High Court Of Madras
CIT vs. Rane Brake Linings Ltd.
Sections 35(1)(iv), 35(2)
Asst. Year 1985-86
R. Jayasimha Babu & A.K. Rajan, JJ.
T.C. No. 60 of 1998
10th December, 2001
Counsel Appeared
Mrs. Chitra Venkataraman, for the Revenue : P.P.S. Janardhanaraja, for the Assessee
JUDGMENT
A.K. RAJAN, J. :
The assessee is a company and the assessment year in question is 1985-86. In the course of assessment proceedings, the assessee claimed deduction under s. 35(1)(iv) of the IT Act, in a sum of Rs. 4,92,467 under the head “Research and Development Expenses”. The AO negatived the assessee’s claim on the ground that the said expenditure related to a building that was still under construction and, therefore, the assessee is not entitled for the relief. On further appeal, the Tribunal allowed the claim of the assessee. At the instance of the Revenue, the following question of law has been referred to us : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the assessee-company was entitled to deduction under s. 35(1)(iv) of the IT Act, 1961, on the cost of building under construction during the relevant accounting period?”
As per s. 35(1)(iv) of the IT Act, in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provision of sub-s. (2) shall be allowed. Sec. 35(2)(ia) provides that in a case where such capital expenditure is incurred after 31st March, 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year. The section refers only to “capital expenditure” and does not further require that the asset brought into existence by incurring such expenditure should have been complete in all respects. The deduction is for the expenditure to the extent incurred. Expenditure incurred on on-going construction of a building designed for housing the research wing is clearly capital expenditure and is deductible under this provision.
The question referred to us is therefore answered in favour of the assessee and against the Revenue. The assessee shall be entitled to costs in the sum of Rs. 1,500.
[Citation : 255 ITR 395]
