TMI Blog2013 (3) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. clause (1) of section 35(2AB), expenditure on scientific research in relation to drugs and pharmaceuticals shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority and filing an application for a patent under the Patents Act, 1970. The whole idea thus appears to be to give encouragement to scientific research. By the very nature of things, clinical trials may not always be possible to be conducted in closed laboratory or in similar in-house facility provided by the assessee and approved by the prescribed authority. It cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company. The activities of obtaining approval of the authority and filing of an application for patent necessarily shall have to be outside the in-house research facility. Thus the restricted meaning suggested by the Revenue would completely make the explanation quite meaningless. Merely because the prescribed authority segregated the expenditure into two parts, namely, those incurred within the in-house facility and those can were incurred outside by itself would not be sufficient to deny the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantially erred in holding that Product Registration expenses are revenue in nature, when the 'Product Registration expenses made to Drug Regulatory Authorities in various countries give enduring benefit of exporting the registered drugs for many years? C. Whether the Appellate Tribunal has substantially erred in holding that Trademark Registration fee and Patent fee (Rs.37,92,606/0 and Rs.1,15,49,880/-) are revenue expenses, when the expenses were incurred for registration of Trademark in that country and also for registration of Patent, which are intangible assets under section 32(1)(ii) of the Act?" These questions pertain to the expenditure incurred by the assessee towards product registration before the Drug Regulatory Authorities and registration of trademark and patent fees. It is the case of the Revenue that such registration gives enduring benefits and therefore should have been treated as capital expenditure and not revenue in nature. The Tribunal clubbed these expenditure for common consideration and in the impugned judgment held that pharmaceutical products manufactured by the assessee are to be registered with the local authorities as also medical association in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated roof by a more substantial roof stands on the same footing. The result however of the Trade Marks Act is only two-fold. By registration, the owner is absolved from the obligation to prove his ownership of the trade mark. It is treated as prima facie proved on production of the registration certificate. It thus merely saves him the trouble of leading evidence, in the event of a suit, in a Court of law, to prove his title to the trade mark. It has been said that registration is in the nature of collateral security furnishing the trader with a cheaper and more direct remedy against infringers. Cancel the registration and he has still his right enforceable at Common Law to restrain the piracy of his trade mark. In our opinion, this is neither such an asset nor an advantage so as to make payment for its registration a capital expenditure. In this connection it may be useful to notice that expenditure incurred by a company in defending title to property is not considered expense of a capital nature. In Southern (H M Inspector of Taxes) v. Borax Consolidated Ltd., 10 I. T R. Sup. 1, it is there stated that where a sum of money is laid out for the acquisition or the improvement of a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted within the organization rather than through utilization of external use of resources or staff, it can be stated to be an in-house research. On such basis, the Tribunal rejected the Revenue's contention that merely because an expenditure which was not incurred in the in-house facility cannot be discarded for the weighted deduction under section 35(2AB) of the Act. Learned counsel for the Revenue, however, strongly relied on the certificate issued by the Prescribed Authority, which segregated the expenditure in two parts, that incurred in in-house facility and that incurred outside. In our opinion, the Tribunal committed no error. Section 35(2AB) of the Act provides for deduction to a company engaged in business of bio-technology or the business of manufacture or production of any article or thing notified by the Board towards expenditure of scientific research development facility approved by the prescribed authority. Such deduction at the relevant time was one-and-a-half times expenditure which has now been increased to twice the eligible expenditure. We may notice that explanation to section 35(2AB)(1) which was introduced by the Finance Act 2001 with effect from 1.4.2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esearch in relation to drugs and pharmaceuticals made for its own peculiar requirements, the Legislature appears to have added such an explanation. In the case The Deputy CIT v. Mastek Limited, in Tax Appeal No.242 of 2000 and connected matters, a Division Bench of this Court had touched on the aspect of what can be termed as scientific research. In the context, certain observations made by the Bench may be of some relevance. "25. It can thus be seen that the term scientific research in the context of the deduction allowable under section 35(1) of the Act would include wide variety of activities. It can also be appreciated that every scientific research need not necessarily result into the ultimate goal with which it may have been undertaken. Often times in the field of research and invention, the efforts undertaken may or may not yield fruitful results. What is to be ascertained is whether any scientific research was undertaken and not whether such scientific research resulted into the ultimate aim for which such research was undertaken. It can be easily envisaged that the scientific research undertaken often times would completely fail to achieve desired results. That by itse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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