TMI Blog2023 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... not warrant any adjudication. Weighted deduction for expenses incurred towards clinical trial expenses - HELD THAT:- As already held that the approval by DSIR of the facility from which the scientific research expenditure are incurred is the deciding factor for allowing the expenditure, which in assessee s case is available on record. The section allows the expenditure incurred towards clinical trial by the approved entity and, therefore, we see no reason to deny the benefit of weighted deduction or the expenditure incurred by the assessee towards clinical trial. Accordingly, we direct the Assessing Officer to allow the additional 100% of the deduction since the assessee in the computation of income has already claimed 100%. Allowance of MAT credit - allowance of credit towards Minimum Alternate Tax (MAT) is inclusive of surcharge and education cess as per the normal provisions and the MAT provisions - HELD THAT:- As relying on case of Tata Motors Ltd [ 2021 (7) TMI 207 - ITAT MUMBAI] we direct the Assessing Officer to include surcharge and education cess for the purpose of giving credit under section 115JAA. Short Grant of TDS - AR submitted that the AO has not gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and allow the claim of the assessee in accordance with law after giving reasonable opportunity of being heard to the assessee. - I.T.A. No.2008/Mum/2019, I.T.A. No.2009/Mum/2019, I.T.A. No.4656/Mum/2018, I.T.A. No.4657/Mum/2018 - - - Dated:- 27-6-2023 - Shri Aby T. Varkey (Judicial Member) And Ms. Padmavathy S. (Accountant Member) For the Assessee : Shri Nitesh Joshi For the Department : Vrunda U Matkari Sr DR ORDER PER BENCH These 4 appeals are against the order of the Commissioner of Income-tax (Appeals)-57, Mumbai [hereinafter Ld.CIT(A)'] dated 24/01/2019 for the assessment years 2012-13 to 2015-16. 2. The assessee is a public limited company engaged in the manufacturing and selling of bulk drugs and pharmaceutical formulations. The assessee filed its return of income for the years under consideration as per details given below: A.Y. Income returned Dt. of filing 2012-13 Rs. 744,89,59,910/- 30/11/2012 2013-14 Rs. 55,78,35,460/- 29/11/2013 2014-15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional ground) 6 Short Grant of TDS Ground No.6 (raised as Additional ground) Ground No.6 (raised as Additional ground) 7 Weighted deduction u/s.35(2AB) for clinical Trial expenditure Ground No.5 (raised as Additional ground) - - - 8 Allowance of MAT credit to include surcharge Education cess and Carry forward set off of MAT credit accordingly Ground No.6 7 (raised as Additional ground) - Ground No.5 (raised as Additional ground) Ground No.5 (raised as Additional ground) 9 Incorrect computation of interest u/s.234A Ground No.6 (raised as Additional ground) 10 Refund of DDT Ground No.7 (raised as Additional ground) 11 Incorrect computation of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w our attention to the amendment to Rule 6(7a) with effect from 01/07/2016 wherein for the purpose of weighted deduction, the amount as certified by the DSIR in Form 3CL should be considered. Therefore, the Ld.AR submitted that prior to the amendment, the weighted deduction under section 35(2AB) cannot be restricted to the amount as mentioned in Form 3CL since there is no sanctity to the certificate issued. The Ld.AR further submitted that before the amendment, the only requirement for claiming the weighted deduction was that the facility where scientific research is carried on by the assessee should have been approved by DSIR for the purpose of weighted deduction and in assessee's case, the same has been obtained and submitted before the lower authorities. The ld AR also relied on the decision of the coordinate bench in the case of M/s Strides Arcolab Limited vs DCIT in I.T.A. No.1903/Mum/2015. 9. The Ld.DR, on the other hand, submitted that as per form 3CL, the DSIR certifies the amount spent by the assessee towards scientific research that is eligible for weighted deduction based on the audited certificate filed by the assessee and therefore, weighted deduction should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1970 (39 of 1970). (2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act. (3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and for audit of the accounts maintained for that facility. (4) The prescribed authority shall submit its report in relation to the approval of the said facility to the Director General in such form and within such time as may be prescribed. (5) No deduction shall be allowed in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of March, 2012. (6) No deduction shall be allowed to a company approved under sub-clause (C) of clause (iia) of sub-section (1) in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of March, 2008. (emphasis supplied) Provisions of Sec.35(2AB) were introduced by the Finance Act, 1997 w.e.f. 1.4.1988. It is worthwhile noticing that while expenditure on scientific research whether done in house or outsourced were eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Research. ; (4) The application required to be furnished by a company under sub-section(2AB) of section 35 shall be in Form No.3CK. ; (5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3 CM: Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application. (7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely:- (a) The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature; (b) The prescribed. authority shall submit its report in relation to the approval of inhouse Research and Development facility in Form No. 3CL to the Director General (Income Tax Exemptions) within sixty days of its granting approval; (c) The company shall maintain a separate account for each approved facility; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch farms or research labs. iv. Capitalized expenditure of intangible nature. v. Expenditure on foundation seeds multiplication, demonstration crops and grow out test etc. beyond breeder seed development. vi. Foreign patent filing expenditure. vii. Consultancy expenditure, retainership, contract manpower / labour. viii. Building maintenance, Municipal taxes and rental charges being paid. ix. Any interest component on loans for R D. x. Clinical trial activities carried out outside the approved facilities. xi. Contract research expenses duly certified by chartered accountant. xii. Expenditure on any payments made to members of the board of Directors or any other part time employees working for R D. Signature Seal of the Statutory Auditor Date : Place: 11.6.7. The auditor is required to specifically certify in terms of clause (i) to (xii) that the expenditure claimed does not include certain specified expenditure. Though a plain reading of the statutory provisions of Sec.35(2AB)(1) shows that the prescribed authority has to approve only the in house research and development facility and not expenditure so incurred on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.3CL in the context of allowing deduction u/s.35(2AB) of the Act. This view has been held by the various judicial pronouncements as relied on by the ld AR including the decision of the Pune Bench of the Tribunal where in the case of Cummins India ltd (supra) it has been held that 45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis- -vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. If the law wanted the expenditure to be approved by the prescribed authority, same would have been expressly provided in the section. 114. The Bangalore Tribunal in case of Natural Remedies (P.) Ltd. v. Asstt. CIT [IT Appeal No. 704 (Bang.) of 2020, dated 1-1-2021] has held that for the period prior to the Income-tax (Tenth Amendment) Rules, 2016, with effect from 1-7-2016, which amended rule 6(7A) of the IT Rules, deduction u/s 35(2AB) of the IT Act has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account. Relevant finding of the Tribunal is reproduced below: 8.5 In view of the aforesaid reasoning and in the light of judicial pronouncements, cited supra, we hold that in the present case since the deduction is with reference to assessment year 2016-2017 (where the law applicable is the 1st day of April, 2016), which is prior to the Income-tax (Tenth Amendment) Rules, 2016, with effect from 1-7-2016 of rule 6(7A) of the I.T. Rules, deduction u/s 35(2AB) of the I.T. Act has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account. Admittedly, the Assessing Officer has not disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute that the Assessee is engaged in business to which sec.35(2AB) of the Act applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) of the Act is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific Industrial Research, Govt. of India (DSIR). It is not in dispute that the Assessee in the present case obtained approval in Form No. 3CM as required by Rule 6 (5A) of the Rules. In these facts and circumstances and in the light of the judicial precedents on the issue, we are of the view that the deduction u/s.35(2AB) of the Act ought to have been allowed as weighted deduction at 200% of the expenditure as claimed by the Assessee and ought not to have been restricted to 100% of the expenditure incurred on scientific research. We hold and direct accordingly and allow the appeal of the Assessee. 11.6.10. Similar view has been taken by various other Tribunals in the following cases: i. Indfrag Ltd. v. Asstt. CIT [IT Appeal No. 98 (Bang.) of 2018, dated 30-7-2020] ii. Sun Pharmaceutical Industries Ltd. v. Pr. CIT [2017] 77 taxmann.com 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. 2012-13. In this regard, the Ld.AR drew our attention to the annual report (page 2 of paper book) and also submitted that DSIR in form 3CL has certified this amount as incurred towards clinical research (page 125 of paper book). The Ld.AR further drew our attention to the Explanation to section 35(2AB) which reads as under and prayed that since the amount incurred towards clinical research qualifies for weighted deduction under section 34(2AB), the same should be allowed:- Explanation. For the purposes of this clause, expenditure on scientific research , in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970). 15. The Ld.DR, on the other hand, vehemently argued that this additional ground has been claimed by the assessee is contended first time before the Tribunal and, therefore, should not be entertained. The Ld.DR further argued that the assessee while contending the ground with respect to deduction under section 35(2AB) had submitted that there is no sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be considered for set off should include surcharge and education cess which are part of the tax. The Assessing Officer while adjusting the credit, however, has considered only the gross tax and not surcharge and education cess. The Ld.AR relied on the decision of the Hon ble Calcutta High Court in the case of Srei Credit Infrastructure Finance Ltd vs DCIT (2016) 72 taxmann.com 239 (Cal) and also the decision of the coordinate bench in the case of Tata Motors Ltd vs DCIT (ITA 2397/Mum/2019 order dated 25/06/2021). 18. The Ld.DR, on the other hand, relied on the order of the lower authority. 19. We heard the parties and perused the materials on record. We notice that the co-ordinate bench in the case of Tata Motors Ltd vs DCIT (supra) has considered a similar issue and held that 3. We have heard rival submissions, perused the orders of the authorities below. The only issue to be decided is as to MAT credit granted u/s. 115JAA of the Act should be inclusive of surcharge and cess. This issue is decided in favour of the assessee in the following decisions: - (i). Srei infrastructure Finance Ltd., v. DCIT [395 ITR 291 (Calcutta)] (ii). M/s. Scope International P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AR (supra). We find that Hyderabad Tribunal after considering the decision of Delhi Tribunal (supra) and after considering the decision of the Apex Court in the case of CIT vs. K. Srinivasan reported in 83 ITR 346 (SC) had held that tax includes surcharge and cess and accordingly the entire component of taxes including surcharge and cess shall have to be reckoned for calculating the MAT credit u/s 115JAA of the Act. We also find that the Hon'ble Apex Court had in the case referred to supra, had held that meaning of word 'surcharge' is nothing but an 'additional tax'. In our considered opinion, this understanding of surcharge and cess being included as part of the tax gets further sanctified by the amendment which has been brought in Section 234B of the Act in Explanation 1 Clause 5 while defining the expression 'assessed tax'. 8. In the case of M/s. Savita Oil Technologies Ltd., v. ACIT (supra) the Bombay Bench of the Tribunal held as under: 4. We have gone through the facts of this case. We have been called upon to decide in this case the correct manner of computing tax liability and also amount of credit available u/s 115JA keeping in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b Tax at special raes - c Tax payable on total income Rs. 327,839,585 3 Surcharge on 2c Rs. 32,783,959 4 Education cess on (2c+3) Rs. 10,818,706 5 Credit under section HSJAA of tax paid in earlier years a Income-tax Rs. 29,976,115 b Surcharge Rs. 2,597,612 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surcharge and cess and on the net amount (i.e. after grant of MAT credit) surcharge and cess was levied. We noticed that the Format ITR-6 was amended from A.Y. 2012-13 wherein the tax liability in Part-B -TTI both under normal provisions and under MAT provisions computed including surcharge and cess. MAT credit is computed automatically using the prescribed algorithm which is nothing but the balancing figure i.e. different between tax liability and MAT liability including surcharge and cess. Therefore, post A.Y. 2012-13 as the format of ITR-6 is so designed to compute MAT credit automatically using the prescribed algorithm i.e. difference between tax liability and MAT liability including surcharge and cess is a balancing figure. In our view there cannot be any debate as to the exclusion of surcharge and cess. Therefore, the observation of the Ld.CIT(A) that the issue is debatable one is not sustainable. Further, we observe that majority of the decisions including the decisions of the Hon'ble Calcutta High Court and Hon'ble Madras High Court are in favour of the assessee and therefore it cannot be said that it is a debatable issue. In the circumstances, respectfully followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany. The assessee company had paid DDT of ₹ 2,20,98,056 on the dividend paid to these 6 companies. The appointed date of amalgamation as per the order of the High Court's 1st April 2014, which date is prior to the date of declaration of dividend. The assessee in the books of accounts has reversed to the entry of dividend cost amalgamation since there could not be any declaration/distribution of dividend to self. The assessee to this ground is praying for refund of DDT paid on dividend declared to the 6 companies which got amalgamated with the assessee company. 25. The Ld. AR also drew our attention to the annual report of the company for the year ended 31 March 2015 (page 129 of paper book) were it is stated that the Hon'ble High Court of Mumbai on February 27, 2015 sanctioned the scheme of amalgamation of 6 investment companies with the assessee company. The Ld. AR submitted that the dividend declared by the assessee to these companies have been reversed as a result of the amalgamation and therefore prayed that the DDT paid should be refunded to the assessee. The Ld. AR in this regard relied on the decision of the High Court of Gujarat in the case of torrent priv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is well settled that a merger or amalgamation scheme once sanctioned by the competent court would take effect from the date of the order envisaged in the scheme itself unless, of course, the court sanctioning such scheme otherwise provides. In the case of Marshall Sons and Co. (India) Ltd. (supra), the Apex Court observed as under : Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz. January 1, 1982. It is true that while sanctioning the scheme it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in this facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not prescribe any specific date but merely sanctions the scheme presented to it - as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as the transfer date . It cannot be otherwise. It must be remembered that before appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect from 1st April 1968. In this context, the High Court considered the question whether the Tribunal erred in holding that a sum of Rs. 2,14,000/- declared as dividend on 2nd September 1968 was liable to be taxed as income in the hands of the assessee company. In this context, the High Court observed that the assessee company ceased to be a shareholder of the jute company with effect from 1st April 1968. It is trite law that a company cannot hold shares of its own company. As a natural corollary, it cannot receive dividend out of its own profits. The High Court eventually held as under : Evidently, dividend is made taxable as the income of the previous year in which it is declared. The dividend income, thus accrues as income of the previous year in which it is declared as distinct from income of the day on which it is declared. If something happens during the previous year due to which the declaration of dividend is cancelled and the amount paid as dividend is directed to be treated as loans or payment of a part of capital, it is possible to conceive that, at the end of the year, there will not be accrual of income by way of dividend despite a factual declaration. Similarl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the matter, we have no hesitation in holding that by virtue of such subsequent developments, the payment of dividend could no longer retain the character of dividend paid by Torrent Power Ltd since there cannot be payment of dividend by one company to its own self. 16. Our attention was also drawn to a decision of Division Bench of this Court dated 13/16th July 2012 in Special Civil Application No.9980 of 2001 in case of Cadila Healthcare Ltd. In the said case, question of payment of sales tax on the sales made by the transferor company to the transferee company between effective date as envisaged in the amalgamation scheme till the date the High Court sanctioned such scheme. In that context, referring to the decision of the Apex Court in the case of Marshall Sons Co. (India) Ltd. (supra), Division Bench of this Court held that such transfers would cease to be sales between two independent entities but would be treated as branch transfers. It was observed as under : 20. As already noted, the term 'sale' has been defined under section 2(23) of the Act. Upon the High Court sanctioning the scheme for amalgamation, the effective date of amalgamation would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. It was because of the subsequent developments, which however, had the effect from the date anterior to the date of payment of dividend and by virtue of which such payment ceased to retain the character of dividend. Any other view would effectively nullify the effective date of amalgamation of companies. 18. Counsel for the Revenue, we may recall, placed reliance on the provisions of section 115-O of the Act. It is undoubtedly true that sub-section (1) of section 115-O starts with a non-obstante clause and provides that notwithstanding anything contained in any other provisions of the Act, in addition to the income chargeable to tax in case of a domestic company, there shall be tax on any amount declared, distributed or paid by such company by way of dividend or interim dividend. Sub-section (3) thereof further provides that the principal officer of the domestic company and the company shall be liable to pay tax on distributed profits to the credit of the Central Government within fourteen days from the date of declaration of any dividend or distribution or payment of any dividend whichever is earliest. Sub-section (1) of section 115-O of the Act thus is a charging section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee's case also. Accordingly we direct the assessing officer to examine the facts of assessee's case in the light of the above decision of the Hon'ble High Court and process the refund along with statutory interest in accordance with law. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly. Incorrect consideration of interest under section 234C 29. In this regard, it is submitted that the Assessing Officer has erroneously computed the interest under section 234C whereas there is no shortfall in payment of advance-tax based on the income returned by the assessee. The Ld.AR further submitted that the interest under section 234C is charged for the shortfall in the payments of advance-tax on the income returned and not income assessed. Therefore, the Ld.AR prayed for a direction to the Assessing Officer to verify and delete the interest under section 234C erroneously charged. We accordingly direct the Assessing Officer to verify and allow the claim of the assessee in accordance with law after giving reasonable opportunity of being heard to the assessee. 30. In result the appeals of the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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