Gujarat High Court
Commissioner vs Sidmak on 10 August, 2011
Author: Akil Kureshi
Bench: Akil Kureshi
Gujarat High Court Case Information System
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TAXAP/900/2010 3/ 3 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 900 of 2010
=========================================================
COMMISSIONER
OF INCOME TAX-IV - Appellant(s)
Versus
SIDMAK
LABORATORIES (INDIA) LTD - Opponent(s)
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Appearance
:
MR
MANISH R BHATT Sr Advocate with Ms MAUNA M BHATT
for
Appellant
None for
Opponent
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CORAM
:
HONOURABLE
MR.JUSTICE AKIL KURESHI
and
HONOURABLE
MS JUSTICE SONIA GOKANI 10th August 2011
ORAL
ORDER (Per
: HONOURABLE MR.JUSTICE AKIL KURESHI) Revenue has challenged the judgment of the Income Tax Appellate Tribunal {"Tribunal" for short} dated 12th December 2008 raising following question for our consideration :
"Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT (A) in allowing the claim of the assessee u/s. 35D in respect of expenditure in capital nature incurred on the incomplete building and D.G Set, etc. ?"
Briefly, the facts are that the assessee had incurred expenditure on creation of infrastructure facilities for scientific research. The assessee claimed benefit thereof for the year during which such expenditure was incurred. Revenue, however, was of the opinion that in view of provisions contained in Section 35(2) of the Act, such benefit would not be available since no scientific research was actually carried out during the year under consideration with the help of the assets created.
CIT [A], by a detailed order, allowed the assessee's appeal on various grounds and granted the benefit. Revenue thereafter approached the Tribunal. The Tribunal, by the impugned judgment, rejected the Revenue's appeal mainly relying on the decision of this Court in the case of Commissioner of Income-Tax v. Gujarat Aluminium Extrusions Private Limited, reported in 263 ITR 453. In the said decision, the Division Bench of this Court was examining the question whether u/s. 35(2) of the Act, capital gain for building which is under construction and is not put to use for R&D is an allowable deduction or not. The Court ruled in favour of the assessee which was a private limited company manufacturing aluminium extrusions sections and which constructed a building for the purpose of scientific research claiming deduction under the provisions of Section 35 (1)(iv) read with Section 35 (2) of the Act, by observing thus -
"The object behind the enactment of Section 35 of the Act is to encourage research and development activities by the assessee. As an incentive, the Legislature has given this benefit by way of deduction in respect of the capital expenditure incurred by the assessee. This is a provision for the benefit of the assessee and if the assessee incurs capital expenditure for the purpose of research and development during the relevant previous year, in our opinion, the Revenue should not deprive the assessee of the benefit of deduction under the provisions of section 35 of the Act even if the asset is not put to use for research and development. It is a settled legal position that the provision for exemption or reliefs should be construed liberally and in favour of the assessee. If the section is interpreted in the manner suggested by standing counsel for the Revenue, in our opinion, we would be depriving the assessee of the benefit which the Legislature desires to give to the assessee."
The Court also held, "..Once it is established that the expenditure was incurred for the purpose of scientific research and the conditions incorporated in section 35 of the Act are fulfilled, in our opinion, the Revenue cannot expect the assessee to start using the asset immediately. In a given case the assessee might have to go on incurring expenditure for several years before putting the asset to actual use. If the interpretation advanced by standing counsel for the Revenue is accepted, we are afraid, the assessee would not be in a position to avail of the deduction under section 35 of the Act to the extent to which the Legislature intends to give to the assessee."
As the facts are similar in the present case and the issue proposed, which relates to construction of a building is the same as was before the Division Bench of this Court in the said judgment in the case of Gujarat Aluminium Extrusion Limited [Supra], in view of the above decision, we find no question of law arising. Before concluding, we may also notice that the expenditure incurred by the assessee for installation of D.G set were also disputed by the Revenue. However, on this issue also, it was found that the D.G set was installed for carrying purposeful research and such installation was absolutely necessary since the scientific research would require maintenance and control of temperature, humidity, etc., and without the help of continuous power supply, the same would not be possible. In view of this conclusion, we find no error in granting benefit towards such expenditure also. In the result, Tax Appeal is dismissed.
{Akil Kureshi, J.} {Ms. Sonia Gokani, J.} Prakash* Top