2011 (2) TMI 66 - HC - Income Tax

DSIR certificate alone proves R&D and qualifying expenditure under s.35(2AB); certificate cut-off date irrelevant, appeal dismissed

HC dismissed the appeal, holding that once a DSIR certificate is issued, it suffices to establish that the assessee engaged in R&D and incurred qualifying ... Deduction under Section 35 (2AB) - Research and development expenditure - HELD THAT:- We have gone through the judgment of Gujarat High Court in Commissioner of Income Tax v. Claris Lifesciences Ltd.,[2008 (8) TMI 579 - GUJARAT HIGH COURT] and find that Gujarat High Court detailed in no-uncertain terms that the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was in indulging in R&D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that would be sufficient to hold that the assessee fulfills the conditions laid down in the aforesaid provisions. We are in full agreement with the aforesaid approach of the Gujarat High Court. The appeal is dismissed. Issues:Claim of deduction under Section 35(2AB) of the Income Tax Act for research and development activity.Analysis:In the assessment year 2005-2006, the assessee, engaged in manufacturing automotive air conditioning, claimed a deduction of Rs. 3,83,62,003 under Section 35(2AB) of the Income Tax Act to encourage research and development activities by business enterprises in India. The Department of Scientific & Industrial Research (DSIR) certified the assessee's in-house R&D facilities and approved the expenses incurred for R&D. However, the Assessing Officer denied the deduction, stating that the approval was granted in the next assessment year. The CIT(Appeal) upheld this decision, but the Income Tax Appellate Tribunal ruled in favor of the assessee, citing a judgment by the Gujarat High Court. The Gujarat High Court emphasized that once DSIR issues a certificate, the assessee fulfills the conditions for the weighted deduction, regardless of the cut-off date mentioned in the certificate. The Tribunal also highlighted the legislative intention behind the provision to boost R&D facilities in India.The Tribunal's interpretation of the law was clear - the assessee is entitled to the weighted deduction on all expenditure incurred for developing the R&D facility once it is approved by the prescribed authority, DSIR. The Tribunal's analysis of Rule 6(5A) and Form No. 3CM supported this conclusion, emphasizing that the entire expenditure on R&D facility development should be allowed for weighted deduction under Section 35(2AB). The Tribunal aligned with the legislative intent to promote R&D by providing deductions for the entire expenditure incurred on facility development once approved.The High Court fully agreed with the reasoning of the Tribunal and the Gujarat High Court, finding no scope for a different interpretation. It concluded that since the approval was granted during the relevant previous year, the assessee was entitled to claim the weighted deduction for the entire expenditure incurred under Section 35(2AB) of the Act. As no substantial question of law arose, the appeal was dismissed.