High Court Of Gujarat
CIT vs. Claris Lifesciences Ltd.
Section 35(2AB), 260A
K.A. Puj & Bankim N. Mehta, JJ.
Tax Appeal No. 383 of 2008
7th August, 2008
Counsel appeared :
Mrs. Mauna M. Bhatt, for the Appellant
K.A. PUJ, J. :
The Revenue has filed this tax appeal under s. 260A of the IT Act, 1961 (‘the Act for short’) for asst. yr. 2001-02 proposing to formulate the following substantial question of law for the determination and consideration of this Court :
“Whether the Tribunal is right in law and on facts in deleting the disallowance of claim of deduction made under s. 35(2AB) amounting to Rs. 40,80,942 ?”
2. The brief facts giving rise to present appeal are that the assessee had set up in-house R&D facility and incurred capital and revenue expenditure. The assessee applied to Ministry of Science & Technology, Department of Scientific & Industrial Research (DSIR) on 7th Aug., 2000 for approval. However, the approval was given only on 27th Feb., 2001. In the approval letter by a note, it was mentioned that the facility approved for the purpose of s. 35(2AB) was from 27th Feb., 2001 till 31st March, 2003. In the return filed by the assessee, it had claimed the weighted deduction under s. 35(2AB), i.e. 1½ times of the expenses incurred on the entire expenditure incurred on establishment of the income of the facility. However, during the course of assessment proceedings, the AO held that as approval under s. 35(2AB) has been granted w.e.f. 27th Feb., 2001, the deduction for expenditure incurred only from this date will be eligible for weighted deduction and accordingly, disallowed the weighted deduction on the expenditure incurred before 27th Feb., 2001.
3. Being aggrieved by the order of the AO, the assessee preferred appeal before the CIT(A), who upheld the action of the AO. Being further aggrieved by the order of the CIT(A), the assessee took up the matter before the Tribunal. The Tribunal adjudicated the whole issue and held that this section has been introduced with a view to encourage research and development in industrial sector and nowhere it is mentioned that ‘R&D’ facility is to be approved from a particular date. In other words, it is nowhere suggested that the expenses would be allowable as deduction only from the date of approval or only from a cut-off date, expenses incurred can be claimed as deduction. The Tribunal has further held that once the facility is approved, the entire expenditure so incurred has to be allowed as provided by s. 35(2AB). It is this order of the Tribunal against which the present tax appeal is filed by the Revenue. Mrs. Mauna M. Bhatt, learned standing counsel appearing for the Revenue has submitted that s. 35(2AB) is very clear and it says that expenditure incurred on in-house research and development facility, as approved by the prescribed authorities, has to be allowed as deduction. She has further submitted that while granting approval, it was made clear that with effect form that date onwards, the approval had come into force and, hence, expenditures incurred prior to that date are not to be allowed. She has submitted that in any case, there is a question regarding interpretation of s. 35 (2AB) of the Act, which certainly gives rise to the question of law and it has to be determined by this Court after formulating the said question.
We have considered the submissions made by the learned standing counsel appearing for the Revenue and we have also perused the orders passed by the authorities below. The Tribunal has discussed this issue at length in its order. It was contended by the assessee before the Tribunal that nowhere the provisions provide that expenditure from the date of approval only has to be allowed. In the absence of those words, such conditions cannot be imputed in the statute by the lower authorities. Doing so amounts to reading more in the law which is not expressly provided. The words used are any expenditure incurred by the assessee on scientific research on the in- house R&D facility approved by the prescribed authorities has to be allowed by deduction of expenditure so incurred. Meaning of these words is plain and clear that the facility is to be established first and on approval of the facility all the expenditure so incurred by the assessee for development of in-house facility is to be held as eligible for weighted deduction. Form No. 3CM, which is order of approval as provided by the rules in this behalf also does not have any mention of date of approval rather it speaks of only approval. The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of the R&D facility, expenditure so incurred is eligible for weighted deduction.
The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of (i) development of facility; (ii) incurring of expenditure by the assessee for development of such facility; (iii) approval of the facility by the prescribed authority, which is DSIR; and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. The provisions nowhere suggest or imply that R&D 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 clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application 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. The Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered r. 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of Rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by s. 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R&D facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction.
We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under s. 35(2AB) of the Act by the assessee.
9. We are, therefore, of the view that no substantial question of law arises out of the order of the Tribunal. This appeal is, therefore, dismissed.
[Citation : 326 ITR 251]