1993 (10) TMI 79 - HC - Income Tax

High Court allows deduction for approach road to R&D labs under Income-tax Act

The High Court ruled in favor of the company, allowing the deduction under section 35(1)(iv) of the Income-tax Act for the expenditure on constructing an ... Expenditure On Scientific Research Issues involved: Interpretation of deduction under section 35(1)(iv) of the Income-tax Act, 1961 for expenditure on construction of approach road to research and development laboratories.Summary:The case involved a company engaged in manufacturing pharmaceutical dye-stuffs and pesticides, which claimed a deduction under section 35(1)(iv) of the Income-tax Act for the expenditure on constructing an approach road to its research and development laboratories. Initially disallowed by the Income-tax Officer and the Commissioner of Income-tax (Appeals), the claim was later accepted by the Income-tax Appellate Tribunal. The main issue was whether the expenditure on the road qualified as expenditure on scientific research related to the business under section 35(1)(iv).The High Court analyzed the provisions of section 35, emphasizing that the deduction is not limited to revenue expenditure but also includes capital expenditure on scientific research related to the business. The Revenue argued that the road was not exclusively used for research, but the Court disagreed, likening the road to a necessary adjunct to the research laboratories, thus eligible for deduction under section 35(1)(iv).Furthermore, the Court rejected the Revenue's contention that the road's potential use for other purposes would disqualify it from the deduction. Citing precedents, the Court held that as long as the primary purpose of the expenditure was for scientific research related to the business, incidental benefits to third parties did not negate the deduction eligibility. The Court concluded that the expenditure on the approach road was indeed of a capital nature on scientific research related to the business, entitling the assessee to the deduction under section 35(1)(iv).Additionally, the Court addressed the Revenue's reference to a proviso added to section 35 in 1984, clarifying that it did not impact the deduction eligibility for the expenditure in question. Ultimately, the Court ruled in favor of the assessee, affirming their entitlement to the deduction under section 35(1)(iv) for the expenditure on the approach road to the research and development laboratories.