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Income Tax Appellate Tribunal, BENCH ‘B’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM ]
ORDER Per Shri N.V.Vasudevan, JM : These are appeals by the Revenue against two orders both dated 20.12.2012 of CIT(A) Central-I, Kolkata, relating to AY 2005-06.
The facts and circumstances under which these appeals arise for consideration are as follows: The Assessee is a company. It is engaged in the business of manufacturing and selling of Automobile tyres, tubes & flats and also generation and distribution of power. For AY 2005-06, the Assessee filed return of income declaring “nil” income. Income u/s.115JB of the Act was also returned at a loss of Rs.35,34,75,710/-. In the computation of total income the Assessee claimed a deduction of a sum of Rs.1,43,00,000 which amount was paid by the Assessee to IIT Chennai in the nature of scientific research. In note No.9 to the computation of total income, the Assessee explained the aforesaid claim for deduction as follows: “9. Company has paid Rs.143 lacs to IIT Chennai for scientific research project. The Company is entitled to deduction of 125% of the amount contributed u/s.35(2AA) of the – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 1
I.Tax Act, 1961. Pending receipt of approval as eligible project u/s.35(2AA), deduction is being claimed at 100% of the amount contributed. Enhanced deduction will be claimed after receipt of approval from specified authority.”
Sec.35 of the Act provides for certain deductions, while computing income from business or profession, viz., expenditure incurred on scientific research. The following provisions are relevant for the purpose of deciding these appeals. “Section 35: Expenditure on scientific research. (1) In respect of expenditure on scientific research, the following deductions shall be allowed— (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. Explanation : Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973), on payment of any salary as defined in Explanation 2 below sub-section (5) of section 40A to an employee engaged in such scientific research, or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced; (ii) an amount equal to one and one-fourth times of any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research: Provided that such association, university, college or other institution for the purposes of this clause- (A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and (B) such association, university or Institution is specified as such by this clause by notification in the official gazette by the Central Government….. (2AA) Where the assessee pays any sum to a National Laboratory or a University or an Indian Institute of Technology or a specified person with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority, then— (a) there shall be allowed a deduction of a sum equal to one and one-fourth times the sum so paid; and (b) no deduction in respect of such sum shall be allowed under any other provision of the Income-tax Act : Provided that the prescribed authority shall, before granting approval, satisfy itself about the feasibility of carrying out the scientific research and shall submit its report to the Director General in such form as may be prescribed.” &304/Kol/2013 – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 2 3.1. It can be seen from the aforesaid provisions that deduction u/s.35(2AA) can be claimed at 125% of the expenditure incurred on scientific only when the scientific research is undertaken under a programme approved in this behalf from the prescribed authority. Admittedly as per note-9 to the return of income which we have referred to earlier, such approval did not exist and therefore the Assessee made a claim for deduction of the expenditure incurred on scientific research. This claim is apparently u/s.35(1)(ii) of the Act, though there is no such reference in note-9 to the return of income. For a claim u/s.35(1)(ii) of the Act at 125%, the condition is that amount should have been paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research and such association, university, college or other institution should have been approved for the purpose of Sec.35(1)(ii) of the Act by the prescribed authority by notification in the official gazette. By notification S.O.287 dated 10.12.1973, IIT, Madras has been approved by the prescribed authority for the purpose of Sec.35(1)(ii) of the Act.
3.2. The Assessing Officer (AO) after making a reference to the claim of the Assessee for deduction of the sum of Rs.1.43 Crores u/s.35(2AA) of the Act observed that the Assessee has not submitted approval of the prescribed authority and that the Assessee had also not made any claim for deduction u/s.35(1)(ii) of the Act. The AO further observed as follows: “In the above circumstances no additional allowance is allowed subject to the observation that assessment will be rectified accordingly in case the said approval for AY 2005-06 is received subsequently.”
In the computation of Income under the head “Business Income”, the AO allowed deduction of Rs.1.43 Crores with the observation “Amount paid to IIT Chennai in the nature of Scientific Research”. The claim has apparently been allowed by the AO without making reference to any section of the Act under which the same is being allowed. The order of assessment by the AO is dated 19.12.2007. In the said order of – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 3 assessment, certain other additions and disallowances were made by the AO. Against the same the Assessee filed appeal before the CIT(A). The issue with regard to deduction u/s.35(2AA) of the Act was not raised by the Assessee, as admittedly there was no approval by the prescribed authority and therefore the deduction was not admissible u/s.35(2AA) of the Act. The CIT(A) decided the appeal of the Assessee vide his order dated 25.3.2008 in Appeal No.95/CC-VI/CIT(A), C-1/07-08. Against the said order the Assessee filed appeal before the ITAT, Kolkata in ITA No.1018/Kol/2008. 3.3. Pending disposal of the said appeal, the CIT (Central-I), Kolkata in exercise of his powers of revision u/s.263 of the Act was of the view that the aforesaid order of the AO was erroneous and prejudicial to the interest of the revenue. He accordingly issued a show cause notice dated 26.3.2009 to the Assessee u/s.263 of the Act. According to CIT in the computation of total income the Assessee had claimed deduction u/s.35(2AA) of the Act and in the absence of approval of the prescribed authority the deduction was not admissible. The AO ought to not to have allowed the deduction of Rs.1.43 crores. 3.4. On 30.4.2009, the Assessee filed an additional ground before the Tribunal in the appeal filed by it in ITA No.1018/Kol/2008. In the said additional ground the Assessee claimed that it ought to have been allowed deduction at 125% u/s.35(1)(ii) of the Act but was allowed only 100% of the expenditure on scientific research and that by oversight the grievance of the Assessee in this regard was not raised before CIT(A). 3.5. The additional ground was admitted for adjudication by the Tribunal in its order dated 29.10.2009 passed in ITA No.1018/Kol/2008. Vide para 5.2 of the said order the Tribunal directed the CIT(A) to adjudicate the said issue of allowing deduction u/s.35(1)(ii) of the Act at 125%. 3.6. In the meantime, in the proceedings u/s.263 of the Act, the Assessee pointed out that the deduction at 125% was allowable u/s.35(2AA) of the Act. Deduction at 125% of the expenditure was also admissible to the Assessee u/s.35(1)(i) or 35(1)(ii) ITA Nos.303&304/Kol/2013 – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 4 of the Act and therefore the deduction allowed by the AO was not erroneous. The Assessee also pointed out the order of the Tribunal dated 29.10.2009 remanding the issue of allowance of deduction at 125% of expenditure incurred on scientific research u/s.35(1)(ii) of the Act to the CIT(A) for fresh consideration. The Assessee pleaded that the issue which is under consideration before CIT(A) cannot be subject matter of revision u/s.263 of the Act. 3.7. The CIT passed order u/s.263 of the Act on 4.3.2010. He was of the view that the deduction u/s.35(1)(ii) of the Act was admissible but since such a claim was not made in the return of income nor did the Assessee file a revised return of income making such a claim, the AO ought not to have allowed the claim in view of the decision of the Hon’ble Supreme Court in the case of Goetze India Ltd. Vs. CIT 284 ITR 323(SC) wherein the Hon’ble Supreme Court held that the AO cannot entertain a claim by the Assessee without filing a revised return of income making such a claim. He was also of the view that the CIT(A) in pursuance of the directions of the Tribunal had not decided the issue and therefore the subject matter of revision u/s.263 of the Act is not an issue which has already been decided by the CIT(A). He therefore held that the proceedings u/s.263 of the Act are valid. He finally set aside the order of the AO and directed the AO to redo the assessment in accordance with law. By order dated 31.12.2010, the AO gave effect to the order of the CIT dated 4.3.2010 in the order u/s.263 of the Act and finally concluded that deduction of Rs.1.43 Crores cannot be allowed to the Assessee and accordingly added the said sum to the total income of the Assessee. Against the said order of the AO dated 31.12.2010, the Assessee filed appeal before Tribunal in Appeal No.218/CC-VI/CIT(A)C-I/10-11. 3.8. Against the said order dated 4.3.2010 passed by the CIT u/s.263 of the Act, the Assessee preferred appeal before the Tribunal in ITA No.742/Kol/2010. The Tribunal vide its order dated 6.2.2012 upheld the order u/s.263 of the Act and after taking note of the directions of the Tribunal in dated 29.10.2009 gave the following directions: &304/Kol/2013 – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 5
“(A) In case, ld.CIT(Appeals) allows the assessee’s claim in view of the provisions of Sec.35(1)(ii), then Assessing Officer should give effect to the order of ld.CIT(Appeals). (B) In case, ld. CIT(Appeals) does not allow the assessee’s claim, then the entire deduction allowed by the Assessinf Officer of Rs.1,43,00,000/- is to be withdrawn.”
3.9. The CIT(A) pursuant to the directions of the Tribunal in its order dated 29.10.2009 passed in Vide para 5.2 of the said order directing him to adjudicate the issue of allowing deduction u/s.35(1)(ii) of the Act at 125% took up the said issue for consideration and passed order dated 20.12.2012 (Appeal No.95/CC-VI/CIT(A), C-I/07-08 Tribunal). 3.10. The CIT(A) also passed another order dated 20.12.2012 (Appeal No.218/CC- VI/CIT(A)C-I/10-11) in the appeal preferred by the Assessee against the order dated 31.12.2010 passed by the AO pursuant to order u/s.263 of the Act giving effect to the directions given in the said order u/s.263 of the Act. 3.11. In the order passed in Appeal No.95/CC-VI/CIT(A), C-I/07-08, the CIT(A) upheld the claim of the Assessee for weighted deduction @ 125% of the expenditure of Rs.1.43 Crores incurred on scientific research. After referring to the conditions for allowing deduction u/s.35(1)(ii) of the Act, the CIT(A) observed as follows: “8. If the criteria’s set out in the foregoing are applied to the present case, then I find that Rs.143 lakhs was paid by the appellant pursuant to an agreement with the IIT, Madras for jointly undertaking scientific research projects in the field of tyre & vehicle mechanics. The IIT, Madras in the Certificate dated 09-09-2008 has confirmed that during the FY 2004-05, it had undertaken scientific research projects jointly with the appellant, and on its completion, results were communicated to the appellant. The IIT, Madras was notified by the Central Government as an approved Institution under section 35(1)(ii) vide Notification No.287 dated 10-11-1973 with effect from 01.04.1973. In this factual background, I find that all the conditions as prescribed in section 35(1)(ii) for claiming weighted deduction were fulfilled by the appellant. Merely because the appellant did not make claim for weighted deduction in the return filed u/s 139(1) could not disentitle the appellant to claim it in the appellate proceedings. Moreover, appellant’s such claim was admitted for adjudication by the Tribunal, and then, it was restored to the CIT(A) for his decision in accordance with law. In the circumstances, the only question to be adjudicated by the first appellate authority is whether on the facts and circumstances of the case, the appellant fulfilled the conditions of section 35(1)(vii) for claiming weighted deduction. As discussed in the foregoing paragraphs, the sum paid by the appellant to the IIT Madras fulfilled all the conditions as prescribed in section 35(1)(ii). I therefore hold that the appellant was entitled to claim deduction for expenditure on scientific research u/s 35(1)(ii). Accordingly, the AO ITA Nos.303&304/Kol/2013 – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 6 is directed to allow weighted deduction @125% of Rs.143 lakhs being the amount paid by the appellant to the IIT, Madras for undertaking scientific research in field of tyre and vehicle mechanics. 9. In result, the additional ground of appeal restored for decision by the Hon’ble Tribunal is allowed.”
3.12. In the order passed in Appeal No.218/CC-VI/CIT(A)C-I/10-11, the CIT(A) had deleted the addition made by the AO pursuant to directions given by the CIT in the order u/s.263 of the Act. The following were the relevant observations of the CIT(A): “10. Having considered the factual matrix, I agree with the submissions of the Ld.ARs that before deciding the present appeal, it is necessary to decide the issue which was restored to the file of the CIT(A) by the ITAT by its order dated 29-10-2009. In its order dated 29-10-2009, the Tribunal had admitted appellant’s additional grounds claiming weighted deduction u/s 35(1)(ii) and had directed the CIT(A) to decide on the same as per law. In my order dated the 20th December, 2012 passed in Appeal No.95/CC- VI/CIT(A)C-I/07-08, I have discussed in detail the reasons for allowing the claim of the appellant for weighted deduction u/s 35(1)(ii). Having held that the appellant was entitled to weighted deduction on scientific research is to be allowed. It is for the reason that in terms of Clause (A) of para 10 of the directions recorded by the ITAT, Kolkata in its order dated 06-01-2012, the appellant is entitled either to weighted deduction u/s 35(1)(ii) if allowed by the CIT(A), or in the alternate, the appellant is not entitled for any deduction u/s 35(1)(i). In view of my said order, I hold that the appellant is entitled for weighted deduction u/s 35(1)(ii) in respect of the sum paid to the IIT, Madras. Ground no.5 is allowed.
In view of my finding with regard to ground no.5, the other grounds raised
in this appeal have become infructuous; and accordingly, they are dismissed.
12. In result, the appeal is partly allowed.”
Aggrieved by the aforesaid two orders of the CIT(A), the Revenue has preferred the present appeals before the Tribunal.
The grievance projected in the grounds of appeal by the revenue in 20.12.2012 in Appeal No.95/CC-VI/CIT(A), C-I/07-08 before CIT(A) is that the Assessee did not make a claim for deduction u/s.35(1)(ii) of the Act in the return of income filed by it. Since such a claim was not made in the return of income nor did the Assessee file a revised return of income making such a claim, the AO ought not to have allowed the claim in view of the decision of the Hon’ble Supreme Court in the case of Goetze India Ltd. Vs. CIT 284 ITR 323(SC) wherein the Hon’ble Supreme – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 7 Court held that the AO cannot entertain a claim by the Assessee without filing a revised return of income making such a claim. 5. The grievance projected in the grounds of appeal
by the Revenue in which is the appeal by the revenue against the order dated 20.12.2012 in Appeal No.218/CC-VI/CIT(A)C-I/10-11 before CIT(A) is that the payment of Rs.1.43 Crores by the Assessee to IIT, Madras was for carrying out specific research in the field of tyre and vehicle mechanics with the sole objective to use the result of the research for the development of its own business and such payments do not qualify for any incentive for promoting scientific research as a whole.
6. We have heard the submissions of the learned DR who reiterated the stand of the Revenue as reflected in the grounds of appeal filed before the Tribunal. The learned DR also submitted that erstwhile Sec.35 of the Act was deleted by Sec. 10 of the Direct Tax Laws (Amendment) Act, 1987 (Act 4 of 1988). The notification dated 10.12.1973 (Notification:P S.O.287) approving of IIT, Madras for the purpose of Sec.35(1)(ii) of the Act based on which the CIT(A) allowed deduction to the Assessee u/s.35(1)(ii) will not hold good when the erstwhile Sec.35 of the Act was omitted. According to him there is no notification after 1973 notifying IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act. Even on this basis, according to him, the order of the CIT(A) cannot be sustained. 6.1. The learned counsel for the Assessee while relying on the order of the CIT(A) further submitted that by Sec.95(2)(e) of the Direct Tax Laws (Amendment) Act, 1989 (Act 3 of 1989), erstwhile Sec.35 which was deleted by Sec.10 of the Direct Tax Laws (Amendment Act, 1987 (Act 4 of 1988), has been restored. Thus according to him the erstwhile Sec.35 of the Act got revived and remained in suspended animation for a short period. Since the erstwhile Sec.35 of the Act has always been part of the Act, the notification dated 10.12.1973 notifying IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act was valid at all point of time. Our attention was also drawn to para 5.2 to 5.5. of the CBDT Circular No.551 dated 23.1.1990 explaining the provisions of the Direct Tax Laws (Amendment Act, 1987 (as amended ITA Nos.303&304/Kol/2013 – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 8 by the Direct Tax Laws (Amendment) Act, 1989, explaining the restoration of erstwhile Sec.35 of the Act. It was further submitted by him that u/s.24 of the General Clauses Act, 1897 (Act No.X of 1987), where any Act of Parliament is repealed and re-enacted with or without modification, then, unless it is otherwise expressly provided, any appointment, notification, order, scheme, rule, form or bye-law made or issued under the repealed Act or Regulation shall, so far as it is not inconsistent with the provisions re-enacted, continue in force, and be deemed to have been made or issued under the provisions so re-enacted, unless and until it is superseded by any appointment, notification, order, scheme, rule, form or bye-law made or issued under the provisions so re-enacted. According to him nowhere it is expressly provided that approval of IIT, Madras for the purpose of Sec.35(1)(ii) of the Act will no longer hold good. Sec.24 of the General Clause Act, 1897 refers to repeal of an Act and re- enactment with or without modification. The question is as to whether it will apply where there is a statutory amendment to a provision in an enactment without the enactment being repealed. The learned counsel for the Assessee relied on the decision of the Hon’ble Supreme Court in the case of Parle Biscuits (P) Ltd. Vs. State of Bihar 2005 (192) E.L.T 23 (SC) wherein the Hon’ble Supreme Court held that provisions analogous to Sec.24 of the General Clauses Act, 1897 are applicable even when there is a statutory amendment without there being a repeal of an enactment and re- enactment in place of repealed law. 6.2. We have given a very careful consideration to the rival submissions. The first question that arises for our consideration is as to whether in the absence of a claim made by the Assessee for deduction u/s.35(1)(ii) of the Act in the return of income filed or by filing a revised return of income a claim can be entertained by the AO, in view of the decision of the Hon’ble Supreme Court in the case of Goetze India Ltd. Vs. CIT 284 ITR 323(SC) wherein the Hon’ble Supreme Court held that the AO cannot entertain a claim by the Assessee without filing a revised return of income making such a claim. Factually a claim for deduction u/s.35(1)(ii) of the Act has been made by the Assessee before the Tribunal and the Tribunal has directed the AO to – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 9 consider the claim of the Assessee. The Hon’ble Supreme Court in Goetze India Ltd. (supra) in para 4 of its judgment observed as follows:- “4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-Tax Act, 1961. There shall be no order as to costs”.
A perusal of the aforesaid observation of the Hon’ble Supreme Court makes it abundantly clear that the Tribunal has the power to entertain a claim de hors revised return of income. The claim of assessee required examination by the AO and therefore, the Tribunal remanded the issue to the Assessing Officer for fresh consideration in accordance with law, after affording opportunity of being heard to the assessee. The grievance projected by the revenue in this regard is therefore without any basis and therefore the same is rejected. 6.3. The next question that needs to be answered is as to whether in a case expenditure is incurred for scientific research relating to the business of the Assessee, deduction u/s.35(1)(ii) of the Act can be allowed. It is not the case of the AO that deduction cannot be allowed to the Assessee as the scientific research for which the Assessee incurred expenditure in question related to its business and therefore the deduction claimed cannot be allowed. It is not open for the revenue to set up a totally new case in its grounds of appeal which was never the case of the AO/CIT(A). Under clause (ii) to Sec.35(1) of the Act, any sum paid to approved scientific research association which has as its object the undertaking of scientific research or to an approved university, college or other institution to be used for scientific research is deductible. Unlike cl. (i) to Sec.35(1) of the Act, this clause does not lay down that the "scientific research", for which the amount is paid should be related to the assessee's business. Therefore deduction u/s.35(1)(ii) of the Act has to be allowed whether the &304/Kol/2013 – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 10 expenditure incurred towards scientific research is in connection with the Assessee’s business or not. 6.4. The last question that needs to be answered is as to whether the notification approving IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act is no longer valid. It is no doubt true as pointed out by the learned DR that erstwhile Sec.35 of the Act was deleted by Sec. 10 of the Direct Tax Laws (Amendment) Act, 1987 (Act 4 of 1988). The notification dated 10.12.1973 (Notification:P S.O.287) approving of IIT, Madras for the purpose of Sec.35(1)(ii) of the Act was issued under the erstwhile Section 35(1)(ii). It is also true that there is no other notification after 1973 notifying IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act. However by Sec.95(2)(e) of the Direct Tax Laws (Amendment) Act, 1989 (Act 3 of 1989), erstwhile Sec.35 which was deleted by Sec.10 of the Direct Tax Laws (Amendment Act, 1987 (Act 4 of 1988), has been restored. Thus the erstwhile Sec.35 of the Act got revived and remained in suspended animation for a short period. Since the erstwhile Sec.35 of the Act has always been part of the Act, the notification dated 10.12.1973 notifying IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act was valid at all point of time. Therefore the objection of the learned DR in this regard is not accepted. We also find force in the argument of the learned counsel for the Assessee that nowhere it is expressly provided that approval of IIT, Madras for the purpose of Sec.35(1)(ii) of the Act will no longer hold good. Sec.24 of the General Clause Act, 1897 refers to repeal of an Act and re-enactment with or without modification. Provisions of Sec.24 of the General Clauses Act, 1897 are applicable even when there is a statutory amendment without there being a repeal of an enactment and re-enactment in place of repealed law and the reliance placed by the learned counsel for the Assessee on the decision of the Hon’ble Supreme Court in the case of Parle Biscuits (P) Ltd. Vs. State of Bihar 2005 (192) E.L.T 23 (SC) for the above proposition, in our view, is acceptable and the said stand clearly supports the plea of the Assessee. The submissions of the learned DR in this regard are therefore not accepted. – M/s. JK Tyre & Industries Ltd. A./Y.2005-06 11 6.5. For the reasons given above, we uphold the impugned orders of the CIT(A) and dismiss both the appeals of the revenue.
In the result, the appeals of the revenue are dismissed.
Order pronounced in the court on 6.10.2015.