent shall act upon with respect to the claim of the appellant. No costs. Consequently, connected miscellaneous petitions are closed.
(R.M.D., J) (M.S.Q., J)
25.08.2022
rsh
Index : Yes / No
Internet : Yes / No
To
1. The Secretary
https://www.mhc.tn.gov.in/judis
22/24
WA Nos. 554 & 555 of 2020
Department of Scientific and Industrial Research Technology Bhavan New Mehrauli Road New Delhi - 110 016
2. The Assistant Commissioner of Income Tax Corporate Circle V (2) Aayakar Bhavan 121, Mahatma Gandhi Road Nungambakkam, Chennai
3. Head of Department Department of Scientific and Industrial Research Ministry of Science and Technology Government of India, Technology Bhavan New Mehrauli Road New Delhi - 110 016 https://www.mhc.tn.gov.in/judis 23/24 WA Nos. 554 & 555 of 2020 R.MAHADEVAN, J.
and MOHAMMED SHAFFIQ , J.
rsh WA Nos. 554 & 555/2020 25.08.2022 https://www.mhc.tn.gov.in/judis 24/24