TMI Blog1996 (2) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... . The written down value, at the time of transfer, was stated to be Rs. 1,71,821. This amount was claimed by the assessee as capital expenditure under section 35(1)(iv) read with section 35(2) of the Act, as expenditure incurred on scientific research related to the business carried on by the assessee. The Income-tax Officer rejected the assessee's claim on the ground that the expenditure on these assets had been incurred even in the earlier accounting years, when they were first brought into use in the business and it cannot be again treated as a capital expenditure for the purpose of section 35(1)(iv) of the Act simply because, the assessee chose to transfer them to the research and development section in a later year. Aggrieved, the assessee filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals), following the earlier order of the Bangalore Bench of the Tribunal, dated February 21, 1974, in I. T. A. No. 178/(Bang) of 1972-73 in the case of Bharat Electronics Ltd., for the assessment year 1971-72, allowed the assessee's appeal. Aggrieved, the Revenue filed a second appeal before the Tribunal. The Tribunal upheld the order of the Commissioner of Income-tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 35(1)(iv) of the Act. On the other hand, learned counsel appearing for the assessee submitted that the assessee-company established a research and development department. The assessee transferred certain machinery for research and development. The assessee incurred capital expenditure in the assessment year under consideration, while transferring certain machinery for scientific research and development. Even though the machinery was purchased earlier and used in the business of the assessee, the used machinery was transferred for scientific and research development. Therefore, the assessee claimed deduction under section 35(1)(iv) of the Act on the written down value of the machinery transferred. According to learned counsel for the assessee, the assessee can set apart its assets for the purpose of scientific research and development by way of either providing money for purchasing the new machinery or transferring its assets which were used in its business and it is also open to the assessee to get back the machinery provided for scientific research and development so as to use the same for its own business. Learned counsel for the assessee further pointed out that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch relating to the business of the assessee. In fact, the assessee can incur expenditure, purchase the machinery and provide the same for scientific research in the accounting year relevant to the assessment year under consideration. The assessee can also transfer its machinery for the purpose of scientific research and development. The assessee can provide either in cash or in kind for scientific research and development for the advancement of its own business. There is no prohibition in section 35(1)(iv) of the Act for transferring a part of the assets of the assessee-company towards scientific development and expenditure. According to learned standing counsel for the Department, inasmuch as the expenditure was incurred in the earlier years for purchasing the machinery, which were transferred in the assessment year under consideration, deduction cannot be claimed under section 35(1)(iv) of the Act since the expenditure was not incurred in the present assessment year under consideration. It remains to be seen that in the present assessment year under consideration, the assessee transferred certain machinery which were used by the assessee for its own business. Therefore, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. But in section 35(1)(iv) of the Act, the assessee is entitled to claim deduction for capital expenditure. Therefore, this decision also would render no assistance to the Department to contend that the assessee is not entitled to deduction under section 35(1)(iv) of the Act. Reliance was also placed upon the decision of the Supreme Court in Escorts Ltd. v. Union of India [1993] 199 ITR 43. This decision relates to the amendment effected by the Finance (No. 2) Act, 1980, by introducing section 35(2)(iv), which came into effect from April 1, 1962. According to the said decision, the assessee is not entitled to claim both the deduction under section 35(1)(iv) of the Act as well as the depreciation under section 32 of the Act. Lastly, reliance also was placed upon a decision of the Orissa High Court in Belpahar Refractories Ltd. v. CIT [1994] 207 ITR 144, wherein the Orissa High Court, while considering the provisions of section 35(2)(ia) of the Act held that the word "incur" means "to become liable to", e.g., to incur debt, loss, etc. When an expenditure is said to have been incurred, it may connote actual payment or it could be that the person concerned has merely become liable for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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