Commissioner Of Income Tax vs. M/S Consolidated Engar Consultants Ltd.

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ITA/90/2014HC Madhya Pradesh23 June 2014Bench: HON'BLE SHRI JUSTICE RAJENDRA MENON2 pages
For Petitioner: Sanjay Lal
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the concurrent findings of the Commissioner (Appeal) and the Income Tax Appellate Tribunal, which allowed the deduction for scientific research, could not be termed as perverse or unsustainable, and therefore, did not raise a substantial question of law warranting consideration in the appeal. The appellate authorities had interpreted section 43(4) of the Act, defining 'scientific research', broadly, considering that the legislature intended to benefit research and development relating to business as well. They relied on judgments from the High Courts of Bombay, Karnataka, and Andhra Pradesh to conclude that the assessee's activities fell within the category of 'scientific research' and were eligible for exemption under section 35. Consequently, the appeal filed by the Revenue was dismissed.

What were the facts?

The Revenue, Commissioner of Income Tax, filed an appeal under section 260-A of the Income Tax Act, 1961, challenging the orders of the Commissioner (Appeal) and the Income Tax Appellate Tribunal. The assessee, M/s Consolidated Energy Consultants Limited, was assessed for the assessment year 2009-10. The assessee claimed deduction for expenditure incurred on research and development activities under section 35, contending that these activities constituted 'scientific research' as defined under section 43(4) of the Act. The Assessing Officer disallowed this claim, holding that the assessee's activities did not fall within the definition of 'scientific research'. The appellate authorities, however, allowed the deduction, interpreting section 43(4) broadly.

What were the issues?

1. Whether the activities undertaken by the respondent assessee fall within the definition of 'scientific research' as contemplated under section 43(4) of the Income Tax Act, 1961, thereby entitling them to deduction under section 35. Assessee's Contention: The assessee argued that their research and development activities qualified as 'scientific research' under the broad definition provided in section 43(4), and thus the expenditure incurred was eligible for deduction under section 35. They relied on the concurrent findings of the appellate authorities. Revenue's Contention: The Revenue contended that the exemption granted was unsustainable, drawing attention to section 35(2)[(ia)] and its proviso. They argued that based on this provision and the date of land acquisition by the assessee, the exemption should not have been allowed. However, the judgment notes that the Assessing Officer's disallowance was not based on these specific grounds but on the interpretation of 'scientific research'.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 143(2),Section 35,Section 43(4),Section 35(2)(ia)

AI-generated summary — verify with the full judgment below

ITA NO :: 90 / 2014

Commissioner of Income Tax Vs. M/s Consolidated Energy Consultants Limited

23.06.2014. Shri Sanjay Lal for the appellant. This is revenue’s appeal under section 260-A of the Income Tax Act, calling in question the concurrent orders passed by the Commissioner (Appeal) and the Income Tax Appellate Tribunal in the matter of allowing deduction to the respondent assessee on the ground that the activities of the respondent assessee falls within the definition of ‘scientific research’ as contemplated under section 43(4) of the Income Tax Act, 1961. Respondent was assessed for payment of income tax, for the assessment year 2009-10. Notice was issued under section 143(2) and based on the material that came on record an order of assessment was passed by the Assessing Officer. Respondent assessee claimed certain deduction on the ground that they are carrying out ‘scientific research’ and sought exemption from the expenditure incurred in the research and development activities under section 35. This was disallowed by the Assessing Officer, but the appellate authorities having allowed the same after applying the provisions of section 43(4) and the definition of ‘scientific research’, this appeal under section 260-A by the Revenue. Even though Shri Sanjay Lal, learned counsel for the appellant, invited our attention to the provisions of section 35(2)[(ia)] and proviso (1) thereof, to say that because of the aforesaid provision and the date of acquisition of land by the assessee, the exemption granted is unsustainable, but on going through the records, particularly the assessment order available at

2 Annexure A/1, we find that the Assessing Officer has disallowed the expenditure for research and development not on the ground of section 35(2)[(ia)] or the proviso thereof, but after holding that the activities of the respondent for the project and the ‘scientific research’ do not come within the purview of ‘scientific research’, warranting grant of exemption. However, when the matter was taken up by the Commissioner (Appeal) and the Income Tax Appellate Tribunal, both the authorities considered the provisions of section 43(4) of the Act, the definition of ‘scientific research’ and after following certain judgments rendered by the High Court of Bombay, Karnataka and Andhra Pradesh, found that the definition of ‘scientific research’, as contemplated under section 43(4) is broad enough and the Legislature in its wisdom has granted benefit to research and development relating to business also and after interpreting the provision of section 43(4), the exemption under section 35 has been allowed, finding the respondent establishment to be carrying out activities which fall in the category of ‘scientific research’. The concurrent findings passed by the appellate authorities cannot be termed as perverse or unsustainable raising substantial question of law, which warrants consideration in this appeal. Accordingly, finding no ground, this appeal is dismissed.

(RAJENDRA MENON) (SUSHIL KUMAR GUPTA)

J U D G E J U D G E Aks/-

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