TMI Blog2003 (7) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 35(2) is allowable on capital expenditure for building which is under construction and is not put to use for research and development purpose?" We have heard the senior advocate, Shri D.D. Vyas, standing counsel for the applicant-Revenue, and the learned advocate, Shri Tushar Hemani, for the respondent-assessee. The facts giving rise to this reference, in a nutshell, are as under: The assessee is a private limited company manufacturing aluminium extruded sections. The assessee constructed a building for the purpose of scientific research and, therefore, claimed deduction under the provisions of section 35(1)(iv) read with section 35(2) of the Act for the assessment years 1981-82 and 1982-83. It is not in dispute that construction of the building was completed on October 25, 1981, as per the certificate given by the concerned architect. The assessee claimed the deduction under the provisions of section 35 of the Act but as construction of the building was not over and as the building was not put to use in the said assessment years, the Income-tax Officer did not allow the deduction claimed by the assessee. Being aggrieved by the disallowance, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d." Standing counsel for the Revenue has submitted that though the assessee had incurred capital expenditure, the assessee could have claimed the deduction only if the assessee had used the building for the purpose of scientific research. It has been submitted by him that the purpose behind allowing the deduction is to encourage research and development activity. According to him, the Revenue has enacted section 35 so as to give an incentive to assessees so that they initiate research and development activities which are ultimately beneficial to the society. According to him, if the building which has been constructed by the assessee is in fact not used for the purpose of research and development, the purpose with which the said section is enacted would be frustrated. He has submitted that so as to avail the deduction under the provisions of section 35 of the Act, the assessee must establish the following two facts: (i) the asset must be acquired during the relevant previous year; and (ii) the asset must be used for research and development purpose. He has fairly submitted that section 35 of the Act nowhere makes it obligatory on the part of the assessee to use the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [1993] 199 ITR 235 (Karn); (2) Ravi Machine Tools (P.) Ltd. v. CIT [1978] 114 ITR 459 (Karn); and (3) CIT v. H.M.T. Ltd. (No. 1) [1993] 203 ITR 811 (Karn). He has mainly relied upon the judgment delivered in the case of CIT v. H.M.T. Ltd. (No. 1) [1993] 203 ITR 811 (Karn). It has been submitted by him that in the said case a similar issue had arisen and the Karnataka High Court held that the amount spent by the assessee towards the value of work-in-progress, machinery and equipment in transit and under erection at the assessee's research and development division would be eligible for deduction under section 35 of the Act. He has submitted that the Karnataka High Court, while delivering the said judgment, had relied upon the ratio of the judgment delivered by the same High Court in the case of Ravi Machine Tools (P) Ltd. v. CIT [1978] 114 ITR 459. It has been fairly submitted by him that the said judgment pertains to an interpretation of the provisions of section 80J of the Act. However, his endeavour is to show that when the words "actual use" are not used in the section, the Revenue cannot read those words in the section so as to deprive the assessee of the advantage whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the Revenue is patent. The intention is to give benefit to the assessee who incurs expenditure on scientific research related to his business. Even the circular issued by the Department does not make use of the capital asset a condition precedent for claiming deduction under the provisions of section 35 of the Act. In our opinion, both the appellate authorities have rightly considered the spirit with which section 35 of the Act has been enacted by the Legislature and the circular referred to hereinabove while allowing deduction to the assessee under the provisions of section 35 of the Act. We are of the view that when the Legislature has not expected the assessee to put the asset to actual use, it would not be open to the Revenue to deprive the assessee of the benefit of deduction under the provisions of section 35 of the Act if the asset is not used in the previous year in which the capital expenditure is incurred. It is also relevant to note that the deduction is given not on the count of user. Had it been so, the assessee would have been given benefit in the nature of depreciation. It cannot be disputed that depreciation is allowed when the asset is used by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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