Tribunal denies deduction for capital expenditure, requires actual spending for tax deduction.

The Tribunal ruled in favor of the Revenue, disallowing the deduction claimed by the assessee for capital expenditure incurred in a previous year for a pilot plant. The Tribunal held that the entire capital expenditure from the previous year should be deducted for that year, emphasizing that actual spending is required for the deduction, not just becoming liable for payment. Judge R. K. Patra concurred with the decision, and no costs were awarded.

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Issues:
The judgment involves the interpretation of section 35(2) of the Income-tax Act, 1961 regarding the deduction of capital expenditure incurred in a previous year for a pilot plant for research and development laboratory.

Summary:

Background:
The assessee, a limited company, claimed a deduction of Rs. 44,74,837 under section 35(2)(ia) of the Act for a pilot plant for the assessment year 1980-81. The Income-tax Officer disallowed Rs. 4,59,691 as the opening balance carried forward from the earlier year, stating that capital expenditure incurred in a previous year should be allowed for that year. The Commissioner of Income-tax (Appeals) upheld this view, leading to an appeal before the Tribunal.

Contentions:
The assessee argued that the deduction should be on the whole capital expenditure on a capital asset, not just part of it. They maintained that carrying forward previous expenditure in previous years is permissible under the legislation to promote in-house research. The Revenue supported the lower authorities' conclusions.

Tribunal's Findings:
The Tribunal found that payments were made against actual work performed, and no part of the payments was for work not done. The bills of the contractors were not provided, only statements regarding the bills and amounts were furnished.

Legal Analysis:
The provision of section 35(2)(ia) states that the whole capital expenditure incurred in any previous year shall be deducted for that year. The term "incurred in any previous year" clearly indicates that all capital expenditure from a previous year can only be deducted for that year. The word "incur" implies actual spending, not just becoming liable for payment. The Tribunal also allowed depreciation on the amount in question.

Judgment:
The Tribunal was justified in disallowing the claim, ruling in favor of the Revenue. The answer to the question posed was affirmative against the assessee. No costs were awarded. Judge R. K. Patra concurred with the judgment.

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