TMI Blog2006 (6) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of Ld. CIT(A) be set aside and that of the Assessing Officer be restored." ITA No. 4518/Del/2005 (assessment year 2002-03) "(1) That the Ld. CIT(A) has erred in law and on facts in allowing the deductions under section 80-O of the Income-tax Act, 1961 amounting Rs. 52,85,620 to the assessee company without appreciating the fact that the patents were in the name of Shri Rakesh Goel and not in the name of the company i.e., M/s. S.K. Dynamics Pvt. Ltd. (2) The order of Ld. CIT(A) be set aside and that of the Assessing Officer be restored." 2. Common grounds have been raised by the assessee with regard to decline of deduction under section 80-O of the Act, in both the assessment years 1999-2000 and 2002-03. Rival contentions have been heard and record perused. The brief facts of the case are that the assessee M/s. S.K. Dynamics Pvt. Ltd. was deriving income from research, development of patents and design, proto type manufacturing and production of electro mechanical systems. The Assessing, Officer found that the assessee had following two patents only : ( i ) US patent : Control system for permanent magnet Synchronous motor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of premises, laboratories, workshop, equipment test, pilot plants, reference calibration facilities, library, prototype development facilities to meet research and development requirements." Further in clause 4 of para B of Memorandum of Association and Article of Association of the assessee having the sub heading the objects incidental or ancillary to the attainment of the main object, it is stipulated a under: "To sell and to receive royalty on embedded software in any form developed by the company which does not employ any manufacturing process." Hence, as per Assessing Officer, since the inception of the assessee company not only a clear separate identity was conceptualized but also it was resolved that the assessee company would sale and receive royalty on embedded software in any form developed by the company. Hence, in view of the above noted facts, and the legal position in respect of the company being a separate person, it was held by the Assessing Officer that the identity of the company can not be coalesced with that of Shri Rakesh Goyal individual, notwithstanding the fact that Shri Rakesh Goyal was the Managing Director of the company. 5. The Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed beyond any reasonable doubt whatsoever, that the ownership or at least the beneficial ownership to the patents and designs vests with the assessee-company. 8. In paras 4.4 and 4.5 of his appellate order, CIT (Appeals) also given categorical finding regarding fulfillment of all the conditions for claim of deduction as provided under section 80-O of the Act. With regard to the quantum of deduction to be allowed out of the receipt in convertible foreign exchange, the CIT (Appeals) directed the Assessing Officer to take the net receipts after reducing 15 per cent of the total resources utilized for earning the receipt, while allowing deduction under section 80-O of the Act. 9. Aggrieved by the above order of the CIT (Appeals), the revenue is in appeal before us. 10. It was contended by the learned DR Shri B.P. Mishra that patents were in respect of the invention made by Shri Rakesh Goyal and the assignee of the same was ADI, therefore, Rakesh Goyal was entitled to have the benefit of deduction under section 80-O of the Act and not the assessee company. He further placed reliance on the order of the Assessing Officer. 11. On the other hand, learned AR Shri K.P. Garg s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company was declined by the Assessing Officer by incorrectly assuming that patents are the property of Shri Rakesh Goyal instead of assessee company M/s. S.K. dynamics (P.) Ltd. We found that Shri Rakesh Goyal was the MD of a Company and was employed by the assessee company as scientists. The patents so developed by the employee of Shri Rakesh Goyal was for and on behalf of the assessee-company. The assessee company has paid to Shri Rakesh Goyal for the services rendered by him, during the process of search, invention, physical resources of the assessee company like laboratory and equipments were used. There was an agreement between the assessee company and Shri Rakesh Goyal, according to which assessee company alone was the beneficial owner of the patents so developed by Shri Rakesh Goyal. Since the assessee company was an artificially created entity, only human being can become an inventor and not any company. A detailed finding has been recorded by the CIT (Appeals), which is as per material on record, to the effect that beneficial ownership of the patents and designs vested with the assessee-company and not with Shri Rakesh Goyal. As per provisions of section 80-O for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the appeals of the revenue for the assessment years 1999-00 and 2002-03 are dismissed. C.O. No. 64/Delhi/2006: 15. In the assessment year 1999-00, the assessee has filed a cross objection, objecting reassessment proceedings initiated under section 147 of the Act. As per learned AR, there was only change of opinion which did not empower the Assessing Officer to reopen the completed assessment, when the primary facts necessary for assessment were fully and truly disclosed. For this proposition, he relied on the decision of Hon ble Supreme Court in the case of CIT v. Dinesh Chandra H. Shah [1971] 82 ITR 367 and CIT v. Simon Carves Ltd. [1976] 105 ITR 212 and Swedish East Asia Co. Ltd. v. IAC [1989] (Cal.). Learned AR further submitted that in the instant case, the Assessing Officer has reopened the completed assessment just to re-examine and review the completed assessment to find out some more facts to enable the Assessing Officer to determine whether any income has escaped assessment, whereas section 147 authorises the Assessing Officer to reassess any income which has escaped assessment on the basis of positive material. As per learned AR, it does not authoriz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l contentions carefully gone through the decisions cited by the learned AR and DR with reference to the validity of reopening and the requisite conditions empowering the Assessing Officer to initiate reassessment proceedings where income has escaped assessment. 18. In the instant case, we have already decided the issue of deduction under section 80-O on merits, in favour of the assesses, therefore, technical ground raised by the assessee regarding validity of reopening has become infructuous. 19. In the result, the cross-objection filed by the assessee is being infructuous, disposed off accordingly. I.T.A. No. 1700/Delhi/2005 20. In the appeal filed by the revenue bearing IT Appeal. No. 1700/Del/05 relates to assessment year 2001-02, wherein following grounds of appeal have been raised : "(1) That the Ld. CIT(A) has erred in law and on the facts of the case in treating the capital expenditure to be of Revenue nature appreciating the fact that neither the projects, except Analog Devices, were complete nor there was any nexus between the amount of expenditure incurred and the profits to be earned in subsequent years, if any. (2) That the Ld. CIT(A) has erred in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of assessee s business and allowability of expenditure incurred by it. Undisputedly, the assessee is a R D Company engaged in research, development of patent/designs, prototype, manufacturing products of electromechanical system. The Assessing Officer acknowledges this fact at para 2 (page1) of his order where he remarked "The income declared by the assessee during the year under consideration is by way of manufacturing/sale of E-Cycle and various other products, receipts in foreign currency in the form of royalty, interest income, etc. The assessee has been working on a number of projects during the year, but receipts in foreign currency is only from one project, namely, Analog Devices Inc.(ADI)." Further, the Assessing Officer remarks at para 4.1 of the order at page 6 "the reply of the assessee has been considered. The assessee itself admitted that remaining expenditure i.e., 92 per cent was spent towards sales as per Profit and Loss account. and ongoing R D work for which the patents were pending or R D work had not furnished." 22. Before the Assessing Officer, the assessee has furnished copy of audit report under section 44AB, wherein clause 8( a ) specifies the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is consistent with the Accounting Standard 8 issue by the Institute of CAs of India which specifies that cost of R D are to be charged to expenses in the period in which they are incurred. The department has never in the past questioned the method of accounting of the assessee. The assessee s method of accounting is consistent with the one followed in preceding years. 24. The action of the Assessing Officer in interpreting the provisions of section 35 was also misplaced. According to section 35(1)( i ) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business of the assessee should be allowed as a deduction. Explanation found below section 35(1)( i ) further provides for allowing even the expenditure on payment of salary or purchase of materials for use in scientific research, even if incurred prior to commencement of business. The provision allows for deduction of a scientific research expenditure even if the assessee is not entirely engaged in the business of scientific research but carries out such research in connection with its business. However, in the instant case, the assessee company wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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